SlideShare uma empresa Scribd logo
1 de 15
Baixar para ler offline
US Petroleum Renaissance:
      A Holistic View
       Lorna Greening
       March 8, 2013
      University of Tulsa
Today’s Presentation
• What the majority of the petroleum industry
  missed in the early 1980’s or ‘Why did I end up at
  the back of that unemployment line?’
• Understanding how the industry is evolving or
  will evolve is cheaper than a therapist!
• The petroleum industry is far more complicated
  in 2013 than in 1973; and, as a result producers
  need to think strategically.
• Future factors, events or developments to be
  watching.
What Led to the Decline of the US Petroleum
       Industry in the Early to Mid-1980’s?
•   Unsupported price expectations by producers.
•   Producers failed to recognize the power of price in inducing efficiency gains
    (i.e., decreases in energy intensity). And, those gains were not reversed once
    prices declined, i.e., little or no rebound effect.
•   The industry did not recognize that OPEC needed cohesion in order to set
    world oil prices; and, that cohesion was disrupted in the early 1980’s resulting
    in lower prices.
•   US energy policy which included an emphasis on conservation and fuel
    substitution, price controls for natural gas, and a wind-fall profits tax on crude.
•   Penny stock market offerings during the 1970s brought in organizations
    without the skills to understand or prosper in the oil industry. And, lots of ego.
    . .and hubris!
•   Macroeconomic effects including stagflation, and higher costs of capital for
    investment.
•   The bottom-line: Those of us in the petroleum industry during the 1970s and
    early 1980s were primarily focused on finding and producing oil and gas. In the
    course of that endeavor, the majority of the industry overlooked major factors
    that would impact it eventually.
How did the Structure of the Industry Change?
• Surprisingly. . .the industrial organization or structure of the
  petroleum industry has not changed since 1973. There are still
  essentially four segments in the industry.
• Performance or benchmarking measures vary by segment. In
  2011:
   – Large independents and independents had capital expenditures twice that of
     the majors, and spent nearly 2.25 times on exploration and development.
   – Results from operations were just about equal between large independents
     and independents versus the majors.
   – Expansions of gas reserves by large independents and independents was 3
     times that of the majors.
   – Meanwhile production costs for large independents and independents were
     approximately 2/3 of the majors, and the large independents and
     independents had replacement rates (excluding purchases and sales) of over
     two to 3 times that of the majors.
• This indicates the differences in strategy between the segments
  with the majors relying on acquisitions and large processing
  projects as opposed to the independents who concentrate on
  exploration and development.
What Happened to Hubbard’s Peak?
• Hubbard’s peak is based on the premise that conventional oil
  resources are finite in any geographic region.
   – US peak oil was achieved in the 1970 with production of 10.2 m B/D.
   – World peak oil was expected around half a century after the initial
     publication of the theory in 1956 with OPEC extending the peak out by
     about 10 years.
• Unconventional oil and gas resources have disrupted this
  relationship.
   – US proved reserves (conventional and unconventional) total 22.3
     billion barrels and reserves of natural gas total 272.5 trillion cubic feet.
   – Undiscovered technically recoverable oil are estimated at 139.6 billion
     barrels, and natural gas at 1445.3 trillion cubic feet.
   – Since 2008, US oil production has increased by approximately 25% and
     imports have declined from 60% to 42%.
   – The US has now overtaken Russia as the world’s largest natural gas
     producer.
   – Refined product exports are now averaging almost 3 m B/D.
Tapping the Riches: Tight Crudes and Shale Gas
• According to the USGS, whose numbers are generally more conservative
  than industry estimates which are more than twice to three times those of
  USGS, the US has as a resource base:
    – 46 different potential shale gas targets with an estimated 95% confidence interval
      of 318.4 to 935.8 TCF of natural gas and 12541 million barrels of natural gas liquids.
    – 23 different potential tight oil targets with an estimated 95% confidence interval of
      5048.9 to 12497.2 million barrels of crude.
    – Some of these potential targets are stacked as in the Eagle Ford making the
      economics more attractive.
• Technology was and will be the key!
• Large shale gas reserves have major economic and other implications.
• Efficiency gains are reducing finding costs as experience is gained.
    – Costs for a Bakken well declined by about 29% during 2012 and a well now costs
      approximately $6.5 million to drill.
    – Efficiency gains result from increased pad drilling, determination of the optimal
      number of frack stages and lateral lengths, and a reduction in cycle times.
• However, wells in tight oil plays have steep decline rates, averaging
  between 65-75% during their first year of production.
The Refining and Logistic Bottlenecks
• Lack of key infrastructure is leading to bottlenecks in moving produced
  tight oil and could result in stranded resources.
    – Bakken and Eagle Ford production is being diverted to barges, railroads, and
      trucks due to insufficient pipeline capacity.
         • Freight costs for Bakken crude range between $5/B to $18/B depending on final
           destination.
         • Over the last year, increased take-away capacity has been added from the Bakken.
    – Gulf coast refiners are having difficulties matching new crude with different
      qualities with existing processing equipment.
         • Refiners over the last decade have invested over $100 billion in upgrade capacity.
         • Crack spreads for gasoline have widened during the first quarter of 2013.
         • Domestic demand for refined products was impacted by the recession.
    – The Jones Act is impeding the efficient movement of crude and refined
      products between US markets.
    – These logistical bottlenecks distort the pricing structure of tight oil in
      comparison to benchmarks such as West Texas Intermediate. And new
      benchmarks such as Louisiana Light Sweet (LLS) are being used.
• However, domestic tight oil has resulted in the revival of refining on the
  East Coast.
Impacts of US Abundance on World Oil Markets?
• World oil prices are determined by global supply and demand.
• For the first time since the 1960s, the US may achieve energy
  independence and may become the world’s leading oil producer by 2020.
    – The IEA in November, 2012 predicted that North America would become “a
      net oil exporter around 2030”.
    – Implications for security and trade:
        • Incremental oil production would be large enough to more than moderately diminish
          exposure to Middle East politics.
        • Expanding US production will reduce the trade deficit and reduce costs to consumers.
• OPEC controls on oil prices are diminishing; and, Russia’s power over
  European gas supplies is declining as a result of shifting LNG to those
  markets.
• Disruption of US tight oil development by OPEC is unlikely.
    – In the mid-1980s and again in the late 1990s, OPEC boosted their production
      triggering low prices that killed development of more expensive sources of oil.
    – Social and political turmoil in the Middle East requires OPEC to maintain
      revenues.
    – Saudi Arabia needs oil prices on average at $70-$85 per barrel; and, tight oil
      producers need prices of $50 to $80 to achieve returns on capital.
Can US Crude be Exported?
• New sources of crude have been hailed as a means of
  reducing the trade deficit through exports.
• Crude oil exports are prohibited from the US by statute which
  list crude as a commodity in ‘short supply’.
   –   Energy Policy and Conservation Act (1975)
   –   Mineral Leasing Act (1920)
   –   Outer Continental Shelf Lands Act Amendments (1978)
   –   Navel Petroleum Reserves Production Act
• Crude exports, even to Canada, require a ‘swap arrangement’
  whereby
   – US crude is exchanged for more or better crude and products.
   – Contracts can be interrupted if necessary.
   – Swap is needed for refining or marketing reasons which are beyond the exporter’s
     control.
• US international trade commitments may limit the ability to
  prohibit exports.
• Exports of refined products are not under these restrictions.
Can Excess Gas be Exported?
• Currently, the price differential between the US and the Asia Pacific is on
  the order of $10 to $13/mmBtu.
• However, natural gas exports require the approval of US DOE.
    – Currently, there are fifteen export permit approvals pending.
    – Approval is basically automatic for countries that have free trade agreements
      (FTA) with the US.
    – For non-FTA countries, DOE must do a thorough review of the “public interest”
      (economic, energy security, and environment) before allowing export. Non-
      FTA countries include Japan, China and India.
    – Maximum total volumes exported to non-FTA countries from the 15 pending
      and one approved facility are estimated to be 23.71 Bcf per day.
• In addition to DOE approval, LNG project developers must receive
  approvals from the FERC.
• Further, US energy-intensive industry and power generation oppose
  exports as increasing volatility and hurting competitiveness.
• In addition to the hurdles posed by regulation and public opinion, LNG
  export projects face high capital costs, and significant commercial risks
  from price volatility and competition.
An Abundance of Riches: The Next Power Play
• Except for the late 1990’s, the majors have not had a significant role in the
  electric power sector.
• Recent events suggest that these firms should diversify into this business
  activity.
     – Gradual shift to electric vehicles which could be economically viable in US markets by
       2020.
     – Increasing electricity consumption in response to concerns about climate change.
• Three sources of value accrue from integration into gas-fired electric
  power:
     – Captive markets for part of a gas sales portfolio potentially increasing sales volumes.
     – Capture of the “spark spread”.
     – Increased flexibility when either natural gas or electricity markets are unfavorable.
•   Business models for participation in power generation can take a number of
    different forms with some options less capital intensive with greater flexibility:
     – Investment in construction of new generation assets as IPPs.
     – Partnerships with suitable utilities.
• The move into the power sector would require a new set of skills and
  understanding since the two sectors are different.
An Abundance of Riches: Gas-to-Liquids
• Gas-to-liquid (GTL) fuels and methanol overcome the barriers that have
  impeded the penetration of CNG and electric vehicles.
• Liquid GTL fuels contain no impurities and avoid refinery processes
  required to remove crude impurities. However, the overall efficiency is
  only 57-58%.
• Major investments have been announced for GTL facilities.
• Small modular GTL systems are being developed to take advantage of
  more site-specific opportunities.
    – Small plants cost about $100,000 for every b/d capacity.
    – At $4.00/mmBtu a barrel of finished diesel product can be produced for $66.00
      ($1.57/gallon) as compared to approximately $124/barrel ($2.95/gallon) for diesel
      refined from crude.
• New methods using bio-catalysts are being developed.
    – Methanotrops are bacteria that can use methane as a sole carbon and energy source.
    – These have been bio-engineered to use shale gas for the production of fuels and
      petrochemical feed-stocks.
    – Advantages include lower costs than cellulosic feed-stocks, operation at lower
      temperatures than thermal processes (greater efficiency), scalability, and smaller
      environmental impacts.
Will Oil Companies be Players in Clean and
     Renewable Technology Development?
• In the last decade, the petroleum industry has invested $71 billion in
  ‘clean’ and renewable energy as compared to $43 billion by the US Federal
  government. Examples of industry investment include:
    – Shell has invested the most primarily in alternative fuels using biomass (e.g.,
      Brazilian sugar cane).
    – ExxonMobil is investing $600 million in algae biofuel development, and has
      spent $7 billion in alternative fuels since 2005.
    – BP has developed a gross generation capacity of 1955 MW of wind in the US.
• Major oil companies are still focused on their core business of exploration,
  production, and mid- and down-stream activities.
• The majority of clean technology start-ups are funded by venture capital
  funds.
• Energy Security Trust
    – Fund would pay for the development of biofuels, electric batteries and cars
      and trucks power by natural gas.
    – Redirects about $200 million per year in royalties for drilling on federal lands;
      would operate for 10 years.
Uncertainties for the Industry
• Greater regulation of hydraulic fracturing (‘fracking’).
    – Fracking receives exemptions seven federal environmental statues amplified by EPAct
      2005.
    – Regulation of fracking is largely left to the states with varying sets of regulations and
      several states have banned the practice.
    – EPA and the Department of the Interior are now in the process of evaluating the issue
      with the intent of regulating waste water disposal and air quality.
    – Estimates of additional costs of new regulation are unlikely to exceed 50¢ per barrel.

