Profitable Geology NUS

OCTOBER 2015
PROFITABLE GEOLOGY
Understanding the economic hurdles geologists face in the pursuit of
hydrocarbons from conventional and unconventional plays.
Dylan Mair, Senior Director, Energy Operations
2015 IHS. ALL RIGHTS RESERVED.
PROFITABLE GEOLOGY / OCTOBER 2015
Contents
Profitable Geology
Whats down with Upstream
Petroleum economics from a geologists point of view
Deepwater
Unconventional
Carbon Dioxide
Benchmark crude price outlook

Dated Brent and other benchmark crude oil price outlook to 2016
$140
Assumptions
Weak pricing will continue given high US
and OPEC production levels and demand
growth that is far from enough to absorb
crude supply on offer.
Outlook
Quarterly average price
$120
$100
OPEC output remains elevated (July

2015 at 32.0 MMb/d) and Iran return adds
to excess barrels on the market.
$80
$60
Oversupply continues for next 12

months, but narrows in second half 2016
as US production falls.
$40
$20
Price forecast risks
Dated Brent
LLS
4Q16
3Q16
2Q16
1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
$0
WTI
Source: IHS; Platts, 2015 by the McGraw-Hill Companies, Inc. (historical)

Notes: LLS = Louisiana Light Sweet. WTI = West Texas Intermediate. Disclaimer: Historical oil price data are extracted or derived by IHS from
Platts. All rights reserved. All liability for errors and omissions is hereby excluded by Platts and its sources. No representations or warranties are
made by Platts or its sources concerning the data or any conclusions to be drawn from it.
2014 IHS
Upside: Stronger than expected demand

growth as oil prices move to new lows;
OPEC chooses to accommodate returned
Iranian supply.
Downside: A repeat of this spring if the
beginning of US production declines triggers
a price rally allowing producers to finance
more drilling and completions and delaying
market equilibrium.
Dated Brent to average $54.60/bbl in 2015
Low Oil Price and Asia Pacific Exploration / APRIL 2015
Global Financial Crisis 2008-09

How quickly did markets move? How big was the change?
IHS upstream capital cost index - Market indices - Indexed to global financial crisis
Cost index (100 = 2008 Q3)
120.0
110.0
100.0
90.0
80.0
70.0
60.0
2008
2009
2010
2011
2012
Global steel
Offshore rigs
Equipment
Yardsfabrication
Bulk materials
Offshore installation vessels
Land rigs
Engineering and project management (USD)
All costs saw decreases with the global financial crisis

Global steel prices and offshore rigs were most heavily impacted
Source: IHS Capital Cost Analysis Forum
2013
2014
2015 IHS
Low Oil Price and Asia Pacific Exploration / APRIL 2015
IHS upstream capital cost index (UCCI)

Short-term market future projections
IHS upstream capital cost index - Market indices - Indexed to the great deflation (forecasts)
Cost index (100 = 2014 Q3)
120.0
110.0
100.0
90.0
80.0
70.0
60.0
2014
2015
2016
Global steel
Equipment
Bulk materials
Land rigs
Global construction labor (USD)
2017
2018
2019
2020
Offshore rigs
Yardsfabrication
Offshore installation vessels
Engineering and project management (USD)
Subsea
Actual newbuilds completed in 2014 was 32, down from a projected 38. While 2015 IHS
delays in delivery set to push expected jack-up deliveries from 65 to 70 this year
Source: IHS Capital Cost Analysis Forum
Jackups
APAC: The Last 10 Years

12-pt
- IHS stacked
area chartand
- 2015
Divergence
in supply
demand
140
120
140
Jackups
100
120
80
100
60
80
60
40
40
20
20
Supply
Source: IHS RigPoint
Contracted Demand
Brent (USD)
Brent (USD)/ Utilisation (%)
160
Contracted Util (%)

2015 IHS
Floaters
APAC: The Last 10 Years
80
140
70
120
60
100
50
80
40
60
30
40
20
10
20
Supply
Contracted Demand
Contracted Util (%)
Brent (USD)/ Utilisation (%)
Floaters
Attrition yet to help ease over-supply in Asia
Brent (USD)
2015 IHS
Jackups
APAC: Day rates

High-spec jackups at low-spec rates
300ft
310,000
>300ft
260,000
USD
210,000
160,000
110,000
60,000
10,000
Jan-05
Jan-06
Rates not adjusted for inflation

Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
2015 IHS
Floaters
APAC: Can floater rates go any lower?

