IHS ENERGY INSIGHT

Presentation

Global Resource Availability, New Discovery Trends and

Recent Price Volatility Impacting Global
Oil & Gas Business
ihs.com

Gauri Jauhar

Director, Consulting and Research, India

August 28, 2015

© 2015 IHS
Disclaimer

“The IHS reports and information referenced herein (the "IHS Materials") are the copyrighted property of IHS
Inc. (“IHS”) and represent data, research, opinions or viewpoints published by IHS, and are not
representations of fact.  IHS conducted this analysis and prepared the IHS Materials utilizing reasonable skill
and care in applying methods of analysis consistent with normal industry practice. Forecasts are inherently
uncertain because of events or combinations of events that cannot reasonably be foreseen including the
actions of government, individuals, third parties and competitors. The IHS Materials speak as of the original
publication date thereof (and not as of the date of this document).  The information and opinions expressed in
the IHS Materials are subject to change without notice and IHS has no duty or responsibility to update the
IHS Materials. Moreover, while the IHS Materials reproduced herein are from sources considered reliable, the
accuracy and completeness thereof are not warranted, nor are the opinions and analyses which are based
upon it.  To the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss,
damage or expense incurred by reliance on the IHS Materials or any statement contained therein, or
resulting from any omission. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE SHALL APPLY. The IHS Materials are not to be construed as legal or financial
advice, are supplied without obligation and on the understanding that any person who acts upon the IHS
Materials or otherwise changes his/her position in reliance thereon does so entirely at his/her own risk. The
IHS Materials were prepared for the sole benefit of IHS’ client for IHS’ client’s internal business use. No
portion of the IHS Materials may be reproduced, reused, or otherwise distributed in any form without the prior
written consent of IHS.  IHS Materials reproduced or redistributed with IHS’ permission must display IHS’
legal notices and attributions of authorship.  IHS and the IHS globe design are trademarks of IHS.  Other
trademarks appearing in the IHS Materials are the property of IHS or their respective owners.”

© 2015 IHS 2
6 Mega Themes in Resources & Discoveries

1. Outside North America, conventional oil and gas

volumes discovered falling since 2010, with 2014 set
to be a record low
2. Number of conventional discoveries fell 10% b/w
2004–08 and 2009–13
3. Conventional volumes discovered declined by 24%
4. Average global volumes discovered per newfield
wildcat dropping since 2010
5. Field growth is adding more oil and gas than new
discoveries
6. About 141 bnbbls of potential incremental resource
may exist in 171 oil plays outside North America
© 2015 IHS 3
 Discoveries of conventional oil and gas have been falling
since 2010, with 2014 set to be a record low
Conventional oil and gas volumes discovered annually

140,000
120,000
South Pars
100,000 Gas
Oil & Condensate
Mozambique
80,000 Galkynysh (Yoloten) deepwater gas
equiv
barrel
Billio

alent
s of
oil
n

discoveries
60,000
Brazil presalt
40,000
20,000
0

Source: IHS EDIN

Data excludes Canada onshore, US lower-48 onshore and US shallow water. © 2014 IHS

• The 2013 conventional volumes (15.3 billion boe) discovered (ex Canada onshore, US lower-48 and US shallow water) are the
second lowest recorded since 1952 (~7.8 billion boe). At mid-year, 2014 appears to be set to be the lowest discovery year since
1952.

• This latest cycle is in part attributable to the move from the exploration phase to development phase for Brazil pre-salt oil and
offshore East Africa gas, and also reflects the slowdown in US deepwater exploration following the Macondo incident.

© 2015 IHS 4
 Conventional discoveries by play type show the importance of
deep water, the decline of onshore and shallow
Conventional oil volumes found annually by play
type

40,000

35,000

30,000

25,000

20,000
M
M
b
b
l

15,000

10,000

5,000

0
Conventional gas volumes found annually by play
type

Ultra-deep Water (>5000 ft) Deep Water (1000-5000 ft)

Shallow Water (<1000 ft) Onshore

M
M
b
o
e
Data excludes Canada onshore, US lower-48 Ultra-deep Water (>5,000 ft) Deep Water (1,000-5,000 ft)

onshore, and US shallow water. Shallow Water (<1,000 ft) Onshore

Source: IHS © 2014 IHS Data excludes Canada onshore, US lower-48

onshore, and US shallow water.
Source: IHS © 2014 IHS

• Share and absolute volumes of onshore and shallow water conventional discoveries eroded over the last
decade; Large field discoveries have moved to deep and ultradeepwater basins.

