The strategy of Sinochem Group oil and gas resource

Sinochem Group

June,2013

SINOCHEM E&P

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Sinochem Group Energy Business 1

Petroleum Upstream Business Development History 2

Challenges and Opportunities 3

Petroleum Upstream Resource Strategy 4

Contents

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Sinochem Group Introduction

– Sinochem Group is the key state-owned under the supervision of State Owned Assets Supervision and Administration Commission of the State Council (SASAC). Sinochem Group has entered the list of Fortune Global 500 for 23 times, ranking 119th in 2013. Sinochem has been rated by SASAC as “top A corporate performance” for 9 years in a row. Only 12 Central Government-owned enterprises can do it.

– Sinochem’s core businesses span over energy, agriculture, chemicals, real estate and financial service. It is one of China’s four state oil companies, China’s biggest agricultural input company (fertilizer, seed and pesticide), China’s leading chemical service company. It also exerts strong influence in real estate and non-banking financial service sector.

– Sinochem currently owns more than 200 subsidiaries inside and outside China. It controls several listed companies including Sinochem International, Sinofert, Franshion Properties and Far East Horizon.

Sinochem Group has a history of more than 60 years and forms management feature and

industry distribution of Sinochem.

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Sinochem Group Energy Business Introduction

Sinochem enjoys more than 60 years of experience and Sinochem energy business has developed into the fourth biggest NOC that is highly internationalized with a complete industrial chain, outstanding marketing ability. E&P：Sinochem Group has possessed 34 contractual

oil and gas blocks located in USA, Brazil, Yemen, UAE,

and so on. Sinochem has 5 million tons/year of

production capacity and equity oil and gas recoverable

reserve of over 600 million barrels to date.

Storage & Logistic: Currently, counting both existing

facilities and projects under construction, Sinochem Group

has a total storage capacity of approximately 10 million

cubic meters

Sinochem owns a network of ports and jetties whose

handling capacity ranging from 3,000 MT class to 300,000

MT class. And Sinochem maintain the top player among

the third-party petrochemical storage and logistics

operations in terms of operation scale and service capacity.

Oil Trading: Total global trading volume of crude oil and oil

products amounts to 50 million metric tons per year. The long-

standing good relations with the world's major oil producing nations

and oil companies have secured us 30 million metric tons of equity

crude oil per annum, backed by long-term contracts.

Products sale: By

2015 Sinochem

refined oil products

sales capacity will

achieve 25MM tons

and will possess 600

petrol station.

Oil Refining:

Northern: West Pacific refinery located in Dalian with processing capacity of 10MM

MT/a(put in production in 1996）

Eastern: Sinochem Hongrun with processing capacity of 5MM MT/a. (M&Ar in 2010）

Southern: Sinochem Quanzhou with processing capacity of 12 MM MT/a. (under

construction)

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Sinochem Group Energy Business 1

Petroleum Upstream Business Development History 2

Challenges and Opportunities 3

Petroleum Upstream Resource Strategy 4

Contents

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Acquisition of Atlantis company and Ecuador block 16

Kickoff of Oudna oilfield construction, promoting development of UAQ gas field

Acquisiition of Zhaodong oilfield

Acquisition of Emerald company, first acquisition of list energy company

Verify assets status, UAQ gas field reached gas sale agreement

Oudna oilfield put into production and kickoff of UAQ gas field

Acquisition of Yemen block 10 and Indonesia MB block

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Acquisition of Brazil Peregrino offshore project

Acquisition of America Pioneer shale oil projec

Vigorous and Steady Efforts of Capturing Oil and Gas Resource

Global assets and equity assets acquisition capturing the oil and gas resource takes Sinochem into petroleum E&P field and bring quick development. Through existing project E&P the reserves and production rises.

准备

进入

提速

Completed 10 assets or company mergers . The accumulative investment of merger and subsequent development is $8 billion. Sinochem has 5 million tons/year of production capacity and equity oil and gas recoverable reserve of over 600 million barrels to date.

累计投资

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Sinochem possessed 34 oil and gas assets in 11 countries. And play a role as operator in 13 blocks. Equity accumulative oil production is 14MM tons, for gas is 4 billion cubic meters. It forms primarily two strategic regions --- South America and Middle East.

Initial formation of global distribution of oil and gas assets

Block 16 Ecuador

Tunisia

UAQ

China

* Operator

Indonesia

*

.

Colombia

Syria

Peru

Yemen

哥伦比亚

厄瓜多尔 秘鲁

也门

叙利亚

阿联酋

中国

印尼

Brazil 巴西

突尼斯 美国

America

*

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Form partnership with domestic and international oil companies to expand cooperation areas

and enhance core technology ability.

Actively carry out domestic and international technical exchange and cooperation

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Sinochem Group Energy Business 1

Petroleum Upstream Business Development History 2

Challenges and Opportunities 3

Petroleum Upstream Resource Strategy 4

Contents

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Challenge in development

1

2

3

4

Weak foundation

Short of oil and gas resource

Complex operating

environment

Lack of human resource

A. Lack of project leader with

overseas experience,

management and technical

staff;

B. Internationalization talent pool

lag behind the international

business development

A. Various political systems,

various economic

environment and culture

from different areas;

B. Regional political instability

generally involves huge risk.

It influences the project

success and personnel

safety of staff members.

Sinochem is a upstart E&P company and will encounter numerous challenge.

