Onshore Rush By Offshore
Moratorium

                  Dian L. Chu, July, 2010
           Economic Forecasts & Opinions
Deepwater Horizon
         Apr. 20, 2010 - Explosion at BP's
          Deepwater Horizon oil rig in the Gulf of
         ...
Oil Spill in the U.S. Gulf
 The largest oil
  spill in U.S.
  history
 Current
  estimate -
  12,000 to
  19,000 barrels...
Some Gulf Oil Facts
   Oil Production from the Gulf of Mexico
    ◦ 1.6 million barrels a day in 2009
    ◦ 30% of U.S. d...
Offshore Drilling Moratorium
        A six-month halt on new permits in has idled 33
         exploratory wells & rigs
  ...
Moratorium’s Deep Impact
 Oil Services - Small to mid-size U.S. Gulf-centric
  co’s.
 Including but not limited to
    ◦...
Onshore Rush - North America
 North America onshore remains the
  closest region to the Gulf with high profit
  potential...
Onshore Rush - Europe & Canada
         Bigger producers most likely will also
          shift focus to international gas...
Domestic Shale Gas
        Drill or lose lease, producers’ hedging, and
         favorable joint ventures will most likel...
Rising Activity in Oil Shales
         Hot Now – U.S. oil and liquid rich shale
          plays, due to favorable commodi...
Peak Oil This!
       Total world resources of oil
        shale - 411 gig tons to yield
        2.8 to 3.3 trillion barr...
Shale Oil - Economical Now
     Shale oil became
      economic in 2001
      with the
      advancements in
      horizo...
The Prolific Bakken Shale Formation
       The largest continuous
        petroleum system in the
        U.S. Lower 48 s...
Bakken Reserves Estimate
        USGS estimated mean undiscovered
         volumes of 3.65 billion barrels of oil in the
...
Three Forks Formation
 The recoverable oil in the
  Three Forks formation--
  under the Bakken
  Formation– is estimated
...
Good For The Goose ….
        Many gas-focused
         producers are shifting
         towards oil to balance
         a...
A White Hot Bakken
        One of the hottest plays
         in the nation
        Record lease sale
         activity
 ...
Some Active Players at Bakken
       E&P’s
        ◦ EOG Resources, Whiting Oil and Gas,
          Continental Resources
...
Stable Commodity Prices Favor
Services Sector
   In a stable commodity
    price environment,
    service companies tend
...
Moratorium Tipping the Scale
 Offshore services providers traditionally
  enjoy higher margins than land services
  compa...
Chart’s Tale – Favoring Onshore
        Onshore services co’s performing better than the offshore
         counterparts
 ...
American Shale Oil Forecast
   The U.S. EIA’s latest Annual Energy Outlook in
    2010 forecast oil shale production to b...
The Next Energy Game Changer?
        U.S. shale gas has shifted the world energy
         landscape by weakening the lon...
Onshore Rush By Offshore
Moratorium

                  Dian L. Chu, July, 2010
           Economic Forecasts & Opinions
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Onshore Rush by Offshore Moratorium

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The Gulf oil spill and drilling moratorium has forced a shift within the energy industry from offshore to onshore. This presentation discusses this trend and profile the prolific Bakken play in the U.S. and some observations of the markets and the oil services sector.

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Onshore Rush by Offshore Moratorium

