investment in unconventional and conventional, …...investment in unconventional and conventional,...
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EIGHTH IEA IEF OPEC SYMPOSIUM ON ENERGY OUTLOOKS14th February 2018, IEF Secretariat, Riyadh, Saudi Arabia
Investment in unconventional and
conventional, Oil&Gas production
Alexandre ANDLAUER
Head of Oil & Gas Sector
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Key Questions
How are shale players (and investors) impacting Big Oils’ strategies ?
Can US shale grow sustainably at +1.2mbpd ?
Is there another shale boom to come outside the US ?
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How are shale players impacting Big Oils’ strategies ?
More competition on returns (cost cutting
and capex cuts more important than
production growth)
Short-term production growth: in-fill drilling
(Decline ratio at 1%, going to 3%), shale
growth
There is a battle to have the lowest free
cash flow break-even to the detriment of
capex
More diversification from players
(Petrochemicals, LNG…)
Share buy-backs and dividend increase
before capex increase
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How are shale players impacting Big Oils’ strategies ?
Cost
cutting
period
Reward
period
Big Oils are no longer taking the long-term bet on oil production: investors doubt about
the future of oil and reward capex and cost cuts
US shale players look like the only ones that want to grow (capital discipline is
moderated)
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Can US shale grow sustainably at 1.2mbpd ?
We see two issues on long-term growth above +1.2mbpd per year:
Increasing Legacy production
Long-term bottlenecks
We integrate that from a geological point of view there is little limit
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Can US shale grow sustainably above 1.2mbpd ?
Legacy production currently at -0.5mbpd, going to -1mbpd by 2020
(based on shale growth of +1mbpd per year)
Technology is changing the declining curve only slightly
Achieving growth of 1.2mbpd in 2020 would require an additional 2.2mbpd (gross
production): how many trucks, how much sand, water ?
But there are bottlenecks in the long-
term with limited solutions
Logistics on sand: 50 trucks a day, 24
hours a day, each truck hauling 20 to 25
tons of sand : road issues, too much traffic,
no solution to transporting sand over the
last few miles
Water: Shale wells use twice as much
water as they did a few years ago, around
10 million gallons each, or about 15
Olympic-sized swimming pools
Road and water look like the main
concerns for locals as from 2020…
+2.2mbpd gross production looks already
unrealistic (even with oil above $80/bbl)
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Can US shale grow sustainably above 1.2mbpd ?
Source: Kpler
Short-term issues can be resolved :
Frac crews (going from 30 to 20 people)
Sand : 13 sand mines opening in Texas
Pressure pumps
Takeaway capacity
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Is there another shale boom to come outside the US ?
What is needed to create another shale boom:
Government policy towards oil
Favourable geology
Water availability
Private entrepreneurship (and land ?)
Flexible labour market
Infrastructure
No chance in Europe (France and Poland have been disappointments, the UK is linked to gas)
Argentina and Russia look to be the only ones to become important shale players. Canada
close to Bakken growth
https://www.wintershall.com
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Is there another shale boom to come outside the US ?
Argentina :
$30bn investment from YPF over the next five years (10% of US investment)
But $240bn is needed
60% of Argentina’s resources lie in the Vaca Muerta formation
Still remains to be seen if the oil majors are willing to put in that kind of money
Production around 100kbpd in 2018, growing by 50kbpd until 2020, then 100kbpd in the
2020-25 period
Russia :
No significant shale production is expected before the mid-2020s
Gazprom Neft is leading Moscow’s drive to replicate the US shale boom and forecasts shale oil
from the Bazhenov could make up to 2.5% of its total oil&gas production in 2025
Production potential up to 1.5mbpd by 2030
Canada :
Canada’s shale output stands at about 335,000bpd and should grow to 420,000bpd in a decade
THANK YOU
Alexandre ANDLAUER
Senior Equity Analyst
Head of Oil & Gas Sector
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