Oil, Gas and Energy: Myths and Realities

Oil & Gas Industry Myths The world is running out of oil and gas. The industry determines the price of oil and natural gas. The industry is low tech. The industry is environmentally insensitive. Oil and gas can be easily and economically replaced with renewables in the next few years. There is no future working in the petroleum industry. Quality of life and GDP are not significantly influenced by energy use.

The world is running out of oil and gas.

The industry determines the price of oil and natural gas.

The industry is low tech.

The industry is environmentally insensitive.

Oil and gas can be easily and economically replaced with renewables in the next few years.

There is no future working in the petroleum industry.

Quality of life and GDP are not significantly influenced by energy use.

Myth #1: The world is running out of oil and gas. Reality #1: Oil and Natural gas will continue to be the primary energy sources for years to come. Unconventional oil and gas will become increasingly more important.

World Demand for Fossil Fuels Will Continue to Grow Source: EIA, World Energy Outlook 2008 World energy demand expands by 45% between now and 2030 –an average rate of increase of 1.6% per year –with coal accounting for more than a third of the overall rise

Fossil fuels continue to supply ~ 80 percent of world’s energy Source: EIA World Energy Projections Plus (2008) History Projections

Primary Energy Demand (1015 btu)

Developing World Projected to Drive Demand Increase Source: EIA International Energy Outlook 2008 History Projections

Proved oil reserves at end 2007 Thousand million barrels Source: BP Statistical Review of World Energy 2 008

Where to go… Countries with Growth Potential -40 0 40 -5 0 5 Russia Kazakhstan Mexico China Azerbaijan Angola UK USA Oil Capacity 2030 vs. 2000 mln boe/d Gas Capacity 2030 vs. 2000 bcf/d Iran Qatar Saudi Russia Nigeria Venezuela Norway UK USA Source: IEA/EIA/CERA

Conventional Liquids Production Source: EIA World Energy Projections Plus (2008)

Most of the oil and gas will not come from new fields Primary Sources of Oil and Gas To 1960 50-60% from new fields To 1990 20-25% from new fields Today 12-15% from new fields Tomorrow 7-10% from new fields New discoveries, while important, will not significantly impact future oil supply. At a modest 5% decline rate and 2.5% demand growth, we will have to add 6,250,000 bpd of new oil production next year, with larger increases in following years .

Primary Sources of Oil and Gas

To 1960 50-60% from new fields

To 1990 20-25% from new fields

Today 12-15% from new fields

Tomorrow 7-10% from new fields

New discoveries, while important, will not significantly impact future oil supply. At a modest 5% decline rate and 2.5% demand growth, we will have to add 6,250,000 bpd of new oil production next year, with larger increases in following years .

The Importance of Mature Fields To date, we have produced approximately 1 trillion barrels of oil from existing fields Recovery rates of oil in place have averaged 15% to 18% worldwide If we increase our recovery rate in these existing fields to 35%, we will add another trillion barrels of recoverable oil reserves to the global inventory The same is true for natural gas

To date, we have produced approximately 1 trillion barrels of oil from existing fields

Recovery rates of oil in place have averaged 15% to 18% worldwide

If we increase our recovery rate in these existing fields to 35%, we will add another trillion barrels of recoverable oil reserves to the global inventory

The same is true for natural gas

Unconventional Resources Crude Oil Oil Shale - Shell has a large investment in this and will soon begin a pilot project in Southern Wyoming (in-situ recovery method) Tar Sands - If Canada counts these as reserves, they are right behind Saudi Arabia in amount of oil Heavy Oil - If Venezuela counts these as reserves, they are right behind Saudi Arabia in amount of oil

Unconventional Resources Natural Gas Coal Bed Methane - currently 13% of the US gas produced Shale gas - at recent ATW it was estimated that there are 40-120 BCF reserves/sq mile Tight Gas and Ultra-tight Gas - 0.01  D (0.00001md) The largest gas discovery in the US in the last 15 years is the Jonah Field in Wyoming with an estimated 8-15 TCF in reserves which is ultra-tight Wells drilled on 10 acre spacing with $1-2 Million US/frac job Gas Hydrates - worldwide estimated to be 70 to 130 times the proven reserves of conventional natural gas

Coal Bed Methane - currently 13% of the US gas produced

Shale gas - at recent ATW it was estimated that there are 40-120 BCF reserves/sq mile

Tight Gas and Ultra-tight Gas - 0.01  D (0.00001md)

The largest gas discovery in the US in the last 15 years is the Jonah Field in Wyoming with an estimated 8-15 TCF in reserves which is ultra-tight

Wells drilled on 10 acre spacing with $1-2 Million US/frac job

Gas Hydrates - worldwide estimated to be 70 to 130 times the proven reserves of conventional natural gas

Energy Supply Summary Over the next 25 years, oil and gas demand will rise dramatically, primarily in developing countries Expansion of all economic energy sources will be required: coal, nuclear, biomass, other renewables, unconventional oil and natural gas. Each source faces significant challenges... Oil and gas supplies: Most conventional oil and gas is located in remote, potentially unstable areas The bulk of new supply will have to come from more expensive mature assets and unconventional resources

Over the next 25 years, oil and gas demand will rise dramatically, primarily in developing countries

Expansion of all economic energy sources will be required: coal, nuclear, biomass, other renewables, unconventional oil and natural gas. Each source faces significant challenges...

