Exploration Trends - Conventional and Unconventional

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Delivering commercial insight

Exploration trends conventional and unconventionalAre we entering a new era of high impact exploration?

Dr Andrew LathamDeutsche Bank Global Oil & Gas ConferenceSeptember 19th 2013

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Delivering commercial insight Wood Mackenzie 2

Agenda

1 Deepwater and unconventionals a polarising industry

2 Company exploration performance

3 Five pillars of exploration success

4 Hot new frontiers

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The exploration industry is becoming increasingly bipolar

Wood Mackenzie 3

UNCONVENTIONALS

DEEPWATER

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This polarisation is already conspicuous in terms of company reserves -conventional Majors, unconventional Independents

Wood Mackenzie 4

Source: Wood Mackenzie Corporate Benchmarking Tool. Unconventional oil includes tight oil and oil sands. Unconventional gas includes shale gas, tight gas and CBM.

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Unconventional oil

Conventional oil & gas

Production growth 2012-2020

Conventional and unconventional reserves

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Exploration investment continues to riseModest spend of some large companies leaves plenty of headroom

Wood Mackenzie 5

Conventional spend exploration Exploration spend intensity (re-investment rate)

Source: Wood Mackenzie Exploration Service and Corporate Benchmarking Tool. Bubble size represents reported exploration spend.

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2012 production (mmboe)

Independent

Major

NOC

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Investment growth is strong in both deepwater and unconventionals

Source: Wood Mackenzie Exploration Service, Future of Global Deepwater Markets, and M&A Service

Wood Mackenzie 6

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Oil Sands Tight Oil Shale GasTight Gas NA CBM Aus CBM

Deepwater spend growth enabled by new rig supply Unconventionals spend M&A

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No sign of a conventional exploration slow downWildcat drilling continues to find big volumes in many different places

Source: Wood Mackenzie Exploration Service

Wood Mackenzie 7

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Outer Bengal Fan (ONGC)

El Kuran-2 (NewAge)

DW (Reliance)

KG-DWN-98/2 (ONGC)

Bahrain Deep gas (Oxy)

Hides app (XoM, Oil Search)

Chukchi (Shell)

Red Sea (S.Aramco)

Deepwater (Total, Petronas, BSP)

Angola Pre-Salt (Cobalt, Maersk, Total, Statoil, ConocoPhillips)Lontra (Cobalt)

Beaufort (Shell)

Deepwater (XoM, Gazprom, Talisman)

Proteus-1, Grace-1(COP, Karoon)

Wisting (OMV)Ardennes (Cobalt) Buckskin, Moccasin (Chevron) (Appraisal)Deep Nansen (Anadarko)Gila (BP)Logan (Statoil) (Appraisal)Oceanographer (Chevron)Opal (Murphy)Sake (BHP)Tiber (BP) (Appraisal)Vito (Shell) (Appraisal)

Gabon d/w (Shell, Total, Ophir, Perenco)

Moosehead (HRT),Welwitschia-1 (Repsol)2312A&2412A (Chariot)

Tanzania (Statoil, Ophir, Petrobras)

Mozambique(Statoil, ENI)

Rift Valley (Tullow, Marathon)

Deepwater (Anadarko,Tullow, BG)

Company MakerLarge/GiantPlay OpenerKey Appraisal

Deepwater (Anadarko, Chevron)

Kofiau (Niko)

Sakhrinav (Gazprom)

Shah Deniz (BP)

Equatorial Margin(Shell, Chevron, Petrobras, Kosmos, Tullow, Statoil)

Mapale-2 (Ecopetrol, Talisman)Araza-2 (Petrobras)

Perdido DW(PEMEX)

Deepwater (BP)

Cyrenaica (RWE Dea)

W of Shetland (Total, BP)

Deepwater (Pelagic/AGR)Shelf (Adira Energy, SOCAR)

Deepwater (Murphy,Petronas)

Deepwater (PTTEP,Total, Nippon, PetroVietnam)

Mauritania (Tullow, Dana, Repsol, Total)

Deepwater (Cairn Energy, Kosmos)

HP/HT (GdF)

Flemish Pass (Statoil)Davy Jones-1

(McMoran)

Gambia (African Petroleum)

SABV (Tullow, HYDMIC)

