Exploration Trends - Conventional and Unconventional
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Delivering commercial insight
Exploration trends conventional and unconventionalAre we entering a new era of high impact exploration?
Dr Andrew LathamDeutsche Bank Global Oil & Gas ConferenceSeptember 19th 2013
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Delivering commercial insight Wood Mackenzie 2
Agenda
1 Deepwater and unconventionals a polarising industry
2 Company exploration performance
3 Five pillars of exploration success
4 Hot new frontiers
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Delivering commercial insight
The exploration industry is becoming increasingly bipolar
Wood Mackenzie 3
UNCONVENTIONALS
DEEPWATER
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Delivering commercial insight
This polarisation is already conspicuous in terms of company reserves -conventional Majors, unconventional Independents
Wood Mackenzie 4
Source: Wood Mackenzie Corporate Benchmarking Tool. Unconventional oil includes tight oil and oil sands. Unconventional gas includes shale gas, tight gas and CBM.
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Unconventional oil
Conventional oil & gas
Production growth 2012-2020
Conventional and unconventional reserves
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Delivering commercial insight
Exploration investment continues to riseModest spend of some large companies leaves plenty of headroom
Wood Mackenzie 5
Conventional spend exploration Exploration spend intensity (re-investment rate)
Source: Wood Mackenzie Exploration Service and Corporate Benchmarking Tool. Bubble size represents reported exploration spend.
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125.00
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2012 production (mmboe)
Independent
Major
NOC
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Delivering commercial insight
Investment growth is strong in both deepwater and unconventionals
Source: Wood Mackenzie Exploration Service, Future of Global Deepwater Markets, and M&A Service
Wood Mackenzie 6
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Oil Sands Tight Oil Shale GasTight Gas NA CBM Aus CBM
Deepwater spend growth enabled by new rig supply Unconventionals spend M&A
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2008 2010 2012 2014 2016
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Drillships Semi-subs
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Delivering commercial insight
No sign of a conventional exploration slow downWildcat drilling continues to find big volumes in many different places
Source: Wood Mackenzie Exploration Service
Wood Mackenzie 7
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Discovery year
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Delivering commercial insight
Outer Bengal Fan (ONGC)
El Kuran-2 (NewAge)
DW (Reliance)
KG-DWN-98/2 (ONGC)
Bahrain Deep gas (Oxy)
Hides app (XoM, Oil Search)
Chukchi (Shell)
Red Sea (S.Aramco)
Deepwater (Total, Petronas, BSP)
Angola Pre-Salt (Cobalt, Maersk, Total, Statoil, ConocoPhillips)Lontra (Cobalt)
Beaufort (Shell)
Deepwater (XoM, Gazprom, Talisman)
Proteus-1, Grace-1(COP, Karoon)
Wisting (OMV)Ardennes (Cobalt) Buckskin, Moccasin (Chevron) (Appraisal)Deep Nansen (Anadarko)Gila (BP)Logan (Statoil) (Appraisal)Oceanographer (Chevron)Opal (Murphy)Sake (BHP)Tiber (BP) (Appraisal)Vito (Shell) (Appraisal)
Gabon d/w (Shell, Total, Ophir, Perenco)
Moosehead (HRT),Welwitschia-1 (Repsol)2312A&2412A (Chariot)
Tanzania (Statoil, Ophir, Petrobras)
Mozambique(Statoil, ENI)
Rift Valley (Tullow, Marathon)
Deepwater (Anadarko,Tullow, BG)
Company MakerLarge/GiantPlay OpenerKey Appraisal
Deepwater (Anadarko, Chevron)
Kofiau (Niko)
Sakhrinav (Gazprom)
Shah Deniz (BP)
Equatorial Margin(Shell, Chevron, Petrobras, Kosmos, Tullow, Statoil)
Mapale-2 (Ecopetrol, Talisman)Araza-2 (Petrobras)
Perdido DW(PEMEX)
Deepwater (BP)
Cyrenaica (RWE Dea)
W of Shetland (Total, BP)
Deepwater (Pelagic/AGR)Shelf (Adira Energy, SOCAR)
Deepwater (Murphy,Petronas)
Deepwater (PTTEP,Total, Nippon, PetroVietnam)
Mauritania (Tullow, Dana, Repsol, Total)
Deepwater (Cairn Energy, Kosmos)
HP/HT (GdF)
Flemish Pass (Statoil)Davy Jones-1
(McMoran)
Gambia (African Petroleum)
SABV (Tullow, HYDMIC)
Madagascar (XoM) Browse
(Total)Rowley Sub-basin (Woodside)
Zhambyl (Zhambyl Petroleum)
Block 21 (Zarubezhneft)Block 23 (RWE Dea)
Faroes (Statoil)
Barents Sea (Statoil, Lundin, Suncor, Det Norske, Eni)
