31/03/14 Global and Regional Business Scenarios for E&P Prepared for LATINVE&P 2014 March 26, 2014 Jerry Kepes, Vice President, Upstream, IHS Energy Insight Key Concerns for the Upstream Sector • Returns have declined in a high oil price environment • Costs have risen on a per unit and per development basis • Exploration in conventional areas is a deepwater story • Non-OPEC supply growth has come mostly from unconventionals and deepwater • How do these trends impact investment in Latin America E&P? © 2014IHS 2 1 31/03/14 Total global energy demand will continue on a strong upward trend • Oil and coal lose market share to gas and renewables; China and India become dominant global consumers Source: IHS Energy © 2014 IHS 3 © 2014IHS Oil demand may plateau after 2025, but gas demand will keep rising in mature and emerging markets • Emerging markets retain their importance for oil and gas demand growth, but gain increasing scale as well over the next ten years Source: IHS Energy © 2014IHS © 2014 IHS 4 2 31/03/14 The US surge in production is impacting global and domestic markets • US production plus other Non-OPEC mb/d is growing faster than world annual demand US Crude Oil Production by Quality 9.000 8.000 • The “call” on OPEC crude is dropping 7.000 • Shale and tight oil are predominately 5.000 light crude 6.000 Light 4.000 • By mid 2015, the US refining system may no longer be able to accommodate the growing light crude supply without the relief valve of exports 3.000 2.000 Medium 1.000 Heavy 0 © 2014 IHS Source: IHS Energy 5 © 2014IHS 3 million b/d of oil offline is counter-balancing the surge in US supply into the global market mb/d 0 Oil Production Outages by Country -500 -1.000 -1.500 -2.000 -2.500 -3.000 -3.500 -4.000 Source: IHS Energy Iraq Nigeria Libya Iran Non-OPEC © 2014 IHS • A country-by-country analysis shows that it is unlikely that much, or any, net production will return in the next 12-18 months. © 2014IHS 6 3 31/03/14 Saudi Arabia & UAE can accommodate lower prices but why should they? OPEC Current Account Threshold Prices $140 2008 $120 2012E 2013F 2014F $/b Brent $100 $80 $60 $40 $20 $0 © 2014IHS 7 High crude prices, but low upstream returns Upstream ROCE 40% Average Upstream Return on Capital Employed Brent $/bbl $120 25%-30% Returns 35% $100 30% $80 10%-25% Returns 25% ~10-15% Returns $60 20% 5%-15% Returns 15% $40 10% $20 5% 0% $0 1990 1992 1994 1996 1998 2000 2002 Upstream Returns © 2014IHS 2004 2006 2008 2010 2012 Brent 8 4 31/03/14 Cost increases moderated, but still rising 9 © 2014IHS Conventional oil volumes discovered have been in decline for the last few years – will this trend sustain? Billion boe Conventional Oil and Gas Volumes Discovered 125 Oil & Condensate 105 Gas Iran Turkmenistan 85 Mozambique 65 Brazil 45 25 5 -15 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Source: IHS EDIN © 2014IHS Includes all discoveries regardless of commerciality Does not include Canada onshore or US lower 48 onshore or US shallow water © 2014 IHS 10 5 31/03/14 Deepwater accounts for an increasing amount of conventional oil and gas discovered % Gas Volumes Found by Play Type % Oil Volumes Found by Play Type 100% Ultra-deep Water (>5000 ft) 90% 80% 70% Deep Water (1000-5000 ft) 60% 50% Shallow Water (<1000 ft) 40% 30% 20% Onshore 10% 0% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1983 1987 1991 1995 1999 2003 2007 2011 Source: IHS Energy Ultra-deep Water (>5000 ft) Deep Water (1000-5000 ft) Shallow Water (<1000 ft) Onshore 1983 1987 1991 1995 1999 2003 2007 2011 © 2014 IHS © 2014 IHS Source: IHS Energy © 2014IHS 11 Top Countries by technically recoverable shale oil & gas resources bn bbls Top-10 Countries: Technically Recoverable Shale Oil Resources 80 70 tcf 1.200 Top-10 Countries: Technically Recoverable Shale Gas Resources 1.000 60 800 50 40 600 30 400 20 200 10 0 0 © 2014IHS 12 6 31/03/14 Unconventional and Deepwater growth engines have much higher decline rates than conventional crude % y-o-y decline Non-OPEC Annual Crude Production Decline Rates by Play Type 0% -5% -10% -15% -20% -25% -30% -35% Source: IHS Energy © 2014IHS © 2014 IHS 13 Tight Oil and Deepwater supply sources have a wide range of breakeven prices Source: IHS Energy © 2014IHS © 2014 IHS 14 7 31/03/14 What Can Latin America E&P Offer? • Region offers deepwater, onshore conventional and unconventional opportunities • Increasing number of regional Independents • Energy markets with the ability to pay • Is Latin American E&P more competitive in a 10% to 15% return E&P world? • Can regional upstream sectors offer lower cost opportunities? • Is Latin America E&P poised for change? © 2014IHS 15 8
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