Financial Review of the Global Oil and Natural Gas Industry: 2016

Markets and Financial Analysis Team

May 2017

U.S. Energy Information Administration Independent Statistics & Analysis www.eia.gov Key findings for 2016 • Brent crude oil daily average prices were $45.13 per barrel in 2016—16% below 2015 levels

• Global liquids and natural gas production declined by 1.5% and 1.1%, respectively, in 2016

• Companies reduced upstream investment to the lowest annual level during the 2007–16 period

• Continued reductions in exploration spending likely contributed to the lowest annual additions to liquids reserves during the 2007–16 period

• Production cost reductions lowered lifting costs per barrel to the lowest during the 2007–16 period

• European refiners had the highest earnings per barrel of oil processed

Markets and Financial Analysis Team | Financial Review 2016 2 May 2017 Upstream

Markets and Financial Analysis Team | Financial Review 2016 3 May 2017 Geographic distribution of global oil and natural gas companies, 2016 number of companies 70 63 60

50

40

30

20 9 10 10 7

0 United States Canada Europe Other

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 4 May 2017 Distribution of companies by volume of petroleum liquids produced, 2016 number of companies 40 38 35 30 25 23 20 14 15 10 10 4 5 0 less than 50 50-99 100-499 500-999 1,000 or greater 2016 liquids production, thousand barrels per day

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 5 May 2017 Production from oil and natural gas companies oil and natural gas production million barrels of oil equivalent per day

35 liquids 30

25

20

15 natural gas

10

5

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 6 May 2017 Liquids and natural gas production declined from 2015 to 2016, the first annual decline for both in the 2007–16 period oil and natural gas production year-over-year change

8%

6% liquids 4%

2%

0%

-2% natural gas -4%

-6% 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 7 May 2017 Expenditure reductions brought upstream spending to 10-year lows upstream costs incurred billion 2016$ 600 proved reserve acquisition unproved reserve acquisition 4% 500 exploration 4% 6% development 7% 5% 11% 6% 8% 15% 14% 400 9% 13% 16% 25% 4% 14% 4% 15% 5% 8% 300 15% 4% 12% 14% 8% 8% 8% 16% 18% 10% 200 72% 73% 76% 66% 62% 53% 77% 100 68% 73% 73%

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: U.S. Energy Information Administration, Evaluate Energy Note: Percentages represent shares of total upstream costs. Percentages do not sum to 100% because of rounding.

Markets and Financial Analysis Team | Financial Review 2016 8 May 2017 Capital expenditure and cash flow fell $121 billion and $75 billion, respectively, in 2016 cash flow items billion 2016$

600 cash from operations 500

capital expenditure 400

300

200

100

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 9 May 2017 The SEC requires companies to value proved reserves based on an average of the prices on the first day of each month Brent crude oil front-month futures price $/b 60

45.83 50.35 48.14 50 53.94 36.81 50.89 37.22 34.24 49.72 42.14 45.45 40 38.67 30 Brent 2016 average = $44.45/b, compared with $55.10/b in 2015 20

10

0 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Source: U.S. Energy Information Administration, Evaluate Energy, Bloomberg L.P. Note: SEC = Securities and Exchange Commission; b = barrel

Markets and Financial Analysis Team | Financial Review 2016 10 May 2017 Negative revisions to proved liquids reserves offset liquids discoveries but contributed to increases in natural gas proved reserves reserve additions billion barrels of oil equivalent 25 liquids extensions and discoveries natural gas extensions and discoveries improved recovery improved recovery 20 revisions revisions net proved liquids reserves change net proved natural gas reserves change 15

10

5

0

-5

-10 2007 2010 2013 2016 2007 2010 2013 2016

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 11 May 2017 Additions to liquids and natural gas reserves were lower than production reserve replacement ratio

180% 160% natural gas 140% 120% 100% 80% liquids 60% The reserve replacement ratio measures the amount of reserves a company added compared to 40% the amount it produced that year. A reserve replacement ratio above 100% means it discovered 20% more reserves that year than it produced, adding to its resource base and future potential production. 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: U.S. Energy Information Administration, Evaluate Energy Note: Excludes reserve revisions

Markets and Financial Analysis Team | Financial Review 2016 12 May 2017 Excluding downward revisions of past reserves, finding and lifting costs fell by almost $3 per barrel of oil equivalent

2016 $/barrel of oil equivalent (boe)

60

50

40 lifting costs 30

20 finding costs 10

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: U.S. Energy Information Administration, Evaluate Energy Note: Excludes reserve revisions

Markets and Financial Analysis Team | Financial Review 2016 13 May 2017 Companies raised $53 billion by selling assets and issuing equity shares cash flow items billion 2016$ 250 net proceeds from asset sales 200 net share issuance net change in debt

150

100

50

0

-50

-100 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 14 May 2017 The write-down in the value of proved reserves fell to $50 billion in 2016 asset write-downs (impairment charges) billion 2016$ 250

Asset impairments occur when a company lowers the estimated 200 value of a property to reflect current market value, which may result from loss of production potential or declining oil prices.