© 2015 IHS 5
Large and Small Independents are becoming more
important contributors to conventional oil and gas
Total volume of conventional oil and gas discoveries by operator category

60,000
Turkmengaz Yoloten
50,000
Anadarko
Petrobras Brazil Mozambique
MMb

40,000
oe

Eni
NCOC Kashagan Anadarko Mozambique Mozambique
30,000

20,000

10,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Data excludes Canada onshore, US lower-48 onshore, and US shallow water.
Source: IHS Other NOC/Gov't Small Indies Large Indies Majors © 2014 IHS

• The last 10 years has witnessed a notable decline in the volumes of oil and gas discovered by Majors (BP, Chevron, Eni, ExxonMobil,
Lukoil, Shell, and Total) with the exception of Eni’s gas discoveries offshore Mozambique in 2011.

• For the large Independents, Anadarko’s discoveries offshore Mozambique dominated in 2010 and 2012. In 2009, discoveries were
more diverse: Repsol’s Perla in Venezuela, Noble’s Tamar in Israel, and ConocoPhillips’ Poseidon in Australia, all over 1 billion
boe.

• The huge Turkmengaz gas discovery in 2004 totaled approximately 73,000 MMboe.

© 2015 IHS 6
The absolute number of conventional oil and gas
discoveries declined by 10% from 2004–08 to 2009–13
Number of conventional discoveries by operator category Number of conventional discoveries by operator category
(2004–08): 2,850 (2009–13): 2,555

Other Majors
184 304 Other Majors
6% 112 189
11% 4% 7%
Large Indies
Large Indies 290
350 11%
12%
NOC/Gov't NOC/Gov't
1111
39% 1,001
39%
Small Indies Small Indies
901 963
32% 38%

Source: IHS © 2014 IHS Source: IHS © 2014 IHS

• The relative number of discoveries by Majors decreased, while that of small Independents increased.

© 2015 IHS
The volume of conventional oil and gas discovered
declined by 24% over two five-year periods
Volume of conventional discoveries by operator category Volume of conventional discoveries by operator category
(2004–08): 193,804 MMboe (2009–13): 147,101 MMboe

Other
2,120 Other
1% Majors 3,308
2%
23,413 Majors
12% Large Indies 22,507
12,466 15%
6%
NOC/Gov't
57,771
Small Indies 39% Large Indies
34,880
19,001 24%
10%
NOC/Gov't
136,804
71%

Small Indies
Source: IHS 28,545 © 2014 IHS
Source: IHS © 2014 IHS
19%
• Large Independents’ share of total conventional volumes discovered, excluding US onshore and shallow water, grew from 6% in
2004–08 to 24% in 2009–13.
• Small Independents’ volumes also grew from 10% in 2004–08 to 20% in 2009–13.

• The NOCs’ share of volumes discovered dropped from 71% to 39% despite large discoveries by Petrobras (Brazil), National Iranian
Oil Company (Iran), and Gazprom (Russia).
© 2015 IHS
Conventional oil volumes discovered by operator category
reveals the Majors’ fall and Small Indies rise
Total volume of conventional oil discoveries by operator category

30,000

25,000
- Gulf Keystone Iraq Petrobras Brazil
NCOC Kashagan - WesternZargos Iraq
20,000
bb
M
M

- Lundin Norway
l

- OGX Brazil
15,000

10,000

5,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Data excludes Canada onshore, US lower-48 onshore, and US shallow water. Other NOC/Gov't Small Indies Large Indies Majors © 2014 IHS
Source: IHS

• NCOC consortium in Kazakhstan (Eni, ExxonMobil, Shell, Total comprising 70% plus
CNPC, KMG, Inpex) is considered in the Major category.
• Small Independents in 2009 and 2010 include Gulf Keystone in Iraq, WesternZagros in
Iraq, Lundin Petroleum in Norway, and OGX in Brazil,

© 2015 IHS 9
Conventional oil volumes discovered declined only 3% over
the two periods, but Majors’ share dropped in half
Oil discoveries (conventional) by operator Oil discoveries (conventional) by operator
category (2004–08): 68,401 MMbbl category (2009–13): 66,269 MMbbl

Other Other
1,170 2,409 Majors
2% Majors 4% 6,573
14,322 10%
Large Indies
21% 6,933
10%

NOC/Gov't NOC/Gov't
36,767 32,075
54% Large Indies 48%
6,606 Small Indies
9% 18,277
28%

Small Indies
9,533
14%
Data excludes Canada onshore, US lower-48 Data excludes Canada onshore, US lower-48
onshore, and US shallow water. onshore, and US shallow water.
Source: IHS © 2014 IHS Source: IHS © 2014 IHS

• NOCs, led by Petrobras, discovered half of the oil volumes in the period 2004–08 and 2009–13.
• Majors’ share declined by half during the same time frame.
• Small Independents doubled oil volumes and market share.

