Introduction to Infield Systems
April 2013
Table of Contents
I.
II.
III.
2
Introduction to Infield Systems
Macro Market Overview
a)
Commodity Price
b)
Hydrocarbon Supply and Demand
c)
Brent and WTI Spread
Administration
SECTION I
Introduction to Infield Systems
Geographic Locations
A globally recognised oil & gas consultancy with a dedicated international team of cross-sector specialists
Office Locations
Key Global Personnel
Steve Adams (International Sales Manager)
Aberdeen
steve.adams@infield.com +44 1224 258 150
James Hall (Director)
London
james.hall@infield.com +44 207 423 5024
Aberdeen
London
Quentin Whitfield (Director)
London
quentin.whitfield@infield.com +44 207 423 5001
Gregory Brown (Consultant)
London
gregory.brown@infield.com +44 207 423 5031
Houston
Singapore
Head Office
Luke Davis (Senior Analyst)
London
luke.davis@infield.com +44 207 423 5025
Ioanna Karra (Consultant)
London
Ioanna.karra@infield.com +44 207 423 5026
Regional Office
JV/Representative Office
Edward Richardson (Analyst)
London
edward.rishardson@infield.com +44 207 423 5027
34 Energy Professionals covering all geographic regions
4
Source: Infield Systems
Oil and Gas Sector Exposure
Infield provides products and services across the full oilfield service and renewables supply chain
5
Sources: FMC, Infield Systems
Products & Services
A leading offshore oil and gas and associated services consultancy
Data, Reports & GIS Mapping
•
•
•
Offshore specific data covering production
infrastructure, rigs, specialist vessels,
construction yards, contracts and OFS
providers
Sector specific reports
GIS mapping services covering operational
and forecasted production infrastructure
6
Source: Infield Systems
Business Strategy and Analysis
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•
•
Market matching and market tracking –
“Match & Track”
Complete market intelligence outsourcing
Bespoke sector services
Market entry strategy
Procurement strategy advisory – “Project
Flow”
Ad-hoc sector analysis
Transaction Services
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•
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•
•
•
Pre IPO due diligence
Market overview IPO
Debt financing analysis
Distressed asset purchases
Buy/sell side market due diligence
Opportunity identification
Products & Services – Market Reports
Infield publish a range of market reports covering various aspects of the O&G, renewables and associated
marine industries
Regional Reports
•
•
•
•
•
•
Arctic
Asia
Australasia
Latin America
Middle East
North America
Global Perspectives
•
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•
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Deepwater
Fixed Platforms
Floating Platforms
Pipe & Control Lines
FPSOs
Specialist markets
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Offshore Heavy Transport
Heavy Lift
LNG
Wind
ROVs
Construction Vessels
Subsea Well Intervention
The market update reports provide detailed information, analysis and insight into market trends over the next five years, which is presented in a
manageable, clear and concise manner. The integration of the Offshore Energy Database, the Specialist Vessels Database, the construction and
fabrication yards database, the drilling rigs database along with Infield's OFFPEX™ Market Modelling and Forecasting System means that each report
contains uniquely detailed and up to-date analysis. Within each market update a five year forward forecast is provided with a five year history
7
Source: Infield Systems
SECTION II
Macro Market Overview
Short-term Oil Price Dynamics
Brent prices are set to exceed the $100 mark for the third consecutive year
Brent Annual Average Price
• In spite of weak economic prospects in the Eurozone, and
booming production in North America, we anticipate that Brent
will continue to stay above $100/bbl throughout 2013
‐ Infield expect a $114/bbl average in 2013 and $115 in 2014
‐ Given the relatively low level of OPEC spare capacity and the
instability in the MENA region, the risk to oil prices is skewed
towards the upside
120
100
$/bbl
80
60
40
20
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Brent
Brent Trading Range
150
Demand Responses
140
130
BRENT
$/bbl
120
110
100
90
80
Supply Responses
70
60
Jan/11
9
May/11
Aug/11
Dec/11
Source: Infield Systems, EIA
Apr/12
Aug/12
Dec/12
• Without unexpected geopolitical tension and supply outages,
Brent oil prices are likely to remain in a tight range between $100