Oil and gas supplies:

Most conventional oil and gas is located in remote, potentially unstable areas

The bulk of new supply will have to come from more expensive mature assets and unconventional resources

What is the story for the U.S.? We have significant amounts of mature and unconventional resources to moderate declines in domestic oil and gas production However, they won’t be enough to end our dependency on imported oil and gas

Source: EIA Annual Energy Outlook 2009 Reference Case Presentation -- December 17, 2008 U.S. net dependence on imported liquids declines over the next 20 years Consumption Domestic supply Net Imports History Projections AEO2009 reference case AEO2008 reference case 58% 41% 54% 60% million barrels per day

U.S. import share of natural gas supply declines sharply as domestic supply grows Consumption Domestic supply Net Imports History Projections AEO2008 reference case 16% 3% 14% trillion cubic feet AEO2009 reference case Source: EIA Annual Energy Outlook 2009 Reference Case Presentation -- December 17, 2008

Myth #2: The oil and gas industry determines the price of oil and natural gas. Reality #2: Supply & demand, global instability and fear of supply disruptions determine oil prices. Gas is priced regionally and responds to regional demand.

Issues of oil and gas pricing Supply and demand Political and economic instability in major producing regions coupled with unreliable reserves estimates for those regions Price point panic on the markets and with traders The oil and gas industry does not want high costs for oil and natural gas any more than you do

Supply and demand

Political and economic instability in major producing regions coupled with unreliable reserves estimates for those regions

Price point panic on the markets and with traders

The oil and gas industry does not want high costs for oil and natural gas any more than you do

Supply and demand curve basics Supply Curve Demand Curve Equilibrium Point Surplus Shortage Crude Oil Demand/Supply in the Market, MMStb/d Unit Price, $/Stb Consumer Producer

Instability and Worldwide Oil & Gas Reserves U.S. Access, Carbon, Hurricanes Latin America Resource Nationalism Nigeria Civil Unrest Iraq Sabotage Europe Gas Supplies Russia State Re-Control Caspian Transit Vulnerability Iran Nuclear Threat Asia Energy Subsidies Strait of Malacca Piracy Source: NPC, Global Oil and Gas Study, 2008

The spot and futures markets Fear that wars, political maneuvering and/or nationalizations will disrupt oil and gas supplies leads market traders to buy and hedge upwards to guarantee supply This probably accounts for a portion of the price of a barrel of oil today

“ The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” - Sheikh Zaki Yamani Source: “The End of the Oil Age” The Economist, 25 October 2003.

Myth #3: The industry is low tech. Reality #3: The oil and natural gas industry is very high tech.

NASA uses petroleum engineering technology to drill on Mars

E&P Fundamentals Oil and gas is not found in pools but, rather, in mineral formations ranging from mostly solid rock (shale, for example) to beach-like sand A reservoir requires storage space (porosity) and trapping mechanisms (tops and sides to keep the contents from leaking out) A reservoir also requires paths of communication to allow the fluids to flow from one point to another. We call this permeability.

Oil and gas is not found in pools but, rather, in mineral formations ranging from mostly solid rock (shale, for example) to beach-like sand

A reservoir requires storage space (porosity) and trapping mechanisms (tops and sides to keep the contents from leaking out)

A reservoir also requires paths of communication to allow the fluids to flow from one point to another. We call this permeability.

A Geologic Cross-Section

The Oil and Gas Process Development Abandonment & Reclamation Landmen Geologists Geoscientists Drilling Engineers Production Engineers Reservoir Engineers Chemists and Chemical Engineers Civil Engineers Electrical Engineers Structural Engineers Economists Environmental Engineers Computer Scientists Production Exploration

The petroleum industry uses more computing power on a daily basis than any other industry except the entertainment industry.

Seismic Data Acquisition in Gabon www.planete-energies.com

Offshore Seismic Acquisition in Angola www.planete-energies.com

Geovision in 3-D at Pau, France www.planete-energies.com

Costlier Deepwater Ventures: New Technology Allows Industry to Access Resources in Deeper Water The Deepwater Pathfinder drillship (shown) can drill in water depths up to 10,000 feet Dynamic-Positioning - Small thrusters and global positioning technology keep the drillship stable, shifting less than 50 feet in any direction. This stability enables the ship to drill in very deep water and in most weather conditions. Photo courtesy of ConocoPhillips

The Deepwater Pathfinder drillship (shown) can drill in water depths up to 10,000 feet

Dynamic-Positioning - Small thrusters and global positioning technology keep the drillship stable, shifting less than 50 feet in any direction. This stability enables the ship to drill in very deep water and in most weather conditions.