Madagascar (XoM) Browse

(Total)Rowley Sub-basin (Woodside)

Zhambyl (Zhambyl Petroleum)

Block 21 (Zarubezhneft)Block 23 (RWE Dea)

Faroes (Statoil)

Barents Sea (Statoil, Lundin, Suncor, Det Norske, Eni)

Hercules (Det Norske)

Paraiso Sur-1 (Noble Energy)

Al Qush-1 (EoM)Notus-1 (BG)Salamat-1 (BP)

Aphrodite-2, NobleLeviathan-5, ,(Noble)

Qatar (GDF)

Margaree (Chevron)

Philippines (BHP, Total)

PY 25-2-1 (Eni)

Block 4 (Shell)

Block 20 (Sonatrach)

Carrack-Caravel (Anadarko)

Tingu-1 (Horizon)

Drote-1 (President Energy)

Block Z-38 (Karoon Gas)

El Dorado (Trinity)Primrose (Niko)

BPC-X1 (BPC, Statoil)

Severo-Dolginskoye-3 (Gazpromneft)

Black Sea (Exxon-Rosneft)

Shelf (Shell, Newfield, Petronas)

Mantra/Kuro (Tullow)

W.Papua (Total)

Lebah-2 (Eni)

Gulf of Tonkin (Eni)

Malay (Mitra)NCS (Mitra, Santos)

Evans Shoal North-1 (Shell)

Matuku-1 (OMV)

ES-M-472 (Perenco)

BM-S-24 (Petrobras)

Falklands (Borders and Southern, Noble Energy)

Balam-1X (Pacific Rubiales)

114, 131 (Cepsa)

South Omo (Tullow)

Chad (Caracal)

Elephant (CNOOC Ltd)

Paon-2A (Tullow)

OryxTogo (Eni)

Neptun Deep (XoM)

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Large discovery (100-500 mmboe)Giant discovery (500+ mmboe)

Hundreds of high-impact wells to watch every yearConventional new field discoveries not trending smaller

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Source: Wood Mackenzie Exploration Service. Discovery costs exclude appraisal.

These big volumes help resource discovery costs and support good returns but are recent moves to frontiers causing a decline?

Wood Mackenzie 9

Resource/reserve discovery costs Full-cycle exploration returns

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Recent declines may not be real - success can take years to reveal itselfExploration management and investors need patience

Volumes get bigger. and more commercial vastly improving economics

Wood Mackenzie 10

Source: Wood Mackenzie Exploration Service. Value creation reflects Base price scenario at time of analysis, rising from US$55/bbl in 2007 to US$85/bbl in 2012

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A decade into unconventionals, North American plays are still dominant

Most popular responses are in dark blue

Wood Mackenzie 11

Source: Wood Mackenzie Unconventional Play Service

Global unconventional assets - Resource Potential*

*Resource potential is a measure of the potential of a play if all the accessible and prospective land is drilled and produced based on a reasonable assumption of well spacing. There are no economic or time constraints in this scenario. The resource potential does not include oil or gas already produced or classified as commercial.

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Sweet spots in established top tight oil plays are extremely importantBakken and Eagle Ford plays dominate US tight oil - 80% from just 8 core counties

Wood Mackenzie 12

US tight oil base case by play

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Emerging/newtight oil

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BoneSpring/Wolfcamp

Niobrara

Eagle Ford

Bakken

Source: Wood Mackenzie Global Oil Supply Tool

Two discrete plays

Play groupings

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Eagle Ford & Bakken sweet spots

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North American success spurs widespread international tight oil activity

Wood Mackenzie 13

Australia: Jun 2012 Statoil farm into Georgina

with PetroFrontierAustralia: Jul 2012

PetroFrontier financing pulled after three wells

drilled

Australia: Jun 2013 Statoil agree to fully fund seismic and 4-6 well

test in GeorginaArgentina: Jan 2013 Govt. increase export price from US$42/bbl to US$70/bbl

Argentina: Aug 2012 YPF 2013-2017 business plan very aggressive targets

Argentina: Feb 2013 Americas Petrogas establish oil production potential from Vaca

Muerta in Picun Leufu Sub-BasinArgentina: Mar 2013 YPF announce that cost of equipment could force it to scale back drilling

