Canadian Association of Petroleum Prodcuers - Canadian Upstream Oil & Natural Gas Industry Overview

1. Canadian Upstream
Oil & Natural Gas
Industry Overview

2. ● CAPP Overview
● Global Context
● Competitiveness
 Crude Oil Market Outlook
 Natural Gas Market Outlook
● Social License
● Summary
Presentation Overview

3. Represents large and small producer member companies
Members explore for, develop and produce natural gas, natural gas
liquids, crude oil, and oil sands throughout Canada
Produce about 90 per cent of Canada’s natural gas and crude oil
Part of a national industry with revenues of about $100 billion per year
Associate members provide a wide range of services that support the
upstream crude oil and natural gas industry
Canadian Association of Petroleum Producers

4. CAPP’s Strategic Framework
CAPP’s Key
Interfaces
Governments
Regulators
Aboriginals
Local
Communities
Public
Media
Stakeholders
Other
Industries
Other
Associations
Key Influencers
- Academia
- Think Tanks
- NGOs
“3E’s”
-EnvironmentalPerformance
-EconomicGrowth
-EnergySecurity&Reliability
Key Focus
Areas
Education
Policy &
Regulatory
Advocacy
Industry
Performance
Improvement
Scope
Upstream Oil & Gas Sector
Canada (Primary), U.S. (Secondary), International (Some)
Environmental &
Social
Economic/Fiscal
Markets
Health & Safety
DeliveringResults
Competitiveness
Fiscal
Environmental Policy
& Regulation
Market Access &
Growth
Pipeline Tolls
Aboriginal
Consultation
Workforce
Safety
Canadian Energy
Framework
Social License to Develop
& Operate
Performance
Communications &
Outreach
Strategic
Priorities
Communications
& Outreach

5. Global Primary Energy Demand
IEA New Policies Scenario
• Significant energy
demand growth:
 Population
 Standards of living
• Need all forms of
energy:
 Increasing role for
renewables
 Continuing reliance on
hydrocarbons
 Increasing role for
unconventional crude oil &
natural gas
• Environmental
challenges.
• Technology is a key
lever for sustainable
growth. 0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2010 2015 2020 2025 2030 2035
million tonnes oil equivalent
Other Renewables
Bioenergy
Hydro
Nuclear
Natural Gas
Oil
Coal
Source: International Energy Agency World Energy Outlook 2012
Fossil fuels share of
energy consumption:
2010: - 81%
2035: - 75%

6. ● Invested ~$60 billion in Canada in 2012
● $21 billion to governments in 2011 (Royalties and Taxes)
● 20% of the value on Toronto Stock Exchange
● Approx. 18% of Canada’s exports
● Employs more than 550,000 in Canada
The Oil and Natural Gas Industry
A Key Driving Force in the Canadian Economy
Upstream Oil
& Gas
Auto
Manufacturing
Forestry
& Logging
Wheat &
Barley
Uranium

7. Upstream O&G Sector – Opportunities & Challenges
Opportunities
 Resource base.
 Production growth potential.
 Market demand.
 Established infrastructure.
 Human resources – skills /
experience.
 Technology and innovation capability.
 Performance track record.
 Political stability.
 Access to capital.
 Broad public support.
Challenges
 Market access.
 Industry reputation:
 Landowner / community;
 Heightened conflict w/ ENGOs.
 Relationships w/ FNs.
 Human resources – capacity.
 Cost escalation.
 Expectations of public markets.
 Media profile.
 Industry collaboration.

8. Source: Cenovus
Crude Oil

9. Global Crude Oil Reserves by Country
26 25 21
30
37
48
80
92
102
141
155
173
265
298
0
50
100
150
200
250
300
Venezuela
SaudiArabia
Canada
Iran
Iraq
Kuw
ait
Abu
Dhabi
Russia
Libya
Nigeria
Kazhakhstan
China
Q
atar
United
States
billionbarrels
Source: Oil & Gas Journal Dec. 2012
Restricted
(81%)
Open to
Private
Sector
Oil Sands
56%
Other
44%
World Oil Reserves
Open to
Private Sector

10. Western Canadian Oil Production – 2012 Forecast

11. 0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
Jan-2005
Jul-2005
Jan-2006
Jul-2006
Jan-2007
Jul-2007
Jan-2008
Jul-2008
Jan-2009
Jul-2009
Jan-2010
Jul-2010
Jan-2011
Jul-2011
Jan-2012
Thousand b/d
Eagle Ford
(Texas)
N. Dakota
SK Light
AB Light
Light/Tight Oil Production
+ 750,000 b/d in 2 years

12. 2011 Canada and U.S. Demand for Crude Oil by Source
Thousand Barrels per Day

13. 0
2
4
6
8
10
12
14
United
States
China Japan Korea India European
Union
mmb/d
Net oil imports in the New Policies Scenario
2005
2011
2020
2035
Changing Global Oil Import Needs
Source: IEA World Energy Outlook 2012, EIA
CURRENT
MARKET
FUTURE MARKETS?

