Oil Market Outlook Whatever it takes - OPEC will do whatever it - - PowerPoint PPT Presentation

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Oil Market Outlook Whatever it takes - OPEC will do whatever it - - PowerPoint PPT Presentation

Mar 12, 2023 17 likes •280 views

Oil Market Outlook Whatever it takes - OPEC will do whatever it takes to get oil inventories down to the 5-year average DNB oil story in pictures & graphs June 2017 - Torbjrn Kjus Saudi Arabia Has Drawn Down 33% Of Its Foreign

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SLIDE 1

Oil Market Outlook

Whatever it takes

  • OPEC will do “whatever it takes” to get oil inventories down to the 5-year average

DNB oil story in pictures & graphs

June 2017 - Torbjørn Kjus

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SLIDE 2

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

2

Saudi Arabia Has Drawn Down 33% Of Its Foreign Reserves

  • The “platform is on fire”

200 300 400 500 600 700 800 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Billion USD

Saudi Arabia Foreign Reserves

(Source: IMF)

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SLIDE 3

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

3

Saudi Arabia Production Capacity

  • We assume capacity currently close to 11.8 million b/d if the locked in spare capacity of summer 2008 is now real capacity

Volume cut vs price 2017 Million b/d $/b Brent Revenue billion $

Saudi oil exports (crude & products) Q4-2016 9.2 51 171 Saudi exports cut: 0.5 Saudi oil exports (crude & products) Q1-2017 8.7 55 175

Saudi Arabia Capacity

Max Saudi Arabia crude production (June-2008 output) (Including neutral zone) 9,500 2008-2016 field decline 3.0 %

  • 2,278

Startup new crude projects 2008-2017: Khursaniyah 500 AFK Phase 2 200 Khurais Exp Phase 1 600 Nuayyim Expansion 100 Shaybah phase 2 250 Khurais expansion phase 2 600 Neutral zone expansion 30 Manifa phase 1 500 Manifa phase 2 400 Shaybah expansion 250 Added spare capacity from June 2008 (see note below)*: 1,200 Sum gross new projects Saudi Arabia: 4,630 Saudi Arabia capacity 2017 (capacity summer 2008 less field decline 2008-2017 plus additions to capacity 2008-2 11,852 Saudi Araba domestic demand in 2008 2,272 Saudi Arabia domestic demand in 2016 3,190 Increase in demand 2008-2017: 918 Increase in capacity 2008-2017: 2,352 Calculated exports capacity increase 2009-2017: 1,434 Reported increase in crude & product exports from Saudi Arabia 2009-2017 2,300

* This was not real spare in 2008 due to the refining bottleneck but should now be included as the bottle neck in refining is not there anymore

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SLIDE 4

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

4

The OPEC Cut Is Working – Strong Compliance So Far

  • We can see in key spreads (graphs below) the symptoms of the cuts

1 2 3 4 5 6 J F M A M J J A S O N D USD/b

Light vs Heavy Diff (Asia) Murban vs Dubai

Min / Max Range 5y average 2016 2017

  • 2
  • 1

1 2 3 4 5 6 7 8 J F M A M J J A S O N D USD/b

Crude Arbitrage Europe - Asia Brent vs Dubai

Min / Max Range 5y average 2016 2017 5 7 9 11 13 15 17 19 21 23 J F M A M J J A S O N D

TD3 - Persian Gulf to Japan

(265 kt measured in USD/tonne) Min / Max Range 5y Average 2016 2017

OPEC Members Oct output IEA database April output IEA database New "Quota" Cut /Increase from Oct Cut/Increase % Compliance vs Quota