and $120/bbl throughout 2013 and 2014
‐ The European benchmark has been fluctuating within this
narrow range since early 2011
‐ This price band is high enough to support supply, but not too
high to drag on an economic recovery
• We believe that a $90/bbl floor would only be broken for short
periods of time as low prices will likely spur supply responses
from oil producing countries
‐ Saudi Arabia could reduce supply to balance the market. The
country produced a 30-year high of 10.1mbpd in June 2012
but has since reduced production to 9.4mbpd
• In contrast, a period of sustained oil prices in excess of $120/bbl
would have the potential to be met with demand responses
‐ High prices could erode demand and OECD countries release
their strategic petroleum reserves
Long-term Oil Price Dynamics
We believe that supply and demand fundamentals are sufficient so as to support oil price appreciation in the
long-run
Brent/WTI Price Forecast
Brent Price Momentum
200
0
160
18
140
17
$/bbl
94
100
97
12
118
115
114
112
120
13
102
106
11
121
110
9
124
115
6
7
•
We believe that Brent will continue its appreciation to reach $133/bbl, with
a $6/bbl premium to WTI in 2020
‐ The supply and demand fundamentals are sufficient so as support
higher prices as unconventional developments are too small to meet oil
demand from emerging markets and compensate the depletion of
existing fields
‐ However, after controlling a number of negative factors such as the
shale revolution and a weaker Chinese market, our long run forecast
deviates from the super-cycle momentum seen throughout the past
decade
•
The commodity super-cycle was supported by increasing demand from
China, depletion of existing reserves, and a long term appreciation of the
US Dollar
‐ The mid-run rebound from the lower extreme was driven by
government support and flourishing liquidity
‐ Short-run price spikes were driven by temporary factors
‐ The oil glut scenario shows the unlikely case of sustained excess oil
supply caused by unprecedented large-scale unconventional supply
10
6
20
120
127
124
130
127
133
30
40
50
80
60
60
70
40
80
20
90
0
$/bbl
180
100
2012
2013
2014
WTI
2015
Brent
2016
2017
2018
Brent-WTI Spread (LHS)
2019
2020
Long-term Brent Price Scenarios
210
Unsustainable Short-Run
Spikes
$/bbl
180
150
120
90
60
30
0
2002/01
10
2003/01
2004/01
2005/01
Sources: Infield Systems, BP
2006/01
2007/01
2008/01
2009/01
2010/01
2011/01
Brent
2012/01
2013/01
2014/01
2015/01
2016/01
2017/01
2018/01
2019/01
2020/01
Global Oil Supply and Demand Balance
We anticipate that oil markets will be largely in balance by 2020, however, significant risks to supply implies
a sustained premium in oil prices
Global Oil Supply and Demand Balance in 2020
• We expect demand for oil to grow at an average of 1.5% between
1.8
• The high and low case scenarios each forecast a marginal excess
supply, however this does not mean that oil price will experience
a steady decline throughout the rest of the decade
‐ A small supply excess will not affect Saudi Arabia’s role as the
key swing producer, which could cut production levels to
influence prices
‐ In addition, should there be any major delays in key projects
the sector could see a very tight supply and demand
differential leading to significant pressure on prices
11
Source: Infield Systems, IMF
1
120
100
2
105.2
3
107
101.2
80
101.5
96.3
97
4
5
60
6
40
7
20
8
0
9
High Case
• On the supply side, our base case forecast anticipates that global
oil production capacity will reach 101.5mbpd in 2020, creating a
well balanced supply and demand dynamic
‐ The forecast is based on the assumptions that oil prices will
stay above $80/bbl, currently producing fields will deplete by
3mbpd (with EOR taken into account) over the next 8 years,
and viable new projects go on-stream without severe delays
0
0.7
0.3
million bbl/d
140
million bbl/d
2011 and 2015, and 1.6% between 2016 and 2020 to reach to
101.2mbpd by the close of the decade
‐ Demand in emerging economies will remain robust, with an
increase supported by higher income and transportation
needs. Demand destruction in developed economies is
overstated
‐ Oil demand will also be supported by stronger global GDP
growth in the next decade as forecast by the IMF
‐ Unlike the notoriously volatile annual rate, the 5-year average
GDP growth was stable over the past 40 years. Global oil
demand growth in the same period was highly correlated with