© 2015 IHS 10
Oil discoveries excluding NOCs reveals the dramatic shift
toward small Independents
Volume of conventional oil discoveries, ex Volume of conventional oil discoveries, ex NOC
NOC (2004–08): 31,633 MMbbl (2009–13): 34,194 MMbbl

Other Other
1,171 2,409 Majors
4% 7% 6,574
Small Indies 19%
9,534
30% Majors
14,322
45%
Small Indies Large Indies
18,277 6,933
54% 20%
Large Indies
6,606
21%

Data excludes Canada onshore, US lower-48 Data excludes Canada onshore, US lower-48
onshore, and US shallow water. onshore, and US shallow water.
Source: IHS © 2014 IHS Source: IHS © 2014 IHS

• Majors’ conventional oil volumes discovered fell in half from 2004–08 to 2009–13.
• Small Independents, led by Gulf Keystone, Lundin, OGX, WesternZagros, and OGX increased volumes
and share to become the most important non-NOC operator category.
© 2015 IHS 11
Conventional gas volumes shows the significance of
Mozambique finds by Eni and Anadarko
Total volume of conventional gas discoveries by operator category

30,000
Turkmengaz Yoloten Anadarko
25,000 Mozambique
NCOC Kashagan Anadarko Mozambique Eni
20,000 Mozambique
bo
M
M

15,000

10,000

5,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Data excludes Canada onshore, US lower-48 onshore, and US shallow water.
Source: IHS Other NOC/Gov't Small Indies Large Indies Majors © 2014 IHS

• The 2009–13 period is dominated by the Mozambique discoveries made by

Eni (Major) and Anadarko (Large Independent).
• NOCs also continue to play a key role in conventional gas discoveries.

© 2015 IHS 12
Conventional gas volumes discovered declined by 35%
over the two periods, due to the Turkmen find in 2004
Gas discoveries (conventional ) by operator Gas discoveries (conventional) by operator
category (2004–08): 125,403 MMboe category (2009–13): 80,742 MMboe

Other
Other Majors 898 Majors
949 9,091 1% 15,938
1% Large Indies
7% 5,859 20%
Small Indies
5% NOC/Gov't
9,466 25,695
32%
7%

NOC/Gov't
Large Indies
Small Indies 27,947
100,036 10,262
80% 34%
13%

Data excludes Canada onshore, US lower-48 Data excludes Canada onshore, US lower-48
onshore, and US shallow water. onshore, and US shallow water.
Source: IHS © 2014 IHS Source: IHS © 2014 IHS

• The Turkmengaz Yoloten gas discovery of 70,000 MMboe in 2004 highly skews total comparisons of the two five-
year periods.
• The increase in Majors and Large Independents conventional gas volumes is mainly attributable to the Eni (Major)
and Anadarko (Large Indie) discoveries in Mozambique.
© 2015 IHS 13
Conventional gas discoveries excluding NOCs nearly
doubled over the two periods
Gas discoveries (conventional) by operator Gas discoveries (conventiona) by operator
category - ex NOC (2004–08): 25,367 MMboe category - ex NOC (2009–13): 55,406 MMboe
Other
Other 898
949 2%
4% Small Indies
10,262 Majors
19% 15,939
Majors 29%
Small Indies 9,091
9,467 36%
37%

Large Indies Large Indies

5,860 27,947
23% 51%

Data excludes Canada onshore, US lower-48 Data excludes Canada onshore, US lower-48
onshore, and US shallow water. onshore, and US shallow water.
Source: IHS © 2014 IHS Source: IHS © 2014 IHS

• The Mozambique gas discoveries by Eni (Major) and Anadarko (Large Independent) doubled
the conventional gas volumes discovered for the non-NOCs.

© 2015 IHS 14
 Conventional Exploration and Discovery Trends /February 2015

Average global volumes discovered per newfield

wildcat dropping since 2010
Exploration drilling success rate: Volume of oil and gasGlobal
found per newfield wildcat drilled

20 Large oil finds in Brazil and large

18 gas finds in East Africa
MMboe per newfield wildcat drilled

16
14
12
10
8
6
4
2
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Note: Data excludes North America © 2015 IHS

Source: IHS Energy

• The average volume of oil and gas discovered outside North America per
newfield wildcat reflects the declining success rates and smaller field sizes in
most regions.

© 2015 IHS 15
 Conventional Oil and Gas Field Growth, Part 1 Global Overview / July 2015

Field growth is adding more oil and gas than new

discoveries
Resources from new discoveries and field growth in prior-
year discoveries for report years 2000–14
Field growth in discoveries
made in prior years
New discoveries, initial estimate
324 billion boe
• During 2000–14, there were over
22,000 downward adjustments
totaling 495 billion boe, but there
were 34,000 upward adjustments
totaling 1,286 billion boe.
• New resources from field growth
during that period were nearly two
and a half times the new reserves
from new discoveries.

791 billion boe

Source: IHS © 2015 IHS

© 2015 IHS 16
 Unconventional Techniques in Conventional Plays

Potentially 141 billion additional barrels in existing

fields
Incremental oil
recovery in fields
• Two-thirds of these incremental Region assumed assuming 10-
pt improvement in
Number of existing
fields
recovery factor
volumes are in the Middle East and (MMbbl)

Latin American countries. Africa 12,917* 423

• In some instances, the additional oil Australasia 395* 149

18,208* 752
may not be commercially viable. C.I.S.

