Canadian Oil and Gas Industry Outlook – Opportunities & Challenges

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  • 1. Canadian Oil and Gas Industry Outlook – Opportunities & Challenges APEGA Luncheon – Calgary, April 19 2012 Dave Collyer, President
  • 2. Global Primary Energy Demand IEA New Policies Scenario million tonnes oil equivalent 18 000• Significant energy Other Renewables demand growth: Biomass & Waste 16 000 Hydro  Population, standards of Nuclear living. Natural Gas 14 000 Oil• Need all forms of energy: Coal  Increasing role for 12 000 renewables.  Continuing reliance on 10 000 hydrocarbons.  Increasing role for non- 8 000 conventional crude oil & natural gas. 6 000• Technology is a key lever 4 000 for sustainable growth  Production. 2 000  Cost competitiveness.  Environmental performance. 0 2009 2015 2020 2025 2030 2035 Source: International Energy Agency World Energy Outlook 2011
  • 3. Canada is a Global Energy Player #3 #3 Canada is third to Canada is third in the Saudi Arabia & world in natural gas Venezuela in crude oil production. reserves#6 #2 Canada is sixth largest Canada is second in oil producer in the the world in hydro- world. electricity generation.
  • 4. Canadian Oil and Gas Industry - A Key Driving Force in the Economy• $55 billion investment in Canada in 2012  Largest single private sector investor in Canada• $21 billion paid to governments in 2011• ~ 25% value of TSX• Employs more than 550,000 Canadians (direct & indirect).• A national industry – jobs, taxes, supply chain• Key contributor to Canada’s trade:  Oil & natural gas accounted for ~18% of all exports  Largest supplier of crude oil & petroleum products and natural gas to U.S. (24% of oil, 90% of natural gas imports)
  • 5. A Comparison of Annual RevenuesMajor Canadian Product-Selling Industries 120 Upstream Oil & Gas 100 Revenues ($C Billions) 80 Autos Manufacturing 60 40 20 Forestry & Logging Wheat & Barley Uranium 0 Source: Statistics Canada, CAPP, Canadian Wheat Board, Natural Resources Canada, Canadian Nuclear Association, ARC Financial Corp. 5
  • 6. Industry Capital Spending Cdn $billions Oil & Gas Investment Spending: 2010: $51 billion 2011: $54 billion (estimate) 2012: $55 billion (forecast) Northern Canada 2010 2011E 2012F $0.3 $0.3 $0.3 Oil Sands 2010 2011E 2012F $17 $19 $20 East Coast Offshore Western Canada 2010 2011E 2012F 2010 2011E 2012F $1.4 $1.5 $1.5 $32 $33 $33 `10 `11E ‘12F AB $21 $22 $22 BC $7 $6 $6Note: SK $4 $5 $5Excludes spending mergers & acquisitions
  • 7. Total Wells Drilled in Western Canada 2010 2011 2012F Alberta 7,090 7,087 9,000 British Columbia 552 560 750 28 000 Dry/Susp. Saskatchewan 2,517 2,980 2,845 Gas Manitoba 439 471 405 24 000 Oil 20 000 2008 = 16,100 16 000 2011 = 2012 F 2010 11,115 = 13,000 = 12 000 10,611 1,300 2009 = 8,137 2,500 8 000 9,200 4 000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E Source – CAPP. Based on Rig Release
  • 8. Cdn. Prices – Crude Oil & Natural Gas 120 12 Oil - Cdn Par April 18 Close Bow River @ Hardisty 100 10 Gas - AECO C Light Oil 80 8 C$/mcf Heavy OilC$/bbl 60 6 40 4 Natural Gas 20 2 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: CAPP Crude Oil & Natural Gas Report
  • 9. Crude Oil Vs. Natural Gas Prices(Based on Cdn. Par & AECO C) 60 April 18, 2012 Close 50 40 30 20 10 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: CAPP Crude Oil & Natural Gas Report
  • 10. Upstream Industry Opportunities• Resource base & production growth potential - oil and gas.• Market demand.• Established infrastructure.• Human resources – skills and experience.• Technology and innovation capability.• Track record in environmental & social performance.• Political stability.• Financial resources.• Broad public support for responsible oil & gas development.