• Deficit reduction and revision of the tax code
    – Removal of favorable tax provisions for the industry might raise government
      revenues by as much as $40 billion over the next decade.
    – Major tax code provisions that might disappear:
         • Intangible drilling costs. Independent oil companies currently may write off 100%, while majors
           may only write off 70%.
         • Dual capacity rules. Companies with foreign operations may receive a credit for taxes paid in
           the foreign country.
         • Percentage depletion. Independent oil companies may take a tax deduction of 15% per year of
           resources in the ground, while majors are excluded from this provision.
         • Domestic activities deduction. Oil companies may claim a 6% deduction from US production.
    – Arguments for abolishing these tax provisions stem from the current high prices.
Some Final Thoughts
• The industry did learn from the experiences of the 1970s and
  1980s.
• The industry is now shaped by an awareness that:
   – Price does play a role in bring on supplies and expanding resources.
   – Energy is a commodity, and the demand for it is a derived demand, i.e., energy
     services. The market for energy services can change substantially over time as
     a function of price, and a change in preferences.
   – Petroleum is part of a much larger interconnected energy system.
   – An organization’s niche within the petroleum industry is important in strategy
     development since each niche has its own unique characteristics and views of
     risk.
   – External factors, such as world markets, have as much to do with success as
     finding oil or natural gas.
   – Business opportunities exist as a result of new technologies or in other sectors
     of the energy industry.
   – If an organization wants to prosper and grow, it take the ‘long view’ and
     continually scan the horizon for changes in its business environment.

