SPRE 2017 oil price outlook final

Society of Petroleum Resources
Economists Presentation
2017 Oil Price Outlook

Society of Petroleum Resources Economists
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Carl Larry, Frost & Sullivan
Raoul LeBlanc, IHS
Afolabi Ogunnaike, Wood Mackenzie
Anthony Starkey, S&P Global Platts

SPRE Oil Outlook 2017:
Distinguished Experts
Carl Larry is the Director and Principal Consultant for O&G at Frost & Sullivan and
he is the President of Oil Outlooks and Opinions.
He has spoken at oil conferences around the world and is a contributor to CNBC, CNN,
Bloomberg and PBS. From APPEC in Singapore to OPEC in Vienna, his views and insight into
the oil markets are highly regarded. His experience in the industry has covered financial
funds, commercial producers and physical trading shops.
Prior to Frost & Sullivan, Carl has worked at Credit Suisse, Citi Bank, Barclay’s Capital, ABN
AMRO and Calyon Financial.
Raoul LeBlanc is a Vice President of the IHS Financials team evaluating the
dynamic North American onshore arena.
As a veteran of the industry and a former partner at PFC Energy, Raoul brings 20 years of
experience in strategic and industry analysis. Familiar with a wide range of corporate and
market issues, he has extensive experience with North American independents, upstream
assets, and natural gas markets. Prior to IHS, Raoul worked at Anadarko Petroleum where he
directed the company's Strategic Planning effort and was a member of it’s Mergers and
Acquisitions team.
Prior to Anadarko, Raoul was a senior oil analyst at Energy Security Analysis.

SPRE Oil Outlook 2017:
Distinguished Experts
Afolabi Ogunnaike is a Senior Analyst at Wood Mackenzie focused on the North
America crude oil markets.
He develops short and long term oil price forecasts for North American crude oil grades.
Recent projects include assessments of Canadian crude oil transportation constraints, US oil
exports and impact of changing crude slate on refineries profitability. Afolabi provides
support for strategic planning and market analysis professionals in industry, finance and
government. He is also often invited to provide expert commentary to the media on
developments in the refining industry and the oil markets.
Prior to Wood Mackenzie, Afolabi worked for Chicago Bridge & Iron as a process design
engineer for a variety of refining projects across the world. He worked across a spectrum of
refining process technologies.
Tony Starkey manages the Crude Oil Team at Platts Analytics’ Bentek Energy.
He also is the lead contributor to Bentek’s PADD Balances and associated models, and
contributes to Bentek’s price forecasting.
Prior to joining Bentek, Tony was Vice President of Oil Trading at Bank of America Merrill
Lynch, where he helped manage day-to-day trading operations, including executing hedges
for producers and consumers in the financial derivatives markets. He specialized in the
futures, swaps, and options markets in the oil space.

Oil Outlook 2017:
A lack of change and more of the same
Carl Larry
Director, Principal Consultant - Oil and Gas
Frost & Sullivan

Oil Outlook 2017:
Source: EIA, Frost & Sullivan analysis.
2016 Review
 US demand was strong from refiners and consumers
• Refinery runs average well over 16M bd for second straight year
• Overall demand tops 20M bd for first time since 2008
• Gasoline demand hits a record average through October at 9.5M bd
• Jet fuel demand hits YTD high of 1.63M bd. Highest since 2006
2017 Forecast
 Supply continues to outpace demand
• Refineries hit capacity constraint in the US – Operable capacity is limited
• Imports of crude are capped at 8M with more coming in from Canada/Mexico
• Increasing crude oil exports restrain OPEC ability to control price
• Consumer demand increases demand from foreign refiners (gasoline, jet)
$26 2016 WTI AVG 41.25 $51