4,539* 559
However, the economics can be Europe

helped if costly hydraulic fracture Far East 9,372* 708

stimulation is not required as Latin America 24,874* 482

demonstrated by the St. Martin de Middle East 65,175* 339

Bossenay field. Total 135,480* 3,412

Incremental oil
• Places where hydraulic fracturing recovery in fields
that may not require
6,360 765
hydraulic fracturing
may not be needed could potentially
Global Total 141,840 4,177
add 6 billion bbl of oil. *In fields assumed to require hydraulic fracturing

Source: IHS Energy

© 2015 IHS 17
 Unconventional Techniques in Conventional Plays

Low productivity conventional fields that can use

unconventional techniques
Low-productivity conventional fields
752

426
559

104
708
61
339
423
5
88

482
149
52
24

Number of fields that 4,000

likely will require
fracturing
2,000
Number of fields that may
not require fracturing
0
Onshore Shallow water
Source: IHS © 2014 IHS

© 2015 IHS 18
4 Challenges due to oil price volatility

1. Capex cuts target a broad spectrum

2. Low prices will not support enough new production
3. Reserve replacement rates (1P) for IOCs fell in 2014, and
replacement costs continue to rise
4. Adding reserves through M&A cheaper than organic
additions

© 2015 IHS 19
 2015 Capex reduction versus production growth/March 2015

Capex cuts target a broad spectrum

Aggregate corporate capex spend by largest IOCs

$350
$300
$250
$200
bi
lli
$

o
n
s

$150
$100
$50
$0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Tier II Independents Tier I Independents Global Players

Notes: Capex calculated on a corporate basis, and includes non-upstream segments for integrated companies. Global Players include BP, Chevron, Eni, ExxonMobil, Shell, Statoil, and TOTAL. Tier I Independents include Anadarko, Apache, BG Group,
ConocoPhillips, Occidental, and Suncor. Tier II Independents include Canadian Natural, Hess, Marathon Oil, Murphy Oil, Noble Energy, OMV, Repsol, and Woodside. BHP Billiton excluded due to its different fiscal year; Talisman excluded due to the
pending acquisition by Repsol.
*2015 capex estimates based on most recent company guidance.
Source: IHS Upstream Competition Service © 2015 IHS

• The IOCs have taken quick action to announce reductions in 2015 spending

• Companies cutting overhead, eliminating thousands of jobs, and renegotiating terms and costs with service
company providers.
• The ability to increase production in this year in spite of some massive reductions will come from

• High-grading of development portfolios to focus on areas with the highest productivity

• Target discretionary spend, including exploration budgets

• Delay costs for longer-term, unsanctioned projects which leaves near-term production relatively intact

© 2015 IHS 20
Longer term:
Low prices will not support enough new production

© 2015 IHS 21
Reserve replacement rate (1P) for the group stumbled in
2014, replacement costs continue to rise
Global IOC annual reserve replacement metrics; median 10-year replacement rate of 122%
160% 149% $40

140% 131% 135% $35

130%
122% 123% 117%
120% $30
99% 89%
100% 92% $25

80% $20

60% $15

40% $10

20% $5

0% $0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E

Proven reserve replacement rate, % (left axis)

Proven reserve replacement cost, $/boe (right axis)
Source: IHS © 2015 IHS

• 2014 based on preliminary results; 1P basis

© 2015 IHS 22
Organic replacement vs. M&A barrels

Relative M&A values by type of resource, US$ per boe 1P (proven basis)
$30
all metrics on a per boe proven (1P) basis;
$26 $25 gas converted at 6 Mcf per boe
$25 $23
US$ / boe (1P basis)

$20 $19

$15 $14 $14

$10
$10 $9
$6
$5

$0
5-yr Tight Oil/ Deepwater Shallow Conv'l M&A 1P/boe All 5 IOCs Heavy Tight Gas/
F&D/boe Shale Oil Water O&G 2014 EV/boe Oil/Oil Shale Gas
Source: IHS
Sands © 2015 IHS

• Most types of M&A still look more attractive than organic reserve
replacement costs (1P), which may need to decline by roughly 1/3rd to
be more competitive with other options.
© 2015 IHS 23
Appendix

© 2015 IHS 24
Definitions of operator categories

• Majors — BP, Chevron, Eni, ExxonMobil, Lukoil, Shell, and Total. NCOC consortium in Kazakhstan (Eni, ExxonMobil,
Shell, Total comprising 70% plus CNPC, KMG, Inpex) is also considered in the Major category.

