161010 APGA Conference A Lukas J Green

APGA Conference 10 October2016 Page 1
The drivers that will bring a
turnaround, assuming the worst is
now behind us

Bonmont Energy is:
• Geneva based upstream oil and
gas independent consultancy
• specialised in strategic
intelligence
• Founded by Jon Green, BSc
(Honours) in Geology from the
University of Southampton and
Masters in Business
Administration from Webster
University in Geneva.

APGA Conference 10 October2016
This presentation has been compiled by Andrew Lukas and Jon Green from sources they
believe to be reliable. However, it is not warranted as to its completeness or accuracy.
This presentation is not an offer to sell or a solicitation to buy any securities.
As it is prepared for general circulation, all readers must use their own judgment and seek
their own advice before relying on anything in this presentation.
Andrew Lukas and Jon Green
Page 3
Disclaimer

Take Away Messages
• Turnaround drivers are:
• Growing demand for oil & gas in Asia
• Meeting & growing domestic demand affordably
• Gas in the new electricity mix
• Is the worst behind us?
• No, not unless all in the chain from wellhead to
burners – and government – and community can work
together for win-win.

Take Away Messages
To misquote Jack Gibson:
Waiting for government is like leaving
the porch lights on for Harold Holt
We need to be proactive, more aggressive,
and drag them forward with us

Volatility of International Oil & Gas
A Turnaround Driver?
Page 6

Oil Prices for Breakeven Budgets

Oil Prices for Breakeven Budgets
Surely cannot continue?
Geopolitical forces unleashed? Worse?
Higher oil price
Higher gas prices
Turnaround ?

What are the biggest uncertainties to 2025
Source: McKinsey

Collision Ahead

Threat of US LNG Exports

Threat to Australian LNG Sales
550 LNG tankers per year from US Gulf
Coast to Australia’s markets in Asia

Industry Consolidation
 Shell: alleviating rising debt following the $35bn BG acquisition
 Gearing (debt-to-equity ratio) nearing declared ceiling of 30% but will
not offer fire-sale prices.
 Targeting $30bn from asset disposals by end-2018,
 Total: $10bn of disposals by end-2017, mainly mid-stream pipeline
infrastructure and downstream including Atotech chemicals subsidiary
for around $3bn
 Eni: seeking to dispose of $7bn in assets, including farming down
offshore gas development projects in Mozambique and Egypt, with
rumours linking Exxon to the Mozambique deal.
 Repsol: 5-year strategic plan includes the sale of $6.89 bn of non-core
assets and a 38% cut in CAPEX by 2020. It will be deferring
development projects, scaling back exploration and squeezing supplier
costs

Australia’s Oil & Gas Resources
Potential to Drive Turnaround
Page 14

Australian Gas Reserves
 By world standards, Australia has substantial resources 1.05 million PJ
 Remember: 1200 km 34 inch Sydney Moomba Gas Pipeline funded
against only 1,980 PJ
 JP Morgan says 184,000 PJ conventional gas reserves & resources =
Moomba Sydney only 1% of this
 The US Energy Information Administration (EIA) estimates that
Australia has the :
 sixth largest shale oil resource (18 billion barrels)
 seventh largest shale gas resource of 437 trillion cubic feet =
611,000 PJ in the world = Moomba Sydney only 0.32%
 CSG resources estimated to be 6 per cent of the world’s coal
seam gas resources at 235 trillion cubic feet = 258,000 PJ
(Source: APPEA Submission to COAG)

Current Gas Resources

Coal Seam Gas Basins

CSIRO: Shale Basins with Potential

New pipeline systems?
Oil
Gas
Oil
Gas
Gathering

Certainty & Poor Capital Markets
Beach CEO Matt Kay reported
as saying
 Company felt uncomfortable
about how the large
resource of 500 million
barrels of oil & gas was
booked given the cost
required to find out how to
extract it
 “somehow the code has to
be cracked and we don’t
have the key yet”

Cooper Basin – best potential outside US?
• US Govt Energy Information Administration says 325 Tcf (93
Tcf recoverable) gas in place and 29 billion barrels (1.6 Billion
barrels recoverable) of risked oil in place.
• Gas: 93Tcf = QCLNG+GLNG+APLNG for 60 years!
• Oil: 1.6 billion barrels @ $50 = $80,000,000,000
• Big gathering pipeline potential ?
* Source: Tudor Pickering Holt & Co.

Imperial Energy, McArthur Basin NT
Oil & CNG export from Gove?
Imperial says P10 resource of
1.3 billion barrels of oil
105 million barrels /sq km?
12 million barrels /sq km?

