1. Canadian UpstreamOil & Natural GasIndustry Overview
2. ● CAPP Overview● Global Context● Competitiveness Crude Oil Market Outlook Natural Gas Market Outlook● Social License● SummaryPresentation Overview
3. Represents large and small producer member companiesMembers explore for, develop and produce natural gas, natural gasliquids, crude oil, and oil sands throughout CanadaProduce about 90 per cent of Canada’s natural gas and crude oilPart of a national industry with revenues of about $100 billion per yearAssociate members provide a wide range of services that support theupstream crude oil and natural gas industryCanadian Association of Petroleum Producers
4. CAPP’s Strategic FrameworkCAPP’s KeyInterfacesGovernmentsRegulatorsAboriginalsLocalCommunitiesPublicMediaStakeholdersOtherIndustriesOtherAssociationsKey Influencers- Academia- Think Tanks- NGOs“3E’s”-EnvironmentalPerformance-EconomicGrowth-EnergySecurity&ReliabilityKey FocusAreasEducationPolicy &RegulatoryAdvocacyIndustryPerformanceImprovementScopeUpstream Oil & Gas SectorCanada (Primary), U.S. (Secondary), International (Some)Environmental &SocialEconomic/FiscalMarketsHealth & SafetyDeliveringResultsCompetitivenessFiscalEnvironmental Policy& RegulationMarket Access &GrowthPipeline TollsAboriginalConsultationWorkforceSafetyCanadian EnergyFrameworkSocial License to Develop& OperatePerformanceCommunications &OutreachStrategicPrioritiesCommunications& Outreach
5. Global Primary Energy DemandIEA New Policies Scenario• Significant energydemand growth: Population Standards of living• Need all forms ofenergy: Increasing role forrenewables Continuing reliance onhydrocarbons Increasing role forunconventional crude oil &natural gas• Environmentalchallenges.• Technology is a keylever for sustainablegrowth. 02,0004,0006,0008,00010,00012,00014,00016,00018,00020,0002010 2015 2020 2025 2030 2035million tonnes oil equivalentOther RenewablesBioenergyHydroNuclearNatural GasOilCoalSource: International Energy Agency World Energy Outlook 2012Fossil fuels share ofenergy consumption:2010: - 81%2035: - 75%
6. ● Invested ~$60 billion in Canada in 2012● $21 billion to governments in 2011 (Royalties and Taxes)● 20% of the value on Toronto Stock Exchange● Approx. 18% of Canada’s exports● Employs more than 550,000 in CanadaThe Oil and Natural Gas IndustryA Key Driving Force in the Canadian EconomyUpstream Oil& GasAutoManufacturingForestry& LoggingWheat &BarleyUranium
7. Upstream O&G Sector – Opportunities & ChallengesOpportunities Resource base. Production growth potential. Market demand. Established infrastructure. Human resources – skills /experience. Technology and innovation capability. Performance track record. Political stability. Access to capital. Broad public support.Challenges Market access. Industry reputation: Landowner / community; Heightened conflict w/ ENGOs. Relationships w/ FNs. Human resources – capacity. Cost escalation. Expectations of public markets. Media profile. Industry collaboration.
8. Source: CenovusCrude Oil
9. Global Crude Oil Reserves by Country26 25 213037488092102141155173265298050100150200250300VenezuelaSaudiArabiaCanadaIranIraqKuwaitAbuDhabiRussiaLibyaNigeriaKazhakhstanChinaQatarUnitedStatesbillionbarrelsSource: Oil & Gas Journal Dec. 2012Restricted(81%)Open toPrivateSectorOil Sands56%Other44%World Oil ReservesOpen toPrivate Sector
10. Western Canadian Oil Production – 2012 Forecast
11. 02004006008001 0001 2001 4001 6001 800Jan-2005Jul-2005Jan-2006Jul-2006Jan-2007Jul-2007Jan-2008Jul-2008Jan-2009Jul-2009Jan-2010Jul-2010Jan-2011Jul-2011Jan-2012Thousand b/dEagle Ford(Texas)N. DakotaSK LightAB LightLight/Tight Oil Production+ 750,000 b/d in 2 years
12. 2011 Canada and U.S. Demand for Crude Oil by SourceThousand Barrels per Day
13. 02468101214UnitedStatesChina Japan Korea India EuropeanUnionmmb/dNet oil imports in the New Policies Scenario2005201120202035Changing Global Oil Import NeedsSource: IEA World Energy Outlook 2012, EIACURRENTMARKETFUTURE MARKETS?
