How will the oil industry adapt to IEAs Oil Market Outlook 23 March - PowerPoint PPT Presentation

How will the oil industry adapt to IEA’s Oil Market Outlook 23 March 2017 Oddvar Bjørgan +47 22 48 76 71 / +47 91 71 94 60 oddvar.bjorgan@nordea.com Emil Johannessen +47 22 48 79 28 / +47 48 23 21 74 emil.norum.johannessen@nordea.com

IEA: We need more investments NOW to avoid price spikes beyond 2020 Supply / demand balance Comment Global oil demand and supply (IEA) m bpd IEA’s latest global oil supply and demand estimates 104 suggest a meaningful undersupply of oil beyond 103 2020 unless significant investment decisions will be made now. 102 101 1) Is it correct? 100 2) Do the oil companies BELIEVE it is correct? 99 98 1) Big Oils: Sceptical 2) US E&Ps: Don’t care (because we are lower on 97 the cost curve), and OPEC issued a price guarantee. 96 95 The graph is based on IEA’s estimates from the “Oil 2017 ” report (including 94 IEA’s US shale estimates of course). In addition we have assumed that OPEC 16 D 16S 17 D 17S 18 D 18S 19 D 19S 20 D 20S 21 D 21S 22 D 22S crude oil production will stay flat from the February 2017 level of 32.0m bpd in this graph. OPEC could therefore at any time increase production by 1.0m bpd. In addition, the IEA estimates that OPEC’s sustainable production capacity will increase by 1.5m bpd in 2018-2020. OPEC could therefore add some 2.5m bpd to the supply side by 2020 (balancing the market). Source: IEA and Nordea Markets 2 •

We have had a dramatic slow-down in investments 10 Integrated Oils’ capex US E&P’s capex 300 000 275 000 250 000 225 000 200 000 175 000 USDm 150 000 125 000 100 000 75 000 50 000 25 000 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E Down 62% from Q4 13 to Q4 16 Down 75% from Q1 14 to Q3 16 Expects a slow recovery Expects a quicker recovery Source: Nordea Markets, company reports and Bloomberg consensus 3 •

Big Oils’ have been cash -flow negative, but are improving dramatically now Integrated Oils' CFFO and Capex (USDm) 320 000 120 300 000 110 280 000 100 260 000 240 000 90 220 000 80 200 000 70 180 000 USD/bbl USDm 160 000 60 140 000 50 120 000 40 100 000 80 000 30 60 000 20 40 000 10 20 000 0 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E CFFO (USDm) Capex (USDm) Brent (RHS) Source: Company data, Bloomberg and Nordea Markets 4 •

Big Oils’: Oil price at USD 50/ bbl covers dividend in 2017 Integrated Oils' break-even oil price 136 140 130 118 120 114 110 100 90 89 77 80 USD/bbl 66 70 60 57 50 49 50 40 47 29 30 30 20 10 0 2019E 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E Brent oil price Break-even after CAPEX (USD/bbl) Break-even after CAPEX and div. (USD/bbl) That means they CAN increase investments from 2018 if they WANT Source: Bloomberg and Nordea Markets 5 •

