EXPLORATION AND PRODUCTION TRENDS

AND THE EMERGENCE

OF THE NATIONAL OIL COMPANIES

Jack L. Kerfoot

MURPHY 1
 COMPANY CLASSIFICATION

•• PRIVATE
PRIVATE SECTOR
SECTOR -- NO
NO GOVERNMENT
GOVERNMENT FINANCIAL
FINANCIAL OR
OR CORPORATE
CORPORATE CONTROL
CONTROL

¾
¾ SUPERMAJOR
SUPERMAJOR -- >> USD
USD 100
100 Billion
Billion Market
Market Capitalization
Capitalization

¾
¾ MAJOR
MAJOR -- USD
USD 30
30 to
to 100
100 Billion
Billion Market
Market Capitalization
Capitalization

¾
¾ INDEPENDENT
INDEPENDENT -- << USD
USD 30
30 Billion
Billion Market
Market Capitalization
Capitalization

•• NATIONAL
NATIONAL OIL
OIL COMPANY
COMPANY (NOC)
(NOC) -- GOVERNMENT
GOVERNMENT CONTROL
CONTROL

¾
¾ Financial
Financial

¾
¾ Strategic
Strategic

MURPHY 2
 PRIVATE SECTOR GROWTH PERIOD

WHAT WERE THE ECONOMIC DRIVERS FOR THE PRIVATE SECTOR ?

• INDUSTRIAL REVOLUTION CREATED DEMAND FOR OIL

• PROLIFERATION OF US COMPANIES DUE TO EASY LAND ACCESS

• EUROPEAN COMPANIES EXPLOITED COLONIES’ RESOURCES

MURPHY 4
 PRIVATE SECTOR GROWTH PERIOD

WHAT WERE THE OUTCOMES FROM THIS PERIOD ?

• ORGANIC GROWTH

• EXPLOSION IN NEW TECHNOLOGY

• HUMAN RESOURCE DEVELOPMENT

MURPHY 5
 NATIONAL OIL COMPANY GROWTH PERIOD

WHAT WERE THE ECONOMIC DRIVERS FOR THE NOCs ?

• MANAGE STRATEGIC PETROLEUM RESOURCES

• DEVELOP ENERGY COMPANY CAPABILITIES

¾ Expertise & Experience

¾ Human Resources
¾ New Technology

MURPHY 7
 NATIONAL OIL COMPANY GROWTH PERIOD

WHAT WERE THE OUTCOMES FROM THIS PERIOD ?

• NOCs DEVELOPED ENERGY COMPANY CAPABILITIES

• MAJORS LOST PRODUCTION DOMINANCE

MURPHY 8
 NATIONAL OIL COMPANY GROWTH PERIOD
TO P TEN G LO B A L PR O D U C ER S

1972 2002

7% NOCs 77% NOCs

93% MAJORS 23% SUPERMAJORS

29,543 MBO/Day 48,115 MBO/Day

Data
Data Source
Source –– Schlumberger
Schlumberger

MURPHY 9
 NATIONAL OIL COMPANY GROWTH PERIOD
T O P T E N O IL P R O D U C E R S

1972 2002
AVERAGE DAILY NET AVERAGE DAILY NET
COMPANY TYPE PRODUCTION COMPANY TYPE PRODUCTION
NAME COMPANY MBO / DAY NAME COMPANY MBO / DAY

1. EXXON Major 4,968 ARAMCO NOC-Saudi Arabia 9,392

2. BP Major 4,664 GAZ PROM NOC-Russia 8,896

3. SHELL Major 4,169 NIOC NOC-Iran 4,797

4. TEXACO Major 3,777 EXXON MOBIL Major 4,336

5. CHEVRON Major 3,232 PEMEX NOC-Mexico 4,257

6. GULF Major 3,214 PDVSA NOC-Venezuela 4,002

7. MOBIL Major 2,316 SHELL Major 3,690

8. ROSNEFT NOC-USSR 1,301 BP Major 3,240

9. TOTAL Major 977 SONATRACH NOC-Algeria 2,847

10. SONATRACH NOC-Algeria 925 INOC NOC-Iraq 2,658

Data
Data Source
Source –– Schlumberger
Schlumberger

MURPHY 10
 NATIONAL OIL COMPANY GROWTH PERIOD

1972 2002 1972 - 2002

AVERAGE DAILY NET AVERAGE DAILY NET AVERAGE DAILY NET
PRODUCTION PRODUCTION PRODUCTION
COMPANY MBO / DAY MBO / DAY CHANGE

SHELL 4,200 3,690 12 %

(SHELL
(SHELL ++ ENTERPRISE)
ENTERPRISE)

