Norwegian oil and gas activity

Transcription

1 Norwegian oil and gas activity Market forces matter Presentation for the Norwegian School of Economics Geilo, 21 February 214 Klaus Mohn, professor of petroleum economics UiS homepage,

2 Hubbert s peak The geophysical approach to oil exploration and production 6 Cumulated discoveries Stylized example 3 Oil production Stylized example Source: Hubbert (1962), Mohn (28): Elastic oil: A primer on the economics of exploration and production.

3 As economists, we know better Modifying factors for the geophysical approach Exploration and production governed by profit-maximising companies Technology and unit cost Market developments Policy constraints Hubbert approach augmented with economic models and variables Integrated models provide better explanations Source: Hubbert (1962), Mohn (28): Elastic oil: A primer on the economics of exploration and production.

4 Elastic petroleum The economic approach to exploration and production 8 Cumulated discoveries Stylized example 3 Oil production Stylized example Source: Hubbert (1962), Mohn (28): Elastic oil: A primer on the economics of exploration and production.

5 Selected research How markets affect oil and gas activity - and the macro economy Mohn, K. 28. Investment behaviour in the international oil and gas industry: Essays in empirical petroleum economics. PhD thesis. University of Stavanger. Mohn, K. 28. Efforts and Efficiency in Oil Exploration: A Vector Error-Correction Approach. The Energy Journal 3 (4), Mohn, K. 29. Elastic Oil: A primer on the economics of exploration and production. In Bjørndal E. and Bjørndal, M. (eds.) Energy, Natural Resource and Environmental Economics. London: Springer. Aune, F. R, Mohn, K., Osmundsen, P. and K. E. Rosendahl. 21. Financial market pressure, tacit collusion and oil price formation. Energy Economics 32 (2), Mohn, K. and B. Misund Shifting sentiments in oil and gas investments: an application to the oil industry. Applied Financial Economics 21 (7), Mohn, K. 28. Oljepris, petroleumsvirksomhet og norsk økonomi (Oil price, petroleum activity and the Norwegian economy). Samfunnsøkonomen 1/28. Mohn, K. og E. Wærness Oljen i økonomien (Oil in the Norwegian economy). Norsk oljemuseums årbok 21, More research:

6 Efforts and efficiency in oil exploration A vector error-correction approach Estimated long-term elasticities Exploration output: R( P, X ) D( P, X ) S( P, X ) M ( P, X ) Three channels of impact r p d p s p m p. 1,5 1,,5, Average discovery size Drilling success Drilling efforts Technology (Seismic surveys: Z t ) Policy (Acreage: E t ) Simultaneous econometric approach (VEC) -,5-1, Economics (Oil price: P t ) -1,5 Geology (Depletion; H t ) Source: Mohn, K. 28. Efforts and Efficiency in Oil Exploration: A Vector Error-Correction Approach. The Energy Journal 3 (4),

7 The oil price matters.. for producing fields, for field developments, and for exploration NCS oil and gas investments and the oil price (NOK bn (nom); USD/bbl) 25 Pipeline transport Onshore processing 2 Producing fields Field development Exploration 15 Oil price (USD/bbl) NCS oil and gas investments and the oil price (NOK bn (nom); USD/bbl) Produced Oil price (212 USD, rhs) Source: Statistics Norway, Reuters EcoWin, Norwegian Petroleum Directorate.

8 The oil price matters for NPD expectations Outlook for NCS oil and gas production NPD forecast by year of release (mboepd) Outlook for NCS oil and gas production NPD forecast by year of release (mboepd) 22 production (mmboepd) Average annual growth (%) Actual Source: Norwegian Petroleum Directorate.

9 Unimpressive shareholder returns Source: Statoil.com

10 Oil boom arrested by market concerns Increasing focus on cash-flow management and capital discipline Equity market in disbelief Production short of targets Sky-rocketing costs Erosion of returns Investors worry for price outlook Weak economic growth New floods of supplies Policy uncertainty looms Business model under pressure Scarcity and access dilemmas «Carbon bubble» challenge Cash is King!

11 Investment choked by financial markets Where NPV may fail, Cash will prevail From disappointment to disbelief: Production falls short of promises Planning prices are up, but so are costs Reality bites: the comfort zone is narrowing Source: Enskilda Securities (Oil companies E&P budgets, 2 August 213).

12 The Statoil example Cash flow 213 Source: Statoil (4Q 213 presentation of financial results).

13 Industry changes and challenges A race between scarcity and innovation Innovation and cooperation Changes in OPEC behaviour Uncertainty over gas prospects Break-up of monopoly in transport Quality in capital allocation Re-direction to Asia Energy and climate policies Source: Mitchell, John, Marcel, Valerie and Beth Mitchell «What next for the oil and gas industry?». Chatham House. October 212.

14 Concluding remarks Build resilience, prepare for change Bets are off for bullish energy demand Oil price outlook is extremely opaque Gas prices will converge, gradually The oil price matters for activity Oil boom arrested by market concerns New shocks and cycles in the cards IOC business model under pressure The macroeconomic impulse from oil is in decline