David Hum

How and for how long

it is possible to secure a sustainable growth of oil supply

Leif Magne Meling, Statoil ASA

“even

thoug

h the c

ause p

recede

d the e

ffect, th

ere is n

o proo

f that th

e cause is respon

sible fo

r the effect's

occurrence”

David Hum

e 1711

- 177 6

“even

thoug

h the c

ause p

recede

d the e

ffect, th

ere is n

o proo

f that th

e cause is respon

sible fo

r the e

ffect's

occurrence”

David Hum

e 1711

- 177 6

Predict ion is more o ften re lated t o belief than s cience LMM Predict ion is more o ften re lated t o belief than s cience

LMM

To be a little bit philosophical

0 20 40 60 80 100 120

1980 1990 2000 2010 2020 2030

Million BOPD

History Natural decline

Production improvement IOR

New field development Exploration

Outline:

Evaluation of history, IHS

data base

Natural decline

“as is” Production efficiency

Reserve growth;

IOR and EOR Exploration

success Demand growth

New field

developments

The economic history of the last century is

preserved in the annual rings of oil production growth

-10 % -5 % 0 % 5 % 10 % 15 % 20 % 25 % 30 % 35 %

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Growth % ~ 1.63 %

Demand:

2000: 73 mill BOPD 2010: 85 mill BOPD 2020: 100 mill BOPD

Demand:

2000: 73 mill BOPD 2010: 85 mill BOPD 2020: 100 mill BOPD

0 5 10 15 20 25 30 35

0 5000 10000 15000 20000 25000 30000 35000 40000 45000

BNP/capita (USD)

Oil consumption/capita (bbl)

USA Canada Norway Spain France

United Kingdom Brazil

Mexico China India

Bangladesh Japan Thailand South Korea Taiwan South Africa World

• A continued growth of 1.6% annually will only marginally increase the oil consumption pr

capita

• Increased consumption in developing countries can only be obtained by a reduced consumption in developed countries

Sustainable development –

clash of the civilisations?

Discovered liquids: 2138 bill bbl Discovered liquids: 2138 bill bbl Remaining liquids: 1180 bill bbl

Remaining liquids: 1180 bill bbl Undeveloped liquids: 200 bill bbl Undeveloped liquids: 200 bill bbl

Stockpiling from the “As is Agreement”

in 1928 and harvesting after the “79 –81 Oil Shock”

Undeveloped liquids

0 50 100 150 200 250 300 350 400

1900 1920 1940 1960 1980 2000

bill bbl

Rest OPEC Venezuela Saudi Arabia Nigeria

Libya Kuwait Indonesia Iraq

Iran

Abu Dhabi Algeria

Rest non OPEC Oman

Angola Brazil Mexico China

Azerbaidjan Russia

Kazakhstan UK

Norway

1928

“As is Agreement”

~200 bill bbl

The Middle East contains more than 50% of all

undeveloped liquids.

25% in Russia, Kazakhstan,

Angola and

Nigeria

Decreasing volumes by exploration, larger

proportion of gas

0 20 40 60 80 100 120

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990

bill boe / year

Gas, 5 year average Liquid, 5 year average

0 % 20 % 40 % 60 % 80 % 100 %

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990

% oil

Gas, 5 year average Liquid, 5 year average

• Oil resources added through exploration additions reached a peak in the 1960’s

• The proportion of gas relative to oil has increased

• Currently the percentage of oil discovered relative to total hydrocarbon volume is less than 50%

The overall technical exploration success is

increasing, for oil it have stabilized close to 20%

0.01 0.1 1

1900 1920 1940 1960 1980 2000 2020

Exploration success (frac.)

