ACS ACS ACS U.S. House Briefing U.S. House Briefing U.S. House - - PowerPoint PPT Presentation

Scott W. Tinker Scott W. Tinker

State Geologist of Texas and Director, Bureau of Economic Geolog State Geologist of Texas and Director, Bureau of Economic Geology y Professor, Allday Endowed Chair, Jackson School of Geosciences Professor, Allday Endowed Chair, Jackson School of Geosciences President, President, American Association of Petroleum Geologists American Association of Petroleum Geologists

US Fossil Energy US Fossil Energy US Fossil Energy US Fossil Energy ACS

U.S. House Briefing

March, 2009

ACS ACS

U.S. House Briefing U.S. House Briefing

March, 2009 March, 2009

U.S. Fossil Fuels U.S. Fossil Fuels U.S. Fossil Fuels

I. Fossil fuel diversity is found in the electricity sector II. Energy transitions take time; rate is limited by scale III. Growth of atmospheric CO2 emissions from fossil fuels will likely slow as a function of the fossil fuel mix

• IV. The world has and will use coal; CCS and CMVA could

reduce CO2 emissions. V. Significant U.S. oil and natural gas resources are in limited access areas

• VI. Big Oil is no longer big
• VII. A brief look at proposed fossil energy policies

~ 87% Fossil Fuels

Fossil Fuel End Use Fossil Fuel End Use Fossil Fuel End Use

Conventional Oil Natural Gas B i

• m

a s s Coal Hydro Uranium

Data: EI A 2007

Transportation Heat Electricity

U.S. Data

• I. Fuel diversity is found in the

electricity sector

Primary Fossil Fuel Demand Primary Fossil Fuel Demand Primary Fossil Fuel Demand

1.25% annual demand growth

Historical Data: EIA October 2007

0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00 180.00 200.00

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Global Energy Consumption (quads)

Petroleum Natural Gas Coal Hydroelectric Nuclear Biomass, Geothermal, Solar & Wind

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

% Total Consumption

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Tinker Forecast 91% 87% 80%

Fossil Fuels

~255Q ~415Q ~495Q Fossil

Fuels

20% Non Fossil

• II. Energy transitions

take time; rate is limited by scale

CO2 Data: EIA, 2007

CO2 Emissions CO CO2

2 Emissions

Emissions

Historical Data: EIA October 2007

0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00 180.00 200.00

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Global Energy Consumption (quads)

4,000 6,000 8,000 10,000 12,000

1 9 8 1 9 8 3 1 9 8 6 1 9 8 9 1 9 9 2 1 9 9 5 1 9 9 8 2 1 2 4

Annual Anthropogenic CO2 (mmT)

NA Africa Europe Eurasia ME Cent & SA Asia & Oceania 2,000 Calculated CO2a Emmissions

5,000,000,000 10,000,000,000 15,000,000,000 20,000,000,000 25,000,000,000 30,000,000,000 35,000,000,000 40,000,000,000 45,000,000,000 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 Year Calculated CO2a (tons) CO2 Oil (tons) CO2 Gas (tons) CO2 Coal (tons)

Based on Tinker Forecasts

• Iii. Growth of atmospheric CO2

emissions from fossil fuels will likely slow as a function of the fossil fuel mix

Coal Reserves Coal Reserves Coal Reserves

+$

• $

BEG’s Gulf Coast Carbon Center “Stacked Sinks” BEG BEG’ ’s s Gulf Coast Gulf Coast Carbon Center Carbon Center “ “Stacked Stacked Sinks Sinks” ”

EOR CCS CMVA

• IV. The world has and will use coal;

CCS (Carbon Capture and Storage) and CMVA (Characterize, Measure, Verify, Account) could reduce CO2 emissions.