the GDP growth rate
Demand
Base Case
Low Case
Supply
Excess Supply (LHS)
Global Oil Demand/Global GDP Growth Rate
5%
Base Case Forecast
4%
3%
2%
1%
0%
-1%
1971-75 1976-80 1981-85 1986-90 1991-95 96-2000 2001-05 2006-10 2011-15 2016-20
Avearge Global GDP Demand Growth Rate
Avearge Oil Demand Growth Rate
Supply and Demand – New Supply Potential
Supply and demand fundamentals are strong enough to support oil price appreciate in the long-run
New Oil Project Sanction Price/Quantity
Ultra-Deep Water
30
Deepwater
Traditional
Heavy Oil
No Abundance of Oil
Shale Oil
•
The development of shale oil in the US, oil-sands in Canada and
ultra-deepwater all over the world has brought new hope on crude
supply. However, we do not foresee an abundance of oil in the rest
of the decade as new supplies are too small and too slow to satisfy
demand growth from emerging economies
‐ By 2015, shale oil is forecast to constitute only 3.2% of global
supply, up from 1.8% in 2013
‐ Although a large quantity of unconventional reserves exist in
countries like Venezuela, Canada, and Argentina, it is unlikely to
see large-scale development with meaningful supply in the near
future
•
In addition, in the second half of the decade conventional non-OPEC
supply will fall as their fields are increasingly mature, and OPEC
spare capacity will drop as capacity growth will likely lag behind
schedule
20
15
10
5
0
30
40
50
60
70
80
90
100
110
$/bbl
Oil Reserve Size / Production Rate
400
350
9
Extra-Heavy
Oil
Conventional
Oil
Tar Sands
Shale/Tight
Oil
8
Pre-Salt
Oil
7
300
6
Bn bbl
250
5
200
4
150
3
100
2
50
1
0
0
Venezuela Saudi Arabia
Canada
Iran
Iraq
Kuwait
UAE
Russia
Reserve (LHS)
12
Sources: Infield Systems, Goldman Sachs, BP
Libya
Production (RHS)
Nigeria
US
Kazakhstan
Qatar
Brazil
Others
Bn bbl / year
million bbl/d
25
Supply and Demand – Upside Pressures
The cost of production, and Middle Eastern fiscal budgets will support oil price appreciation in the long-run
High Cost Supports Oil Price above $95/bbl
Fiscal Budget Breakeven Oil Price in the Middle East
• The average marginal cost of supply for the most expensive
new oil projects has exceeded $95 a barrel
‐ Canada's oil-sands need an oil price of $100/bbl to achieve
an adequate return on capital
‐ If oil price stays below $95 for a sustained period a
number of marginal fields will be shut down, including
supply from small U.S. shale oil producers
2012 Brent Average
Kuwait
Saudi Arabia
UAE
Oman
Iraq
• The average fiscal breakeven oil price across OPEC countries is
likely to rise from $94 a barrel today to $109 by 2017
Bahrain
Iran
20
40
60
80
100
120
140
• In addition, a lack of skilled workers and high labour costs are
expected to increase further cost inflation and as such require
even higher sanction prices for new projects
Fiscal Breakeven Oil price
Available Quantity (bn bbl)
Production Cost Curve of Oil Related Resources
2,000
200
1,600
160
1,200
120
800
80
400
40
0
Produced
MENA Conventional Other Conventional
Available Quantity (Left)
13
Sources: Infield Systems, Standard & Poor’s, IEA, EIA
CO2 EOR
Cost Range (Right)
Other EOR
Low Oil Price
Deep Water
Arctic
Medium Oil Price
Heavy Oil Bitumen
High Oil Price
Shale Oil
0
$/bbl
0
Supply and Demand – Downside Pressures
A sustained oil price in excess of $120/bbl is self-destructive as it fosters disruptive supply and drags on the
economy
Sustained High Oil Price is Self-Destructive
High Oil Prices Support Unconventional Development
A new oil industry (such as the Arctic) would likely emerge should there be
a sustained period of oil price appreciation. The oil price surge in late ‘70s
spurred shallow/medium-water drilling, high oil prices around the
millennium created the deep-water sector, while the continued price
increase has encouraged operators to drill ever deeper into the ultra-deepwater territory. This exploration has been supported by the requirement to
replace depleted reserves, particularly conventional assets
•
Unconventional onshore oil activities, such as shale oil, oil-sands and heavy
oil, are also fostered by this unprecedented $100/bbl high oil price
environment in addition to the requirement to replace depleted
production. Although these new oil resources are usually associated with
higher marginal cost and longer development horizon, additional oil supply
from these sectors will likely put some downside pressure on oil price
High Oil Prices Foster New Oil Industries
