Presentation on theme: "Excom Early Look Business Plan 2000"— Presentation transcript:
1Excom Early Look Business Plan 2000 Flaws in the Capital Allocation ProcessThe Capex requirementsThe Over-promise on deliveryThe Way Ahead
2The Good News High quality internally consistent data submissions Abundance of projects competing for funds:1.9 bln US$ Exploration7.0 bln US$ Production
3The Bad NewsProjects appear over-optimistic both in Exploration and ProductionThe Capital Allocation Process appears to be flawed with overstatements of key parameters to secure fundsWe run the risk of initiating an Over-promise Under-delivery Cycle……...
4Exploration-Overstated Value? 1200011000Salkhalin pre-consolidation2000 Raw Data SubmissionEach Exploration $ spend in 2001 adds $9 IBV at PSV141000090008000Cumulative IBV ($ mln)700060001999 Raw Data SubmissionEach Exploration $ spend in 2000 adds $6 IBV at PSV145000400030002000100025050075010001250150017502000Cum Expex ($ mln)0.351999 CA2000 CA0.30Pos to FID showsno major differences in 99 submission to 20000.25Expex Spend(Normalised)0.200.150.100.050.000-1010-2020-3030-4040-5050-6060-7070-8080-90Pos to FID
5Exploration: Overstated Delivery? 600The majority of 2001 explorationspend is for projects plannedto take FID in 2002500400Time to FID and first productionin data submissions very optimisticand unrelated to historic performanceExpex 2001 ($ mln)300OilNigeria200MRHGas100Deepwater2001200220032004200520062007
6CAPEX REQUEST 2001-2005 Raw Data Submission Proposed spend is ca $7 bln per year over the Plan Period*8,000*including follow-on E&A Woodside, and Shell Canada, excludes Saudi gas7,000Commercial ResourceProposed A & D Activity6,000New E & AFirm E & AEB2US$ mln MOD5,000New Dev. > $20 mln Shell ShareTranche 3Tranche 24,000Tranche 1PostFID ProjectCorporate3,000Existing Asset2,000Total Capex request 2001 = $7.1 blnTotal Commitments 2001 = $2.7 bln1,000Commitment levels suspect20012002200320042005EP-Global Capex per CA Cat, Theme.ep
7Production: Can we deliver on this promise? 3500Nigeria is major part of EP GrowthInside existing portfolio …..Others are USA, Angola, Iran, Athabasca, Brasil, etc300025002000Daily Production (Kboe/d)1500Nigeria (SPDC)Nigeria (SNEPCO)1000Others50023192327235122912266LE1996199719981999200020012002200320042005Production Forecast per Region and CA Cat - Raw data.rep
8OIL PRODUCTION 2001-2005 Raw Data Submission 3500Growth relies on E&A3000Commercial ResourceProposed A & D Activity2500New E & A (Non Approved expex)Firm E & A (Approved expex Funds)EB-2New Dev. > $20 mln Shell Share2000Tranche 3Production ‘000 bbl/dTranche 2Post FID and tranches replacesdecline in Existing Asset baseTranche 11500PostFID ProjectCorporateExisting Asset1000Oil Production from ExistingAssets halves during Plan Period (10 % per year)500200020012002200320042005Production Forecast per Region and CA Cat - Raw data.rep
