The Unconventional Reservoirs Revolution and the Rebirth of the U.S. Onshore Oil & Gas Industry
Feb. 19, 2013
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Cautionary Statement
The following presentation includes forward-looking statements. These statements relate to future events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations or operating results. Actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict such as oil and gas prices; operational hazards and drilling risks; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects; unsuccessful exploratory activities; unexpected cost increases or technical difficulties in constructing, maintaining or modifying company facilities; international monetary conditions and exchange controls; potential liability for remedial actions under existing or future environmental regulations or from pending or future litigation; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; general domestic and international economic and political conditions, as well as changes in tax, environmental and other laws applicable to ConocoPhillips’ business and other economic, business, competitive and/or regulatory factors affecting ConocoPhillips’ business generally as set forth in ConocoPhillips’ filings with the Securities and Exchange Commission (SEC).
Use of non-GAAP financial information - This presentation may include non-GAAP financial measures, which help facilitate comparison of company operating performance across periods and with peer companies. Any non-GAAP measures included herein will be accompanied by a reconciliation to the nearest corresponding GAAP measure in an appendix.
Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. We use the term "resource" in this presentation that the SEC’s guidelines prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the oil and gas disclosures in our Form 10-K and other reports and filings with the SEC. Copies are available from the SEC and from the ConocoPhillips website.
Discussion Topics
The Unconventional Reservoir (U.R.) Revolution
Impact of the Revolution on the Oil & Gas Industry
Implications for Artificial Lift Research & Development
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Industry Conventional Wisdom Circa 2000 and 2013
Year 2000
The U.S. is running out of natural gas
U.S. oil production peaked in 1970, has fallen ever since, and will continue to do so
Global resource scarcity
Year 2013
The U.S. has over a 100 year supply of natural gas
U.S. oil production is growing rapidly, with no end to growth in sight
Global resource abundance
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The Unconventional Reservoir Revolution has Transformed the U.S. O&G Industry
Drivers Behind the Unconventional Reservoirs Revolution
A New Paradigm
Mature, organic-rich source rocks
Traditional Target
Cartoon cross-section showing elements of a petroleum system
New
Target
New Tools and Methods
From Halliburton website
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U.S. Natural Gas Production
0
10
20
30
40
50
60
70
80
90
100
2000 2005 2010 2015 2020 2025 2030 2035 2040
BC
F p
er
Day
0
10
20
30
40
50
60
70
80
90
100Historical Forecast
Shale Gas
Alaska
Tight Gas
CBM
Associated
Offshore Non-Associated
Onshore Non-Associated
Unconventional Reservoirs Revolution
Source : U.S. Department of Energy, Energy Information Administration (EIA) 2013 Annual Energy Outlook Reference Case 6
Natural Gas Production from Shale Reservoirs
Source for Production Data: U.S. Department of Energy, EIA Website, February 2013; LCI Energy Insight gross withdrawal
estimates as of September 2012 that were converted to dry production using EIA calculated average gross to dry shrinkage factors
Gas
High yield gas/volatile oil
Horn River
Montney
Marcellus
Eagle Ford
Barnett
Liard Basin
Fayetteville
Haynesville
Super-Giant Shale Gas Plays
7
0
5
10
15
20
25
Sep-0
7
Sep-0
8
Sep-0
9
Sep-1
0
Sep-1
1
Sep-1
2
0
5
10
15
20
25
Other
Barnett
Fayetteville
Haynesville
Marcellus
Eagle Ford
U.S Shale Gas Production (bcfpd)
U.S. Natural Gas Market Transformation Post Y2K
Rapid natural gas supply growth
Supply greater than demand
Natural gas price collapse
LNG imports no longer needed
LNG exports planned
Arctic pipelines no longer needed
Gas > share of electric generation
Chemical industry rejuvenation
Nascent manufacturing comeback
Source : U.S. Department of Energy, Energy Information Administration (EIA) 8
-5
0
5
10
15
20
20
10
20
12
20
14
20
16
20
18
20
20
20
22
20
24
Daily
LN
G Im
port
s (
BC
F)
2005
2007
2008
2010
2012
U.S. Department of Energy LNG Forecasts
U.S. to become net
LNG exporter
Daily
LN
G I
mport
s (
BC
F)
Y2K View: U.S. oil production peaked in 1970
0
2,000
4,000
6,000
8,000
10,000
12,0001
90
0
19
10
19
20
19
30
19
40
19
50
19
60
19
70
19
80
19
90
20
00
0
2,000
4,000
6,000
8,000
10,000
12,000
Daily
Pro
du
ctio
n (
tho
usa
nds o
f b
arr
els
) M. King Hubbert in 1956
predicts that U.S. Peak Oil
will occur between 1965-70
Y2K View: U.S. oil production peaked in 1970 – as predicted!