Argentina: Dec 2012 YPF signs MOU with Bridas for US$1.5 billion investment

Brazil: May 2013 Gran Tierra acquire three further blocks in Reconcavo Basin

Argentina: 2013 Repsol take legal action against oil companies dealing with YPF

Brazil: May 2013 Petrominerales awarded three blocks in Round 11, increasing exposure to Gomo tight

oil horizon; at least two wells planned in 2013

Colombia: Oct 2012 2012 Licensing Round only 5 of 31

uncon blocks on offer receive bids

Colombia: Nov 2012 ExxonMobil enter Middle Magdalena via farmout

Patriot Energy

Colombia: Jan 2013 ExxonMobil/Canacol encounter oil in Middle Magdalena, La Luna

Colombia: Feb 2013 ConocoPhillips enter Middle Magdalena via farmout from subsidiary of Canacol

Colombia: Jun 2013 Canacol & ConocoPhillips spud first exploration well to test La

Luna/Simiti oil shales

China: Jul 2013 Schlumberger announce formal opening of new reservoir lab in Chengdu,

geared towards supporting shale explorationEgypt: 2012 Apache do not drill tight oil wells as planned; focus on

near field exploration

France: Jul 2013 President rules out exploration for shale

during his presidency

Oman: 2013 Tight oil part of PDO long term strategy. Two wells drilled in south of Block

6, one in North

Russia: May 2012 Government announce MET break for produced oil from Bazhenov for 15 years

Russia: Jun 2012 ExxonMobil and Rosneft sign agreement to focus on Bazhenov and Achimov

Russia: Jun 2013 Statoil and Rosneftcomplete contractual framework of JV,

including shale oil opportunities

Russia: Jan 2013 Gazpromneftdrilling Bazhenov at Palyanovskayazone at the Krasndeninskoye field

Russia: Mar 2013 ExxonMobil and Rosneft start US$300 million, 30 well drilling campaign in Bazhenov

Russia: Apr 2013 Shell and Gazprom Neft sign MOU for liquids rich shales in West Siberia

New Zealand: Apr 2013 Tag Oil spud well targeting Waipawa black shale and Whangai source rock in

East Coast BasinArgentina: Jul 2013 YPF and Chevron finalise deal

for $US1.5 billion investment, 100 well pilotArgentina: Jul 2013 Government announce new incentives for investments >$US1 billion able to sell 20% of production abroad without paying export taxes

China: Jul 2013 Hess and PetroChina sign PSC to develop shale oil in Malang

Block, Santanghu Basin, in Xinjiang region

Russia: Aug 2013 Gazprom Neft to carry out 4 well appraisal at Bazheno-

Abalaksky shale oil play in West Siberia

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International tight oil is still in its infancyThe outlook is evolving rapidly

Wood Mackenzie 14

International tight oil supply base case Change in tight oil forecast 2013 vs 2012

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Liquids from shale gas plays

NGLs from associated gas

Other

Australia

Colombia

Argentina

China

Russia

41%

18%

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24% 32%

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Russia China Argentina Colombia Australia Other

2012 forecast

2013 forecast

Source: Wood Mackenzie Global Oil Supply Tool

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Our client survey reveals guarded expectations for new unconventional play growth

Most popular responses are in dark blue

Wood Mackenzie 15

Source: Wood Mackenzie Unconventional Play Service 2013 Client Survey

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5-year company exploration performanceMany of the leading explorers use unconventionals to drive growth

Wood Mackenzie 16

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New field discoveries Organic unconventionalsSource : Wood Mackenzie Exploration Service

Organic volume additions of leading explorers (2008-2012)

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5-year company exploration performance The majority have achieved full organic reserve replacement

Wood Mackenzie 17

Reserve replacement ratio from new fields and organic unconventionals (2008-2012)

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New field discoveries Organic unconventionalsSource : Wood Mackenzie Exploration Service

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10-year company exploration performance Returns from conventional exploration are robust for most

Source: Wood Mackenzie Exploration Service Corporate Benchmarking Report, August 2013.

Wood Mackenzie 18

MajorsLeading

Independents

APCBG

BHP

BP

CVX

COP

ENIXOM

HES

INP

LUP

MAE

MRO MUR

NBL

OXY

OMV

PBR

PNS

PMOREP

RWE

STORDS STL

TLM

TOTTLWWIN

WPL

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20%

25%

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I

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New volumes/production

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10-year company exploration performance Organic unconventionals add volumes for many, value for some

Source: Wood Mackenzie Exploration Service Corporate Benchmarking Report, August 2013.