9Major ConcernsExisting Assets require 800 Million US$ in 2001 without adding production...Most large post-FID projects indicate underdelivery compared with 1999New projects have very aggressive FID dates (36 FIDs in 2001 excluding big tickets e.g. Saudi Gas) and possibly overstated value promisesE&A Follow Up extremely optimistic when compared with historyNot enough funds for promising projects and strategic options
10CAPEX CREAMING CURVE Existing Asset 50,00045,000Existing Asset40,000Post FID ProjectHistorical performance raises questions over ambitious future promisesOptions35,00030,000EA NLNGNPV ($mln)AOSP25,000Bonga Main20,000Malampaya15,000But…some big projectsapproved were poorer ranking10,000The promiseThe delivery5,0001000200030004000500060007000Cumulative Capex in 2001 ($mln)
11Exploration Discoveries 1990-1999 Development100%10 yearsONLY15% Developed80%Bonga discovered ‘95, onstream 2003Brazil, not a well drilled yet, production by 20055 yearPlan Period60%PromiseSableIsland40%34%% Developed20%% Developed0%199019911992199319941995199619971998199920002001>> 34% Development percentage Exploration discoverieswithin 5 years has not been achieved to date ….Plan Excl. Sakhalin & OKIOC
12MAJOR PROJECT FIDs 2000 from BP’99 TimingCA 2000TimingCountry Projects with FIDs in 2000Shell Malaysia (total)KN ROUND 21999Shell Malaysia (total)KN S1S21999Shell IranSoroosh /NowroozOn-timeShell USAOreganoShell USASerranoShell USANa KikaShell USANorth MarlinNorske ShellGarn WestShell UK ExproMandarinSPDCCawthorne ChannelBonny Terminal RefurbishmentBrunei ShellChampion West Existing FacilitiesSOGUDan Infill and DebottleneckingSlippedShell Egypt N.V.Obaiyed South DevtShell UK ExproGoldeneyeTurkmenistan, Uzbekistan,Uzbekistan Alan & KandymShell AustraliaNWS LNG Expansion U/SShell AustraliaALNG LNG Train 1 U/SBrunei ShellEgret DevelopmentShell UK ExproCleaver Bank HighShell CapsaCerro Tuyunti Sth.?A/S Norske ShellSogn Gjoa Development?Shell Devt. Pakistan B.V.Kirthar Block : Bhit dev?
13MAJOR PROJECT FIDs 2000 from BP’99 362530Options DeferredBase DeferredOptions Plan/ActualBase Plan/ActualChampionDan InfillT2T upstreamCleaver BankEgretBangestanObayied SouthGoldeneye30Bangestan25Kuwait Oil2015No of Major FIDs in Plan105199999 Actual200000 LE200112 major Base Plan projects planned for FID in 2000 (BP 99) - 5 will now take FID13 major Options projects planned for FID in 2000 (BP 99) - 6 will now take FID
14MAJOR PROJECTS WITH PROMISES OF FID IN 2001…. CapexCapex (Risked)Country ProjectVAR coverage in 2001on Total CapexAustralia (Direct)Gorgon SMDS Upstream46BruneiChampion West Central Platform Dev175InitiationBruneiEast Gas Expansion438(<1 %)BruneiEgret Development. Phase 1340Feasibility(42 %)DenmarkHalfdan Phase III102475DenmarkHalfdan Phase II4165DenmarkGSA41375DenmarkDan Infill and Debottlenecking842DenmarkSkjold Phase II3232EgyptObaiyed South & Compression I2685Malaysia96 PSC : BT/SF Stage IVC(SF30) WI Int.131No VARNew ZealandPohokura Development326(50 %)ConceptNigeria (SNEPCO)Erha Main48902FID(3 %)Nigeria (SNEPCO)EWTF (Extended Well Test Facility)118128(5 %)Nigeria (SPDC)92 Offshore Pipeline AF - NLNG 1-587184Total Capex from 2001 FIDprojects amounts to $4 bln inplan periodNigeria (SPDC)49 UGHELLI24122Nigeria (SPDC)66 OTUMARA - NLNG 4/516117Nigeria (SPDC)67 SAPELE190Nigeria (SPDC)45 OGUTA377Nigeria (SPDC)61 BONNY - NLNG 3129Nigeria (SPDC)98 WAGP222236 Projects with >20 mln spend excluding Major Options e.g. Bangestan, Saudi Gas
15MAJOR PROJECTS WITH FID IN 2001 - continued CapexCapex (Risked)Country ProjectVAR coverage in 2001on Total CapexNorwayKollsnes and Vestprosess Upgrade53InitiationPhilippinesMalampaya Oil Rim Devt - unrisked683(<1 %)Russia (Rest of)Salym29129FeasibilitySyriaSouedie26(42 %)UKGoldeneye7151UKLoyal Phase II (W.o.S)3165UKPuffin Field Development962UKSchiehallion Extension Claw957UKScoter55UKSchiehallion North Channel21USAHolstein26327USAHabanero39USAManatee1433USAAlex Gas Devt Phase 22222No VARVenezuelaFurther Dev. (1)64(50 %)ConceptFID(3 %)(5 %)Total Capex from 2001 FIDprojects circa $4 bln inplan period36 Projects with >20 mln spend excluding Major Options e.g. Bangestan, Saudi Gas
19CAPEX CREAMING CURVE Big Tickets NPV Bln $Success Case $ 3-4 Bln/yrAngola 18 DevZapolyarnoyeWoodside DealSakhalinSouth ParsBrazilChinaSaudi GasLibyaNEMEDBangestanEhraEA NLNGAOSPBonga MainMalampayaDeepwater OptionsNa KikaHolsteinSerranoOreganoFID in next 30 monthsExisting AssetsPost FIDNew Devt & TranchesBig TicketsCumulative Capex in 2001
20The Way Forward..(1)We accept the flaws in the process, challenge the submissions at the workshop, build the 2000 Plan and make a “promise adjustment” at Excom level:existing assets minus 200 Million US$post-FID minus 400 Million US$weed out “false promises” to the tune of 400 Million US$adjust production promiseManage Improvement through the scorecardsWe must address the integrity flaws in the CA process and send a very strong signal...
21The Way Forward..(2) We demand a resubmission….we change the workshop: We explain our problems to the delegates at workshop.We ask the delegates to return to their OU/NVOs and rework their submissions and restore realityKey OU/NVOs will be invited for a hard challenge session with the Excom (large OUs) or their RBD.After resubmission of sanitised data, a final ranking will be done with the RBA/RFA community.
22Two Possible Schedules ImproveImproveWorkshopOUFinancialsFinal OUPlanExcomAdjustment27-28/610/76/914/9Improve/challengeEPB-RBDResub-missionWorkshopAllocationOUFinancialsFinal OUPlan10/717/728/76/9
24KEY METRICS - RAW DATAValue continues to be dominated by traditional OUsNigeria dominance of production growth not reflected in valueDeepwater excludes SNEPCORanked out production in ,000 bbls/dDoes not reflect OUs outside EP control - (SOGU)
25SHORT TERM OPPORTUNITIES ….RANKED OUT Short Term Oil Projects are predominantly in Shell Expro…..UTCs $ /bblVIRs [$14]low / medium strategic fit. …….