14. Access to Markets – Pipeline Expansions in Development
15. Global Versus U.S. Crude Pricing-40-20020406080100120140Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Differential WTI Brent• Brent benchmark price used toprice 65% of world’s oil.• WTI lighter than Brent -historically traded at a premium.• Growing disconnect betweenlandlocked N.A. crude andglobally traded crude such asBrent.• Throughout 2011 and 2012, WTIhas traded at a discount to Brent.• Discount remains in $20US/bblrange.• Expected to be alleviated as newp/l capacity comes on-streamfrom Cushing to U.S. Gulf Coast.US$/bblDaily
16. U.S. Versus Canadian Crude Oil Pricing020406080100120Jan-09May-09Sep-09Jan-10May-10Sep-10Jan-11May-11Sep-11Jan-12May-12Sep-12Jan-13WTI @ CushingEdm ParUS$/bbl-40-20020406080100120Jan-09May-09Sep-09Jan-10May-10Sep-10Jan-11May-11Sep-11Jan-12May-12Sep-12Jan-13Cdn Light/Heavy DiffWCS @ HardistyMSW @ EdmCdn$/bbl• Current differential ~Edmonton to Cushingtransport cost – nearterm p/l constraintsmitigated by rail &other options.• Light oil differentialexpected to widen asp/l constraintsbecome moreproblematic.• Light / heavydifferentialproblematic untilnew heavy oil p/lcapacity available.
17. WCSB P/L Takeaway Capacity Versus Supply Forecast
18. Western Canada Crude Oil Rail Exports• Crude oil movement by railincreased significantly overshort-term.• Q3/2012 - 70,000 b/d• Q1/2013 - 120,000 b/d• Q4/2013 - 200,000 b/d• ~4% of WCSB production• Positives Potentially improvedmargins relative to pipe Flexibility to differentmarkets (e.g., East) Less diluent Use rail in bothdirections• Negatives: Higher transportationcosts
19. Natural Gas
20. North American Natural Gas –Supply Outlook• Shale gas supply agame-changer…100+ years supply• Technology success(horizontal drilling,fracturing,completions)• Implications: New producingregions Shifting S / Ddynamics Changes in p/ l flows Emerging stakeholderchallenges (env. &social)
21. Canadian Natural Gas Exports, 2012Impact of Shale Gas on N.A Gas FlowsWest2.5bcf / dMid-West4.8 bcf / dNortheast1.1 bcf / dLNGMarcellusHaynesville,Fayetteville, etc.Horn River, MontneyU.S. RockiesNew Supply AreasIncreased Flow2012 Canadian Exports8.4 bcf / d• Existing infrastructure serves N.A.markets.• Changing S/D dynamics necessitatemarket growth:• N.A. (transportation, power)• Exports (LNG for price &takeaway)
22. Projected Net Natural Gas Imports(Bcf/d)051015202530352008 2015 2025 2035ChinaIndiaSouth KoreaJapanSource: EIA 2011 International Energy Outlook
23. ● Kitimat LNG (Chevron, Apache) 1.4 Bcf/d Permits received; awaiting investment decision● BC LNG Export Co-operative 0.125 Bcf/d Permits received● LNG Canada (Shell, KOGAS, Mitsubishi, PetroChina) 1.8 Bcf/d Feasibility stage; applied for some permits● Pacific Northwest LNG (Progress/Petronas) 2.0 Bcf/d (Merger approval granted) Completed feasibility, progressing to pre-FEED● Nexen/Inpex Conducting feasibility● BG Group/Spectra Energy Corp. 4.2 Bcf/d Advancing feasibility and engagement● AltaGas/Idemitsu Kosan 0.27 Bcf/d Conducting feasibilityCanadian LNG Export Projects in Development23Total potential new demand ~ 9.0 Bcf/dInterest expressed by Woodside Petroleum, Imperial Oil /ExxonMobiland Korea SK E&S. Details not available.
24. Asian Markets Represent an AttractiveExport Option$/MMbtu2012 Japanese LNG Price
25. Global Competition……Active and Emerging LNG Exporting CountriesCanada needs todevelop its LNGexport potentialexpediently tocompete globally.
