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Johnny BradberryConocoPhillipsOctober 27, 2003
Gas Supply Outlookfor the Gulf of Mexico
Fundamentals/Current Situation
Supply Sources
Hurdles/Challenges
Perspectives
Outline
ANDERSON
The Arthur Anderson partner was on his phone when he said,
“Ship the Enron documents to the Feds,”
but his secretary heard,
“Rip the Enron documents to shreds.”
It turns out that it was all just acase of bad cellular.
Sprint PCS The clear alternative to
cellular℠
Source: MMS 2003
GOM Field Discoveries
Discovered
1947-1959
1960-1969
1970-1979
1980-1989
1990-2000
Source: MMS
GOM Gas Reserves & Production Reserves Additions by Discovery Year Annual Gas Production
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 20000.0
2.0
4.0
6.0
8.0
0.0
2.0
4.0
6.0
8.0
Annual Gas Production (TCF)
Annual Reserves Additions (TCF)
Annual Gas Production (TCF)Proved Gas Reserves (TCF)
50
100
150
200
250
300
350
400
0
20
40
60
80
100
120
140
160
While Number of GOM Shelf Discoveries Has Increased, Field Size Has Dropped
0
1950-1959 1960-1969 1970-1979
Nu
mb
er o
f N
ew F
ield
Dis
cove
ries
Averag
e Re serves P
er Field
(MM
BO
E)
Number of New Fields Average Field Size
# New fields
1980-2003Avg. field size
Source: MMS/PFC Energy Consultants
Discoveries & Reserves – GOM Deepwater
1950-1959 1960-1969 1970-1979 1980-1989 1990-1999 2000-2002
Nu
mb
er o
f N
ew F
ield
Dis
cove
ries
0
30
60
90
120
Averag
e R
eserves p
er Field
(m
mb
oe)
Number of New Fields Average Field Size
Average Field Size(Right Axis)
Number New Fields(Left Axis)
Number Of Fields Discovered & Average Reserves per Field By Decade
Deepwater (Water Depths At Least 1,000 Feet)
Includes Proved & Probable Reserves
10
20
30
40
50
60
70
0
Source: MMS/PFC Energy Consultants
Source: MMS/PFC Energy Consultants
Total Shallow Water Portion (< 1000') Deepwater Portion (> 1, 000 ft)
Gas Production from the Shelf is Declining While Deepwater Gas Production is Rising Gulf of Mexico Gas Production
Total vs. Shelf and Deepwater
278 381 560846 999 1,180 1,269
4,955 5,015 4,6245,078 5,145
5,041 5,057
3,3553,8353,946
4,2054,481
4,8004,764
0
1,000
2,000
3,000
4,000
5,000
6,000
BC
F /
Yea
r
1996 1998 2000 2002(est.)
1997 1999 2001
Source: NPC 2003
U. S. and Canadian Natural Gas Supply
0
1
2
3
4
5
6
7
2000 2005 2010 2015 2020 2025
Sources of Incremental Natural Gas Supply,2000-2025 (trillion cubic feet)
Gulf Slope
Source: NPC 2003
Mountain
Alaska
Other Lower 48
Source: MMS
GOM Areas
Western Gulf
Central Gulf
Eastern Gulf
Florida
GOM ShelfVery mature 70% of current GOM supplyRapid declineCurrent reservesDrilling pace/successRig availabilityNew discoveries small in size
Some shallow undiscovered reserves anddeep shelf potential >50 TCF (MMS 2000)
Difficult drillingAging infrastructureRig availability for deepAcreage position
Most majors have substantially decreased positionIndependents dominate
Status:
Prize:
Challenges:
Who:
Deepwater30% of current supplyCurrent reservesProjects under developmentDiscovery pace Predominantly an oil play - associated gas
>135 TCF potential (MMS 2000)Large reservoirsLeverage existing discoveries
High cost per well/developmentTechnology not here yet for ultra deepProject cycle time
Predominantly majors but independents aggressively moving in
Status:
Prize:
Challenges:
Who:
600' WD
Jolliet
4000' WD
URSA
GULF OF MEXICO
DEEPWATER DEPOSITIONAL MODEL
CON9606_22.CVS
7000' WD
G I 43
New Orleans
Target Size Differences: Grand Isle 41\43\47 vs. URSA
• URSA:
Appx 400 MMBOE 10-50 MBOEPD/well
Single structure Up to 11 wells15 years to recover
.