1970: U.S. Peak Oil
Sources: BP statistical review of world energy 2012 and U.S. EIA; oil production numbers include condensate and NGLs 9
Y2K View: World peak oil is a very real possibility!
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Eagle Ford
22-30 BBOE
Permian Basin
10-30 BBOE
Bakken
4-24 BBOE
= Oil Wells= Oil Wells = Gas Wells= Gas Wells = Cond. Wells= Cond. Wells = Dry Holes= Dry Holes
U.S. Oil Production Growth: Driven by the "Big Three" U.R. Oil Plays
From a low of 6.5 million bopd in 2008, U.S. production is rising rapidly
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
19
60
19
70
19
80
19
90
20
00
20
10
20
20
20
30
History Forecast
U.S. Oil Production (thousands of barrels per day)
1970: U.S. Peak Oil
Sources: Historical U.S. production data from BP statistical review of world energy 2012 and U.S. EIA; oil production numbers
include condensate and NGLs; Production prediction from PIRA Energy; EUR numbers from government & industry reports 11
U.S. Production Trends in the Top Four Oil Producing States
Unconventional reservoir development is driving U.S. production growth
Source : U.S. Department of Energy, Energy Information Administration (EIA) website 12
0
500
1,000
1,500
2,000
2,500
3,000
Nov-08 Nov-09 Nov-10 Nov-11 Nov-12
Th
ou
sa
nd
bo
pd
0
500
1,000
1,500
2,000
2,500
3,000
Nov-08 Nov-09 Nov-10 Nov-11 Nov-12
Th
ou
sa
nd
bo
pd
Texas
North Dakota
California
Alaska
1,357 1,313
2,870
1,086
Benefits from the Unconventional Reservoirs Revolution
Economic
Energy Security Environmental
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Environmental Benefits of Natural Gas Utilization
About half the CO2 emissions of coal-fired power generation
Clean-burning (low or no SO2, NOX, PM, VOC)
Small water usage footprint
No solid waste
Enables wind & solar power
Enables low CO2 electrification of transportation
Potential transportation fuel
Power Source Pounds of CO2 per
MWh of Power
Biomass 2,988
Coal 2,249
Oil 1,672
Natural Gas 1,135
U.S. CO2 Emissions Chart from U.S. Department of Energy, Energy Information Administration (EIA) website
Source for “Pounds of CO2…” data: California State Polytechnic University 14
Discussion Topics
The Unconventional Reservoir Revolution
Impact of the Revolution on the Oil & Gas Industry
Implications for Artificial Lift Research & Development
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Oil & Gas Industry Changes Driven by the U.R. Revolution
Rig Count Hydrocarbon Type
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
U.S
. D
rill
ing
Rig
Co
un
t
Gas Wells
Oil Wells
Gas Wells
Oil Wells
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
Ja
n-0
6
Ja
n-0
7
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
Perc
en
tag
e o
f T
ota
l R
igs (
%)
Source: Baker Hughes’ website 16
Oil & Gas Industry Changes Driven by the U.R. Revolution
Well Trajectory
0%
20%
40%
60%
80%
100%Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Pe
rce
nta
ge
of
wo
rkin
g r
igs
Horizontal
Directional
Vertical
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Rig
Co
un
t
Horizontal
Recent Rig Count Changes
Source: Baker Hughes’ website 17
Total
Oil & Gas Industry Changes Driven by the U.R. Revolution
Eagle Ford Competitors
ConocoP
hill
ips
year-on-year
improvement
Bars = 2012 performance benchmarking; dashes -= 2011; Source: IHS Enerdeq, November 2012 and 2011
Horizontal Drilling Performance
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Discussion Topics
The Unconventional Reservoir Revolution
Impact of Revolution on the Oil & Gas Industry
Implications for Artificial Lift Research & Development