Algeria 1,130 1,060 1,039

  • 70
  • 6.2%

77% Angola/Cabinda 1,510 1,660 1,673 150 9.9% 92% Ecuador 540 530 522

  • 10
  • 1.9%

56% Gabon 220 200 193

  • 20
  • 9.1%

74% Iran 3,850 3,750 3,797

  • 100
  • 2.6%

189% Iraq 4,590 4,410 4,351

  • 180
  • 3.9%

75% Kuwait 2,930 2,710 2,707

  • 220
  • 7.5%

99% Libya 510 550 40 7.8% Nigeria 1,450 1,380

  • 70
  • 4.8%

Qatar 630 620 618

  • 10
  • 1.6%

83% Saudi Arabia 10,560 9,980 10,058

  • 580
  • 5.5%

116% United Arab Emirates 3,120 2,910 2,874

  • 210
  • 6.7%

85% Venezuela 2,150 2,020 1,972

  • 130
  • 6.0%

73%

OPEC 11 31,230 29,850 29,804

  • 1,380
  • 4.4%

97% Core OPEC 16,610 15,600 15,639

  • 1,010
  • 6.1%

104% OPEC 13 (Incl. Libya/Nigeria) 33,190 31,780

  • 1,410
  • 4.2%
  • 1.5
  • 1.3
  • 1.1
  • 0.9
  • 0.7
  • 0.5
  • 0.3
  • 0.1

Dec2016 Feb2017 Apr2017

Time Spread Brent 1vs3 - USD/b

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SLIDE 5

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

Total Liquids Supply Cut By 1.7 Million b/d From The Participants

5

Liquids Supply

Oct-16 Apr-17 Change Algeria 1,622 1,547

  • 75

Angola/Cabinda 1,596 1,753 157 Ecuador 540 530

  • 10

Gabon 220 200

  • 20

Iran 4,724 4,639

  • 85

Iraq 4,680 4,500

  • 180

Kuwait 3,240 3,020

  • 220

Qatar 1,983 1,978

  • 5

Saudi Arabia 12,602 12,007

  • 595

United Arab Emirates 3,958 3,753

  • 205

Venezuela 2,340 2,200

  • 140

OPEC 37,505 36,127

  • 1,378

Russia 11,597 11,366

  • 231

Oman 1,019 972

  • 47

Kazakhstan 1,730 1,824 94 Mexico 2,395 2,296

  • 99

Azerbaijan 815 791

  • 24

Bahrain 207 202

  • 5

Malaysia 689 705 16 Sudan 76 70

  • 6

South Sudan 104 116 12 Brunei 135 119

  • 16

Equatorial Guinea 275 260

  • 15

Non-OPEC 19,042 18,721

  • 321

Sum: 56,547 54,848

  • 1,699
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SLIDE 6

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

6

OPEC Crude Exports Now Coming Down

  • November was up 1.8 mbd from October but in March (latest JODI-data) crude exports was down 0.7 mbd from October
  • Production has fallen more than exports until March, but large drop in OPEC exports tracked for April

20.0 21.0 22.0 23.0 24.0 25.0 26.0 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Million b/d

OPEC Crude Oil Exports

(Algeria, Angola, Ecuador, Iran, Iraq, Kuw ait, Nigeria, Qatar, Saudi, UAE, Venezuela)

Source: JODI

6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Million b/d

OPEC Refined Products Oil Exports

(Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Nigeria, Qatar, Saudi, UAE, Venezuela)

Source: JODI

The table below is from PIRA Energys OPEC exports tracking. Shipping volumes are tracked in real time via AIS data feeds covering 50,000+ vessels sited daily by five satellites and 1000+ independent port-based receivers

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SLIDE 7

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

7

Immense Difference In OPEC Cuts Depending On Season

  • Effect of OPEC cuts on inventories cannot be large in 1H-2017 because 2H-2016-demand was higher than 1H-2017 demand

86 88 90 92 94 96 98 100 1H-2012 2H-2012 1H-2013 2H-2013 1H-2014 2H-2014 1H-2015 2H-2015 1H-2016 2H-2016 1H-2017 2H-2017 Million b/d

Global Oil Demand By Half Years

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SLIDE 8

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

8

No More Growth In Global Oil Supply

  • No more growth in global oil supply despite US production growth since September
  • 3
  • 2
  • 1

1 2 3 4 5 6 2004 2006 2008 2010 2012 2014 2016 Million b/d

YoY Global Oil Supply

Source: IEA, DNB Markets

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SLIDE 9

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

9

The CAPEX Cuts From 2014-2016 Will Hit Future Production

  • This means that OPEC has achieved to push long lead time expensive resources out of the market for a while

