OIL PRICES COLLARING PRICES IN THE NEAR TERM

  • Slides: 18
Download presentation
OIL PRICES: ‘COLLARING’ PRICES IN THE NEAR TERM ROBERT K. KAUFMANN PROJECT LINK OCTOBER

OIL PRICES: ‘COLLARING’ PRICES IN THE NEAR TERM ROBERT K. KAUFMANN PROJECT LINK OCTOBER 3, 2017

PRICES SINCE WE LAST MET 60 55 50 45 40 сен 01, 2016 ноя

PRICES SINCE WE LAST MET 60 55 50 45 40 сен 01, 2016 ноя 01, 2016 янв 01, 2017 мар 01, 2017 май 01, 2017 июл 01, 2017 сен 01, 2017

THE FORECAST. . 70 60 $51. 80: 2018 50 Dollars per Barrel $43. 41

THE FORECAST. . 70 60 $51. 80: 2018 50 Dollars per Barrel $43. 41 $51. 75 $50. 17 40 30 20 10 0 Barclays NPP Bank of America Citi Deutsche Bank EIA Forst & Goldman Scoiety Sullivan Sachs Generale Turner Mason

THE ISSUES… • Collar on short-run prices • Downside • OPEC Non. OPEC cooperation

THE ISSUES… • Collar on short-run prices • Downside • OPEC Non. OPEC cooperation • Saudi oil policy • Equity markets • Upside • US tight oil production • Hedging • Political uncertainty • Long-run demand constraints • Peak demand

2 Q 012 2 2 Q 012 3 2 Q 012 4 2 Q

2 Q 012 2 2 Q 012 3 2 Q 012 4 2 Q 012 1 2 Q 013 2 2 Q 013 3 2 Q 013 4 2 Q 013 1 2 Q 014 2 2 Q 014 3 2 Q 014 4 2 Q 014 1 2 Q 015 2 2 Q 015 3 2 Q 015 4 2 Q 015 1 2 Q 016 2 2 Q 016 3 2 Q 016 4 2 Q 016 1 20 17 1 Q SHORT-RUN: INVENTORIES 100, 00 98, 00 96, 00 90, 00 88, 00 86, 00 5, 00 4, 00 3, 00 94, 00 2, 00 92, 00 1, 00 0, 00 -1, 00 -2, 00

THE DEAL: NOVEMBER 30, 2016 • Goal (OECD inventories March 2018) • 214 million

THE DEAL: NOVEMBER 30, 2016 • Goal (OECD inventories March 2018) • 214 million barrels • Supply deficit 0. 875 mbd • OPEC (1. 2 mbd) • Saudi Arabia 10. 6 to 10. 2 • Limits for Iraq and Iran • Nigeria & Libya exempt • Non-Opec (0. 6 mbd) • Russia

REBALANCING • Difficulties • Libya (0. 5 mbd) • Nigeria (0. 3 mbd) •

REBALANCING • Difficulties • Libya (0. 5 mbd) • Nigeria (0. 3 mbd) • Non-Opec (1. 45) • China SPR • Compliance • OECD stocks 243 above (285) • Production drop below 32 mbd

MIDDLE EAST SPARE CAPACITY

MIDDLE EAST SPARE CAPACITY

NEW SAUDI STRATEGY • Mohammed bin Salman (Vision 2030) • Cannot thrive as oil

NEW SAUDI STRATEGY • Mohammed bin Salman (Vision 2030) • Cannot thrive as oil exporter • Aramco IPO ($50 oil $2 trillion) • Leaning against NYSE • Aramco • Defend market share • Competition from arbitrage crudes • Supply Asian refiners • No need for large spare capacity

MAJORS: “MORE OPPORTUNITIES THAT WE CAN ACTUALLY PURSUE GOING FORWARD” • $50 oil is

MAJORS: “MORE OPPORTUNITIES THAT WE CAN ACTUALLY PURSUE GOING FORWARD” • $50 oil is here to stay • Lower cost fewer megaprojects • Liza development (Guyana) • Gulf of Mexico • Growth vs Cost • Lower capital investment • Dump high cost assets • Pushing down break-even • Private equity (not a typo!)

PRIVATE EQUITY • Buying $10 billion • Blackstone, Carlyle, Warburg Pincus • Chrysoar, Neptune,

PRIVATE EQUITY • Buying $10 billion • Blackstone, Carlyle, Warburg Pincus • Chrysoar, Neptune, Siccar Point • BP Shell Royal Dutch Shell • Mature basins late life potential • North Sea • New strategy • Hold • Longer horizon (3 -4 years) • Management incumbent operator

TOP OF THE RANGE: TIGHT OIL

TOP OF THE RANGE: TIGHT OIL

TIGHT OIL PIONEER NATURAL RESOURCES

TIGHT OIL PIONEER NATURAL RESOURCES

TIGHT OIL: LOW OIL ENVIRONMENT • Technology • Longer more accurate lateral wells •

TIGHT OIL: LOW OIL ENVIRONMENT • Technology • Longer more accurate lateral wells • Improved well spacing & management • Service costs (rising 10 -15%) • Capital markets • 2016 $39 billion • S & P E&P index down 25% • Break even points • Growth vs margins • Balance cash flows • $43 -$47 drop 60 rigs • $40 drop 200 rigs

FORWARD CURVE

FORWARD CURVE

HEDGING • Forward supply curve • Flattening farther out • Hedged against • As

HEDGING • Forward supply curve • Flattening farther out • Hedged against • As prices rise, sell forward • Highly protected production • 47% of 2017 production • 13% of 2018 production

POLITICAL UNCERTAINTIES • Venezuela (domestic turmoil) • Dropping revenues; loan deal with China •

POLITICAL UNCERTAINTIES • Venezuela (domestic turmoil) • Dropping revenues; loan deal with China • International debt ($0. 31 on the dollar) • US ban imports? • Russia • New sanctions (33% Russian stake) • Offshore developments • China • Delays in SPR • Goal 90 days (current 36 days)

LONG-TERM: DEMAND CONSTRAINT • Supply Constraints • Efficiency • Low hanging fruit depleted •

LONG-TERM: DEMAND CONSTRAINT • Supply Constraints • Efficiency • Low hanging fruit depleted • 10 year lifespan • Battery prices • 2010 $1000 kwhr • 2016 $227 kwhr • 2020’s $100 kwhr (EV cheaper) • Capacity vs. oil price • Gasoline prices vs investment in capacity • Split ownership