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25th General Assembly, Houston, USA

25 May 2017

Oilfield market outlook


The BIG picture for oilfield mineral demand
Mike O’Driscoll, Director, IMFORMED

Networking and knowledge for the industrial minerals business


Oilfield Market Outlook

• Launched in January 2015

• Extensive experience & reputation

• Market research

• Specialist conferences

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook
Oilfield Market Outlook

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Outline

1. Minerals in drilling

2. Energy supply & demand:


The Big Picture

3. Drilling rig activity

4. Outlook

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Industrial minerals & the oilfield market


A wide range of vital applications
• Drilling
• Well
cementing
• Stimulation
• Production
• Surface
prep/cleaning

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Industrial minerals & the oilfield market


A wide range of minerals used
Attapulgite Lignite
Barite Lime
Bauxite Magnesia
Bentonite Magnesium silicate
Borates Magnesium chloride
Calcium carbonate Mica
Calcium chloride Perlite
Diatomite Potassium chloride
Garnet Salt
Gilsonite Sepiolite
Graphite Silica sand
Gypsum Soda ash
Haematite Sodium silicate
Hectorite Vermiculite
Ilmenite Zinc oxide
Iron oxide Zirconia
Source: OGP/IPIECA
Kaolin
©IMFORMED 2017 | imformed.com
Oilfield Market Outlook

Barite & the oilfield market


Barite the primary weighting agent
% Low- Low-gravity solids are
Material SG % Purity
gravity*
the typical measure of
Low-grade fluid ‘health,’ or
barite 3.5 55 45 cleanliness
Standard
4.1 94 6
barite
Haematite 5.0 99 ~1

Halliburton scale of consumption


 Transition to major use of 4.1
 Bentonite volume use roughly
50% of barite
Source: JJ Miller, Halliburton (2017)
 Carbonate use 10% of barite
©IMFORMED 2017 | imformed.com
Oilfield Market Outlook

Barite & the oilfield market


Drill rig count vs. barite production 2000-2016
10000

7400
000’s tonnes
World barite production Rig count
9000
6400

8000 5400

4400
7000

3400

6000

Int. rig count 2400

5000
1400

US rig count
4000 400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Data sources: USGS; Baker Hughes ©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Energy supply & demand:


The Big Picture 25 January 2017

Key drivers

• World economy expected to almost double over next 20 years,


growing at 3.4% p.a.

• World population to grow by 1.5bn to reach 8.8bn by 2035

• Economic growth mainly driven by emerging economies

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Energy supply & demand:


The Big Picture 25 January 2017

Regional demand

• China and India account


for >50% demand growth

• India expected to
overtake China after 2035

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Energy supply & demand:


The Big Picture 25 January 2017

Primary energy demand growth

Shares of primary
7.1% energy
Oil + Gas
~ 52%

1.6%

0.7%

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Energy supply & demand:


The Big Picture
Oil supply
• Supply shift to large,
low cost resources

• Middle East OPEC,


Russia, US share
increases from 56%
to 63%

• Growing output
from Brazil
deepwater wells

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Energy supply & demand:


The Big Picture
• Natural gas 1.6%
Gas supply growth

• Shale gas increases


5.6% led by USA

• Conventional gas
increases led by
Middle East, Russia,
Australia

• Main demand
centres are China,
Middle East, and
USA

• Expansion of LNG
trade
©IMFORMED 2017 | imformed.com
Oilfield Market Outlook

Energy supply & demand:


The Big Picture
Rise of EV

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Energy supply & demand:


The Big Picture
Rise of EV
• Global car fleet grows 0.9bn to 1.8bn
by 2035, mostly from growing middle
classes in emerging markets (China,
India)

• EV increase from 1.2m to 100m by


2035: 25% hybrids, 75% battery run

• But only reduces oil demand for cars


by 1.2 Mb/d

• Overall, inceased car demand


overpowers impacts of fuel efficiency
and EV use, so that oil demand for
cars rises by 4Mb/d, accounting for
25% of total growth to 2025

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Rig count turn around

Source: Baker Hughes/WTRG Economics

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Rig count turn around

2,500
US rig count by drill type 2011-2017
Showing rise in horizontal rig share in total rig count
1,984
2,000

Vertical
1,500

59.5%
1,000
789
Horizontal

500

83.4%
Directional
0
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Source: data from Baker Hughes

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Proppant outlook – boom time…for frac sand

Exploiting the Permian Basin Eddy County, New Mexico.


