Bhp Group Ltd · ASX:BHP
Bhp — BHP Billiton — Investor Presentation (November 2011)
58 slides from Bhp's investor presentation, Nov 14, 2011
Slide 1: BHP Billiton Petroleum Onshore US shale briefing
BHP Billiton Petroleum Onshore US shale briefing J. Michael Yeager Group Executive and Chief Executive, Petroleum 14 November 2011
Slide 2: Disclaimer
Disclaimer Reliance on Third Party Information The views expressed here contain information that has been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. This
Slide 3: Petroleum briefing agenda
Petroleum briefing agenda § Introduction § Part 1: Technical overview of the shale industry § Part 2: Business update J. Michael Yeager, Group Executive and Chief Executive, Petroleum, 14 November 2011 Slide 3
Slide 4: 7th largest independent upstream oil and gas company by total resource
7th largest independent upstream oil and gas company by total resource Liverpool Bay Fayetteville, Haynesville, Eagle Ford ROD Zamzama Angostura Shenzi Neptune Atlantis Mad Dog North West Shelf Pyrenees Stybarrow Bass Strait Minerva J. Michael Yeager, Group Executive and Chief Executive, Petroleum,
Slide 5: Outstanding safety performance
Outstanding safety performance Petroleum conventional business safety performance (Number of incidents) (TRIF) 50 5 Recordable incidents Total recordable injury frequency (TRIF) 40 4 30 3 20 2 10 1 0 0 FY06 FY07 FY08 FY09 FY10 FY11 Q1 FY12 J. Michael Yeager, Group Executive and Chief Executive, Petr
Slide 6: Strong production growth
Strong production growth 1st back to work in the Gulf of Mexico Production volumes (Net, Mboe/d) 450 400 350 300 250 200 FY07 FY08 FY09 FY10 FY11 J. Michael Yeager, Group Executive and Chief Executive, Petroleum, 14 November 2011 Slide 6
Slide 7: Part 1: Technical overview of the shale industry
Part 1: Technical overview of the shale industry J. Michael Yeager Group Executive and Chief Executive, Petroleum 14 November 2011
Slide 8: Conventional versus unconventional oil and gas reservoirs
Conventional versus unconventional oil and gas reservoirs § Conventional reservoirs have Schematic geology of natural gas resources sufficient porosity and permeability to allow oil and gas to flow through the rock matrix § The pore spaces in shale reservoirs are significantly smaller and more restr
Slide 9: Extracting shale resources
Extracting shale resources Impact of hydraulic fracturing (Cumulative production, MMcf) Current 10,000 technology 4-year old 7,500 technology 5,000 2,500 No hydraulic 0 fracturing 0 10 20 30 40 50 (Years) § To produce profitably, most shale reservoirs require both horizontal drilling and hydraulic f
Slide 10: Advancements in technology
Advancements in technology First commercial Technology Development of Initial development of US shale gas US natural gas developed to lay large downhole motors the Barnett shale play production rapidly well produces diameter pipelines – accelerates – key in Fort Worth, Texas increases as technology
Slide 11: Short development timeline from site preparation to production
Short development timeline from site preparation to production Preparation Hydraulic Drilling Production of the site fracturing 2-4 weeks 2-4 weeks 2-4 weeks Decades J. Michael Yeager, Group Executive and Chief Executive, Petroleum, 14 November 2011 Slide 11
Slide 12: Preparation of the site
Preparation of the site § Setting up a well site takes 2-4 weeks and includes: – Construction of roads for the transport of heavy equipment such as the drill rig – Levelling of the site – Structures for erosion control – Construction of lined pits to hold drilling fluids and drill cuttings – Placeme
Slide 13: Routine drilling operations
Routine drilling operations § The well construction process is started by drilling a Schematic of horizontal drilling 20 inch+ diameter hole to a depth of ~100 feet and through a shale formation installing conductor pipe which is cemented back to surface § Drilling is continued vertically to a depth
Slide 14: Hydraulic fracturing – the process
Hydraulic fracturing – the process 1. The horizontal section of the wellbore is perforated with explosive charges, thousands of feet underground within the target zone of the shale formation 2. The perforation tunnels that are created provide communication from the wellbore to the shale formation 3.
