Oil Presentation8 AnExaminationofPrivateOilCompanyGrowth RArnott 2003

8/9/2019 Oil Presentation8 AnExaminationofPrivateOilCompanyGrowth RArnott 2003

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An Examination of Private Oil CompanyAn Examination of Private Oil CompanyGrowthGrowth

Rob ArnottRob Arnott

OIES Internal SeminarOIES Internal Seminar

2525thth November 2003November 2003


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Private oil company growthPrivate oil company growth

Overview of global industry trendsOverview of global industry trends

Regional costs and capital migrationRegional costs and capital migration

Industry costs and implicationsIndustry costs and implications

Why is further consolidation likely?Why is further consolidation likely?

Company specific growthCompany specific growth

Where will growth come from?Where will growth come from?

ConclusionsConclusions

How much more risk are companies taking on?How much more risk are companies taking on?


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Capital growth is key to equity investorsCapital growth is key to equity investors

Source: LSE, NYSE


4/263/23/20043/23/2004 44

Reserve growth influences share priceReserve growth influences share price

Source: LSE, NYSE, Morgan Stanley


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US, Canada and Europe overheatedUS, Canada and Europe overheated

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0$14.0

Europe Latin

America

Asia-Pacific Canada US Africa/Middle

East

Proved Acquisition Cost ($/boe) Finding and Development Cost ($/boe)

Companies overpaying to achieve growthCompanies overpaying to achieve growth

Source: Company data, JS Herold


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Migration of capital away from USMigration of capital away from US

-24%

-8%

47%

69%

40%

-40%

-20%

0%

20%

40%

60%

80%

US Canada Europe Africa/Middle

East

Asia-Pacific

Spending changes 2000Spending changes 2000--20022002

Source: Company data, Harrison Lovegrove


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Private oil company growth targetsPrivate oil company growth targets

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Chevron Texaco

BP

ConocoPhillips

ExxonMobil

Royal Dutch Shell

Total

ENI to 2008

to 2007

to 2008

2002-2008

Source: Company data


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The real cost of growthThe real cost of growth

-10

-5

0

5

10

15

20

$3.00 $5.00 $7.00 $9.00 $11.00 $13.00 $15.00

Spending per boe produced

Ann

ualproductiongrowth(

%

Majors

E and P companies

Smaller companies chase growth at shareholders expenseSmaller companies chase growth at shareholders expense

Source: Company data, JS Herold


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Growth without acquisitions unrealisticGrowth without acquisitions unrealisticEven revised targets are unlikely to be achievedEven revised targets are unlikely to be achieved

0

2

4

6

810

12

14

1618

20

80% 100% 120% 140% 160% 180%

3-Year F&D Replacement %

3-YearAvg.F

&DCost$/boe

0% 3% 5%

Super-majorsInt.-Integrated

Int.-EP

Can.-EPCan.-Int

US.-Int

Small US.-EP

Super-EPMid US.-EP

Large US.-EP

Source: Company data, JS Herold, OIES


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Decline versus growthDecline versus growth

More and more growth projects are needed to infill decline

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Chevron Texaco BP ConocoPhillips ExxonMobil Royal Dutch

Shell

Total ENI

A

nnualdeclinerate(%)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

%

new

growthu

sedup

Annual decline 2002-2007 (%) % of new growth used infilling decline

Source: Company data, OIES


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BPs oil production growth 2002BPs oil production growth 2002--20072007

-400

-200

0

200400

600

800

10001200

1400

Europe North

America

Africa Latin

America

Asia-

Pacific

Middle

East

Russia Total

Productionmboe/d

Reliance on Russia a high risk strategy?Reliance on Russia a high risk strategy?