•
Sustained high oil prices above £120/bbl in 2013-14 could prove to be self
destructive as they would threaten the fragile global economic recovery
‐ High oil prices push up cost and shackle the growth potential of the
world economy, which in turn causes oil price to decline
‐ This is also reflected in the refining industry which is faced by declining
margins on the back of a high oil price
•
Furthermore a high oil price would also encourage increased fuel efficiency
and the development of alternative energy in the long-run
‐ By 2020 the US have to use 2mbbl/d of ethanol by law. Governments
across Europe and Asia amongst others have introduced schemes for
renewable energies
‐ Gas is increasingly used as transportation fuel driven by the wide oil-gas
price gap. In addition, auto makers are increasingly focused on fuel
efficiency
5,000
1
4,000
Water Depth (m)
Sustained high oil
price spurred the
deep-water sector
(1000-1499m)
Sustained high oil price
spurred the shallow/mediumwater depth sector (100999m)
3,000
1975
1980
1985
100-999
14
Sources: Infield Systems, BP
1990
1000-1499
1995
>1499
2000
Oil Price (2011$)
80
40
3
1,000
0
1970
100
60
2
2,000
120
Sustained high
oil price spurred
the ultra-deep
water sector
(>1500m)
2005
20
2010
0
Oil Price (2011$/bbl)
•
Brent and WTI Spread
A wide spread between Brent and WTI prices is likely to remain throughout 2013 and 2014 before gradually
narrowing to about $6/bbl in 2020
Brent/WTI 52-week Spread
US Crude Oil Stock
30
390
25
370
350
Mbbls
$/bbl
20
15
330
310
10
290
5
270
250
0
Mar/12
May/12
Jul/12
Sep/12
Nov/12
Jan/13
Mar/13
OECD Europe Annual Oil Stock
1,450
1,400
Mbbls
1,350
1,300
1,250
1,200
15
2002
2003
2004
Sources: Infield, EIA
2005
2006
2007
2008
Feb
Mar
Apr
7 Year Range
Brent/WTI Spread
1,150
Jan
2009
2010
2011
2012
May
Jun
Jul
Aug
7 Year Average
Sep
Oct
Nov
Dec
2012
• Increasing pipeline capacity and rising rail shipments in recent
months have helped shrink the oil-glut in Cushing and have
brought the Brent/WTI spread down to about $16/bbl in
March 2013 from $23/bbl in February. However, we
anticipate that a spread of around $15/bbl is unlikely to
narrow down in the near future
‐ Brent is supported by a premium attached to the unstable
MENA supply and increased demand for Brent grades from
countries in Asia like South Korea and China
‐ In contrast, WTI is supressed by high production from the
Bakken oil shale formation, high stockpiles in Cushing and
large-scale unconventional shale-oil development
SECTION III
Administration
Disclaimer
The information contained in this document is believed to be accurate, but no representation or warranty, express or implied, is made by Infield Systems
Limited as to the completeness, accuracy or fairness of any information contained in it, and we do not accept any responsibility in relation to such information
whether fact, opinion or conclusion that the reader may draw. The views expressed are those of the individual contributors and do not represent those of the
publishers.
Some of the statements contained in this document are forward-looking statements. Forward looking statements include, but are not limited to, statements
concerning estimates of recoverable hydrocarbons, expected hydrocarbon prices, expected costs, numbers of development units, statements relating to the
continued advancement of the industry’s projects and other statements which are not historical facts. When used in this document, and in other published
information of the Company, the words such as "could," "forecast”, “estimate," "expect," "intend," "may," "potential," "should," and similar expressions are
forward-looking statements.
Although the Company believes that its expectations reflected in the forward-looking statements are reasonable, such statements involve risk and uncertainties
and no assurance can be given that actual results will be consistent with these forward-looking statements. Various factors could cause actual results to differ
from these forward-looking statements, including the potential for the industry’s projects to experience technical or mechanical problems or changes in
financial decisions, geological conditions in the reservoir may not result in a commercial level of oil and gas production, changes in product prices and other
risks not anticipated by the Company. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks
and uncertainties.
© Infield Systems Limited 2013
17