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  Energy Consumption per Capita (Million Btu’s) Australia  New Zealand  Korea  400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 $100 $1,000 $10,000 $100,000 200   Venezuela  Thailand  Western Europe /Japan   China India    Latin America  0 $100 $1,000 $10,000 GDP per Capita Source: IEA/CIA $100,000 Crude Oil Demand will Grow Substantially Demand is likely unstoppable over the next 20 years Crude Oil Demand Regional Demand Increases (Million BPD 2000 to 2010) 100 MBD +0.9 Europe +1.4 Russia 90 MBD +2.3 North America +1.3 M.East +0.6 Africa +5.4 Asia 80 MBD +1.5 South America 70 MBD 60 MBD 1990 Source: PEL/Internal Murphy Analysis 1995 2000 2005 2010 Requiring Tremendous New Production 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 Current Capacity Existing Production after Natural Decline 49.3 World Crude Capacity 78.8 MBD Source: PEL/Internal Murphy Analysis 2010 World Crude Capacity 95.4 MBD However, Access to Major Reserves is Limited Worldwide Reserves in Billion Barrels Russia/FSU 21 Europe 676 Middle East 44 75 57 N. America 54 Asia S. America 90 Africa 2000 Total – 1,016 Billion Barrels Source: Wood MacKenzie (Non-OPEC – 214 Billion Barrels) Middle East – Difficult for Outsiders Projected Capacity Growth of Middle East Annual Production (MBPD)  Controlled by NOC’s  Marked by War’s, Embargoes, Government Instability  10% Return Contracts ( when offered) 40 30 20 10 0 2000 2005E 2010E The Middle East will remain world’s largest oil producer and exporter, however it is closed to majority of our industry Source: PEL Russia/Caspian Production Forecast Annual Production (MBPD) Russia/Caspian Region is Growing, but…  Investment returns to date are negative  Legal/Contractual System is tenuous  Transport costs can exceed $5.00/Bbl 12 10 8 6 4 2 0 1990 1995 2000 2005E 2010E Requires immense capital and regional clout – Only the SuperMajors can operate successfully Source: PEL North America is Mature North American Production Forecast (Does not include Deepwater) Annual Production (MBPD) 15 12 9 6 3 0 1990 1995 2000 2005E 2010E Mexico US Production Canadian Production  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 Full-Cycle Cost Comparison Full Cycle Cost $/BOE $14 $12 $10 $8 $6 $4 $2 $0 Unconventional Sources are not the Answer  Reserves are immense (Est. at 3 trillion Barrels)  Full-Cycle costs are high  Processing is energy intensive/produces large quantities of CO2 ia n as t us s at e ds ee p C O il O ri no as p R Sa n w co ia r D M id Source: CERA dl e E 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 Deepwater Reserves are Immense 2000 Discovered Reserves in Billion Barrels 15.0 14.0 Brazil 10.0 Angola 5.0 Nigeria 16.0 60 Billion Barrels Total US GOM Source: Wood Mackenzie Others Deepwater Production is Growing Annual Production (MBPD) Production is set to grow by 4 Million barrels per day by 2008 8 7 6 5 4 3 2 1 0 1998 2000 GOM Source: Wood Mackenzie 2002 Brazil 2004 Angola 2006 Nigeria 2008 Others 2010 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 And is Decreasing Costs Capex/boe $/BOE $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 1990 1995 2000 2005E 2010E Water Depth (ft) 1,200 1,000 800 600 400 200 0 Average Field Water Depth 1990 1995 2000 2005E 2010E  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 Safety Record is Improving Recordable Injury/Illness Incident Rate 6.0 5.0 4.0 3.0 2.0 1.0 0.0 3.39 3.02 3.38 2.27 1.97 1996 1997 1998 1999 2000  Even though we are producing and drilling more, the actual number of accidents is declining and the incident rate is decreasing rapidly Source: MMS Oil Spill Incident Rate Incident Rate 3.0 Oil Spills Have Declined Dramatically 2.0 1.46 1.0 0.44 0.0 1996 1997 1998 1999 2000 0.27 1.54 1.00  Even with more wells being drilled and more production coming online, the actual spill rate and incident rate are both declining Source: MMS Future Deepwater Growth Potential Exploration/Growth Potential of Major Deepwater Basins Low Remaining Exploration Potential High Maturing • Congo • Brazil Growing • Nigeria • Gulf of Mexico Emerging • Egypt • Malaysia • Equatorial Guinea • Angola • Gabon • GOM Ultra-deep • Black Sea/Caspian Current and Projected Deepwater Growth Deepwater Production (Bbl/d) Deepwater Production CAGR 2002-2007 Petrobras Shell BP ExxonMobil ChevronTexaco TotalFinaElf ConocoPhillips Murphy 1,100,000 780,000 550,000 220,000 150,000 100,000 25,000 <10,000 12% 5% 20% 24% 22% 35% 10% 35% 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 The Deepwater and Murphy – A Perfect Fit MEDUSA HABANERO Gulf of Mexico Deepwater  30% success rate  Medusa, Frontrunner are the cornerstones of a growing presence  Production will reach 75,000 FRONT RUNNER bbl/d by 2005 Deepwater Malaysia  500 MMbbl potential  Low cost- $6.50/bbl all in  Murphy has 7 Million Block K Block H acres under lease The Deepwater and Murphy – A Perfect Fit MBOE / D 200 Deepwater GOM Production 150 100 + Deepwater Malaysia Production 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 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