Oil Outlook 2017:
Prices:
 WTI $44 to $54
• A range is the best we can do with markets like this. We’re likely to be in
a period where high prices warrant increased North American production
(US, CAN, MX)
• Crude oil prices in the US may be limited to restrained demand from
constrained capacity in US refining
 Brent $46 to $58
• Foreign benchmarks are still more susceptible to geopolitical events and
have higher risk to the upside
• Lack of investment into new production and focus unto other areas
(storage, refining) may increase system shock if demand rebounds
 Distillate (Diesel, Jet) $1.92 target
• High supply and moderate demand
cap any major spikes
• The one fuel that will be most
sensitive to macro economic swings
• Consumers not as important
 Gasoline $2.55 target
• High employment in the US
driving higher demand
• Lack of stable foreign production
puts cost at risk to upside
• Better fuel efficiency offset by
sheer increase number of autos

Survival of the Fittest
Supply War of Attrition Begins as Permian, Gulf Grow and Mega-Projects Stream
Roger Diwan, Managing Director, Financial Services, +1 202 721 0317, Roger.Diwan@ihs.com
Raoul LeBlanc, Managing Director, Financial Services, +1 713 568 8842, Raoul.LeBlanc@ihs.com
Karim Fawaz, Principal Analyst, Financial Services, +1 202 721 0307, Karim.Fawaz@ihs.com

28,000
29,000
30,000
31,000
32,000
33,000
34,000
21,000
22,000
23,000
24,000
25,000
26,000
27,000
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18
Thousandb/d
US-Canada-Russia Gulf 6 Rest of World (RHS)
Global Crude Production 2014-2018
© 2016 IHS
Thousandb/d
Source: IHS
Nov ’14 OPEC
Meeting
Supply Dynamics: Growing Again at $50/bbl
The Permian and slew of sanctioned projects join Gulf producers in
restarting supply growth
10
Outlook for Global Oil Fundamentals and Prices in 2016-2018 / September 2016
• In our view, three phases define global production in the aftermath of the price collapse:
1. Phase 1 (3Q14-4Q15): First Wave of Gulf-6 Growth Compounds US Momentum and Early ROW resilience
2. Phase 2 (1Q16-4Q16): Cash Suffocation Hits Global Production, Second Wave of Gulf-6 Growth Tempers Declines.
3. Phase 3 (1Q17-3/4Q18): The Rise of the Permian, the Wave of New Projects and Continued G-6 Growth Breathe New Life into
Global Supply Growth.
Key Risks: Aggregate growth in Phase 3 masks increasing strain for many producers, increasing disruption risk across the system.
The increase potential in localized disruptions is a factor that potentially pushing ROW production declines to accelerate further
in Phase 3.
We are
here
Phase 1
Phase 2
Phase 3

Global Oil Market Balances: Waiting for Draws
Weakness in refining and subsequent restart in supply growth will impede sustainable move to
crude stock draws
11
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018
2015 2016 2017
Implied change in commercial crude inventories Implied change in ref prods and NGLs/condensate inventories
Total strategic crude injections Total liquids inventory change
Change in global oil inventories
© 2016 IHS
MMb/d
Source: IHS
$/bbl 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017 2017 2018
WTI $48.71 $33.33 $45.34 $44.66 $46.00 $42.33 $47.00 $53.00 $50.00 $47.00 $49.25 $52.00
Brent $52.49 $33.92 $45.41 $45.21 $47.00 $42.89 $48.00 $54.00 $51.00 $50.00 $50.75 $55.00
© 2016 IHS
IHS Herold crude oil price forecast

NGL Mask Underwhelming Global Demand Story
Demand growth does enough to tighten markets in 2016, but creating
room for supply upside through 2018 requires an acceleration only an
economic recovery can provide
12
IHS Herold annual growth in world oil (liquids) demand
(thousand barrels per day)
2015 2016 2017 2018
North America 186 223 137 214
United States 256 252 116 199
Canada (70) (29) 21 15
Europe 249 103 (52) (4)
OECD Asia 62 (75) (56) (61)
Japan (68) (162) (115) (108)
Non-OECD Asia 976 859 940 821
China 507 334 499 408
India 346 372 280 201
Non-OECD Asia excl. China and
India 122 153 161 213
Total Asia Pacific 1,038 784 884 760
Latin America 79 (82) 9 83
Brazil 24 (47) (36) 30
Middle East 156 117 294 243
Saudi Arabia 150 53 130 66
Eurasia/CIS (97) 1 31 30
Russia (96) (21) 4 12
Africa 142 143 141 129
Total world liquids demand 1,752 1,287 1,443 1,456
Source: IHS Herold
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
2014 2015 2016 2017 2018
North America Europe
OECD Asia Non-OECD Asia
Latin America Middle East
Eurasia/CIS Africa
Annual global liquids demand growth
© 2016 IHS
MMb/d
Source: IHS