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20
ConocoPhillips North American Unconventional Plays
Big position in big three liquid rich plays (Eagle Ford, Bakken and Permian Basin)
Also have acreage in the Barnett, Canol Niobrara, Duvernay and other plays
Have already drilled 100’s of U.R. wells; 1,000’s to 10,000’s yet to be drilled
Over 21 million acres in U.S. and Canada
Continuing to acquire leases in North America and around the world
Oil
Gas
High yield gas/volatile oil
Horn River
Montney
Bakken
Permian
Eagle Ford
Barnett
Niobrara
Duvernay
Canol
Artificial Lift in Horizontal U.R. Wells is Important to ConocoPhillips
Horizontal Offset
TV
D
Typical Bakken Well Profiles
2,000'
50'
Toe-up
Toe-down
Cross-section view
Bakken well profile diagram based upon figure in Dec. 2012 SPE JPT article titled: "Coiled Tubing Advances Improve Extended Reach Drilling Operations"
Artificial Lift of Horizontal Unconventional Reservoir Wells
Goal = Determine optimal combination of well design and artificial lift strategy
Well Design: Lateral length
Toe up or down
Dogleg severity
Casing size
Frac design and execution
Artificial Lift Selection: Plethora of lift options; but well design
and reservoir properties narrow choice
Single lift type over well life?
Understanding IPR curve
Monitoring & control systems
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COP Eagle Ford Acreage
Rock & Fluid Variations: Importance of Cross-Functional Collaboration
Rock properties can vary rapidly laterally and vertically
Fluid properties can change appreciably over short distances
Fluid properties can change over a well’s productive life
Frac fluids may or may not be produced back
Frac fluids can alter rock and/or reservoir fluid properties
Eagle Ford Outcrop Photo Eagle Ford Outcrop Photo
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Data Gathering: New Technologies and Best Practices
Having the right data can improve: Selection of the optimal artificial lift
method for horizontal wells
Understanding of flow regimes and IPR curve
Wellbore trajectory design criteria
Data gathered during drilling and fracturing can help define well performance expectations
Some data gathering technologies will be deployable on all wells
Other technologies might be used on only a few wells given cost
Our industry will continue to learn, innovate and improve!
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Hot Cold
U.R. Artificial Lift Research & Development Wish List
Improved lift efficiency
Longer effective life
Tools that send back data
Self-optimizing as conditions change
Lower installed cost
Able to go through doglegs
Easy to repair or replace
Low operating cost
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Joint Industry Efforts to Advance U.R. Artificial Lift Capabilities
Oil & Gas Operators
Service Companies
Academic Institutions
Professional Societies
Government Labs Horizontal Well Artificial
Lift Projects (TUHWALP)
Horizontal Well Artificial
Lift Projects (TUHWALP)
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Looking to the Future
The unconventional reservoirs revolution is the "biggest energy story of the 21st century"
It has changed perceptions about energy abundance, and is providing environmental, economic and energy security benefits
North America is currently the focal point
With time, unconventional reservoir E&P will become a global phenomenon
There is considerable opportunity for artificial lift research and development to add value
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The Unconventional Reservoirs Revolution and the Rebirth of the U.S. Onshore Oil & Gas Industry
Feb. 19, 2013