  1. 1. Onshore Rush By Offshore Moratorium Dian L. Chu, July, 2010 Economic Forecasts & Opinions
  2. 2. Deepwater Horizon  Apr. 20, 2010 - Explosion at BP's Deepwater Horizon oil rig in the Gulf of Mexico Graphic Source:Treehugger.com, & WSJ.com ©2010 Economic Forecasts & Opinions by Dian L. Chu
  3. 3. Oil Spill in the U.S. Gulf  The largest oil spill in U.S. history  Current estimate - 12,000 to 19,000 barrels leaking a day. ©2010 Economic Forecasts & Opinions by Dian L. Chu
  4. 4. Some Gulf Oil Facts  Oil Production from the Gulf of Mexico ◦ 1.6 million barrels a day in 2009 ◦ 30% of U.S. domestic production, ◦ 8% of the U.S. oil consumption ◦ 19% of total U.S. oil reserves  Crude oil production loss resulting from the moratorium - 31,000 bbl/d in Q4, 2010 and 82,000 bbl/d in 2011 (EIA estimates, July 2010) Source: U.S. EIA, June & July 2010 ©2010 Economic Forecasts & Opinions by Dian L. Chu
  5. 5. Offshore Drilling Moratorium  A six-month halt on new permits in has idled 33 exploratory wells & rigs  Expect a global tightening of offshore drilling related regulations Graphic Source: NY Times, Mar. 31, 2010 ©2010 Economic Forecasts & Opinions by Dian L. Chu
  6. 6. Moratorium’s Deep Impact  Oil Services - Small to mid-size U.S. Gulf-centric co’s.  Including but not limited to ◦ Drillers – e.g. , Noble, Diamond Offshore and Ensco ◦ Transportation – such as Hornbeck and PHI, Inc.  Rig Exodus - Two deepwater rigs already left the Gulf for new long-term contracts  Large offshore services co’s to redeploy resources outside of U. S.  Smaller offshore players have no choice but to stay and fight the moratorium for survival ©2010 Economic Forecasts & Opinions by Dian L. Chu
  7. 7. Onshore Rush - North America  North America onshore remains the closest region to the Gulf with high profit potential to quickly redeploy capital and personnel  Oil companies are jumping onshore North America to make up for the reserve and production shortfall due to the moratorium ©2010 Economic Forecasts & Opinions by Dian L. Chu
  8. 8. Onshore Rush - Europe & Canada  Bigger producers most likely will also shift focus to international gas shale plays (East Europe) & Canadian oil sand Graphic Source: Petroleum Economist, Dec. 2009 ©2010 Economic Forecasts & Opinions by Dian L. Chu
  9. 9. Domestic Shale Gas  Drill or lose lease, producers’ hedging, and favorable joint ventures will most likely ensure a high shale gas activity level at least till 2012 Graphic Source: U.S. EIA ©2010 Economic Forecasts & Opinions by Dian L. Chu
  10. 10. Rising Activity in Oil Shales  Hot Now – U.S. oil and liquid rich shale plays, due to favorable commodity pricing Graphic Source: geology.com ©2010 Economic Forecasts & Opinions by Dian L. Chu
  11. 11. Peak Oil This!  Total world resources of oil shale - 411 gig tons to yield 2.8 to 3.3 trillion barrels of shale oil (2005 est.)  The United States, Russia and Brazil account for 86% of the world's shale oil resources  United States accounts 62% of world shale oil resources Source: Wikipedia & newenergyandfuel.com ©2010 Economic Forecasts & Opinions by Dian L. Chu
  12. 12. Shale Oil - Economical Now  Shale oil became economic in 2001 with the advancements in horizontal drilling and completion technology  Process similar to Canadian oil sand - $35 -$54 crude for a 15% return Source: Fact Sheet: U.S. Oil Shale Economics, Fossil.energy.gov ©2010 Economic Forecasts & Opinions by Dian L. Chu
  13. 13. The Prolific Bakken Shale Formation  The largest continuous petroleum system in the U.S. Lower 48 states ever assessed by USGS as of 2008.  Most of the Bakken play is in the Williston Basin, across North Dakota, Montana, South Dakota, Manitoba and Saskatchewan.  The basin covers roughly 300,000 square miles. Source: geology.com & Powerlineblog.com ©2010 Economic Forecasts & Opinions by Dian L. Chu
  14. 14. Bakken Reserves Estimate  USGS estimated mean undiscovered volumes of 3.65 billion barrels of oil in the Bakken Shale Formation  The area of Bakken oil shale formation in the Williston Basin is estimated to hold as much as 400 billion barrels of oil.  Various studies, including the USGS and the state of North Dakota, put the recoverable reserves raging from 2.1 billion to 4.3 billion barrels. Source: USGS,Wikipedia ©2010 Economic Forecasts & Opinions by Dian L. Chu
  15. 15. Three Forks Formation  The recoverable oil in the Three Forks formation-- under the Bakken Formation– is estimated at up to 2 billion barrels of oil within North Dakota alone.  (Based on the North Dakota Geological Survey and Department of Mineral Resources report issued on Apr. 29, 2010. ) ©2010 Economic Forecasts & Opinions by Dian L. Chu
  16. 16. Good For The Goose ….  Many gas-focused producers are shifting towards oil to balance asset portfolio  New technologies for shale gas are as effective in shale oil  Increasingly, high spec rigs from unconventional gas plays are moving to shale oil plays, such as Bakken Source: RigZone.com and WSJ.com ©2010 Economic Forecasts & Opinions by Dian L. Chu
  17. 17. A White Hot Bakken  One of the hottest plays in the nation  Record lease sale activity  Rig count in North Dakota more than doubled since mid-2009 driven mostly by the Bakken play  Shortages of skilled and service labor, housing and hotel room driving up costs Source: RigZone.com, & The bismark tribune ©2010 Economic Forecasts & Opinions by Dian L. Chu
  18. 18. Some Active Players at Bakken  E&P’s ◦ EOG Resources, Whiting Oil and Gas, Continental Resources  Drillers ◦ Nabors, Precision Drilling, Helmerich & Payne, Inc. ◦ Ensign Energy Services, Patterson UTI. Pioneer Drilling  Drilling & Completion Services – Schlumberger, Complete Production, Core Lab Source: RigZone.com ©2010 Economic Forecasts & Opinions by Dian L. Chu
  19. 19. Stable Commodity Prices Favor Services Sector  In a stable commodity price environment, service companies tend to have higher returns on capital than other energy sub-sectors.  Futures curve suggest we could be heading towards that scenario.. ©2010 Economic Forecasts & Opinions by Dian L. Chu
  20. 20. Moratorium Tipping the Scale  Offshore services providers traditionally enjoy higher margins than land services companies  Oil spill and moratorium has tipped the scale favoring the onshore service sector in the short to medium term  Providing an entry point for long term investment in the offshore services sector ©2010 Economic Forecasts & Opinions by Dian L. Chu
  21. 21. Chart’s Tale – Favoring Onshore  Onshore services co’s performing better than the offshore counterparts  In addition to offshore, Halliburton (HAL) also enjoys dominant market share positions in quite a few onshore oil service categories  HAL shares appear oversold due to its association with Deepwater Horizon rig Graphic Source: Reuters, June 24, 2010 ©2010 Economic Forecasts & Opinions by Dian L. Chu
  22. 22. American Shale Oil Forecast  The U.S. EIA’s latest Annual Energy Outlook in 2010 forecast oil shale production to become more significant as world oil prices increase. ©2010 Economic Forecasts & Opinions by Dian L. Chu
  23. 23. The Next Energy Game Changer?  U.S. shale gas has shifted the world energy landscape by weakening the long stronghold of Gazprom and Russia on natural gas.  Shale oil in America could be the next game changer in the energy geopolitical balance. Graphic Source: Powerlineblog.com ©2010 Economic Forecasts & Opinions by Dian L. Chu
  24. 24. Onshore Rush By Offshore Moratorium Dian L. Chu, July, 2010 Economic Forecasts & Opinions

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