11th Annual Global Energy Conference
Domestic State of Play:
New Norm, New Day, New Rules
Chuck Davidson
May 17, 2016
y ,
Does anyone seriously think they know where
commodity prices are going?
Oil Prices Not Always Volatile : Post WW2 – A Period of Stability
Real oil prices decline as production grows to 10 MMBpd (peak) in 1970
U.S. Oil Production
12,000
10,000
MBopd
Oil Price $/Bbl
8,000
6,000
4,000
Nominal
Source: Macrotrends
Source: EIA
Year
70
65
60
55
50
45
40
35
30
0
25
R l
Real
20
2,000
Energy in the 70’s – The Beginning of Modern Era Oil Volatility
Shortages, Gas Lines, Price Controls and Rising Prices
U.S. Oil Prices Highly Volatile Since Early 70’s
World economic and political events drive price extremes
160
Inflation Adjusted Oil P
Price, $/Barrel
140
OPEC Prod. @ 30 MMBpd
Price Controls
Strategic Pet Res
CAFÉ Standards
120
100
80
OPEC Prod. Declines to 15 MMBpd
OPEC Prod. Increases to 28 MMBpd
OPEC Prod. Varies
OPEC Prod. Averages 30 – 35 MMBpd
Recession
Windfall Profits Tax
Iran/Iraq
War
Oil Shale Growth
Iraq War
PDVSA Strike
Asian Growth
Low OPEC Spare Capacity
OPEC Increases
Prod. For Mkt. Share
Iranian
Revolution
60
Gulf War
40
Yom Kippur War
Oil Embargo
20
Arab Spring
Asian Financial
Asian
Financial
Crisis
Jan‐70
Jul‐71
Jan‐73
Jul‐74
Jan‐76
Jul‐77
Jan‐79
Jul‐80
Jan‐82
Jul‐83
Jan‐85
Jul‐86
Jan‐88
Jul‐89
Jan‐91
Jul‐92
Jan‐94
Jul‐95
Jan‐97
Jul‐98
Jan‐00
Jul‐01
Jan‐03
Jul‐04
Jan‐06
Jul‐07
Jan‐09
Jul‐10
Jan‐12
Jul‐13
Jan‐15
0
9/11
Attacks
OPEC Maintains
Production to
Retain Market Share
Oil Price ($2016)
$
Source: Macrotrends
OPEC is Now Maintaining Market Share
100
90
80
55
OPEC’s Growing Mkt Share
Depressed Prices for Years
50
70
45
60
40
50
35
40
30
30
25
20
20
Source: IEA
6
60
Gl b l Production
Global
P d ti
OPEC Market
M k t Share
Sh
OPEC
C Market Share, %
Global Prod
G
duction, MM
MBbl Per D
Day
Current market share bears little resemblance to mid-1980’s
Global Oil Supply & Demand
Significant shift from undersupply to oversupply
2.5
98
2.0
96
1.5
94
1.0
92
0.5
90
0.0
88
-0.5
86
-1.0
84
-1.5
1.5
82
-2.0
UNDERSUPPLIED
UNDERSUPPLIED
Excess Supply
Source: IEA Oil Market Reports
Demand
Supply
80
Supply
y & Demand, MMBpd
OVERSUPPLIED
1Q10
2Q20
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
Exce
ess Supply, M
MMBpd
OVERSUPPLIED
Global Oil Supply & Demand
Potentially shifting from oversupply to balanced/undersupplied
2.5
98
2.0
96
1.5
94
1.0
92
*
0.5
90
0.0
88
*
-0.5
86
*
-1.0
84
-1.5
1.5
82
-2.0
UNDERSUPPLIED
UNDERSUPPLIED
Excess Supply
*Assumes flat OPEC supply
Source: IEA Oil Market Reports
Demand
Supply
80
Supply
y & Demand, MMBpd
OVERSUPPLIED
1Q10
2Q20
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
Exce
ess Supply, M
MMBpd
OVERSUPPLIED
It’s Not Just About Production
US crude inventories have rapidly grown to record levels
15
10
540
5
490
0
440
-5
390
-10
Excludes SPR Inventory
340
-15
Weekly Change
Source: EIA
US Crude Stocks
We
eekly Chang
ge, MMBbll
US C
Crude Stoc
cks, MMBb
bl
590
No Help From Natural Gas
Natura
al Gas Price, $
$/MMBtu
Prices have fallen 60% since early 2014
Source: Macrotrends
So How Do We Get Out of This Mess?
A lot of moving pieces
Macrro
C
Corporate
e
 Companies Needed to Immediately Address Financial Issues

Slash spending to balance with reduced cash flows

Secure cost reductions

Repair balance sheets
 Business Models Had to Be Reexamined

A investment
Are
i
t
t opportunities
t iti viable
i bl iin a llower price
i world?
ld?

Is the business sustainable stand-alone?

Revise long range plans to fit with new price expectations
 Global Supply/Demand Needs to Achieve Balance

Supply starting to come down (reduced drilling)

Inventories need to bleed off

Hopefully some help from demand growth
th
11
Annual
Gl b l Energy
Global
E
C
Conference
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