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Industry Report - Oil & Gas - August 2011

A Company and Industry Analysis August 2011

CONTENTS

Current Environment

• SectorOverview

• SectorPerformance

• LeadingCompanies

• MergersandAcquisitions

Industry Prole

• IndustryOverview

• OilandGasProductionand

Consumption

• IndustryFocus

• PolicyandRegulatory

Environment

Market Trends and Outlook

• Asia-PacictofocusonCoal

BedMethane

• RegionalFuelPricesRise

• ShaleGasintheAsia-Pacic• MarketOutlook

Country Proles

• Australia

• China

• India

• Indonesia

• Japan

• SouthKorea

Currency Conversion Table

The Scope of this Report

Key References

Comparative Data

Reports Coverage

Current Environment — Key Points

• Overayearafterthedeepestrecessionindecades,theAsia-Pacicregioncontinuedtoleadthe

globaleconomicrecovery,generatingstrongdemandforglobaloilandgas.

• Asia-Pacicoildemandgrew2.1%and5.9%in2009and2010respectivelywithChinabehind

70%oftheincreaseinoildemand.

• SouthKoreawastheoneregionalcountrythatsaw itsoildemandfall.Accordingto theKorea

EnergyEconomicsInstitute(KEEI),oilisexpectedtoaccountfor39.5%ofSouthKorea’stotalenergydemandin2011,comparedwith53.2%in2000.

• Thesharepricesofleadingcompaniesdidwelloverthepastsixmonths.ThetoptenleadingAsia-

Pacicoilandnaturalgascompaniesbyrevenuessawtheirsharepricesrisebyanaverageof9.2%

overthesixmonthstoMay31,2011.

• TheindustryalsosawarunofM&Aactivityoverthepastsixmonthsasoilandgascompaniesin

theregioncontinuedtheirpursuitofunconventionalenergyassetsbothathomeandabroad,aswell

asmakingstrategicalliances.

Industry Prole — Key Points

• AlthoughnewdiscoveriesofoilandgasarebeingmadeintheAsia-Pacicregion,reservesare

depletingduetothemassivesurgeindemandfromdevelopingeconomies.

• Theregionhas less than4%oftheworld’sprovenoilreserves,leavingitwith fewoptions to

increaseorevenmaintaincurrentlevelsofproduction.

• TheAsia-Pacic had proved reservesof 45.2 billionbarrelsbythe end of2010. Oil and gasconsumptionintheregionsurpassedthatofNorthAmericain2007.

• Totalnaturalgasproduction intheregionin2010was399.4milliontons,an increaseof4.9%

comparedwiththeproductionof380.8milliontonsin2009.

• Consumptionofnaturalgaswasup5.3%fortheperiod,from1.2billiontonsto1.27billiontons.

Market Trends and Outlook — Key Points

• Thedeclineofconventionaloilandgasreservesoverthepastdecadehaselevatedtheimportance

ofunconventionalresources in theenergysector.Coalbedmethane (CBM) isonealternative

energysourcetoutedtobeinlinetoreplaceoilandgas.

• Therecoveringglobaleconomy,strongenergydemandandanumberofmajorglobaloilproducing

countries’reducedproductionandexportslevelshaspushedupfuelpricesacrosstheAsia-Pacic

overthepastfewmonths.

• Nuclearenergy,naturalgas,coal,biofuelandotherrenewablesareamongthealternativesourcesofenergyexploredbytheregion.Onealternativesourceclosetomasscommercializationinthe

regionisshalegas.

• AccordingtotheADB,oilwillsupplyapproximately27%of theAsia-Pacic’senergydemand

overthenexttwodecades,withanannualgrowthof2.2%.

• Thedemandfornaturalgasusewillincrease3.6%ayeartofulll14.5%oftotalenergydemand.

1

Asia-Pacific

Oil & Gas Sectors

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2

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The Asia-Pacific Industry Reports are

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industry sector report is updated every six

months. Mergent, Inc., a leading provider of

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publicly traded companies, operates sales

offices in key North American cities as well as

London, Tokyo and Melbourne.







3

Current Environment

Overayearafterthedeepestrecessionindecades,theAsia-

Pacicregionledtheglobaleconomicrecovery,generating

strongdemandforglobaloilandgas.Theregionrebounded

swiftlyduringtherstquarterof2010,andwasexpected

tocontinueleadingtheglobalrecoveryovertheshortterm.

According to the International Energy Agency (IEA),

developingnon-OrganizationforEconomicCo-operation

andDevelopment(OECD)Asianeconomiesledtheglobal

recovery,withmanyalreadyoutofrecessioninearly2010.

ChinaandIndiawerethetwocountriesthatwereamongtheleastaffectedbytheglobalrecession,andtheycontinuedto

leadworldeconomicgrowthandenergydemandgrowth,

whileJapanwasstillinthemidstofrecovery.

Crude oil prices rose as demand improved due to the

improving global economic environment that fueled

regionaldemand.Asia-Pacicoildemandgrew2.1%and

5.9%in2009and2010respectively.China’sdemandwas

thekeybehindthegrowthinoildemand,with70%ofthe

demandincreasein2010comingfromthecountry.Notall

countriesgeneratedstrongerdemand.SouthKoreawasthe

oneregionalcountrythatsawitsoildemandfall.According

to the Korea Energy Economics Institute (KEEI), oilisexpectedto account for39.5%ofSouthKorea’s total

energydemand in2011, comparedwith53.2% in2000.

Thisdemand isexpected todeclinefurtherto 38.6%in

2013.Thecontinueddeclineinoilconsumptionwasdueto

anincreaseintheuseofnaturalgasandnuclearpower.

Leading oil and gas companies in the region did well

nancially,benetingfromtherecoveringglobaleconomy,

whichledtogainsincrudeprices.Higherglobalcrudeoil

productionmorethanoffsettheeffectsoflowerworldwide

reneryoutputanddomesticreningmargins,leadingto

higherrevenuesandnetincome.Thesharepricesofleading

companiesalsodidwelloverthepastsixmonths.ThetoptenleadingAsia-Pacicoilandnaturalgascompaniesby

revenues,accordingtoMergentresearch,sawtheirshare

pricesrisebyanaverageof9.2%overthesixmonthsto

May 31, 2011.Of the ten, seven saw their shareprices

nishhigher,whilethe remainingthreeendedtheperiod

weaker.

TheindustryalsosawarunofM&Aactivityoverthepast

sixmonthsasoilandgascompaniesintheregioncontinued

theirpursuitofunconventionalenergyassetsbothathome

andabroad,aswellasmakingstrategicallianceswithother

oilandgascompaniesfromotherregions.Somecompanies

alsoinvestedinalternativeenergysourceslikesolarpower,

biofuelandnuclearenergyinanefforttodiversifyingtheir

revenuesstreamsfromtheircorebusinesses.Oneobvious

businesssectorforoilandgascompaniestoventureinto

istheenergysector.Asoilandgaspricescontinuetosoar,

puttingdownwardpressureondemand,andascrudeoil

and gas resources continue to deplete, other sources ofenergywillgaininmarketshareandreplaceoilandgas

Manyoilandgascompaniesthereforecontinuedtoinvest

intheenergysectoroverthepastfewmonths.

Thedeclineofconventionaloilandgasreservesoverthe

pastdecadehaselevatedtheimportanceofunconventional

resourcesintheenergysectorastheindustrystrugglesto

meetforecast demand.Coalbedmethane (CBM) isone

alternativeenergy source touted tobe inlineto replace

oil and gas, withAustralia the leader in the usage and

commercialization of the energy source. Among the

sources explored are nuclear energy, natural gas, coal,

biofuelandotherrenewables.Oneotheralternativesourceclosetomasscommercializationintheregionisshalegas.

ShalegasisinapositiontoaddtotheAsia-Pacic’sfuture

energysuppliesgoingforwardandhelptocuttheregion’s

relianceonimportedenergy.

Sector Performance

Worldwide natural gasmarkets continued to experience

a reduction indemand over the past six months due to

the economic recession, continuing a two-year trend.

This,combinedwitha faster-than-expectedexpansionin

unconventionalgasintheUS,resultedinglobaloversupply.

However,aftersomeinitialdownwardpressure,gaspricesmade a recovery. The share performances of leading

companies were largely unaffected by this.The top ten

leading Asia-Pacic oil and natural gas companies by

revenues,accordingtoMergentresearch,sawtheirshare

pricespickupbyanaverageof9.2%overthesixmonths

toMay31,2011,whencrudeclosedatUS$100.59/bblon

theNewYorkMercantileExchange(NYMEX)onMay27.