Company 2016 Upstream E&D capex (US$M) Midpoint: 2017 Upstream E&D capex (US$M) y-o-y change in upstream E&D capex (US$M) y-o-y change in upstream E&D capex (%) Eni 9,995 8,696 1,299

  • 13%

BP 16,000 16,500 500 3% Statoil 10,100 11,000 900 9% Shell 22,000 23,553 1,553 7% ExxonMobil 18,200 20,800 2,600 14% Chevron 21,500 18,300 3,200

  • 15%

Total 15,200 11,000 4,200

  • 28%

Sum 112,995 109,849 3,146

  • 3%

Source: Wood Mackenzie, company reports

Peer group 2016 upstream E&D capex (US$M) 2017 upstream E&D capex (US$M) y-o-y change in upstream E&D capex (US$M) y-o-y change in upstream E&D capex (%) Mid/Small-Cap 31,417 45,765 14,349 46% Large-Cap 48,723 59,191 10,468 21% NOC 50,320 55,969 5,649 11% Major 112,995 109,849 3,146

  • 3%

243,455 270,775 27,320 11%

Source: Wood Mackenzie, company announcements

Source: Company reports, Energy Aspects analysis

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SLIDE 10

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

10

Accelerating Number Of Countries In Decline

  • And also accelerating volume exposed, will gradually be more visible as legacy startups of projects dry out. Already visible in the

25% of the oil market that is outside OPEC, USA, Russia, Brazil, Canada, Kazakhstan

  • 4.0%
  • 3.0%
  • 2.0%
  • 1.0%

0.0% 1.0% 2.0% 2004 2006 2008 2010 2012 2014 2016 2018

YoY production change outside of OPEC, Russia, USA, Brazil, Canada and Kazakhstan

(12-months mavg)

Source: IEA 15 20 25 30 35 40 45 50 Jun-03 Jun-05 Jun-07 Jul-09 Jun-11 Jun-13 Jun-15 Jun-17

Million b/d

Countries With Drop In Output, Volume Exposed

Source: IEA

30 35 40 45 50 55 60 65 30% 35% 40% 45% 50% 55% 60% Jun-03 Jun-05 Jun-07 Jul-09 Jun-11 Jun-13 Jun-15 Jun-17

Number of countries with falliing output Share of countries with falling output

Number Of Countries With Drop In Output

(12-months mavg)

Share (LHS) Number of countries (RHS)

Source: IEA

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SLIDE 11

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

11

Strong Price Response To Demand In Key Countries

  • Total oil demand growth up to 2.0 mbd in 2015, YoY demand growth still decent if we adjust for India

Demand change in % Change 2013 Change 2014 Change 2015 Change 2016 YoY Last 3 mts 2017 YTD Chg: Forecast 2017 Forecast 2018 North America (Canada, Mexico)

  • 0.4 %
  • 2.2 %
  • 0.8 %
  • 0.6 %
  • 0.5 %
  • 1.3 %
  • 0.4 %

0.0 % US 2.5 % 0.8 % 2.2 % 0.5 %

  • 1.1 %
  • 0.6 %
  • 0.2 %

0.0 % OECD Europe

  • 1.5 %
  • 0.8 %

1.8 % 2.5 % 0.2 % 1.1 % 0.7 % 0.5 % Australia, New Zealand, Japan, Korea, Chile

  • 0.9 %
  • 2.6 %
  • 0.8 %

0.6 %

  • 2.3 %
  • 2.1 %
  • 1.4 %
  • 1.0 %

Europe/Africa Med & FSU

  • 0.8 %

2.8 % 1.8 % 3.2 % 1.6 % 1.5 % 1.8 % 2.0 % Middle East AG excl. Iran and Saudi 3.6 % 4.9 % 0.6 % 4.0 % 6.0 % 6.4 % 5.5 % 5.0 % Iran 11.5 %

  • 0.1 %
  • 3.0 %
  • 2.0 %

1.0 % 0.8 % 1.6 % 2.0 % Saudi Arabia

  • 0.3 %

7.6 % 3.2 %

  • 2.3 %
  • 1.9 %
  • 2.0 %
  • 0.1 %

3.0 % Asia Pacific/East Africa excl. China and India 3.9 % 2.8 % 3.8 % 3.9 % 4.3 % 4.2 % 4.1 % 4.0 % China 6.2 % 3.9 % 6.9 % 3.4 % 3.4 % 3.4 % 3.4 % 2.4 % India 1.1 % 4.2 % 4.0 % 7.2 % 0.4 %