14. Access to Markets – Pipeline Expansions in Development

15. Global Versus U.S. Crude Pricing
-40
-20
0
20
40
60
80
100
120
140
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Differential WTI Brent
• Brent benchmark price used to
price 65% of world’s oil.
• WTI lighter than Brent -
historically traded at a premium.
• Growing disconnect between
landlocked N.A. crude and
globally traded crude such as
Brent.
• Throughout 2011 and 2012, WTI
has traded at a discount to Brent.
• Discount remains in $20US/bbl
range.
• Expected to be alleviated as new
p/l capacity comes on-stream
from Cushing to U.S. Gulf Coast.
US$/bbl
Daily

16. U.S. Versus Canadian Crude Oil Pricing
0
20
40
60
80
100
120
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
WTI @ Cushing
Edm Par
US$/bbl
-40
-20
0
20
40
60
80
100
120
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
Cdn Light/Heavy Diff
WCS @ Hardisty
MSW @ Edm
Cdn$/bbl
• Current differential ~
Edmonton to Cushing
transport cost – near
term p/l constraints
mitigated by rail &
other options.
• Light oil differential
expected to widen as
p/l constraints
become more
problematic.
• Light / heavy
differential
problematic until
new heavy oil p/l
capacity available.

17. WCSB P/L Takeaway Capacity Versus Supply Forecast

18. Western Canada Crude Oil Rail Exports
• Crude oil movement by rail
increased significantly over
short-term.
• Q3/2012 - 70,000 b/d
• Q1/2013 - 120,000 b/d
• Q4/2013 - 200,000 b/d
• ~4% of WCSB production
• Positives
 Potentially improved
margins relative to pipe
 Flexibility to different
markets (e.g., East)
 Less diluent
 Use rail in both
directions
• Negatives:
 Higher transportation
costs

19. Natural Gas

20. North American Natural Gas –
Supply Outlook
• Shale gas supply a
game-changer
…100+ years supply
• Technology success
(horizontal drilling,
fracturing,
completions)
• Implications:
 New producing
regions
 Shifting S / D
dynamics
 Changes in p/ l flows
 Emerging stakeholder
challenges (env. &
social)

21. Canadian Natural Gas Exports, 2012
Impact of Shale Gas on N.A Gas Flows
West
2.5
bcf / d
Mid-West
4.8 bcf / d
Northeast
1.1 bcf / d
LNG
Marcellus
Haynesville,
Fayetteville, etc.
Horn River, Montney
U.S. Rockies
New Supply Areas
Increased Flow
2012 Canadian Exports
8.4 bcf / d
• Existing infrastructure serves N.A.
markets.
• Changing S/D dynamics necessitate
market growth:
• N.A. (transportation, power)
• Exports (LNG for price &
takeaway)

22. Projected Net Natural Gas Imports
(Bcf/d)
0
5
10
15
20
25
30
35
2008 2015 2025 2035
China
India
South Korea
Japan
Source: EIA 2011 International Energy Outlook

23. ● Kitimat LNG (Chevron, Apache)
 1.4 Bcf/d
 Permits received; awaiting investment decision
● BC LNG Export Co-operative
 0.125 Bcf/d
 Permits received
● LNG Canada (Shell, KOGAS, Mitsubishi, PetroChina)
 1.8 Bcf/d
 Feasibility stage; applied for some permits
● Pacific Northwest LNG (Progress/Petronas)
 2.0 Bcf/d (Merger approval granted)
 Completed feasibility, progressing to pre-FEED
● Nexen/Inpex
 Conducting feasibility
● BG Group/Spectra Energy Corp.
 4.2 Bcf/d
 Advancing feasibility and engagement
● AltaGas/Idemitsu Kosan
 0.27 Bcf/d
 Conducting feasibility
Canadian LNG Export Projects in Development
23
Total potential new demand ~ 9.0 Bcf/dInterest expressed by Woodside Petroleum, Imperial Oil /ExxonMobil
and Korea SK E&S. Details not available.

24. Asian Markets Represent an Attractive
Export Option
$/MMbtu
2012 Japanese LNG Price

25. Global Competition……
Active and Emerging LNG Exporting Countries
Canada needs to
develop its LNG
export potential
expediently to
compete globally.

26. Canadian Production – Market Constrained Case and
New Market Opportunity Case
26
Eastern Canada
CBM
Western Canada
Unconventional
Western Canada
Conventional
Market
Constrained
Case
New Market
Opportunity
Case

27. CAPP’s Social License Framework
Social License = Performance + Communication
● Performance:
 Continuous environmental & social performance improvement (across the
value chain)…..including monitoring, timely & transparent reporting.
 “What’s in it for me?”……line of sight to jobs and economic benefits.
 Robust regulatory system.
 Solutions-oriented advocacy for balanced policy and regulation.
● Communications & Outreach:
 Sustained communications grounded in performance improvement:
• Fact-based & emotive messaging……not apologetic or defensive.
• Delivered via diversity of mediums, approaches, spokespersons.
 Strong focus on outreach & engagement - local / regional (must include
Aboriginals) and national / international.
● New challenges for industry – requires leadership & collaboration

