Norwegian oil and gas: Boom or bust?

Transcription

1 Norwegian oil and gas: Boom or bust? Klaus Mohn Professor University of Stavanger Business School Sandnes Sparebank: Capital Market Day Sandnes, 23 April 214 1

2 Global energy outlook Pressures are building, no resolution in sight The oil price is record high The energy system is changing The system is short on sustainability 2 Source: International Energy Agency.

3 An industry that makes a difference A significant role in the Norwegian economy Macroeconomic key figures 212 Oil and gas share in Seven winter olympic games every year GDP 23 per cent Total export 52 per cent Government revenue 3 per cent Total fixed capex 29 per cent 3 Source: Ministry of Finance, Statistics Norway, Oslo 222.

4 Vulnerabilities vary across regions Petroleum exposure is not uniformly distributed Petroleum-related employment 212 Total: ~22, persons Sub-suppliers Suppliers Processing Oil companies Source: Statistics Norway, Konkraft-rapport nr. 7 ( Rystad Energy (213).

5 The oil price matters for demand, supply, and future price dynamics Oil price review Brent blend, USD/bbl (@212 prices) 3-fold increase since 2 Impact on demand Impact on supply 3 New technologies Source: Norwegian Petroleum Directorate, Norges Bank Investment Management, author s calculations (GPF projections).

6 The oil price matters for demand, supply, and future price dynamics Oil price review Brent blend, USD/bbl (@212 prices) Offshore supply services by global region, USD bn (nominal) Russia Europe North America South America Africa Middle East Asia Australia Source: Norwegian Petroleum Directorate, Norges Bank Investment Management, author s calculations (GPF projections).

7 The oil price matters for NCS activity, production, revenues and costs NCS oil and gas investments and the oil price (NOK bn; USD/bbl) Pipeline transport Onshore processing Producing fields Field development Exploration Oil price (USD/bbl) NCS oil and gas production and the oil price (mmboe/day; USD/bbl) Source: Statistics Norway, Norwegian Petroleum Directorate, Reuters EcoWin.

8 The oil price matters for activity, production, and recoverable reserves 2 Oil price and reserve potential Revenues, cost, and field-life 2 Oil price and IOR activities Revenues, cost, and field-life 15 P 1 15 Base profile 1 1 IOR project 5 P Opex 5 Opex Source: Statistics Norway, Norwegian Petroleum Directorate, Reuters EcoWin.

9 The oil price matters for NPD expectations Outlook for NCS oil and gas production NPD forecast by year of release (MMBoepd) Actual NCS oil and gas production and the oil price (mmboe/day; USD/bbl) 22 production (mmboepd) Average annual growth (%) Source: Statistics Norway, Norwegian Petroleum Directorate, Reuters EcoWin.

10 IOC returns fall short of expectations Unimpressive share price developments 1 Source:

11 IOC production falls short of promises Production growth versus targeted growth last four years 11 Source: Enskilda Securities (Oil companies E&P budgets, 2 August 213).

12 IOC cash-flows fall short of investments Only BP funded its capex with cash-flow in Source: Goldman Sachs Investment Research.

13 Cash-flow shortage Statoil s cash-flow Source:

14 induce enhanced capital discipline Tracing the NCS activity impact: A thought experiment Statoil s capex , NOK bn Capex Capex cut dilution NOK bn and NCS re-leverage Statoil share Capex Divest INT NCS 14

15 IOC short-term challenge: Profitability Increasing focus on cash-flow management and capital discipline Leaking profits Return on capital employed for major oil companies Shareholder skepticism Worries over market outlook Pressure on business model Cash is King! 15 Source: Citibank (chart).

16 IOC long-term challenge: Growth Will the world turn its back on fossil fuels? Energy and climate policies Role of oil in transport Eastward bound energy Shale gale globalisation Emerging technologies Access, returns, and risk Changes in OPEC behaviour 16 Source: Mitchell, John, Marcel, Valerie and Beth Mitchell «What next for the oil and gas industry?». Chatham House. October 212.

17 Concluding remarks Build resilience, prepare for change Uncertain outlook Brent blend, USD/bbl prices) Energy is getting more expensive Oil price outlook is very uncertain The oil price matters for activity Boom arrested by market concerns New shocks and cycles in the cards IOC business model under pressure 17 Source: Mitchell, John, Marcel, Valerie and Beth Mitchell «What next for the oil and gas industry?». Chatham House. October 212.

18 Thank you for your attention! Klaus Mohn Professor University of Stavanger Business School 18