New Offshore Production Structures Enable Development in Deeper Water Graphic courtesy of Minerals Management Service

Offshore Oil Production www.planete-energies.com

Myth #4: The oil and natural gas industry is environmentally insensitive. Reality #4: The oil and natural gas industry operates in a safe and environmentally responsible manner, will be part of the solution to reduce carbon emissions.

Drilling Site at Yariapo, Bolivia www.planete-energies.com Before Restoration After Restoration

“… it took 20-plus years for Western companies and countries to understand and manage their footprint on the natural world. A few days ago, I was in a rain forest on the Tambopata River where Mobil Oil once explored. It did it in a way, though that left no trace today.” Source: Thomas Friedman, “Turning ‘Red China’ into ‘Green China’ is challenge.” Reprinted from The New York Times in The Rocky Mountain News, 3 July 2006, p 33A.

Natural Seeps Contribute 46% of the Oil in Oceans Worldwide; E&P Accounts for Less Than 4% Worldwide Source: National Research Council, “Oil in the Seas,” Table 3.2, 2002

Myth #5: Oil and gas can be easily and economically replaced with renewables in the next few years. Reality #5: All renewable energy sources have challenges to be produced, delivered and used within the next few years.

Future Energy Options Current: Oil and Gas Coal Nuclear Hydro Wind Others Developing: Photovoltaic Hot Dry Rocks Tides Biomass Solar Heat More…

Current:

Oil and Gas

Coal

Nuclear

Hydro

Wind

Others

Developing:

Photovoltaic

Hot Dry Rocks

Tides

Biomass

Solar Heat

More…

Solar Energy Production 2050 NOW Nate Lewis: Cal Tech 165,000 TW of sunlight hit the earth every day

The Potential of Geothermal Energy

Hot Rock Generation Process Monitoring Seismic & EM Heat exchange Perforation Production Electricity Generation Hot Rock Injection

Non-fossil energy use grows rapidly, but fossil fuels still provide ~80 percent of total energy use in 2030 Nuclear Natural Gas Liquid Fuels Coal Renewables (excl liquid biofuels) Liquid Biofuels quadrillion Btu Source: EIA Annual Energy Outlook 2009 Reference Case Presentation History Projections

Global Energy Mix Today 86 percent = fossil fuels (oil, gas, coal) 14 percent = nuclear and all other sources By 2030 80 percent = fossil fuels (oil, gas, coal) 20 percent = nuclear and all other sources -- Source: Energy Information Administration

Today

86 percent = fossil fuels (oil, gas, coal)

14 percent = nuclear and all other sources

By 2030

80 percent = fossil fuels (oil, gas, coal)

20 percent = nuclear and all other sources

-- Source: Energy Information Administration

Today’s oil and gas companies are also today’s energy companies. BP is one of the world’s largest producers of photovoltaic solar cells. Chevron is the world’s largest developer of geothermal energy. The oil and gas industry is the largest producer and user of hydrogen. XOM, BP, CVX, Shell, and COP are key players in government/industry hydrogen fuel and vehicle partnerships such as the DOE FreedomCar and Fuel Partnership and the California Fuel Cell Partnership. Shell is one of the top players in the global wind industry.

BP is one of the world’s largest producers of photovoltaic solar cells.

Chevron is the world’s largest developer of geothermal energy.

The oil and gas industry is the largest producer and user of hydrogen.

XOM, BP, CVX, Shell, and COP are key players in government/industry hydrogen fuel and vehicle partnerships such as the DOE FreedomCar and Fuel Partnership and the California Fuel Cell Partnership.

Shell is one of the top players in the global wind industry.

Reality #6: There is a vibrant future for young people entering the petroleum industry. Myth #6: There is no future in working in the petroleum industry.

Manpower Supply and Demand

U.S. Petroleum Engineering Enrollment Enrollment is increasing, but faculty could be a limit Source: NPC, Global Oil and Gas Study

Petroleum Engineers in Demand Average age of professionals in US is approaching 50 meaning retirements in next 10 years Competitive starting salaries Current high industry activity levels

Average age of professionals in US is approaching 50 meaning retirements in next 10 years

Competitive starting salaries

Current high industry activity levels

Myth #7: Quality of life and GDP are not significantly influenced by energy use. Reality #7: Higher quality of life and GDP are proportional to energy use. The fossil fuels – oil, gas, and coal – are the largest sources of energy.

United Nations Human Development Index versus per Capita Electricity Consumption HDI, 2005 Data Electricity (kWh), 2004 Data Canada United States Qatar Kuwait

Questions?