EY Price Point: global oil and gas market outlook

EY Price Point:
global oil and gas
market outlook
Q2 | April 2019

Q2 overview
Oil markets have stabilized, at least for the time being. OPEC and Russia (‘OPEC +’) once again stepped up to
support oil prices. We don’t know how much longer they can (or want to) play that role. Offsetting production
growth from North American independents who are dependent on external finance from increasingly sceptical
investors has been manageable. However, OPEC + now face the prospect of offsetting US production growth
delivered by IOCs with strong balance sheets, access to capital, a proven capacity to withstand market cycles
and the technical capabilities to bring ever more impressive technology to the oilfield.
The market has taken notice of this as well as other downside forces. Futures remain in backwardation.
Whether it be demand pressure from decarbonization ambitions, or further efficiency improvements from
digitalization, potential downward pressure on oil prices loom.
Gary Donald
EY Global Oil & Gas Assurance Leader
gdonald@uk.ey.com
Andy Brogan
EY Global Oil & Gas Leader
abrogan@uk.ey.com
Q2 | April 2019 EY Price Point: global oil and gas market outlookPage 2

Q2 theme
The theme for this quarter is reprieve. Crude prices rose steadily throughout 1Q19 as OPEC + reigned in
production to counteract the impact of North American production growth. What lies ahead is uncertain, but
downward pressures loom over the marketplace.
In recent periods, North American production growth has been strong in spite of profitability and cash flow
challenges. Increasing interest in shale from the oil majors indicates that the corner may have been turned on
economics. A renewed squeeze on cost, investment of capital and yet another surge in production seems
imminent.
OPEC + production cuts have been supported by the impact of US sanctions on Venezuela and Iran. Eventually
that oil will come back to the market. When it does, OPEC will face another choice between market share and
price stability.
• How long will OPEC be able to afford, or be willing, to curtail its production to
balance oil markets?
• IOCs are showing an increased interest in North American shale. How will their
involvement change the resilience of production growth?
• What will happen when Venezuelan and Iranian oil return to the market?
?

Trends
OPEC + and
US sanctions
Amid sustained growth in US shale, oil
markets continue to rely on production cuts
from OPEC + to support prices. The impact
of US sanctions on Iran and Venezuela
support those efforts, for now. The
sustainability of these compensating factors
will play a large part in determining oil
prices in the near future.
IOC interest
in North
America
North American oil production continues to
surge and returns now seem sustainable.
Oil majors have communicated their intent
to continue investing in the region while
signalling an expectation of further cost
reduction. If delivered, not only would
output surge, but North American
production will become more resilient to
market cycles.
IOC equity
returns lag
IOC equity returns over the last five years
have lagged the overall market, even when
accounting for oil price effects. Concerns
over their ability to transition to a low
carbon world is a factor. Our research
indicates that companies who are better
prepared to manage energy transition risks
have generated better returns than their
competitors.
Oil majors have started to sanction LNG
projects without long-term sales
agreements, instead funding projects from
their balance sheets. Weaker demand
resulted in Asia LNG prices reaching a three
year low during 1Q19 with some cargoes
diverted to Europe.
LNG demand
pauses

Market fundamentals
Source: Thomson Reuters Datastream Source: IEA
• Brent and WTI averaged $62.19 and $53.87 per bbl, respectively, during
the first quarter. Average prices in 1Q19 represented a 10% decline for
both benchmarks when compared to the previous quarter. 4Q18 averages
were buoyed by prices realized before the steep decline that started in
November following the US Government’s decision to issue waivers to
major off-takers of Iranian crude.
• Brent and WTI prices climbed steadily throughout 1Q19 from $50.56 and
$45.15, respectively, at the start of the year.
• 1Q19 prices were supported by OPEC + production cut compliance and the
impact of US sanctions on both Iran and Venezuela. US production
continues to grow leaving oil markets to rely on OPEC + and the impact of
sanctions to support prices.
• North American production growth continues to be the main driver towards
oversupply, growing almost 700,000 barrels a day in the most recent
quarter. Global oil demand fell seasonally between Q4 2018 and Q1 2019,
further contributing to oversupply.
• The fall in oil prices toward the end of last year was arrested because of
OPEC + production restraint. The parties have, for now at least, accepted
that North American shale oil production will grow unabated. Prices low
enough to stall North American production appear too low for OPEC + to
justify defending market share.
• Production growth outside of OPEC and North America is, as it has been for
several years now, balanced. As long as capital flows into North America
and OPEC + are willing to balance the market, it seems unlikely that
investment in other regions will have a significant impact on the global
supply and demand balance.
Steady growth in crude prices since the start of the year North American growth continues to drive oversupply
40.00
45.00
50.00
55.00
60.00
65.00
70.00
75.00
80.00
85.00
90.00
01/10/2018 01/11/2018 01/12/2018 01/01/2019 01/02/2019 01/03/2019
$/bbl
Brent WTI
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Starting Balance Demand Growth OPEC North America Other End Balance
millionbarrelsperday
Movement to oversupply Movement to undersupply