Central Petroleum, NT
• Central established conventional gas
producer
• Amadeus Basin under explored
• Wants to prove up 200PJ of conventional
gas - tip of the iceberg
• Exploratory discussions with potential
purchasers to supply 10-15 PJ pa from late
2017 into the Eastern Market
• That is <10% of Sydney market
• Commenced major reserve upgrade
programme
• Oil & wet gas would mean
liquids pipelines to
Moomba? To Darwin?
• Use railway in meantime?
Oil Prone

Buru Canning Superbasin?
Gas Pipeline system
Oil Pipeline System

Beetaloo Basin, NT
Under – explored - has shale oil, shale gas
11 wells drilled by Rio Tinto some 30 years ago –
Pangaea is now exploring - stopped by Labor
Cores show tight oil and gas and several horizons
Oil resource 10 to 28 billion barrels of oil - Similar
basins globally have produced enormous amounts of
commercial oil and gas.
* Ref: Paltar Petroleum
Potential gathering system s
Oil & gas pipelines to Darwin

More Export Opportunities
Potential to Drive Turnaround
Page 26

Comparison of gas prices

Continued Growth in Natural Gas & Liquids
Source: US Energy Information Agency

Chevron - $ Driver for Turnaround?
Adam Creighton & Matt Chambers in The Australian on 28 May
2016 report that Chevron’s annual report says:
At $US55 a barrel of oil (the 2015 average),
Chevron’s 47 per cent stake in the Gorgon
project and 64 per cent of Wheatstone are
expected to deliver healthy future cashflows
of almost $US50bn after $US22.4bn of costs
Chevron expecting to make $US21.3bn of
income tax payments. Matt Chambers
Adam Creighton

Exxon: Future Electricity Mix
Good for us?

Exxon Predictions
Good Opportunity for us if we
can get act together?

More Competition

LNG Export Oppirtunities

CNG Opportunities

© 2016 All rights reserved Bonmont Energy Sàrl
35
Source: BP Energy Outlook 2035
Demand for oil and gas continues to grow

More Imagination Needed?

Are We Up To Meeting Export Opportunities?
Page 37

Chevron CEO Said:
Paul Garvey in The Australian 12 April 2016 quoting John Watson, Chairman & CEO of
Chevron:
• Australia and its leaders must fight to attract future LNG investment
• Chevron “has a long line of projects, Australia has the resources, but
Australia is going to have to put together an offering so companies like
mine and others can develop these resources because we have choices”
• “Harmony needed between companies, governments, organised labour;
and in standards, taxes, fiscal terms”.
• Otherwise, projects won’t happen

Are We Up to Meeting Domestic Gas
Opportunities?
Page 39

Electricity Prices from ABS
ElectricityPriceIndex
50% of electricity price
is carrying electricity on
poles & wires
Pipelines carry energy
more cheaply

Pipelines Buried Safely & Store Gas

Distributed Gas Power Saved the Days

Wake Up Australia
The Worst is Not Behind Us?
Page 43

Boom in US
• Price of gas dropped by more than 50%
• Over 800,000 new direct jobs created
• In 2012, the 45,468 oil and gas wells in US vs. 3,921 wells rest of the
world
• US turning from net importer of natural gas to net exporter;
• US heavy manufacturing boom because dramatically lowered input
costs
• Steelworks have reopened because of cheap gas availability; US
petrochemical companies now extremely competitive; US to be
world’s biggest producer of Polyethylene
• European & Chinese manufacturers building chemical plants in US

Our electricity system in peril
The Australian economy is likely to perform slightly worse than that of the United
States over the next six to 12 months according to the managing director of $3.5 billion
packaging giant Orora, despite uncertainty caused by the US presidential election.
Nigel Garrard says rising power costs in Australia are becoming an increasing issue and
are one of the factors behind the more subdued local economic conditions.
Orora's gas and electricity costs in Australia were about $15 million higher in 2015-16
than the previous year.
"It's a big issue for us," Mr Garrard said on Monday. "Inevitably those costs need to be
passed through to our customers, and to their customers.”
Australian economy to lag
behind US says $3.5b
packaging giant – AFR 16 Aug

Victorian ban
• Libby Balderstone who runs 1600 ha wool, lamb,
beef south of Sale has been “pivotal in the
community fight to stop short term extractive
industries threatening long term agriculture
operation”.
• “Extraction leaves behind awful ramifications for
soil, water & environment”.
AWU said
• “the ban on conventional
exploration and extraction is
nonsensical public policy
• will hurt Alcoa, Qenos, Orica,
Australian paper and other
major industrial users
Sale Farmer Gregor
McNaughton said”
• Employs hundreds
• Gas for 30 years so far
• “never has a problem with
the mining companies”.