28. Public Perceptions –
Shale Gas Development
• “Frac fluids contain
dangerous chemicals
that aren’t disclosed
to public”
Disclosure
• “Fracking can have
adverse effects on
drinking water”
Water Quality
• “Fracking uses
enormous amounts
of water”
Water
Quantity
• “Fracking &
associated waste-
water disposal cause
earthquakes”
Seismicity

29. CAPP Hydraulic Fracturing Principles & Operating
Practices

30. Improving Environmental Performance
● Accelerating environmental technology &
innovation in the oil sands:
 Canadian Oil Sands Innovation Alliance (COSIA)
 Focus on water, tailings, land, GHGs
● Alternatives to reduce the need for both
water and energy (steam):
 Cogeneration – steam and electric power
 Solvent / steam injection
 Alternative well configurations for SAGD
 Reduce water temperature 80 to 35 degrees Celsius
 Electro-thermal technology
 Carbon Capture & Storage
● Reducing water use, increasing water
recycle:
 Use of saline (non-fresh) water for steam
 Faster waste water recycle
 Water technology development centre
Ceramic membranes for water treatment

31. Full-cycle GHG Emissions
Oil Sands & U.S. Refined Crudes
0 100 200 300 400 500 600
Avg US Barrel Refined in the
U.S. (2005)
Most Recent Oil Sands Mining
Most Recent Oil Sands In Situ
kgCO2eper barrelof refined product
Well-to-tank
Refined product
Combustion
Source: IHSCERA Oil Sands Dialogue Getting the Numbers Right 2012
+5%
U.S. Barrel Refined in
the U.S. (2005)
+2%

32. In Context….N.A. GHG Emissions (2011) -
Coal-fired Power Plants & Oil Sands
0-15 mtonnes
16-50 mtonnes
51-100+ mtonnes
Legend
U.S. Coal fired power
generating plants
Canadian coal-fired power
generating plants
Canadian oil sands
Sources: U.S. DOE/EIA & Environment Canada
GA
TX
NC
MI
AL
MO
KY
IN OH
NE
NM
ND
CO
SC
KS
IA
TN
WY
VA
MN
UT
OK
WI
AZ
AR
AK
LA
IL
NV
OR
MT
SD
NJ
NY
NH
MS
WV
FL

33. 2013+ Strategic Direction –
Communications & Outreach
2013 Strategic Direction
 Communications remains a strategic priority for 2013 – key
determinant in maintaining broad public / public policy support.
 Build on success of current “Air Campaign”.
 Implement a targeted “Ground Campaign” in key jurisdictions in
support of market access.
 Integrate across the value chain.
33
Reputation/ Social
License
Performance Communication =+

34. Public Opinion Polling – Natural Gas & Oil Sands
34
“For each of the following types of energy, please indicate if your overall feelings are very negative,
negative, neutral, positive, or very positive.”

35. CAPP Advertisement - Prevost

36. CAPP Advertisement – Water Monitoring

37. CAPP Advertisement – Natural Gas Exports

38. The Way Forward
● Opportunities
 Market demand.
 Competitive supply.
 Build on strong foundation.
● Key Challenges
 Market access / infrastructure dvm’t.
 Social license.
● Industry Social License
 Performance + Communication.
 Must be earned (every day!).
 Key levers:
• Technology & innovation.
• Collaboration (within sector,
along value chain, w/ aligned
interests).
● “A Marathon, Not a Sprint”

40. Appendix Slides

41. Project Type Project Size
(bbl/d)
Capital Cost
Range
$MM
Estimated
Supply Costs
$US WTI/bbl
In Situ SAGD 30,000 $750 – 1,500 $50 - $78
Standalone
mine
100,000 $5,500 – 7,500 $70 - $91
Oil Sands Supply Costs
41
Source: ERCB ST98 - 2012

42. Connecting to World Market
Cushing, OK to US Gulf Coast – Capacity and Timing

43. ● Canada’s natural gas production less constrained by
resource base more constrained by market
● Growing US gas production means more competition for
traditional markets (less US Exports & Greater US Imports)
● Canadian gas production projected under two scenarios
● Scenario 1: Market Constrained
 No LNG Export Development
 Little New Gas-Fired Power Generation added in Ontario post 2012
 Limited Growth in NGV market
● Scenario 2: New Market Opportunities
 LNG Exports – 1 train of 5 mtpa in 2018, 5 such trains by 2023
 Natural Gas replaces some Nuclear Power Refurbishment in Ontario
Power Generation
 Higher Growth in NGV Market
Canadian Natural Gas Outlook 2013 to 2030
43

44. 44
“General Public”
Policy-makers
Key Influencers
Current focus:
Air Campaign
Added focus:
Ground Campaign Opinion Leaders
Key Elements Of The Plan – Expanding Our Audiences
Current focus: Upstream Social License
Added focus: Market Access Social License