Oil Gas Total

Based on wildcat wells only

0 50 100 150 200 250 300 350 400 450

1900 1920 1940 1960 1980 2000

Number of fields

1 10 100 1000 10000

Average size (million bbl)

Number of fields discovered Average size 0

50 100 150 200 250 300 350 400 450

1900 1920 1940 1960 1980 2000

Number of fields

1 10 100 1000 10000

Average size (million bbl)

Number of fields discovered Average size

The declining exploration additions are strongly related to reduction of average field size

100-400 MM bbl

20-75 MM bbl

A very poor exploration performance, extrapolates to an exploration potential of some 200 bill bbl

1 10 100

1900 1925 1950 1975 2000 2025

bill bbl

Production Exploration

Extrapolation (bbl/NFW )

1 10 100

1900 1925 1950 1975 2000 2025

bill bbl

Production Exploration

Extrapolation (bbl/NFW )

Adding 100 bill bbl for frontier basins gives a total of 300 bill bbl

0 10 20 30 40 50 60

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

bill bbl/year

Developed (excl. NA) Production (excl. NA)

The oil industry has under invested in new

field developments for more than a decade

Production efficiency; dependent on reservoir

quality, drainage methods, fiscal terms and regulations

0 % 2 % 4 % 6 % 8 % 10 % 12 % 14 % 16 %

1960 1970 1980 1990 2000 2010

Depletion rate

Mexico Russia China UK

Saudi Arabia Iran

0 % 2 % 4 % 6 % 8 % 10 % 12 % 14 % 16 %

1960 1970 1980 1990 2000 2010

Depletion rate

Mexico Russia China UK

Saudi Arabia Iran

Production efficiencyProduction efficiency

Production efficiency (PE) is a measure of the yearly outtake of remaining developed reserves

Increased production efficiency has allowed the oil industry to develop less oil than produced

0 % 2 % 4 % 6 % 8 %

1900 1920 1940 1960 1980 2000 2020 2040

History

PE growth: 2.5%

PE growth: 3%

PE growth: 3.5%

A growth larger than 3% seems to

be optimistic compared with

historical data

Reserve growth

♦

The real additions due to IOR are increasing field recovery by implying secondary and tertiary recovery methods

♦

We performed a statistical analysis including some 8600 oil fields

0 10 20 30 40 50 60 70 80 90 100

1 10 100 1000 10000 100000 1000000

STOIP (MMbbl)

Recovery factor (%)

Fields

Present Trend

Present average field

29%

Recovery factor growth (1000-10000 MMbbl)

y = -12.088x + 39.47

0 10 20 30 40 50 60 70 80 90 100

0.00 0.20 0.40 0.60 0.80 1.00

Remaining/recoverable (-)

Recovery factor (%)

Tertiary recovery methods

Secondary recovery methods

Primary recovery methods

0 5 10 15 20 25

100 1000 10000 100000 1000000

STOIP (million barrels) Growth of recovery factor (percent units)

Growth of recovery

factor

A significant reserve growth potential, 600–700 billion bbl

0 10 20 30 40 50 60 70 80 90 100

1 10 100 1000 10000 100000 1000000

STOIP (MMbbl)

Recovery factor (%)

Fields

Present Trend Predictied IOR

Present average field Average field IOR

0 10 20 30 40 50 60 70 80 90 100

1 10 100 1000 10000 100000 1000000

STOIP (MMbbl)

Recovery factor (%)

Fields

Present Trend Predictied IOR

Present average field Average field IOR

29%29%

38%38%

0 20 40 60 80 100 120

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Million BOPD

History Natural decline

Production improvement IOR

New field development Exploration 0

20 40 60 80 100 120

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Million BOPD

History Natural decline

Production improvement IOR

New field development Exploration

Increased production efficiency and reserve

growth and will be the most critical issues regarding sustainable oil supply.

If we believe in reserve growth and reported reserves:

• Some 60% of additional oil production additions till 2010 will probably be due to

increased production

efficiency and improved oil recovery

• Exploration will only marginal add production

Discovered 2138 billion bbl

Ultimate 3143 billion bbl

Exploration potential 311 billion bbl Improved oil recovery 693 billion bbl Remaining discovered 1180 billion bbl

Remaining developed 980 billion bbl

Undeveloped 200 billion bbl

PE 2.9 %

PE growth 3.0 %

PE max 6.5 %

Spare production capacity 4.0 million BOPD

Without reserve growth, supply will be a challenge from 2010-15, including growth the challenge will be postponed to 2020-25.