Oftheten,sevensawtheirsharepricesnishhigher,while

theremainingthreeendedtheperiodweaker.

Sector Overview







4

Current Environment

Thestrongestperformerduringtheperiodonceagainwas

PetronasDaganganBhd (KLSE:PETD),whichhad the

bestperformanceduringthesecondhalfof2010aswell.

TheMalaysianstate-runoilcompanystartedtheperiodat

RM11.41(US$3.81)onDecember1, andfell slightly to

itsperiodlowofRM11.39(US$3.81).Itthenrosesteadily

over the next three months, hitting its period high of

RM16.50(US$5.52)onMarch31,apricethatitreached

againtwicemoreonApril5andApril7.

Petronas’sharepricefellslightlytoRM15.30(US$5.12)

onMay3,beforeendingtheperiodatRM16.30(US$5.45)

pershare,nottoofarofffromitsperiodhigh.Petronas’

sharesrosebyatotalof32.9%overtheperiod.Thestrong

share performance was due largely to solid nancial

performancesofthecompanyoverthepastyear.

Another companywhoseshare prices did well over the

periodwasSantosLtd (ASX:STO).Santos’ share price

startedtheperiodatitsperiodlowofA$12.25(US$13.09)

onDecember 1.It then rose steadilyover the next four

consecutivemonths and hit its period high ofA$16.49(US$17.69)pershare.Santos’sharepricesthenunderwent

aslightcorrection,decliningtoA$15.19(US$16.29)per

shareatthestartofMayorMay2,beforeroundingoffthe

periodatA$14.76(US15.83)pershareonMay31.

Thestrongshareperformancecameonthebackofweaker

nancialperformance due to interrupted production and

drillingactivities of the company’s interests offshore of

WesternAustralia,hitonnolessthanveoccasionsasthree

cyclonesandtwotropicallowshitthearea,suggestingthat

investorshavefaithinthefoundationsandfutureofthe

company.Overall, the company’s shares roseby 20.5%

overtheperiod.

Thecompanywith theworst performing stock over the

periodwasIndianOilCorp(BSE:530965).Thecompany’s

sharepricestartedtheperiodatRs.384.55(US$8.65)per

shareonDecember1andhitaperiodhighofRs.385.75(US$8.68)twodayslater.IndianOilCorp’ssharepricethen

fellthefollowingtwomonthstoaperiodlowofRs.293.05

(US$6.59)onFebruary25.Itthenpickedupoverthenext

twomonths toreach Rs.343.30 (US$7.72) per shareon

May2,andendedtheperiodloweratRs.328.30(US$7.39)

onMay31.

Leading Companies

Allleadingmajoroilcompaniescontinuedtheirclimbback

fromrecession,andsignicantrisesinnetincomeof2010

andtherstquarterof2011.Theybenetedasarecovering

globaleconomyspurredgainsincrudeprices,andhigherglobal crudeoil productionmore thanoffset the effects

oflowerworldwidereneryoutputanddomesticrening

margins,leadingtohigherrevenuesandnetincome.

China National Offshore Oil Co Ltd (CNOOC) (HKSE:

883)

China’s largest offshore oil company, China National

Offshore Oil Company Ltd (CNOOC), reported total

Table 1: Key Asia-Pacic Oil and Gas Major Stock Performances

Company Ticker Closing Stock Prices

Change (%)December 1, 2010 May 31, 2011

China Petroleum & Chemical Corp (Sinopec) HKSE: 386 HK$7.15 HK$7.66 7.1

PetroChina Co Ltd HKSE: 857 HK$9.56 HK$11.28 18

China National Offshore Oil Co Ltd (CNOOC) HKSE: 883 HK$16.79 HK$19.60 16.7

Indian Oil Corp BSE: 530965 Rs384.55 Rs328.30 (14.6)

Hindustan Petroleum Corp BSE: 500104 Rs431.50 Rs380.50 (11.8)

Oil and Natural Gas Corp Ltd (ONGC) BSE: 500312 Rs313.83 Rs281.05 (10.5)

Caltex Australia ASX: CTX A$12.95 A$14.12 9

Woodside Petroleum Ltd ASX: WPL A$40.76 A$46.63 14.4

Santos Ltd ASX: STO A$12.25 A$14.76 20.5Petronas Dagangan Bhd KLSE: PETD RM11.41 RM16.30 42.9

Average Rise/Fall (%) 9.2

Source: Mergent analysis







5

Current Environment

unaudited revenues of RMB48.51 billion (US$7.51 billion)fortherstquarterofthisyear.Thiswasayear-

on-yearincreaseof26.6%.Thecompanyreportedtotalnet

productionof85.2millionbarrelsofoilequivalent(BOE)

forthequarter.Itsaveragerealizedoilpricealsorose32.7%

for the period to US$99.98%. CNOOCmade ve new

discoveriesandsucceededin drillingsix appraisals over

thequarter. Italso ranits Jinzhou25-1offshoredrilling

projectsuccessfullyandlinedupanumberofotherprojects

tobecarriedoutovertherestoftheyear.Thecompany

purchaseda33.3%stakeinChesapeake’sNiobraraproject

fortheperiod.

Indian Oil Corp Ltd (IOC) (BSE: 530965)

State-owned Indian Oil Corp (IOC) reported a great

year nancially in 2010. The company reported its

highest ever gross turnover, reporting Rs.3.29 billion

(US$74.03million). Its prot after taxwas up 138.9%

year-on-year to Rs.74.46 billion (US$1.68 billion) for

2010. IOC saw its overall salesof petroleum rise3.9%

fortheyear,surpassingtheoverallindustrygrowthrate.

IOC’scapacityutilizationwas102%,withthecompany

successfully commissioning a number of projects,

including the expansion of the Panipat and Haldia

reneries,theupgradingoffuelqualitiesinitsreneries,

andtheexpansionofitsmarketingandpipelinenetwork.

IOC’s earnings per share (EPS)for 2010 was Rs.30.67(US$0.69), a slight decline from the EPS of Rs.42.10

(US$0.95)reportedfor2009.

Petroliam National Bhd (Petronas) (KLSE: PETD)

Malaysia’sstateoilandgascompany,Petronas,enjoyeda

goodnancialyearin2010,postinga14.4%increasein

revenuesforthescalyear(FY)10/11.itsrevenueswent

upfromRM210.8billion(US$70.47billion)inFY09-10

toRM241.2billion(US$80.63billion)inFY10/11,driven

byhighercrudepricesandvolumesold.Itsgrossprot

fortheyearwasuptoRM97.8billion(US$32.7billion)

fromRM82.4billion(US$27.6billion),ariseof18.7%.OverallprotfortheperiodwasRM63billion(US$21.1

billion)comparedwithRM45.5billion(US$15.2billion)

over FY09/10. For 2010, Petronas made crucial oil

and gas discoveries offshore of the Malaysian state of

Sarawak. The company oversaw the successful drilling

oftheNC3wildcatwellinMarch2010andtheSpaoh-1

wellinDecember.Petronasexpectedtodrillmorethan50

explorationwellsoffshorearoundMalaysiaoverthenext

threeyears.

Mergers and Acquisitions

Asia’snationaloilcompanies (NOCs)drovea revivalof

oilandgasM&Aactivityoverthepastsixmonthsintheir

pursuitofunconventionalenergyassetsbothathomeand

abroad, aswell asmaking strategic alliances with other

oiland gascompaniesfromother regions.Anumberof

theregion’sleadingoilandgascompaniesalsoinvested

inalternativeenergysourceslikesolarpower,biofueland

nuclearenergyinan efforttodiversifyingtheirrevenues

streamsfromtheircorebusinesses.Gradually improving

nancingconditions,therelativelyhighoilpriceandthe

needsofAsianNOCs and the majors togain access to

reservesdrovetherevival.

Inanefforttodiversifytheirbusinessandrevenuestreams,

one obvious business sector for oil and gas companies

toventureintoistheenergysector.Asoilandgasprices

continuedtosoar,puttingdownwardpressureondemand,

andascrudeoilandgasresourcescontinuedtodeplete,

othersourcesofenergygainedinmarketshareandreplaced

oilandgas.Manyoilandgascompaniesthereforeinvested

intotheenergysectoroverthepastfewmonths.