Mais conteúdo relacionado

Mais procurados

EY Price Point: global oil and gas market outlook, Q319
EY Price Point: global oil and gas market outlook, Q319EY Price Point: global oil and gas market outlook, Q319
EY Price Point: global oil and gas market outlook, Q319EY
 
Crude energy-guide-to-oil-gas-investing
Crude energy-guide-to-oil-gas-investingCrude energy-guide-to-oil-gas-investing
Crude energy-guide-to-oil-gas-investingKolyo Dankov
 
EY Price Point: global oil and gas market outlook (Q4, October 2020)
EY Price Point: global oil and gas market outlook (Q4, October 2020)EY Price Point: global oil and gas market outlook (Q4, October 2020)
EY Price Point: global oil and gas market outlook (Q4, October 2020)EY
 
EY Price Point: global oil and gas market outlook, Q2, April 2020
EY Price Point: global oil and gas market outlook, Q2, April 2020EY Price Point: global oil and gas market outlook, Q2, April 2020
EY Price Point: global oil and gas market outlook, Q2, April 2020EY
 
EY Price Point: global oil and gas market outlook – Q2
EY Price Point: global oil and gas market outlook – Q2EY Price Point: global oil and gas market outlook – Q2
EY Price Point: global oil and gas market outlook – Q2EY
 
Deloitte: Oil and Gas Reality Check 2014
Deloitte: Oil and Gas Reality Check 2014Deloitte: Oil and Gas Reality Check 2014
Deloitte: Oil and Gas Reality Check 2014Marcellus Drilling News
 
Opec full report
Opec full reportOpec full report
Opec full reportIndyACT
 
EY Price Point: Global oil and gas market outlook
EY Price Point: Global oil and gas market outlookEY Price Point: Global oil and gas market outlook
EY Price Point: Global oil and gas market outlookEY
 
Energy equipment & services monthly report – september final
Energy equipment & services monthly report – september finalEnergy equipment & services monthly report – september final
Energy equipment & services monthly report – september finalCapstone Headwaters
 
EY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlookEY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlookEY
 
ARM_NIGERIA_REPORT_H2_2015_OIL
ARM_NIGERIA_REPORT_H2_2015_OILARM_NIGERIA_REPORT_H2_2015_OIL
ARM_NIGERIA_REPORT_H2_2015_OILFrancis Ngene
 
EY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlookEY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlookEY
 
Energy Equipment & Services: Industry Insights & Happenings
Energy Equipment & Services: Industry Insights & HappeningsEnergy Equipment & Services: Industry Insights & Happenings
Energy Equipment & Services: Industry Insights & HappeningsCapstone Headwaters
 
EY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlookEY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlookEY
 
EY Price Point: global oil and gas market outlook, Q2 | April 2022
EY Price Point: global oil and gas market outlook, Q2 | April 2022EY Price Point: global oil and gas market outlook, Q2 | April 2022
EY Price Point: global oil and gas market outlook, Q2 | April 2022EY
 