26CAPEX CREAMING CURVE - THE BUILDING BLOCKS The promise2500027000290003100033000350003700039000410004000450050005500600065007000Tranche 1Tranche 2Tranche 3New Dev. > $20 mln Shell ShareEB2EhraNI-OgutaBR-East gas expDE-Dan infillNI-LNG 4/5DE-Halfdan IITCGPSalymHolsteinNa KikaNPV $14BR-Champion WestTranche 3SunrisePuffinBangestanNI-LNG 1-5Tranche 1UK-GoldeneyeMalampaya Oil rimDE-GSA4NI-UghelliTranche 2EG-Obaiyed SouthCumulative Capex in 2001On merit NaKika, Holstein & Ehra do not rank
27“EXISTING ASSET” CATEGORY CAPEX 2001 160ie 800 mln - 18% of Devt Capex Budget……Same level as 2000no additional production generatedkeeping brownfield plant operating & ready for new devtsValue adding or value erosion (vs 502Fs)Country NameCapex 2001Abu Dhabi52Australia (Direct)27Brunei34Denmark7Egypt15GabonGermany13Malaysia17Netherlands47New Zealand2Nigeria (SPDC)152NorwayOman81Syria23UK144USA160Total794140120100US$ mln MOD80604020USAUKOmanSyriaBruneiEgyptGabonMalaysiaNorwayGermanyDenmarkAbu DhabiNetherlandsNew ZealandNigeria (SPDC)Australia (Direct)EP-Global Capex on Existing Assets.rep
28OIL & GAS PRODUCTION 2001-2005 BY OU Raw Data Submission Nigeria Largest producer by 2005 with threefold growth!Production dominated by the big three in plan periodWithout Nigeria growth,…- still only 2 OUs ~ 300+ Kboe/d S/S- 5 OUs ~ kboe/d by 2005- 3 OUs ~ kboe/d by 2005- 10 OUs~ <100 kboe/d OUs by 2005
29A few Outcomes from the Raw Data…..…. Raw data quality is good,……….but there is a large request will be a tough competition for funds……….Large number of attractive new devts & tranche fundsLarge amount of funds for existing assets & Post FIDs ca $4 BlnTo maintain oil production requires ca $5 Bln, with 100 % deliveryBefore we consider more capex funds…..there are some issues….But new devt “promises” are different from Vol- 1 findings……….Most post FID projects have been under delivering production……….Most projects have aggressive schedules vs Vol-1 reality……….VAR programme will have to be accelerated to meet FID planned……….Last years E&A followup developments have largely not materialisedHow do we avoid an “over promise & under delivery” cycle…?
30KEY ISSUES Production under-performance CURRENT PERFORMANCEProduction under-performance1999: UK, Egypt, SPDC, Syria, Netherlands2000 LE: Oil : Essentially on target but SPDC,Gas : Egypt, Argentina, Netherlands, USMajor New Project Delivery1999 on-stream disappointments due mainly to project schedule delays2000 onwards (CA 2000) suggests production under-delivery (sub-surface & facilities)Reserves Replacement2000 LE 24 % with major concerns throughout Plan PeriodFUTURE PROMISESContinued reliance upon Nigeria (and our ability to grow oil production there)Need to avoid over promising and under delivering cycle.Continued pursuit of major Capex spend outside of existing portfolio ..are regretting oil?
31CAPEX SPEND 2001 BY COUNTRY - Raw Data Submission Total Capex request 2001 = $7.1 blnTotal Commitments = $ 2.7 blnTop 5 countries requested 60% of total CapexNext 10 countries requested 30% of total CapexUS$ mln MODThe tail = 10 %
32RESERVES REPLACEMENT - RAW DATA You need to believe that the “hopes” in Angolaand Brazil and new gas come off to replace reserves...Woodside Effect
35IBV raw data submission versus 1999 1999 & 2000 value creation is limited……..data assumes all planned 2000 FIDs are achieved ….unlikely based on LEhighly optimistic forward looking 2001 to 2005 (Nigeria assumed growth not likely…)eg 2001 assumes we take roughly one big project FID per month (ranked in)….The deliveryThe promise8000023%7000021%2000 Plan15%600001999 Plan500001%IBVc Mln US $- 1 %- 5%4000030000200001000019981999200020012002200320042005
