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Louisiana State University. Natural Gas Conference. Gas Supply Outlook for the Gulf of Mexico. Johnny Bradberry ConocoPhillips October 27, 2003. Outline. Fundamentals/Current Situation Supply Sources Hurdles/Challenges Perspectives. ANDERSON. The Arthur Anderson partner was

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Johnny bradberry conocophillips october 27 2003

Louisiana State University

Natural Gas Conference

Gas Supply Outlook

for the Gulf of Mexico

Johnny Bradberry

ConocoPhillips

October 27, 2003


Johnny bradberry conocophillips october 27 2003

Outline

  • Fundamentals/Current Situation

  • Supply Sources

  • Hurdles/Challenges

  • Perspectives


Johnny bradberry conocophillips october 27 2003

.

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 a

case of bad cellular.

Sprint PCSThe clear alternative to cellular℠


Johnny bradberry conocophillips october 27 2003

GOM Field Discoveries

Discovered

1947-1959

1960-1969

1970-1979

1980-1989

1990-2000

Source: MMS 2003


Johnny bradberry conocophillips october 27 2003

8.0

8.0

Proved Gas Reserves (TCF)

Annual Gas Production (TCF)

6.0

6.0

Annual Gas Production (TCF)

Annual Reserves Additions (TCF)

4.0

4.0

2.0

2.0

0.0

0.0

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

GOM Gas Reserves & Production Reserves Additions by

Discovery Year Annual Gas Production

Source: MMS


While number of gom shelf discoveries has increased field size has dropped

400

160

350

140

300

120

250

100

200

80

150

60

100

40

50

20

0

While Number of GOM Shelf Discoveries Has Increased, Field Size Has Dropped

Number of New Fields

Average Field Size

# New fields

Avg. field size

Average Reserves Per Field (MMBOE)

Number of New Field Discoveries

0

1980-2003

1950-1959

1960-1969

1970-1979

Source: MMS/PFC Energy Consultants


Johnny bradberry conocophillips october 27 2003

70

120

60

90

50

40

60

Average Reserves per Field

(mmboe)

30

20

30

10

0

0

1950-1959

1960-1969

1970-1979

1980-1989

1990-1999

2000-2002

Discoveries & Reserves – GOM Deepwater

Number Of Fields Discovered & Average Reserves per Field By Decade

Deepwater (Water Depths At Least 1,000 Feet)

Average Field Size

(Right Axis)

Number New Fields

(Left Axis)

Number of New Field Discoveries

Number of New Fields

Average Field Size

Includes Proved & Probable Reserves

Source: MMS/PFC Energy Consultants


Gas production from the shelf is declining while deepwater gas production is rising

Gulf of Mexico Gas Production

Total vs. Shelf and Deepwater

6,000

5,000

4,000

BCF / Year

3,000

2,000

1,000

0

Gas Production from the Shelf is Declining While Deepwater Gas Production is Rising

5,145

5,078

5,041

5,015

5,057

4,624

4,955

4,800

4,764

4,481

4,205

3,946

3,835

3,355

1,269

1,180

999

846

560

381

278

1996

1997

1998

1999

2000

2001

2002(est.)

Total

Shallow Water Portion (< 1000')

Deepwater Portion (> 1, 000 ft)

Source: MMS/PFC Energy Consultants



Johnny bradberry conocophillips october 27 2003

Sources of Incremental Natural Gas Supply,

2000-2025 (trillion cubic feet)

Alaska

Gulf Slope

Mountain

Other Lower 48

Source: NPC 2003


Johnny bradberry conocophillips october 27 2003

GOM Areas

Eastern Gulf

Western Gulf

Central Gulf

Florida

Source: MMS


Johnny bradberry conocophillips october 27 2003

GOM Shelf

Status:

  • Very mature

  • 70% of current GOM supply

  • Rapid decline

  • Current reserves

  • Drilling pace/success

  • Rig availability

  • New discoveries small in size

  • Some shallow undiscovered reserves and

    deep shelf potential  >50 TCF (MMS 2000)