Source: Google Earth 2017 ©IMFORMED 2017 | imformed.com
Oilfield Market Outlook

Proppant outlook – boom time…for frac sand

Exploiting the Permian Basin Eddy County, New Mexico.


Source: Julie Dermansky ©IMFORMED 2017 | imformed.com
Oilfield Market Outlook

US frac sand demand & rig count 2006-18


17% 22% 29% 42% 53% 57% 60% 63% 68% 76% 78% 82% 85%
120,000 2500

Avg. rig count/year


‘000s tonnes

Avg. % horizontal wells of total rigs/year


Estimated
100,000
2000

Frac Sand
80,000

Frenzy #1 1500

60,000
Frac Sand
Frenzy #2
1000

40,000

500
20,000

0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Data source: USGS; Baker Hughes


©IMFORMED 2017 | imformed.com
Oilfield Market Outlook

Frac sand dominant


US proppant market share change
RCS CP
2% 3%
CP
10%
RCS
10%

Frac sand Frac sand


80% 95%

2012 2017
RCS resin coated sand
CP ceramic proppants

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Key US shale gas plays

These basins
accounted for 92% of
domestic oil production
growth and all domestic
natural gas production
growth during 2011-14

Source: Basins map & data EIA

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

US shale basin drilling activity


Rig count comparison March 2016 & March 2017; Rapid recovery of Permian Basin

350

600 308
513
300 484 478
500

385
400
250
292 308
300

200 200 152

100 152
150
Permian Basin recovery
Mar-16
0
2011 2012 2013 2014 2015 2016 2017 Mar-17
100

50

Source: data from Baker Hughes

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Global shale gas outlook 2035

• Shale production grows 5.6% p.a.

• Accounts for 2/3 gas supply increase

• Driven by USA, output >100%

• China emerges as 2nd largest producer

• Shale gas 25% total gas supply in 2035

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Global shale gas outlook

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Outlook – Year of Recovery


Jeff Miller, CEO, Halliburton
“I love the way the market is shaping up. In North America the
momentum is building, and we only see it getting better…we've
seen the bottom in the international market .”

Paal Kibsgaard, Chairman & CEO, Schlumberger


“Recovery will clearly be led by North America land, where
investment levels are expected to increase by 50% in 2017”

Martin Craighead, Chairman & CEO, Baker Hughes


“The international markets we think have reached bottom in terms of
activity. In North America, we continue to see growth and some positive
pricing trends in certain basins.”

Paul Howes, President, CEO, Newpark Resources


“The continued strengthening in the US market should enable our
Fluids segment margin to remain in positive territory.”

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook

Outlook – Year of Recovery

• Emerging from the doldrums of 2015/16

• Increased E&P spending and drilling


activity in the USA

• Outside North America, recovery is


less pronounced, with the exception
of Brazil and parts of the Middle East

• EIA forecasts Brent to average $55/bbl in 2017 and $57/bbl in


2018. WTI to average about $1/bbl less than Brent
• US drilling activity continues to rise
• WSJ: “Get ready for peak oil demand” - not “whether” but “when”

• “Nobody knows” says Spencer Dale, group chief economist BP PLC


©IMFORMED 2017 | imformed.com
Oilfield Market Outlook

Thank you for your attention

©IMFORMED 2017 | imformed.com


Oilfield Market Outlook
Oilfield Market Outlook

©IMFORMED 2017 | imformed.com

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