Impact of Shale Development on the Global and Regional Oil Outlook Dr. Ganesh Thakur, PhD, MBA, NAE
OUTLINE (7 THINGS TO REMEMBER) GLOBAL SHALE OIL OUTLOOK IMPACT OF US SHALE ON THE GLOBAL MARKET QUALITY OF OIL PRODUCTION DECLINE BEHAVIOR COST REDUCTION PERMIAN BASIN TIGHT OIL OIL PRICE FORECAST? 2
CONVENTIONAL: Harder to find easier to produce UNCONVENTIONAL: Easier to find harder to produce CONVENTIONAL RESERVOIRS: Small volumes that are easier to develop DEEP WATER LOW PERM OIL HIGH-MEDIUM QUALITY HEAVY OIL TIGHT GAS SANDS HIGHER OIL/GAS PRICE IMPROVED TECHNOLOGY UNCONVENTIONAL: Large volumes more difficult to develop Modified after Holditch, Masters. GAS HYDRATES GAS SHALE EXTRA HEAVY OIL OIL SANDS COALBED METHANE OIL SHALE 3
GLOBAL SHALE OIL RESERVES 1 m 3 = 6.29 bbl 4
GLOBAL SHALE OIL OUTLOOK OBSERVATIONS Shale oil (light tight oil) emerging as significant, relatively low cost resource in the US MEXICO U.S. 5
IMPACT OF US SHALE OIL ON GLOBAL MARKET PROJECTIONS By 2020 shale oil - 9% of global production. By 2035 Global shale oil production to 14 MM BOPD 12% of the world's oil supply. Falling prices - change in balance of world's energy powers (Russia and Middle East). MM BOPD 6
UNCONVENTIONAL OIL & GAS Gas production from U/C: Increased from 20.8 to 52 Bcf/D during 2006-16. About half of NA s supply. Oil production in NA: Growing and affecting world oil supply. Capex in U/C oil and gas wells = $100 billion in NA alone (2016). Bakken production: 1.2 MM BOPD (2014) 0.90 MM BOPD (2016) 7
GLOBAL SHALE OIL OUTLOOK OBSERVATIONS Benefits of oil price reductions: Net importers like India and Japan - GDP boosted by 4-7% by 2035 US, China, Eurozone and UK by 2-5% of GDP. Major oil exporters: Russia and Middle East - decreasing trade balances by 4-10% of GDP in LT if no shale development. Source: Pwc Shale oil: the next energy revolution 8
IMPACT OF US SHALE OIL ON GLOBAL MARKET TECHNOLOGY NA companies continue to innovate. U.S. has significantly advanced development of shale: Deployment of new technology (D&C, limited use of water, and environmental friendly) Extensive geological mapping U.S. foresight of states like ND not to overregulate industry 9
IMPACT OF US SHALE OIL ON GLOBAL MARKET INNOVATION REDUCED COSTS Lowered service provider rates Building frac fleets and buying sand mines IMPROVED TECHNOLOGIES Using more proppant Adding more sand Larger treatment with more fluid volumes Reducing cluster spacing TALENTED WORKFORCE Hiring frac experts Stabilizing the workforce Keeping value creators and innovators Source: OGJ IHS CERA Week US Oil Resilience A Product of Innovation 10
IMPACT OF US SHALE OIL ON GLOBAL MARKET PROJECTIONS U.S. shale oil production expected to: Dip 10-15% from 2015 levels Continue to slip in 2017 before rebounding 10% in 2018 (source: U.S. EIA) 11
IMPACT OF US SHALE OIL ON GLOBAL MARKET PROJECTIONS Production is to increase: 1 to 2 MM BOPD from 2012 to 2020 and 3 MM BOPD by 2025 This increase hardly offsets normal annual decline rate of 3-5% in U.S. conventional oil production 3 2 1 2012 2020 2025 12
IMPACT OF US SHALE OIL ON GLOBAL MARKET WTI vs. SHALE WTI - lower in sulfur and higher in API than Brent Bakken and Eagle Ford crudes are lighter than WTI Will fetch higher prices in the global market. The Open Market: Shale, Crude WTI and Brent Lighter, sweeter crude prices better in an international market and overtakes North Sea Brent 13
IMPACT OF US SHALE OIL ON GLOBAL MARKET WTI vs SHALE OIL WTI Sweet, sulfur content =.24 % Light, AAAAAA gggggggggggggg = 3333 SHALE Sweet, sulfur content = 0.18% Light, AAAAAA gggggggggggggg = 4444. 88 14
IMPACT OF US SHALE OIL ON GLOBAL MARKET ECONOMICS D&C costs for a horizontal well range from $4 to 6 MM: Wells typically have steep decline - first year of 70-90%. A break-even oil price was $55-88/barrel and is now $30-65/barrel Suggests that most shale oil plays are profitable at current oil price levels. Source: Wood Mackenzie, Business Insider, U.S. Global Investors 15
IMPACT OF US SHALE OIL ON GLOBAL MARKET Select Shale Oil Plays Average Break Even Costs ($USbbl) (Weighted average break-even cost WTI US$bbl for select formations) 88 79 80 54 41 62 41 65 48 30 55 31 2014 Break Even Price $USbbl 2016 Break Even Price $USbbl 16
U.S. SHALE INDUSTRY NEEDS $55-60 OIL TO KEEP PRODUCTION FLAT U.S. Shale Oil and Condensate Production (MMBbl/d) 17
WOLFCAMP DEPOSITIONAL MODEL MIDLAND BASIN 18
PERMIAN BASIN MAP AND PRODUCTION 19
PERMIAN WOLFCAMP PRODUCTION PERFORMANCE Type curve for Wolfcamp shale oil production in Reeves county 2k Rates (Mcf) 6000 5000 4000 3000 2000 1000 Decline data for ID: 114259 Exponential decline: Qi=3093.86, Di=-1.3454%, r2=0.8212 BOPD 1k 800 600 400 200 100 80 60 40 20 0 10 20 30 40 50 60 70 80 90 Time (months) 10 8 6 1 2 3 4 5 6 7 8 Years Source: http://www.drillnomics.com/wp-content/uploads/2016/01/tx-figure-12.png & http://www.uky.edu/kgs/emsweb/devsh/production/ 20
TYPICAL FRAC JOB DEADWOOD FIELD, GLASSROCK CO., TX Source: Apache 21
SUMMARY (7 THINGS TO REMEMBER) SIGNIFICANT SHALE OIL RESERVES HIGH QUALITY OIL PRODUCTION DECLINE BEHAVIOR COST REDUCTION NEED $55 60 PER BBL OIL PRICE TO MAINTAIN PRODUCTION PERMIAN BASIN TIGHT OIL A MAJOR PLAYER OIL PRICE FORECAST?? 22