OnecompanythatdidsowasIndianOilCorporationLtd,

which entered into a joint venture with Nuclear Power

CorporationofIndiaLtdinJanuarytosetupnuclearpower

plantsacrossthecountry.Duringthesamemonth,IndianOilalsosignedamemorandumofunderstandingwithclean

energycompanyLanzaTechtocollaboratetoproducefuel

gradeethanol.Anothercompanywithinvestmentsin the

energysectorwasSouthKorea’sS-Oil,whichacquireda

33.4%stakeinHankookSilicon,aproducerofthecore

element needed in the production of solar energycells,

poly-silicon.

Apartfromtheenergysector,oilandgascompaniesinthe

regionalso investedin otherbusinesssectors. InMarch,

Indian oil and gas conglomerate Reliance Industries

announced ithad formed anew jointventurewithD.E.

ShawGrouptoformanancialservicesbusinessinIndia.ThedealwillseeD.E.Shawcontributeitsinvestmentand

technologicalexpertiseandcombinethemwithReliance’s

operational knowledge and extensive presence in the

countrytoofferacomprehensivearrayofnancialservice

in India.The dealcame asbothpartiesattempt tostake

a claim in the edging nancial services sector in the

country.







6

Industry Profile

Althoughnewdiscoveriesofoilandgasarebeingmade

in theAsia-Pacicregion, reservesaredepletingdue to

themassivesurgeindemandfromdevelopingeconomies.

Whilethereareconsiderableoilandnaturalgasreserves

in the Asia-Pacic, most notably in India, Indonesia,

Malaysia, China and offshore Western Australia, long-

term energy demand growth is expected to surpass the

region’s own production capacity. It is inevitable that

developingcountriesin theregionareexpectedtobethe

dominantconsumersof theworld’senergysupplies,andmostproducerswillbecamenetimportersratherthannet

exportersoverthecomingmonths.

The region has less than 4%of the world’s proven oil

reserves,leavingitwithfewoptionstoincreaseoreven

maintaincurrentlevelsofproduction.Theregionhaslarge

coal reserves, making coal the primary energy source

inChinaand India. For the restof the region,crude oil

isthe energysourceofchoice.Oilis expected to retain

its position as the world’s foremost source of primary

energyconsumptionoverthenexttwodecades.Although

industrializedcountriescontinuetoconsumemoreoilthan

developingcountries, the gap is narrowing. Developingnationsareexpectedtoconsumeanamountequalto94%

of the total amount of oil consumed by industrialized

countriesby2025.

Petroleum-based fuels used for transportation are also

poisedforstronggrowthindevelopingAsia.Chinaisthe

keymarketthatwilldrivegrowthinregionalconsumption,

followedbyIndia,ThailandandIndonesia.Energyusefor

transportationin China is expected to increaseby5.3%

annuallybetween2001and2025,whiledemandinAsia’s

other developing countries will also experience strong

growth as rising standards of living result in increased

automobile ownership. India’s rapidlygrowingeconomyiscausinggrowingdemandforenergyaswell,whileSouth

KoreaandJapanareexpectedtoreachthesamelevelby

2015.

Oil and Gas Production and Consumption

AccordingtotheBPStatisticalReview2011,oilproduction

hasbeenonaplateauforwelloveradecadeandcontinued

tobe soin 2010.Net oil imports are increasing as the

regionrushestomeetrisingdemand.TheAsia-Pacichas

provedreservesof45.2billionbarrelsbytheendof2010.

HavingsurpassedNorthAmericabackin2007,thelevelof

oilandgasconsumptionintheAsia-Pacicisthehighestin

theworld,thankstoitsbriskeconomicexpansion.Ledby

ChinaandIndia,oilconsumptioninAsia-Paciccountries

roseby5.3%to27,237barrelsperday(b/d)in2010from

25,866b/din2009.

Natural gas production and consumption in the Asia-Pacicalsorosein2010.Totalnaturalgasproductionin

theregionin2010was399.4milliontons,anincreaseof

4.9%comparedwiththeproductionof380.8milliontons

reportedin2009.Consumptionofnaturalgaswasup5.3%

overtheperiod,from1.2billiontonsto1.27billiontons.

ThelargestenergyconsumerintheregionisChina.The

country’senergyconsumptiongrew11.2%overtheyear,

displacingtheUSastheworld’slargestenergyconsumer.

In2010,China’s oildemandcontinuedto grow, leaning

heavily onoil imports tomeet its needs. The country’s

net oil importswereup14.6%, or680,000 b/d in2010.

AccordingtotheChinaPetroleumandChemicalIndustry

Association(CPCIA),oilimportsmadeupmorethan55%ofalloilconsumptioninChina.

Data from the CPCIA also shows that from January to

June2010theapparentvolumeofChina’soilconsumption

reached220millionstons,anincreaseofmorethan15%

compared with the previous year. In the same period,

China’s oil import dependency grew bymore than 4%

comparedwith2009.Inaddition,theapparentvolumeof

China’scrudeoilconsumptionreached215milliontons,

anincreaseofnearly19%,andChina’scrudeoilimport

dependencyreachedmorethan54%,anincreaseofnearly

6%comparedwiththepreviousyear.Thecountryremained

theleadingcrudeoilproducerintheAsia-Pacicdespitedecliningproduction. However, its crudeoil production

isexpectedtodeclineatanaverageannualrateof3.7%

between 2010 and 2020. Despite this, the country will

producemorethanthricethatofthenextlargestproducer,

Malaysia,in2020,accordingtoIEAstatistics.

India’sconsumptionpickedup 6.6% from441.1Million

Tonnes ofOilEquivalent (mtoe) in2008to 468.9mtoe

in2009.Indonesiaalsoreported3.1%growth,from124.7

Industry Overview







7

Industry Profile

mtoeto128.2mtoeforthesameperiod.Indiaisexpectedtoemergeasthesecondlargestcrudeoilconsumerinthe

Asia-Pacicby2013.Indiaiscurrentlythethirdlargestoil

consumerintheAsia-PacicafterChinaandJapan.Driven

bystronggrowthinGDP,Indiaisexpectedtowitnessthe

largest oil consumption growth rate in the Asia-Pacic

between 2010 and 2020. On the other hand, Japanese

crudeoilconsumptionisexpectedtodeclineatanaverage

annualrateof0.7%withinthesameperiodatthecountry

continuestoremaininaneconomicplateau.

The region is also rich with coal, which is a crucial

energysourceinanumberofcountries,includingChina,

Australia, India, and Indonesia. Coalconsumption grew

onlyinChinaandIndiatosupporttheirinfrastructureand

industrialprojects,whosegrowth,ifcombined,wasmore

thanenoughtocounterbalancethedeclinesintherestofthe

world.IntheAsia-Pacic,coalsuppliesmostenergyneeds

inChinaandIndia,butonly23%oftherestoftheregion’s

need.CoalconsumptionintheAsia-Pacicisexpectedto

doubleinthenext20years,butitisunlikelythatitwillbe

abletokeeppacewiththeregion’stotalenergyneeds.

Industry Focus

The Role of Biofuel in the Asia-Pacic Energy Market

Biofuel is a reasonably new energy source that hasincreasinglygainedprominenceoverthepastfewyears.

It isproduced bothdirectlyand indirectlyfrom organic

materialorbiomass,whichincludesanimalandagricultural

wastesandplantmaterialslikecassava,rice,cornandso

on.Moreefcientbiofuelprocessingtechniqueshavebeen

developedrecently,makingtheenergysourcecheaperand

moreefcient,aswellaswideningtherangeofmaterials

used.Asfossilfuelpricesandthelevelofenvironmental

consciousnessgrow,biofuellookspoisedtoincreaseits

shareintheglobalenergymarket.

According to the International Energy Agency (IEA),

biofuel is expected to provideup to 27%of all globaltransportationfuelby2050.GivingtheAsia-Pacicbiofuel

a boost over thepastfewmonths was the commitment

by the European Parliament to reduce emission levels

for commercial vehiclesin theEU.TheEURenewable

Energy Directive saw the goal of having 20% of the

region’senergycomefromgreenandrenewablesources

by 2020. This has opened up opportunities for biofuel

producersintheAsia-Pacic,whichisinanadvantageous

positionduetolowercostsandtheexistenceofinitiatives

todrivetheenergysource.Ithasalsofueledfundingfromgovernmentsandinvestmentfromtheprivatesectorinto

thetechnology.