Big Oils: Dramatic improvement in free cash flow Q4 16 Brent: 49 BP Shell Total ENI Statoil Chevron Conoco Exxon Repsol Cash-flow from operations before WC changes 2 035 9 818 5 105 1 933 3 800 3 147 1 753 9 800 1 519 38 909 Organic capex -4 658 -5 714 -5 742 -2 425 -2 569 -4 009 -999 -3 800 -954 -30 870 FCF organic -2 623 4 104 -637 -493 1 231 -862 754 6 000 565 8 039 WC changes 393 -648 1 913 1 568 -1 774 716 -310 -2 400 258 -284 FCF organic after WC changes -2 230 3 456 1 276 1 076 -543 -146 444 3 600 822 7 755 Acquisitions/sale of assets 212 2 285 814 691 -366 1 086 1 052 2 100 466 8 340 FCF -2 018 5 741 2 090 1 767 -909 940 1 496 5 700 1 288 16 095 Dividends -1 206 -2 395 -550 -36 -371 -1 968 -313 -3 100 -5 -9 944 Buy-backs 0 0 60 0 0 0 -137 0 24 -53 FCF after dividends and buy-backs -3 224 3 346 1 600 1 731 -1 280 -1 028 1 046 2 600 1 306 6 098 -6 223 Change in net debt (+ is increase) 1 339 -4 499 -642 -1 306 2 360 811 -1 004 -1 955 -1 327 2016 Brent: 44 BP Shell Total ENI Statoil Chevron Conoco Exxon Repsol Cash-flow from operations before WC changes 13 889 26 904 17 640 6 223 10 655 13 396 4 759 30 342 4 865 128 673 Organic capex -16 701 -22 116 -18 106 -10 163 -10 942 -18 109 -4 869 -16 076 -3 143 -120 224 FCF organic -2 812 4 788 -466 -3 940 -287 -4 713 -110 14 266 1 722 8 449 WC changes -3 198 -6 289 -1 119 2 223 -1 621 -550 -356 -8 256 -588 -19 754 FCF organic after WC changes -6 010 -1 501 -1 585 -1 716 -1 908 -5 263 -466 6 010 1 134 -11 305 Acquisitions/sale of assets 1 948 -8 847 453 -604 496 1 257 1 312 3 644 3 603 3 262 FCF -4 062 -10 348 -1 132 -2 320 -1 412 -4 006 846 9 654 4 737 -8 043 Dividends -4 718 -9 857 -2 754 -3 238 -1 876 -8 032 -1 253 -12 542 -465 -44 735 Buy-backs 0 0 100 0 0 0 -189 -721 -104 -914 FCF after dividends and buy-backs -8 780 -20 205 -3 786 -5 558 -3 288 -12 038 -596 -3 609 4 168 -53 693 Change in net debt (+ is increase) 8 037 46 719 -1 293 -903 4 521 11 475 2 805 4 113 -3 863 71 611 Source: Bloomberg and Nordea Markets 6 •

US E&Ps have already re-started investments US horizontal onshore oil rigs 33 US shale oil players 1 200 32 500 1 100 2 700 30 000 1 000 27 500 2 500 900 25 000 2 300 22 500 800 2 100 20 000 700 17 500 1 900 600 15 000 1 700 500 12 500 400 1 500 10 000 300 7 500 1 300 5 000 200 1 100 2 500 100 0 900 0 Q1 08 Q3 08 Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Q1 14 Q3 14 Q1 15 Q3 15 Q1 16 Q3 16 Q1 17E Q3 17E Q1 18E Q3 18E Feb-11 Apr-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Aug-16 Oct-16 Dec-16 Feb-17 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Capex (LHS) Oil production (RHS) Source: Bloomberg consensus and Nordea Markets 7 •

And will stay cash-flow negative forever? 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000 5 000 Source: Company data, Bloomberg and Nordea Markets 0 Q1 2007 USDm Q2 2007 Q3 2007 Q4 2007 Cash flow (LHS) Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 CAPEX (LHS) Q1 2010 Q2 2010 Q3 2010 Q4 2010 58 Shale players' cash flow Q1 2011 Q2 2011 Q3 2011 Oil production (RHS) Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017E Q2 2017E Q3 2017E k bpd Q4 2017E 1 000 1 200 1 400 1 600 1 800 2 000 2 200 2 400 2 600 2 800 3 000 3 200 3 400 8 •

Funding has not been a problem 10 000 12 000 14 000 Source: Company data, Bloomberg and Nordea Markets 2 000 4 000 6 000 8 000 0 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014 Aug 2014 Equity raised (USDm) Sep 2014 Oct 2014 US E&P companies' funding (USDm) Nov 2014 Dec 2014 Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Debt raised (USDm) Jul 2015 Aug 2015 Sep 2015 Oct 2015 Nov 2015 Dec 2015 Jan 2016 Feb 2016 WTI (RHS) Mar 2016 Apr 2016 May 2016 Jun 2016 Jul 2016 Aug 2016 Sep 2016 Oct 2016 Nov 2016 Dec 2016 Jan 2017 Feb 2017 30 40 50 60 70 80 90 100 110 USD/bbl 9 •

Offshore guys still not in a hurry to invest Integrated Oils' liquids production RRR Oil ex. acquisitions: 8 largest Integrated Oils 15 000 200 % 14 000 180 % 160 % 13 000 140 % 12 000 120 % 100 % 11 000 80 % k bpd 10 000 60 % 40 % 9 000 20 % 8 000 0 % -20 % 7 000 -40 % 6 000 -60 % -80 % 5 000 -100 % 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 RRR Oil ex. Acquisitions (annual): RRR (Revision of previous estimates) RRR Oil New discoveries 100 % 100 % 90 % 80 % 90 % 70 % 60 % 80 % 50 % 40 % 70 % 30 % 20 % 60 % 10 % 0 % 50 % -10 % -20 % 40 % -30 % -40 % 30 % -50 % -60 % 20 % -70 % -80 % 10 % -90 % -100 % 0 % 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Company data and Nordea Markets 10 •