Names of group members omitted on purpose

Oil Services Industry

AgendaAgenda

• Industry Analysis• Macro Impacts• Hubbert’s Peak • Schlumberger Analysis• Forecast Analysis• Recommendations• Q&A - Graduate…S research team

Oil Service SectorOil Service Sector

Upstream The exploration and production of oil and gas

Downstream Oil and gas operations after the production phase and through to the point of sale, whether it be the gas pump or the home heating oil truck

We are within the Upstream Oil Services sector

Producers, refiners and marketers of oil, and associated carriers and service contractors.

There are two major sectors within the oil industry

OS is broken into two major areas: Drilling and Oilfield Services

Oil Service - ServicesOil Service - Services

Seismic TestingTransportation Services

Directional Services

Assist the drilling companies in setting up oil and gas wells.

Oil Service - DrillingOil Service - Drilling

Land Rigs

5,000 feet to upwards of 30,000 feet

Companies that physically drill and pump the oil out of the ground

Types of Rigs

Oil Service IndustryOil Service Industry

Submersible Rigs

used for ocean, lake, swamp drilling

Oil Service IndustryOil Service Industry

'jacked-up' allows it to be above the highest anticipated waves.

Jack-ups

Industry factsIndustry facts

“Petroleum is the single largest source of energy used in the United States.“ - Department of Energy

“About 90% of these products are fuels “

Total Industry revenue amounts to $ 231 Billion

“Oil accounts for 40 % of the United States' energy supply and a comparable percentage of the world’s energy supply”

“Oil is a scarce commodity but is it still cheap?”

… … and a little fictionand a little fiction

“There is no such thing as global warming““There is plenty of oil to last us for centuries

to come“

Real GDP in Major Oil ConsumersReal GDP in Major Oil ConsumersReal GDP

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

1999 2000 2001 2002 2003 2004 2005

Year

Real

GD

P i

n B

illi

ons

United States

Japan

China

India

Germany

11,135

5,062

1,979

1,888630

Real GDP Growth Rate in Major ConsumersReal GDP Growth Rate in Major Consumers

Real Growth Rate

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1999 2000 2001 2002 2003 2004 2005

Year

% G

row

th

United States

Japan

China

India

Germany

10.10%

8.43%

3.52%

2.62%

1.16%

Oil Consumption in Major ConsumersOil Consumption in Major Consumers

Oil Consumption Summary

0

5000

10000

15000

20000

25000

2001 2002 2003 2004 2005

Year

Barr

els

United States

J apan

China

India

Germany

20,656

7,058

5,360

2,586 Germany

2,672 India

Oil Consumption Growth RateOil Consumption Growth Rate

Oil Consumption Growth Rate

-5

0

5

10

15

20

2002 2003 2004 2005

Year

% C

han

ge

United States

Japan

China

India

Germany

Largest Growth RatesChina = 4.22%India = 3.85%

Shift Caused by Increase in DemandShift Caused by Increase in Demand

Oil Industry

0

1

2

3

4

5

6

1 2 3 4 5 6

Quantity

Pri

ce (

$)

D1

S1

D2

Average Change in Crude Oil PriceAverage Change in Crude Oil Price

Average Crude Oil Price

50.04

37.66

27.69

22.8123.00

16.56

27.39

0.00

10.00

20.00

30.00

40.00

50.00

60.00

1999 2000 2001 2002 2003 2004 2005

Year

Pri

ce p

er

Barr

el

Average Crude Oil Price

http://www.rsoftconsulting.com/hubbert.htm

Cheap Oil is it real?Cheap Oil is it real?

Hubbert’s Peak TheoryHubbert’s Peak Theory• Marion King Hubbert presented paper in 1956 to American Petroleum

Institute

• “.. fundamental observation that the amount of oil under the ground is finite”

• “Peak oil is peaking of production of a particular area”

• Early in the curve (pre-peak), the production rate increases due to the discovery rate and the addition of infrastructure. Late in the curve (post-peak), production declines due to resource depletion

Schlumberger: Who are we?Schlumberger: Who are we?

Schlumberger is considered the leading oilfield services provider.

Founded in 1926

We are trusted to deliver superior results and improved E&P (Exploration and Production), and performance for oil and gas companies around the world

Oil Services Industry BreakdownOil Services Industry Breakdown

32%

13%

9%

Products and servicesProducts and servicesExploration/Development

Drilling

Seismic Testing

Reservoir evaluation

Production

Artificial/Directional Lifts

Cementing/Zonal Isolation

Efficiency

Coil tubing - efficient remediation

Well Stimulation

Production and cost issuesProduction and cost issues

• $619 Million dollars was invested in Research and Development in 2005. (3% operating revenue)

• Specialized Training for highly skilled employees (new and existing), equipment (trucks, rigs, etc)

• Environmental regulatory adherence

• Auto regression to forecast ‘Total revenue’• Used Research & Development• Researched through Bloomberg since 2000• Relevant predictors were R&D (qtr-0) – (qtr-6)• R&D (qtr-1)• R&D (qtr-2)• R&D (qtr-3)

Schlumberger Forecasting ApproachSchlumberger Forecasting Approach

R&D ExpendituresR&D Expenditures

$ 169,482 M

Revenue ForecastRevenue Forecast

10% MAPE

35% Increase inR&D

2007 Total RevenueOver 18B

TSTATS1.1 – 3.3

RecommendationsRecommendations• Increase from R&D 3% to 5% of operating

revenue

• Focus R&D on efficiency drilling and exploration components

• Strategizing on alternative energy such as hydro and ethanol

Ultimate Task Goal Desired By Oil Services IndustryUltimate Task Goal Desired By Oil Services Industry

Oil Industry

0

1

2

3

4

5

6

1 2 3 4 5 6

Quantity

Pri

ce (

$)

D1

S1 S2

D2

Q&A with Graduate…sQ&A with Graduate…s

We are truly a partner to the GLOBE