21/10/2016

1

Technology to the Rescue in a World of Low Oil and Gas Prices

Speaker Andrew Gould – Board Member, Saudi Aramco

Moderator Herman Franssen – Executive Director, Energy Intelligence and Conference Chairman

Costs are coming down fast but this is cyclical

NON-OPEC SUPPLY EX-US (6/7)

Current crude prices are below cash costs in most of the world. Currency, over-capacity in the service market and a focus on propping up near-term production has played a large role in reducing operating costs across 2015 and 2016.

Global cost curve $ per barrel

Source: Company data, Energy Aspects analysis

21/10/2016

2

Process & Efficiency Improvements US Shale and

Tight oil plays

Increasing Costs Decreasing Costs

Play margin delineation Derisked geology

Drilling/completion/

stimulation surprises

More efficient drilling/

completion/stimulation

Competition for leases Consolidation of leases

Supply chain bottlenecks Supply chain optimization

Infrastructure bottlenecks Infrastructure buildout

Service cost increases

o Equipment shortages

o Personnel shortages

Service cost discounts

o Amortization of CAPEX

o Service efficiencies

o Increased competition

Early in development cycle

Late in development cycle

Downturn-Driven Efficiencies US Shale and Tight Oil Plays

Asset High Grading

No more exploratory drilling

Ultra sweet spotting

Completing DUCs

Only the best rigs and crews

Intelligent

Downsizing

Technical Innovations

Pad Drilling

Site construction efficiencies

Well construction efficiencies

Creeping rigs

Supply chain simplification

Factory Mode

Super Fracks

Longer laterals

Tighter fracture initiation points

More water

More proppant

Even More

Brute Force

21/10/2016

3

Process and Efficiency Improvements are

“Every Day Innovations” that Continue Through Business Cycles

5

https://www.eia.gov/petroleum/weekly/archive/2016/160602/includes/analysis_print.cfm

U.S. Shale Gas & Tight Oil Plays

Year

Wel

l Co

st (

$ m

illio

ns)

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1950 1960 1970 1980 1990 2000 2010

Average water depth - offshore discoveries outside US (m)

5-year average In the year

Source: Rystad Energy

21/10/2016

4

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1950 1960 1970 1980 1990 2000 2010

Cost per boe discovered - outside US (real 2015 $/boe)

Source: Rystad Energy

Learning integration from other industries

21/10/2016

5

Johan Castberg

Source: Company data, Goldman Sachs Investment Research

Mad Dog II

Source: Company data, Goldman Sachs Investment Research

21/10/2016

6

When Oil & Gas Prices are Falling or Low

Academic & government O&G research winds downs

Industry R&D shrinks

o Hiring is cut

o Less emphasis on novel techniques

o Efficiency improvements prioritized

o Some innovations are lost

Technology development outsourced

o Downsizing of risk

o IOCs Service Cos Start Ups

Technology leaders of the next up-cycle shrink the least

o Industry-changing innovations develop over 10 - 20 years

o Technology true believers carry on through thick and thin

Innovation & the Business Cycle

11