The new shale order: OPEC fades, shale booms, China rise
The new shale order: OPEC fades, shale booms, China riseThe new shale order: OPEC fades, shale booms, China rise
The new shale order: OPEC fades, shale booms, China riseBloomberg LP
 

Mais procurados (20)

Crude Oil Price Formation
Crude Oil Price FormationCrude Oil Price Formation
Crude Oil Price Formation
 
EY Price Point: global oil and gas market outlook, Q319
EY Price Point: global oil and gas market outlook, Q319EY Price Point: global oil and gas market outlook, Q319
EY Price Point: global oil and gas market outlook, Q319
 
Crude energy-guide-to-oil-gas-investing
Crude energy-guide-to-oil-gas-investingCrude energy-guide-to-oil-gas-investing
Crude energy-guide-to-oil-gas-investing
 
EY Price Point: global oil and gas market outlook (Q4, October 2020)
EY Price Point: global oil and gas market outlook (Q4, October 2020)EY Price Point: global oil and gas market outlook (Q4, October 2020)
EY Price Point: global oil and gas market outlook (Q4, October 2020)
 
EY Price Point: global oil and gas market outlook, Q2, April 2020
EY Price Point: global oil and gas market outlook, Q2, April 2020EY Price Point: global oil and gas market outlook, Q2, April 2020
EY Price Point: global oil and gas market outlook, Q2, April 2020
 
EY Price Point: global oil and gas market outlook – Q2
EY Price Point: global oil and gas market outlook – Q2EY Price Point: global oil and gas market outlook – Q2
EY Price Point: global oil and gas market outlook – Q2
 
Deloitte: Oil and Gas Reality Check 2014
Deloitte: Oil and Gas Reality Check 2014Deloitte: Oil and Gas Reality Check 2014
Deloitte: Oil and Gas Reality Check 2014
 
Opec full report
Opec full reportOpec full report
Opec full report
 
EY Price Point: Global oil and gas market outlook
EY Price Point: Global oil and gas market outlookEY Price Point: Global oil and gas market outlook
EY Price Point: Global oil and gas market outlook
 
Energy equipment & services monthly report – september final
Energy equipment & services monthly report – september finalEnergy equipment & services monthly report – september final
Energy equipment & services monthly report – september final
 
EY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlookEY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlook
 
ARM_NIGERIA_REPORT_H2_2015_OIL
ARM_NIGERIA_REPORT_H2_2015_OILARM_NIGERIA_REPORT_H2_2015_OIL
ARM_NIGERIA_REPORT_H2_2015_OIL
 
EY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlookEY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlook
 
GLOBAL CRUDE OIL MARKET
GLOBAL CRUDE OIL MARKETGLOBAL CRUDE OIL MARKET
GLOBAL CRUDE OIL MARKET
 
SPRE 2017 oil price outlook final
SPRE 2017 oil price outlook finalSPRE 2017 oil price outlook final
SPRE 2017 oil price outlook final
 
Energy Equipment & Services: Industry Insights & Happenings
Energy Equipment & Services: Industry Insights & HappeningsEnergy Equipment & Services: Industry Insights & Happenings
Energy Equipment & Services: Industry Insights & Happenings
 
EY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlookEY Price Point: global oil and gas market outlook
EY Price Point: global oil and gas market outlook
 
EY Price Point: global oil and gas market outlook, Q2 | April 2022
EY Price Point: global oil and gas market outlook, Q2 | April 2022EY Price Point: global oil and gas market outlook, Q2 | April 2022
EY Price Point: global oil and gas market outlook, Q2 | April 2022
 
Hawaii - Cost of Gasoline - Crude Oil - NYMEX - PUC - POTUS
Hawaii - Cost of Gasoline - Crude Oil - NYMEX - PUC - POTUSHawaii - Cost of Gasoline - Crude Oil - NYMEX - PUC - POTUS
Hawaii - Cost of Gasoline - Crude Oil - NYMEX - PUC - POTUS
 
The new shale order: OPEC fades, shale booms, China rise
The new shale order: OPEC fades, shale booms, China riseThe new shale order: OPEC fades, shale booms, China rise
The new shale order: OPEC fades, shale booms, China rise
 

Destaque (18)

Rsg Results 070809
Rsg Results 070809Rsg Results 070809
Rsg Results 070809
 
Camp Whispering Hills
Camp Whispering HillsCamp Whispering Hills
Camp Whispering Hills
 
Visit to vw solar park
Visit to vw solar parkVisit to vw solar park
Visit to vw solar park
 
Johana Luz Quinteros
Johana Luz QuinterosJohana Luz Quinteros
Johana Luz Quinteros
 
Rogerfernandes
RogerfernandesRogerfernandes
Rogerfernandes
 
Slip n Slidecasting
Slip n SlidecastingSlip n Slidecasting
Slip n Slidecasting
 
Használhatóság és üzleti vonatkozásai - diploma védés
Használhatóság és üzleti vonatkozásai - diploma védésHasználhatóság és üzleti vonatkozásai - diploma védés
Használhatóság és üzleti vonatkozásai - diploma védés
 
Camp Chilly Feet
Camp Chilly FeetCamp Chilly Feet
Camp Chilly Feet
 
Camp Lakamaga
Camp LakamagaCamp Lakamaga
Camp Lakamaga
 
Greening_IEW_2007
Greening_IEW_2007Greening_IEW_2007
Greening_IEW_2007
 
Greening Iew 2007
Greening Iew 2007Greening Iew 2007
Greening Iew 2007
 
Piensaenunnumero
PiensaenunnumeroPiensaenunnumero
Piensaenunnumero
 
Clarus Development Presentation
Clarus Development PresentationClarus Development Presentation
Clarus Development Presentation
 