TheAsia-Pacic ishometo onekeybiofuelsource,the

Jatropha plant. Jatropha is a hardyplant that can grow

on tough soil conditions and currently, a 2,000 hectare

plantationisbeingdevelopedinMalaysia.Thepossibility

of having 700 sq km Jatropha plantation is also being

discussed InChina earlythis year.Chinahas also been

developing and experimenting with a range of other

biofuel, including ethanol and biodiesel. BiofuelsAsia

expectsthedemandforbiofueltoincreasebyanaverage

of20%-30%overtherestofthedecade.Othercountries

activelydevelopingthetechnology includeAustraliaand

Indonesia.The technology isexpected toplay a role in

aidingtheregionmeetitsfutureenergydemandandbeless

dependentonoilandgasimports.

Policy and Regulatory Environment

Offshoredrillingisacrucialcrudesourcetotheoiland

gasindustry,andwithnewonshorediscoveriesdeclining

steadily over the past decade, offshore sources have

become increasingly important to the world’s energy

supply. Offshore drilling represents approximately 50%

ofalloffshorecapexwithintheglobalE&Pbusiness.The

Asia-Pacic oil and gas industry has been no laggards,spendingapproximatelyUS$88billionoverthepastve

yearsonoffshore drilling. Spending surgedin 2006and

continued throughout 2007, before declining slightly in

2008andsharplyin2009.Theforecastforoffshoredrilling

expenditureforthisyearthroughto2013isgrowthata

slower rate, and isexpectedto reachUS$108 billionby

2015.An estimatedUS$75billionwasspentonshallow

waterdrillingintheAsia-Pacicoverthelastveyears.

This represents 85% of all drilling expenditure in the

region.

Oneyear after theBPoilspilldisaster, offshore drilling

policiesformanyoilproducingcountriesaroundtheglobehavebeen permanently changed. FormanyAsia-Pacic

countrieshowever,muchoftheiroffshoredrillingpolicies

remain the same. Some, likeAustralia, have continued

withtheiroffshoreoperations,citingthereasonthattheir

existing offshore safety and environment policies are

efcientenough.Theprospectsfortherecoveryindrilling

numbers vary considerably across geographic regions,

withdeepwaterdrillingcontinuingtobethemaindriver

forexpandinglevelsofactivityinthemarket.







8

Industry Profile

AsAsia-Paciccontinuesto develop botheconomicallyand in population, the region’s demand energy will

inevitablyincrease.TheregionisalreadyhometoChina,

thelargestenergyconsumerintheworld.Theregionhas

beenexploringothersourcesofenergytomeetitsdemand.

Nuclearenergywastoutedasonepossiblesourceformass

expansionbeforetheJapanFukushimaDaiichinuclearleak

ledtomanycountriesshelvingplansfortheenergysource.

Coalisthelargestenergysourceintheregionasidefromoil

andgas,whiletheregionisalsoexperimentingwithother

sourceslikebiofuelandshalegas.China,India,Australia,

IndonesiaandMalaysiahavebeenexploringthepotential

ofbiofuel,whileChinaalsohasaninternationaldealwith

theUStojointlydevelopandinvestinshalegas.







9

Market Trends & Outlook

Conventionaloilandgasreserveshavebeenindeclineover

thepastdecade,elevatingtheimportanceofunconventional

resources in the energy sector as the industry struggles

tomeetforecastdemand.CBMiswidelyregardedtobe

oneof thebest immediate resources to limit thedecline

ofconventionalgasvolumesandisbecomingincreasingly

mainstreamwithintheupstreamoilandgassector.With

theexceptionofAustralia,whereCBMhasdemonstrated

andprovenitsperformanceasaproducingplay,mostof

Asiaisstillexploringthepotentialofthisunconventionalresource. However, growing demand and favorable

geological factors favorAsia’s efforts to commercialize

unconventionalgas.

China has showed the greatest amount of progress in

accessinganddevelopingCBMresourcesamongallAsian

countries. The country has signicant CBMexploration

acreage in various basins, and three producingprojects.

ChinahasthemostadvancedCBMindustryintheregion,

with established CBM production and huge potential

forgrowth.According toChina’sMinistry ofLandand

Resources,thecountrymayhaveabout1,000trillioncubic

feet(Tcf)ofCBMresourcesinplace,with350Tcfofitsresources deemed as recoverable. These resources are

distributedmainly in theShanxi andShaanxi provinces,

Inner Mongolia and the Yunnan-Guizhou Plateau,

particularly in the Ordos, Qinshui, Junggar and Erlian

basins.

India also holds signicant prospects for commercial

recoveryofCBM.Thecountryishometothefourthlargest

provencoalreservesandisthethirdlargestcoalproducer

in the world. Indian conglomerate, Reliance Industries,

hasvecoalbedmethaneblocksinthestatesofMadhya

Pradesh,RajasthanandChhattisgarh.Thecompanyhopes

toextractgasfromtheseblocksandexpectstodrill100wells in the next ve years to a depth of up to 1,700

meters.

InIndonesia,theCBMpotentialisestimatedat450Tcf

inplacewiththemost signicant reservesin the South

Sumatra (183Tcf),Barito (102Tcf),Kutei (80Tcf) and

CentralSumatra(53Tcf)basins.Indonesia ispromoting

CBM exploration and production by opening the rst

CBMbidround,changinglegislationthatregulatesaccess

toCBMreservesandbyprovidingincentivestoinvestors.

Asof January2010,20 CBM PSCs had been awarded.

Indonesia,ChinaandIndiahaveeachputinplacepolicies

andregulatoryframeworks,includingscalincentives,to

encouragedevelopmentofCBMandforeigninvolvement

inthesector.

Regional Fuel Prices Rise

The recovering global economy and energy demand,aswell as the reduced production and the exports of a

numberofmajorglobaloilproducingcountrieshaveled

to fuel prices rising over the past year. Oil prices past

US$100 perbarrelin February, thehighestpoint in two

andahalfyears,duetoinvestorconcernovertheMiddle

Eastunrest.InAustralia,althoughshieldedbythestrong

Australiandollar, averagehouseholdexpenditureon fuel

wasexpectedtorisetoA$65(US$69.73)aweekin2011

—A$10(US$10.07)morethanayearago.Petrolprices

areexpectedtohitA$2.00(US$2.15)perliterthisyear,

puttingthecountryatriskofhigherination.

InJulythisyear,Chinaraiseditsfuelpricesforthesecondtime in three months, increasing wholesale petrol and

dieselpricesbyUS$53pertonbycuttingsubsidies.The

risecameasthecountryattemptedtooffsetglobalcrudeoil

priceincreases.Thecutinpetrolanddieselsubsidieswas

alsotheChineseGovernment’sattempttosteminationin

itsrapidlyexpandingeconomy.AnotherAsianeconomic

powerhouse, India, saw its state-run fuel retailers raise

petrol prices by 4.5% in January this year, the second

riseinamonth,asitsattemptedtostarveoffinationas

well.Thecountry’smajoroilretailers,IndianOil,Bharat

PetroleumCorpandHindustanPetroleumCorpraisedtheir

pricesbyUS$0.05perliter,followingtheir5.5%increase

inDecember.

InIndonesia,theGovernmentwasencouragedbycertain

quarters inJuly thisyear toraise fuel prices bycutting

subsidies in the state budget and limiting consumption.

The call came as some argued that the present subsidy

systemhadopenedthecommoditytoabuseintheblack

market,wherethesubsidizedpetrolissoldabroad.Black

marketabuseofsubsidizedpetrolwasthereasongivenby

Indonesia’s neighborMalaysiawhen it decided to raise

Asia-Pacic to focus on Coal Bed Methane







10


petrol prices almost every single monthso far in2011.Inanefforttoeasetheensuingpressureofinationand

criticism fromthe populace,the Government introduced

alowergradeofpetrol,calledRon95,whichissoldata

cheaperrateandmoreimmunetopricehikes.

SouthKorea was one country thatwent inthe opposite

directionfromtheirregionalcounterpartsinpetrolprices

over the past few months.The country has seen its oil

demand decline over the past decade.According to the

KoreaEnergyEconomicsInstitute(KEEI),oilisexpected

toaccountfor39.5%ofSouthKorea’stotalenergydemand

in 2011, compared with 53.2% in 2000. As such, the

Governmenttooktheinitiativetoreducepetrolpricesin

thecountryinanefforttobringdownination.Leading

renersinthecountrystartedcuttingfuelpricesinApril

this year.Top rener SKEnergy reduced its petrol and

diesel prices byUS$0.10 a liter over the threemonths

endedAugust.Threeother renersare setto followSK

Energyandanalystforecastthatthepriceslashcutcostall

fourrenersatotalofUS$643million.