• Large Independents (Indies) — Operators with production greater than approximately 250 thousand barrels of oil
equivalent per day (boe/d), excluding companies included in the Majors category. Full list noted below.
Anadarko ConocoPhillips Marathon Oil Suncor
Apache Continental Noble Energy Talisman
Bashneft Devon Energy Novatek Wintershall
BG EnCana Occidental Woodside
BHP Billiton EOG OMV
Canadian Natural Resources GDF Suez Perenco
Centrica Husky Energy Repsol

• Small Independents (Indies) — Includes approximately 450 operators with production levels less than approximately
250 thousand boe/d.

• NOC/gov’t — National oil companies (NOCs) or government entity (Gov’t)

• Others — Various companies working in the oil and gas sector operate oil and/or gas assets

• Discoveries – defined as technical discoveries, not necessarily commercial, of conventional resources outside of the
US onshore Lower 48, US shallow water, and onshore Canada.

© 2015 IHS 25
 Conventional Exploration and Discovery Trends /February 2015

Average conventional oil field size regional trends

• Africa, Asia Pacific, and Commonwealth of

Independent States (CIS) have recorded Average conventional oil field size (MMboe)
declining average discovered field sizes for
some years. Region 1995–99 2000–04 2005–09 2010–14
• The Middle East only recently started seeing
Africa 111 66 37 32
declining average oil field sizes.

• North America, represented by the deepwater Asia Pacific 27 35 17 12

Gulf of Mexico and offshore Eastern Canada,
saw a slight decline between the last two five- CIS 16 72 17 10
year periods.
Europe 20 38 21 62
• Europe and Latin America saw average oil field Latin America 34 44 78 105
sizes jump in the last five-year period. In Europe
this was due to the Johan Sverdrup discovery in Middle East 98 86 93 36
Norway. Latin America was due to Brazil’s
presalt discoveries. Europe’s is expected to North America 115 70 152 141
return to declining oil field sizes due to it being a
very mature area. Global
49 56 43 50
average
• The only growth in average discovered field size Note: data excludes Canada onshore, US lower-48 onshore and US shallow water.
Source: IHS © 2015 IHS
between the last two time periods was in Latin
America with Brazil presalt discoveries.

© 2015 IHS 26
 Conventional Exploration and Discovery Trends /February 2015

Average conventional gas field size regional trends

• The Middle East leads the Average conventional gas field size (MMboe)
other regions in terms of Region 1995–99 2000–04 2005–09 2010–14
average discovered field size, Africa 101 64 36 228
reflecting strong gas resource Asia Pacific 54 69 55 36
growth over the past 20 years CIS 136 930 30 131
in Qatar and Iran, among Europe 22 11 14 16
others.
Latin America 82 36 27 30
• Average discovered gas field Middle East 238 166 279 182
size in Africa has grown since North America 11 18 23 42
the mid-2000s on the strength Global average 63 123 51 76
of discoveries in Algeria and Note: data excludes Canada onshore, US lower-48 onshore and US shallow water.
Source: IHS © 2015
West Africa deep water early IHS

in the period, and more

recently by discoveries in the
East Africa deep water.

© 2015 IHS 27
 2015 Capex reduction versus production growth/March 2015

Majors and NOCs capex and production guidance

Majors and NOC capex and production guidance

Company 2015 capex guidance 2015 production guidance
BP • 20% capex reduction to $20 billion in 2015 • No official 2015 guidance released

Chevron • 13% capex reduction to $35 billion in 2015 • 0–3% 2015 production growth

Eni • 17% capex reduction to EUR10 billion in 2015 • 3% 2015 production growth

ExxonMobil • 12% capex reduction to $34 billion in 2015 • 2% 2015 production growth

Shell • 14% capex reduction from to $30 billion in 2015(based on $15 • No official 2015 guidance released
billion capex reduction over 2015–17)
Total • 10% reduction in “organic investments” to $23–$24 billion in • 8% 2015 production growth
2015

Ecopetrol • 30% reduction in to $8 billion in 2015, also reducing offshore • Targeting flat production of 710,000
drilling budget by two-third to $200 million in 2015 barrels per day (b/d)
CNOOC • 26–35% capex reduction to $11.19–$12.78 billion in 2015 • 10–15% 2015 production growth

Pemex • 11.5% reduction in capital expenditure to $32.2 billion in 2015 • Production decline forecasted for
2015

© 2015 IHS 28
 2015 Capex reduction versus production growth/March 2015

Independents: 2015 capex and production guidance

(1/3)
Independents capex and production guidance
Company 2015 capex guidance 2015 production guidance
Anadarko • 33% reduction in total capex to ~$5.6 billion in 2015 • 0- 1% production decline in 2015

Apache • 57% reduction in total capex to $4 billion in 2015 • Flat production in 2015

Cabot • ~ 36% reduction in capex to $900 million in 2015 • 10–18% 2015 production growth

Chesapeake Energy • 26% capex reduction to ~$4.25 billion in 2015 • 7–9% 2015 production decline

