Industry Session Oil & Gas

Goldman Sachs Industrials Conference 2015

November 4, 2015
Four Seasons Hotel - Boston, MA

John Auers, P.E.

Executive Vice President
 Global Scope of Oil Industry
Globally, oil and gas industry revenues were estimated
at $4 trillion in 2014, or ~6% of Global GDP
3.5% of Global GDP comes from Oil & Natural gas
Rents (profits from sale, after extraction costs)
BLUE: Net Importing
Countries
(>100 MBPD)
GREEN: Net
Exporting Countries
(>100 MBPD/Non
OPEC)
ORANGE:
OPEC Members

2
Fossil Fuels Dominate Energy Markets
100%

95%
% of Energy as Fossil Fuels

90%

85%

80%

75%

70%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
World % Fossil Fuels U.S. % Fossil Fuels
Source: BP Statistical Review of World Energy 2015
3
 Oil & Gas Remains Top Dog
80%
% of Energy as Oil & Gas

70%

60%

50%

40%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
World % Oil & Gas U.S. % Oil & Gas
Source: BP Statistical Review of World Energy 2015
4
 Importance to U.S. Economy
Oil & Gas industry directly contributes Oil & Gas
$1 Trillion
>$1 Trillion to U.S. economy ~6% of GDP

Tight Oil revolution making O&G a more

Total
important component of overall GDP 2014 U.S. GDP
$17 Trillion
Dominant force in improving trade
balance
U.S. Trade Balance
Industry, % of GDP 2008 2014
4.0% $0
3.5%
-$100
3.0% -$191
2.5% -$200
Billions

2.0% -$300
1.5%
-$416
-$400
1.0% -$505
-$500
0.5%
-$600 -$677
0.0%
-$700
U.S. Trade Balance Energy Products Trade Balance
Oil & Gas Extraction Refining, Petrochemicals 5
 Importance to U.S. Economy
14
Total Net Imports

Total net imports have 13

Net Imports (Exports), Million BPD

Net Crude Imports
12

declined by > 7 MMBPD

11
10

since 2007
9
8
7

Larger than any 6

5

segment ex. healthcare 4

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
8% 1.5

Net Imports (Exports), Million BPD

7% 1
6%
0.5
% of Total U.S. GDP

5%
Production 0
4%
-0.5
3%
Refining, -1
2% Net Gasoline Imports
Petrochemicals
1% Plastics, Etc. -1.5 Net Diesel/Jet Imports
Net Other Product Imports
0% -2
Oil & Gas Technology Automotive Federal Healthcare
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Budget
6
 Peak Oil? Not For A Long Time
Theory has been bouncing around for decades
Predicted U.S. peak at 1970 seemed plausible until the
LTO boom

Lower 48 States Oil Production (Millions of Barrels/Year)

Higher prices
and technological
breakthroughs
have made Peak
Oil obsolete
There is sufficient
oil for many
decades; the key
question is
at what price?

7
 Peak Demand? Not Yet
30 30

U.S. and other Developed

Consumption Per Capita (Bbls)

Consumption (Million BPD)
25 25

Countries have/will see

demand declines 20 20

Petroleum to remain 15 15

dominant 10 10

Significant Growth in

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Undeveloped Countries
U.S. Demand U.S. Per Capita
40

Population and economic 35

growth Consumption (Million BPD)

30

25
Overall Global Demand 20

Growth > 1%/yr thru 2030 15

>15 MM BPD 10

USA Europe Asia Rest of World

8
 Oil Price Impacts
Net Income shifts have not been across the board
Independent Producers hit hardest
Some Integrated Majors taking massive write-downs
Refiners doing well, with low prices spurring strong
product demand growth
Independent Independent
Producers Integrated Majors Refiners Midstream
2Q2014
3Q2014
4Q2014
1Q2015
2Q2015
3Q2015

Continental Pioneer Marathon Exxon Shell Chevron BP Valero Tesoro Phillips 66 PBF Kinder Trans Magellan
Resources Natural Oil Corp Mobil Morgan Canada
Resources
9
 Gasoline Demand Especially Strong
$120 9.6

$110 9.4

Gasoline Demand (Million BPD)

$100 9.2
Crude Price ($/BBL)

$90 9.0

$80 8.8

$70 8.6

$60 8.4

$50 8.2

$40 8.0
Apr

Aug

Apr

Aug
Feb

Jun
Jul

Sep

Feb

Jun
Jul

Sep
Jan

Oct

Jan
Nov

Oct
Dec

Nov
Dec
Mar

May

Mar

May
Brent 2014-2015 2012-2013 2014-2015
10
 U.S. Refiners Are World Leaders

Free Market Principles,

Economically and
Politically Stable
Advantaged Crude Most Advanced,
Costs Complex Refineries

U.S. Refining
Competitiveness

Highly Skilled, Flexible

Low Energy Costs
Workforce

Low Capital Costs

11
11
 Major Threats

Market Environment
Low prices have/will cause real harm to producers
Lead to greater demand/increase efficiencies
TM&C does not expect 80s/90s style extended slump
Regulation
Global warming/other environmental/safety/other
Higher costs/suppress demand/decrease access
Economics generally override the worst policies
Alternatives
Only eating at the edges thus far
Will require technological breakthroughs
12
Presenter

John R. Auers, P.E.

Executive Vice President
Univ. of Nebraska Chem. Engr.
Univ. of Houston MBA
Formerly with Exxon
Contact Info
jauers@turnermason.com
Office 214-754-0898

13