Slide 15: Hydraulic fracturing – the process
Hydraulic fracturing – the process 4. Fractures are created and expanded through the pumping process and are kept open by the proppant 5. The fracturing and pumping process is repeated at multiple intervals of the wellbore – after each stage a plug is installed to provide isolation from the previous
Slide 16: Hydraulic fracturing – equipment and product intensive
Hydraulic fracturing – equipment and product intensive § Surface fracturing equipment consists of Example of surface equipment used for multiple pumping units, blending units, hydraulic fracturing operations control units, and adequate supplies of fracture fluid and proppant material § Supplies are
Slide 17: Minimal environmental impact
Minimal environmental impact § The initial footprint is minimised by drilling Producing shale gas well as many wells together from one location as possible, referred to as ‘pad drilling’ § When drilling is completed, the land is restored to its original condition § The production phase creates far l
Slide 18: Sustainable development of shale resources
Sustainable development of shale resources Positive impacts § Energy security for the US § Employment opportunities § Lower carbon emissions though coal substitution § Attractive landowner mineral rights Areas of concern § Quantity of water used for hydraulic fracturing § Chemicals used in hydraulic
Slide 19: Efficient water usage compared to many alternate forms of energy
Efficient water usage compared to many alternate forms of energy § Water is critical to shale gas development, Shale gas plays and population density in specifically for hydraulic fracing the US – Confined to the drilling phase, this does not represent a long term requirement § Withdrawals from lake
Slide 20: Chemicals represent a minor component of the hydraulic fracturing mixture
Chemicals represent a minor component of the hydraulic fracturing mixture Typical composition of a shale fracturing mixture § Hydraulic fracing mixtures are typically 99.5% water and sand – Chemical additives are required to enable proppant transport and to prevent damage to the producing zone § BHP
Slide 21: Multiple barriers protect aquifers
Multiple barriers protect aquifers § The horizontal section where the Schematic of hydraulic fracturing operations fractures are created is generally over relative to aquifers and groundwater a mile deeper than any aquifer § As with all oil and gas operations, the well bore is isolated from the surr
Slide 22: Shale versus Coal Bed Methane (CBM)
Shale versus Coal Bed Methane (CBM) § CBM developments are typically much shallower than shale, creating a greater potential for interaction with groundwater resources § Significant amounts of water are produced when coal seam is depressurised to release the gas § Landowners in US shale developments
Slide 23: Safe operations ensure protection of groundwater
Safe operations ensure protection of groundwater § All oil and gas operations involve the disposal of liquids that must be properly managed § Shale gas production involves the disposal of moderate volumes of water brought up with natural gas during the production process § Water disposal options inc
Slide 24: Taking a prudent approach to address concerns relating to seismic activity
Taking a prudent approach to address concerns relating to seismic activity § Water disposal via deep underground injection has been cited as a potential cause of seismic activity, particularly when injection occurs near to faults § Reviews by scientists at regulatory agencies have been inconclusive
Slide 25: Other impacts on local populations
Other impacts on local populations § Local impacts (such as land disruption, air quality changes, wildlife issues and noise disturbance) occur during the drilling phase, which lasts only a few weeks § BHP Billiton complies with all environmental regulations, maintains rigid internal processes and ac
Slide 26: Natural gas is a clean and efficient energy source
Natural gas is a clean and efficient energy source § When reasonable assumptions about industry practices are made, studies agree that in the long term there is a net benefit in moving from coal to gas § As a corporation, our goal is to reduce our greenhouse gas emissions by using clean fuels and by
Slide 27: Key messages
Key messages § Hydraulic fracing is essential for shale development and is a routine process that has been used for more than 60 years § We will develop our shale assets in line with our values that we will protect people, the environment and the communities in which we operate § We engage regularly
Slide 28: Part 2: Business update
Part 2: Business update J. Michael Yeager Group Executive and Chief Executive, Petroleum 14 November 2011
Slide 29: Agenda
Agenda § US shale overview § BHP Billiton’s shale assets § Business outlook J. Michael Yeager, Group Executive and Chief Executive, Petroleum, 14 November 2011 Slide 29
Slide 30: What makes US shale work?
