PEAK OILHow does the theory of declining global oil production affect

the large integrated oil companies?

Chris Tringham | Dan Fisico

FADING INDUSTRY?

•Cheaper alternatives

•Higher prices

•Government intervention

•UK April 1 petrol duty increased, $1.89 per litre

WHAT IS IT?

• Peak oil theory

• Proposed by Dr. Hubbert in 1956

• Predicted US production would peak in 1970

• Replacement rate not sufficient (<1)

HUBBERT CURVE

PROVE IT

* Bespoke Investment Group

MEXICAN OIL

FORECAST

CHINESE AUTO SALES

* International Energy Agency Key Stats 2009 Report

* International Energy Agency Key Stats 2009 Report

THE ‘SUPERMAJORS’

THE MULTINATIONAL ENTERPRISES

NGO’s

Supermajors• ExxonMobil• Royal Dutch Shell• British Petroleum (BP)• Chevron• Conoco Phillips• Total S.A.

OECD

Government Owned

Non “OECD” companies• Saudi Aramco (Saudi Arabia)• JSC Gazprom (Russia)• CNPC (China)• NIOC (Iran)• PDVSA (Venezuela)• Petrobras (Brazil)• Petronas (Malaysia)OPEC

MNE ACTIONS

• NGO’s have condensed as companies merge to benefit from economies of scale and hedge price volatility

• Diversification and shift of core competencies

•Renewable energy developments

•New extraction technologies

•Development of alternate fuel sources (biofuels, ethanol)

• Prevailing importance of lobbying

STRATEGIC DECISIONS• Resource seeking

–Resources becoming more scarce, looking for new deposits – prevailing strategy

• Strategic asset seeking

–Companies favour locations because they benefit from government support. Ex. China in Africa

• Efficiency seeking

–Development of more efficient extraction technologies and methods

• Positive Impacts

•Encouraging the development of cleaner alternative sources of energy

•Developing new technologies that can have applications in other fields

• Negative Impacts

•Aggressive, self-interested behavior by companies to secure their future

•Overstating reserves and overvaluing prices

PORTER’S 5 FORCES

• Threat of suppliers – high

–Backward integration has connected directly with natural resources. Can’t move back any further.

• Threat of substitutes – high

–Alternative energy sources are growing in variety, abundance and efficiency

–Total S.A. announced in 2008 they were shifting more focus to nuclear production

PORTER’S 5 FORCES• Threat of competitors – low to medium

–Sharing oligopolistic price-setting powers

–Potential Co-operation & mergers increase powers

• Threat of new entrants – low

–Astronomical start-up and capital costs

• Threat of buyers – low to medium

–Buyers highly dependent on product, but many efforts underway to reduce dependency

• Cooperation between MNE, host and home nations

•China takes little moral responsibility

•Necessity because of growth at home?

•Confusion in China because of state owned enterprises

• Supermajors subject to laws of home country

•MNE’s willing to sacrifice morals to agree with host country, but home country is not

CHINA IN AFRICA

• No evidence of long-term sustainability

• Aimed at securing natural resources.

• Creating mini China’s throughout Africa

• Thus hostility among locals

• Research would indicate exploitation of host nation by MNE is counter productive

• Inward investment

- Supports local economy - raises labor skill and productivity

- Expands scale of production

CHINA IN AFRICA

CANADIAN IMPLICATIONS

Oil as a valuable commodity

•Privatization vs. Nationalization

•Short-term gains vs. long-term stability

•Sinopec – Chinese state companies

•Willing to pay premium prices for a stake

- 50% partners in Northern Lights Project

- 9% stake in Syncrude Canada Ltd.

- Several other Chinese investments

THANK YOU

ANY QUESTIONS?