David Rabley Accenture

1. 1Copyright © 2017 Accenture All rights reserved.
ACCELERATING THE
REFRAC OPPORTUNITY
Houston
June 6, 2017

2. 2Copyright © 2017 Accenture All rights reserved.
The global crude landscape has been reshaped by
lowered US Unconventionals breakevens
80
60
100
120
40
20
0
65310 2 4
BreakevenPrice,USD/bbl
Maximum Development Capacity, MMbbl/ d
Source: AS-E Global Liquids Model
ACCENTURE STRATEGY “INCREMENTAL” SUPPLY CURVE
Onshore
MENA
Offshore
Shelf
Deep
water
Heavy Oil
Russia
Onshore
RoW
Light Tight Oil, LTO
Supply curve with LTO
Supply curve w/o LTO
Volatile
Range
bound

3. 3Copyright © 2017 Accenture All rights reserved.
The result is a lower-for-longer environment with
volatility in pricing
AVERAGE WEEKLY BRENT PRICES, USD/ Bbl
Source: EIA, AS-E analysis
2019
40
2016
100
2015
60
120
20
202020172013
80
20182014
-33%
80%
-59%
-46%

4. 4Copyright © 2017 Accenture All rights reserved.
Note:
1. Average Return on Invested Capital % is calculated using world’s top 20 public E&P companies based on production
2. Companies include: Gazprom, Rosneft, Exxon, PetroChina, BP, Shell, Chevron, Petrobras, Lukoil, Total, Statoil, Eni, COP, CNOOC, SNPC, ONGC, APC, CNQ
Source: Forbes, MorningStar
Investors are demanding greater discipline and
transparency, from E&P players and focus on returns
10
30
50
90
110
70
5.0
0.0
12015.0
7.5 60
80
2.5
100
10.0
0
40
12.5
20
20122011 20142013
ROIC (%)
20162015
Oil Price ($/bbl)
Avg ROICBrent Oil Price

5. 5Copyright © 2017 Accenture All rights reserved.
Globally, E&P companies are evaluating which asset
classes offer the best risk-return trade-off
45 ASSET CLASSES COMPRISE GLOBAL OIL SUPPLY
Source: Rystad, AS-E Global Liquids Model

6. 6Copyright © 2017 Accenture All rights reserved.
Accenture’s dynamic-balance model forecasts crude
supply, and anticipates E&P portfolio decisions
Step 1: Define demand scenario Step 2: Evaluate decline from
existing production; quantify
new development needed
Step 3: Allocate production from
new development to sources
based on breakeven price
Step 4: Converge towards
supply & price equilibrium
0
20
40
60
80
100
120
2014
2016
2018
2020
2022
2024
Liquidsdemand(MMbbl/d)
Year
Range Base
0
20
40
60
80
100
120
2014
2016
2018
2020
2022
2024
Liquidsvolume(MMbbl/d)
Year
Demand
Existing production
 Input liquids demand for next
10 years
 Define demand scenarios
based on potential events in
the market (e.g. recession)
 Account for impact of
– GDP growth
– Energy efficiency and fuel
substitution
– Price elasticity
 Estimate existing
production decline through
analysis of existing
production vintages
 Evaluate new production
required -- difference
between demand and
production from existing
wells
40
10
60
80
20
0
50
30
70
Area 4Area 2Area 1
Area 3
New production required or
production wedge
Breakevencost($perbbl)
Potential dev capacity (MMbbl/d)
 Build liquids supply curve
 Use bottom-up evaluation
of breakeven price (mean
& distribution)
 Incorporate project
pipeline & development
capacity for each asset
class
 Lay new production required
on liquids supply curve to
identify sources of production,
and estimate oil prices
 Iterate model to match
demand and supply for each
year; estimate new
production required
 Forecast total production for
each asset class (source,
geography)
 Use demand-supply balance
for each year to develop oil
price forecast

7. 7Copyright © 2017 Accenture All rights reserved.
US Unconventionals is in the middle of the pack based on
full cycle breakeven economics
Source: AS-E Global Liquids Model
FULL CYCLE BREAKEVENS @ NPV10, USD/ bbl
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
UAE,ConvLand
Iraq
SaudiArabia,Shelf
Iran,Shelf
Kuwait
SaudiArabia,Land
Iran,ConvLand
Russia
Libya
Venezuela,Other
UAE,Shelf
OtherAsiaOceania
Colombia
OtherAfrica
Venezuela,ConvLand
Mexico,Other
India
Indonesia
Nigeria,Other
USLTO:Bakken
Venezuela,E.Heavy
Azerbaijan
USLTO:EagleFord
Kazakhstan
Mexico,Shelf
Norway
China,ConvLand
Brazil
OtherMENA
UK
Nigeria,Deepwater
China,Other
Nigeria,Shelf
USLTO:Other
OtherEurope/Eurasia
US,ConvLand
Canada,ConvLand
US,Other
Angola
Canada,Other
OtherLatAm
Oman
Qatar
USLTO:Permian
Algeria
MENA has the lowest
breakevens, as
expected
 Diverse assets with mean
breakevens in $50 - $60 / bbl range.
Compete to fill the D-S wedge
 Includes: Deep water (Brazil), US
LTO (Permian, EF), Shelf (Mexico),
Extra Heavy Oil (Venezuela), and
onshore (China)
Challenged
economics
Note: Error bar reflects P20 – Mean – P80 range.