Hercules (Det Norske)
Paraiso Sur-1 (Noble Energy)
Al Qush-1 (EoM)Notus-1 (BG)Salamat-1 (BP)
Aphrodite-2, NobleLeviathan-5, ,(Noble)
Qatar (GDF)
Margaree (Chevron)
Philippines (BHP, Total)
PY 25-2-1 (Eni)
Block 4 (Shell)
Block 20 (Sonatrach)
Carrack-Caravel (Anadarko)
Tingu-1 (Horizon)
Drote-1 (President Energy)
Block Z-38 (Karoon Gas)
El Dorado (Trinity)Primrose (Niko)
BPC-X1 (BPC, Statoil)
Severo-Dolginskoye-3 (Gazpromneft)
Black Sea (Exxon-Rosneft)
Shelf (Shell, Newfield, Petronas)
Mantra/Kuro (Tullow)
W.Papua (Total)
Lebah-2 (Eni)
Gulf of Tonkin (Eni)
Malay (Mitra)NCS (Mitra, Santos)
Evans Shoal North-1 (Shell)
Matuku-1 (OMV)
ES-M-472 (Perenco)
BM-S-24 (Petrobras)
Falklands (Borders and Southern, Noble Energy)
Balam-1X (Pacific Rubiales)
114, 131 (Cepsa)
South Omo (Tullow)
Chad (Caracal)
Elephant (CNOOC Ltd)
Paon-2A (Tullow)
OryxTogo (Eni)
Neptun Deep (XoM)
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Large discovery (100-500 mmboe)Giant discovery (500+ mmboe)
Hundreds of high-impact wells to watch every yearConventional new field discoveries not trending smaller
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Delivering commercial insight
Source: Wood Mackenzie Exploration Service. Discovery costs exclude appraisal.
These big volumes help resource discovery costs and support good returns but are recent moves to frontiers causing a decline?
Wood Mackenzie 9
Resource/reserve discovery costs Full-cycle exploration returns
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Delivering commercial insight
Recent declines may not be real - success can take years to reveal itselfExploration management and investors need patience
Volumes get bigger. and more commercial vastly improving economics
Wood Mackenzie 10
Source: Wood Mackenzie Exploration Service. Value creation reflects Base price scenario at time of analysis, rising from US$55/bbl in 2007 to US$85/bbl in 2012
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Initial view Current view
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Delivering commercial insight
A decade into unconventionals, North American plays are still dominant
Most popular responses are in dark blue
Wood Mackenzie 11
Source: Wood Mackenzie Unconventional Play Service
Global unconventional assets - Resource Potential*
*Resource potential is a measure of the potential of a play if all the accessible and prospective land is drilled and produced based on a reasonable assumption of well spacing. There are no economic or time constraints in this scenario. The resource potential does not include oil or gas already produced or classified as commercial.
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Delivering commercial insight
Sweet spots in established top tight oil plays are extremely importantBakken and Eagle Ford plays dominate US tight oil - 80% from just 8 core counties
Wood Mackenzie 12
US tight oil base case by play
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Other Establishedtight oil
BoneSpring/Wolfcamp
Niobrara
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Bakken
Source: Wood Mackenzie Global Oil Supply Tool
Two discrete plays
Play groupings
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8 core counties
24 non-core producing counties
Eagle Ford & Bakken sweet spots
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Delivering commercial insight
North American success spurs widespread international tight oil activity
Wood Mackenzie 13
Australia: Jun 2012 Statoil farm into Georgina
with PetroFrontierAustralia: Jul 2012
PetroFrontier financing pulled after three wells
drilled
Australia: Jun 2013 Statoil agree to fully fund seismic and 4-6 well
test in GeorginaArgentina: Jan 2013 Govt. increase export price from US$42/bbl to US$70/bbl
Argentina: Aug 2012 YPF 2013-2017 business plan very aggressive targets
Argentina: Feb 2013 Americas Petrogas establish oil production potential from Vaca
Muerta in Picun Leufu Sub-BasinArgentina: Mar 2013 YPF announce that cost of equipment could force it to scale back drilling
Argentina: Dec 2012 YPF signs MOU with Bridas for US$1.5 billion investment
Brazil: May 2013 Gran Tierra acquire three further blocks in Reconcavo Basin
Argentina: 2013 Repsol take legal action against oil companies dealing with YPF
Brazil: May 2013 Petrominerales awarded three blocks in Round 11, increasing exposure to Gomo tight
oil horizon; at least two wells planned in 2013
Colombia: Oct 2012 2012 Licensing Round only 5 of 31