What makes US shale work? Attractive Rig and geology Large US gas services market availability Low population Extensive density in pipeline development network areas Attractive Landowners as fiscal terms royalty owners Supportive regulators Not all shales have this combination of favourable characte
Slide 31: Increasing transparency and knowledge is leading to greater acceptance of shale
Increasing transparency and knowledge is leading to greater acceptance of shale § Continued positive movement of support for development § Strong state support due to jobs, taxes and carbon reduction § Supply dependability key to new long term demand § Increases US energy self sufficiency for the lo
Slide 32: Significant ramp up in onshore US shale
Significant ramp up in onshore US shale Production (Bcfd) 7 Haynesville 6 5 Barnett 4 Marcellus 3 Fayetteville 2 Eagle Ford 1 0 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Source: Wood Mackenzie. J. Michael Yeager, Group Executive and Chief Executive, Petroleum, 14 November 2011 Slide 32
Slide 33: Shale gas forecast to contribute half of US supply by 2020
Shale gas forecast to contribute half of US supply by 2020 US natural gas demand § Shale gas has fundamentally (Bcfd) altered the supply mix 100 Power Non power 80 § Increased dependability attracts 60 customers and regulatory support 40 § Natural gas is a preferred fuel in a 20 low carbon world 0 2
Slide 34: What BHP Billiton brings to the table
What BHP Billiton brings to the table § Functional excellence approach: – Systematic improvement to drilling/hydraulic fracturing – Long term technology gains – Scale and leverage to service delivery § Financial ability to do more now and to take a long term approach § Managerial approach to run fou
Slide 35: Agenda
Agenda § US shale overview § BHP Billiton’s shale assets § Business outlook J. Michael Yeager, Group Executive and Chief Executive, Petroleum, 14 November 2011 Slide 35
Slide 36: Capturing a significant resource position
Capturing a significant resource position § Four extremely large and concentrated acreage positions § Core positions in each field § Long-life, expandable production base § Attractive position on the cost/returns curve, offering strong economic returns and payback Liquids area Dry gas area § Proximi
Slide 37: Fayetteville – progressing ramp up
Fayetteville – progressing ramp up Individual well economics Van Buren Cleburne Initial production 3.1 MMcfd EUR 3.2 Bcf Pope D&C cost US$3.5 million White Rate of return 16% Conway Field outline Based on November 2011 NYMEX prices. Faulker BHP Billiton interests Operated acreage § Second largest pr
Slide 38: Eagle Ford offers the highest economic returns of all US shales
Eagle Ford offers the highest economic returns of all US shales Isopach map net porosity >9% § Petrohawk drilled the first commercial well in the Eagle Ford play in 2008 – captured key acreage Black Hawk § Rated as the lowest cost play among North American shales in the liquids rich regions1 § Attra
Slide 39: Hawkville has the thickest pay in the Eagle Ford
Hawkville has the thickest pay in the Eagle Ford Equivalent EUR (Bcfe) Individual well economics (rich gas) Initial 5 MMcfd gas 0 Bcfe 10 Bcfe production 613 bbl/d condensate 24,500 ft EUR 2.5 Bcf gas 250 Mbbl NGL 195 Mbbl condensate D&C cost US$8.8 million Rate of return 43% Based on November 2011
Slide 40: Black Hawk in economic sweet spot of the play
Black Hawk in economic sweet spot of the play Equivalent EUR § Black Hawk produces the highest value product mix in our (Bcfe) shale portfolio 0 Bcf 10 Bcf § High liquid content substantially improves individual well 25,500 ft economics § Liquids pipeline available end FY12 (via third party) § 58,30
Slide 41: Haynesville is now the highest producing shale play in the US
Haynesville is now the highest producing shale play in the US Production (Bcfd) 7 Haynesville 6 5 Barnett 4 Marcellus 3 Fayetteville 2 Eagle Ford 1 0 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Source: Wood Mackenzie. J. Michael Yeager, Group Executive and Chief Executive, Petroleum, 14
Slide 42: Haynesville is the highest producing gas field in the US
Haynesville is the highest producing gas field in the US Haynesville shale EUR contour map § BHP Billiton has the largest amount of the best acreage in the highest producing gas field in the US 8 Bcf – Strong acreage position with 345,000 net acres in the 4 Bcf Haynesville and Lower Bossier – Core o
Slide 43: Higher EUR with rate management
Higher EUR with rate management Gas production § Petrohawk pioneered the use of rate (MMcfd) management in the Haynesville 15 Restricted well Non-restricted well § Choking back wells during initial 10 production increases ultimate well recovery 5 § Holding more back pressure keeps 0 fractures open l
