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TRANSCRIPT
Energy Panel
GLOBAL OIL MARKET –
ON THE PATH TO SUSTAINABLE
DEVELOPMENT
June 2, 2017
St. Petersburg International Economic Forum
Igor I. Sechin
Chief Executive Officer
2
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Sustainability of Main Producers in 30-40-50 $/bbl Scenarios
Sources: IEA, Wood Mackenzie, IHS Markit, analysts estimates
20
10
0
100
90
80
70
60
50
40
30
Bre
ake
ve
n p
rice
, $
/bb
l
Liquids production, mmbpd
Russia Iran
Saudi Arabia
OPEC Iraq
USA
(conv.)
Non-OPEC OPEC
Non-OPEC
Other Northern
Europe
(offshore)
Average
• Heavy oil, Canadian sands, projects in mature basins of Western Africa offshore, North Sea and Gulf of Mexico are not economically
viable at long term prices below 50 $/bbl
• Projects with combined production over 12 mmbpd and investment over $800 bln will not be sanctioned at prices below 50 $/bbl
Onshore non-OPEC
Onshore OPEC
Deepwater Offshore
Offshore
Tight/shale
USA
Canada
sands
USA
NGL
Breakeven costs by the resource type
3
Fiscal Stimulus to Electric Vehicles Buyers
* Tax and other incentives in the first 5 years of EV usage
Sources: UBS, Morgan Stanley
Economic benefits to EV buyers, thousand $ per vehicle
19,0
17,6
8,5
7,3 6,8 6,7
6,2 6,0
4,3
1,1 0,2
Norway Denmark China France UK Japan USA Netherlands Italy Portugal Germany
Other incentives*
One-time tax benefits
4
Investment Optimization
Oil and Gas Resources of Sanctioned Projects, bln boe
Source: Wood Mackenzie, Rystad Energy, companies’ data
Global Spending in Exploration and Production, $ bln
• Steep reduction of new projects launch in 2015 and 2016 after period of prior high activity
0
20
40
60
80
100
120
140
160
1996 2000 2004 2008 2012 2016
49
88
19
1291
1020
863 923
2014 2015 2016 2017
Opex LNG/PipelinesOffshore Onshore (unconventional)Onshore
-44% -33%
5
1,3
0,2
-0,6
0,5
0,3
1,2
0,1
-0,2
0,6
0,1
1,8
0,6
-0,4
0,8 0,8
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
I II III IV I
2016 17
EIA МЭА ОПЕК
0,5
1,0
1,5
2,0
2,5
3,0
2014 2015 2016 2017
EIA МЭА ОПЕК Forecast
Variation in Estimates of Global Demand & Supply Dynamics
Leads to Different Expectations
Excess of Global Liquid Hydrocarbons Supply over Demand,
mmbpd
Growth of Global Liquid Hydrocarbon Demand (y/y)
according to various energy agencies, mmbpd
• According to leading agencies, scale of oversupply in Q1
2017 significantly varies – from 0.1 to 0.8 mmbpd
Sources: EIA, IEA, OPEC
• Estimation of the demand growth forecast by different
agencies in the last two years have almost coincided
• Forecasts for Q2 - Q4 2017 vary
OPEC IEA OPEC IEA
The only quarter when
demand consensus
exceeded supply
~1,4
6
Oil Futures Trading Volume and Open Interest
Daily trading volumes and Open Interest for WTI
thousand contracts
Source: Bloomberg
Daily trading volumes and Open Interest for Brent
thousand contracts
• Brent futures market has significantly increased over the last 10 years
• Current liquidity indicators and frequency in futures trading substantially exceed 2008 numbers
0
100
200
300
400
500
600
700
2005 2007 2009 2011 2013 2015 2017
Тысячи
Объем торгов (в среднем за день)
Открытый интерес (open interest)
0
50
100
150
200
250
300
350
400
2005 2007 2009 2011 2013 2015 2017
Тысячи
Объем торгов (в среднем за день) Открытый интерес (open interest)
Trading volume (daily average)
Open interest
Trading volume (daily average)
Open interest
7
Equity Raising in Oil & Gas Sector
• New equity is not the main source of financing for the most of oil and gas companies
Global public offerings,
Jan 2011 – April 2017*, $ bln
Oil and gas companies’ public offerings,
Jan 2011 – April 2017*, $ bln
* Subject to effective transaction dates ** Jan-Apr 2017
Source: Bloomberg
0
200
400
600
800
1000
1200
