The World Beyond - IPAA

Strategic Advisors in Global EnergyStrategic Advisors in Global EnergyStrategic Advisors in Global Energy

The World Beyond:Opportunities and Challenges in Global Energy Investing

IPAA Private Capital Conference

By Robin West

25 February 2010

IPAA Lunch | Page 2

A Little Perspective

IPAA Lunch | Page 3

0

20

40

60

80

100

120

1995 2000 2005 2010 2015 2020 2025 2030

(mmb/d)

Non-OPEC Crude, NGL, & Condensate * Non-OPEC Oil Sands

Biofuels & Other Liquids OPEC Crude, NGL, & Condensate

0.5% Demand Growth 1.5% Demand Growth

1.0% Demand Growth

Danger of Future Supply Crunch Remains

* Includes Refinery Gain

2020 call on OPEC

~25–37 mmb/d

given 0.5% - 1.5% growth

Source: PFC Energy Global Liquids Supply Forecast

OPEC Crude NGL & Condensate

Non-OPEC Crude, NGL, & Condensate

IPAA Lunch | Page 4

Its Their Oil: Increasingly Limited Access—Particularly to the Easiest Reserves

Source: PFC Energy, Oil & Gas Journal, BP Statistical Review

1%

14%85%

Full IOC

Access

1970

Soviet

Reserves

NOC Reserves

(Limited Equity Access)

NOC Reserves

(Equity Access)

Full IOC

Access

Reserves Held

by Russian

Companies

NOC Reserves

(Limited Equity Access)

2009

IPAA Lunch | Page 5

0

1

2

3

4

5

mb

oe/d

CVX XOM BP RDS

SuperMajors Seem Unable to Grow

Chevron –

Texaco 2001

Exxon –

Mobil 1999

BP – Amoco

1998

BP/Amoco –

Arco 2000

TNK-BP

2003

Chevron –

Unocal 2006

Source: PFC Energy

IPAA Lunch | Page 6

Value is Migrating to the Traded NOCs

▪ In 1999, traded NOCS made

up 1% of the combined value

of the PFC Energy 50

companies; this share was

32% in 2009

▪ In a decade, this set

expanded from two

companies (Petrobras,

Gazprom) with a combined

value of worth $22 bn to

eleven companies worth $1.2

trillion

▪ Unlike the SuperMajors,

these companies promise

– Growing demand

– Access to resources

Value of PFC Energy 50 by segment (%)

Source: PFC Energy PFC Energy 50

IPAA Lunch | Page 7

There Are Exceptions, But NOC Control Means Less Investment

▪ NOCs tend to

invest less than

IOCs in the

upstream sector

▪ NOCs with

declining sectors

need major

investments

▪ NOCs with

growing

production (e.g.

Petrobras) need

access to capital

ExxonMobil

BP

Shell

Chevron

COP

TOTAL

LUKoil

Eni

EnCana

PetroChina

Petrobras

Saudi Aramco

Gazprom

PEMEX

PETRONAS

PDVSA

Sinopec

Statoil

Rosneft

Sonatrach

NIOC

$-

$5

$10

$15

$20

$25

$30

$35

0 2,000 4,000 6,000 8,000 10,000

20

08

E&

P S

pe

nd

pe

r B

oe

Pro

du

ce

d (

$/b

oe

)

2008 Production (mboe/d)

2008 Production & Upstream Spend per Boe Produced:Largest IOCs vs. Largest NOCs

IOCs

NOCs

Largest NOCs Spend Substantially Less than the Largest IOCs

IPAA Lunch | Page 8

Expect Dramatic Shifts in the Global Competitive Landscape 2010-2020

▪ Independents focused on the

“incremental” gas shale play (tight

gas) with enormous impacts on

aggregate North American supply

▪ The number of NOCs overseas

accelerated

▪ Large mergers reached a stopping

point with ChevronTexaco

▪ Oil sands investment in Canada

took off

▪ The world’s largest deepwater play

was led by a NOC

▪ Independents made substantial

impacts in new conventional plays

overseas

2000-2010

▪ Tight gas technology will spread

overseas, with success & failure

▪ Global Players move further into

the North American tight gas

play, reversing a 20 year pattern

▪ Deteriorating downstream value

makes global players

disaggregate – opening way for

large mergers

▪ Independents continue

substantial impacts in new

conventional plays overseas

▪ Tight oil play takes off in the US

▪ Tight oil play spreads faster with

greater impact overseas than

tight gas

2010-2020

IPAA Lunch | Page 9

The New Hot International Destination: US!

