Oil Market Outlook Whatever it takes - OPEC will do whatever it - PowerPoint PPT Presentation

Oil Market Outlook Whatever it takes - OPEC will do “whatever it takes” to get oil inventories down to the 5-year average DNB oil story in pictures & graphs June 2017 - Torbjørn Kjus

Saudi Arabia Has Drawn Down 33% Of Its Foreign Reserves - The “platform is on fire” Saudi Arabia Foreign Reserves (Source: IMF) 800 700 Billion USD 600 500 400 300 200 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 2 Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

Saudi Arabia Production Capacity - We assume capacity currently close to 11.8 million b/d if the locked in spare capacity of summer 2008 is now real capacity Saudi Arabia Capacity Max Saudi Arabia crude production (June-2008 output) (Including neutral zone) 9,500 2008-2016 field decline 3.0 % -2,278 Startup new crude projects 2008-2017: Khursaniyah 500 AFK Phase 2 200 Khurais Exp Phase 1 600 Nuayyim Expansion 100 Shaybah phase 2 250 Khurais expansion phase 2 600 Neutral zone expansion 30 Manifa phase 1 500 Manifa phase 2 400 Shaybah expansion 250 Added spare capacity from June 2008 (see note below)*: 1,200 Sum gross new projects Saudi Arabia: 4,630 Saudi Arabia capacity 2017 (capacity summer 2008 less field decline 2008-2017 plus additions to capacity 2008-2 11,852 Saudi Araba domestic demand in 2008 2,272 Saudi Arabia domestic demand in 2016 3,190 Increase in demand 2008-2017: 918 Increase in capacity 2008-2017: 2,352 Calculated exports capacity increase 2009-2017: 1,434 Reported increase in crude & product exports from Saudi Arabia 2009-2017 2,300 * This was not real spare in 2008 due to the refining bottleneck but should now be included as the bottle neck in refining is not there anymore Volume cut vs price 2017 Million b/d $/b Brent Revenue billion $ Saudi oil exports (crude & products) Q4-2016 9.2 51 171 Saudi exports cut: 0.5 Saudi oil exports (crude & products) Q1-2017 8.7 55 175 3 Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

The OPEC Cut Is Working – Strong Compliance So Far - We can see in key spreads (graphs below) the symptoms of the cuts Oct output April output Cut /Increase Compliance OPEC Members IEA database IEA database New "Quota" from Oct Cut/Increase % vs Quota Algeria 1,130 1,060 1,039 -70 -6.2% 77% Angola/Cabinda 1,510 1,660 1,673 150 9.9% 92% Ecuador 540 530 522 -10 -1.9% 56% Gabon 220 200 193 -20 -9.1% 74% Iran 3,850 3,750 3,797 -100 -2.6% 189% Iraq 4,590 4,410 4,351 -180 -3.9% 75% Kuwait 2,930 2,710 2,707 -220 -7.5% 99% Libya 510 550 40 7.8% Nigeria 1,450 1,380 -70 -4.8% Qatar 630 620 618 -10 -1.6% 83% Saudi Arabia 10,560 9,980 10,058 -580 -5.5% 116% United Arab Emirates 3,120 2,910 2,874 -210 -6.7% 85% Venezuela 2,150 2,020 1,972 -130 -6.0% 73% OPEC 11 31,230 29,850 29,804 -1,380 -4.4% 97% Core OPEC 16,610 15,600 15,639 -1,010 -6.1% 104% OPEC 13 (Incl. Libya/Nigeria) 33,190 31,780 -1,410 -4.2% Light vs Heavy Diff (Asia) Crude Arbitrage Europe - Asia TD3 - Persian Gulf to Japan Time Spread Brent 1vs3 - USD/b Murban vs Dubai Brent vs Dubai (265 kt measured in USD/tonne) 6 8 23 7 -0.1 5 21 6 -0.3 19 5 4 17 -0.5 4 USD/b USD/b 15 3 3 -0.7 13 2 -0.9 2 11 1 9 -1.1 0 1 7 -1 -1.3 5 0 -2 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D -1.5 Dec2016 Feb2017 Apr2017 Min / Max Range 5y average 2016 2017 Min / Max Range 5y average 2016 2017 Min / Max Range 5y Average 2016 2017 4 Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