2012 2013 2014 2015 2016 2017
Other sectors
Oil&Gas sector
45% 65%
67% 64%
81%
81% 0
10
20
30
40
50
60
2012 2013 2014 2015 2016 2017
Other regions
North America
** **
8
470
106 24 22
-2 036 -1 886
-1 264
Production Cut by the Agreement Parties is Mostly
Compensated by Production Growth in the USA and Other Countries
Note: Northern Europe includes Norway, UK, the Netherlands and Denmark. Figures for non-OPEC countries also include condensate, while for the USA – NGLs
Sources: OPEC, IEA, EIA, CDU TEK, Ministry of Energy of the Russian Federation
Decline in average daily production of crude oil in April 2017 vs. October 2016, thousand bbl/d
Saudi Arabia
Russia
Others
Changes in production of OPEC and non-OPEC Participants
of the Agreement
Production growth in other countries
Net
Reduction
Overall
Reduction Reduction Growth
Northern Europe
China Brazil
USA
Iraq
Angola
Kuwait
UAE
Mexico
Venezuela
Libya
Kazakhstan
Iran
Malaysia
Nigeria
Gabon
S. Sudan
+ 622
+ 149
+ 771
9
Challenging Time for Majors’ Traditional Business Models
Key Indicators
Hydrocarbons Production CAPEX Debt
Note: Aggregated for ExxonMobil, Shell, BP, Chevron and Total. CAPEX and debt – for the Company in general.
Source: companies’ data
17 16 16 16 15 15 16
0
5
10
15
20
25
0
2
4
6
8
10
12
14
16
18
2010 2011 2012 2013 2014 2015 2016
Production Share in the world
• Low reserves, low R/P rate, production decline
• High OPEX and CAPEX, projects with high breakevens
• High expectations of share buybacks
• Growing debt due to lack of equity
mmboepd $ bln $ bln
110 126
147 166
149 126
67
0
25
50
75
100
125
0
20
40
60
80
100
120
140
160
180
2010 2011 2012 2013 2014 2015 2016
CAPEX % of operational CF
-55%
+45%
156 150 154 182
212 246
306
0
10
20
30
40
50
0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016
Total Debt Debt/Equity
10
National Companies – Becoming Stronger
Hydrocarbon production by the largest oil and gas companies, mmboepd
• Pattern of national oil and gas companies becomes more and more apparent
• They are not only holders of large resource base, but also new active players shaping the global market
Note: Companies’ data for 2016, Rosneft – pro-forma data for acquisition of Bashneft. Data for Saudi Aramco, NIOC, Qatar Petroleum, ADNOC and CNPC for 2015.
Source: companies’ data, BP Statistical Review
Saudi Aramco
13.7 Gazprom
9.5
NIOC
7.0
Rosneft
5.7
Qatar Petroleum
4.8
ADNOC
4.8
ExxonMobil
4.1
CNPC
5.2
Shell
3.7
BP
3.3
Chevron 2.6 Total 2.5
11
Unlike Majors National Oil Companies Increased Production
Over the Past 10 Years
Source: companies’ data
Actual change in oil production over 10 years, thousand bbl/d
NOCs
Majors
-400
-200
0
200
400
600
800
1000
1200
1400
BP ExxonMobil
Total Eni Chevron Shell Statoil Роснефть CNOOC Petrobras CNPC Ecopetrol Sinopec
2400
12
Tax Take Reduction in Saudi Arabia – Stimulus to New Investments
Source: Vision 2030, analytics assessment
1 Corporate tax reduction from 85% to 50% is leading to 3 times
increase in Saudi Aramco's profitability
2 Financial restructuring
3 Other initiatives to raise oil price
Government Support to IPO
0
5
10
15
20
25
PetroChina ExxonMobil Saudi Aramco(New TaxSystem)
Saudi Aramco(Old TaxSystem)
Saudi Aramco’s Profitability Increased after Tax Changes
Revenue, $/bbl
44
141
267
2016 2020 Target 2030 Target
Non-Oil Revenues Growth in Saudi Arabia
+34% per
year
+7% per
year
3х
13
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Onshore Шельф NGL Прочие Всего
Growth of Liquids Production in the USA will Intensify in 2017-2018
• By September 2016 liquids production in the USA has declined by 0.8-1 mmbpd from the peak level of April 2015, but in
2016 YoY – only by 0.3 mmbpd
• Shale production was the main factor of this decrease, declining by about 0.6-0.7 mmbpd