  • Difficult drilling

  • Aging infrastructure

  • Rig availability for deep

  • Acreage position

  • Most majors have substantially decreased position

  • Independents dominate

Prize:

Challenges:

Who:


Johnny bradberry conocophillips october 27 2003

Deepwater

Status:

  • 30% of current supply

  • Current reserves

  • Projects under development

  • Discovery pace

  • Predominantly an oil play - associated gas

  • >135 TCF potential (MMS 2000)

  • Large reservoirs

  • Leverage existing discoveries

  • High cost per well/development

  • Technology not here yet for ultra deep

  • Project cycle time

  • Predominantly majors but independents

    aggressively moving in

Prize:

Challenges:

Who:


Johnny bradberry conocophillips october 27 2003

Target Size Differences:

Grand Isle 41\

43\

47

vs

. URSA

URSA:

Appx 400 MMBOE

10-50 MBOEPD/well

.

Single structure

Up to 11 wells

15 years to recover

Rec./well:

Grand Isle 41/43/47

10-40 MMBOE/

compl

Appx 830 MMBOE

.5-5 MBOEPD/ well

54 platforms

+500 wells/+180 active

-

60-

70 years to recover

Recovery/well: 1.7MMBOE/well


Johnny bradberry conocophillips october 27 2003

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


Johnny bradberry conocophillips october 27 2003

FPSO and Shuttling

Subsea Processing & Metering

Seabed Storage

Multiphase Flow

Deepwater Pipeline

Expandable Casing

Dual Gradient Drilling

Technological Advances - Production


Johnny bradberry conocophillips october 27 2003

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


Johnny bradberry conocophillips october 27 2003

Deepwater - The Industry Responsibility

Safe, Environmentally Sensitive,

Cost Effective Innovation


Johnny bradberry conocophillips october 27 2003

Eastern Gulf of Mexico

Status:

  • 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

Prize:

Challenges:

Who:



Johnny bradberry conocophillips october 27 2003

We Can’t Wait Too Long!!!

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.

It’s part of my long-range escape plan.


Johnny bradberry conocophillips october 27 2003

Delivering Supply Won’t Be Easy

Shelf

Aging infrastructure

/cost

Geology/Drilling

Mature

Deepwater

Technology

Cycle time

Cost

EGOM

Cycle time

Gaining Access

Permitting


Johnny bradberry conocophillips october 27 2003

ConocoPhillips Position

Not a Dominant

Position

$

?

Shelf

Aging infrastructure/cost

Geology/Drilling

Mature

Deepwater

Cost

Cycle time

Technology

EGOM

Gaining Access

Permitting

Cycle time

Delivering Supply Won’t Be Easy


Johnny bradberry conocophillips october 27 2003

35 TCF Discovered

>50 TCF Shallow

and Deep

Potential

Shelf

11 TCF

Discovered

Deepwater

>135 TCF Potential

GOM/Supply

EGOM

25 TCF

Potential

Supply Source Overview

Discovered 46 TCF

Potential >210 TCF

Source: MMS


Johnny bradberry conocophillips october 27 2003

  • 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


Johnny bradberry conocophillips october 27 2003

Perspectives to Leave You With



Johnny bradberry conocophillips october 27 2003

U.S. Rig Count and Production

Current Rig Count = 747

*Avg. consultants estimate

for 2003 U.S. Production


Johnny bradberry conocophillips october 27 2003

US well production half-life*

Months

  • 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

* Months to reach 50% of

initial production rate

Source: EIA


U s gas production additions per rig
U.S. gas production additions per rig

Avg. MMCF/d added per active rig

Source: Salomon Smith Barney, Aug 16, 2002

* Estimate


Drilling has failed to increase production
Drilling has failed to increase production

Gas Production, Tcf/year

Well Completions, ‘000/year

  • US gas production remained flat between 1995 and 2001

  • However, it took a massive drilling effort to maintain the production flat

Source: EIA


Johnny bradberry conocophillips october 27 2003

Rig Counts Slow to Respond

US Gas Rig Count

NYMEX Gas Price, $/MMBtu