150

100

50

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 15 May 2017 Losses in 2016 were 1% of shareholders’ equity for the energy companies; returns for U.S. manufacturing increased to 14% return on equity 25%

20% U.S. manufacturing 15%

10% energy companies 5%

0%

-5%

-10% 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy, U.S. Census Bureau

Markets and Financial Analysis Team | Financial Review 2016 16 May 2017 The long-term debt-to-equity ratio increased for U.S. manufacturing companies but fell slightly for energy companies long-term debt-to-equity ratio 70%

60% U.S. manufacturing 50%

40%

30% energy companies 20%

10%

0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy, U.S. Census Bureau

Markets and Financial Analysis Team | Financial Review 2016 17 May 2017 Downstream

Markets and Financial Analysis Team | Financial Review 2016 18 May 2017 Refining distillation capacity increased slightly in 2016 million barrels per day capacity utilization

48.0 94%

46.0 92%

44.0 90% distillation capacity (left axis) 42.0 88%

40.0 86% capacity utilization (right axis) 38.0 84%

36.0 82% = = 34.0 80% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 19 May 2017 Several North American refiners added distillation capacity in 2016 distillation capacity by region million barrels per day

25

global refiners 20

emerging market refiners 15

10 North American refiners

5 European refiners 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: U.S. Energy Information Administration, Evaluate Energy Note: A global refiner is a company with refining assets in different regions.

Markets and Financial Analysis Team | Financial Review 2016 20 May 2017 North American refiners had the highest capacity utilization for the fourth consecutive year in 2016 capacity utilization

100%

North 95% American refiners 90% global refiners 85% European refiners

80% emerging market refiners 75% = 70% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: U.S. Energy Information Administration, Evaluate Energy Note: A global refiner is a company with refining assets in different regions.

Markets and Financial Analysis Team | Financial Review 2016 21 May 2017 Refining capital expenditure in 2016 fell to the lowest in 10 years refining capital expenditure billion 2016$ share of total capital expenditure

90 30% refining capital expenditure (left axis) 80 70 60 20% 50 share of total capital expenditure (right axis) 40 30 10% 20 10 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 22 May 2017 Earnings per barrel processed declined 83 cents per barrel in 2016 earnings per barrel processed 2016 $/b

8

7

6

5

4

3

2

1

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: U.S. Energy Information Administration, Evaluate Energy

Markets and Financial Analysis Team | Financial Review 2016 23 May 2017 European refiners had the largest earnings per barrel processed among the refinery group earnings per barrel processed 2016 $/b

14 emerging market refiners North American refiners 12 10 8 6 4 global refiners 2 European refiners 0 -2 -4 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: U.S. Energy Information Administration, Evaluate Energy Note: A global refiner is a company with refining assets in different regions.

Markets and Financial Analysis Team | Financial Review 2016 24 May 2017 Appendix: List of companies in the upstream analysis