▪ Gazprom Marketing & Trading USA Inc. begins buying and selling

wholesale gas in the US

▪ Petrobras exercises its preference right to acquire 50% of Devon’s

participation interest in the Cascade field in the GOM

▪ Maersk Oil pays $1.4 billion for Devon’s 25% working interest in

the Jack Lower Tertiary development in the GOM

▪ BP, Statoil and TOTAL invest nearly $5 billion, plus similar amount

in carried costs, in Chesapeake’s unconventional gas plays

▪ ExxonMobil makes $41 billion purchase of XTO

▪ Mitsui invests $1.4 billion to participate in Anadarko’s Marcellus

Shale development

IPAA Lunch | Page 10

Going International


Cairn in India Led to Discovery of ~1 bnbbls of Recoverable Reserves – Extends Indian Plateau

0

100

200

300

400

500

600

700

800

900

1,000

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

20

15

20

20

Da

ily

Pro

du

cti

on

(m

bo

pd

)

Exploration

PUDsNew Source

Base ProductionActual Production

▪ Cairn’s Mangala, Bhagyam,

Aishwarya complex of oil fields

onshore Rajasthan will add

enough incremental oil

production in 2009/10 to extend

the production plateau of the last

20 years into the early part of the

next decade

1996

Cairn Acquires

Command Petroleum

(interest in Ravva)Corporate

Acquisition

1997

Bought 10% interest from

Shell in Rajasthan

onshore block (RJ-ON-

90/1)

1998

Bought 40% interest

from Shell in

Rajasthan onshore

block (RJ-ON-90/1)

2002

Bought 50% interest from

Shell in Rajasthan

onshore block (RJ-ON-

90/1) for $7.25 mmAsset

Acquisition



0

50

100

150

200

250

300

350

400

450

500

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

20

15

20

20

Da

ily

Pro

du

cti

on

(m

bo

pd

)

Exploration

PUDs

New Source

Base Production

Actual Production

What Triton (Hess) did for Equatorial Guinea

Ceiba

Volumes

North Block G

Volumes

Provided new oil volumes as Zafiro was peaking



Kosmos, Tullow and Anadarko Changed the West African Margin Play

Ghana: Oil Production Forecast by Reserve Category

0

100

200

300

400

500

600

19

85

19

90

19

95

20

00

20

05

20

10

20

15

20

20

20

25

20

30

Da

ily

Pro

du

cti

on

(m

b/d

)

Base Production New SourcePUDs ExplorationActual Production

Additional Success Outside Ghana



Tullow Continued the East Africa Play

East Africa rift play was hot in the 1980s, but failed

outside Sudan; Tullow came back to it

Uganda: Oil Production Forecast by Reserve Category

0

50

100

150

200

2501

98

5

19

90

19

95

20

00

20

05

20

10

20

15

20

20

20

25

20

30

Da

ily

Pro

du

cti

on

(m

b/d

)

Base Production New SourcePUDs ExplorationActual Production



Excellent Opportunities Exist for Companies That Bring Real Expertise—e.g. Drilling Efficiencies

▪ North America is far and away

the world’s expert on land

drilling. Of the 1.7 million wells

that were drilled between 1980

and 2008, 90% were drilled in

North America

▪ US technology, expertise and

competition have delivered

extraordinary productivity

improvements—resulting in

step-function cost reductions—

for unconventional gas

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1980 1985 1990 1995 2000 2005

Cumulative Number of Wells

Drilled Since 1980 (Land)

North America ROW

Gas Rig Count and Production

500

700

900

1,100

1,300

1,500

1,700

(2,000) (1,000) - 1,000 2,000 3,000 4,000 5,000

Yr-on-Yr Change in Gross Onshore Prod in mmcf/d

Gas R

ig C

ou

nt

2000

2001

2002

2003

2004

2005

2006

2007

Source: EIA, Baker Hughes, PRC

Learning/Efficiency

Source: PFC Energy Global LNG Service


International Interest in Unconventional Gas, but Potential Looks Smaller…

Sources: PFC Energy Global LNG Service; NPC 2007; Rogner 1997

Coal Bed Methane

Tight Gas

Shale Gas

Estimated Resources

8.2

9.7

5.5

3.4

3.4

1.1

1.0

Continent total shown in

quadrillion cubic feet


…and Few of the Prerequisites for Unconventional Gas Plays are in Place Elsewhere Today

▪ Large and capable service sector with pre-positioned equipment

▪ Experienced field and drilling personnel

▪ Multitude of small players drilling aggressively and learning fast

▪ Sophisticated land title system

▪ Gas gathering infrastructure

▪ Good roads, bridges and other physical access

▪ Appropriate legislation/regulation


As More Countries’ Fields Mature, US EOR Expertise Will be in Demand Internationally

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

USA Romania

IndonesiaTunisia

PeruDem Rep Congo

CameroonOther Europe

EgyptPakistan

Papua New GuineaSyria

UKGabon

UzbekistanNorway

OmanNew Zealand

ArgentinaCongo

ColombiaAustralia

YemenDenmark

MexicoChad

Equatorial GuineaBrunei

MalaysiaIndia

ChinaTurkmenistan

SudanRussia

Countries in Plateau

Countries in Decline

Duration of Plateau

Onset of DeclineOnset of Plateau



A Huge New Play

▪ Areally extensive shale resource

– USGS estimated OOIP of 414 bbo

– Very low permeability (<5% recovery)