uncon blocks on offer receive bids
Colombia: Nov 2012 ExxonMobil enter Middle Magdalena via farmout
Patriot Energy
Colombia: Jan 2013 ExxonMobil/Canacol encounter oil in Middle Magdalena, La Luna
Colombia: Feb 2013 ConocoPhillips enter Middle Magdalena via farmout from subsidiary of Canacol
Colombia: Jun 2013 Canacol & ConocoPhillips spud first exploration well to test La
Luna/Simiti oil shales
China: Jul 2013 Schlumberger announce formal opening of new reservoir lab in Chengdu,
geared towards supporting shale explorationEgypt: 2012 Apache do not drill tight oil wells as planned; focus on
near field exploration
France: Jul 2013 President rules out exploration for shale
during his presidency
Oman: 2013 Tight oil part of PDO long term strategy. Two wells drilled in south of Block
6, one in North
Russia: May 2012 Government announce MET break for produced oil from Bazhenov for 15 years
Russia: Jun 2012 ExxonMobil and Rosneft sign agreement to focus on Bazhenov and Achimov
Russia: Jun 2013 Statoil and Rosneftcomplete contractual framework of JV,
including shale oil opportunities
Russia: Jan 2013 Gazpromneftdrilling Bazhenov at Palyanovskayazone at the Krasndeninskoye field
Russia: Mar 2013 ExxonMobil and Rosneft start US$300 million, 30 well drilling campaign in Bazhenov
Russia: Apr 2013 Shell and Gazprom Neft sign MOU for liquids rich shales in West Siberia
New Zealand: Apr 2013 Tag Oil spud well targeting Waipawa black shale and Whangai source rock in
East Coast BasinArgentina: Jul 2013 YPF and Chevron finalise deal
for $US1.5 billion investment, 100 well pilotArgentina: Jul 2013 Government announce new incentives for investments >$US1 billion able to sell 20% of production abroad without paying export taxes
China: Jul 2013 Hess and PetroChina sign PSC to develop shale oil in Malang
Block, Santanghu Basin, in Xinjiang region
Russia: Aug 2013 Gazprom Neft to carry out 4 well appraisal at Bazheno-
Abalaksky shale oil play in West Siberia
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Delivering commercial insight
International tight oil is still in its infancyThe outlook is evolving rapidly
Wood Mackenzie 14
International tight oil supply base case Change in tight oil forecast 2013 vs 2012
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Liquids from shale gas plays
NGLs from associated gas
Other
Australia
Colombia
Argentina
China
Russia
41%
18%
10%
7%
24% 32%
25%
14%
9%
5%
15%
Russia China Argentina Colombia Australia Other
2012 forecast
2013 forecast
Source: Wood Mackenzie Global Oil Supply Tool
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Delivering commercial insight
Our client survey reveals guarded expectations for new unconventional play growth
Most popular responses are in dark blue
Wood Mackenzie 15
Source: Wood Mackenzie Unconventional Play Service 2013 Client Survey
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Delivering commercial insight
5-year company exploration performanceMany of the leading explorers use unconventionals to drive growth
Wood Mackenzie 16
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New field discoveries Organic unconventionalsSource : Wood Mackenzie Exploration Service
Organic volume additions of leading explorers (2008-2012)
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Delivering commercial insight
5-year company exploration performance The majority have achieved full organic reserve replacement
Wood Mackenzie 17
Reserve replacement ratio from new fields and organic unconventionals (2008-2012)
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New field discoveries Organic unconventionalsSource : Wood Mackenzie Exploration Service
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Delivering commercial insight
10-year company exploration performance Returns from conventional exploration are robust for most
Source: Wood Mackenzie Exploration Service Corporate Benchmarking Report, August 2013.
Wood Mackenzie 18
MajorsLeading
Independents
APCBG
BHP
BP
CVX
COP
ENIXOM
HES
INP
LUP
MAE
MRO MUR
NBL
OXY
OMV
PBR
PNS
PMOREP
RWE
STORDS STL
TLM
TOTTLWWIN
WPL
0%
5%
10%
15%
20%
25%
10% 100% 1000%
I
R
R
New volumes/production
Low volume, high value
Low volume, low value
High volume, high value
High volume, low value
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10-year company exploration performance Organic unconventionals add volumes for many, value for some
Source: Wood Mackenzie Exploration Service Corporate Benchmarking Report, August 2013.
