Global supply and market impacts of US unconventional oil production growth

Andrew Slaughter, Vice-President, Energy Insight, IHS

Presentation to EIA 2013 Energy Conference June 18th 2013 Washington, DC

CONFIDENTIAL
2013, All rights reserved, IHS CERA., 55 Cambridge Parkway, Cambridge, Massachusetts 02142 No portion of this presentation may be reproduced, reused or otherwise distributed in any form without prior written consent .

Todays Themes

US unconventional oil where, how, how much?

US position in global oil supply growth Market implications Can tight oil go global?

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Tight Oil plays in North America - diverse and distributed

IHS estimates that tight oil adds over 40 billion barrels to North American recoverable supply

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Price and technology drove success in US unconventional oil and gas plays
Step 1: Higher prices enabled investment in technology
Gas prices began to rise in early 2000s -- gas supply bubble worked off and concerns grew over future gas supply Tight gas sand work in the Rockies develops slick water fracturing Horizontal drilling rolled out in earnest and combined with hydraulic fracturing in the Barnett Shale

Step 2: Technology transformed uneconomical and inaccessible resources into viable large-scale unconventional plays
Shale gas boom unleashed in multiple basins New supply led to fall in gas prices Oil prices remained strong and supported migration of horizontal drilling and multistage fracturing technology to tight oil plays, beginning with the North Dakota Bakken Multiple tight oil plays now developing
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The US oil and gas business environment has enabled a rapid pace of development to scale
Regulatory frameworks in the main allow horizontal drilling and fracturing to safely proceed Mineral ownership in the U.S. resides with private individuals, not just government, allowing for access to resources on private lands
Mineral owners are stakeholders in success Acreage leaseholdings are distributed among many operators

Intense competition for leases and acreage price escalation causes companies to develop plays very quickly to protect land investments Infrastructure, human resources, rigs, services and fit-for-purpose equipment are all readily available
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How big and how competitive is the US tight oil resource?

Tight oil resources are larger than US proved oil reserves and much can be produced at a wellhead price of up to $60

Source: IHS CERA.

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Unconventional natural gas and crude oil has revitalised US hydrocarbon production

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Thousand b/d oil equivalent

Tight Oil is driving US crude oil production towards 8 mbd

US crude oil production outlook U.S. Crude Oil Production Outlook
9,000 8,000 7,000 6,000 Thousand 5,000 Barrels Per Day 4,000 3,000 2,000 1,000 0 2005
Source: IHS CERA
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Other Lower 48 Gulf of Mexico Alaska Tight Oil

2010

2015

2020

2025

United States is the largest source of new liquids supply since 2008
3.0 2.5 2.0 Million barrels per day 1.5 1.0 0.5 0.0 United States Canada Total liquids growth 200812

Nigeria

Iraq

United Arab Emirates

Source: IEA, IHS CERA, national government data. Note: Liquids includes ethanol and biodiesel for the United States and Canada, and ethanol for China and Columbia. Copyright 2013HS Inc. All Rights Reserved.

Saudi Arabia

Colombia

Russia

China

Qatar

North America will sustain its position as a leading contributor to liquids growth
Year-On-Year World Crude Oil Supply Growth
2,000
ROW Iraq North America Brazil

1,500

1,000
Thousands of barrels per day

500

(500) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Sources: IHS CERA, with some historical data from International Energy Agency and US EIA.

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Growing supply contributes to higher OPEC spare capacity

OPEC Spare Crude Oil Production Capacity
6,000 5,000 4,000
Thousands of barrels 3,000 per day

2,000 1,000 2010

Sources: IHS CERA

2012

2014

2016

2018

2020

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Strong North American supply will reshape trade patterns

North America Offshore Crude Imports
10,000
North Sea / CIS / Other Middle East Thousands of barrels per day

8,000

6,000
Africa

4,000

2,000

Latin America

2000 2005 2010 2015 2020 2025 2030

Sources: IHS CERA, with some historical data from US EIA.

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Can lessons learned migrate to new regions of unconventional oil development?

Source: IHS CERA. 20412-2 Copyright 2013HS Inc. All Rights Reserved. 12

Many plays outside North America could be sources of significant development

Europe 27 play areas

CIS 13 play areas

Africa 15 play areas

North Asia 26 play areas Middle East 16 play areas

South Asia 20 play areas

South America 14 play areas

148 play areas 17 play areas ~ 500 billion barrels potentially technically recoverable
Source: IHS CERA.

Australasia

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Unconventional oil and gas E&P: Above ground factors more challenging outside North America

Source: IHS CERA. 20313-1 Copyright 2013HS Inc. All Rights Reserved.

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In conclusion
North America has led the world in unconventional gas and oil

development
Uniquely favourable business environment factors helped accelerate

development scale and timing The rest of the world has high scope for both unconventional gas and oil Above ground factors will limit the speed of development in most places relative to North America but long-term prospects are positive

Expansion of supply options opens up new options for markets

and trade
Shifting patterns of crude oil trade as US import needs decline Spill over effects into refined products trade Consolidates non-OPEC role in future investment and supply growth

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