Shale Gas in the Asia-Pacic

The majority of countries in the region have growing

economies, which drives energy demand. Falling new

productionand risesin global crudeoil prices have led

toAsia-Paciccountriesseeking out alternative sourcesof energy.Among the sources explored include nuclear

energy, natural gas, coal, biofuel and other renewables.

Onealternativesourceclosetomasscommercializationin

theregionisshalegas.Shalegasisinapositiontoadd

totheAsia-Pacic’sfutureenergysuppliesgoingforward

andhelptocuttheregion’srelianceonimportedenergy.

Currently, China, India and Thailand, among other

countries, alreadyconsumemoregasthan theyproduce.

Thegapissettowidenunlesstheycanboostproduction

ofthisunconventionalgasresource.Recentbreakthroughs

inhydraulicfracturingtechniquesandtheadoptionofnew

technologies haveallowedChinato start developing itsownshaleplays.China’s currenttechnically recoverable

shale gas reserves are estimated to be at around 1,275

trillioncubicfeet(Tcf),anamountthatislargerthanallthe

shalegasreservesofboththeUSandCanadacombined.

The Ministry ofLand and Resources announced at the

beginningof2010thatChinahadplanstoboostitsshale

gasproductioncapacityby530billioncubicfeet(Bcf)to

1.059Tcfannuallyto easegas shortages in thecountry.

China’s natural gas supply is frequently in shortage,

especiallyineasternandcentralChinawherenaturalgasdemandhassurged.

TheChineseprivatesectorhasalsoplayedaroleinthe

development and commercialization of the resource.

Chineseoiland gascompanieshave beenworkingwith

foreign shale gas companies in order to improve their

own technologies and help accelerate the development

ofChina’sshale gasplaysgoing forward.Thecountry’s

largest oil company, PetroChina, sought Shell’s help to

developanothershalegasblockinthesouthwesternpartof

theSichuanBasin,whileanotheroilandgasgiantSinopec

heldtalkswithBPtojointlydeveloptheunconventional

resourceinSichuanProvince.

IndiaisanotherfrontierintheAsia-Pacicforshalegas

development. India’s hugeshale depositsare located on

theGangeticplain,Assam,Gujarat,Rajasthanandinmost

coastalareas.Thecountryhasbeenworkingtogetherwith

theUStondwaysforeconomicexplorationofthegas.

January ofthisyearsaw a landmarkin Indiawhen the

country’soilandgasgiantONGCfoundshalegasinan

exploratorywellnearDurgapur,makingittherstAsian

countrytodiscovershalegas.

Indonesia,meanwhile, plans to tender theonshoreshale

gasreservesintheeasternpartofthecountry,estimated

at1,000Tcf,fordevelopmentbyyear-end2010.Lookingahead, Mergent expects governments and national oil

companieswithprovenshalegasreserveswillcontinueto

seekallianceswithwesternmultinationalswellversedin

theextractionandprocessingofshalegas.Thecurrentshale

gasrevolutionintheAsia-Pacicisalsobecomingaway

todiversifyenergysuppliesintheregionatatimewhen

cuttingemissionsisincreasinglybecomingapriority.

Market Outlook

TheAsia-Pacichasalargeandgrowingdemandforoil.

This, combinedwith sharply limited domestic supplies,

posesamajor challengefor theregion’senergysecurityandeconomicgrowth.Theregionisheavilydependenton

importstomeetitslargeandgrowingdemandforoil,andis

alsoparticularlydependentonoilimportsfromtheMiddle

East,which perhaps themost volatileand unpredictable

regionoftheworld.

Thereis aglimmerof hope for a changeforthe region

goingahead,withagrowingvolumeofRussianoilheading

forAsiaviaanewlyopenedterminalatKozminoonthe







11


PacicOcean.Apipeline,duetobecompletedby2014,will link the port to oil-rich East Siberia, nearly 5,000

kilometers inland, eventually raising the export ow to

1.6millionbarrels perday (bpd).Russia,which hasthe

world’slargestgasreserves,iskeentodiversifyitsexports

awayfromEuropebybuildingpipelinesandsellinggas

overseasintheformofLNG.

As theAsia-Paciceconomycontinues todevelop, it is

inevitable thatdevelopingcountriesinthe regionwillbe

thedominantconsumers of theworld’s energysupplies.

Many oil and gas producers may became net importers

rather thannet exportersover thedecade.The region is

increasinglybecomingahotbedofoilandgasactivityto

fuelasitpositionsitselftomeetrisingenergyneeds.

Mergent envisages that therewill be further uptrend in

upstream acquisitions byAsian national oil companies,

particularlyinunconventionalresourcesandinLNG.Oil

and gaswill continueto remain the dominantsourceof

energyintheAsia-Pacicoverthenext25years,according

to the ADB, despite signicant progress in developing

renewable and other alternative energy sources. It is

estimated that coal,oil and natural gas will still supply

80%oftheregion’senergysupplyin2030,drivingupCO2

emissions.

AccordingtotheADB,oilwillsupplyapproximately27%of all Asia-Pacic’s energy demand over the next two

decades,withanannualgrowthof2.2%.Naturalgasuse

willincrease3.6%ayeartofulll14.5%oftotalenergy

demand. The growth innaturalgas demand isexpected

tobebydemandgrowthinboomingChineseandIndian

economies, as well as the demand for cleaner energy.

This strong growth ofoil and gas demandwill provide

the impetus for huge investmentsin the midstream and

downstreamsectorsoftheAsia-Pacicinthenextdecade.

Coal is also an important energy source for the region,

llingintheenergygapsthatoilandgasleaves.Theuseof

coalwillrise2.1%annuallyoverthenexttwodecadesto

supply38.3%oftheAsia-Pacic’senergyneedsby2030.

Newand renewableenergysourcesare forecasted tobe

theregion’sfourthlargestenergysourceby2030andwill

supplying anestimated11%of theregion’s total energy

needs. However, the ADB forecasts a slow uptake of

renewableenergyatonly1.3%annuallyoverthenexttwo

decades.Therearestillsomepositivesignsforrenewable

energy expansions, despite the pessimistic outlook, the

ADB believes there is a compelling case for increased

investmentinlow-carbonpower.Basedoncurrenttrends,oil imports to theAsia-Pacic are expected to increase

substantially,andnearlydouble2005levelsby2030.This

is detrimental to the region’s energy security andAsia-

Pacicwillverylikelyexplorenewandrenewableenergy

sourcesoverthenextfewyears.







12

Country Profile Australia

AustraliaisoneofthefewcountriesintheOECDthatisa

signicantnethydrocarbonexporter.Thecountryexports

approximately two thirds of its total energy production.

The country has a considerable amount petroleum and

naturalgasreserves.OilproductioninAustraliapeakedin

2000andhassteadilydeclinedsincethen.Gasproduction

inAustralia,meanwhile,continuestogrow,meetingboth

domesticandexportdemandviaLNGsales.Thecountry

alsohasotherenergysources,mostnotablycoal.According

to theEIA, asof Junethis year,Australia remained theworld’slargestcoalexporter.

Australia’sprospectsforexpandingtheseenergyexportsin

thefuturearepromisingasAsiandemandforbothcoaland

LNGis risingalongwithAustralia’sproven naturalgas

reserves.Havingastablepoliticalenvironment,substantial

hydrocarbon reserves, and proximity toAsian markets

makesAustraliaanattractiveplaceforforeigninvestment.

AlthoughAustraliaexportscrudeoilandrenedpetroleum

products,itisanetimporterofoil.Hydrocarbonexports

accountedfor19%oftotalexportrevenuesin2009.

AccordingtostatisticsreleasedbytheEIAearlierthisyear,

Australiahad3.3billionbarrelsofprovenoilreservesas

ofJanuary1,2010.Oilproductiontotaled589,000bbl/d

in2009,ofwhich81%(476,000bbl/d)wascrudeoil.The

countryexpectsacontinueddeclineinoilliquidsproduction

isexpectedoverthenextdecade.Acoupleofsignicant

offshore projects, the Pyrenees andVan Gogh projects,

came online inWesternAustralia in the rst quarter of

2010.Bothhavesincemadeasignicantcontributionto

oilproductioninthecountry.

Pyreneeshas a production capacityof 96,000 bbl/d and

VanGogh has a production capacity of 150,000 bbl/d.

TheseprojectsareexpectedbytheAustralianBureauof

AgriculturalandResourceEconomics(ABARE)toboost

oil exports by 7%over 2010-2011, in line with higher

production,aidedbytheKipperandTurumeldsstarting

upinthebeginningof2011at10,000and11,000bbl/d,

respectively.Theseadditionstoproductionareexpectedto

offsetthefallinoutputinothereldsatleastintheshort

term.