36CAPEX REQUEST 2001 BY REGION Raw data Submission 35003290Total Capex MOD3000Committed Capex (MOD)2500Total Capex request 2001 = $7.1 blnTotal Commitments = $2.7 bln1911US$ mln MOD2000150010571095100077668245950032293EPNEPGEPMEPAEPEP-Global Committed Capex in 2001 by CA-Category.rep
37CAPEX REQUEST 2001 BY THEME Raw data Submission Total Capex request 2001 = $7 blnTotal Commitments = $2.6 blnExcluding: Woodside, Shell CanadaUS$ mln MOD1552SNEPCO inNigeriaTheme ($500 mln)EP-Global Committed Capex in 2001 by CA-Category.rep
38OIL & GAS PRODUCTION 2001-2005 BY REGION Raw Data Submission 3500Liquids grow 50%- predominantly in Nigeria & Brazil20053000OIL/NGL20042500EPG2002'000 bbls/d2000EPMEPA15001000EPN50019961997199819992000200120032000120GASGas grows 50 % - across the boardEPG20041001500EPM80'000 boe/dMrd Sm3/yrEPA100060EPN4050020199619971998199920002001200220032005Production per Region - Raw data.rep
39OIL & GAS PRODUCTION 2001-2005 BY THEME Raw Data Submission Production per Region - Raw data.rep50010001500200020012002200320042005NigeriaMRHDeepwaterGasOilGAS'000 boe/d'000 bbls/d250030003500OIL/NGLNigeria accounts formost of the growth in liquidsBonga
40Needs to be updated yet….. KEY METRICS - RAW DATAValue continues to be dominated by traditional OUs………...Nigeria dominance of production growth not reflected in valueIncorrect…!Needs to be updated yet…..MRH now includes Venezuela hence no value at $14Deepwater excludes SNEPCORanked out production in ,000 bbls/dDoes not reflect OUs outside EP control - (SOGU)
41SUMMARY Growth in production is a major challenge Existing oil assets decline 50% by , kb/dNew project schedules & project forecasts need realismGrowth story dominated by NigeriaStill Big 3 and small 15Reserves replacement is a key issueBrazil, Angola, CIS - new hope and OKIOCGiven the bullishness of submissions….Need to calibrate to ensure BP’2000 does not under deliver.
45KEY ISSUES - EP / GP Linked Projects CountryProject NameUpstream CapexMalaysia MLNG TigaAustralia NWS LNG Train 4ALNG Train 1ALNG Train 2NAGV Domgas & FLNGGorgon SMDSChina Ordos / ChangbeiKuqaRussia Sakhalin (Piltun-Lunskoye)Egypt NEMED SMDSIran Iran SMDSTurkmenistan T2T Pipeline to TurkeySaudi Arabia Saudi Gas ProjectNigeria NLNG 3NLNG 4West Africa Gas PipelineVenezuela VLNGNamibia Kudu….….….….….….….….….….….….….….….….7….
4626th JUNE - Position in CA 2000 Sequence 7th June : Exploration Proto-Forum Discussion on expex ranking13th June : Expex/Capex Data Pack (early rankings/views) to RBAs for Consideration(EP / SIG Alignment Meetings take place as required per region)19th June : Some Regions Holding RBAs & OUs Meeting(Improve data quality & identify implications of expex & capex ranking)22-23th June : EXPEX Workshop26th June : EXCOM Raw Data and Issues27-28th June : CAPEX Workshop10th July : EXCOM Presentation on Expex, Devt Capex & with Early Financials14th July : OU Investment level letters (Expex, Capex, etc)31st July : EXCOM Presentation on Final Expex & Capex11th Aug : OU Investment Confirmation (as per 2001 Scorecard Outlines)
47KEY ISSUES - Decline of “Existing Asset” base Production (kbbl/d)Capex mln ($ MOD)Existing AssetsExisting AssetsDecline to by half in the plan period……and cost $0.8 bln/yr to maintainProduction Forecast per Region and CA Cat - Raw data.rep
48KEY ISSUES - Arresting the decline with post FID projects Production (kbbl/d)Capex mln ($ MOD)Post FID projectsPost FID projectsExisting AssetsExisting AssetsPost FID projects do not arrest the decline……but cost a further $1.4 bln/yr …...Production Forecast per Region and CA Cat - Raw data.rep
