World NOC CongressAndy Brogan

Andy Brogan, Ernst & YoungWorld National Oil Companies CongressPage 2

Increasing global trade in oil

South America

0.3

US

7.1

Europe

11.8

5.0

8.4

Africa

N/A

6.9

Russia

China-0.2

4.8

Japan

Pacific Region

5.6

5.0

17.8Net oil importers

Net oil exporters

Figures = mb/d of oil imports/exportsSource: IEA

11.1

9.0

6.3

7.0

23.0

Middle East

3.8

2.31980

2015

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Upward trend in oil trade movements over longer-term

Oil exports

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Growing importance of natural gas

Net inter-regional trade flows between major regions

2007

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Increasing globalisation in gas trade

Net inter-regional trade flows between major regions

2007

2030

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Mounting governmental intervention

“China Oil Firms Find Partners Ease Deals”Wall Street Journal, 23 March 2010

“President reverses offshore drilling expansion”The Australian, 28 May 2010

“Australian resource tax may delay CSG to LNG projects”Platts Commodity News, 18 May 2010

“Taking gentle aim at oil sands; negative global image may force Ottawa's hand”National Post, 2 February 2010

“Lawmakers again taking aim at liability caps for oil spills”MarketWatch, 25 May 2010

“CNPC's Verenex Acquisition Falters in Increasingly Politicised Libya”IHS Global Insight, 9 September 2009

Heightened oversight of oil and gas industry

► Greater compliance and regulatory burden► Cross border complexity in operations► Varying reserves/financial reporting standards► Corporate governance structure► The expectations of minority shareholders► Need for greater transparency (especially if capital

raising)► Opposition from special interest groups

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Evolving business models

► Independent E&P► Junior oil and gas► Private equity► NOCS► Oil traders

► Independent refiners► Private equity► Terminal/storage owners► Petrochemical companies► Product traders► Distributors

► Independent marketers

► Supermarkets► Private equity► Franchises

Typical Hydrocarbon Supply Chain

Refining and blending Trading and distributionE&P Marketing

CDUupgrade

Treat Blend

Ship

Pipeline

IndustrialConstruction TransportWholesalerSmall

customersTerminal

Products trading

A changing industry

For decades the leading industry players have focused on ► Global market coverage► Vertical integration► Economies of scale► Operational supply chain efficiencyThis model is currently undergoing change and an alternative model based upon the following themes is emerging:► Focus on core markets► Divesting of ‘non core’ assets and businesses► Relationship and contractor management► Capital efficiencyThe changing of this model presents opportunities/risks for NOCs as they consider whether to enter new markets and new businesses

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There are both opportunities and risks

Key opportunities► Access to new markets and

resources► Acquisition of skills/technology► Strengthening and internationalising

of the brand and organisation ► Synergies with existing businesses

► cost and efficiency savings► supply chain benefits

► Buying at the right time in the economic cycle

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Key risks ► Management skills

► Does current management have the skills to manage the acquired asset(s) effectively?

► Current liabilities and potential future liabilities► Are these fully understood and factored

into the purchase agreement and ongoing business plan

► Political risks and reputational risks► Moving into overseas markets has a

different risk profile. Is this risk profile fully understood and can it be managed effectively?

► Buying at the wrong time in the economic cycle

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Currently there are many opportunities for well capitalised NOCs

Chevron Puts Its Last European Refinery On The Market3 March 2010Business Monitor Online

Shell has agreed to sell its downstream business in New Zealand 29 March 2010All Business

Exxon Mobil sells petrol station network to 7-Eleven 27 May 2010The Australian

BP AFRICA will sell its marketing operations in five southern African countries 3 March 2010

AllAfrica.com

Statoil sells Brazil oil field stake to Sinochem21 May 2010Bullfax.com

Shell to divest 15% of its refining capacity 16 March 2010 Oil & Gas Journal

ConocoPhillips To Shed Refining Capacity 24 March 2010Downstream Today

OMV In Talks To Divest Exploration Assets In Russia 20 May 2010Businessweek

Total sells its interests in the Valhall and Hod fields 27 April 2010

Total.com

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JVs help to spread the risk

Source: IHS Herold

Future projects may look different

► Increased use of JVs to pool capital and mitigate risks in largeprojects

► Governments are becoming increasingly active in encouraging and brokering alliances in the oil & gas sector

► New partnerships emerging between reserves-rich NOCs and those of import-dependent nations

► NOCs buying into existing joint ventures to gain access to markets/generate new revenue streams

► Increased number of JV partners in individual projects due to their cost and complexity

► There will be fewer listed upstream and oilfield services companies at the end of the year than the start of the year

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Thank you