13
The Push And Pull Of Decline & Growth Areas
Outside US & Gulf-6
Rest of World flips to growth in 2017 as project starts wash out declines elsewhere
(800)
(600)
(400)
(200)
0
200
400
600
2010 2011 2012 2013 2014 2015 2016 2017 2018
Decline Areas: ROW excl. politically challenged &
growth areas crude delta
Source: IHS © 2016 IHS
Thousandb/d
Production is more sensitive to oil
prices, as it is driven by investment
levels in the current period
(200)
0
200
400
600
800
1,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Growth Areas: Russia, Brazil, Canada, Europe, and
Kazakhstan annual crude delta
Thousandb/d
Production
impact lags oil
price and is
mainly driven by
pipeline of long
lead projects

Zones of vulnerability: Some producers are
now charting the extremes
@2016 IHS
Bubble size represents 2015 oil and gas production (million
tonnes of oil equivalent)
0
2
4
6
8
10
12
0 2 4 6 8 10 12
Economicrobustness*
Political robustness*
Nigeria
Venezuela
Iraq
Algeria
Kazakhstan
Angola
Qatar
Russia
UAE
Saudi Arabia
Iran
Kuwait
Azerbaijan
Russia
Many producers look set to weather the down-cycle with limited long-term damage, but others are nearing the
extremes of political and economic resilience
Source: IHS
*Economic robustness is drawn
from the aggregate of OGRS risk
factor scores for Transfer Risk and
Primary Fiscal Balance, on a scale
from 1–10 with 10 as the most robust.
*Political robustness is the
aggregate of OGRS scores for State
Capacity, Political Legitimacy, Facility
and Personnel Violence, and Civil
Society Risk, on a scale from 1–10 with
10 as the most robust.

US Production Forecast
Trough in 4Q2016 with growth accelerating in 2H2017
• Consistent with our theme of a resilient and reset crude oil production system, we expect US production to bottom in 4Q2016 and begin to show
modest growth during 2017. With prices in the $40/bbl range, cash constraints will limit the size and speed of expansion, but we believe the
contraction has ended.
• We expect Permian growth of just over 1.0 MMb/d by the end of 2018 from August 2016 levels. Outside the Permian, the overall decline of legacy
production should continue to outweigh pockets of excellent wells in the sweet spots of the major plays until mid-2017, after which we forecast that
non-Permian production should also turn back to expansion mode. This dual growth means that 2018 growth in the US accelerates in a $50/bbl
environment.
• The GOM will be hindering growth for the US system, with deepwater production shifting from the rapid expansion of recent years to flat to
declining output.
15
9,193
8,565
8,387
8,525
8,791
9,130
9,444
7,000
7,500
8,000
8,500
9,000
9,500
10,000
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
TotalUSCrudeOilProductioninmbd
Play-levelCrudeproduction(Thousandb/d)
Permian Unconv Bakken Eagleford Other Oil Shale Gassy Plays
Alaska GOM Conventional Total (rt axis)
US Crude production forecast by major asset type

