CERAWeek 2014 - Upstream Plenary: Opportunity Rich or Poor?

Peter Jackson, Vice President, Upstream Research, IHS, chaired the upstream plenary "Opportunity Rich or Poor? State of the Global Upstream." In his opening remarks, he discussed the level of change and complexity in the upstream oil and gas business, as well as the challenges surrounding the management of aboveground issues. Mr. Jackson also highlighted the rejuvenation of supply in North America, where volumes are again in line with the previous production peak of the 1970s.

Javier Gutiérrez, President, Ecopetrol, outlined the recent accomplishments of the oil and gas industry in Colombia. In Colombia, South America's fourth-largest oil and gas producer, production has doubled over the past six years. Mr. Gutiérrez attributed the strength of Colombia's oil and gas industry to "a strong regulatory framework which clearly delineates responsibilities." He also highlighted areas in which he thinks his company will continue to improve, noting that Ecopetrol aims to continue to increase the recovery factor and efficiency of its upstream operations. Mr. Gutiérrez also emphasized a desire to work more collaboratively with foreign companies, stating that "we want to make Colombia very attractive" to foreign players. He also discussed the importance of developing strong community relationships and a sustainable business model, noting that Ecopetrol received a bronze class ranking in the Dow Jones Sustainability Index.

Doug Lawler, President and CEO, Chesapeake Energy Corporation, discussed the evolution of unconventional exploration in North America, highlighting the growing importance of unconventional production here. Shale gas now represents more than 40% of US gas production, and this percentage will continue to increase over the next few years. He also stressed the leading role independent oil and gas companies have played in unconventional exploration and production in North America. "Independents have led US growth production" and "independent companies will continue to lead in the US and outside the US," Mr. Lawler said, while in many instances the majors have acquired positions to obtain access to shale plays. He also discussed Chesapeake's drive to reduce costs and improve efficiency. Mr. Lawler stressed the importance of in-house research and development and of technological innovation in Chesapeake's success. "Technology will continue to play a key role in exploration development cycles" with geological science and technical capabilities giving Chesapeake an operational advantage. Mr. Lawler also sees significant opportunities for Chesapeake to transfer the skills it has developed in North America to international opportunities.

Russ Girling, President and CEO, TransCanada Corporation, discussed the importance of midstream infrastructure development in North America. He noted that infrastructure has clear implications for both oil prices and the refining industry. "If we don't have a means to take [oil] to market, its value is greatly diminished," he said. He quoted International Energy Agency research showing that North America would require US$6 trillion in oil and gas infrastructure between now and 2035, with oil infrastructure accounting for $2.5 trillion. Mr. Girling also noted that the North American boom in oil production will allow the continent to become energy independent and that the staggering growth in production, all of which needs to be moved safely to market, represents an economic and jobs benefit. Though public opposition has slowed policy approvals for the pipeline infrastructure needed to transport crude to market, such as TransCanada's Keystone XL pipeline, production has continued to increase, creating a need to find alternative transportation such as rail. However, he said, rail raises more serious safety and environmental issues than pipelines. Currently 200,000 barrels per day of oil is transported from Canada to the United States via rail, with 1 million barrels transported via rail within the United States. Despite some initial setbacks, Mr. Girling said that he believes the Keystone XL pipeline will be built. But he said the pipeline has to be constructed in "a reliable and safe manner … The public expects this of us."

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.