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The Future of Global Exploration and Production

Steve Pastor, President Operations, Petroleum
CERAWeek, Houston, Texas, 7 March 2017

It’s great to be here today and to discuss important issues across our industry.

And, I’m honoured to share the stage with 2 key thought leaders in global Exploration and Production.

For those not familiar with BHP Billiton, our company was founded in 1885, after discovering Tin and Lead in the Australian Outback. BHP Billiton has done many things over its 130 year Australian rooted history. And today, BHP Billiton is one of the world’s top producers of iron ore, metallurgical coal, copper and uranium.

We also have substantial interests in oil and gas around the world including conventional, primarily Deepwater assets in Australia, where we got our start in Oil and Gas some 50 years ago in the Bass Strait.

In the Gulf of Mexico in both US waters, and now recently in Mexico after farming into the Trion discovery, with our new partner Pemex, we’re also producing and exploring in Trinidad and Tobago, and we’re in the North Sea and Algeria.

In North American shale, we operate ~850k net acres in the Permian, and in the Eagle Ford oil shale plays, as well as in the Haynesville and Fayetteville gas plays.

Our strategy is to own and operate large, long-life, low-cost, expandable, upstream assets diversified by commodity, geography and market - Petroleum is a key part of that mix.

Our petroleum business strategy, aligned with the corporation, is based on:

  1. Tier one assets which are low on the cost curve and resilient through cycles.
  2. Operational excellence to safely deliver the best possible performance from these assets.  That includes safety and capital efficiency.
  3. A disciplined and transparent approach to capital allocation, to ensure we’re making decisions that offer attractive and competitive rates of return, with a focus on value over volume;
  4. A culture of performance and productivity that emphasizes Inclusion and Diversity, as “the way” to bring out the best from everyone in our organization.

Now, shifting to our view on oil and gas markets;

Starting with Oil: We (similar to many if not most of the discussions I’ve heard this week) expect a balanced market in 2017 for the 1st time in nearly 3 years. And as we look ahead to the 2020’s we see compelling market fundamentals.

We estimate that by 2025, based on ~1%/annum global demand growth, and 3 to 4% natural field declines, the world will need New Oil Supply of approximately 30 million barrels of oil per day, a staggering 1/3 of current global demand.

Oil shale plays a part in filling the gap, but is not enough.

We think the core oil shale positions, the sweet spots are likely to be developed 1st and fairly rapidly over the next 5 to 7 years. Away from the sweet spots, oil shale development is inevitably higher on the cost curve and typically a lot gassier.

Growth from Core OPEC is also required, but again is not enough on its own to meet demand.

Just yesterday, the International Energy Agency released its “Oil 2017” report. Its annual medium-term oil market outlook – containing market forecasts to 2022. Overall it sees the ‘call on OPEC’ rising from 32.2mb/d in 2016 to 34.3mb/d in 2020 to 35.8m/d in 2022. And the executive summary concludes: “…more investment is needed in oil production capacity to avoid the risk of a sharp increase in oil prices towards the end of our outlook period.”

Although not certain, we generally agree new Conventional production will be needed.

Now, Deepwater is high risk / high reward.  It is less compete-able than shale.

Here is where we see significant opportunity.

We believe top tier players who are particularly good at deep-water exploration and development can develop superior margins and value. But, being “competitive for capital” requires not only good geology, geoscience and engineering, to de-risk plays and prospects it also requires attractive, competitive and stable fiscal terms that offer a reasonable, risk considered, return on investment. Cost and capital efficiency are increasingly important and will play as key a role in deepwater as they have in lowering breakeven prices in shale.

Shifting to Gas:

We believe North American Gas markets are likely to be well supplied for the next several decades. Despite a strong demand growth outlook, given resource abundance and ease of access, we see a relatively flat cost curve. Now it is not “only about” making money. We also recognize the need to reduce the impact of climate change.

At BHP Billiton we believe the world wants and needs low cost reliable energy, and that energy will largely come from fossil fuels in the 1st half of this century. We also believe in the science of climate change and that Greenhouse Gas emissions need to be reduced.

This changes the way we invest.

We are reducing our own emissions and, we are investing through partnerships with industry, governments and academia to accelerate development of low-emissions technologies and to advance commercial scale carbon capture and storage.

In conclusion:

We believe market fundamentals are strong.

And we believe our strategy based on:

  1. Tier 1 Assets
  2. Operational Excellence
  3. Effective Capital Allocation
  4. And an Inclusive, Diverse, High Performance Culture

Positions us well for the future.

This work must coexist with our sustainability goals and put us on a path to limit climate change.

So, thank you for the opportunity to share our views.

And I thank my colleagues for their industry leading contributions.

Thank you.