▪ Accelerating development

– Started in 2000 with Elm Coulee field in Montana, but shifted to N. Dakota

– Intensive development from 2005- 1H 2008

– Squeezed into unprofitability by collapse of oil prices

– Window of profitability has re-opened as costs have plummeted


In the Bakken, Initial Month Production Per Well Has Doubled Since 2000

▪ Well productivity has grown materially

▪ Driver of real growth is ability raise both activity and the portion of

wells in top productivity categories

– Learning spreads

– Experience grows, meaning fewer mistakes


Bakken Shale Production Forecast: 1200 Wells/yr

0

50

100

150

200

250

300

350

400

450

500Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3

Vin

tag

e P

rod

ucti

on

(m

b/d

)

Pre-2000 2000 2001 2002 2003

2004 2005 2006 2007 2008

2009 2010 2011 2012 2013

Tight Shale Promises Incremental Gains – But Gas Shale Seemed Incremental, Until The Numbers Added Up


You Can Make Money: International Independents Delivered More Value

▪ Average return for companies with operations in North Africa, Middle East

and Central Asia: 41%

▪ Average return for companies focused on North America: 13%

Source: PFC Energy Upstream Competition Service

-40% -20% 0% 20% 40% 60% 80% 100%

StoneStratic

S&P 500Forest

SwiftPioneerCimarex

UnitHeritage

CalvalleyNewfield

PlainsTransglobe

MelroseChesapeakeQuicksilver

DevonQuestar

BerryCircleHusky

ATP Oil & GasEnCana

PetrocelticEOG

CabotUltraDNO

DenburyCNR

EmeraldDragon

PA ResourcesSouthwestern

Average AnnualTSR 2004 to 2009 (%)


Liquidity Ratio 20%

Primary Fiscal Balance 20%

Net External Financing Needs 20%

Real per capita GDP Growth 20%

Oil Sector Dependency 10%

Economic Openness 10%

Total PRM Score

Country Economics 20%

Country Politics 20%

Oil Sector Entry 20%

Oil Sector Operations 20%

Oil Sector Surprises 10%

Social 10%

Country Economics: 20% Country Politics: 20%

Political Violence 25%

Rogue Factor 25%

Political Legitimacy 15%

Government Volatility 10%

Rule of Law 15%

Political Competition 10%

Oil Sector Entry: 20%

Government Take 35%

International Openness 20%

NOC Influence 15%

NOC Mandate 15%

Expeditiousness of Contract 15%

Oil Sector Operations: 20%

Facility and Personnel Violence 35%

Sanctity of Contract 20%

Expeditiousness of Operations 10%

Regulatory Burden 15%

Energy Sector Corruption 15%

Contract Type 5%

Oil Sector Surprises: 10%

Natural Disasters 35%

Export Risk 35%

Labor Unrest 15%

Ministerial Volatility 15%

Social: 10%

Civil Society Influence 50%

Environmental Regulatory

Capacity 30%

Local Environment 20%

But Need To Assess Risk, Which Has Many Different Ingredients

Source: PFC Energy Petroleum Risk Manager


Conclusions

▪ There are always international opportunities for companies that

bring real expertise—but if they were easy, someone would

already have done them

▪ Independents can thrive in the gap between the ambitions and

capabilities of NOCs with technically challenging portfolios

▪ There are international opportunities to export US tight (oil and

gas) reservoir technology

▪ International E&P is not easy, but the breadth and depth of

international opportunities can be very large—even those that

appear “incremental” to the global players, at least initially

▪ Companies that work to understand the real risks and manage

these can be very successful

▪ For companies with a comparative advantage funding is

increasingly available

Strategic Advisors in Global Energy

Main regional offices:

Asia

PFC Energy, Kuala Lumpur

Level 27, UBN Tower #21

10 Jalan P. Ramlee

50250 Kuala Lumpur, Malaysia

Tel (60 3) 2172-3400

Fax (60 3) 2072-3599

PFC Energy, China

Kerry Center N-1137

1 Guanghua Road

Chaoyang District

Beijing 100020, China

Tel (86 10) 6599-7937

Fax (86 10) 6530-5093

Europe

PFC Energy, France

19 rue du Général Foy

75008 Paris, France

Tel (33 1) 4770-2900

Fax (33 1) 4770-5905

PFC Energy International,

Lausanne

19, Boulevard de la Forêt

1009 Pully, Switzerland

Tel (41 21) 721-1440

Fax: (41 21) 721-1444

Middle East

PFC Energy, Bahrain

Bahrain Financial Harbor (BFH)

East Tower

5th Floor

P.O. Box 11118

Manama- Bahrain

Tel (973) 7705 8880

North America

PFC Energy, Washington D.C.

1300 Connecticut Avenue, N.W.

Suite 800

Washington, DC 20036, USA

Tel (1 202) 872-1199

Fax (1 202) 872-1219

PFC Energy, Houston

4545 Post Oak Place, Suite 312

Houston, Texas 77027-3110, USA

Tel (1 713) 622-4447

Fax (1 713) 622-4448

www.pfcenergy.com | [email protected] regional offices are shown in blue.

PFC Energy consultants are present in

the following locations:

Beijing

Brussels

Delhi

Ho Chi Minh City

Houston

Kuala Lumpur

Lausanne

London

Manama

Mumbai

New York

Paris

Vancouver

Washington, DC

The World Beyond - IPAA

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