INTRODUCTION TO OIL & GAS INDUSTRY

Oil & Gas 101

Lecture no. 3 Exploration & Production Business considerations
By Harjono Zainal Abidin Project Management Consultant MENTOR Project Management Sdn Bhd harjono@mentor-solutions.com.my +60172068786 Kuala Lumpur , Malaysia 26-May-2011

AGENDA
Exploration
Searching for Oil&Gas Plan/Develop/Monetize the find
Field Development Plan FDP

Development
Building Facilities Infrastructure Up to 1st Oil/Gas

Production
Operate & Maintain
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Part 1
Review of previous lectures
Industry overview
The Oil&Gas Business Upstream VS Downstream Work Program & Budget

Service Oil Co.s

SCHLUMBERGER (SLB) HALLIBURTON

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O&G Supply Chain

UPSTREAM $$$$$
Exploration, Development & Production DOWNSTREAM $$
Refining, Petrochem & Distribution

TRADE
Buy/Sell Oil&Gas

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CASE STUDY
Planning for an Oil Co.
What challenges would this company face? How would they start to plan and develop their projects? How would they overcome these difficulties?
Decisions Decisions Decisions
requiring INTEGRATION across many different disciplines

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Location

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Development

Offshore Facilities

Tank Farms & Refineries

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Transport Shipping & Ports

Ship sizes

Ports
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PLANNING FOR PROJECTS

Methodology
Traditional Model
Time Horizon - 3 to 5 years. Planning & Budgeting stable economic environment single forecast

Oil&Gas Industry Model

Time Horizon 5 15 30 years Planning & Budgeting
Volatile economic environment
Scenario forecast/simulate - Good - Bad - Ugly!

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Project Framework
PROCESSES KNOWLEDGE AREAS

Refer Project Management Insitute www.pmi.org

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Project Planning Process

IDENTIFY ANALYSE/FORMULATE

MONITOR/RE-ASSESS

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NEW Oilfield Plan

Oilfield timeline
10 20 - 30 years

Work Program & Budget

estimate of the production barrels potential value.$$$

Planning beyond 2010 ...

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FIELD DEVELOPMENT PLAN

Project Life Cycle
Long View

EXPLORATION & DEVELOPMENT

Manpower & Equipment Cost per day

Short View
Million barrels per day

PRODUCTION Project 1 Shallow water Oilfield Project 2 Marginal Field Project 3 Deepsea Oilfield TOTAL PRODUCTION REVENUE
2010 2011 2020 2030 2040 2050 13

EXECUTION
Production
Procurement Construction Installation

Resources

PLANNING
Legal & Regulatory Feasibility Studies Exploration Development Engineering

1st CONTROL
Monitoring

Oil

Start Revenue

INITIATION
Entrepreneurship Politics & Economics Funding

CLOSE-OUT
Hand-over to Production

2005

2010

2011

2012

2013

2014

2015

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PROJECT REVENUE
Million barrels per day

Production

Total Produced Reserves

Revenue depends on estimate of Total Recoverable Reserves 800 Million bbls And the value of a barrel of oil! 1 Barrel = USD X ? Select Conservative median or most likely plan Based on USD70 per barrel of oil Benchmark Gold USD 30 per gram in 2009. NOTE:
As of 15-Oct-2010 Oil USD83 per barrel Gold USD 41 per gram variations to be continuously monitored
2050 2011 14

Million USD

Revenue

Total Revenue

0
Total Expense Cost CAPEX
2010 2020 2030

(+) (-)
2040

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WORK PROGRAM & BUDGET

YEAR
Holding Co EXPENSE Administration Human Capital Regulatory Exploration & Development Maintenance REVENUE Production Oilfield A Oilfield B Oilfield C TREASURY Sovereign Wealth Fund Subsidiaries Refinery Tank Farm Petrochemicals Port Utilities Power Water Communications Other Essential Svs

2010

2020

2030

2040

2050

$$$ $$$ $$$ $$$ $$$ $$$

SSS

$$$

$$$

$$$

$$$ $$$ $$$ $$$

SIMULATION Cases Best?Worst? Median!

Real-world complexity
Enables Management to make well-informed decisions with controls in-place

$$$

$$$ $$$ $$$ $$$ $$$

$$$

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WORK PROGRAM & BUDGET

YEAR
Holding Co EXPENSE Administration Human Capital Regulatory Exploration & Development Maintenance REVENUE Production Oilfield A Oilfield B Oilfield C TREASURY Sovereign Wealth Fund Subsidiaries Refinery Tank Farm Petrochemicals Port Utilities Power Water Communications Other Svs

2010

2020

2030

2040

2050

Best?
Real-world Complexity Cost $ Millions

Median!

Worst?