Camp Laughing Waters
Camp Laughing WatersCamp Laughing Waters
Camp Laughing Waters
 
Camp Twin Pines
Camp Twin PinesCamp Twin Pines
Camp Twin Pines
 
Los Autos Tuning
Los Autos TuningLos Autos Tuning
Los Autos Tuning
 
Itil glossary
Itil glossaryItil glossary
Itil glossary
 
Trauma Hepatico
Trauma HepaticoTrauma Hepatico
Trauma Hepatico
 

Semelhante a US Petroleum Renaissance: A Holistic View

Challenges in the oil and gas sector overview and outlook
Challenges in the oil and gas sector  overview and outlookChallenges in the oil and gas sector  overview and outlook
Challenges in the oil and gas sector overview and outlookdammygee
 
Comeback: America's New Economic Boom
Comeback: America's New Economic BoomComeback: America's New Economic Boom
Comeback: America's New Economic BoomJoe Miller
 
Ziyen inc. pitch deck 2018
Ziyen inc.   pitch deck 2018Ziyen inc.   pitch deck 2018
Ziyen inc. pitch deck 2018Cameron Murray
 
Ziyeninc 20018 corporate overview april
Ziyeninc 20018 corporate overview aprilZiyeninc 20018 corporate overview april
Ziyeninc 20018 corporate overview aprilShaneFraser5
 
North America Energy Landscape
North America Energy LandscapeNorth America Energy Landscape
North America Energy LandscapeEcon Matters
 
What the drop in oil prices means for the economy and office markets
What the drop in oil prices means for the economy and office marketsWhat the drop in oil prices means for the economy and office markets
What the drop in oil prices means for the economy and office marketsJLL
 
Energy Sector - Oil and Gas - Canada - June 2016
Energy Sector - Oil and Gas - Canada - June 2016Energy Sector - Oil and Gas - Canada - June 2016
Energy Sector - Oil and Gas - Canada - June 2016paul young cpa, cga
 
Carbon Bubble - Making Sense of a "Fossil Market"
Carbon Bubble - Making Sense of a "Fossil Market"Carbon Bubble - Making Sense of a "Fossil Market"
Carbon Bubble - Making Sense of a "Fossil Market"Timon Henze
 
Geopolitics in oil and gas market
Geopolitics in oil and gas marketGeopolitics in oil and gas market
Geopolitics in oil and gas marketAdjei Sephen
 
2014 CGEP Westwood oil and economic growth
2014 CGEP Westwood oil and economic growth2014 CGEP Westwood oil and economic growth
2014 CGEP Westwood oil and economic growthpyrelav
 
Challenges in US Energy Infrastructure and Investment.pdf
Challenges in US Energy Infrastructure and Investment.pdfChallenges in US Energy Infrastructure and Investment.pdf
Challenges in US Energy Infrastructure and Investment.pdfGregBean8
 
Article presentation
Article presentationArticle presentation
Article presentationRodixon94
 
10 Things That May Affect the Future of Subsea Production
10 Things That May Affect the Future of Subsea Production10 Things That May Affect the Future of Subsea Production
10 Things That May Affect the Future of Subsea ProductionHubie Fix
 
Tony Fountain speakes at the 2013 Oil & Money Conference
Tony Fountain speakes at the 2013 Oil & Money Conference Tony Fountain speakes at the 2013 Oil & Money Conference
Tony Fountain speakes at the 2013 Oil & Money Conference Energy Intelligence
 

Semelhante a US Petroleum Renaissance: A Holistic View (20)

Copy of OPEC-oil-prices[2]
Copy of OPEC-oil-prices[2]Copy of OPEC-oil-prices[2]
Copy of OPEC-oil-prices[2]
 
Challenges in the oil and gas sector overview and outlook
Challenges in the oil and gas sector  overview and outlookChallenges in the oil and gas sector  overview and outlook
Challenges in the oil and gas sector overview and outlook
 
Comeback: America's New Economic Boom
Comeback: America's New Economic BoomComeback: America's New Economic Boom
Comeback: America's New Economic Boom
 
Ziyen inc. pitch deck 2018
Ziyen inc.   pitch deck 2018Ziyen inc.   pitch deck 2018
Ziyen inc. pitch deck 2018
 
Ziyen Energy A Scottish-American Oil & Gas company
Ziyen Energy A Scottish-American Oil & Gas companyZiyen Energy A Scottish-American Oil & Gas company
Ziyen Energy A Scottish-American Oil & Gas company
 
Ziyen Energy A Scottish-American Oil & Gas company
Ziyen Energy A Scottish-American Oil & Gas companyZiyen Energy A Scottish-American Oil & Gas company
Ziyen Energy A Scottish-American Oil & Gas company
 
Ziyeninc 20018 corporate overview april
Ziyeninc 20018 corporate overview aprilZiyeninc 20018 corporate overview april
Ziyeninc 20018 corporate overview april
 
North America Energy Landscape
North America Energy LandscapeNorth America Energy Landscape
North America Energy Landscape
 
12 june ipa network mtg ucg
12 june ipa network mtg ucg12 june ipa network mtg ucg
12 june ipa network mtg ucg
 
