Initiative. arbon Tracker. Carbon supply cost curves: oil capital expenditures

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1 Initiative arbon Tracker Carbon supply cost curves: oil capital expenditures

2 About Carbon Tracker markets. Contact James Leaton Research Director Team Members Jeremy Leggett Chairman Mark Campanale Anthony Hobley James Leaton Research Director Luke Sussams Senior Researcher John Wunderlin Reid Capalino Margherita Gagliardi Tracy Trainor Jon Grayson Acknowledgments Disclaimer

3 Contents 1. Introduction 2. Demand, price and capex 3. Higher risk operations 4. Geographical distribution across provinces 5. Company exposure 6. Conclusions and Recommendations 5 7 8

4 Challenge demand assumptions Understand exposure on the carbon supply cost curve The private sector plays a key role Majors can enhance value Independents are gambling on a high oil price Oil sands, Arctic and Deepwater US$/bbl Oil Production (MBPD average) Breakeven Brent

5 8 Recommendations for investors 7 5 6

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7 interests. the cost curve. Anthony Hobley

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9 1. Introduction Investors engaging A focus on capital discipline is therefore seen as prudent by many sector analysts. To spend or not to spend Risk factors these frontier areas. Creating value for shareholders

10 2. Demand, price and capex Demand scenarios Figure 1: Oil demand scenarios Million barrels per day IEA New Policies IEA 450 BP Shell Mountains Shell Oceans

11 Bridging cost and carbon Markets allocating the carbon budget Competition between fossil fuels Carbon Supply Cost Curves CO Oil price sensitivity Degrees of warming This 360GtCO 2 budget of cumulative emissions intersects with the supply cost curve at around the $60 break even oil price.

12 Figure 2: Carbon cost curve of oil production US$/bbl GtCO Breakeven Brent Oil Production (MBPD average)

13 Risk analysis It is unsustainable for many companies to maintain both capex and dividends unless the oil price continues to rise. Oil price assumptions Rising costs Ownership of potential production to 2050 Private companies are responsible for over half of potential production.

14 Figure 3: Breakeven price bands of production by ownership type GtCO Oil production (mbpd) Exposure to the low end of the cost curve 0 NOCs Above $150 5 $ $ $ $ $ Part-listed Private Majors OPEC out price shifts. Notes

15 3. Higher risk operations Figure 4: Breakeven prices of carbon production by oil type GtCO Oil production (mbpd) Different types of oil A. Operational challenges B. Unconventional oil types 0 Conventional Arctic Deep water only Ultra deep water only Shale oil Oil sands Extra heavy oil Tight liquids 0 Above $150 $ $ $ $ Notes $

16 Figure 5: Breakeven price band split by oil type US$mn Capex Private sector exposure Conventional Arctic Deep water only Ultra deep water only Shale oil Oil sands Extra heavy oil Tight liquids Private above $ Private $ Private ($ ) Private $ Private $

17 4. Geographical distribution across provinces Figure 6: Map of oil provinces with high cost potential production

18 Alberta, CA Gulf Coast, US Gulf of Mexico deepwater, US Rio de Janeiro, BR Western Siberia, RU Atlantic Ocean, AO Caspian Sea, KZ Antsiranana, MG Barents Sea, NO Neuquen, AR Anzoategui, VE Alaska, US Newfoundland and Labrador, CA Atlantic Ocean, BR South Russia, RU North Sea, NO Northwest Territories, CA North Sea, DK Ahmadi, KW Atlantic Ocean, GB Atlantic Ocean, NG Gulf of Mexico, MX Geography of potential capex Territories. CAPEX (USD $bn) Conventional Arctic Deepwater Ultra Deepwater Shale Oil Oil Sands Extra Heavy Oil Tight Liquids

19 5. Company exposure State-owned Majors exposure Smaller independents Capex Company Rosneft Russneft Chevron Tatneft Figure 9: Arctic Capex Company Chevron Rosneft

20 Figure 11: Deepwater Capex Company Chevron Figure 10: Oil sands Capex Company Chevron Figure 12: Ultradeepwater Capex Company Chevron Rocksource 5766

21 Absolute exposure Relative exposure Cutting the capex to the upper end of the cost curve could be a positive process rather than a painful one.

22 our analysis are as follows: Capex ( ) US$million Company Conventional Arctic Deep Water Ultra Deep Water Shale Oil Oil Sands Extra Heavy Tight Liquids High cost/ risk total Total company capex Petrobras 26 79,336 4,089 83, ,317 ExxonMobil 1,736 3,944 22,307 20,066 2,286 18, ,927 73, ,012 Rosneft 69, , ,661 Shell ,254 15,869 1,169 25,898 63, ,551 Total ,188 26,909 11,987 56, ,674 Chevron 3,062 4,942 20,095 12,857 7,435 7,384 55, ,093 BP 228 6,546 11,039 24,223 3,978 46, ,066 Gazprom 44, , ,881 Statoil 2 22,432 8, ,848 38, ,578 CNRL , ,555 74,917 Eni 48 3,768 11,481 11, ,448 36, ,426 Saudi Aramco 35,582 35, ,509 Suncor Energy 114 3, , ,679 70,995 Lukoil 28, , ,497 Cenovus Energy ,650 2,961 28,855 46,805 OGX Petroleo e Gas 7 21,117 4,681 2,340 28,138 30,839 ConocoPhillips 1,432 6,679 5,833 2, ,054 26, ,085 BG ,001 23,147 25,267 55,775 Athabasca Oil Sands 23, ,698 26,498 Repsol 1, ,166 15,601 19,079 47, Carbon Tracker 2014: Oil

23 Figure 14: The following companies have the largest exposure where 50% or over of the total capex is in these categories and Company Conventional Arctic Deep Water Ultra Deep Water Shale Oil Oil Sands Extra Heavy Tight Liquids Total high cost/high risk %age high cost/high risk capex CNRL Cenovus Energy OGX Petroleo e Gas Athabasca Oil Sands Corp 65 Laricina Energy Teck Resources Limited MEG Energy OSUM Denbury Resources Queiroz Galvao E&P Sunshine Oil Sands Barra Energia Value Creation Reliance Rocksource Clayton Williams Energy Paramount Resources 8 Famfa Oil Forest Oil

24 6. Conclusions and Recommendations Demand Bridging carbon and cost. for Private sector has a major role Type of production

25 Geographic distribution Company exposure Recommendations for investors

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27 Technical Analysis References Initiative

28 For further information about Carbon Tracker