Stupidity in Northern Territpory
Martin Ferguson:
• Moratorium will inflict real
economic harm for no
environment gain.
• Will deny Indigenous landowners
tens of million of dollars
• Will drive up electricity prices

Boosting Gas in Australia

US advantages
• US landowners own the gas resource – they want development
• In USA: “Great, they have discovered gas on my land”
• In Europe & NSW “Oh no, they have discovered gas on my land”
• US has a culture of oilfield workers & expertise – not Europe – not
China? Australia? Does Australia have the skill set?
• Pipeline infrastructure and railways there to get out oil & gas (but
more needed)
• US has the capital markets for oil & gas – does Australia?
• US has regulatory regime which understands oil & gas – CSG to LNG
in Queensland experience says we are struggling…

Competitors to Supply LNG
High % of unconventionals
that need fraccing and
decline curves are steep

Climate Change

Power: Installed Capacity
From AFT 23 June 2016

Are you surprised community hates us?
Wyoming

Outstanding Gains in Energy Efficiency

Batteries

JP Morgan said:
• Higher gas prices will make gas-fired power plants less economic
Excluding exports, we estimate demand will decline 10-20% over the
next decade.
• Decreasing domestic gas use means less need for infrastructure
development: We believe there is limited requirement for
investment in gas transmission because infrastructure to service
LNG facilities has already been built, and domestic gas flows should
to continue to decline.
• Manufacturing: Gas represents a significant portion of total input
costs for many products. gas consumption from the manufacturing
sector has been declining due to increasing wholesale gas prices as
well as a high Australian dollar.
• A number of large industrial users have investigated alternative
approaches to manage their gas supply including options to switch
away from gas.

Conclusions
Page 57

What Must We do to Prosper / Survive?
 Future in not bleak – there are more pipeline to be built.
 Gas is premium industrial fuel & feed stock – too precious to waste on base power?
 Gas excellent for distributed power and peaking for power production
 Gas pipelines good for storage / line pack
 Make gas more affordable to manufacturing - Australian pipelines are efficiently
built and operated – what part of the equation is pushing up costs?
 A lot of gas in the world – competition - we must reduce our costs
 Gas export - New standards of living of billions of new consumers need cheap gas. It
should be our gas.
 Change community perceptions
 APGA has a great record in working together. We need to get the rest of the chain
working with us to maximise benefits.

Government Actions
 Coherent and consistent energy planning
 Investment needs certainty
 Economic regulation regime is fiddling with pipelines –
please focus on reality
 ACCC says that the gas market is being constrained by a
failure of regulation of the gas pipeline industry – rubbish!
 Govt – please make project approvals simpler
 How could we let NT, NSW and Victorian governments be
so dangerously silly?

Driver: Big Export Potential Gas and Oil
Australia has huge gas and oil potential Can we break NT, Victorian, NSW
government stupidities? Are we equipped
or the fight? Lack of Entrepreneurial
leadership?
Australia low sovereign risk (until recently) Chevron making money. Australia
probably still in good books
International oil prices must go up
otherwise geo-political mess
We might be lucky. Can we move fast
enough? I doubt it.
Accelerating Demand in Asia growing Long term contracts becoming short term.
Need deep pockets & excellent
management & ready capital markets. Do
we have them?
US is potential competitor Must get costs down, regulations to make
easier. Unlikely govt will be inspired
Technology & deep pockets to find key to
develop Cooper Basin unconventionals
Capital markets too weak. Beach
example. Would never happen in US

Driver: Local demand needs to be met
Manufacturing denied gas at reasonable
prices and long contracts
LNG pricing flow-on and regulations
pushed up gas prices. Market not working.
Abundant gas should push prices down.
Must break this chain.
Landowner impact solutions More sympathy for landowners. Reduce
visual and land use impact. Apply
technologies available. Better engineering.
International oil prices must go up
otherwise geo-political mess
We might be lucky. Can we move fast
enough? I doubt it.
Accelerating demand in Asia Long term contracts becoming short term.
Need deep pockets & excellent
management & ready capital markets. Do
we have them?
Cheap energy has revitalised
manufacturing in US. Its booming.
Something wrong with our markets. Lack
of energy entrepreneurs.

Driver: New Electricity Mix
50% cost of electricity is transmission. Big
wind, big solar at ends of transmission
lines. Sale of Ausgrid must push up costs.
Gas pipelines cheaper, better.
Leads to distributed power. Cooper’s
Brewery example
Too many ideologues in government and
café latte set
PR campaign to champion the truth. We
have failed so far; are we prepared to
fight?
Batteries an electricity game changer. Embrace. Optimise power from gas with
battery storage. Who is ready to lead this?
Too many parties in gas supply chain?

So…
• Yes, there are drivers that will bring a turnaround.
• Do we have the wit to capture these drivers?
• Is the worst now behind us – maybe.
• Are we giving enough certainty to investors – (message
from Chevron Chairman CEO) & fighting hard enough?
• We need to be aggressively proactive to capture these
drivers
• We need to get control of the PR agenda

Thank you
Page 64

161010 APGA Conference A Lukas J Green

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