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An Energy Outlook for 2019 Macro Trends and Perspectives
Regina MayorGlobal Sector Head and US Sector Leader Energy and Natural ResourcesJanuary 8, 2019
2© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
2© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 773491 #KPMGGEC
-20%
-15%
-10%
-5%
0%
5%
10%
Dow Jones NYSE Energy Index
Overall positive company outlooks, but less certainty on the economic front
90% CEOs confident in their company’s growth prospects
67% CEOs confident in growth of the global economy
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 773491
Source: 2018 KPMG CEO Survey, Wall Street Journal
Dow Jones -5%NYSE Energy Index -19%
3© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
3© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 773491
CPE code: ccf6 #KPMGGEC© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 773491 #KPMGGEC
While prices are down confidence remains within the sector
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 773491
Source: 2018 KPMG CEO Survey, EIA
88% Oil & Gas 89% Power & Utilities CEOs confident in their company’s growth prospects
40
50
60
70
80
90
WTI Brent
4© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
Although prices have been volatile, rig counts have steadily increased over the year
Sources: Baker Hughes, U.S. Energy Information Administration; CNBC; Bloomberg
1,527
750526
747 799 860 865 885
333
226
132
183 194 187 189 198
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2014 2015 2016 2017 Mar-18 Jun-18 Sep-18 Dec-18
Oil Gas
U.S. Rig Count
What does this mean for rig counts going into 2019?
11.7
44%
$42
U.S. oil production now at 11.7 mbpd
WTI minimum price since June 2016
WTI maximum price since June 2016
$77930
1083+16%
5© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
And breakeven prices have come down allowing for continued production in this environment
Chart Source: Wood Mackenzie
20
30
40
50
60
70
80
ThreeForks
Bakken BoneSpring
Niobrara SCOOP/STACK
EagleFord
Wolf-camp
Midland
Wolf-camp
Delaware
LowerTertiary
Pliocene Jurassic Miocene SubsaltMiocene
Duvernay Montney Cardium
Less competitive
More competitive
Lower 48 states Gulf of Mexico Canada Basin average 12-month average WTI oil futures price
$80 per barrel
Disruptive Forces in Oil & Gas
7© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
Mobility
Urbanization
Rise ofMillennials
Multi-generationalWorkforce
AgingPopulation
DownholeTechnology
EOR Techniques
Pad Spacing
Seismic ReservoirAnalysis
Drones/remoteManagement
IntelligentAnimation
Big Data
Blockchain
Internet ofThings
At the same time several macro disruptive forces are at play
8© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 623964 8
Demographics are influencing the industry
50% of the workforce will be millennials by 2020
77% of HR executives within Oil & Gas recognize the need for the workforce to be transformed, yet less than half are confident in HR’s actual ability to transform
The Future of HR
The Changing Workforce
Source: KPMG HR Survey
9© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 623964 9
Technology impacts are top of mind for Energy CEOs
Artificial Intelligence 85% of Oil & Gas CEOs report they’re piloting AI or have already begun implementation of AI for some processes
Job Growth58% of Oil & Gas CEO’s feel that AI and robotic technologies will create more jobs
10© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
Companies are also focusing on managing commodity price volatility through targeted improvements…
Adoption of lean six sigma techniques and digital technology/automation to reduce waste in current processes, drive increased design and process standardization, and eliminate rework and quality issues
Streamlined and standardized processes
Work along side contractors and suppliers to identify potential areas to reduce costs and increase efficiency through greater coordination of forecast, design changes, adoption of latest technologies, and execution performance
Increased integration with contractors
Task level planning geared around standard processes, driving increased ability to predict performance, leverage predictive analytics, reduce variation, establish roles and responsibilities, and improve performance
Effective field level execution planning
Performance management and accountability
Performance accountability driven down to the field level, with an integrated approach with contractors to establish a “one-team” performance mentality
11© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
11© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 773491
Additionally companies are focusing on an alternate energy portfolio
Drivers of the Renewable Energy Transition
1. Increased competiveness of renewable pricing 2. Investor pressure to reduce carbon3. Customer and employee pressure for same4. Changes to information reporting standards5. Industry peer pressure
EV/AVs and the Impact on Demand
13© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
Expansion in mileage will result from substantial increases at both ends of the age spectrum
Safe independence for the kids
Children will have the freedom tosafely travel to meet up with friendsor go to the movies or countless other activities
Convenience of “my time”
Working parents and young adultscan travel further to work as AVtechnology allows them to beproductive even during thecommute
Independence for seniors
The safety of seniors driving asthey age will no longer be aconcern and they can continuebeing active
9,95012,935
14,650
9,672
12,13713,044
14,878
12,966
Pre-driving (0 – 15)
Young Adults (16 – 29)
Parents (30 – 64)
Seniors(65+)
2015 2040
U.S. personal miles traveled (PMT) per capita
+22%
+1%
+2%
+34%
14© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
These combined forces result in an inflection point for both vehicle ownership models and mileage trends as forces begin to take hold
Regional Total Cost of Ownership (TCO) tipping-point on the horizon
U.K. to Ban Internal Combustion Engine Vehicles by 2040The Guardian, July 25th
California utility regulatorsare turning electric vehiclesinto grid resourcesGreentech Media, April 13th
Ecosystem view of U.S. vehicle miles traveled (VMT)2016 – 2040(a)
Alphabet's Waymo Taps Avis For Self-DrivingCar Maintenance ServicesForbes, June 26th
Examples of the new mobility ecosystem emerging
Note: (a) Other includes motorcycles, non-AV MaaS, and non-AV commercial personal vehicles (e.g. police cars)
Personal Miles Traveled on a Personally Owned Vehicle with no Autonomous Capabilities
AV PersonalICE
AV Personal– EV
AV MaaS– EV
4.3
2.9
1.9
0.6
Thank you
Regina Mayor - Global Sector Head and U.S. Sector Leader of Energy and Natural ResourcesPhone: 713 319 3137Email: [email protected]
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 710228
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