TOTAL 1,970 1,580 20%

(TOTAL
(TOTAL ++ CFP
CFP ++ ELF
ELF ++ FINA)
FINA)

EXXONMOBIL 7,350 4,336 41 %

(EXXON
(EXXON ++ MOBIL
MOBIL ++ SUPERIOR)
SUPERIOR)

BRITISH PETROLEUM 6,200 3,240 48 %

(BP
(BP ++ SOHIO
SOHIO ++ BRITOIL
BRITOIL ++ AMOCO
AMOCO ++ ARCO)
ARCO)

CHEVRON 11,030 1,585 86 %

(CHEVRON
(CHEVRON ++ GULF
GULF ++ TEXACO
TEXACO ++ GETTY
GETTY ++ UNOCAL)
UNOCAL)

Data
Data Source
Source –– Schlumberger
Schlumberger

MURPHY 11
 NATIONAL OIL COMPANY GROWTH PERIOD

WHAT WERE THE OUTCOMES FOR THIS PERIOD ?

• NOCs DEVELOPED ENERGY COMPANY CAPABILITIES

• MAJORS LOST PRODUCTION DOMINANCE

• NOCs FOCUSED ON ORGANIC GROWTH

MURPHY 12
 NATIONAL OIL COMPANY GROWTH PERIOD

MURPHY 13
 NATIONAL OIL COMPANY GROWTH PERIOD

Major

80 NOC 1600
Independent 1,563 1,501
Oil Price
10%
70 19% 1400
1,354
1,217 1,290
32%

New Field Wildcats Drilled In Asia

60 1200
1,153 19% 16%
USD / Barrel In 2004 USD

50 1000
30%
53% 60%
40 800
42% 50%
27% 28%
30 600

20 400

43% 40% 39% 30%

10 28% 34% 200

1975 - 1979 1980 - 1984 1985 - 1989 1990 - 1994 1995 - 1999 2000- 2004
YEAR Data
Data Source
Source –– IHS
IHS

MURPHY 14
 NATIONAL OIL COMPANY GROWTH PERIOD
1995

LEGEND
CHINA KOREA - KNOC
- CNOOC
INDIA - ONGC
- CNPC
- SINOPEC MALAYSIA - PETRONAS

MURPHY 15
 NATIONAL OIL COMPANY GROWTH PERIOD
2005

LEGEND
CHINA KOREA - KNOC
- CNOOC
INDIA - ONGC
- CNPC
- SINOPEC MALAYSIA - PETRONAS

MURPHY 16
 NATIONAL OIL COMPANY GROWTH PERIOD

WHAT WERE THE OUTCOMES FOR THIS PERIOD ?

• NOCs DEVELOPED ENERGY COMPANY CAPABALITIES

• MAJORS LOST PRODUCTION DOMINANCE

• NOCs FOCUSED ON ORGANIC GROWTH

• NOCs DOMINATE GLOBAL ENERGY INDUSTRY

MURPHY 17
 PRIVATE SECTOR CONSOLIDATION PERIOD

WHAT ARE THE ECONOMIC REALITIES FOR THE MAJORS ?

• INCREASING NOC COMPETITION

• DECLINING PRODUCTION & INCREASING COST

• NO SUSTAINABLE GROWTH PROGRAM

• UNDERPERFORMING SHARE PRICE

MURPHY 19
 PRIVATE SECTOR CONSOLIDATION PERIOD

WHAT IS THE IMPACT OF THIS PERIOD ?

• MAJORS LOSE EXPLORATION EXPERTISE

MURPHY 20
 PRIVATE SECTOR CONSOLIDATION PERIOD

1194
1200 1141
1088
1050 1065 ExxonMobil
BP
1000
Number of New Field Wildcats

Total
Shell
Chevron Texaco
800 Occidental
ConocoPhillips
Marathon

600

400
291 303
225
200 183 167

0
1975 1976 1977 1978 1979 2000 2001 2002 2003 2004
YEAR
Data
Data Source
Source –– IHS
IHS

MURPHY 21
 PRIVATE SECTOR CONSOLIDATION PERIOD

6000
5,538

5000
Number of New Field Wildcats

4000

79% Decrease In
New Field Wildcats
3000

2000

1,169
1000

0
1975 - 1979 2000 - 2004
YEAR
Data
Data Source
Source –– IHS
IHS

MURPHY 22
 PRIVATE SECTOR CONSOLIDATION PERIOD

WHAT IS THE IMPACT TO THE MAJORS ?