Mid-water Vs Deepwater: Reduced price difference
720,000
3,000ft
>3,000ft
620,000
USD
520,000
420,000
320,000
220,000
120,000
20,000
Jan-05
Jan-06
Figures not adjusted for inflation

Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
2015 IHS
Petroleum economics from

a geologists point of view
10
AUSTRALIA AS AN OIL AND GAS DESTINATION / MAY 2015
Company profile:
Big Gas
Pursuing a share of significant gas

volumes.
Also setting priorities for:
Asset availability and net hydrocarbon
access
Chance of drilling success
Margins
Strategic upside (transport and end use)

Above-ground risk
2014 IHS
11
Consider best case per country for share of a 150

MMboe+ gas discovery in a proven hydrocarbon system
STRATEGIC & COMMERCIAL

Asset Availability
Country Operating Environment
Potential for Strategic Upside
Political/Fiscal Risk
Monetisation Risk
Net Margin/Value per bbl
Net HC Access
Time to Payback
Bulgaria (Black Sea DW)
Romania (Black Sea DW)
Cyprus (DW)
China (Sichuan)
Mexico (Mexican Ridges DW)
US GoM (deep shelf SW)
Canada (Labrador SW)
Brazil (Santos DW)
Venezuela (Plat'a Deltana SW)
Peru (Madre de Dios)
Bolivia (Santa Cruz)
Colombia (Caribbean DW)
Russia (West Siberia)
Azerbaijan (Sth Caspian DW)
Uzbekistan (Amu Darya)
Equatorial Guinea (ENG DW)

Kenya (DW)
Mozambique (North Rovuma DW)
Tanzania (DW)
Myanmar (Rakhine SW)
India (Cauvery DW)
Turkmenistan (Amu Darya)
Cameroon (North Douala)
Australia (Browse DW)
Mauritania (Taoudeni)
Libya (Sirte Deep)
Egypt (Nile Delta DW)
Lebanon (Levant DW)
Israel (Levantine DW)
TECHNICAL, VOLUME & COSTS

HC Scale
HC Productivity
Point of Entry Cost Exposure
Full-cycle Cost Exposure US$/bbl
Development Cost Exposure US$/bbl
Operating Cost Exposure US$/bbl
Chance of Success
Saudi Arabia (Rub al Khali)
Other above- and below-ground factors of different strategic importance
Comparison of key exploration factors of the Browse

Basin with its global peers
Model volume is significant
Chance of Success (# wells) is good
Point of Entry Cost Exposure is high
Time to Payback is very long
Net Margin/Value USD/bbl is slim
Net HC Access lots of upside
Ranking countries for overall petroleum sector risk

Key above-ground risks
Mexico key aboveground risks:

transfer risk,
corruption, facility &
personnel violence
Brazil key aboveground risks:

international
openness,
state/NOC role
Russia key above-ground

risks: international
openness, government take,
state/NOC role, contract
sanctity, corruption and rule
of law
Colombia key
above-ground risks:
export risk, facility
& personnel
violence
Australia key
above-ground risks:
government take,
policy volatility and
labour issues
Mozambique key
above-ground risks:
state capacity,
transfer risk,
government take,
corruption and rule
of law
14
Youve found gas! Your company is proud of you.

Maybe.
Gas, offshore Mozambique! A long way from anywhere this is a job for LNG.
15
Example from East Africa

Mozambique North Rovuma deepwater offshore gas
Cost Scenario
Minimum Programme
Quantity Basin Access cost (Exploration)
Exploration wells
Test
Years annual G&A
Farm-in premium wells
US$ Mill. Quantity Full-cycle Cost (E&A risk cover)
Seismic 2D
USD 1,000
$0.00
USD 1,000
$3.00
300
Seismic 3D
USD 10,000
$3.00
USD 10,000
$0.00
Appraisal wells
USD 75.00
$150.00
Additional seismic 3D
USD 75.00
$225.00
Test
USD 7.50
$15.00
Additional Exploration wells
USD 7.50
$7.50
Additional years G&A
USD 4.00
$4.00
Additional years G&A
USD 4.00
$20.00
USD 75.00
$0.00
3000 km seismic 2D
km2 seismic 3D
Unit Cost
$1.25
Pr Award studies/Acq. Price/Sign. Bonus
Full Cycle Programme
Unit Cost US$ Mill. Quantity Appraisal Cost (to devel. Sanct.)
Point of Entry Cost Exposure
Pre-Development studies
$256.75
Unit Cost
Additional blocks to deliver prospects
6000 Additional seismic 2D
$2.00
$0.25
USD 1,000
$6.00
USD 10,000
$0.00
USD 75.00
$0.00
USD 4.00
$12.00
Full-Cycle Prog. to Develop. Sanct.
Appraisal Cost (to devel. Sanct.)
$174.00
Full Cycle Finding Costs
Minimum Prog. to Develop. Sanct.
$430.75
Full Cycle Finding Costs US$/BBL
US$ Mill.
USD 0.25
$18.25
$449.00
$0.90
Mozambique_North_Rovuma_DW_offshore_gas_Q1_2014
Phasing
Year
Pre-Award/Entry
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Pre-Drilling Seismic
Discovery
Full cycle E&A
Dev. Sanction (yr end)
Development
Production
16
A conceptual field development plan is devised from an