  • 11. Global Crude Oil Reserves by Country World Oil Reserves Open to 300 Private Sector 265 Oil Sands 250 Open to 55% 211 Restricted Private 174 (80%) Sector Other 200 45%billion barrels 151 143 150 102 92 100 60 47 50 37 30 25 21 20 0 sia an ria aq a da na a an ar i t a ab es ai bi by el Ir Ir at i s na ge t w Ch ra at zu Dh hs Ru Li Q Ku Ni Ca iA St ak ne u ud d zh Ab Ve ite Sa Ka Un Source: Oil & Gas Journal Dec. 2011
  • 12. Canadian Oil Sands and Conventional OilProduction Forecast (2011-2025) 5,000 Actual Forecast 4,500 4,000 Atlantic Canada 3,500 In Situ thousand bpd 3,000 2,500 2,000 Mining 1,500 1,000 Conventional Heavy 500 Conventional Light Pentanes/Condensate 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
  • 13. North American Natural Gas – Supply Outlook• Shale gas supply a game- changer• Technology breakthroughs• New producing regions• Shifting S/D dynamic• Emerging stakeholder environmental concerns (footprint, water – use & quality, seismicity)
  • 14. Canadian Natural Gas ProductionBcf/day Prices remain below $4.00/GJ for the forecast period Prices recover to $5.50/GJ before 2015 Prices recover to $5.50/GJ before 2015
  • 15. Upstream Industry Challenges• Competitiveness  Fiscal & climate policy.  Market diversification.  Regulatory reform.  Workforce.• Social License  Media profile.  Industry reputation: • Landowner / community opposition (e.g., NIMBYism, BANANAism) • Heightened conflict w/ ENGOs  Performance (Environmental & Social).  Communications
  • 16. $0 $1 $2 $3 $4 $5 $6 $7 Pinedale (Crest) Marcellus Wet (core) Pinedale Marcellus Dry (core)& CAPP (Forward Strip Price) Fayetteville (3.4 Bcf) (April 18, 2012) Granite Wash (Horizontal) Montney (10 stage frac) Huron Shale Source: Morgan Stanley Research August 19, 2010 Deep Bossier (E. Texas) Eagle Ford (Condensate Zone) competitively challenged. Cana-Woodford (Core) 2 year forward strip: $3.05/MMBTU Canada is resource rich but Piceance (Valley - Core) Barnett (Tier 1) Horn River Natural Gas Supply Costs Appalachian -CBM Haynesville Nikanassin Marcellus dry (tier 2) Eagle Ford (Gas) Fayetteville (2.8 Bcf) Jonah Woodford (Arkoma) Wattenberg (Core) (Representative Single Well Economics – Established Plays) Uinta (Shallow) Piceance (Highlands) Raton (CBM) Alberta Shallow Gas Warwick (W. Tx Overthrust) Required NYMEX Natural Gas Strip for 10% IRR Montney (4 stage frac) Barnett (Tier 2) Powder River (CBM) Alberta Deep Basin Jean Marie (Tight Gas) Horseshoe Canyon (CBM) 16
  • 17. Access to Current and New Oil Markets Canadian & U.S. Crude Oil Pipeline Proposals• Existing infrastructure primarily devoted to N.A. markets.• Strong Canadian production growth requires diversification to new markets: • Price 17 • Takeaway
  • 18. Changing Crude Oil Demand Net Imports of Oil in the IEA “New Policies” Scenario 14 mb/d 2000 12 2010 10 2035 8 6 4 2 0 China India European United Japan Union StatesSource: IEA World Energy Outlook 2011
  • 19. N.A. Natural Gas Pipelines &2011 Cdn. Exports to U.S. (bcf/d) • Existing infrastructure serves N.A. markets. • Changing S/D dynamics necessitate market growth: Proposed • N.A. Kitimat LNG TransCanada (transportation, Projects Alberta Westcoast (NGTL) power) ANG/ • LNG Exports Foothills TransCanada Transmission (price, Alliance Mainline Northwest East takeaway) 1.4 bcf/d M&NE Foothills West TQ&M Northwest Northern Great 2.4 bcf/d Lakes PGT Border Mid West IroquoisPNGTS PG&E Kern 5.1 bcf/d CNG River Trailblazer Algonquin ANR NGPL Panhandle Transwestern Texas SoCal ANR El Paso NGPL Eastern Transcontinental El Paso
  • 20. Regulatory Reform• Federal & provincial• Key elements:  Process clarity & efficiency based on risk assessment.  Firm timelines.  Eliminate duplication & overlap via consolidation & equivalency: • Within governments. • Between governments. • Among stages of review process.  Improve Aboriginal consultation.• Must ensure responsible environmental outcomes.• More regulation is not better regulation.