What the drop in oil prices means for the economy and office markets
What the drop in oil prices means for the economy and office marketsWhat the drop in oil prices means for the economy and office markets
What the drop in oil prices means for the economy and office markets
 
Energy Sector - Oil and Gas - Canada - June 2016
Energy Sector - Oil and Gas - Canada - June 2016Energy Sector - Oil and Gas - Canada - June 2016
Energy Sector - Oil and Gas - Canada - June 2016
 
Carbon Bubble - Making Sense of a "Fossil Market"
Carbon Bubble - Making Sense of a "Fossil Market"Carbon Bubble - Making Sense of a "Fossil Market"
Carbon Bubble - Making Sense of a "Fossil Market"
 
Geopolitics in oil and gas market
Geopolitics in oil and gas marketGeopolitics in oil and gas market
Geopolitics in oil and gas market
 
2014 CGEP Westwood oil and economic growth
2014 CGEP Westwood oil and economic growth2014 CGEP Westwood oil and economic growth
2014 CGEP Westwood oil and economic growth
 
Lesson7oil
Lesson7oilLesson7oil
Lesson7oil
 
Petroleum energy.ppt
Petroleum energy.pptPetroleum energy.ppt
Petroleum energy.ppt
 
Challenges in US Energy Infrastructure and Investment.pdf
Challenges in US Energy Infrastructure and Investment.pdfChallenges in US Energy Infrastructure and Investment.pdf
Challenges in US Energy Infrastructure and Investment.pdf
 
Article presentation
Article presentationArticle presentation
Article presentation
 
10 Things That May Affect the Future of Subsea Production
10 Things That May Affect the Future of Subsea Production10 Things That May Affect the Future of Subsea Production
10 Things That May Affect the Future of Subsea Production
 
Tony Fountain speakes at the 2013 Oil & Money Conference
Tony Fountain speakes at the 2013 Oil & Money Conference Tony Fountain speakes at the 2013 Oil & Money Conference
Tony Fountain speakes at the 2013 Oil & Money Conference
 

Último

Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..dlewis191
 
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGUNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGlokeshwarmaha
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfCharles Cotter, PhD
 
To Create Your Own Wig Online To Create Your Own Wig Online
To Create Your Own Wig Online  To Create Your Own Wig OnlineTo Create Your Own Wig Online  To Create Your Own Wig Online
To Create Your Own Wig Online To Create Your Own Wig Onlinelng ths
 
Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toumarfarooquejamali32
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHelene Heckrotte
 
Live-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry WebinarLive-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry WebinarNathanielSchmuck
 
MoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor PresentationMoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor Presentationbaron83
 
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdfAMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdfJohnCarloValencia4
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyHanna Klim
 
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...AustraliaChapterIIBA
 
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessQ2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessAPCO
 
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptxCracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptxWorkforce Group
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...IMARC Group
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...Brian Solis
 
Fabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and FestivalsFabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and FestivalsWristbands Ireland
 

Último (20)

Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..
 
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISINGUNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
UNLEASHING THE POWER OF PROGRAMMATIC ADVERTISING
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
 
To Create Your Own Wig Online To Create Your Own Wig Online
To Create Your Own Wig Online  To Create Your Own Wig OnlineTo Create Your Own Wig Online  To Create Your Own Wig Online
To Create Your Own Wig Online To Create Your Own Wig Online
 
Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb to
 
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptxHELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
HELENE HECKROTTE'S PROFESSIONAL PORTFOLIO.pptx
 
Live-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry WebinarLive-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry Webinar
 
MoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor PresentationMoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor Presentation
 
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdfAMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
AMAZON SELLER VIRTUAL ASSISTANT PRODUCT RESEARCH .pdf
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agency
 
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
 
Investment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV IndustriesInvestment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV Industries
 
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessQ2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
 
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptxCracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
 
Fabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and FestivalsFabric RFID Wristbands in Ireland for Events and Festivals
Fabric RFID Wristbands in Ireland for Events and Festivals
 

