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Deepwater The Future of the Oil and Gas Industry

Deepwater The Future of the Oil and Gas Industry. Claiborne P. Deming President & CEO September 23, 2002. Today’s Agenda…. The Demand Story The Supply Challenge The Deepwater’s Role Murphy Oil and the Deepwater. The Stage is Set…. Year 2000. 400. United States .

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Deepwater The Future of the Oil and Gas Industry

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  1. Deepwater The Future of the Oil and Gas Industry Claiborne P. Deming President & CEO September 23, 2002

  2. Today’s Agenda… • The Demand Story • The Supply Challenge • The Deepwater’s Role • Murphy Oil and the Deepwater

  3. The Stage is Set…. Year 2000 400 United States  Energy Consumption per Capita (Million Btu’s) Australia  New Zealand  200 Korea   Western Europe /Japan  Venezuela  Thailand    Latin America • China   • India 0 $100 $1,000 $10,000 $100,000 GDP per Capita Source: IEA/CIA

  4. Crude Oil Demand will Grow Substantially Crude Oil Demand 100 MBD 90 MBD +1.4 Russia +0.9 Europe +2.3 North America +1.3 M.East 80 MBD +5.4 Asia +0.6 Africa +1.5 South America 70 MBD 60 MBD 1995 1990 2000 2005 2010 Demand is likely unstoppable over the next 20 years Regional Demand Increases (Million BPD 2000 to 2010) Source: PEL/Internal Murphy Analysis

  5. Requiring Tremendous New Production Current Capacity World Crude Capacity 78.8 MBD New Capacity Sources Europe 2.6 Required New Capacity Africa 2.3 S. America/Other 5.3 N. America 5.5 Russia/Caspian 6.6 Other OPEC 7.5 Middle East 16.3 Existing Production after Natural Decline 49.3 2010 World Crude Capacity 95.4 MBD Source: PEL/Internal Murphy Analysis

  6. However, Access to Major Reserves is Limited 676 90 57 21 44 54 Middle East 75 Worldwide Reserves in Billion Barrels Russia/FSU Europe N. America Asia S. America Africa 2000 Total – 1,016 Billion Barrels (Non-OPEC – 214 Billion Barrels) Source: Wood MacKenzie

  7. Middle East – Difficult for Outsiders Projected Capacity Growth of Middle East • Controlled by NOC’s • Marked by War’s, Embargoes, Government Instability • 10% Return Contracts ( when offered) The Middle East will remain world’s largest oil producer and exporter, however it is closed to majority of our industry Source: PEL

  8. Russia/Caspian Region is Growing, but… Russia/Caspian Production Forecast • Investment returns to date are negative • Legal/Contractual System is tenuous • Transport costs can exceed $5.00/Bbl Requires immense capital and regional clout – Only the SuperMajors can operate successfully Source: PEL

  9. North America is Mature North American Production Forecast (Does not include Deepwater) • Most heavily drilled region in the world • Massive capital required just to maintain current production • Remaining high potential areas are off-limits North America will not supply the world’s growing demand Data Source: PEL

  10. Unconventional Sources are not the Answer Full-Cycle Cost Comparison • Reserves are immense (Est. at 3 trillion Barrels) • Full-Cycle costs are high • Processing is energy intensive/produces large quantities of CO2 Source: CERA

  11. The Deepwater Offers a Credible Alternative • Reserves and prospectivity are immense • Full cycle returns are now averaging 20% • Technology is driving development costs downward • Safety/Environmental record is exemplary

  12. Deepwater Reserves are Immense 16.0 5.0 14.0 10.0 60 Billion Barrels Angola Nigeria Brazil Others Total US GOM 2000 Discovered Reserves in Billion Barrels 15.0 Source: Wood Mackenzie

  13. Deepwater Production is Growing Production is set to grow by 4 Million barrels per day by 2008 Source: Wood Mackenzie

  14. Deepwater Technology Continues to Improve • FPSO’s allow production in depths up to 9,000 feet • Sub-sea tiebacks allow profitable development of smaller reservoirs • Deep and extended reach drilling exploit entire reservoir

  15. And is Decreasing Costs Capex/boe Average Field Water Depth • Development costs have decreased by almost 50% since 1990 - even as we go deeper and deeper • Full-Cycle returns now average 20% Source: Wood Mackenzie

  16. Safety Record is Improving • Even though we are producing and drilling more, the actual number of accidents is declining and the incident rate is decreasing rapidly Source: MMS

  17. Oil Spills Have Declined Dramatically • Even with more wells being drilled and more production coming online, the actual spill rate and incident rate are both declining Source: MMS

  18. Future Deepwater Growth Potential Exploration/Growth Potential of Major Deepwater Basins Remaining Exploration Potential Low High • Growing • Nigeria • Gulf of Mexico • Equatorial Guinea • Angola • Emerging • Egypt • Malaysia • Gabon • GOM Ultra-deep • Black Sea/Caspian • Maturing • Congo • Brazil

  19. Current and Projected Deepwater Growth Deepwater Production (Bbl/d) Deepwater Production CAGR 2002-2007 Petrobras 1,100,000 12% Shell 780,000 5% BP 550,000 20% ExxonMobil 220,000 24% ChevronTexaco 150,000 22% TotalFinaElf 100,000 35% ConocoPhillips 25,000 10% Murphy <10,000 35% Source: Deutsche Bank

  20. The Keys to Success in the Deepwater • Build the right skill-set • Encourage and reward exploration • Think globally and move quickly • Exploit niches created NOC’s / SuperMajors

  21. The Deepwater and Murphy – A Perfect Fit MEDUSA Block K HABANERO Block H FRONT RUNNER • Gulf of Mexico Deepwater • 30% success rate • Medusa, Frontrunner are the cornerstones of a growing presence • Production will reach 75,000 bbl/d by 2005 • Deepwater Malaysia • 500 MMbbl potential • Low cost- $6.50/bbl all in • Murphy has 7 Million acres under lease

  22. The Deepwater and Murphy – A Perfect Fit MBOE / D 200 Deepwater GOM Production 150 100 50 0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 + Deepwater Malaysia Production

  23. Conclusion • Demand growth is likely unstoppable through 2020 • Most of the remaining reserves are either high-cost or located in unfriendly regions • The deepwater is open and offers tremendous growth and prospectivity • Murphy Oil has the skill-set and vision to become a leader in the Deepwater

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