Slide 44: Permian Basin provides prospective oil opportunities
Permian Basin provides prospective oil opportunities § 481 rigs currently drilling industry wide in the Permian Basin North Midland § Recent entry into a new liquid rich core Basin shale area with the acquisition of 325,000 net acres at 86% average operated working interest1 South Delaware Midland B
Slide 45: High quality shale portfolio
High quality shale portfolio Field Advantages Opportunities § Low cost development § Rig ramp up Fayetteville § Shallow/brittle § Scale/leverage § Liquids rich § Rig ramp up Eagle Ford § Industry best field acreage § Reduced well spacing § Largest core acreage holder § Controlled rig ramp up Haynesv
Slide 46: Agenda
Agenda § US shale overview § BHP Billiton’s shale assets § Business outlook J. Michael Yeager, Group Executive and Chief Executive, Petroleum, 14 November 2011 Slide 46
Slide 47: Shale offers the ability to rapidly increase volumes and earnings over the long term
Shale offers the ability to rapidly increase volumes and earnings over the long term Conventional Feature Shale Yes Geologic risk No 5+ years 1st production Months Years Payback Months Limited Flexibility Significant Shenzi Limited Expandability Substantial Eagle Ford well § Conventional oil and gas
Slide 48: Shale value chain
Shale value chain Wet gas Dry gas (midstream) Gas processing Natural gas Processing liquids (NGL) Crude and condensate Wells Separation Stock tanks § Production is gathered in flow lines and mineral owners take a percentage of production as a royalty § Crude and condensate are separated from wet gas
Slide 49: Components of Onshore US shale profitability
Components of Onshore US shale profitability Revenue § Gas revenue § Liquids revenue § Third party gathering Cash costs § Transportation § Gathering and processing § Midstream operating costs § Upstream operating costs § Secondary taxes Non-cash costs § Acquisition amortisation § Capital depreciatio
Slide 50: Onshore US shale cash and performance analysis
Onshore US shale cash and performance analysis § FY12 production target of 545 Bcfe (or 90 MMboe) including partial year Petrohawk § Liquids component approximately 10% and rising with rig ramp up in the Eagle Ford § Liquids and midstream uplift growing from US$1.20-1.70/Mcfe over the next two years
Slide 51: Long term plans yield significant improvements
Long term plans yield significant improvements FY12 impacted by short term items § Early stage of liquids development § Retention programs for Petrohawk staff § Major systems costs for land, revenue accounting, etc § Excess transport capacity fees to secure future production Sources of improvement §
Slide 52: Market indicates that prices will rise
Market indicates that prices will rise NYMEX natural gas futures § Gas demand growth with (1 November 2011, US$/MMbtu nominal) dependability of supply 7 § Higher cost of new developments, even in the same field 6 § Lower gas drilling activity – Held by production (HBP) declining, lowering the US rig
Slide 53: Onshore US shale outlook
Onshore US shale outlook Forecast production rates (excluding Permian) Forecast capital spend (Net, Bcfe/d) (Net, real, US$ billion) 8 7 1,000 + 7 Mboe/d 6 6 5 5 600 + 4 4 Mboe/d 3 3 250 2 2 Mboe/d 1 1 0 0 FY12F FY15F FY20F FY12F FY15F FY20F Note: FY12 guidance reflects ownership of Petrohawk assets
Slide 54: Onshore US shale is an excellent strategic fit for BHP Billiton
Onshore US shale is an excellent strategic fit for BHP Billiton § World class accessible resource, material to BHP Billiton – Large, long-life, low cost, with significant future development § Access to the world’s largest gas market § Low risk due to adequate production history and extensive delinea
Slide 55: A significant resource position
A significant resource position Combined net risked resources § In a single year BHP Billiton (MMboe) 5.9 billion 11.3 billion Petroleum’s resource base has 12,000 Proved Reserves BOE BOE grown by more than 300% to Non-proved Resource Potential 11 billion barrels of oil equivalent 1.7 billion 6,000
Slide 56: Full Petroleum outlook
Full Petroleum outlook Production rates (Net, Mboe/d) § FY12 volume target of 225 MMboe 2,000 § Onshore US shale combines with major growth projects in Western 1,500 Australia and the Gulf of Mexico § Potential to become a 1 MMboe/d business in less than 5 years 1,000 § Sustained growth through the
Slide 57: Key messages
Key messages § BHP Billiton has captured key positions in four of the largest, highest value US shale gas/oil fields, each with unique advantages § Shale economics strengthened by premium geology and liquids content § Rig ramp up in quality reservoirs underpins large anticipated volume growth – can
Slide 58: bhpbilliton
édl bhpbilliton resourcing the future