Sector Overview

Table 2: Historical Australian Oil and Gas Production (mmbls, bcf)

Source: Australian Petroleum Production and Exploration Association

2000

1200

1600

800

1800

1000

1400

600

300

200

50

1993 20011997 20051995 20031999 20071994 20021998 20061996 20042000 2008 2009

250

100

150

0

Liquids (oil, condensate, LPG) (mmbls) Gas (sales gas, LNG) (bcf)

Oil Sector







13

Country Profile - Australia

There were 31 new exploration areas in ve offshore basinswereofferedforbiddingin2010,withclosingdates

ineitherNovember2010orMay2011,dependingonthe

explorationstatusanddataavailableintheseareas.TheEIA

estimatesAustraliahadnet oilimports ofapproximately

360,000bbl/din2009.Thehighproportionofimportsas

ashareoftotaloilproductionalsoreectsthelocationof

themajorityofAustralia’soilproductionoffitsnorthwest

coast,whichisclosertoAsianreneriesthantoAustralia’s

domesticreneries,locatedonitseastcoast.

Natural Gas Sector

According to the EIA,Australiahad 110Tcfofproven

naturalgasreserves asof January2010.Australia isthe

12thlargestholderofnaturalgasreservesintheworldand

was the fourth largest exporterof LNG intheworldin

2009.Thiswaslargelyaresultofincreasedexplorationand

developmentofitsunconventionalaswellasconventional

gassources.Naturalgas production inAustraliareached

1.5Tcfin2009andisonarisingtrend,withsignicantnew

projectscomingon-streamintheshorttomediumterm.

The majority of Australia’s natural gas production is

converted into LNG for export aswell as for domestic

consumptionbecausethe distancebetweenAustraliaand

itskeynaturalgasexportmarketsinAsiamakespipeline

trade virtually impossible.AustralianLNGexportshaveincreased by 48% and they are expected to continue

toincreaseovertheshorttomediumtermoverthepast

decade.Japanistheprimarydestinationfortheexports,followedbyChina,SouthKorea,India,andTaiwan.

Leading Companies

Santos (ASX: STO)

Santosdidnotdowellnanciallyaswellasinproduction

over Q1 of this year. Santos’ total sales fell 4%, from

13.6mmbo for the rstquarterof 2010 to13.1mmboe

forthecurrentquarter.Thecompanyreportedrevenuesof

A$501million(US$537.42million)—2%lowerthanthe

revenuesofA$511million(US$548.15million)reported

fortherstquarterof2010.

The results were largely affected by adverse weather

conditions thatwereunfavorable to the drillingprocess

and production of the company.The average rainfall at

Moombaoverthequarter,combinedwithoods,affected

productioninthecompany’sinterestintheCooperBasin.

Santos’ production and drilling activities offshore of

WesternAustraliawerealso interrupted on no less than

veoccasionsasthreecyclonesandtwotropicallowshit

thearea.

Woodside Petroleum (ASX: WPL)

Woodside Petroleum reported nancial and productiondeclinesfortherstquarterof2011.LikeSantos,abnormal

levelsoftropicalcycloneactivityinthenorthwest,where

Table 3: Australia’s LNG Exports for 2009

Japan, 65%

Taiwan, 2%India, 5%

S. Korea, 7%

China, 20%

Source: Energy Information Administration







14

Country Profile - Australia

thecompany’skeyproductionwellsarelocated,alsohitWoodside. Higher commodity prices during the quarter

also adversely affected the company’s sales volumes.

Woodside’s production forthe rst quarter of2011was

15.6 mmboe — 19% lower when compared with the

productionof19.2mmboereportedfortherstquarterof

2010.Itstotalsalesfell18%overthesameperiod,from

18.7mmboeto15.3mmboe.Thecompany’stotalrevenues

declinedtoUS$998millionfortherstquarterof2011,a

dropof3%fromtheUS$1.028billionreportedfortherst

quarterof2010.

Market Outlook

Looking ahead,Australia is poised to overtakeNorway

tobecome the thirdlargest gas producer amongOECD

nations by 2035, driven mainly by the booming LNG

sector.Australiangasproductionisprojectedtogrowatan

averagerateof4.2%ayearuntil2035,makingitoneofthe

fastestgrowingsectorsintheworld.Bythen,Australia’s

gasoutputwillonlybesurpassedbytheUSandCanada.

Australia’s gas output is expected to eclipseMalaysia’s

by 2020 and Indonesia’s by 2025.The two nations are

currentlythelargestgasproducersintheAsia-Pacicand

majorLNGexporters.Crudeoilproduction,ontheother

hand,isexpectedtodeclineby28%overthe2010-2020

period.Australiancoalproductioniscurrentlynearitspeakandoverthesameperiod,isexpectedtoincreasebyonly

anaverageof0.6%annually.







15

Country ProfileChina

China is the world’s most populous country and the

second largestoilconsumerbehindtheUS.Thecountry

hassurpassedtheUSintermsoftotalenergyconsumed

and rising oil demand and imports have made China a

signicantplayerinworldoilmarkets.Chinawentfrom

beinganetoilexporterintheearly1990sandbecamethe

world’sthirdlargestnetimporterofoilin2006.

Oil consumption growth in China accounted for about

a thirdof the world’s oil consumption growth in2009.

The use ofnaturalgas inChina has also grownrapidly

inrecent years, withChina looking to raisenaturalgas

importsviapipelineandLNG.Chinaisalsotheworld’s

largestproducerandconsumerofcoal,supplying74%of

China’s total energyconsumption requirements in2008.

Thecountrystillhaslargequantitiesofcoalreservesyet

tobedeveloped.

Oil is the second largest source of China’s energy

consumptionandaccountsfor15%of thecountry’stotal

energyconsumption.Despitemakinganefforttodiversify

itsenergysupplies,hydroelectricsources(7%),naturalgas

(4%),nuclearpower (1%), andother renewables (0.2%)

make up relatively small amounts of China’s energy

consumptionmix. TheEIA forecasts coal’s share of the

energymixwill fall to62%by 2035due toanticipated

increasedefcienciesandChina’sgoaltoreduceitscarbon

intensityorcarbonemissionsperunitofGDPbyat least

40%from2005levelsby2020.

Oil Sector

Oil consumption in China has continued to grow at a

solidpace,drivenbystrongeconomicgrowthandmaking

the country’s ranking as one of the world’s top energy

consumers.Chinaconsumedanestimated8.3millionbbl/d

ofoilin2009,upbynearly500millionbbl/dfromyear

earlierlevels.TheEIAforecastsChina’soilconsumption

will continue to grow during 2011, with oil demand

reachingalmost9.6millionbbl/din2011.

TheEIA alsoestimates China’s netoil imports reached

4.3 million bbl/d in2009,making it the second largest

net oil importerin theworldbehindtheUSandforthe

rsttimesurpassingJapan’simports.Afteryearsofrapid

growth, the rate of consumption growth is expected to

slowdownin2011.AccordingtotheChinaPetroleumand

ChemicalIndustryFederation(CPCIF),China'scrudeoil

consumptionisprojectedtogrowby6.6%thisyear,down

froma13.1%growthin2010.

AccordingtostatisticsreleasedbyChina’sNationalBureau

ofStatistics,China’scrudeoiloutputclimbed8.8%year-

on-yearto17.76millionmetrictonsor4.2millionbarrels

per day inOctober 2010.The country produced168.06

millionmetric tonsof crudeoil for the rst tenmonths

of2010,6.1%morethaninthesameperiodoflastyear.

AccordingtoEIAdata,Chinahadprovenoilreservesof

20.4billionbarrelsasofJanuary2010,upoverfourbillion

barrelsfromthepreviousyear.TheCPCIFalsoforecast

thatcrudeoiloutputwouldgrowbyapproximately4%in

2011.

Natural Gas Sector

AccordingtotheEIA,Chinahad107Tcfofprovennatural

gas reserves as of January 2010.The CPCIF estimates

naturalgas consumptionwill continueto growata fast

pace of about15%, down slightly from the natural gas

consumption rategrowthof 15.9% in2010.Natural gas

is the fastest growing fuel in China’s energy mix, but

demand consistently outpaces supply in the country.

Natural gas still represents a small proportion (4%)

of total energy consumption in China. However, with

demandforthe relativelycleanfuelrisingrapidly,China

is increasingly resortingto LNGimportswhile building

itsgasinfrastructure.NaturalgasconsumptioninChinais

expectedtorisetoover10%by2020inlightofincreasing

LNGimportsaswellasdomesticdiscoveries.