8. 8Copyright © 2017 Accenture All rights reserved.
However, time to achieve significant positive net cash
flow, is now a key determinant of E&P CAPEX
Time
ProductionCapex
Time
CashFlow
Time
Time
Cumulative
CashFlow
ILLUSTRATIVE
T1 T2 T3
33% of total
production
achieved

9. 9Copyright © 2017 Accenture All rights reserved.
US Unconventionals is at the front of the pack based on
time to payback
Source: DrillingInfo, Wood Mackenzie, Rystad, AS-E Global Liquids Model
Payback period
Years
Capex before first oil
Percent
Fid to 1/3 of total production
Years, selected areas
US
Unconvent-
ionals
Shelf
Onshore,
non-MENA
Oil Sands
Deepwater
8.0
8.5
2.4
10.5
15.0
8.7
7.9
1.6
10.5
10.0
0.8
43.2
34.5
46.4
45.4

10. 10Copyright © 2017 Accenture All rights reserved.
With lowered risk than other Asset Classes
PERCENT OF CAPEX BEFORE FIRST OIL FOR EACH ASSET CLASS
Source: AS-E Global Liquids Model
44%
36%
41%
Azerbaijan
US, Other
43%
Iran, Shelf
UAE, Land
Iran, Land
35%
43%
India
49%
UK
37%
Saudi Arabia, Shelf
45%
Russia
45%
38%
Other Asia Oceania
Mexico, Shelf
28%
34%
Qatar
Norway
Venezuela, E. heavy oil
Oman
31%
32%
Nigeria, Other
Other MENA
34%
32%
26%
63%
Nigeria, Deep water 63%
UAE, Shelf
China, Other
63%
Venezuela, Other
67%
Indonesia
55%
Brazil
Libya
50%
50%
Algeria
Canada, Other
Other Africa
50%
49%
50%
Nigeria, Shelf
51%
Angola
Mexico, Other
23%
China, Conv Land
Other Europe/ Eurasia
20%
US, Conv Land
20%
24%
Canada, Conv Land
Kazakhstan
20%
Saudi Arabia, Land
20%
Kuwait
Iraq
24%
26%
25%
Venezuela, Conv Land
25%
Other LatAm
1%
2%USLTO: Permian
15%
USLTO: Bakken 0%
USLTO: Other
USLTO: Eagle Ford
18%
Colombia
0%
USLTO has the least
capital at risk by far
Riskier asset classes
include:
- Deep water: Nigeria,
Brazil, Angola
- Heavy oil: Canada
- Shelf: Nigeria, China
Saudi Arabia, land &
Kuwait – the two
most attractive asset
classes on return
dimension, also have
favorable risk profile
Refrac offers
even faster
returns to D&C a
new well

11. 11Copyright © 2017 Accenture All rights reserved.
The crude supply landscape will be driven by US
unconventionals with incremental 3-5MMbbl/d by 2026
20182016 2020 2022 2024 20282026
70
60
40
90
100
80
50
OIL PRICE, USD/ bbl
16
14
10
12
4
6
10
8
20242016 20282018 2020 2022 2026
30
28
24
26
46
44
42
48
CRUDE OIL AND CONDENSATE PRODUCTION, MMbbl/d
ONSHORE
MENA
DEEP
WATER
ROW
US LTO
Low LTO caseHigh LTO caseBase Case
Source: AS-E Global Liquids Model
High LTO case
 US LTO breakeven 20% lower than base case
 US LTO development capacity 5% higher than base case
Low LTO case
 US LTO production growth constrained due to lower
productivity as operators move away from the core plays

12. 12Copyright © 2017 Accenture All rights reserved.
What does it take to accelerate Refrac as CAPEX is
directed toward US unconventionals?
Highest risk-
return value
proposition
Tailored operating
model:
technology and
capacity
Re-engineered
commercial
models
 Drive measurable increase in recovery factor
 Significant boost well production for higher ROI than
new wells e.g., $1-2MM CAPEX vs. $3-6MM
 Parent and child field development: return reservoir to
original pressure to enable infill drilling
 Available Frac Crews and HHP
 Available Proppant (at right landed price)
 Effective isolation and diversion technologies
 Digitally optimized candidate selection
 Residual uncertainty / risk priced out
 Willingness of Service Companies to leverage the
balance sheet to enable productivity linked
commercial models
In place?