Abraxas Petroleum Corporation ConocoPhillips Halcon Resources Corporation Noble Energy Rosetta Resources Inc. Whiting Petroleum Corporation Anadarko Petroleum Corp. Contango Oil and Gas Company Harvest Natural Resources Inc. Northern Oil & Gas, Inc Royal Dutch Shell WPX Energy Antero Resources Corporation Continental Resources Hess Corp Novatek Sabine Oil & Gas Corporation XTO Apache Corporation Denbury Resources Inc. Houston American Energy Corp Oasis Petroleum Inc. Sanchez Energy Corp YPF Sociedad Anonima Apco Oil and Gas International Inc Aker BP ASA Husky Energy Inc. Occidental Petroleum Corporation SandRidge Energy Yuma Energy, Inc. Approach Resources Inc Devon Energy Corporation Imperial Oil Limited OMV Sasol Limited Athlon Energy Inc. Earthstone Energy Inc. Isramco, Inc Pacific Exploration and Production Cor Sinopec ATP Oil & Gas Corp. Encana Corporation Kodiak Oil & Gas Corp. Parsley Energy Inc. SM Energy Company Berry Petroleum Co. Energen Corp Kosmos Energy PDC Energy, Inc. Sonde Resources Corp. BG Group Energy XXI Laredo Petroleum PEDEVCO Corp. Statoil ASA Bill Barrett Corporation Enerplus Corporation Lilis Energy Inc. Penn Virginia Corporation Stone Energy Corporation BP Plc. ENI Linn Energy Petro-Canada Suncor Energy Inc. Carrizo Oil & Gas, Inc EOG Resources Lukoil (IFRS) Petrobras (IFRS US$ Current) Swift Energy Co Cenovus Energy Inc. EPL Oil & Gas Inc Blue Ridge Mountain Resources, Inc. PetroChina Synergy Resources Corporation Chesapeake Energy Corp. ExxonMobil Marathon Oil Corp. Pioneer Natural Resources Company T-Rex Oil, Inc. Chevron Corporation Forest Oil Corporation Mariner Energy PTT Total Cimarex Energy Co. Galp Energia Mid-Con Energy Partners, LP QEP Resources Inc Triangle Petroleum Corporation Clayton Williams Energy Gazprom Neft Mitsui & Co Range Resources Corp Unit Corp Comstock Resources Goodrich Petroleum Corp Murphy Oil Corporation Repsol Vanguard Natural Resources LLC Concho Resources Inc Gulfport Energy Corporation Newfield Exploration Company Ring Energy Inc W & T Offshore Source: U.S. Energy Information Administration, Evaluate Energy Note: Some companies merged or split before 2016. A total of 89 companies existed in 2016.

Markets and Financial Analysis Team | Financial Review 2016 25 May 2017 Appendix: List of companies in the downstream analysis

Alon USA Energy Grupa Lotos OMV Sinopec Blue Dolphin Energy Co HollyFrontier Corp Par Pacific Holdings, Inc. Suncor Energy Inc. BP Plc. Husky Energy Inc. PBF Energy Inc Tesoro Corporation Chevron Corporation Imperial Oil Limited Petrobras (IFRS US$ Current) TNK-BP International Ltd ConocoPhillips Indian Oil Corporation Limited PetroChina Total CVR Energy Lukoil (IFRS) Phillips 66 TUPRAS Delek US Holdings Marathon Oil Corp. PKN Orlen Unipetrol ENI Marathon Petroleum Corporation Repsol Valero Energy Corporation ExxonMobil MOL Rosneft Western Refining Inc. Galp Energia Neste Corporation Royal Dutch Shell

Source: U.S. Energy Information Administration, Evaluate Energy Note: Some companies merged or split before 2016. A total of 36 companies existed in 2016.

Markets and Financial Analysis Team | Financial Review 2016 26 May 2017 Background • The upstream analysis focuses on the financial and operating trends of 89 global oil and natural gas companies (called energy companies), and the downstream analysis focuses on 36 companies

• The data come from the public financial statements each company submits to the U.S. Securities and Exchange Commission, which a data service (Evaluate Energy) aggregates for ease of data analysis

• For consistency, an energy company’s assets that were acquired by another company in the group after 2007 were kept in the prior-year data

• Several charts show comparisons between energy companies and the U.S. manufacturing industry, collected from U.S. Census Bureau’s Quarterly Financial Report

Markets and Financial Analysis Team | Financial Review 2016 27 May 2017 Brief description of terms • Cash from operations is a measure of income

• Capital expenditure represents cash used for property, plant, and equipment

• Financing activities measure inflows/outflows in debt or equity markets including dividends, share issuance or repurchases, and debt issuance or repayments

• Return on equity is a measure of the profit a company earns on money shareholders have invested

• Market capitalization is the total value of all of a company’s publicly traded shares outstanding

Markets and Financial Analysis Team | Financial Review 2016 28 May 2017 Brief description of terms • Net income represents profit after taxes and depreciation

• Asset impairments occur when a company lowers the estimated value of a property to reflect current market value, which may result from loss of production potential or declining oil prices

• Upstream refers to crude oil exploration, production, and other operations prior to refining

• Downstream refers to refinery operations, product sales, and marketing at the wholesale and retail levels

Markets and Financial Analysis Team | Financial Review 2016 29 May 2017