Capital efficiency has doubled since prices began to fall
Surging capital efficiency renews onshore
competitiveness - Rate of improvement jumped 1000%
• Over the last decade, US producers have obviously made gains in de-risking, optimizing, and growing a variety of tight oil plays. To
benchmark performance and assess the impact on supply of assets, plays, and capital programs, IHS has created a metric called production
efficiency of capital, which combines near-term oil and gas productivity with the drilling and completion capex spent to generate it. We
have calculated this metric for the 650,000 wells brought onstream in the US since 2001.
• As shown in the graph below, the industry was able to raise the average production efficiency productivity even as activity exploded from
2010 to 2014. However, the pace was tortuously slow, averaging just 1% per quarter from 2010 to mid 2014.
16
• Starting in 3Q2014, a confluence of
factors – some sustainable, and
some cyclical – allowed producers to
massively increase the rate of gain.
In the six quarters from 3Q2014 to
1Q2016 (the last period we can
reasonably measure), the
production efficiency of capital rose
by 75%, roughly 10% per quarter,
about 10 times its longer-term pace.
• This improvement translates
directly to reduced breakevens (a
longer-term metric); current level
of capital efficiency have
transformed the US onshore from a
system with an average breakeven
in the mid-$80/bbl range into a low-
cost behemoth with breakevens in
the mid-$50/bbl range.
Bubble size represents estimated drilling and
completion capital spending

175%
124%
168%
156%
131%
76%
110%
Avg. Peak Well
Production
(Boe 20:1)
Lat Length
Avg. Proppant
per Horiz (MM
pounds)
Horiz Share of
All Wells
Major Play
Share of Horiz
Wells
Est. Horiz Well
Capex (actual)
Est. Horiz Well
Capex (current
costs)
1Q2014
(100%)
1Q2016
Headline Productivity
WellDesign
Mix Shift
Cost
Operators Successfully Adapting Across the System
Accelerating change on every front
17
• North American onshore has 3
factors that allow it to adapt faster
than the offshore/ international
system:
1. Each well is a low-cost iteration,
so experimentation is easy and
lessons leveraged
2. Numerous operators have very
different approach
3. Service companies seek to
amortize learnings as broadly as
possible
• Changes have focused on three
primary aspects:
1. Unit Costs: Competition among
service sector providers and
pressure from operators has led
to a 40% drop in the cost
structure
2. Well Design: Operators have
reworked well designs to
achieve larger wells with more
powerful fracs
3. Mix Shift: Capital has re-focused
on the most prolific assets –
either through intentional high-
grading or Darwinian culling of
the weak

94%
60%
5%
5%
5%
11%
7%
1%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dissection of gains in production efficiency of capital from 1Q2014 to 1Q2016
From “Amazing” to “Meh”
Success from compounding small gains, not technological breakthroughs or learning
• In disentangling the factors that have compounded to create a virtuous circle driving the headline improvement on capital efficiency, we have
found that astonishingly little of the overall advancement appears to derive from true subsurface learnings that extract more hydrocarbons
per foot of reservoir.
• Efficiencies that reduce costs (e.g., faster drilling times, cheaper inputs, etc.) are not captured in this analysis. We estimate that they are
substantial, about 10-15% in the system at large.
• Overall, we estimate that about 45% of the total gain is structural, while 55% would unwind, degrading capital efficiency in a medium to
longer term upcycle.
18
Outlook for Global Oil Fundamentals and Prices in
2016-2018 / September 2016
Excludes 10-15%
gains that reduce
costs due to
efficiency.
Mostly cyclical,
eroding in an
upcycle

Where are crude prices headed?
Afolabi Ogunnaike, Senior Analyst

Disclaimer
 This report has been prepared by Wood Mackenzie Limited. The report is intended
solely for the benefit of attendees, its contents and conclusions are confidential and
may not be disclosed to any other persons or companies without Wood Mackenzie’s
prior written permission.
 The information upon which this report comes from our own experience, knowledge
and databases. The opinions expressed in this report are those of Wood Mackenzie.
They have been arrived at following careful consideration and enquiry but we do not
guarantee their fairness, completeness or accuracy. The opinions, as of this date, are
subject to change. We do not accept any liability for your reliance upon them.
Strictly Private & Confidential

1. Oil market is rebalancing
3. US crude oil markets
2. Demand outlook

Shift in the fundamentals is underway
Year-on-year change in global supply and demand