• MAJORS LOSE EXPLORATION EXPERTISE

• INDEPENDENTS DRIVE GLOBAL EXPLORATION

MURPHY 23
 PRIVATE SECTOR CONSOLIDATION PERIOD

MURPHY 24
 PRIVATE SECTOR CONSOLIDATION PERIOD

80 1,600
Major
Independent
70 Oil Price 1,400

Number of New Field Wildcats In GOM Shelf

1,261
1,204
60 1,200
USD / Barrel In 2004 USD

27% 30%
50 954 1,000

28%
40 800
748
16% 610
30 12% 600
514
73% 70% 2%

20 400

72% 84%
10 200
88% 98%

1975 - 1979 1980 - 1984 1985 - 1989 1990 - 1994 1995 - 1999 2000- 2004
YEAR Data
Data Source
Source –– IHS
IHS

MURPHY 25
 PRIVATE SECTOR CONSOLIDATION PERIOD

MURPHY 26
 PRIVATE SECTOR CONSOLIDATION PERIOD

80 400
Major
Independent
70 Oil Price 350

New Field Wildcats Drilled In GOM Deepwater

60 290 300
USD / Barrel In 2004 USD

50 30% 250
239
205
40 200

49%
153
30 58% 150

118 57%
20 70% 100
72 42%

10 74% 51% 43% 50

58% 42%

26%

1975 - 1979 1980 - 1984 1985 - 1989 1990 - 1994 1995 - 1999 2000- 2004
YEAR Data
Data Source
Source –– IHS
IHS

MURPHY 27
 NATIONAL OIL COMPANY GROWTH PERIOD

MURPHY 28
 NATIONAL OIL COMPANY GROWTH PERIOD

80 1600
Major
NOC
70 1400
Independent
Oil Price

New Field Wildcats Drilled In Africa

60 1,154 1200
USD / Barrel In 2004 USD

50
983 951 1000
30%

854
30% 29% 786 800
40 19% 800
22%
33%
32%
30 19% 600
26% 19%
34%

20 29% 400
62%
39% 45% 200
10 36%
38% 60%

1975 - 1979 1980 - 1984 1985 - 1989 1990 - 1994 1995 - 1999 2000- 2004
YEAR Data
Data Source
Source –– IHS
IHS

MURPHY 29
 PRIVATE SECTOR CONSOLIDATION PERIOD

80 80,000
Major
69,072
69,072 NOC
70 70,000
Independent
6%
6%
Oil Price

New Field Wildcats Drilled In The World

6%
6%
60 60,000
USD / Barrel In 2004 USD

50,081
50,081
50 50,000
8%
8%
5%
5% 42,282
42,282

40 8%
8% 40,000
87% 88% 8%
8%

30 84% 30,000
25,891
25,891
9%
9% 21,326
21,326
20,186
20,186
11%
11% 8%
8%
20 9%
9% 6%
6% 20,000
12%
12%

80%
10 10,000
83% 82%

1975 - 1979 1980 - 1984 1985 - 1989 1990 - 1994 1995 - 1999 2000- 2004
YEAR Data
Data Source
Source –– IHS
IHS

MURPHY 30
 PRIVATE SECTOR CONSOLIDATION PERIOD

WHAT IS THE IMPACT TO THE MAJORS ?

• MAJORS LOSE EXPLORATION EXPERTISE

• INDEPENDENTS DRIVE GLOBAL EXPLORATION

• SERVICE COMPANIES DRIVE NEW TECHNOLOGY

MURPHY 31
 PRIVATE SECTOR CONSOLIDATION PERIOD

900

800

700
Number of Patents Applications

600

Top Four Service Companies

500 • Baker Hughes
• Halliburton
• Schlumberger
400 • Weatherford

Top Four Major Companies

300 • Exxon Mobil
• BP
• Total
200 • Shell

100

0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
YEAR
Data
Data Source
Source –– Schlumberger
Schlumberger

MURPHY 32
 PRIVATE SECTOR CONSOLIDATION PERIOD

WHAT IS THE IMPACT FOR THE MAJORS ?

• MAJORS LOSE EXPLORATION EXPERTISE

• INDEPENDENTS DRIVE GLOBAL EXPLORATION

• SERVICE COMPANIES DRIVE NEW TECHNOLOGY

• INDEPENDENTS LEAD IN NEW TECHNOLOGY APPLICATION

MURPHY 33
 CONCLUSIONS

THE SUN IS SETTING ON THE MAJORS

• DECLINING PRODUCTION

• NO SUSTAINABLE ORGANIC GROWTH

• INCREASING COST STRUCTURE

• INTENSE NOC COMPETITION

MURPHY 34
 CONCLUSIONS

THE FUTURE IS BRIGHT FOR

• THE TOP TIER NOCs

• NIMBLE & INNOVATIVE INDEPENDENTS

¾ Sustainable & Profitable Growth Business

¾ Profitable Regardless Of Energy Price
¾ Fast Moving & Cost Effective
¾ Politically & Culturally Astute

MURPHY 35