Source: FIEF calculations based on EIA data
Structure of liquids production growth (YoY) in the USA, mmbpd
Offshore Total Other
14
Conditions for Production Growth in the USA
Oil and liquids production in the USA (excluding Alaska and the Gulf of Mexico), thousand bbl/d
Source: Wood Mackenzie
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035
$50-$60 $60-$70 $70-$80 <$50 Base production
• Sustainable growth in the USA is only possible with oil price higher than 50 $/bbl
• Nevertheless, many projects in the USA are profitable at 30-40 $/bbl
• Companies actively use hedging strategies to increase production
15
An Increase In Shale Productivity in the USA
Source: Rystad Energy
2014 2016 Change
Horizontal wells 1 030 322 -69%
Wells completed 22 750 8 930 -60%
Number of drilling rigs older than 2011 72% 28% -44%
Number of stages per well 23 32 +39%
Investments, $ bln 124 36 -71%
Cost of 1 mmbpd of production increase, $ bln 59 30 -49%
Drilling footage per rig, thousand meters per year 41 61 +47%
Initial production rate, bbl/1000 feet of horizontal lateral well 38 42 +11%
Increase In Shale Productivity In the USA
16
Over the Past 20 Years Share of Russia, Saudi Arabia
and the USA in the Market Increased to 39.5%
8,6%
11,5%
13,1%
28,4%
38,5%
1997
12,2%
8,3%
12,5%
31,5%
35,4%
2007
12,7%
13,5%
13,3%
29,4%
31,0%
2016
Other Other Other
Other
OPEC
Other
OPEC Other
OPEC
72,1 mmbpd 82,3 mmbpd 91,4 mmbpd
Total OPEC – 41.5% Total OPEC – 44.0% Total OPEC – 42.7%
Note. Production includes oil, condensate and other types of liquid hydrocarbons, incl. LPG (pentanes, ethane-ethylene fraction, propane, propylene and others). The OPEC countries' extraction is given by the
historical composition of the member countries of the organization for the corresponding year.
Source: BP Statistical Review, Wood Mackenzie
17
47
48
55
58
59
62
70
72
78
80
83
85
91
Turkmenistan
Kuwait
Iran
Iraq
UAE
Qatar
Azerbaijan
Russia
Oman
Saudi Arabia
Kazakhstan
Nigeria
Algeria
Oil Producing Countries’ Budget Deficit
Oil price required for budget balance in 2016, $/bbl
• State budgets of the main oil exporting countries remain in deficit at current price
Brent
Source: IMF, national energy agencies data, IEF estimates
18
bln boe mmboepd $/boe
Leader Among Public Companies
Hydrocarbon reserves1 Hydrocarbons production2 Production costs3
30
30
36
49
51
69
82
137
2,1
2,6
2,8
3,5
3,8
4,1
4,2
5,8
13,2
11,8
11,7
10,9
10,6
8,5
4,1
2,5
Bashneft contribution
Liquids Gas
Growth from 5.2 to 5.8
After acquisition of Bashneft
Note: (1) Rosneft AB1C1+В2C2 reserves under Russian classification as of 01 January 2017 (incl. Bashneft), data for other companies is taken from Wood Mackenzie reserve estimates
including commercial and sub-commercial reserves; (2) Lukoil’s data – preliminary operating results for 1Q 2017; (3) Rosneft and Petrobras data for 1Q 2017, other companies – 2016 data.
19
Integration Enhancement
Setting up JV Expanding presence
Vankor
49.9%
Taas-Yuryakh
49.9%
Ermak Neftegaz
49%
VChNG
20%
Essar
49%
Petro- monagas
Share increase up 40%
23.33%
JV ROG Stake increase
Schwedt – up to 54.17%
Bayernoil – up to 25%
MiRO – up to 24%
JV for
construction
of Tuban Refinery
45%
Targin
100%
Zohr
30%
20
Improvement of the Company’s Performance
Due to Synergy
Synergy Operational indicators
77%
84%
91%
95%
23%
16%
9%
5%
Filling stations, units
Refining, mmt
Liquids production, mmt
Proven oil reserves, blnbbl
Rosneft Bashneft
3 000
114
225
46,0
Operations
Finance
Technologies
Optimization of
deliveries of oil
and petroleum
products
Optimization of
transport and
logistics
Exploration
and
production
Refining Sales and
marketing
Administrative
costs cuts
Reduced
funding
Joint use of
advanced
technologies
180 bln rub.
21
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