US Petroleum Renaissance: A Holistic View

  • 1. US Petroleum Renaissance: A Holistic View Lorna Greening March 8, 2013 University of Tulsa
  • 2. Today’s Presentation • What the majority of the petroleum industry missed in the early 1980’s or ‘Why did I end up at the back of that unemployment line?’ • Understanding how the industry is evolving or will evolve is cheaper than a therapist! • The petroleum industry is far more complicated in 2013 than in 1973; and, as a result producers need to think strategically. • Future factors, events or developments to be watching.
  • 3. What Led to the Decline of the US Petroleum Industry in the Early to Mid-1980’s? • Unsupported price expectations by producers. • Producers failed to recognize the power of price in inducing efficiency gains (i.e., decreases in energy intensity). And, those gains were not reversed once prices declined, i.e., little or no rebound effect. • The industry did not recognize that OPEC needed cohesion in order to set world oil prices; and, that cohesion was disrupted in the early 1980’s resulting in lower prices. • US energy policy which included an emphasis on conservation and fuel substitution, price controls for natural gas, and a wind-fall profits tax on crude. • Penny stock market offerings during the 1970s brought in organizations without the skills to understand or prosper in the oil industry. And, lots of ego. . .and hubris! • Macroeconomic effects including stagflation, and higher costs of capital for investment. • The bottom-line: Those of us in the petroleum industry during the 1970s and early 1980s were primarily focused on finding and producing oil and gas. In the course of that endeavor, the majority of the industry overlooked major factors that would impact it eventually.
  • 4. How did the Structure of the Industry Change? • Surprisingly. . .the industrial organization or structure of the petroleum industry has not changed since 1973. There are still essentially four segments in the industry. • Performance or benchmarking measures vary by segment. In 2011: – Large independents and independents had capital expenditures twice that of the majors, and spent nearly 2.25 times on exploration and development. – Results from operations were just about equal between large independents and independents versus the majors. – Expansions of gas reserves by large independents and independents was 3 times that of the majors. – Meanwhile production costs for large independents and independents were approximately 2/3 of the majors, and the large independents and independents had replacement rates (excluding purchases and sales) of over two to 3 times that of the majors. • This indicates the differences in strategy between the segments with the majors relying on acquisitions and large processing projects as opposed to the independents who concentrate on exploration and development.
  • 5. What Happened to Hubbard’s Peak? • Hubbard’s peak is based on the premise that conventional oil resources are finite in any geographic region. – US peak oil was achieved in the 1970 with production of 10.2 m B/D. – World peak oil was expected around half a century after the initial publication of the theory in 1956 with OPEC extending the peak out by about 10 years. • Unconventional oil and gas resources have disrupted this relationship. – US proved reserves (conventional and unconventional) total 22.3 billion barrels and reserves of natural gas total 272.5 trillion cubic feet. – Undiscovered technically recoverable oil are estimated at 139.6 billion barrels, and natural gas at 1445.3 trillion cubic feet. – Since 2008, US oil production has increased by approximately 25% and imports have declined from 60% to 42%. – The US has now overtaken Russia as the world’s largest natural gas producer. – Refined product exports are now averaging almost 3 m B/D.
  • 6. Tapping the Riches: Tight Crudes and Shale Gas • According to the USGS, whose numbers are generally more conservative than industry estimates which are more than twice to three times those of USGS, the US has as a resource base: – 46 different potential shale gas targets with an estimated 95% confidence interval of 318.4 to 935.8 TCF of natural gas and 12541 million barrels of natural gas liquids. – 23 different potential tight oil targets with an estimated 95% confidence interval of 5048.9 to 12497.2 million barrels of crude. – Some of these potential targets are stacked as in the Eagle Ford making the economics more attractive. • Technology was and will be the key! • Large shale gas reserves have major economic and other implications. • Efficiency gains are reducing finding costs as experience is gained. – Costs for a Bakken well declined by about 29% during 2012 and a well now costs approximately $6.5 million to drill. – Efficiency gains result from increased pad drilling, determination of the optimal number of frack stages and lateral lengths, and a reduction in cycle times. • However, wells in tight oil plays have steep decline rates, averaging between 65-75% during their first year of production.
  • 7. The Refining and Logistic Bottlenecks • Lack of key infrastructure is leading to bottlenecks in moving produced tight oil and could result in stranded resources. – Bakken and Eagle Ford production is being diverted to barges, railroads, and trucks due to insufficient pipeline capacity. • Freight costs for Bakken crude range between $5/B to $18/B depending on final destination. • Over the last year, increased take-away capacity has been added from the Bakken. – Gulf coast refiners are having difficulties matching new crude with different qualities with existing processing equipment. • Refiners over the last decade have invested over $100 billion in upgrade capacity. • Crack spreads for gasoline have widened during the first quarter of 2013. • Domestic demand for refined products was impacted by the recession. – The Jones Act is impeding the efficient movement of crude and refined products between US markets. – These logistical bottlenecks distort the pricing structure of tight oil in comparison to benchmarks such as West Texas Intermediate. And new benchmarks such as Louisiana Light Sweet (LLS) are being used. • However, domestic tight oil has resulted in the revival of refining on the East Coast.
  • 8. Impacts of US Abundance on World Oil Markets? • World oil prices are determined by global supply and demand. • For the first time since the 1960s, the US may achieve energy independence and may become the world’s leading oil producer by 2020. – The IEA in November, 2012 predicted that North America would become “a net oil exporter around 2030”. – Implications for security and trade: • Incremental oil production would be large enough to more than moderately diminish exposure to Middle East politics. • Expanding US production will reduce the trade deficit and reduce costs to consumers. • OPEC controls on oil prices are diminishing; and, Russia’s power over European gas supplies is declining as a result of shifting LNG to those markets. • Disruption of US tight oil development by OPEC is unlikely. – In the mid-1980s and again in the late 1990s, OPEC boosted their production triggering low prices that killed development of more expensive sources of oil. – Social and political turmoil in the Middle East requires OPEC to maintain revenues. – Saudi Arabia needs oil prices on average at $70-$85 per barrel; and, tight oil producers need prices of $50 to $80 to achieve returns on capital.