China’spotentialwealthofunconventionalgasresources

suchasCBMandshalegashasspurredtheGovernment

toseekforeigninvestorswithtechnicalexpertisetoexploit

thesereserves.Chinaisestimatedtohaveover1,000Tcf

of geological CBM reserves, with 350 Tcf recoverable

reservesandonlysixTcfsofarofprovenreservesby2010.

Despitefacingseveraleconomicandlogisticalchallenges

toproducingCBM,theGovernmentsupportandforeign

Sector Overview







16

Country Profile - China

participation is spurring production of the resource.However,hurdleslikelimitedaccesstoland,theghtfor

miningrightsandstatecontrolsongaspricesremain,and

itwillbesometimebeforeChinabecomesasignicant

playerinunconventionalgas.

Leading Companies

China Petroleum & Chemical Corporation (Sinopec)

(HKSE: 386)

Asia’slargestrener,ChinaPetroleum&ChemicalCorp,

enjoyedaverygoodyearbothnanciallyandinproduction

in2010.ThecompanyreportedtotalrevenuesofRMB1.97trillion(US$304.76billion)—41.7%higherthatthetotal

revenuesofRMB1.39trillion(US$215.03billion)reported

over2009.

Itsnetprotrose24.7%,fromRMB57.857billion(US$8.95

billion)in2009toRMB72.125billion(US$11.16billion).

Sinopecdiscovered270milliontonsofoiland35.8(billion

cubicmeters)bcmofnaturalgasinprovenreservesin2010.

Italsoproducedatotalof42.56milliontonsofcrudeoil

and12.5bcmofnaturalgasduringtheyear,bothofwhich

were the highest levels ever producedby the company.

Sinopecalsoimproveditscrudeoilproductioncapacityto

5.92milliontonesfortheyearanduppeditsnaturalgas productioncapacityto7.1bcm.

PetroChina (HKSE: 857)

PetroChina continued to perform stronglyover the rst

quarter of this year. The company reported net prot

of RMB37 billion (US$5.72 billion) and basic EPS of

RMB0.20 (US$0.03). This represented an increase of

13.9% compared with the rst quarter of 2010. The

companyproduced219.1millionbarrelsofcrudeoilinthe

rstquarterof2011,anincreaseof4.3%ascomparedwith

therstquarterof2010,whileitsproductionofmarketable

naturalgasroseby7.1%to639.3billioncubicfeet(bcf).

Forthequarter,PetroChinarealized325.7millionbarrels

ofoilandnaturalgasequivalentoutput,representingan

increaseof5.2%.Ofthe325.7millionbarrels,26.6million

barrelswereoverseasoilandnaturalgasequivalentoutput.

Thiswasanincreaseof5.4%ascomparedwiththerst

quarterof2010.Itsexplorationandproductionoperations

operating prot rose 38.8% to RMB45.865 billion

(US$752.62million)fortheperiod.

Market Outlook

China iscurrently at theforefrontofefforts toboost its

use of new low-carbon energy technologies, including

alternativevehicles.Fortherestofthedecade,thecountry’s

use of renewable energy sources such as hydro, wind,

solar,geothermal,biomassandmarineenergyisexpected

togrowfurther.TheChineseGovernmentisexpectedto

investapproximatelyUS$205billionin2035inrenewable

energysourcessuchasbiofuel,upfromUS$57billionin

2009.

Asaresult,theIEAforecaststhecountrymayseeadecline

intheoveralloildemandgrowthratein2011.Overthelongerterm,however,theIEAforecastsChina’sdemand

will endup growing 75% between 2008 and 2035, far

higher than the growth of 36% in overall international

energyuse.Littleisalsoexpectedtochangeintheoverall

mixofenergyuseinChina,andoilisexpectedtoremaining

themostpopularenergyusein2035,followedbycoal.







17

Country ProfileIndia

TheIndianoilandgasindustryhasbeeninstrumentalin

fuelingtherapidgrowthofthecountry’seconomyoverthe

pastdecade.Indiawasthefourthlargestoilconsumerin

theworld,aftertheUS,ChinaandJapanin2009.India

isa signicant consumerof energy resources due toits

higheconomicgrowthratesandover15%oftheworld’s

population.Accordingto theBP2010StatisticalReview

ofWorldEnergy,India’soilreservesclimbed55%in2010

from2009to9billionbarrels.

Indiahadanestimated1.075trillioncumofprovednatural

gasreservesasofJanuary1st,2010,accordingtostatistics

releasedby theMinistry ofPetroleumand NaturalGas.

Imports satisfy much of India’s growing energy needs

as thecountry doesnot havesufcient domesticenergy

resources. In addition to pursuing domestic oil and gas

explorationandproductionprojects,Indiaisalsostepping

upitsnaturalgasimports,particularlythroughimportsof

LNG.

Oil Sector

According to the BP 2010 Statistical Review ofWorldEnergy, India’s oil reserves climbed 55% in2010 from

2009toninebillionbarrels.Thiswasthesecondlargest

amount of reserves in the region after China. India

producedroughly880thousandbbl/doftotaloilin2009

fromover3,600operatingoilwellsandsawasubstantial

riseincrudeoilproductioninthersthalf2010,buoyed

bytheproductionincreaseintheprivatesector.Basedon

Ministry of Petroleum and Natural Gas data, crude oil

productionpickedupto3.186MMTtoApril2010from

2.85MMTreportedinApril2009,anincreaseof5.5%.

India is increasingly dependent on imports to meet its

petroleum demand, thanks to the combination of risingoilconsumptionandrelativelyatproduction.Indiawas

thesixthlargestnetimporterofoilintheworldin2009,

importingnearly2.1millionbbl/d,orabout70%,ofitsoil

needs.TheEIAexpectsIndiatobecomethefourthlargest

netimporterofoilintheworldby2025,behindtheUS,

China,andJapan.Thecountrygetsapproximately70%of

itscrudeoilimportscomefromtheMiddleEast,primarily

fromSaudiArabia,followedbyIran.Indiaisexpectedto

increaseitscrudeoilimportsfromMiddleEastinthenext

fewyearstofuelitsmassiveupcomingreningcapacities.

Natural Gas Sector

AccordingtotheEIA,Indiahadapproximately38Tcfof

provennaturalgasreservesasofJanuary2010.TheEIA

estimates that India produced approximately 1.4 Tcf of

Sector Overview

Table 4: Crude Oil production (MMT) – Performance

Month / PeriodPlannedTarget

ActualProduction

%achievement

Surplus(+)Shortfall(-)

Vis-à-vis target


Over last year

April 2011 3.015 3.186 105.7 5.7 11%

April 2010 2.850 2.870 100.7 0.7 -

Source: Ministry of Petroleum and Natural Gas

Table 5: Natural Gas Production (MCM)

Month / PeriodPlannedTarget

ActualProduction

%achievement


Vis-a-vis target


Over last year

May 2010 4,619.5 4,585.6 99.3 -0.7% +34.4%

April-May 2010 8,975.4 9,102.5 101.4 +1.4% +43.5%

April-May 2009 6,341.5

Source: Ministry of Petroleum and Natural Gas







18

Country Profile - India

naturalgasin2009,a20%increaseover2008productionlevels.ThebulkofIndia’snaturalgasproductioncomes

from thewesternoffshore regions.Data releasedby the

Ministryof PetroleumandNaturalGas shownaturalgas

production forApril-Mayperiod in2010rose43.5% to

9,102.5millioncubicmeterscomparedto6,341.5million

cubicmetersin2009.Gasproductionwasalsoupby1.4%

asagainstthesetproductiontargetof8,975.4millioncubic

metersforApril-May2010.

AccordingtoEIAestimatesreleasedearlierin2011,India

consumedroughly51.27billioncumofnaturalgasin2009,

anincreaseof22.95%comparedwiththeconsumptionof

41.7billioncumreportedin2007.Naturalgasdemandis

expectedtocontinuetogrowconsiderably,largelydriven bydemandfromthepowersector.Naturalgasisexpected

to be an increasingly important component of energy

consumption as the country pursues energy resource

diversicationandoverallenergysecurity.Despitemajor

newnaturalgasdiscoveriesinrecentyears,Indiacontinues

toplanongasimportstomeetitsfutureneeds.