  • 0.2 %

3.3 % 5.0 % West Africa 5.9 %

  • 0.2 %

3.2 % 1.7 % 3.1 % 3.2 % 3.1 % 3.0 % Latin America (excl. Mexico) 1.7 % 2.7 %

  • 0.9 %
  • 1.8 %

0.6 % 0.6 % 0.5 % 0.5 % Total World 1.7 % 1.4 % 2.1 % 1.7 % 0.8 % 1.0 % 1.2 % 1.4 % Demand change in Million b/d Change 2013 Change 2014 Change 2015 Change 2016 YoY Last 3 mts 2017 YTD Chg: Forecast 2017 Forecast 2018 North America (Canada, Mexico)

  • 25
  • 99
  • 34
  • 27
  • 20
  • 55
  • 30
  • 8

US 472 147 429 106

  • 224
  • 124
  • 62
  • 10

Europe

  • 214
  • 113

243 340 32 153 90 47 Australia, New Zealand, Japan, Korea

  • 82
  • 220
  • 72

40

  • 194
  • 177
  • 119
  • 101

Total OECD 151

  • 285

566 459

  • 406
  • 203
  • 121
  • 72

Europe/Africa Med & FSU

  • 57

204 132 246 126 115 137 166 Middle East AG excl. Iran and Saudi 90 124 15 110 159 170 154 148 Iran 203

  • 6
  • 61
  • 40

18 15 31 39 Saudi Arabia

  • 17

227 104

  • 83
  • 59
  • 60
  • 9

100 Asia Pacific/East Africa excl. China and India 327 240 339 364 405 403 392 399 China 599 407 737 388 400 407 402 300 India 42 153 153 286 16

  • 10

134 223 West Africa 76

  • 4

42 24 45 47 46 43 Latin America (excl. Mexico) 113 182

  • 62
  • 121

39 37 29 37 Total Non-OECD 1,375 1,527 1,399 1,173 1,149 1,124 1,316 1,456 North America 447 48 395 79

  • 244
  • 179
  • 92
  • 18

Europe/Africa Med & FSU

  • 272

91 375 586 158 268 227 213 Middle East AG/Asia Pacific/East Africa 1,161 925 1,214 1,065 745 748 985 1,109 Middle East AG 276 344 58

  • 13

118 125 176 288 Asia Pacific/East Africa 886 581 1,157 1,078 627 624 810 821 West Africa 76

  • 4

42 24 45 47 46 43 Latin America (excl. Mexico) 113 182

  • 62
  • 121

39 37 29 37 Total World 1,526 1,242 1,965 1,632 744 920 1,196 1,384

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SLIDE 12

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

12

Demand Growth For 4 Main Refined Products Still Decent

  • Demand growth for Q1 was weak due to US and India, but US was revised higher in the DOE monthly data posting recently

17.5 18.0 18.5 19.0 19.5 20.0 20.5 21.0 J F M A M J J A S O N D Million barrels per day

Total US Implied Oil Demand (4-week moving average)

Min / Max Range 5y Average 2016 2017 17.5 18.0 18.5 19.0 19.5 20.0 20.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Million b/d

Total US Oil Demand

5 year min 5 year average 2016 2017

Source: IEA, DNB Markets

3.5 3.7 3.9 4.1 4.3 4.5 4.7 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Million b/d

US Distillate Demand

5 year min 5 year average 2016 2017

Source: IEA, DNB Markets

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SLIDE 13

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

13

Oil Demand Weakness In India Likely Only Temporary

  • Demonitization in November 2016 – invalidation of the two largest banknotes in use
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SLIDE 14

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

Stock Draws If OPEC Deliver According To Our Base Case

14

54.0 54.5 55.0 55.5 56.0 56.5 57.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million b/d

Non-OPEC Production (excl. biofuels)

2015 2016 2017

Source: IEA, DNB Markets

30.0 30.5 31.0 31.5 32.0 32.5 33.0 33.5 34.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million b/d

