02-24-2016, 01:45 AM
So in 2016 our focus has been very much on managing our cost base, looking at focussing on those areas that add significant value, obviously drilling Muruk prospect, Antelope 6 and possibly Antelope 7, depending on Antelope 6 results. We are acquiring a seismic program in and around the fields to support longer term drilling. As I said, we have got quite a few levers that we still have in our possession, in terms of delaying activities if we so desire, around Kalangar and some of the Foreland activity.
But most importantly, we are using the time to actually rebuild our portfolio for the future. So whilst it is a challenging time, we definitely see this as a period of opportunity. So thank you very much. I will hand over to Peter.
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Peter Botten, Oil Search - MD [7]
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Thanks Keiran I will now just summarise where we are at and give some general comments about where we see some of the key issues facing our company in 2016. Of course, I can't -- although I am not an expert on oil price or LNG pricing, I can't quite avoid making a few comments about some of the fundamentals that are taking place in our industry and how we look at those into the future.
Clearly, it is a volatile, challenging environment. But also one that I feel is one of the more exciting times in the oil and gas space that I have seen in almost 40 years. I have been couched not to use a quote from Forrest Gump. But life is like a box of chocolates. I like the soft centred one myself. But there are some substantial opportunities that are before us, as this industry evolves through this cycle. In the short term, clearly there is opportunities for the oil price to go lower. Current production is outstripping demand by somewhere between 1.5 million and 2 million barrels of oil per day.
The inventories worldwide are at the highest level in years. Iran is just about to ramp up its production. We also see weak demand for oil in various parts of the world, including China, Japan and Europe. But in other parts, more dynamic and more demand is present. Global industries' reaction has been savage, would make believe that there is over $400 billion of projects stalled. Last year there were only five major projects sanctioned in 2015 versus 40 to 50 in 2014.
Exploration is down 60% to 70% worldwide and obviously there is a major contraction in the business. We estimate somewhere around 35% of oil and gas people and personnel made redundant. Obviously, there is also very severe cost deflation, which is a positive if you want to go and build things in your -- your projects can get sanctioned, with obviously boards and management around the world of oil and gas companies being highly cautious of where the oil price might go and making sanctioned decisions in such a volatile environment.
Clearly I have been known, I think, to be an early and strong supporter of a lower for longer scenario for oil and gas prices. That is certainly the way we will continue to run our business in 2016. However, as you look at the forecast, and I stress they are forecasts in the top right-hand slide. They do see as supply and demand balance out and that there will be a slow, progressive rise of oil price, which actually I endorse. You can see that with the lack of conventional -- of commitment to conventional oil and gas projects, there will over a three to five year timeframe be substantially a material drop in production from those -- from conventional fields, which combined with natural decline, inevitably means that they have to be made up somewhere.
Sooner or later the price will rise. So I am an a medium term optimistic frame of mind, to say that this oil and gas sector in its present form, without fundamental restructure, is unsustainable. I don't think that structural change will be enough to change the fundamentals that supply and demand will take over, with supply being less and demand being slightly more. You don't need very many barrels to change that supply/demand scenario. I don't believe you will see $100 anytime soon, certainly not while I'm working in this business. But at the end of the day, the lower it goes, the faster it will come back.
However, that is all good information. But it's not the way we are running our business in 2016. In reality, we will continue to run it in a lower for longer scenario. But also take judicious views about future investment, given the strength of our balance sheet and the tangible, touchable projects that we have which work in any reasonable oil price scenario in the long term. The LNG pricing outlook is much less clear. Clearly the lower pricing for LNG is driven in part by lower oil prices. But also the actual industry is undergoing what I think to be a significant revolution, with new project commissioning happening through 2016, which will result in a substantial amount of gas, LNG available for spot sales.
You can see LNG pricing going from $8 to $9 and Btu spot sales certainly will be in the $3 to $4, in our view, during 2016. So managing uncontracted volumes is key focus for us, as it, I know it is for ExxonMobil. There is the potential with such a large volume of LNG coming into the market, a potential for oversupply, certainly into the early 2020s. So you have to be competitive if you want to see these things move forward. As the projects simplify, as we are moving away from typical upstream, midstream, downstream projects to tolling arrangements, difficult now in the US.
That this industry is morphing and something we need to be mindful of in the business, in our development business. As we move to a much greater tradability of commodity for LNG around the world. Certainly the best projects are the only ones that will get up and I think we've got two of the best. If I move to PNG, clearly PNG LNG is an outstanding success. It has been developed and operated now in a world class manner by ExxonMobil and they should be very much congratulated in their efforts to date and future efforts clearly focussed on expansion. This is a good project for them. It's a great project for us.
PNG LNG is recognised as a world class project. It is performing well above nameplate. It has had a significant positive impact on the perception of Papua New Guinea, with strong customer financing and investor support across the board. Certainly, the expansion of PNG LNG and Papua LNG remain a very clear focus for both ExxonMobil and Total, with a series of aligned partners and a very supportive government. Ian mentioned, as far as we see, the development -- this environment of stretched or low commodity pricing is an ideal environment to learn the lessons of the past.