  • 21. Workforce ChallengesPetroleum Industry Labour Shortages 2012-2015 Canada’s petroleum industry will need to fill approx. 9,500 jobs over the next four years, due to employment change and age-related attrition. Up to 36% of the pending job vacancies may not get filled due to projected labour supply/demand gaps. Petroleum Industry Labour Shortages to 2015 Number of Positions/Workers 12,000 10,000 8,000 6,000 4,000 2,000 0 2011E 2012F 2013F 2014F 2015F Petroleum Industry Net Hiring Net Change in Potential Labour Supply Source: Canada’s Oil and Gas Labour Market Outlook to 2015 (to be released May 2012), Petroleum Human Resources Council of Canada www.petrohrsc.ca 21
  • 22. Industry Reputation / Social License –Key Considerations• Local / Regional:  Environment (air, land, water, biodiversity impacts)  Social (noise, dust, activity levels, impact on local services, infrastructure & wages, local benefits, employment, etc.) …….The primary focus of landowners, communities, many Aboriginal peoples, many in public.• National / Global (first oil sands, now shale gas):  Global climate change  Role of fossil fuels in future energy system …….The primary focus of most ENGOs, some in the public….. oil & gas infrastructure is current focus of campaigns.
  • 23. Industry Reputation / Social License –FrameworkReputation / Social License = Performance + Communication• Performance:  Continuous environmental & social performance improvement (in context……doing our part).  Technology is the key lever: • Improving industry collaboration.  Solutions-oriented advocacy for sound policy and regulation.• Communications & Outreach:  Messaging - balanced “3E” focus, fact-based, solutions – oriented, “high road”, direct.  Delivery – diversity of mediums, approaches, spokespersons.  Strong focus on outreach – local / regional / national / international.  Grounded in performance improvement.
  • 24. Reducing GHG Emissions in Oil Sands Oil Sands GHG Emissions Intensity• Energy Efficiency 25  Using less energy input. 20  Reducing energy waste / losses. 26% g co2 eq./mj Capturing waste heat 15   Cogeneration power / steam. 10• Improved Recovery Processes 5  Lower temperature extraction. 0 1990 2010  Additives to reduce use of both water and energy (steam).  Use of electricity rather than steam.  Underground combustion rather than steam.• Carbon Capture/Sequestration  Most effective at upgraders.
  • 25. North American GHG Emissions (2010)Oil Sands and Power Generation AK MT ND MN OR WY SD WI NH MI NY NV NE IA UT CO IN OH NJ KS MO VA KY IL WV AZ NC NM OK TN Canadian oil sands ARLegend SC Canadian coal-fired power 51-100+ mtonnes AL GA generating plants TX 16-50 mtonnes MS LA U.S. Coal fired power 0-15 mtonnes FL generating plantsSources: U.S. DOE/EIA & Environment Canada
  • 26. Communicating with the Public Diversifying focus of OS program & expanding scope of NG program in 2012.
  • 27. The Way Forward• Opportunities  Resource scope, production potential.  Market demand.  Infrastructure, capacity, skills.• Challenges  Competitiveness.  Social license.• Industry Social License  Performance + Communication.  Must be earned (every day!).• Key Levers  Technology & innovation.  Collaboration (within industry, along value chain).• The Way Forward  Focus on competitiveness & social license.  Work together…….APEGA has an important role.  “A marathon, not a sprint”
  • 28. Q&A