Tue, 9 Sep 2008|
Bob Frykland, Vice President of Global E&P Critical Analysis -- IHS, continues his presentation during the Oil Sands Heavy Oil Technologies Conference held July, 2008 in Alberta, Canada.
I. Yeah. When you look at acquisition tools I guess one of the things that you wanna think about it's what makes a good -- really have two options. And from the mining standpoint. You wanna think about really the bits and equality which is what I just talked about little bit so you you're thinking about the mass percent of -- You also have to think I don't know how many you've been -- -- court -- set out here but if you go to the course hadn't actually look at the rocks. While we talk about hundreds of meters over tens of meters of the pay thickness there's quite a bit of variability. A lot of stringers which cause problems -- really need to look at the rocks back to basics. To check on the -- from equality the strip ratio is of course a very important. Ratio to look at how much over -- you have to deal with course you want something one or less. In order to make good mind there's. Obviously gonna have to move -- -- if you have too much. The area extent or area richness and then of course the proximity to water. It's very important. It's something that Tom alluded to earlier that something that's on everybody's mind here from. The entire province of Alberta it on up. Through BC all the way up to the northwest territories as wells in the United States as we look at -- conventions. So to kind of put mining and the insert -- process side by side for second in just kind of views a couple of rules of -- The fitness tends to be a little bit more on the -- -- you when you're looking at things about ten meters on average. Verses about three in the mining side. The -- and saturation is a little bit different how you look. The Canadian government tends to use on their maps at 3% mass index is -- kind of screening number but you need to be a little bit more on the mining side. Because of that the huge capital costs the interesting thing about recovery factors though is that the mining is much more efficient at present. We're we're moving very rapidly up in the and -- you and I think the next few days you're gonna hear a lot more about. It's that you processes that are pushing the number past 50% where the average -- about twenty but on past fifty as we move up the latter. Mining obviously because of the huge trucks and -- -- that your dealing with. Is very labor intensive. You might think of mining operation taking 5000 people. Verses and it's that you want Richard -- generally done in modular pod type things. Something or you're a 500 people. The other big issues that we talked about a little bit earlier with harmlessly. Yup -- -- -- graders and mining are generally. Pretty much together. In the institute. Their separate policy a little bit more about that when I talk about cost here's a little bit. And of course is a huge thing Omnia on the capital cost issues. So if you kind of moved to sort of a second series screening thing if you look at acquisitions. We we have a graph here that shows. The deal count as as well what's that sort of the value that's been going on -- As I talked about earlier there was a huge explosion of activity in 2007. Relative to the past couple years. And if you look at things on do you leave her alone place. Sort of number what you get. Sort of on the on the sagged east side -- the NC choose sides the number is more around eighty cents to a dollar barrels what people -- -- And if you go to the mining side it's a lot more it's it's a dollar and 62 almost two dollars is where the very abilities. And sort of a secondary place where people are still particularly in resource plays it -- works for gas as well as well. We see around the world is -- undeveloped acreage or sometimes called three. People are even willing to pay anywhere from forty cents to almost almost a dollar now per barrel. For that sort of -- and and one of the biggest bargains and I think one of the reasons that you've seen a lot of deals in the last years that. It's the Canadian juniors that are still undervalued. Based on these two measurements so weakened by the whole company for less sometimes and you combine -- individual classes. And that's what we saw a -- lot of activity as well. And if we look at just the entry cost based on acreage. -- you -- -- from one of the crown its sales. This is a chart that shows from 1999. All the way up through June last the last they'll hear the end of June. Sort of on AM on the left side this scale is. US dollars hurricane -- -- per Acre. Things peeked out in 2007. At almost 14100 dollars an Acre. And right now things are down about 600. But I might color this slide a little it by saying we have to be careful because there are still. Places where people are paying more than 16100 that are close to her joining. Some of the major projects. But much of the acreage that's there now is. Sort of on the fringe so people are doing what we used to call protectionism and some