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Oil price Wed 25-May-2011

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Part 2
Example: Current hot topic!
Marginal Oilfields Development

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MARGINAL OILFIELDS
Small scattered oilfields
economically viable when Oil price > USD75 per barrel

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Project environment
PETRONAS announces incentives for development of marginal oilfields Jan 2011
Outsource!
Resources Fast-track!

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Risk Service Contract

PETRONAS
What is my core business?

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Understanding the business

Let us try to understand what is happening here from a business perspective
Players
National Oil co.s International Oil co.s Independent Oil co.s Service Oil co.s
Consultants Contractors Suppliers
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The End of Cheap Oil?

National Geographic June 2004
The Earth holds a finite supply of oil. The flood of crude oil from fields around the world will ultimately top out, then dwindle. "In our lifetime," says economist Robert K. Kaufmann of Boston University, who is 46, "we will have to deal with a peak in the supply of cheap oil."
NATIONAL GEOGRAPHIC June 2004 http://ngm.nationalgeographic.com/ngm/0406/feature5/

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Oil Price Spike 2008

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Decline in Supply
Oil Producing Countries Past Peak

Oil production in a given country tends to go into decline at about the halfway point because of falling pressure in the underground reservoirs, and because oil companies usually discover and exploit the largest oil fields first.

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Oil Prices To-day 2010

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SCENARIO: Future Oil Price?

Crisis?
Opportunity!
300 250
2008 USD150 bbl Global speculation drives price up Source:

Oil Head-Fake Update 2010

Global Recession Triggers Price Collapse Charles Hugh Smith www.oftwominds.com
Updated 25-May-2011 By Harjono Zainal Abidin

We are here! 2010 - 2011

USD120 bbl Massive stimulus drives demand up Oil exporters pump max to maintain revenue, price collapses 2013 USD150 bbl Supply drops below demand

2015 USD300 bbl Hope revealed as Illusion Depletion of supergiant oilfields

200

Oil Price USD per barrel

150

100

2014 USD125 bbl Hope of new prod & tech miracles 2007 USD50 bbl 2009 USD85 bbl Global recession drives price down 2011 - 2012 USD25 bbl Global recession destroys demand

50

2007

2008

2009

2010

2011
2011

2012

2013

2014

2015 27

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Oil & Gas Perspectives

SAFETY
Major accidents Fukushima Nuclear Incident Japan March 11 2011 Offshore Deep-sea oil fields BP Gulf of Mexico 2010 Refinery BP Houston Refinery 2005 Tank Storage Farms Buncefield Airport, London 2004

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Aftermath of Fukushima

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2010 Gulf of Mexico BP

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2005 Houston Refinery BP

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2004 Buncefield Tank TOTAL

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Management?
Every safety issue
Begins at Management/Board level
affect company business/profits impact community

What happened could have been prevented if

See video 3D app for HSES!

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Ring of Fire

Disaster monitoring
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Part 3 SUMMARIZING
Industry overview The Players Identify Business-entry points

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E&P Business Overview

People Production
Production Million Barrels per Year Exploration & Development Resources

Large Shallow-water Oilfield

30 - 100m depth 300MM bbls reserve

Time

Small Marginal Oilfield

30 100m depth 30MM bbls reserve

Large Deep-sea Oilfield

>1,000m depth 800MM bbls reserve 0 7 Years

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The Players
NOC NATIONAL Oil Co.s
PETRONAS Pertamina PTT (Thai) Petrobras (Brazil)

IOC INTERNATIONAL Oil Co.s

EXXON SHELL Independent Oil Co.s Murphy Hess Talisman

SOC SERVICE Oil Co.s

SCHLUMBERGER Halliburton Weatherford

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Business value
Identify Business-entry points
CUSTOMER WORK PROGRAM & BUDGET Timeline/Horizon
IDENTIFY Data Management Packages Resource Data Knowledge/Experts Fast-track PM EDW Data Centers Mobile Control Systems Geological Data Manage 3D/VR FDP Simulation

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2012

2013

2014

2015

Technical & Commercial Perspectives:

EXPLORATION DEVELOPMENT PRODUCTION Operate & Maintain

Current Opportunities:
Web Portal - ABC Engineering Data Warehouse/EDW - XYZ Marginal Oilfield Projects - Various Consortia

IDENTIFY Value Added Apps 1. Decision-support 2. Project Management 3. Logistics/Tracking 4. Facilities Management 5. HSE/Security 6. Web portal 7. Petroleum Exchange /Trading

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NEXT STEPS
Brainstorm & prioritize
Allocate Resources Analyze Competition/Risks Set Biz Targets

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Future Biz?
How to use Computing & Comms
Management Apps Research
Intelligence IQ, Emotional EQ! Spiritual SQ?

Digital Oilfields!
Remote manage Collaborative methods

Try stay ahead of the curve

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