26. Canadian Production – Market Constrained Case andNew Market Opportunity Case26Eastern CanadaCBMWestern CanadaUnconventionalWestern CanadaConventionalMarketConstrainedCaseNew MarketOpportunityCase
27. CAPP’s Social License FrameworkSocial License = Performance + Communication● Performance: Continuous environmental & social performance improvement (across thevalue chain)…..including monitoring, timely & transparent reporting. “What’s in it for me?”……line of sight to jobs and economic benefits. Robust regulatory system. Solutions-oriented advocacy for balanced policy and regulation.● Communications & Outreach: Sustained communications grounded in performance improvement:• Fact-based & emotive messaging……not apologetic or defensive.• Delivered via diversity of mediums, approaches, spokespersons. Strong focus on outreach & engagement - local / regional (must includeAboriginals) and national / international.● New challenges for industry – requires leadership & collaboration
28. Public Perceptions –Shale Gas Development• “Frac fluids containdangerous chemicalsthat aren’t disclosedto public”Disclosure• “Fracking can haveadverse effects ondrinking water”Water Quality• “Fracking usesenormous amountsof water”WaterQuantity• “Fracking &associated waste-water disposal causeearthquakes”Seismicity
29. CAPP Hydraulic Fracturing Principles & OperatingPractices
30. Improving Environmental Performance● Accelerating environmental technology &innovation in the oil sands: Canadian Oil Sands Innovation Alliance (COSIA) Focus on water, tailings, land, GHGs● Alternatives to reduce the need for bothwater and energy (steam): Cogeneration – steam and electric power Solvent / steam injection Alternative well configurations for SAGD Reduce water temperature 80 to 35 degrees Celsius Electro-thermal technology Carbon Capture & Storage● Reducing water use, increasing waterrecycle: Use of saline (non-fresh) water for steam Faster waste water recycle Water technology development centreCeramic membranes for water treatment
31. Full-cycle GHG EmissionsOil Sands & U.S. Refined Crudes0 100 200 300 400 500 600Avg US Barrel Refined in theU.S. (2005)Most Recent Oil Sands MiningMost Recent Oil Sands In SitukgCO2eper barrelof refined productWell-to-tankRefined productCombustionSource: IHSCERA Oil Sands Dialogue Getting the Numbers Right 2012+5%U.S. Barrel Refined inthe U.S. (2005)+2%
32. In Context….N.A. GHG Emissions (2011) -Coal-fired Power Plants & Oil Sands0-15 mtonnes16-50 mtonnes51-100+ mtonnesLegendU.S. Coal fired powergenerating plantsCanadian coal-fired powergenerating plantsCanadian oil sandsSources: U.S. DOE/EIA & Environment CanadaGATXNCMIALMOKYIN OHNENMNDCOSCKSIATNWYVAMNUTOKWIAZARAKLAILNVORMTSDNJNYNHMSWVFL
33. 2013+ Strategic Direction –Communications & Outreach2013 Strategic Direction Communications remains a strategic priority for 2013 – keydeterminant in maintaining broad public / public policy support. Build on success of current “Air Campaign”. Implement a targeted “Ground Campaign” in key jurisdictions insupport of market access. Integrate across the value chain.33Reputation/ SocialLicensePerformance Communication =+
34. Public Opinion Polling – Natural Gas & Oil Sands34“For each of the following types of energy, please indicate if your overall feelings are very negative,negative, neutral, positive, or very positive.”
35. CAPP Advertisement - Prevost
36. CAPP Advertisement – Water Monitoring
37. CAPP Advertisement – Natural Gas Exports
38. The Way Forward● Opportunities Market demand. Competitive supply. Build on strong foundation.● Key Challenges Market access / infrastructure dvm’t. Social license.● Industry Social License Performance + Communication. Must be earned (every day!). Key levers:• Technology & innovation.• Collaboration (within sector,along value chain, w/ alignedinterests).● “A Marathon, Not a Sprint”
41. Connecting to World MarketCushing, OK to US Gulf Coast – Capacity and Timing
42. ● Canada’s natural gas production less constrained byresource base more constrained by market● Growing US gas production means more competition fortraditional markets (less US Exports & Greater US Imports)● Canadian gas production projected under two scenarios● Scenario 1: Market Constrained No LNG Export Development Little New Gas-Fired Power Generation added in Ontario post 2012 Limited Growth in NGV market● Scenario 2: New Market Opportunities LNG Exports – 1 train of 5 mtpa in 2018, 5 such trains by 2023 Natural Gas replaces some Nuclear Power Refurbishment in OntarioPower Generation Higher Growth in NGV MarketCanadian Natural Gas Outlook 2013 to 203043
43. 44“General Public”Policy-makersKey InfluencersCurrent focus:Air CampaignAdded focus:Ground Campaign Opinion LeadersKey Elements Of The Plan – Expanding Our AudiencesCurrent focus: Upstream Social LicenseAdded focus: Market Access Social License