Wood Mackenzie 19

APCBG

BHP

BP

CVX

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Organic unconventionals

Organic unconventionals

supported by early disposals

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opportunities (DROs)

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Only the top performers are creating value in unconventionals

Wood Mackenzie 20

Value creation from new fields and organic unconventionals (2008-2012)

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New field discoveries Organic unconventionalsSource : Wood Mackenzie

www.woodmac.com


Conventional and unconventional exploration case study: Anadarko

Commercial unconventional assets only Excludes unconventional plays acquired post-

commercialisation Value creation and IRR includes lease costs and

associated unproven acquisition costs

Wood Mackenzie 21

New conventional discoveries Organic unconventionals

Reserves added (bnboe) 5.4 5.0Discovery cost (US$/boe) 0.70 0.41Reserves replacement 252% 233%Value Creation (US$ bn) 13.5 10.1IRR 19% 18%

Exploration costs incurred Production outcome

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Source: Wood Mackenzie

www.woodmac.com


How do top explorers consistently outperform?

Basin choice is one of the primary determinants of exploration successOptimal timing of basin entry is anotherBut how do the best explorers manage to consistently make better choices than their competitors?In our dialogue with the industry on the fundamental drivers of exploration outperformance, five broad themes arise that are seen as the pillars of consistent strong results

Wood Mackenzie 22

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Five pillars of exploration success oil is found in the minds of man

Wood Mackenzie 23

We conclude that the key to exploration excellence is people

The best explorers have a core of energised oil and gas finders with an empowered attitude.

Integrated multi-disciplinary subsurface team that emphasises strong regional geoscience and creativity

Exploration culture is paramount It is ultimately the ability to

encourage and harness the creativity of the most innovative explorers that is the key differentiator.

Exploration Strategy

TechnicalExcellence

Process & CapitalAllocation

Data & Information

Exploration CultureInnovation & risk tolerance are the foundations of exploration success

Five pillars of exploration success

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Where are top explorers capturing new high-impact exploration acreage?

Wood Mackenzie 24

Source : Wood Mackenzie Exploration Service. Top explorers based on companies that rank top ten in at least two out of value creation and IRR in Wood Mackenzie performance benchmarking report and most admired in Wood Mackenzie exploration survey. Top explorers are Anadarko, Apache, BG, Eni, Kosmos, Lundin, Noble Energy, Petrobras, Repsol, Shell, Statoil, Tullow

Key frontier acreage moves of top explorers since 2012

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Who else is exploring these hot new frontiers?

Wood Mackenzie 25

Leading acreage holders in the new frontiers of the top explorers

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Other Atlantic Margin

Source: Wood Mackenzie Exploration Service. Atlantic Transform Margin includes Brazil, Cote dIvoire, Guinea, Liberia, Sierra Leone, Suriname. Other Atlantic Margin includes Falklands, Ireland Mauritania, Uruguay. Other non-Atlantic includes Australian Bight, Bulgaria, Cyprus, Greenland, Russia Barents, South Africa, West Papua. Caribbean offshore includes Aruba and Colombia. East Africa includes Kenya and Tanzania.

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SummaryAre we entering a new era of high impact exploration?

Exploration industry performance is under pressure Costs are the issue, not volumes Will greater emphasis on frontier exploration and unconventional plays erode returns?

The leading independents are mixing frontier success and unconventional plays Have many captured more acreage than they can afford to drill? Are disposals of new discoveries necessary for strong returns?

High-impact drilling from the Majors Is there more acreage re-loading to come, or a period of portfolio high-grading? Will they all ramp-up their spend to match the early leaders?

Five pillars of exploration success How sustainable is outperformance?

Wood Mackenzie 26

www.woodmac.com

Delivering commercial insight27

Wood Mackenzie Disclaimer

Strictly Private & Confidential

This report has been prepared by Wood Mackenzie Limited. The report contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzies prior written permission.

The information upon which this report is based comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.

www.woodmac.com


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Wood Mackenzie 28

Documents

Exploration Trends - Conventional and Unconventional