engineering and cost perspective
Conceptual field development for multiple fields linked to the Afungi Park LNG PU
17
Net present value sums cash flow. Oil, condensate &

gas generate revenue; costs and the govt take it away
Mozambique Afungi Park LNG PU
18
Commodity prices impact these returns

Mozambique Afungi Park LNG PU
19
Mozambique North Rovuma deepwater offshore gas

Share of the barrel (US$100/bbl Tapis Blend) @ NPV(0%)
Scenario assumptions
Share of the barrel
HydrocarbonScale(next10years)
4000 MMboe
PRICE DIFFERENTIAL
NET MARGIN
Model Field Size

> 200 MMboe (500)
Chance of Commercial Success
1:3
Reservoir Productivity (DST based
where data available):
10,000boepd
$57.59
OPEX
CAPEX
$8.55
$5.22
$4.39
$0.90
$0.00
$23.35
E&A
FINDEX
SIGNATURE BONUS
STATE TAKE
(incl. SIGNATURE BONUS)
STATE TAKE
Fiscal elements: PSC with tax. No bonuses. Royalty about 10%. State participation 10%. Cost
recovery (about 70%). Profit share (95% to 50%) based on R Factor. Income tax about 32%
Your opportunity is reduced to key indicators

Afungi Park LNG PU key indicators (base price scenario, gas equivalent)
21
An asset will be measured against other opportunities in

the portfolio and any existing contractual obligations
Key indicators for other Mozambique assets
22
Deepwater
23
Deepwater production remains a leading driver of global

production growth
Forecast new source entitlement production
Cumulative entitlemnt production
24
Deepwater has been a gamechanger for liquids addition

although not in Asia Pacific
USA, GOM, Brazil, West Africa liquid rich; Middle East, APAC, East Africa gas rich
Source: IHS Global Deepwater and Growth Play Service

25
Deepwater: full cycle economics put some plays at risk

unless costs can be reduced or terms improved
Deepwater full cycle NPV/boe at $60/bbl Brent and current cost structure
$4
US Miocene
Falkland Islands (North)
Full-cycle NPV/boe @ $60/bbl
$3
$2
West Africa Equatorial

Margin: Ghana
West of Shetlands
Brazil: Post-salt
$1
Niger Delta
Congo Fan: Congo
US Miocene (Sub-salt)
Congo Fan: Angola
Breakeven at $60/bbl full cycle
$0
Brazil: Libra
US Lower Tertiary
-$1
Brazil: Pre-salt (Except

Libra)
Barents Sea: Norway

Falkland Islands
(South)
-$2
West Africa Pre-salt:

Angola
-$3
0
50
Bubble size reflects reserves

Source: IHS Energy Growth Play service
100
150
Average peak production (mbo/d)
200
250
300
2015 IHS
26
Asia Pacific tropical deepwater exploration drilling

Volumes diminishing, depths increasing
-500
2P/2C Hydrocarbons
in MMboe
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
500
1000
1500
2000
2500
3000
3500
Australia
Brunei
China
India
Indonesia
Malaysia
Myanmar
Philippines
Sri Lanka
Thailand
Timor Sea JPDA
Vietnam
Gas
Condensat
Oil
4000
Source: IHS EDIN
27
Rising costs delay FID for major projects, others as risk

Many are deep water projects
USA, GOM, Brazil, West Africa liquid rich; Middle East, APAC, East Africa gas rich
28
Challenges of frontier exploration

Indonesias Makassar Basins, North and South
Satyana et al (2012)
Anadarko
ExxonMobil
Marathon x2
Bacheller et. al (2011)
ConocoPhillips
Statoil x3
Drilling Cost
MM USD
ExxonMobil x2
Talisman
Four plays tested 2009-2012. Risks: volcanics, source, charge
Drilling challenges borehole stability, shallow gas pockets
Thin oil pay encountered in the North Makassar Eocene syn-rift.
Very small gas find in South Makassar.
Source: IHS EDIN
29
Unconventional
30
North American Shale Gale

September 2012
64.7 Bcf per day
NGL- and oil-rich
plays begin to drive
third wave
Henry Hub
monthly
average cash
price
Avg $7.45
Jan 04 to Dec
08
July 2008
56.1 Bcf per day
Haynesville, Marcellus
shale plays drive second wave
Shale Gale starts with

Avg $3.75
Barnett, Fayetteville,
Jan 09 to Sept. 12
and Woodford shale plays
Hurricane
Ike
Hurricanes Katrina, Rita
Note: Subject to final review and revision.