Oil prices to recover as fundamentals tighten
Outlook for Brent and WTI

Global oil demand growth to remain robust
Outlook based on 2.3% global GDP growth in 2017; any slowdown poses risk to demand
Year-on-year change in global oil demand

China’s oil demand growth forecast is
underpinned by our expectation of robust
household
Growth of 350 kb/d in 2017, contributing 1/3 global growth
China’s oil demand growth by product

What happens as US crude oil supply recovers
and surges?
Rising US crude oil exports could lead to a widening differential between Brent and WTI
Outlook for US crude oil supply and exports

Anthony Starkey, Manager, Energy Analysis
S&P Global Platts

Fundamentals Matter
-$400
-$300
-$200
-$100
$0
$100
$200
$300
$400
$0
$20
$40
$60
$80
$100
$120
$140
Brent (LHS) Model (LHS) Cumulative Diff (RHS)
Source: Platts Bentek

Physical Hedging Matters
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
-325,000
-275,000
-225,000
-175,000
-125,000
-75,000
-25,000
25,000
75,000
#ofWTIcontracts
Producer/Merchant Net Length Model
Source: Platts Bentek, CFTC

Speculative Money Flow Matters
-$120.00
-$100.00
-$80.00
-$60.00
-$40.00
-$20.00
$0.00
100,000
200,000
300,000
400,000
500,000
600,000
700,000
#ofWTIcontracts
Managed Money minus Producer/Merchant Net Length WTI (inv)
?
Source: Platts, CFTC

Demand Has Not Been an Issue…Yet
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
GDP per Capita (YoY Growth) Oil Demand (YoY Growth)
10 YEARS 9 YEARS 8 YEARS 7th YEAR
Source: World Bank, EIA

What do Fundamentals Say Now?
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
Brent Model Forecast Forecast (w/ 700 Mb/d cut in OPEC)
Source: Platts Bentek

WTI 2017 Price Forecasts
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
$65.00
$70.00
Dec'14 Dec'15 Jan'16 Sep'16
Forecast Date
Platts Bentek Forecast NYMEX Fwd Curve
Source: Platts Bentek, NYMEX

Thank you for your time
Anthony Starkey (tstarkey@spglobal.com)
Manager, Energy Analysis
S&P Global Platts

Announcements:
CAPA Symposium, Friday Nov. 4 (joint session)
SPRE Meeting, Thursday Nov. 10

Chinese American Petroleum Association
• Who
– Non-profit, non-political, professional
– Founded in 1983
– 1000+ members
• Why
– Promotes technical exchange between Mainland China, Taiwan, and
the United States
– Provides value-added services and promoting continuing education,
technical exchange, and career development of its members
• How
– Community enrichment activities
– Technical exchange forums
– Collaborations between CAPA and other professional associations

Navigating and Repositioning for the Future
Friday 11/4/2016 at Marathon Oil Tower
Keynote Speakers at Morning Session
• Dr. Steve Johnson, Exploration Manager Colombia, Upstream Exploration,
Shell (Houston)
• Andrew Slaughter, Executive Director, Deloitte Center for Energy Solutions,
Deloitte LLP
• Dr. Jeff Pan, Subsurface Manager, International Business Services
Department, Anadarko Petroleum Corporation
• JC Rovillain, Managing consultant at Enhanced Value Recovery, President,
Society of Petroleum Resources Economists (SPRE)
• Gabriel Guerra, New Business Development Manager, Upstream
Exploration, Shell (London)
Technical Sessions in the Afternoon
• Deepwater and Conventional Exploration & Production
• Unconventional Plays
• Petroleum Economics (Co-organized with SPRE)
• Engineering and HSE
• Business Development
• Student paper contest (Sponsored by SEG)

‘Our US Oil Patch Tomorrow’
Thursday Nov. 10, 6 – 9 pm
Allen Gilmer, Chairman TIPRO and Founder & CEO of Drillinginfo

SPRE 2017 oil price outlook final

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