Cimarex • 55% capex reduction to ~$1 billion in 2015 • 3–8% production growth

Concho Resources • 33% capex reduction to $2 billion • 16–20% 2015 production growth

ConocoPhillips • 20% capex reduction to $13.5 billion in 2015 • 3% 2015 production growth
• Additional $2 billion reduction in Jan. to $11.5 billion
Continental • 12% capex reduction to $4.6 billion from $5.2 billion • 16–20% 2015 production growth
Resources
Devon Energy • 20% capex reduction to $4.1–$4.4 billion in 2015 • 1–5% 2015 production decline

EnCana • ~17% capex reduction to ~$2 billion in 2015 • 14% 2015 production decline

EOG • 40% capex reduction to $4.9–$5.1 billion in 2015 • Flat production growth in 2015

© 2015 IHS 29
 2015 Capex reduction versus production growth/March 2015

Independents: 2015 capex and production guidance

(2/3)
Independents capex and production guidance
Company 2015 capex guidance 2015 production guidance
EP Energy • 40% capex reduction to $1.2–$1.3 billion in 2015 • Flat total production growth in 2015

EQT • 24% capex reduction to $2.05 billion in 2015 • 21–25% production growth in 2015

Halcon Resources • 20% capex reduction to $750–$800 million in 2015 • Flat production growth in 2015

Hess • 16% capex reduction to $4.7 billion in 2015 • ~12% 2015 production growth

Marathon • 40% capex reduction to $3.5 billion in 2015 • 5–7% 2015 production growth

Murphy Oil • 33% capex reduction to $2.3 billion in 2015 • Flat production growth in 2015
Corporation
Newfield Exploration • 40% capex reduction to $1.2 billion in 2015 • 18% 2015 production growth

Noble Energy • 40% capex reduction to $2.9 billion in 2015 • 0–5% 2015 production growth

Oasis Petroleum • 55% capex reduction to $705mn in 2015 • 3% 2015 production growth

Occidental Petroleum • 33% capex reduction to $5.8 billion in 2015 • 6–10% 2015 production growth

Pioneer Natural • 45% capex reduction to $1.85 billion in 2015 • 10% 2015 production growth
Resources
QEP • 57% capex reduction to ~$1 billion in 2015 • 3–14% production decline

© 2015 IHS 30
 2015 Capex reduction versus production growth/March 2015

Independents: 2015 capex and production guidance

(3/3)
Independents capex and production guidance
Company 2015 capex guidance 2015 production guidance
SandRidge Energy • ~56% capex reduction to $700 million in 2015 • 6% 2015 production growth

SM Energy • 43% capex reduction to $1.2 billion in 2015 • 12% 2015 production growth

© 2015 IHS 31
 Unconventional Techniques in Conventional Plays

Key implications of Unconventional techniques in

conventional plays
• The drilling and completion techniques that were refined in the development of shales
are increasingly being applied to conventional low-productivity plays within North America
with impressive results.
• When applied to conventional low-productivity reservoirs, the horizontal lengths are
typically shorter, and the hydraulic fracture stages are both fewer in number and lower in
pounds of fracture proppant used. Combined, these lower the absolute well costs.
• A high-level assessment indicates as much as 141 billion barrels (bbl) of potential
incremental resource may exist in 171 oil plays outside North America.
• 135 billion bbl in plays that likely will require hydraulic fracture stimulation to produce.

• 6 billion bbl in plays that may not require hydraulic fracture stimulation to produce.

• Two limited case studies illustrate the redevelopment schemes being employed and one
case study illustrates that these techniques are not a panacea for improving production.

© 2015 IHS 32
 Unconventional Techniques in Conventional Plays

Asia Pacific
Asia Pacific

Incremental oil recovery*

(MMbbl)

7,017 >5,000
438
an

1,000 to 5,000
ist

147 China
k
Pa

44 500 to 1,000
India 228
n
945 Vietma 21
100 to 500
57 245
Malaysia 32 <100

Top countries for incremental

1,043 Indonesia oil recovery
115 MMbbl Incremental recovery
# Number of fields

Australia
336
151

*Assumes 10 point increase in recovery factor.

Source: IHS Energy © 2014 IHS

© 2015 IHS 33
 Unconventional Techniques in Conventional Plays

Applying unconventional techniques to conventional

plays
Unconventional techniques and conventional plays
• In low-productivity conventional reservoirs,
horizontal wells are traditionally used because
• They allow access to thinner zones where vertical
wells are not commercially productive.

• They can connect compartmentalized portions of the

reservoir with one well instead of many vertical wells.

• Hydraulic fracturing may or may not be used.

• It may not be practical or necessary in conventional

reservoirs that have higher permeability than shales.