ports. So let's move now to sort of a third part we'll talk a little bit about some of the market drivers. Tom talked about some of these. In his presentation so trying makes -- different points about those but when when we sort of look at things you know it's like. Most resource plays it takes energy. To make energy and you want to try to minimize that as much as possible that the key things on -- cost and supply side. Our our very typical here with the operations. Manpower isn't that killer. As -- natural gas and natural gas has doubled in the last year up here -- many New Hampshire remember last year's problem with natural gas Canadian. Rigs -- declining everything now we have. A turn around again the rates are starting in natural gas -- back. And then -- then pollutants. As talked about as it is a big cost and a big issue. -- another huge market driver. Is the ability who do you have an outlet for your product. And what of the future balances and capacity and that's what. -- discussed in detail. And then there is the fiscal uncertainty that's out there we had one change in the royalty regime. Who's to say that there are some others. That are in the background. Depending on what oil prices and what regimes to. But the pricing differentials as something that it's always out there as well it's moves back and forth on the heavy crude. And deputy Iverson -- And that's driven of course -- market demands and Tom talked about those. One thing though that I had about environmental concerns on the water sulfur and carbon is when. The water is moving in a much better direction many -- ethical here in the next few days people are recycling now 9% of the water. So that one seems to be working out with some solutions the one that really is -- there's carbon. Right now -- -- -- stands for produce fifteen million tons per year. CO2 and projected out it went fifteen. To double that -- And so so in order to cut that it's going to be a huge debt. Projections when we look around the world -- the cost of carbon cap and trade. Projections are all over the map. Projections run anywhere from twenty dollars. Time to almost 200 dollars. And that's the problem nobody really knows the projections on how much that might actually impact. And operators many of you involved in this. The low side number is something close to fifty cents a barrel. To a dollar -- -- -- that's the range of the load that we've seen but it could be. As much as four to five dollars a barrel again nobody really knows for sure but it's -- have a significant impact. -- on your operating costs. So if we move forward and just think a little bit about some of the operational efficiencies that have come out. If we look fruit 2000 to the beginning of 2008. And this is for the thermal processes. Recovery factors if we -- back in. In 2000 we're averaging about 13%. Now they're moving up from forty on looking towards 80% for -- Water usage. We've come we've come quite a bit we cut that down from three to four barrels per. Barrel -- down to a quarter. The gas usage which is a huge cost for everybody right now. Has come down as well and there are some processes that you'll hear about this week that are even more efficient. The steam coal -- -- sorry ratio. Is also come down considerably. As well as submissions. And there's lots of technologies that are out there and as wells efficiencies that are people working on. One of them is what we like to talk about the digital field in the future. And that involves working a lot wrong with things such as seismic and -- real time monitoring. As well is. Looking at the reservoirs and doing real time monitoring many of these processes -- things first started in Venezuelan -- you'll. And some things or started up here in Canada. There's been quite a bit cross pollination as I'm sure you're aware of you Bennett to Fort McMurray of how many venezuelans are working up there but the technology has also -- portable companies. Have been moving at around the world. Some of the -- development work that was done in Venezuela's now being used in North America for natural gas. Drilling particularly for the shale plays in the tight gas place in the Rockies wear pants or that issue it would moving too much smaller. A footprints down -- two and four Acre pads from things that used to -- when he entered. One of the big costs -- courses is natural gas and this is -- a graph that shows a total Canadian gas production split into other gas demand. And -- -- demand and a -- yesterday. And it if starting in 2000. I'm going up to 2015. And what we can see on here is that from the demand is is pretty significant it's -- it's of people over -- be a day. As we go forward. And that's one of the big economic rooms things that you need to pay attention to in the next few days as you. Hear about the new technologies. -- huge cost as well as. An issue for for access. The capital cost prequel we've heard a lot about itself if we look it really going forward to 2015 a little bit beyond. Starting back in the beginning of of the oil sands production. A hundred billion dollars invested in this particular play. But if you look at the capital cost creep. On some of these I've listed here just. Six of some of the major projects starting in 2002 and going through 2008. And it's clear that the numbers have. Increase dramatically sum up over a 100%. And this is a huge problem. It's not a commonality talking about. Numbers that are twenty billion dollars. To develop. 