• Grand Isle 41/43/47
Appx 830 MMBOE .5-5 MBOEPD/ well
54 platforms +500 wells/+180 active
-60-70 years to recover
Recovery/well: 1.7MMBOE/well
Rec./well: 10-40 MMBOE/compl
Technological Advances - Drilling
Sea bed is 1-2 miles below the rig:
Requires the latest in:
•Marine Riser Technology
•BOP Control Technology
•Casing & Mud Program Design
•Dual Gradient Drilling
•AHC (Active Heave Compensated)
•Vessel Positioning
• FPSO and Shuttling• Subsea Processing & Metering• Seabed Storage• Multiphase Flow• Deepwater Pipeline• Expandable Casing• Dual Gradient Drilling
Technological Advances - Production
High Tech……High Cost• What’s the most notable difference between deepwater and
shallower operations? The answer is resoundingly…..Costs!
• DW dev. well cost: $25MM-$40MM– Shelf, avg dev. well : $5MM-10MM
• DW drilling costs: $250M-$400M/day
– on shelf : $100M-$140M/day
– with rig rates on shelf being only $30-40M/day compared to DW rates
of $120-$220M/day
Deepwater - The Industry Responsibility
Safe, Environmentally Sensitive, Cost Effective Innovation
Eastern Gulf of Mexico
Currently off limits
25 TCF potential (NPC 2003) Can leverage existing infrastructure
Gaining access Time to drill ready/total cycle time Restrictions/permitting Drilling
Mixture of majors and independents
Status:
Prize:
Challenges:
Who:
Supply Dichotomy?
We Can’t Wait Too Long!!!
It’s part of my long-range escape plan.
I’ve been considering living
on the ground, becoming a
carnivore and developing a
civilization…what do you think?
It’s part of my long-range escape plan.
Delivering Supply Won’t Be Easy
Shelf
Deepwater
EGOM
Cycle time
Technology
Geology/Drilling
Permitting
Cycle time
Aging infrastructure
/cost
Gaining Access
Cost
Mature
Delivering Supply Won’t Be Easy
Shelf
Deepwater
EGOM
Cycle time
Technology
Geology/Drilling
Permitting
Cycle time
Gaining Access
Cost
MatureAging
infrastructure/cost
ConocoPhillips Position
Not a DominantPosition
$
?
Discovered 46 TCF
Potential >210 TCF
Supply Source Overview
>50 TCF Shallowand Deep Potential
35 TCF Discovered
11 TCFDiscovered
25 TCFPotential
>135 TCF Potential
Shelf
Deepwater
EGOM
GOM/Supply
Source: MMS
Shelf
Production declining rapidly. Aggressive shallow drilling essential to help offset base decline. Deep gas is critical to filling supply expectation in the near term.
Look for Independents to pick up pace – particularly deep drilling.
Majors could re-enter - deep potential and improved incentives.
Deepwater
Gas production important in filling void created by shelf decline.
Majors likely to stay primarily deepwater focused.
Once EGOM moratorium is lifted, it will take time to supply gas.
Perspectives to Leave You With
New technology an important part of the supply formula.
Resource availability still a critical issue.
Need improved regulatory permitting/approval process.
Despite hurdles, outlook for GOM supply to satisfy forecasted demand is optimistic.
Perspectives to Leave You With
BACKUP
200
400
600
800
1000
1991 1993 1995 1997 1999 2001 2003*
U.S
. G
as R
igs
12
13
14
15
16
17
18
19
20
U.S
. Pro
duct
ion
- T
CF
Current Rig Count = 747
U.S. Rig Count and Production
*Avg. consultants estimate for 2003 U.S. Production
20
25
30
35
40
45
50
1991 1992 1993 1994 1995 1996 1997 1998 1999
• Natural gas well production rates have
been declining steadily
• Rapid decline of productive capacity requires drilling more
and more wells to maintain a given level
of gas production
Source: EIA
US well production half-life*
* Months to reach 50% of initial production rate
Months
0
5
10
15
20
25
30
1994 1995 1996 1997 1998 1999 2000 2001 2002*
Source: Salomon Smith Barney, Aug 16, 2002
U.S. gas production additions per rigAvg. MMCF/d added per active rig
* Estimate
0
2
4
6
8
10
12
14
16
18
20
1995 1996 1997 1998 1999 2000 2001
0
5
10
15
20
25
• US gas production remained flat
between 1995 and 2001
• However, it took a massive drilling
effort to maintain the production flat
Source: EIA
Drilling has failed to increase productionGas Production, Tcf/year Well Completions, ‘000/year
Rig Counts Slow to Respond
0
200
400
600
800
1000
1200
Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03
0
1
2
3
4
5
6
7
8
9
10NYMEX Gas Price, $/MMBtuUS Gas Rig Count