• Horizontal wells decline faster than vertical

Thin target zone
wells, but decline rates are highly variable—
typically between 40% and 90% in the first year.
• For conventional reservoirs, the comparison may be
irrelevant because the comparison may be between
a vertical well drilled in a good part of the reservoir
Disconnected target zones
with a horizontal well drilled in a poorer quality area,
hence the reason for drilling the horizontal well in the
first place.

Source: IHS © 2014 IHS

© 2015 IHS 34
 Unconventional Techniques in Conventional Plays

Lateral lengths in low-productivity conventional plays

are shorter on average than those in shale
Average horizontal well lateral length in shale versus
low-productivity conventional plays • Because of the slightly higher
7,000 permeability, and possibly other
factors, of conventional plays
6,000
compared with shale plays,
5,000 operators in the United States
and Canada typically have opted
4,000
for shorter lateral lengths on their
A

th
ra

ra

ng
ge

(fe
ve

et)
la
te

le
l

3,000 horizontal wells.

2,000

1,000

0
Shale plays Conventional
low-productivity plays
horizontal wells

Note: recent wells since 2011 only.

Source: IHS Supply Analytics © 2014 IHS

© 2015 IHS 35
 Unconventional Techniques in Conventional Plays

Fewer fracture stages and less proppant are used in low-

productivity conventional plays compared with shale
Average number of hydraulic fracture stages by Average amount of proppant used in hydraulic fracture
different play and well types stimulation by different play and well types
18 5,000,000.0
16 4,500,000.0
14 4,000,000.0
3,500,000.0
12
3,000,000.0

pounds)
(million
amount
Proppa
10
stages
fractur
numb
Avera

nt
2,500,000.0
er of
ge

8 2,000,000.0
6 1,500,000.0
1,000,000.0
4
500,000.0
2 0.0
0 Shale Horizontal Vertical
Shale Horizontal Vertical plays wells wells
plays wells wells
Conventional low-productivity plays
Note: recent wells since 2011 only.
Conventional low-productivity plays Source: IHS Supply Analytics © 2014 IHS
Note: recent wells since 2011 only.
Source: IHS Supply Analytics © 2014 IHS

• Multistage hydraulic fracturing applied to mature low-productivity plays

in North America is typically done on a smaller scale both in numbers
and force (as measured by the amount of proppant used).
• Although some kind of fracture stimulation is commonplace in the low-
productivity conventional mature plays of North America, anecdotal
reports suggest some horizontal wells in the United States are not
being fracture stimulated.
© 2015 IHS 36
 Unconventional Techniques in Conventional Plays

The Granite Wash play in North America saw a five-fold

increase in production with horizontal wells
Granite Wash oil production by well type
90,000
Decline in late 2012–13 owing to a
80,000 combination of late reporting and some
decline in drilling
70,000

60,000
re
ls
ar

er
B

d
a
y

50,000

40,000

30,000
Horizontal wells
20,000

10,000
Vertical wells
0

Source: IHS Energy © 2014 IHS

• Can these impressive results be achieved outside North America?

© 2015 IHS 37
 Unconventional Techniques in Conventional Plays

Screening criteria for low-productivity reservoirs

Likely needs hydraulic fracture May not need hydraulic fracture

stimulation stimulation
Oil recovery factor <20%

or permeability <= 20 mD >20 mD and <=50 mD

or porosity <15%

If a field did not meet the above criteria, we Fields having produced less than 50% of 2P reserves over a two-decade period (exclude giant
also considered mature, low productivity fields developed in phases)
Exclusions Small fields (2P oil <5 MMbbl), deepwater, heavy oil (°API < 20), unconventionals

Source: IHS

• No attempt was made to screen out fields that might be unsuited for
horizontal wells or hydraulic fracturing, which may significantly reduce
the estimated incremental recovery.

© 2015 IHS 38
 Unconventional Techniques in Conventional Plays

Potentially 141 billion additional barrels in existing

fields
Incremental oil
recovery in fields
• Two-thirds of these incremental Region
assumed assuming Number of existing
10-pt improvement fields
volumes are in the Middle East in recovery factor
(MMbbl)
and Latin American countries. Africa 12,917* 423

• In some instances, the additional Australasia 395* 149

oil may not be commercially C.I.S. 18,208* 752

viable. However, the economics Europe 4,539* 559

can be helped if costly hydraulic Far East 9,372* 708

fracture stimulation is not Latin America 24,874* 482

required as demonstrated by the Middle East 65,175* 339

St. Martin de Bossenay field. Total 135,480* 3,412

Incremental oil
• Places where hydraulic fracturing recovery in fields
that may not require
6,360 765
hydraulic fracturing
may not be needed could
141,840 4,177
potentially add 6 billion bbl of oil. Global Total
*In fields assumed to require hydraulic fracturing

Source: IHS Energy

© 2015 IHS 39
Cyclicality of exploration investment demonstrated by
increasing or decreasing levels of undeveloped acreage
Reported Net Undeveloped Acreage (2003-2013)
140,000 TOTAL High level of
cyclicality for
TOTAL; Africa
Shell has most sustained
acreage built up
120,000
commitment to building
2010+
up acreage position Shell
BP