OPEC Crude Production

2015 2016 2017

Source: IEA, DNB Markets

  • 2.5
  • 1.5
  • 0.5

0.5 1.5 2.5 3.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million b/d

DNB Markets World Oil Supply-Demand Balance

(Implied global stock change)

5 year range 5 year avg 2015 YTD 2017 2016 2017 2018

Source: IEA, DNB Markets

  • 2.5
  • 1.5
  • 0.5

0.5 1.5 2.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million b/d

DNB Markets World Oil Supply-Demand Balance

(time phased )

5 year range 5 year avg 2015 2016 2017 YTD 2017 2018

Source: IEA, DNB Markets

slide-15
SLIDE 15

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

15

Global Onshore Stocks Are Not Building Anymore

  • JODI stocks data suggest the global onshore stock build is over

5,100 5,300 5,500 5,700 5,900 6,100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million barrels

Global Oil Stocks

(Includes SPR but not for China) 5 year min 5 year average 2015 2016 Forecast 2017

Source: JODI

56 58 60 62 64 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million barrels

Global Oil Stocks In Days Of Demand Coverage

(Includes SPR but not for China, demand taken from IEA) 5 year min 5 year average 2015 2016 Forecast 2017

Source: JODI

slide-16
SLIDE 16

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

16

The Oil Market Is Now In Phase 2 Of The Recovery

  • Phase 2 will last for 2-3 quarters, then phase 3 starts (the backwardated market)
  • 6
  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 4 20 40 60 80 100 120 140 Jan2008 Jul2008 Jan2009 Jul2009 Jan2010 Jul2010 Jan2011 Brent 1 vs3 Brent 1st month

Time Spread vs Brent Flat Price

Brent 1st Month Brent 1 vs 3 (RHS)

Summer 2009-Summer 2010

  • 3.0
  • 2.5
  • 2.0
  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 20 25 30 35 40 45 50 55 60 65 70 Jan2016 Jul2016 Jan2017 Jul2017 Jan2018 Brent 1 vs3 Brent 1st month

Time Spread vs Brent Flat Price

Brent 1st Month Brent 1 vs 3 (RHS)

55 56 57 58 59 60 61 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Days

OECD Oil Industry Stocks - Days of OECD Demand

2009 2010 2011 Source: IEA, DNB Markets

58 60 62 64 66 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Days

OECD Oil Industry Stocks - Days of OECD Demand

2015 2016 Forecast 2017 70 precent of global stock change happens in OECD Source: IEA, DNB Markets

slide-17
SLIDE 17

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

Forward Balance If OPEC Stays Flat

17

  • 200
  • 100

100 200 300 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million barrels

OECD Total Oil Industry Stocks Differential to the 5-year average stock level

5 year range 5 year avg 2015 2016 2017 Forecast if 70% of global stock change happens in OECD Source: IEA, DNB Markets

  • 100
  • 50

50 100 150 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million barrels

OECD Total Oil Industry Stocks Differential to the 5-year average stock level

2009 2010 2011 Source: IEA, DNB Markets

slide-18
SLIDE 18

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

18

Trading Range Of 50% Is The Norm – Not The Exception

  • In order to see a normal trading range for 2017 we need to break out either to the 20’s or to the 80’s
  • Note that every time the market is backwardated the flat price is up - it also increases in contango structure half of the times

Platts ICE Brent ICE Brent ICE Brent ICE Brent ICE Brent ICE Brent Contango/Backwardation Brent Dated Average Max Min Trading range Trading range % Price change Green if backw, red if contango 1995 17.0 16.9 19.2 15.6 3.6 21% 1.1 0.07 1996 20.7 20.3 24.9 16.2 8.6 43% 3.4 0.35 1997 19.1 19.3 24.8 16.5 8.3 43%

  • 1.0
  • 0.23

1998 12.7 13.3 16.6 9.6 7.0 52%

  • 6.0
  • 0.62

1999 18.0 18.0 26.1 10.1 16.0 89% 4.7

  • 0.06

2000 28.5 28.5 34.6 21.3 13.3 47% 10.5

  • 0.04

2001 24.4 24.9 29.9 17.7 12.2 49%

  • 3.7
  • 0.42

2002 25.0 25.0 30.2 18.4 11.8 47% 0.2

  • 0.01

2003 28.8 28.5 34.1 23.3 10.8 38% 3.4 0.35 2004 38.3 38.0 51.6 28.8 22.7 60% 9.6 0.22 2005 54.5 55.3 67.7 40.5 27.2 49% 17.2