Market fundamentals
Source: OPEC
1
1Q19 supply movements calculated using the average of January and February volumes.
Source: EIA
• In an attempt to reverse the decline in oil prices that started in November,
OPEC + announced an agreement to curtail production for a period of six
months from January. The group has delivered on those commitments,
stabilizing the market in 1Q19 despite continued growth in US output.
• The reduction in OPEC + output has been emphasised by the impact of US
sanctions on Iran and Venezuela. US sanctions on Iran continue to suppress
the nations exports and, in turn, global supply. Waivers issued by the US
Government to major off-takers of Iranian crude expire in May of this year.
President Trump’s desired oil price will be a key factor in the potential for
the extension of such waivers.
• In January, the US Government imposed sanctions on Petroleos de
Venezuela (‘PDVSA’), blocking exports to the US. The US Government has
warned that more severe sanctions, whereby sanctions are extended to
importers outside of the US, are an option.
• In Q418, for the first time since 2014, the Return on Capital Employed for
North American independents exceeded those reported by IOCs. The returns
generated in recent quarters are attractive to IOCs with Exxon, Chevron and
BP all communicating their intent to invest further in the region.
• There are good reasons to believe majors will have a different (and more
favorable) cost and return equation. IOCs have better developed supply
chains, more leverage with service providers and the ability to bring cutting
edge technologies to bear at scale.
• We believe that the growing IOC footprint in US shale has the potential to
fundamentally change the market stabilization dynamic we’ve come to
expect. Up until now, OPEC + production cuts had gone to offset production
growth from independents with access to capital which depended on oil
market conditions. IOCs are more resilient and are able to invest based on a
longer view.
OPEC + and the impact of US sanctions North American returns attractive
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
2Q18 3Q18 4Q18 1Q19
Quarter on quarter movement in supply
Iran Venezuala OPEC +
1
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
ReturnonCapitalEmployed
IOCs NA Independents

Market fundamentals
Source: Capital IQ, EY Analysis Source: Thomson Reuters Datastream
• Historically, most of the variation in IOC equity returns can be explained by
the movement in the broader equity markets (S&P 500) and changes in the
price of oil.
• In the last five years, oil company returns have lagged significantly. Oil
prices have been a drag, but upward movement in stock prices should have
provided some support. We believe that questions over the future of oil in a
world with growing concerns over carbon emissions play a part in that
trend.
• Preparation for a low carbon world seems to be linked to returns. The CDP
(formerly the Carbon Disclosure Project) ranked 24 companies based on
energy transition readiness. CDP rankings appear to be related to five year
oil and gas company equity returns.
Equity returns are tied to energy transition readiness Concerns over LNG supply
-25.0%
-15.0%
-5.0%
5.0%
15.0%
25.0%
6 8 10 12 14 16
5-YearShareholderReturn
CDP Average Energy Transition Readiness Ranking
IOCs Independents
• Record gas production in the US has caused gas prices to decline despite
low inventories and growing demand. US natural gas prices are expected to
remain under pressure from increasing production of associated gas over
the coming years.
• Driven by strong global supply and mild winter demand, Asian LNG prices
declined throughout 1Q19, reaching their lowest level in three years. Asian
spot LNG prices slipped below European gas benchmarks for the first time
since 2015, resulting in LNG cargo diversions to Europe.
• Concerns over LNG supply loom as planned capacity additions outpace
demand growth in Asia. Chinese LNG demand growth, which was the key
driver in rebalancing the LNG market over the past few years, is expected
to slow in 2019.
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
02/07/2018 02/09/2018 02/11/2018 02/01/2019 02/03/2019
p/therm
$/mmbtu
Henry Hub Asia LNG FOB UK NBP - right hand axis