2010 2014 2018 2022 2026 2030 2034

2300 2500 2700 2900 3100

Ultimate recovery including reserve growth (Billion bbl)

End supply-demand balance (year)

PE growth: 2,5%

PE growth: 3%

PE growth: 3.5%

Russia will be the major contributor to future production additions outside OPEC

• Russia is expected to produce at least some 9 million BOPD in 2010

• If their clamed reserves are correct (137 bill bbl), they may have the potential to produce up to 12-13 million BOPD

0 2 4 6 8 10 12 14

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Million BOPD

History Natural decline

Production improvement IOR

New field development Exploration 0

2 4 6 8 10 12 14

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Million BOPD

History Natural decline

Production improvement IOR

New field development Exploration

Discovered 182 bill bbl

Ultimate 240 bill bbl

Exploration potential 26 bill bbl

Improved oil recovery 37 bill bbl

Remaining discovered 59 bill bbl

Remaining developed 43 bill bbl

Undeveloped 17 bill bbl

Present production efficiency 6 %

There will be a major shift in supply from non- OPEC to oil rich Middle East OPEC countries

0 20 40 60 80 100 120

1960 1970 1980 1990 2000 2010 2020 2030

Million BOPD

Non OPEC OPEC

0 20 40 60 80 100 120

1960 1970 1980 1990 2000 2010 2020 2030

Million BOPD

Non OPEC OPEC

-2 0 2 4 6 8 10 12 14

Opec

Non Opec

Production additions 2002-2010 (million BOPD)

-2 0 2 4 6 8 10 12 14

Opec

Non Opec

Production additions 2002-2010 (million BOPD)

The maximum future production potential for non-OPEC countries may not exceed 45 million BOPD

Conclusions

ƒ For two decades, the exploration liquid additions have not counterbalanced

production. The declining exploration additions are strongly related to reduction of average field size.

ƒ The reserve growth potential or IOR is probably twice as high as the exploration potential.

ƒ Some 60% of additional oil production additions in 2010 will probably be a

result of increased production efficiency and reserve growth and will be the most critical issues regarding sustainable oil supply.

ƒ Without reserve growth, supply will be a challenge from 2010-15, including growth the challenge will be postponed to 2020-25.

ƒ Production additions due to exploration additions will not be of major

importance before after 2010 due to the time lag from discovery to development.

ƒ Within the decade there will be a major shift in supply from non-OPEC to oil rich Middle East OPEC countries. The only major exception will be Russia.

Summa sumarium:

It’s a question of money and the capabilities

of reservoir and production engineers

Rem aining Developed Undeveloped

Saudi Arabia 214.4 197.8 16.6

Russia 144.1 120.3 23.8

Iran 109.5 96.8 12.7

Iraq 101.2 83.6 17.5

Venezuela 93.0 90.4 2.6

Kuwait 57.4 55.6 1.7

UAE - Abu Dhabi 56.7 47.3 9.4

Kazakhstan 36.7 25.5 11.2

Mexico 33.3 30.6 2.7

United States 32.9 32.9

Nigeria 32.0 20.2 11.9

China 31.7 24.5 7.2

Qatar 31.1 30.9 0.2

Libya 28.0 21.6 6.4

Algeria 19.6 17.2 2.4

Norway 15.8 10.6 5.2

Brazil 13.8 10.1 3.7

Angola 13.2 3.5 9.8

United Kingdom 11.3 7.9 3.4

Canada 11.2 11.2

Indonesia 10.5 7.3 3.2

Azerbaijan 9.4 8.0 1.4

Om an 8.4 7.1 1.4

Neutral Zone 6.6 5.9 0.6

Australia 5.9 2.4 3.5

Other 70.2 57.8 12.5

Total 1198 1027 171

0.0 50.0 100.0 150.0 200.0 250.0 Saudi Arabia

Russia Iran Iraq Venezuela Kuwait UAE - Abu Dhabi Kazakhstan Mexico United States Nigeria China Qatar Libya Algeria Norway Brazil Angola United Kingdom Canada Indonesia Azerbaijan Oman Neutral Zone Australia Other

Liquid (billion bbl)

Developed Undeveloped

Remaining, developed and undeveloped liquid

The size and quality of undeveloped field resource base is deteriorating

Undeveloped and developed field size

1 10 100 1000 10000

1900 1920 1940 1960 1980 2000

Field size (million barrels) Average undeveloped

Average developed