But most importantly, we are using the time to actually rebuild our portfolio for the future. So whilst it is a challenging time, we definitely see this as a period of opportunity. So thank you very much. I will hand over to Peter.
--------------------------------------------------------------------------------
Peter Botten, Oil Search - MD [7]
--------------------------------------------------------------------------------
Thanks Keiran I will now just summarise where we are at and give some general comments about where we see some of the key issues facing our company in 2016. Of course, I can't -- although I am not an expert on oil price or LNG pricing, I can't quite avoid making a few comments about some of the fundamentals that are taking place in our industry and how we look at those into the future.
Clearly, it is a volatile, challenging environment. But also one that I feel is one of the more exciting times in the oil and gas space that I have seen in almost 40 years. I have been couched not to use a quote from Forrest Gump. But life is like a box of chocolates. I like the soft centred one myself. But there are some substantial opportunities that are before us, as this industry evolves through this cycle. In the short term, clearly there is opportunities for the oil price to go lower. Current production is outstripping demand by somewhere between 1.5 million and 2 million barrels of oil per day.
The inventories worldwide are at the highest level in years. Iran is just about to ramp up its production. We also see weak demand for oil in various parts of the world, including China, Japan and Europe. But in other parts, more dynamic and more demand is present. Global industries' reaction has been savage, would make believe that there is over $400 billion of projects stalled. Last year there were only five major projects sanctioned in 2015 versus 40 to 50 in 2014.
Exploration is down 60% to 70% worldwide and obviously there is a major contraction in the business. We estimate somewhere around 35% of oil and gas people and personnel made redundant. Obviously, there is also very severe cost deflation, which is a positive if you want to go and build things in your -- your projects can get sanctioned, with obviously boards and management around the world of oil and gas companies being highly cautious of where the oil price might go and making sanctioned decisions in such a volatile environment.
Clearly I have been known, I think, to be an early and strong supporter of a lower for longer scenario for oil and gas prices. That is certainly the way we will continue to run our business in 2016. However, as you look at the forecast, and I stress they are forecasts in the top right-hand slide. They do see as supply and demand balance out and that there will be a slow, progressive rise of oil price, which actually I endorse. You can see that with the lack of conventional -- of commitment to conventional oil and gas projects, there will over a three to five year timeframe be substantially a material drop in production from those -- from conventional fields, which combined with natural decline, inevitably means that they have to be made up somewhere.
Sooner or later the price will rise. So I am an a medium term optimistic frame of mind, to say that this oil and gas sector in its present form, without fundamental restructure, is unsustainable. I don't think that structural change will be enough to change the fundamentals that supply and demand will take over, with supply being less and demand being slightly more. You don't need very many barrels to change that supply/demand scenario. I don't believe you will see $100 anytime soon, certainly not while I'm working in this business. But at the end of the day, the lower it goes, the faster it will come back.
However, that is all good information. But it's not the way we are running our business in 2016. In reality, we will continue to run it in a lower for longer scenario. But also take judicious views about future investment, given the strength of our balance sheet and the tangible, touchable projects that we have which work in any reasonable oil price scenario in the long term. The LNG pricing outlook is much less clear. Clearly the lower pricing for LNG is driven in part by lower oil prices. But also the actual industry is undergoing what I think to be a significant revolution, with new project commissioning happening through 2016, which will result in a substantial amount of gas, LNG available for spot sales.
You can see LNG pricing going from $8 to $9 and Btu spot sales certainly will be in the $3 to $4, in our view, during 2016. So managing uncontracted volumes is key focus for us, as it, I know it is for ExxonMobil. There is the potential with such a large volume of LNG coming into the market, a potential for oversupply, certainly into the early 2020s. So you have to be competitive if you want to see these things move forward. As the projects simplify, as we are moving away from typical upstream, midstream, downstream projects to tolling arrangements, difficult now in the US.
That this industry is morphing and something we need to be mindful of in the business, in our development business. As we move to a much greater tradability of commodity for LNG around the world. Certainly the best projects are the only ones that will get up and I think we've got two of the best. If I move to PNG, clearly PNG LNG is an outstanding success. It has been developed and operated now in a world class manner by ExxonMobil and they should be very much congratulated in their efforts to date and future efforts clearly focussed on expansion. This is a good project for them. It's a great project for us.
PNG LNG is recognised as a world class project. It is performing well above nameplate. It has had a significant positive impact on the perception of Papua New Guinea, with strong customer financing and investor support across the board. Certainly, the expansion of PNG LNG and Papua LNG remain a very clear focus for both ExxonMobil and Total, with a series of aligned partners and a very supportive government. Ian mentioned, as far as we see, the development -- this environment of stretched or low commodity pricing is an ideal environment to learn the lessons of the past.