Brent futures
Brent futures rose in line with spot
prices throughout 1Q19.
Liquidity of the futures curve falls
rapidly beyond 2020. Therefore, the
views of banks/brokers and
consultants are considered more
appropriate sources of information to
be used in the determination of a
long-term price assumption.
1Q19 futures data is effective as of
20 March 2019.
40
45
50
55
60
65
70
75
80
85
Jan-2018 Jan-2019 Jan-2020 Jan-2021 Jan-2022 Jan-2023 Jan-2024
$/bbl
Historical Brent Brent futures - 4Q18 Brent futures - 1Q19
Source: Thomson Reuters Datastream

Oil price outlook
For both benchmarks, consultants
(on average) forecast marginally
higher oil prices throughout the
period.
Consultants focus primarily on the analysis
of a long-term sustainable oil price, while
the banks/brokers balance their views on
the basis of current market conditions.
The increase in oil prices throughout 1Q19
has directly impacted near term forecasts.
In the long term, we note high relative
forecasting uncertainty given the proven
ability of identified risk factors to move the
price significantly in a short period of time.
Consultants’ forecasts result in averages of
US$77.1/bbl and US$72.5/bbl vs.
banks’/brokers’ averages of US$68.6/bbl
and US$63.9/bbl for Brent and WTI,
respectively in 2023.
This data is effective as of 19 March 2019.
Brent:
Brokers’ and consultants’ price estimates, ranges
and averages
WTI:
and averages
Source: Bloomberg, banks’/brokers’ reports, consensus economics, consultants’ website
US$68.6 US$77.1 US$63.9 US$72.5Brent:
Average price
forecast in 2023
WTI:
Average price
forecast in 2023
Bank/broker Bank/brokerConsultants Consultants
40
50
60
70
80
90
100
2019 2020 2021 2022 2023
$perbarrel
Bank/broker range Consultants range
Bank/broker average Consultants average
40
50
60
70
80
90
100
2019 2020 2021 2022 2023
$perbarrel

Gas price outlook
Excluding 2019 Henry Hub prices,
consultants forecast (on average)
higher prices than banks/ brokers
Banks’ and brokers’ view of the outlook for
Henry Hub is essentially flat throughout the
forecast period. In contrast, consultants’
estimates reflect a steady upward trend,
reflecting a view on demand growth and
production economics.
The views of both banks/brokers and
consultants have been adversely impacted
by the reduction in gas prices noted in
1Q19.
Estimates for UK NBP are scarce with only
five and three data points available from
banks/brokers and consultants,
respectively.
This data is effective as of 19 March 2019.
Henry Hub:
and averages
UK NBP:
Brokers’ and consultants’ price estimates, ranges and
averages
US$3.0 US$3.4 GBp51.0 GBp58.7Henry Hub:
Average price
forecast in 2023
UK NBP:
Average price
forecast in 2023
Bank/broker Consultants Bank/broker Consultants
Source: Bloomberg, banks’/brokers’ reports, consensus economics, consultants’ website
2.0
2.5
3.0
3.5
4.0
4.5
2019 2020 2021 2022 2023
$permmbtu
40
45
50
55
60
65
70
2019 2020 2021 2022 2023
GBppertherm

Appendix
Brent oil price estimates
This data is effective as of 19 March 2019
Source: Bloomberg, banks’/brokers’ reports
Source: Consultants’ websites, Oxford Economics
Bank/broker 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl) 2023 (US$//bbl)
High 73.3 80.0 90.0 83.0 86.0
Average 66.1 69.2 71.0 69.7 68.6
Median 65.8 70.0 70.0 70.0 67.5
Low 59.0 55.7 60.0 60.0 60.0
Consultant 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl) 2023 (US$//bbl)
High 75.1 77.1 80.5 82.5 86.6
Average 67.8 70.3 72.6 74.6 77.1
Median 64.9 68.5 71.5 73.7 75.5
Low 64.5 66.0 67.4 69.6 72.2