  • 0.73

2006 65.1 66.1 78.3 57.9 20.4 31% 10.8

  • 0.95

2007 72.4 72.7 95.8 51.7 44.1 61% 6.6

  • 0.27

2008 97.3 98.5 146.1 36.6 109.5 111% 25.9

  • 1.27

2009 61.7 62.7 79.7 39.6 40.1 64%

  • 35.8
  • 1.00

2010 79.5 80.3 94.8 69.6 25.2 31% 17.7

  • 0.84

2011 111.3 110.9 126.7 93.3 33.3 30% 30.6 0.34 2012 111.7 111.7 126.2 89.2 37.0 33% 0.8

  • 0.01

2013 108.7 108.7 118.9 97.7 21.2 20%

  • 3.0
  • 0.05

2014 98.9 99.4 115.1 57.3 57.7 58%

  • 9.3
  • 0.50

2015 52.4 53.6 67.8 36.1 31.7 59%

  • 45.9
  • 1.21

2016 43.7 45.1 56.8 27.9 28.9 64%

  • 8.5
  • 1.40

2017 52.9 53.9 57.1 48.4 8.7 16% 8.8

  • 0.99

Q1-2016 33.9 35.2 41.8 27.9 13.9 40%

  • 9.5
  • 1.27

Q2-2016 45.6 47.0 52.5 37.7 14.8 32% 11.8

  • 1.44

Q3-2016 45.9 47.0 50.9 41.8 9.1 19% 0.0

  • 1.13

Q4-2016 49.3 51.1 56.8 44.4 12.4 24% 4.1

  • 1.74

Q1-2017 53.7 54.6 57.1 50.6 6.5 12% 3.5

  • 0.92

Q2-2017 51.2 52.5 56.2 48.4 7.8 15%

  • 2.1
  • 1.28
slide-19
SLIDE 19

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

19 Source: DNB Markets, Rystad Energy, IEA

Net Need For Shale Of 4.2 mbd From 2017-2020

  • Average growth of 1.1 mbd per year required by 2020 - US shale must grow from 4.3 mbd to 8.5 mbd

101.4 6.1 4.4 1.9 4.2 97.0 80 82 84 86 88 90 92 94 96 98 100 102 104

Global crude, condensate and NGLs output in 2016 (IEA) Net decline rate

  • f 3% (average

last ten years) by 2020 Non-OPEC projects under development (414) (Rystad Energy) OPEC projects under development (116) (Rystad Energy) Required new shale oil to balance 2017- 2020 World liquids demand by 2020 (1.2 mbd pr year-2016 was 96.6 mbd)

kbd

2016 vs 2020 Global Oil Balance

35 45 55 65 75 85 95 2006 2008 2010 2012 2014 2016 2018 2020 Million b/d

Net Oil Need Of 11 Million b/d Before 2020?

(Assuming 3% net decline rate and oil demand growth of 1.2 mbd p.a) Global output of crude, condensate and NGLs Decline rate 3% Observed decline rate (avg 4%) Oil demand growing 1.2 mbd per year

11

Source: DNB Markets, Rystad Energy

slide-20
SLIDE 20

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

20

Oil Majors Growth Is Gone

  • Oil Majors are struggling to keep the growth rates from 2014-16
  • 1.1 trillion USD is invested since 2011 without any payback with respect to production growth
  • 3.0
  • 2.5
  • 2.0
  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 Jan2007 Jan2009 Jan2011 Jan2013 Jan2015 Jan2017 Million b/d

Oil Majors Oil Output

(Shell, BP, Total, Statoil, ENI, Exxon, Chevron, Conoco)

Source: Bloomberg

  • 1,200
  • 1,000
  • 800
  • 600
  • 400
  • 200

Jan2011 Jan2013 Jan2015 Jan2017 Billion USD

Oil Majors Accumulated Capex

(Shell, BP, Total, Statoil, ENI, Exxon, Chevron, Conoco)