31
US gas prices continue to drive activity towards oil

May 2014 Henry Hub history and outlook
6
6.00
$ per MMBtu
OUTLOOK
5.50
5.00
4.50
4.00
3.50
3.00
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23
Marginal Cost Range

Source: IHS Energy, SNL Financial, Intelligence Press
NYMEX-May 2014
Outlook-May 2014
2014 IHS
32
International Shale Play Prove-It Progress Monitor

Min 200 wells needed to achieve commercial production
Shale Play Evolution US shale plays Vs International shale plays
600
Proof of
concept.
Geological
and
geochemical
data study
Daily Production (mboe/d)
500
400
Commercial Production
from few blocks. De-risking
expands to several blocks in
the play. Production reaches
or exceeds 100 mboe/d
Pilot Test stage. One or two

blocks de-risked. Less than
50 mboe/d production
300
Argentina and China are most advanced
among international shale plays and are
following a growth path similar to the US
shale plays so far. All other plays are still
at the proof of concept stage.
200
100
Argentina
Colombia
Mexico
Poland Australia
Algeria
0
Source: IHS
50
China
100
150
200
500
1000
# of Shale wells
2014 IHS
Source: International Unconventional Opportunities Monitor Service
Argentina: Breakeven and well costs trending

downwards, oil wells economic at oil plus price
Vaca Muerta average breakeven oil price
Avg. breakeven oil price($/bbl)
90
84.8
79.4
80
70
65.3
61.9
60
Oil Plus price: $45/bbl
50
40
30
20
10
0
2011
2012
2013
2014
Source: IHS
2014 IHS
Source: International Unconventional Opportunities Monitor Service
34
United States: Not every operator in every play is

successful. Geology (sweet spots) is key to success.
Single well economics
Cost analysis
35
Regional heavy oil recovery processesMMbbl oil

(Excludes Venezuela Faja Oil Sands)
Latin America
Middle East
Far East
C.I.S.
Africa
Europe
Australasia
Heavy oil data from IHS fields database
5,000
Waterflood
10,000
Thermal
15,000
20,000
Enhanced
25,000
30,000
Other
Note: Subject to final review and revision.
36
Heavy oil recovery technology

The challenge
Heavy and extra-heavy oil are thick, viscous fluids that contain little solution
gas for drive energy.
For extra-heavy oils, steam stimulation techniques have been the most
successful in simultaneously reducing in-situ viscosity and providing a drive
mechanism for the oil.
SAGD relies on a horizontal well pair and gravity forces to heat and move oil
to the producing well. Applicable in deposits with good, continuous vertical
permeability.
Verticalwellsimulationtechniquesrelyonthicknetpaysandslumpingof
heated oil plus steam to displace oil to the producing well. Applicable when
impermeable layers prevent gravity drainage of the oil. Two or more
processes, such as CSS and steam flooding, may be combined to move
heated oil to the producing wells.
Experimentation with steam simulation methods on heavy oils is being

considered or has commenced in other parts of the world.
37
Not-so-tight-oil: Cardium oil production surged with

horizontal wells, now 80% of total production
Cardium oil production by well type
120,000
Barrels per day
100,000
80,000
Deviated wells
Horizontal wells
60,000
40,000
Vertical wells
20,000
2000 2001increased
2002 2003
2004
2005 bd
2006
2007 2008 to
2009
2010114,000
2011 2012
2013 adding over
Production
from
33,000
in mid-2009
nearly
in 2013,
82 million barrels of oil in just 4.5 years. Horizontal wells average cost USD 3.45 MM.
Source: IHS Energy
2014 IHS
Source: Upstream Industry Future Service
Carbon Dioxide
39
Natuna D-Alpha
Water depth and potential for high CO2 significantly complicate field economics.
Natuna D Alpha is twice as big

deposit of hydrocarbons as any
other field in the Natuna/East Seas.
This is accompanied by 113 Tcf of
CO2.
Various scenarios for pipelines to
Singapore, Malaysia or Indonesia
have been proposed.
40
Acid Gas Injection (Carbon Capture Storage)