Tinker, 2008

Conventional Oil

Production/Reserves

Conventional Oil Conventional Oil

Production/Reserves Production/Reserves

~39.5 BBO Resources 40% Recovery ~ 15.8 BBO Reserves ~2.2 mmbod for 20 years

Access Limited

Oil Reserves

0.0 200.0 400.0 600.0 800.0 1000.0 1200.0 1400.0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Year Reserves (billion barrels) OPEC Non OPEC/US US

U.S. 29 BBO ~2.5%

Oil Production

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Year Thousand Barrels per Day OPEC Non OPEC/US US U.S. mmbod Produce < 7 Import 12.9

Does not include extra heavy oil, oil sands, oil shale

Data sources: BP Statistical Review, 2008; NPC, 2007; EIA, 2008

Source: Energy Information Administration (EIA) U.S. Natural Gas Unconventional Gas Global Data: SPE Paper 68755

U.S. Natural Gas Production vs. Conventional Gas Production

5,000 10,000 15,000 20,000 25,000 1 9 4 9 1 9 5 2 1 9 5 5 1 9 5 8 1 9 6 1 1 9 6 4 1 9 6 7 1 9 7 1 9 7 3 1 9 7 6 1 9 7 9 1 9 8 2 1 9 8 5 1 9 8 8 1 9 9 1 1 9 9 4 1 9 9 7 2 2 3 2 6 Year U.S. Natural Gas Production (Bcf) Natural Gas Production Conventional Gas Unconventional Gas Data: EIA 2007

U.S. Natural Gas Production U.S. Natural Gas Production U.S. Natural Gas Production

Unconventionals

1 2 3 4 5 6 7 8 9 10 1990 1995 2000 2005 2010 2015 2020 2025 Year

Annual Natural Gas Production (TCF)

Gas Shales Coalbed Methane Tight Gas

Global Unconventional Gas Resource Estimates

• V. Significant U.S. oil and

natural gas resources are in limited access areas

NA: 30% recovery, ~125 yrs at 20 TcF/year

Tinker, 2008

0.05 0.1 0.15 0.2 0.25 0.3

A r a m c

• (

S a u d i ) N I O C ( I r a n ) I N O C ( I r a q ) K P C ( K u w a i t ) P D V ( V e n e z u e l a ) A d n

• c

( U A E ) L i b y a N O C N N P C ( N i g e r i a ) P e m e x ( M e x i c

• )

L u k

• i

l ( R u s s i a ) G a z p r

• m

( R u s s i a ) E x x

• n

M

• b

i l Y u k

• s

( R u s s i a ) P e t r

• C

h i n a Q a t a r S

• n

a t r a c h ( A l g e r i a ) B P P e t r

• b

r a s ( B r a z i l ) C h e v r

• n

T

• t

a l

Conventional Oil Reserves Conventional Oil Reserves Conventional Oil Reserves

%

“Big Oil”

Source: Oil and Gas Journal, 2005 Source: Oil and Gas Journal, 2005

Amerada Hess Amoco Anadarko Ashland ARCO BPAmerica Burlington Resources Chevron Coastal DuPont (Conoco) Enron Exxon Fina Kerr-McGee Mobil Occidental Oryx Phillips Petroleum Shell Oil Sun Texaco Union Pacific Res. Unocal USX (Marathon)

• VI. Big Oil is no longer big

(and NOCs are becoming IOCs)

• Repeal

Repeal Expensing of I ntangible Drilling Costs Expensing of I ntangible Drilling Costs

• Repeal

Repeal Percentage Depletion Percentage Depletion

• Repeal

Repeal Marginal Well Tax Credit Marginal Well Tax Credit

• Repeal

Repeal Enhanced Oil Recovery Credit Enhanced Oil Recovery Credit

• Repeal

Repeal Manufacturing Tax Deduction Manufacturing Tax Deduction

• I ncrease

I ncrease G and G Amortization Cost G and G Amortization Cost

• Excise

Excise Tax Tax on Gulf of Mexico Production

• n Gulf of Mexico Production
• Fee

Fee ($4/ acre) on ($4/ acre) on “ “non non-

• producing

producing” ” GOM leases GOM leases

• Carbon Tax

Carbon Tax (or Cap and Trade scheme) (or Cap and Trade scheme)

Oil and Natural Gas 2010 Proposed Energy Policies Oil and Natural Gas Oil and Natural Gas 2010 Proposed Energy Policies 2010 Proposed Energy Policies

Bakken Case Study Bakken Case Study Bakken Case Study

I ntangible Drilling Costs* I ntangible Drilling Costs* Tangible Drilling Costs Tangible Drilling Costs

• ~ 75% of a typical Bakken well

~ 75% of a typical Bakken well ~ 25% of a typical Bakken well ~ 25% of a typical Bakken well