Total Liquids Supply Cut By 1.7 Million b/d From The Participants Liquids Supply Oct-16 Apr-17 Change Algeria 1,622 1,547 -75 Angola/Cabinda 1,596 1,753 157 Ecuador 540 530 -10 Gabon 220 200 -20 Iran 4,724 4,639 -85 Iraq 4,680 4,500 -180 Kuwait 3,240 3,020 -220 Qatar 1,983 1,978 -5 Saudi Arabia 12,602 12,007 -595 United Arab Emirates 3,958 3,753 -205 Venezuela 2,340 2,200 -140 OPEC 37,505 36,127 -1,378 Russia 11,597 11,366 -231 Oman 1,019 972 -47 Kazakhstan 1,730 1,824 94 Mexico 2,395 2,296 -99 Azerbaijan 815 791 -24 Bahrain 207 202 -5 Malaysia 689 705 16 Sudan 76 70 -6 South Sudan 104 116 12 Brunei 135 119 -16 Equatorial Guinea 275 260 -15 Non-OPEC 19,042 18,721 -321 Sum: 56,547 54,848 -1,699 5 Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

OPEC Crude Exports Now Coming Down - November was up 1.8 mbd from October but in March (latest JODI-data) crude exports was down 0.7 mbd from October - Production has fallen more than exports until March, but large drop in OPEC exports tracked for April OPEC Refined Products Oil Exports OPEC Crude Oil Exports (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Nigeria, Qatar, Saudi, UAE, Venezuela) (Algeria, Angola, Ecuador, Iran, Iraq, Kuw ait, Nigeria, Qatar, Saudi, UAE, Venezuela) 11.0 26.0 10.5 25.0 10.0 9.5 24.0 Million b/d Million b/d 9.0 8.5 23.0 8.0 22.0 7.5 7.0 21.0 6.5 6.0 20.0 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Source: JODI Source: JODI The table below is from PIRA Energys OPEC exports tracking. Shipping volumes are tracked in real time via AIS data feeds covering 50,000+ vessels sited daily by five satellites and 1000+ independent port-based receivers 6 Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

Immense Difference In OPEC Cuts Depending On Season - Effect of OPEC cuts on inventories cannot be large in 1H-2017 because 2H-2016-demand was higher than 1H-2017 demand Global Oil Demand By Half Years 100 98 96 Million b/d 94 92 90 88 86 1H-2012 2H-2012 1H-2013 2H-2013 1H-2014 2H-2014 1H-2015 2H-2015 1H-2016 2H-2016 1H-2017 2H-2017 7 Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

No More Growth In Global Oil Supply - No more growth in global oil supply despite US production growth since September YoY Global Oil Supply 6 5 4 3 Million b/d 2 1 0 -1 -2 -3 2004 2006 2008 2010 2012 2014 2016 Source: IEA, DNB Markets 8 Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

The CAPEX Cuts From 2014-2016 Will Hit Future Production - This means that OPEC has achieved to push long lead time expensive resources out of the market for a while 2016 Upstream E&D Midpoint: 2017 Upstream y-o-y change in upstream y-o-y change in Company capex (US$M) E&D capex (US$M) E&D capex (US$M) upstream E&D capex (%) Eni 9,995 8,696 - 1,299 -13% BP 16,000 16,500 3% 500 Statoil 10,100 11,000 9% 900 Shell 22,000 23,553 1,553 7% ExxonMobil 18,200 20,800 2,600 14% Chevron 21,500 18,300 - 3,200 -15% Total 15,200 11,000 - 4,200 -28% Sum 112,995 109,849 - 3,146 -3% Source: Wood Mackenzie, company reports 2016 upstream E&D 2017 upstream y-o-y change in upstream y-o-y change in upstream Peer group capex (US$M) E&D capex (US$M) E&D capex (US$M) E&D capex (%) Mid/Small-Cap 31,417 45,765 14,349 46% Large-Cap 48,723 59,191 10,468 21% NOC 50,320 55,969 5,649 11% Major 112,995 109,849 - 3,146 -3% 243,455 270,775 27,320 11% Source: Wood Mackenzie, company announcements Source: Company reports, Energy Aspects analysis 9 Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66

Accelerating Number Of Countries In Decline - And also accelerating volume exposed, will gradually be more visible as legacy startups of projects dry out. Already visible in the 25% of the oil market that is outside OPEC, USA, Russia, Brazil, Canada, Kazakhstan Number Of Countries With Drop In Output Countries With Drop In Output, Volume Exposed (12-months mavg) 60% 65 50 Number of countries with falliing output Share of countries with falling output 60 45 55% 55 40 50% 50 Million b/d 35 45% 45 30 40% 40 25 35% 35 20 30% 30 Jun-03 Jun-05 Jun-07 Jul-09 Jun-11 Jun-13 Jun-15 Jun-17 15 Jun-03 Jun-05 Jun-07 Jul-09 Jun-11 Jun-13 Jun-15 Jun-17 Share (LHS) Number of countries (RHS) Source: IEA Source: IEA YoY production change outside of OPEC, Russia, USA, Brazil, Canada and Kazakhstan (12-months mavg) 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% 2004 2006 2008 2010 2012 2014 2016 2018 Source: IEA 10 Torbjørn Kjus – torbjorn.kjus@dnb.no – Telephone: +47 24 16 91 66