Appendix
WTI oil price estimates
Bank/broker 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl) 2023 (US$//bbl)
High 67.0 74.0 88.0 79.0 82.0
Average 57.7 61.8 65.3 64.2 63.9
Median 56.9 60.5 63.0 63.9 64.0
Low 48.8 52.7 52.0 53.5 53.5
Consultant 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl) 2022 (US$/bbl) 2023 (US$//bbl)
High 69.6 73.4 77.0 78.2 81.9
Average 60.4 64.9 68.0 70.2 72.5
Median 57.5 63.8 67.6 71.4 72.8
Low 55.5 57.2 58.2 59.7 62.0

Appendix
Henry Hub gas price estimates
* Brokers have reported figures in $/mcf. We have used a conversion ratio of 1.037 for mcf conversion to MMBtu
Bank/broker 2019 (US$/MMBtu) 2020 (US$/MMBtu) 2021 (US$/MMBtu) 2022 (US$/MMBtu) 2023 (US$/MMBtu)
High 3.4 3.5 3.3 3.2 3.3
Average 3.0 3.0 2.9 2.9 3.0
Median 3.0 3.0 3.0 2.9 3.0
Low 2.7 2.6 2.6 2.7 2.7
Consultant 2019 (US$/MMBtu) 2020 (US$/MMBtu) 2021 (US$/MMBtu) 2022 (US$/MMBtu) 2023 (US$/MMBtu)
High 3.0 3.3 3.5 3.6 3.6
Average 3.0 3.1 3.2 3.3 3.4
Median 3.0 3.1 3.2 3.5 3.6
Low 2.8 2.9 3.0 3.0 3.1

Appendix
NBP gas price estimates
Bank/broker 2019 (GBp/therm) 2020 (GBp/therm) 2021 (GBp/therm) 2022 (GBp/therm) 2023 (GBp/therm)
High 55.0 54.0 54.0 54.0 54.0
Average 50.8 51.0 50.8 51.5 51.0
Median 50.8 50.0 50.0 51.5 51.0
Low 47.0 49.9 48.0 49.0 48.0
Consultant 2019 (GBp/therm) 2020 (GBp/therm) 2021 (GBp/therm) 2022 (GBp/therm) 2023 (GBp/therm)
High 63.8 60.8 60.0 61.2 62.4
Average 59.3 57.8 57.2 57.6 58.7
Median 60.0 60.0 59.6 58.5 58.5
Low 54.2 52.7 52.1 53.2 55.2
* A bank/broker has reported figures in $/mcf. We have used exchange rate forecast by Jefferies for USD to GBP conversion and an mcf to mmbtu conversion ratio of 1.037
* Oxford Economics has reported figures in US$/MMBtu. We have used exchange rate forecast by Oxford Economics from USD to GBP conversion
** GLJ has reported figures in US$/MMBtu. We have used exchange rate forecast by GLJ for USD to GBP conversion

Key contacts
Important notice
Price outlook data included in this publication is effective as of 19 March 2019. Given the rapidly evolving nature of
the market and views of market participants, analysis can become quickly outdated. It should be noted that our
analysis is not for the purpose of providing an independent view of the outlook for oil and gas prices. Instead, we are
collating the views of market participants.
Price outlook data should not be applied mechanistically. Instead, careful consideration should be given to the purpose
of any value assessment with price forecasts assessed in the context of the other key assumptions, such as
resources/reserves classification, production rates, discount rates and cost escalation rates together with an
appreciation of the key sensitivities in any such analysis.
Jeff Williams
EY Global Oil & Gas
Advisory Leader
+1 713 750 5916
Gary Donald
EY Global Oil & Gas
Assurance Leader
+44 20 7951 751
Derek Leith
EY Global Oil & Gas
Tax Leader
+44 12 2465 3246
Andy Brogan
EY Global Oil & Gas
Leader
+44 20 7951 7009

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