• Current: Deductible in year incurred, paid as AMT

Current: Deductible in year incurred, paid as AMT Depreciable Depreciable

• Proposed: Deductible over life

Proposed: Deductible over life Depreciable Depreciable

Drilling Program Drilling Program

2 2-

• year; 15 wells; $4.9 million per well; $74 million combined IDC

year; 15 wells; $4.9 million per well; $74 million combined IDC and TDC; 25 and TDC; 25-

• 35 years

35 years

2008 Year 2008 Year-

• end SEC price ($44.60 bbl; $5.71 mcf )

end SEC price ($44.60 bbl; $5.71 mcf ) $70 bbl; $5.71 mcf $70 bbl; $5.71 mcf

+ $2.1 million tax in first two years + $2.1 million tax in first two years + $3.5 million tax in first two years + $3.5 million tax in first two years ~ 50% of IDC for one well ~ 50% of IDC for one well ~ 100% IDC of one well ~ 100% IDC of one well ~ 3% of total drilling program ~ 3% of total drilling program ~ 5% of total drilling program ~ 5% of total drilling program

I mpact on US Reserves I mpact on US Reserves

• In a 15

In a 15-

• well Bakken program, one less well will be drilled; 7% drilling

well Bakken program, one less well will be drilled; 7% drilling decline decline

• Per well reserves ranging from ~ 100,000 to 500,000 BOE

Per well reserves ranging from ~ 100,000 to 500,000 BOE

• A 7% reduction in US drilling is ~ 3500 producing wells not dril

A 7% reduction in US drilling is ~ 3500 producing wells not drilled, per year led, per year

• ~ 350 mmboe to 1.75 bboe new (Bakken) reserves

~ 350 mmboe to 1.75 bboe new (Bakken) reserves

• Proposed tax program further exacerbates current financial crisi

Proposed tax program further exacerbates current financial crisis, which limits access to s, which limits access to drilling capital. drilling capital. * * Rig costs, mud & chemicals, and frac costs

Rig costs, mud & chemicals, and frac costs

Oil and Natural Gas Drilling Activity Oil and Natural Gas Oil and Natural Gas Drilling Activity Drilling Activity

10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 # Wells U.S. Crude Oil, Natural Gas, and Dry Developmental Wells Drilled (Count) U.S. Crude Oil, Natural Gas, and Dry Exploratory Wells Drilled (Count) 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 U.S. Dry Exploratory and Developmental Wells Drilled (Count) U.S. Natural Gas Exploratory and Developmental Wells Drilled (Count) U.S. Crude Oil Exploratory and Developmental Wells Drilled (Count)

10 20 30 40 50 60 70 80 90 100 Crude ($ 2007) “Windfall Profits” Tax (‘80-’88)

10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004

10 20 30 40 50 60 70 80 90 100 Crude ($ 2007) ? “Windfall Profits” Tax (‘80-’88)

• Would likely accelerate:

Would likely accelerate:

• Drilling decline

Drilling decline

• Production decline

Production decline

• Rate at which we import oil

Rate at which we import oil

• Loss of US jobs

Loss of US jobs

• NOC dominance in global markets

NOC dominance in global markets

• Likely resulting in:

Likely resulting in:

• Steeper decline of US Oil and gas industry

Steeper decline of US Oil and gas industry

• Decreased federal tax base

Decreased federal tax base

• Risk to national security

Risk to national security

Potential Impact of 2010 Proposed Policies Potential Impact of Potential Impact of 2010 Proposed Policies 2010 Proposed Policies

U.S. Fossil Fuels Seven Take Aways U.S. Fossil Fuels U.S. Fossil Fuels Seven Take Seven Take Aways Aways

I. Fossil fuel diversity is found in the electricity sector II. Energy transitions take time; rate is limited by scale III. Growth of atmospheric CO2 emissions from fossil fuels will likely slow as a function of the fossil fuel mix

• IV. The world has and will use coal; CCS and CMVA could

reduce CO2 emissions. V. Significant U.S. oil and natural gas resources are in limited access areas

• VI. Big Oil is no longer big
• VII. Proposed fossil energy policies will likely exacerbate

an already poor situation; let’s learn from the early ’80s

Fossil fuels are the bridge to alternate energies