Global CO2 injection projects
The Gorgon project, develops the Gorgon, Gorgon North, Jansz-Io, Tryal Rocks West, Chandon, Chrysaor, and
Gorgon,
DionysusAustralia
gas fields. Gas will primarily be exported via the Gorgon LNG, the remaining to the domestic
market. Gorgon and Jansz-Io, contain gas reserves of 17.2 tcf and 17.5 tcf respectively. The main partners in
the Gorgon project (upstream and liquefaction) are Chevron, ExxonMobil and Shell with minority partners
comprising of BP, Osaka Gas, Tokyo Gas and Chubu Electric.
Gas from Gorgon field contains 14% (mol %) of CO2. Must be removed prior to liquefaction. Reservoir CO2 is
traditionally vented however, at Gorgon, the JV has proposed injecting the CO2 into a geological formation
~2.5 km below Barrow Island.
The $2 billion geosequestration project is expected to be the largest of its kind in the world, including 8-9
injection wells and 4 pressure management wells. Over the life of the project, 125 mt of CO2 is to be injected
into the Dupuy formation (saline aquifer) at a rate of 3.3-4 mt/year (equivalent to ~ 175-215 mmcfd). Excess
CO2 will be released directly into the atmosphere at an estimated rate of ~4 mt/year.
State and Federal governments jointly accept responsibility for long-term liability associated with the storage
of CO2 in the project.
Source:
IHS
Source:
Chevron
41
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42

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OCTOBER 2015

Dylan Mair, Senior Director, Energy Operations

2015 IHS. ALL RIGHTS RESERVED.

PROFITABLE GEOLOGY / OCTOBER 2015

Whats down with Upstream

Petroleum economics from a geologists point of view

2015 IHS. ALL RIGHTS RESERVED.

PROFITABLE GEOLOGY / OCTOBER 2015

Benchmark crude price outlook

Quarterly average price

OPEC output remains elevated (July

Oversupply continues for next 12

Price forecast risks

Source: IHS; Platts, 2015 by the McGraw-Hill Companies, Inc. (historical)

Upside: Stronger than expected demand

Dated Brent to average $54.60/bbl in 2015

2015 IHS. ALL RIGHTS RESERVED.

Low Oil Price and Asia Pacific Exploration / APRIL 2015

Global Financial Crisis 2008-09

Cost index (100 = 2008 Q3)

All costs saw decreases with the global financial crisis

2015 IHS. ALL RIGHTS RESERVED.

Low Oil Price and Asia Pacific Exploration / APRIL 2015

IHS upstream capital cost index (UCCI)

Cost index (100 = 2014 Q3)

Source: IHS Capital Cost Analysis Forum

2015 IHS. ALL RIGHTS RESERVED.

PROFITABLE GEOLOGY / OCTOBER 2015

APAC: The Last 10 Years

2015 IHS. ALL RIGHTS RESERVED.

Brent (USD)/ Utilisation (%)

Contracted Util (%)

PROFITABLE GEOLOGY / OCTOBER 2015

APAC: The Last 10 Years

Source: IHS RigPoint

2015 IHS. ALL RIGHTS RESERVED.

Contracted Util (%)

Brent (USD)/ Utilisation (%)

Attrition yet to help ease over-supply in Asia

PROFITABLE GEOLOGY / OCTOBER 2015

APAC: Day rates

Rates not adjusted for inflation

2015 IHS. ALL RIGHTS RESERVED.

PROFITABLE GEOLOGY / OCTOBER 2015

APAC: Can floater rates go any lower?

Figures not adjusted for inflation

2015 IHS. ALL RIGHTS RESERVED.

PROFITABLE GEOLOGY / OCTOBER 2015

Petroleum economics from

2015 IHS. ALL RIGHTS RESERVED.

AUSTRALIA AS AN OIL AND GAS DESTINATION / MAY 2015

Pursuing a share of significant gas

Strategic upside (transport and end use)

AUSTRALIA AS AN OIL AND GAS DESTINATION / MAY 2015

Consider best case per country for share of a 150

STRATEGIC & COMMERCIAL

2015 IHS. ALL RIGHTS RESERVED.

Bulgaria (Black Sea DW)

Romania (Black Sea DW)

Mexico (Mexican Ridges DW)

US GoM (deep shelf SW)

Canada (Labrador SW)

Brazil (Santos DW)

Venezuela (Plat'a Deltana SW)