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Shells oil production growth 2002Shells oil production growth 2002--20072007

-300

-200

-100

0

100

200

300

400

500

Europe North

America

Africa Latin

America

Asia-

Pacific

Middle

East

Russia Total

Production

mboe/d

Growth reliant on Nigeria (Bonga, NLNGGrowth reliant on Nigeria (Bonga, NLNG

liquids)liquids)



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Exxons oil production growth 2002Exxons oil production growth 2002--20072007

Growth from Bonga (Nigeria) + Kizomba/Dalia (Angola)Growth from Bonga (Nigeria) + Kizomba/Dalia (Angola)

-2000

200

400600

800

1000

1200

Europe North

America

Africa Latin

America

Asia-

Pacific

Middle

East

Other Total

Production

mboe/d



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Totals oil production growth 2002Totals oil production growth 2002--20072007

-100

-500

50

100

150

200

250

300

350

400450

Europe North

America

Africa Latin

America

Asia-

Pacific

Middle

East

Other Total

Productionm

boe/d

Deepwater Africa the key (Nigeria: BongaMain, Congo:Deepwater Africa the key (Nigeria: BongaMain, Congo:

Moho, Angola: Dalia)Moho, Angola: Dalia)



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BPs gas production growth 2002BPs gas production growth 2002--20072007

-150

-100

-50

0

50

100

150

Europe North

America

Africa Latin

America

Asia-

Pacific

Middle

East

Russia Total

Production

mboe/d

A switch from Europe and North America to Egypt, AlgeriaA switch from Europe and North America to Egypt, Algeria

and Trinidad LNGand Trinidad LNG



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Shells gas production growth 2002Shells gas production growth 2002--20072007

-150-100

-50

0

50

100

150

200

Europe North

America

Africa Latin

America

Asia-

Pacific

Middle

East

Russia Total

Productionmboe/d

NW shelf Australia and Nigeria LNG the driversNW shelf Australia and Nigeria LNG the drivers



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Exxons oil production growth 2002Exxons oil production growth 2002--20072007

-150

-100

-50

0

50100

150

200

250

300

Europe North

America

Africa Latin

America

Asia-

Pacific

Middle

East

Other Total

Production

mboe/d

Middle East gas project (Middle East gas project (RasGasRasGas LNG trains 3 and 4 + Qatar)LNG trains 3 and 4 + Qatar)

driving growthdriving growth



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Totals gas productionTotals gas production growthgrowth 20022002--20072007

-100

-50

0

50

100

150

200

250

300

Europe North

America

Africa Latin

America

Asia-

Pacific

Middle

East

Other Total

Productionm

boe/d

A more even spread from Indonesia, Venezuela (Yucal),A more even spread from Indonesia, Venezuela (Yucal),

Argentina (Carina/Aries),Argentina (Carina/Aries),



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Oil regaining share of production mixOil regaining share of production mix

Only in Total does gas increase proportionatelyOnly in Total does gas increase proportionately

0.0%

5.0%10.0%

15.0%

20.0%

25.0%30.0%

35.0%

40.0%

45.0%

50.0%

BP Chevron Texaco ConocoPhillips ENI ExxonMobil Royal Dutch

Shell

Total

%G

as

2002 2007 Source: Company data, OIES


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OPEC exposure is increasingOPEC exposure is increasing

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

BP Chevron Texaco ConocoPhillips ENI ExxonMobil Royal Dutch

Shell

TotalOPEC

Oilasaperce

ntageoftotal

producti

on

2002 2007

3.6 million b/d out of 15.8 million b/d will come from OPEC3.6 million b/d out of 15.8 million b/d will come from OPEC

in 2007in 2007

220

628

270

553

639719

581

Figure show oil production mb/d



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The equity market expects growth butThe equity market expects growth but

delivery is at riskdelivery is at risk

Source: Morgan Stanley


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More access on easier terms please!More access on easier terms please!

Further consolidation inevitableFurther consolidation inevitable

US, Canada and Europe are exUS, Canada and Europe are ex--growthgrowth

Acquisition costs still below FD costsAcquisition costs still below FD costs

Oil continues to drive POC production growthOil continues to drive POC production growth

Companies are not shifting to gasCompanies are not shifting to gas

Increasing differentiation between companiesIncreasing differentiation between companies

Capital flowing from low risk to high riskCapital flowing from low risk to high risk OPEC exposure increasingOPEC exposure increasing

Technical and political risk increasingTechnical and political risk increasing


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An Examination of Private Oil CompanyAn Examination of Private Oil CompanyGrowthGrowth

Rob ArnottRob Arnott

OIES Internal SeminarOIES Internal Seminar

2525thth November 2003November 2003

Documents

Oil Presentation8 AnExaminationofPrivateOilCompanyGrowth RArnott 2003