49KEY ISSUES - Arresting the decline Maintaining current production levels costs $5.1 bln in 2001 and av. of $3.0 bln over plan periodAdding tranche activity……cost a $0.8 bln/yrbut does not halt the declineTranchesTranchesPost FID projectsPost FID projectsExisting AssetsExisting Assets
50KEY ISSUES Arresting the decline - the new promises Production (kboe/d)Devt Capex ($ mln)E&A follow upNew developmentE&A follow upTranchesNew developmentOU CeilingsPost FID projectsTranchesPost FID projectsExisting AssetsExisting Assets
51KEY ISSUES - Allowing further Funds for Existing OUs. Devt Capex ($ mln)Oil Contribution9000UTC = …..VIR avg = …..Time to prodn = …..Short Term Oil projectsand new devts in existingOUs.800070006000505000OU Ceilings404000E&A follow up30Tranches3000New development202000Post FID projects101000Existing Assets20002001200220032004200520012002200320042005Country Summary report Regional view.rep
52BIG TICKET ITEMS…Planned to take FID by end 2002/early 2003 Capex Requirements $ mln (till 2005)Possible People Resources ReqdNigeria -Ehra900Nigeria25+200025+Egypt - NEMED (no dilute)Global DWBusiness Staffed upEgyptBrazil - BC-10+670Brazil25+Angola - Blk -18Angola140025+China deals600China deals25+(?)Venezuela LNG7Venezuela LNG(?)MRH Others (Kuwait, Lybia )600MRH Entry Others ….25+Bangestan740Bangestan25+MRH & CISBusinessSouth Pars370South Pars25+Zapolynaroye550Zapolynaroye50+Saudi Gas development2400Saudi Gas development100+Sakhalin 40 % Gas devt I1500Sakhalin deal & Gas devt I150+Possibly 500+ Staff required ……..Possibly requiring $11,000+ mln in plan period.
59MAJOR Post-FID PROJECTS ….CAPEX Brutus CapexBrutus - indications of capex rephasing…Onstream date unchanged350300CA 1999CA 2000250Costs are expected to be lower...Devt Capex ($ mln)AOSP - indications that capex 2001 islarger than planned due toslippage in schedule……..20015010050Bonga - indications of capex increase……indications of slippage……Onstream date unchanged1998200020022004Time (Years)Bonga Devt Capex450400CA 1999350CA 2000Nowrooz/Sarooz -2001 & 2002 capex slippage……Onstream date unchanged300Devt Capex ($ mln)250- Increased drilling costs200- Increased project mgmt costs150100Shearwater - capex will be under budget& on time….502000200220042006POST-FID Underspend Likely$400 mln additionalTime (Years)
60MAJOR Post-FID PROJECTS IN PROGRESS….PRODUCTION Brutus - Peak production in 2002 & 2003 is now lowerNot a barrel produced yet…..(Is this a meaningful signal …)Brutus Oil Production100CA 199990CA 2000807060Oil Productn (kbbl/d)5040lower peak oil production30but higher cum productionby ca 40 mln bbl by 201620102000200120022003200420052006Bonga - Peak production in 2003 & 2004 is lower(system remodelling, revised subsealayouts & well timings)Time (Years)Bonga Oil Production1205 - 7 % decline following further studies.11010090Production (kbbl/d)80- revised subsea layouts &Shearwater - Production unchanged ,capex will be reduced vs budgets.70well timings60CA 199950CA 20004020022003200420052006Time (Years)POST-FID Production is lower across the boardCannot find examples of increases…..
61“Big Ticket” Items Additional Capex vs BP ‘99 3500Original FID TimingsRevised FID Timings300025002000Devt Capex ($ mln)15001000500BP ‘99 CAPEX606253714962494520012002200320042005
62Oil Production Difference Major Post FID Projects 1999 vs 2000 CA Raw Data SubmissionOIL mbopd300+66%CA 1999CA 2000Difference%25020005846-12-21%2001132116-16-12%2002002317231-86-27%+33%2003430456266%150200448464616233%Mbopd200543271528366%10050+6%-21%-12%-27%-50-100200020012002200320042005Years