Challenge of development process of Sinochem petroleum upstream business

A. Lack of experience of petroleum

upstream industry because of

the initial stage of business;

B. Sinochem accumulate some

experience but core technology

A. Resource is restricted by project contact

term;

B. Complex operating environment, various

kinds of reservoir types, and most of

them are heavy oil reservoir, shale oil &

gas and offshore resource;

C. Large challenge of increasing output and

stable output of existing project

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1998 2012 year

Oil im

port independence

58%

20%

Domestic oil and gas supply security guarantee involves opportunities As domestic demand-supply gap expands, energy security is increasing tension. China oil companies should accelerate development to guarantee the national energy security.

China oil import independence China oil imports rise for 11years in a row.

The oil import independence of 2012 is

58%. The oil and gas supply security

situation is serious. Currently proved ratio

of petroleum resource is 30%. It is low

exploration stage with big potential.

It presents in China “Energy development

of 12th five-year plan” that “relying on

domestic resource”, “accelerating

conventional oil and gas exploration and

development”, “vigorously develop

unconventional gas resource” and so on.

《China energy policy(2012)》white paper

presents: “China will firmly promote energy

reform”, “perfect market system and

mechanism”, “ “Play a basic role of market

allocating resources”. These policies bring huge opportunities for China oil

companies.

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Microseismic

Large multistage fracturing

Core technology

Deep water drilling

technology

Deep water lay pipelines

Horizontal drilling

technology Resource

assessment technology

Improvement of development technology of shale oil and gas and deep water oil and gas change the world energy situation and also bring wide prospect to China.

Development technology breakthrough in new fields lead to wide resource prospect

By 2011 global accumulative oil production exceeds one trillion barrels.

Recovery ratio of Conventional petroleum proved reserves goes over

50%. So the unconventional oil and gas development is a must.

Deep water oil & gas and shale oil & gas production quickly increases

for the technical progress. It gradually changes the world situation. In the

future deep water and unconventional oil & gas development will rapidly

grow.

China shale gas recoverable reserves ranks as first in the world, and

offshore oil and gas resource is rich. So a new way is opened up for

quickly increasing the oil and gas production.

American shale gas production and prediction

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World oil & gas assets transactions

Slow world energy recovery bring new acquisition opportunity of oil and gas assets

In the medium term the international crude oil price experiences downward pressure. Oil and gas assets acquisition will be active. There will be new acquisition opportunity of oil and gas assets.

Slow world economy recovery

continues

In the several past years global petroleum

exploration and development investment

rapidly grows. New oil & gas discovery

makes breakthrough and productivity

construction projects steadily increase.

Slow world economy recovery will bring

weak oil consumption. Global petroleum

demand-supply situation trends to be loose.

Medium term international crude oil price

experiences downward pressure.

Resource countries will strengthen the

degree of attaching the international capital

to achieve a balanced budget.

Some oil companies will sell assets for the

reason of capital chain tension brought by

crude oil price downs.

In 2012 global oil & gas upstream assets

transactions exceed $250 billion as a

record high.

Oil & gas assets

acquisition trends to be

active

World economy growth and prediction

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Sinochem Group Energy Business 1

Petroleum Upstream Business Development History 2

Challenges and Opportunities 3

Petroleum Upstream Resource Strategy 4

Contents

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Sinochem Petroleum Upstream Business Strategy

Intend to be International national oil company(INOC):Realize the domestic project breakthrough to establish NOC status. To be most international NOC and most popular international partner.

• NOC: Active efforts are made to

explore new channels of

safeguarding national energy

security as a NOC. At the same time

Sinochem also seek opportunities of

domestic oil and gas resource

development to achieve

development goals. • IOC: Sinochem will continue to

implement upstream “Go Global”

energy development strategy by

utilizing the advantage of oil trades.

As the world economy recovers

Sinochem will carry out global

excellent oil and gas assets merger

and acquisition to achieve

development by management and

technology.

IOC with Sinochem characteristics

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A mature E&P company need experience 20-30 years.

Sinochem Petroleum Upstream Business Strategy of Ten Years

In recent 10 years Sinochem experience challenge and

difficulty. Sinochem successfully implement “Go Global”

by solving problems faced and filling capacity gas. It

forms the primarily strategic key regions distribution.

But Sinochem are still in the early stage of quick and

stable development.

In the second decade Sinochem will push forward strategy

transaction and continue the internationalization way of

working. Based on market-oriented Sinochem will promote

the domestic and international cooperation to be a popular

partner. And develop steadily overseas and make domestic

breakthrough.

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3 years development plan of Sinochem Petroleum Upstream Business

2013-2015 these three years are key stages of Sinochem petroleum upstream business. Sinochem stage objectives are as below:

doubling the overseas asset and making breakthrough of domestic operator projects

实现资产规模翻番

2012 2013 2014 2015

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Small independent oil company Giant/Super Giant oil companies

China oil and gas E&P

companies

China oil and gas E&P

companies

comparative analysis of other companies

Differential competition advantage implementation

Sinochem will focus on existing oil and gas assets, strengthen domestic and international advanced technology integration and extensive application. It will form the core capacity and competitiveness of Sinochem petroleum upstream and differential advantage.

Internationalization way of working and popular

partner

Effective resource organization and integration pattern

forms in the company.

Develop specific business ability through operator

project

Form operating model suitable for domestic and

international asset

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Continue to strengthen domestic and international exchange and cooperation

Strengthen cooperation and achieve win-win situation to grantee national energy

security

Sinochem will hold the core value of “Create Value Pursue Excellence” to

actively explore domestic and international conventional and unconventional

oil & gas cooperation together with broad colleagues. Based on “Go Global”

strategy Sinochem will develop steadily and accelerate the domestic oil and

gas resource development and usage. Scale of Sinochem will be extended

to enhance benefit. Sinochem will strive to build the differential competition

advantage and contribute to guaranteeing national energy security.