13. 13Copyright © 2017 Accenture All rights reserved.
The proposition to the Operator is compelling but being
challenged by improved economics from new wells
Revenue potential from refrac
is strong
Operator can breakeven in as
little as 100 days
 In twelve months, a refrac can
generate $2-5 million of incremental
revenue in a strong well
 The refrac effect is immediate and
most of the production regain will
occur within the first 6 months
 Median NPV is ~$0.6 - 0.8M
 Median ROI is 33%
5
1
0
3
4
6
2
Medium
High
51 9
Low
126 72 8 1143 10
0.5
2.8
80,00060,000 70,000
1.0
50,000 90,000
2.2
1.6
0.7
40,000
NPV $ million USD
Production regain (bbl)Months after refrac
Cumulative revenue ($ million)
And has been attractive
relative to new wells
 Lower capital costs, rapid payback
versus time from spud to sale for
new well
 Productivity from new wells in the
Permian has doubled
 Drilling costs have significantly fallen
and breakevens have dropped
below $40 per bbl
Refrac New well
NPV $0.3-2.4MM $(4.5)-6 MM
Returns 33% 15%
Payback 3 months 56 months
Capex ~$1.2 MM $6.5 MM
Risk Low High
Refrac offers ability to re-pressurize the field to enable infill
drilling without loss of production from existing wells

14. 14Copyright © 2017 Accenture All rights reserved.
Frac capacity is stretched completing newly drilled
wells, though the DUC inventory is declining
Frac supply has tightened; warm
stacked equipment is being rapidly
reactivated
Proppant volumes exceeding 2014
levels driven by high intensity
completion design
 Horizontal permits >2000 per month
(record high)
 Rig count up to 733 for Oil and 182 for
Gas (100% increase) 800 is the new
2000
 Active frac fleets up from 170 to more
than 330 with likely need to exceed 400
 HHP per fleet increase from 20,000 to
40,000 aborbing stacked fleets e.g.,
Weatherford assets to Schlumberger
 Proppant volumes exceeding 2014
levels driven by high intensity
completion design
 Halliburton is pumping 3X the volume of
proppant as in 2014 (more stages per
crew per month and double the proppant
per well)
 Logistics constraints driving supply
chain costs and bottlenecks

15. 15Copyright © 2017 Accenture All rights reserved.
Enhance candidate selection by applying big-data
analytics; up to 8,500 candidates in North America
Source: Digital Transformation Initiative: Oil and Gas Industry White
Paper – World Economic Forum in collaboration with Accenture,
January 2017; Accenture Strategy Energy
Notes: 1For example, a single drilling rig at an oilfield can generate
terabytes of data every day, but only a small fraction is used for
decision-making
The industry begins to adopt digital
technologies at oil fields around the
world, with a focus on:
 Reservoir’s resource
 Production potential
 Improving health and safety
 Boosting marginal operational
efficiencies
1990s-
early 2000s
A wave of digital oilfield technologies
sweeps through most of the industry
though with limited performance
improvements
1980s- 1990s
2000s- today
DIGITALIZATION ERAS IN THE OIL AND GAS INDUSTRY
The industry uses only a small fraction of
available data for decision-making1,
lagging behind other industries
O&G
Power
Asset
Manage…
Life
Sciences
Aerospace
Industrial
Products
Health
Plans
Consumer
Insurance
RealEstate
Retail
Media
Automotive
Banking
Telecommu
nications
Travel&
Leisure
Technology
DIGITAL MATURITY INDEX
Need to prioritize and evaluate based on pressure, original completion
design, IP, relative production rate, lateral placement, zonal performance

16. 16Copyright © 2017 Accenture All rights reserved.
$2.0
1.0
2.0
$6.0$4.0
6.0
4.0
3.0
5.0
0.0
-1.0
Operator Income
Upfront payment to Service
Company
Service Company Cap
e.g., $2MM
60% of revenue to Service
Company
Re-engineered commercial model with win-win
economics to overcome uncertaintyPayment/revenue
Total impact from refrac after 12
months
Operator income
1
2 3
THREE COMPONENTS OF NEW REFRAC COMMERCIAL VALUE MODEL
Are Service Companies willing to “leverage their balance sheet” to unlock
the market; challenge is limited cash flow generation over past 2 years

17. 17Copyright © 2017 Accenture All rights reserved.
Summary
 US Unconventionals are moderately attractive in terms of full cycle
breakevens, but favored on account of fast time to payback and
lowered risk leading to incremental 1-2MMbbl/d by 2020
 Refrac has faced competition for resources and CAPEX especially
as the new wells frac market shifts into rebound
 Refrac can be accelerate through re-engineered commercial models
and enhanced digital candidate selection to further reduce
subsurface risk and improved decision making to drive productivity