Medium-Term Global Oil Outlook Fifth IEA OPEC Symposium on Energy Outlooks Session Two: Industry Views Remarks by Marianne Kah Chief Economist
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Key Uncertainties in Medium-Term Oil Outlook Global economic recovery Global oil demand response to low oil prices Global oil supply response to low oil prices Industry cost deflation Government policies impacting supply or demand Technology change impacting oil supply or demand 3
Outlook for Global Economic Growth is a Key Uncertainty 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2014 $/Barrel $150 Brent Crude Price Economic Downturn 5.0% IMF s Global GDP Growth $125 4.5% 2012 $100 $75 4.0% 2013 2014 2015 $50 3.5% $25 3.0% $0 2.5% April 2011 Sep Other April 2011 2012 U.S. Oct 2012 April 2013 Oct 2013 April 2014 Oct 2014 ----------------------- Date of Forecast ---------------------- Weak global economic growth in the face of rising oil supplies was a key driver of the recent price decline. Downward revision of economic growth has been a constant theme. 4 Source: U.S. DOE spot price for Brent & imported refiners acquisition cost prior to 1987; IMF for global economic growth forecasts
Limited Responsiveness of Global Oil Demand to Lower Oil Prices Oil Intensity and Demand of Key Consumers Oil demand relatively insensitive to price 1.5 1985 1995 2005 2014 Demand Barrels consumed per thousand U.S. 2010$ GDP Demand in 2014, MMBD Developing 20 Reduced oil intensity of global economy 1.0 Industrialized 15 Lower consumer oil price decline outside the U.S. Strong U.S. dollar (in which oil priced) Developing nations removing subsidies and raising oil taxes 0.5 10 5 0.0 0 Sources: ConocoPhillips; Energy Intelligence Group; Oxford Economics 5 Limited global oil demand response to lower oil prices
% change in capex (2015 vs 2014) U.S. Supply Response to Low Oil Prices U.S. Upstream Capital Cost Reductions U.S. Lower 48 Oil-Directed Rig Count 0% -10% Large E&Ps Mid-sized E&Ps Small E&Ps 1,700 1,500 1,300-46% -20% 1,100-30% 900 700 Horizontal -41% -40% -50% 37% average reduction 500 300 Vertical & Directional -58% 100-60% U.S. has significant supply response to lower oil prices Source: IHS Herold, Global Upstream Performance Review, 2 nd March 2015; Baker Hughes rig count, March 13, 2015 6
Eagle Ford Efficiency Improvement Oil Initial Production Rate (Barrels per Day) Drilling Days (Spud to Rig Release) 1,400 1,200 1,000 800 600 400 200 0 2008 2010 2012 2014 2016 50 45 40 35 30 25 20 15 10 2008 2010 2012 2014 2016 Source: IHS Inc. Use of this content authorized in advance by IHS; further use or redistribution strictly prohibited without written permission from IHS. All rights reserved. Enerdeq Database 1/15/15. Play level month averages. IP rate Initial 24 hour production rate for wellhead crude. 7 Productivity improvements have improved economics
2000 2002 2004 2006 2008 2010 2012 2014 2000 2002 2004 2006 2008 2010 2012 2014 Cost Pressures on Industry Finding & Development Costs Mirror Oil Price Breakdown of Realized Price 120 100 Nominal Dollars per Barrel Brent Price 30 25 100 80 Nominal Dollars per Barrel Cash from operations (before debt and dividends) 80 20 60 Average realized price 60 15 40 40 F&D Cost 10 20 20 5 0 Industry costs and taxes lag the decline in oil prices Source: Rystad Energy UCube, Oil Fields Only. F&D costs Include cash costs of exploration and production capex, opex, transportation and abandonment costs and not taxes or royalties. 8
Real 2014 Dollars per Barrel Brent Crude Price: External Expert Views Market expectations of recovery from very weak prices in 2015 $110 $100 $90 Brent Crude Price Views Wide range based on differing views on: Global economic recovery Oil supply and demand response to low oil prices $80 $70 $60 Expert Range Futures (03/16/15) Industry cost deflation Technology change impacting oil supply or demand $50 $40 2014 2015 2016 2017 2018 2019 2020 9 Wide range of external views Sources: January March 2015 forecasts from consultants, EIA and investment banks. Futures prices from 3/16/15
Observations High cost of oil and gas supply wasn t sustainable Oil market recovery driven mostly by supply response U.S. supply is flexible both on the downside as well as upside Potential for insufficient supply to satisfy demand at current futures price outlook by 2017 10