Wood Mackenzie 19
APCBG
BHP
BP
CVX
COP
ENIXOM
HES
INP
LUP
MAE
MRO MUR
NBL
OXY
OMV
PBR
PNS
PMOREP
RWE
STORDS STL
TLM
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WPL
0%
5%
10%
15%
20%
25%
10% 100% 1000%
I
R
R
New volumes/production
Low volume, high value
Low volume, low value
High volume, high value
High volume, low value
Organic unconventionals
Organic unconventionals
supported by early disposals
Discovered resource
opportunities (DROs)
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Only the top performers are creating value in unconventionals
Wood Mackenzie 20
Value creation from new fields and organic unconventionals (2008-2012)
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New field discoveries Organic unconventionalsSource : Wood Mackenzie
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Conventional and unconventional exploration case study: Anadarko
Commercial unconventional assets only Excludes unconventional plays acquired post-
commercialisation Value creation and IRR includes lease costs and
associated unproven acquisition costs
Wood Mackenzie 21
New conventional discoveries Organic unconventionals
Reserves added (bnboe) 5.4 5.0Discovery cost (US$/boe) 0.70 0.41Reserves replacement 252% 233%Value Creation (US$ bn) 13.5 10.1IRR 19% 18%
Exploration costs incurred Production outcome
0.0
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Conventional UnconventionalSource: Wood Mackenzie
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2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029
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Source: Wood Mackenzie
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How do top explorers consistently outperform?
Basin choice is one of the primary determinants of exploration successOptimal timing of basin entry is anotherBut how do the best explorers manage to consistently make better choices than their competitors?In our dialogue with the industry on the fundamental drivers of exploration outperformance, five broad themes arise that are seen as the pillars of consistent strong results
Wood Mackenzie 22
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Five pillars of exploration success oil is found in the minds of man
Wood Mackenzie 23
We conclude that the key to exploration excellence is people
The best explorers have a core of energised oil and gas finders with an empowered attitude.
Integrated multi-disciplinary subsurface team that emphasises strong regional geoscience and creativity
Exploration culture is paramount It is ultimately the ability to
encourage and harness the creativity of the most innovative explorers that is the key differentiator.
Exploration Strategy
TechnicalExcellence
Process & CapitalAllocation
Data & Information
Exploration CultureInnovation & risk tolerance are the foundations of exploration success
Five pillars of exploration success
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Where are top explorers capturing new high-impact exploration acreage?
Wood Mackenzie 24
Source : Wood Mackenzie Exploration Service. Top explorers based on companies that rank top ten in at least two out of value creation and IRR in Wood Mackenzie performance benchmarking report and most admired in Wood Mackenzie exploration survey. Top explorers are Anadarko, Apache, BG, Eni, Kosmos, Lundin, Noble Energy, Petrobras, Repsol, Shell, Statoil, Tullow
Key frontier acreage moves of top explorers since 2012
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Who else is exploring these hot new frontiers?
Wood Mackenzie 25
Leading acreage holders in the new frontiers of the top explorers
0
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100
150
200
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Atlantic Transform Margin
Caribbean offshore
East Africa
Other non-Atlantic
Other Atlantic Margin
Source: Wood Mackenzie Exploration Service. Atlantic Transform Margin includes Brazil, Cote dIvoire, Guinea, Liberia, Sierra Leone, Suriname. Other Atlantic Margin includes Falklands, Ireland Mauritania, Uruguay. Other non-Atlantic includes Australian Bight, Bulgaria, Cyprus, Greenland, Russia Barents, South Africa, West Papua. Caribbean offshore includes Aruba and Colombia. East Africa includes Kenya and Tanzania.
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SummaryAre we entering a new era of high impact exploration?
Exploration industry performance is under pressure Costs are the issue, not volumes Will greater emphasis on frontier exploration and unconventional plays erode returns?
The leading independents are mixing frontier success and unconventional plays Have many captured more acreage than they can afford to drill? Are disposals of new discoveries necessary for strong returns?
High-impact drilling from the Majors Is there more acreage re-loading to come, or a period of portfolio high-grading? Will they all ramp-up their spend to match the early leaders?
Five pillars of exploration success How sustainable is outperformance?
Wood Mackenzie 26
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Wood Mackenzie Disclaimer
Strictly Private & Confidential
This report has been prepared by Wood Mackenzie Limited. The report contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzies prior written permission.
The information upon which this report is based comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.
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Wood Mackenzie 28
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