  • 9. Can US Crude be Exported? • New sources of crude have been hailed as a means of reducing the trade deficit through exports. • Crude oil exports are prohibited from the US by statute which list crude as a commodity in ‘short supply’. – Energy Policy and Conservation Act (1975) – Mineral Leasing Act (1920) – Outer Continental Shelf Lands Act Amendments (1978) – Navel Petroleum Reserves Production Act • Crude exports, even to Canada, require a ‘swap arrangement’ whereby – US crude is exchanged for more or better crude and products. – Contracts can be interrupted if necessary. – Swap is needed for refining or marketing reasons which are beyond the exporter’s control. • US international trade commitments may limit the ability to prohibit exports. • Exports of refined products are not under these restrictions.
  • 10. Can Excess Gas be Exported? • Currently, the price differential between the US and the Asia Pacific is on the order of $10 to $13/mmBtu. • However, natural gas exports require the approval of US DOE. – Currently, there are fifteen export permit approvals pending. – Approval is basically automatic for countries that have free trade agreements (FTA) with the US. – For non-FTA countries, DOE must do a thorough review of the “public interest” (economic, energy security, and environment) before allowing export. Non- FTA countries include Japan, China and India. – Maximum total volumes exported to non-FTA countries from the 15 pending and one approved facility are estimated to be 23.71 Bcf per day. • In addition to DOE approval, LNG project developers must receive approvals from the FERC. • Further, US energy-intensive industry and power generation oppose exports as increasing volatility and hurting competitiveness. • In addition to the hurdles posed by regulation and public opinion, LNG export projects face high capital costs, and significant commercial risks from price volatility and competition.
  • 11. An Abundance of Riches: The Next Power Play • Except for the late 1990’s, the majors have not had a significant role in the electric power sector. • Recent events suggest that these firms should diversify into this business activity. – Gradual shift to electric vehicles which could be economically viable in US markets by 2020. – Increasing electricity consumption in response to concerns about climate change. • Three sources of value accrue from integration into gas-fired electric power: – Captive markets for part of a gas sales portfolio potentially increasing sales volumes. – Capture of the “spark spread”. – Increased flexibility when either natural gas or electricity markets are unfavorable. • Business models for participation in power generation can take a number of different forms with some options less capital intensive with greater flexibility: – Investment in construction of new generation assets as IPPs. – Partnerships with suitable utilities. • The move into the power sector would require a new set of skills and understanding since the two sectors are different.
  • 12. An Abundance of Riches: Gas-to-Liquids • Gas-to-liquid (GTL) fuels and methanol overcome the barriers that have impeded the penetration of CNG and electric vehicles. • Liquid GTL fuels contain no impurities and avoid refinery processes required to remove crude impurities. However, the overall efficiency is only 57-58%. • Major investments have been announced for GTL facilities. • Small modular GTL systems are being developed to take advantage of more site-specific opportunities. – Small plants cost about $100,000 for every b/d capacity. – At $4.00/mmBtu a barrel of finished diesel product can be produced for $66.00 ($1.57/gallon) as compared to approximately $124/barrel ($2.95/gallon) for diesel refined from crude. • New methods using bio-catalysts are being developed. – Methanotrops are bacteria that can use methane as a sole carbon and energy source. – These have been bio-engineered to use shale gas for the production of fuels and petrochemical feed-stocks. – Advantages include lower costs than cellulosic feed-stocks, operation at lower temperatures than thermal processes (greater efficiency), scalability, and smaller environmental impacts.
  • 13. Will Oil Companies be Players in Clean and Renewable Technology Development? • In the last decade, the petroleum industry has invested $71 billion in ‘clean’ and renewable energy as compared to $43 billion by the US Federal government. Examples of industry investment include: – Shell has invested the most primarily in alternative fuels using biomass (e.g., Brazilian sugar cane). – ExxonMobil is investing $600 million in algae biofuel development, and has spent $7 billion in alternative fuels since 2005. – BP has developed a gross generation capacity of 1955 MW of wind in the US. • Major oil companies are still focused on their core business of exploration, production, and mid- and down-stream activities. • The majority of clean technology start-ups are funded by venture capital funds. • Energy Security Trust – Fund would pay for the development of biofuels, electric batteries and cars and trucks power by natural gas. – Redirects about $200 million per year in royalties for drilling on federal lands; would operate for 10 years.
  • 14. Uncertainties for the Industry • Greater regulation of hydraulic fracturing (‘fracking’). – Fracking receives exemptions seven federal environmental statues amplified by EPAct 2005. – Regulation of fracking is largely left to the states with varying sets of regulations and several states have banned the practice. – EPA and the Department of the Interior are now in the process of evaluating the issue with the intent of regulating waste water disposal and air quality. – Estimates of additional costs of new regulation are unlikely to exceed 50¢ per barrel. • Deficit reduction and revision of the tax code – Removal of favorable tax provisions for the industry might raise government revenues by as much as $40 billion over the next decade. – Major tax code provisions that might disappear: • Intangible drilling costs. Independent oil companies currently may write off 100%, while majors may only write off 70%. • Dual capacity rules. Companies with foreign operations may receive a credit for taxes paid in the foreign country. • Percentage depletion. Independent oil companies may take a tax deduction of 15% per year of resources in the ground, while majors are excluded from this provision. • Domestic activities deduction. Oil companies may claim a 6% deduction from US production. – Arguments for abolishing these tax provisions stem from the current high prices.
  • 15. Some Final Thoughts • The industry did learn from the experiences of the 1970s and 1980s. • The industry is now shaped by an awareness that: – Price does play a role in bring on supplies and expanding resources. – Energy is a commodity, and the demand for it is a derived demand, i.e., energy services. The market for energy services can change substantially over time as a function of price, and a change in preferences. – Petroleum is part of a much larger interconnected energy system. – An organization’s niche within the petroleum industry is important in strategy development since each niche has its own unique characteristics and views of risk. – External factors, such as world markets, have as much to do with success as finding oil or natural gas. – Business opportunities exist as a result of new technologies or in other sectors of the energy industry. – If an organization wants to prosper and grow, it take the ‘long view’ and continually scan the horizon for changes in its business environment.