500000 barrels a day. And that's starting to. Eliminate some of the players. If -- kind of look at this is next to slash gonna wanna show you are. Looking at capital costs for two different groups of first wanna be mining in the second one is in suits you don't want want you pay attention to the scale here. On the left hand side which is in -- dollars. Per. For MOB -- -- flowing so in other words. If we look at the hundred dollars -- that's that's a hundred. Dollars per 100000 there are -- for 100000. Barrels flowing and you can -- get a relative ranking here of the projects in what sort of margins they have on costs. The blue balls -- -- ones that in mind you not have enough greater associated with them indicates that next on their. Planning on. Exporting oil crossed the border. And it's quite clear that you can see them through some of the winners and losers are as well as ones that are struggling perhaps. To move forward. If you keep that scale in mind and look at these suits you and most of that that the scale kind of comes in half and most of that is because of the huge intensity capital. -- -- -- And the blue dots again of those that are not involved -- upgrade. And actually -- single out my alma mater here again but if you think of the in cannot ConocoPhillips deal here it looks like even though that's -- Counting and upstream and downstream deal that's that's -- perfect example. Of why that's energy works. If you particularly to compare to the previous line. And you can get some mean indications here some of the others that. -- you better -- to be looked at from some combinations. And I suspected in going forward in the future we're gonna see more of those. So let's talk a little bit about the capital -- here -- relative to home and this is kind of a fun slide that. We look at. Just the cost of an average house. In Calgary and Edmonton fort -- at -- memories this continues to to go off the richter scale the blue bar there. If you look at the yellow and green which are Calgary and Edmonton. For those of you were here in town New Hampshire you're quite cognizant that the market started to level awful. But unfortunately not for -- -- So we still have people like 730 sevens and planes back and forth to other parts of the country to bring workers in and some really nice -- so there. So it it kind of finish up with my opening remarks -- to -- things that. Might think of for taking away with you. Really there's a paradox here between operational efficiencies in capital -- we've driven. Many of our operating things to. Extreme efficiency there still are some others relative to handling gas and -- the -- we wouldn't and some of the other sources but. Things are moving in the right direction and that and the place for we have very little control the moment continues to be capital costs. And that's. The very perplexing problem I'm -- for most of you in this room. The resource shortage of people is still. One that's on salt not only candidate and salt everywhere. And it's. Very perplexing offer for all. And the pressure that we see. On the internal rate of return is gonna continue. I think that not only government take us as we start to see what goes forward with the news a royalty rules but also what goes forward with -- the new legislation relative to greenhouse gases is going to be a huge. Impact on internal rate of return. Which will continue to push pressure on margins. And it if you look at sort of what these sort of effects will have on. Production in Canada. As I alluded to earlier where we're headed is -- I think the growth. The that the growth will flatten out. And much as if we if we receive this globally if we look at the world. The prediction of -- 10100 million barrels a day global. Is also going to be flattening out as well because of this huge capacity issue and not being able to execute. Just because of that the Indian demand within the regions for people for so. For goods. But I also think that there's going to be even more consolidation. And I think that was partially last year you could clearly see that was going on I think this year will be no exception. Some of the land -- was going on I think -- -- Was done in anticipation of that as -- people -- to capitalize in different ways. And really what the theme of the next few days about it's really the last one is that there is a new wave of technology and innovation that's coming forward. And that that's really can point you come help to solve these problems applaud such as the capital cost for anyway. So I thank you very much. After your attention and I look -- some questions. Thank you Bob. Okay.