Source: Bloomberg

  • 80
  • 70
  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

Jan2007 Jan2009 Jan2011 Jan2013 Jan2015 Jan2017 Billion USD

Oil Majors CAPEX By Quarter

(Shell, BP, Total, Statoil, ENI, Exxon, Chevron, Conoco)

Source: Bloomberg

19 20 21 22 23 24 Jan2006 Jan2008 Jan2010 Jan2012 Jan2014 Jan2016 Million b/d

Oil Majors Oil Equivalent Output

(Shell, BP, Total, Statoil, ENI, Exxon, Chevron, Conoco)

Source: Bloomberg

slide-21
SLIDE 21

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

21

The Worlds Best Oil Company Missing Growth Targets

  • The guided production target for Exxon was 4.220 million b/d in 2016 (3% up vs 2015) – Managed only 4.053 (missed 167 kbd…)
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SLIDE 22

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

Higher Prices Needed To Get The Required Growth In US Shale

  • Our call on shale suggest we need shale to go to about 8 million b/d by 2020

22 Source: PIRA Energy, IEA, Financial Times Jan 19th (using Drilling Info as source), Baker Hughes

50 100 150 200 250 300 350

May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17

US Oil Rig Count - Bakken Lagging

(Baker Hughes)

Permian (RHS) Eagle Ford North Dakota (Williston basin)

100 200 300 400 500 600 700

Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17

US Oil Rig Count

(Baker Hughes)

Permian Eagle Ford North Dakota (Williston basin) Others

slide-23
SLIDE 23

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

23

Costs Have Come Down – How Much is Structural?

  • Will a higher oil price again unleash higher costs?
slide-24
SLIDE 24

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

24

Break Even Costs Have Come Down – But Are Now Rising?

  • Dave Lesar, Halliburton: “I don’t see that there is going to be the ability for the customers to hold prices down”
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SLIDE 25

Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

25

Longer Term Oil Price Forecast

(The forecast is for the rolling 1st month ICE Brent future contract)

Historical $/b 2000 28.5 2001 24.9 2002 25.0 2003 28.5 2004 38.0 2005 55.3 2006 66.1 2007 72.7 2008 98.5 2009 62.7 2010 80.3 2011 110.9 2012 111.7 2013 108.7 2014 99.4 2015 53.6 2016 45.1 Price forecast $/b Q1-2017 55 Q2-2017 55 Q3-2017 60 Q4-2017 70 2017 60 2018 70 2019 60-80 2020 60-80 2021 60-80 2022 60-80

10 30 50 70 90 110 130 150 Jan-2000 Jan-2004 Jan-2008 Jan-2012 Jan-2016 Jan-2020 $/barrel

DNB Markets Brent Price Forecast

Normalized range Normalized range Historical DNB Forecast FWD Market

OPEC cuts in combination with solid demand growth

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SLIDE 26

DNB Markets Commodities

  • DNB Markets Commodities serves corporate clients of DNB Bank ASA

globally with advisory, market analysis, hedging, and origination within commodities.

  • Cost-efficient and flexible trading in risk management instruments with tailor-

made collateral solutions. Transacting derivatives on credit lines thereby reducing capital constraints.

  • Experienced dealers, traders and analysts with industry background offering

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  • Daily market reports and in-depth commodity market analysis.
  • Global reach with dedicated Commodity teams in Oslo, Stockholm, London,

New York, Singapore and Shanghai.

DNB Markets Commodities in brief Oil & Gas - Research and reports Sector commodity offering Global presence

Oslo, Sales & Trading London, Sales New York, Sales Oslo, Research Nils Fredrik Hvatum +47 24 16 91 59 Nils Wierli Nilsen +47 24 16 91 61 Ane Tobiassen +44(0) 20 7621 6082 Fredrik s. Andersen +1 212 681 3888 Torbjørn Kjus +47 24 16 91 66 Kenneth Tveter +47 24 16 91 69 André Rørheim +47 24 16 91 64 Singapore, Sales Karl Magnus Maribu +47 24 16 91 57 Sebastian Malmstein +47 24 16 91 53 Erik Warren +47 24 16 91 46 Seng Leong Ong +65 622 480 22