100,000 COP & Eni are on Acreage build up

similar cycles with demonstrates BP’s
a recent drilling recommitment to
ExxonMobil & Chevron Eni through of Exploration
80,000
demonstrates least cyclical acreage since
acreage holdings. 2008
ped

eag
dev

('00
Acr
Net

elo
Un

0)
e

Chevron ExxonMobil
60,000

COP
40,000
Statoil Statoil has entered
an upward trend in
acreage
20,000
accumulation

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: IHS © 2014 IHS

© 2015 IHS Source: IHS 40

 2014 exploration focus on US GoM, Africa & Europe
Alaska: Statoil & Shell Norway: Statoil Barents Sea: Statoil - 4 wildcat Romania: XOM Turkey: Shell - Russia: XOM - Kara
- suspended drilling -Askja East and disappointments. ENI - success - Pelican South 2 wells. Sea. TOTAL - 3 wells
plans. Valemon North. at Kramsno and Drivis. well. with Novatek.

Iraq: Chevron - Rovi and

Sarta blocks. XOM - Al
US GoM: Shell - Qush. TOTAL – Jisik.
Rydberg in the
Jurassic play. COP -
Tiber and
Cyprus: ENI - unsuccessful
Shenandoah. BP -
DW wildcat.
Paleogene discovery,
Guadalupe, appraised
Lower Tertiary Gila
and Tiber. ENI -
APAC: ENI – Merakes
unsuccessful Jurassic
(Indonesia) Kitan (Aus). BP
Swordfish. Statoil -
- D55 and D56 (India). Shell
non-commercial
- 2 wells offshore New
discovery at sub-salt
Zealand, 1 onshore and 1
Miocene.
offshore China.

East Africa: Statoil - dry

hole (Binzari-1) and one gas
Brazil: Total - Xerelete Angola: Statoil - dry holes in Sub-Saharan Africa: TOTAL - 4 exp wells in Cote discovery (Giligilani-1); both
& 4 wells at Libra. pre-salt Kwanza. COP - 2 wells d’Ivoire with 1 success at Saphir-1XB; 2 appraisal Tanzania. ENI - successful
Statoil drilled Pao de (1 dry hole). BP - pre-salt Orca wells in Uganda; 1 exp well in South Africa. ENI & appraisal of Block 4 in
Acucar appraisal and appraisal well & 2 pre-salt exp Chevron - Liberia (Goshtern-1). COP - 2 successful Mozambique
unsuccessful Juxia wells. ENI - pre-salt Ombovo 1 wells in Senegal. Shell - gas discovery at Leopard
wildcat. oil discovery (Block 35). (Gabon). XOM -Sputnik-1 (Gabon).

© 2015 IHS Source: IHS 41

After reaching record levels of exploration spend in
2013…
Organic upstream expenditure by type (2009-2013)
$60,000 25%
$50,000 20%
$40,000
15%
$mn

$30,000
10%
$20,000
$10,000 5%

$0 0%
Shell Statoil BP COP Eni TOTAL Chevron XOM
Unproved Acquisition Costs Exploration Costs % of total spending on exploration
Source: IHS © 2014 IHS

Indexed exploration spending by company

3
Shell
2.5 The only three companies to
grow exploration budgets BP
2
between 2008 and 2009 were TOTAL
1.5 XOM, BP, and Shell
COP XOM
1 Statoil
Chevron ENI
0.5 32% growth in 6% growth in
spending spending
0
2008 2009 2010 2011 2012 2013
Source: IHS © 2014 IHS

© 2015 IHS Source: IHS 42

 …the peer group have signaled their intent to pull back
exploration spending in 2015

2015 Exploration Drilling (Planned Wells) XOM

ups – ‘’US
tr
lowe eam ex 38.5bn
x7 imp r than 2 penditu
act
exp 013, lik re, 9%
lora
BP – tion ely to
‘r bud
expe educe get.
n e ’
post diture xplo
ratio
pon and n
proj e
ects margin
in th al
e up
stre
am’

She
ll
an in – ‘US4
crea bn
drop se in includi
t o US Alas ng
conv
entio $3bn in ka and
outs
ide t nal exp
he U lora
COP S’ tion
exp – ‘US1
lora
tion .5bn for
and
app
rais
al’
The peer group have
announced 2015 exploration bn
drilling focused around South – ‘US35 Statoil – ‘Exploration
Chevron xpenditure of TOTAL – ‘Exploration
budget of US2.2bn’
e
East Asia, the North Sea, upstream % budgeted to budget is expected to reach
0 - 15
which 1 less than $2 billion in 2015.’
Liberia and Nigeria explorati
o n’

© 2015 IHS Source: IHS 43