Global gas reserves and resources: Trends, discontinuities and uncertainties SSB

1. Classification: Internal Status: Draft Global gas reserves and resources: Trends, discontinuities and uncertaintiesSSB/NAEE workshop 18 January 2010  Ottar Skagen Chief Analyst Strategy Statoil CFO SA MMA

2. Classification: Internal Status: Draft Summary Global proven gas reserves are ample compared to current production and consumption; �peak gas� is not an issue Reserves have become more concentrated This is changing due to the �unconventional gas revolution� whereby technological progress is making previously uneconomic tight gas, CBM and above all shale gas producible As yet only fractions of unconventional gas are considered proven reserves, but the resource base and cost developments promise fundamental shifts in gas availability, gas supply security perceptions and international gas trade The unconventional gas potential outside North America remains to be assessed but is likely very significant In time this could again change the geographic distribution of gas reserves

3. Classification: Internal Status: Draft Meaning of proven gas reserves �Proved reserves are those quantities of natural gas, which, by analysis of geological and engineering data, can be estimated with a high degree of confidence to be commercially recoverable from a given date forward, from known reservoirs and under current economic conditions�

4. Classification: Internal Status: Draft Globally, proven gas reserves increased by an average of 3% a year between 1980 and 2008

5. Classification: Internal Status: Draft Growth was volatile, trended down�

6. Classification: Internal Status: Draft This was not the case everywhere

7. Classification: Internal Status: Draft The gas share of global petroleum reserves is increasing

8. Classification: Internal Status: Draft The reserves � price link Oil and gas resources need to be producible under the prevailing price and cost conditions to qualify as reserves Also, E&P companies that finance their operations from their cash flow carry out more exploration when prices are high Thus fluctuations in reported reserves reflect � to an extent � fluctuations in price The sensitivity of reserves to price depends on the shape of the LRMC curve Reported reserves do not always reflect price and cost conditions very precisely Inertia Cost uncertainties Politics

9. Classification: Internal Status: Draft Some countries� gas reserves appear insensitive to gas prices Possible explanations: These countries produce for the domestic market or for regional markets characterised by regulated, stable prices Insignificant shares of their gas resources have passed between the resource and reserves categories at the recent prices changes Exploration has been more or less insensitive to price Their reserves have never been independently audited and estimates are adjusted in ad hoc, politicised and basically unreliable ways

10. Classification: Internal Status: Draft Proven gas reserves are fairly concentrated�

11. Classification: Internal Status: Draft Proven gas reserves majors

12. Classification: Internal Status: Draft Much conventional gas remains to be discovered

13. Classification: Internal Status: Draft Important distinctions Natural gas may be free or associated, i.e., dissolved in oil or located in a cap of free gas above the oil Associated gas may have low production costs but may also as a by-product present inflexibility problems A challenge to OPEC oil producers Associated gas may be marketed but is often reinjected or flared

14. Classification: Internal Status: Draft Potential unconventional gas volumes The US National Petroleum Council puts global unconventional gas resources by end 2007 at 32560 tcf (against a global proven reserves base of ~6250 tcf) CBM � 9051 tcf; shale � 16112 tcf; tight gas � 7406 tcf

15. Classification: Internal Status: Draft Unconventional gas has dramatically changed the global long term supply curve

16. Classification: Internal Status: Draft Shale gas characteristics Two key technologies: Horizontal drilling and hydraulic fracturing

17. Classification: Internal Status: Draft US shale gas plays

18. Classification: Internal Status: Draft Advancing up the shale gas learning curve

19. Classification: Internal Status: Draft The costs of shale gas Current unconventional gas cost estimates are uncertain The long term behaviour of shale gas wells remains to be verified Plays may differ greatly from each other However, Chesapeake Energy, a leading US shale gas player, suggests pre-drilling carry targeted F&D costs for US shale gas in the USD 1,25-1,50/mcf range � below the similar costs of conventional gas

20. Classification: Internal Status: Draft Impact on the US gas balance up until now

21. Classification: Internal Status: Draft Impact on the US gas balance going forward

22. Classification: Internal Status: Draft Shale gas opportunities outside North America Most screening to date has amounted to looking for analogues to the successful US shale basins Key criteria: Onshore Gas prone Organically rich Volumetrically extensive Thermally mature Passable permeability Brittle Frac barriers Shallower than 4000 m Also favourable fiscal framework conditions, availability of land, availability of services, infrastructure, gas demand, local support� Tough to find opportunities that match all requirements!

23. Classification: Internal Status: Draft Unconventional gas in Europe

24. Classification: Internal Status: Draft Sweden to become a gas producer? The organic rich Alum shale is generally about 40 m thick but reaches 200 m in western Sweden and has high TOC, from 2% to 20% Shell is drilling in Sk�ne Advanced Resources International Inc. puts unrisked resources in the leased acreage at 60 tcf (1,7 tcm) and recoverable resources at about 10 tcf Unconventional gas could in time produce significant changes in the ranking lists of countries and companies holding gas reserves

25. Classification: Internal Status: Draft Summary Global proven gas reserves are ample compared to current production and consumption; peak gas is not an issue Reserves have become more concentrated This is changing due to the �unconventional gas revolution� whereby technological progress is making previously uneconomic tight gas, CBM and above all shale gas producible As yet only fractions of unconventional gas are considered proven reserves, but the resource base and cost developments promise fundamental shifts in gas availability, gas supply security perceptions and international gas trade The unconventional gas potential outside North America remains to be assessed but is likely very significant In time this could again change the geographic distribution of gas reserves