Leading Companies

Oil and Natural Gas Corporation (ONGC) (BSE: 500312)

Indian’s state-owned Oil and Natural Gas Corporation

(ONGC) reported consolidated gross sales ofRs.122,764.04 crore (US$27.622 billion) for the year

endedMarch31,2011,comparedwithconsolidatedgross

salesofRs.106,174.73crore(US$23.89billion)reported

for the 12months endedMarch 31, 2010.Itsnet prot

also rose fromRs.19,403.53 crore (US$4.37 billion) to

Rs.22,455.93 crore (US$5.05 billion) over the period.

ONGCmadetwosignicantdiscoveriesovertheyear.The

rstwastheexploratorywellVadtal#3in thecompany’s

NELPBlockCB-ONN-2004/2,which isproved tohave

theproductioncapacityof22.5cubicmetersofoilperday

andgasproductioncapacityof3,758cubicmetersperday.

Anotherwasthecompany’ssuccessfuldevelopmentofthe

NorthKadi#461wellinitsWesternOnshoreBasin,which

churnedoutoilatarateof17cubicmetersdaily.

Reliance Industries (BSE: 500325)

Reliance Industries is India’s largest conglomerate by

market capitalization. The company reported stellar

nancial results for the 12 months ended March 31,

2011. The company’s total turnoverwas up 29% from

thecomparable2010periodtoUS$58billion.Reliance’s

exportsalsowentupby33%toUS$32.9billionoverthe

period,anditscashprotrose24%toUS$7.7billion.Thecompany’snetprotreachedUS$4.5billionfortheperiod,

anincreaseof25%.Theresultswerethebesteverreported

bythecompanyforafullscalyearandweredrivenbythe

improvingglobaleconomyaswellasnewmarketdemand

for energy. The company also made some acquisitions

andenteredintoa numberofstrategicjointventuresand

alliancesoftheperiod.

Market Outlook

According to the IEA, India’s fuel demand is expected

togrowby3.2%in2011,higherthantherevised2%rise

expectedin2010.TheIEAforecastsIndia’sfueldemand

will growby107,000bpd to3.43million bpd in2011.TheIEAbelievesthatastheIndianeconomycontinuesto

growoverthelongerterm,thecountry’sfueldemandwill

becomemoresensitivetoglobalcrudeoilprices.Thiswill

nodoubtleadthecountrytoexploreenergyalternatives

foroilandgasandsetthestageefciencygainsandmore

rationalenergyuse.Asasteptowardsthatdirection,India

iscurrentlyseekinginvestmentsofuptoUS$4.5trillionin

itsenergysectorinanefforttocutcarbonemissionsaspart

ofaglobalinitiativetoreduceglobalwarmingby2050.

India’spercapitaemissionislowcomparedtotheUSand

China,althoughitisprojectedtoincreaseby10%by2050.

Indiawould have to shift from coal-based economy to

othersourceslikewind,solar,hydroandnuclearpowerifitistomeettherequirementsoftheglobalinitiative.







19

Country ProfileIndonesia

Indonesia ranks 20th among the world’s oil producers

and accounts for approximately 1.2% of world’s total

production, according to the BP’s Statistical Review of

WorldEnergy2010,makingitasignicantplayerinthe

internationaloilandgasindustry.Indonesiabecameanet

oilimporterinlate2004followinganumberofyearsof

declining oil production and increases in consumption.

This,alongwiththedownwardspiralofoilpricesin2008

and2009,ledtheGovernmenttoscalebackitsdomestic

fuel subsidy in2008 and totemporarily withdrawfromOPEC.

Accordingtothecountry’sMinistryofEnergyandMineral

Resources,Indonesianoilandgasdevelopmentstalledin

2010,withstaterevenuefromthesectorfallingUS$6.36

billion,down25%on2009,anddirectinvestmentfalling

to US$12.18 billion from a targeted US$13.77 billion

target.Thekeyreasonbehindthedeclinewasthefailure

bytheGovernmenttondnewinvestorsformostofthe40

oilandgasblocksofferedin2008.

Oil Sector

OilproductioninIndonesiahasslumpedinrecentyears,

withupstreamoilandgasregulatorBPMigasloweringits

estimatefornationaloilproductionto917,000barrelsper

dayfor2010,down5%frominitialprojections,citingthe

prospectofshutdownsandregulatoryhurdles.Thenatural

declineinoutputduetothedryingupofoileldsisnotthe

onlythreattooilproductioninthecountry.Theindustry’s

output was also affectedby unplanned shutdowns, land

acquisitiondifcultiesandrestrictionsfromenvironmental

lawsoverthelastyear.

TheIndonesianEnvironmentMinistrylookedto enforce

a new environment law that allows the Government tocanceltheoperatingpermitofanycompanyfoundtobe

breachingthetermsofitsenvironmentalimpactassessment.

As a result, the law has become a stumbling block in

Indonesia’seffortsto attractfreshinvestment todevelop

newelds.Manyofitsremainingunexploitedeldsare

inremoteareasorunderdeepwater,requiringhighlevels

of investment and specialized technology. Indonesiahas

provenoilreservesof4.05billionbarrelsasofJanuary1,

2010.AsIndonesia’soilproductionhasfallen,thecountry

hasattemptedtoshifttowardsnaturalgas,especiallyfor

powergeneration.

Natural Gas Sector

AccordingtotheBPStatisticalReviewofWorldEnergy

2010, Indonesiarankedseventhinworldgasproduction.

Morethan70%ofthecountry’snaturalgasreservesare

locatedoffshore,withthelargestreservesfoundoffNatuna

Island,EastKalimantan,SouthSumatra,andWestPapua,according to the Indonesian Government. Increasingly

competitiveLNGmarkets,newpipelineexports,aswell

asgrowingdomesticdemandaretransformingIndonesia’s

gasindustry.

Although Indonesia’s natural gas productionhas picked

upinrecentyears,thecountryisfacingadecliningglobal

LNG market share to emerging LNLG producers in

Qatar, Australia,Algeria and Malaysia. The Indonesian

Government has outlined plans to start development of

shalegasin2011.Indonesiahasasubstantialamountof

shale gasreserves.According todata from theBandung

Institute of Technology, Indonesia has potential shale- basedgasreservesofupto1,000Tcf.

Leading Companies

PT Medco Energi Internasional Terbuka (JSX: MEDC)

PT Medco Energi is Indonesia’s largest private oil

company,withvariousexplorationandproductionblocks

inIndonesia,Cambodia,Oman,Yemen,Libya,Tunisiaand

theUS.Thecompanyperformedwellnanciallyin2010,

reportingtotalrevenuesofUS$929.9million.Thiswasan

increaseof39.2%fromthetotalrevenuesof667.8million

reportedfor2009.Thecompany’snetincomealsosurged331.9%fortheperiod,fromUS$19.2milliontoUS$83.1

million.ThiscamedespiteslowerLPGsalesfortheyear,

whichfellfromanaverageof45.2MTperdayto42MT

perday.The strongnancialperformancewasaided by

thehigheraverageoilprices,whichrosefromUS$63.98

perbarreltoUS$81.47perbarrelfortheyear,anincrease

of27.3%.PTMedcoEnergi’sproved reservesdeclined,

however,fortheyear,fallingfrom235.5MMBOEin2009

to201.4MMBOEin2010.

Sector Overview







20

Country Profile - Indonesia

PT Energi Mega Persada (ENRG)(JSX: MEDC)

PT Energi Mega Persada is Indonesia’s second largest

publicly listed oil and gas rm. The company reported

earningsbeforeinterest,tax,depreciationandamortization

(EBITDA) ofRp.194.68 billion (US$19.47million) for

the rst quarterof2011, anincrease of374%fromthe

EBITDAreportedfortherstquarterof2010.

The company reported a net prot of Rp.14.3 billion

(US$1.43 million) for the same quarter, a marked

improvementfromthenetlossofRp.21.7billion(US$2.17

million)thatit reportedfortherstquarterof2010.The

positive nancial results were driven by the increase

in realized selling prices and higher production rates.

Productionwasgivenashotinthearmwhenthecompany’s

PagerunganoilledinEastJavaandBentuPSCgasblock

inRiau,Sumateracommenceditsrstproduction.

Market Outlook

Once a major oil exporter, growing domestic needs, a

slumpinproductionandtheinabilitytotapintonewelds

fast enough has turned Indonesia into a net importerof

crudeoilinrecentyears.Inabidtostemasteadydecline

in production that has intensied the need for imports,

Indonesiahasofferednewexplorationrightsandnancialincentivesforoilandgasinvestors.Althoughencouraging,

theincentivesaresaidtobeinsufcientand,lookingahead,

thecountrywillneedtolooktoothersourcesofenergy.

Indonesia is looking to use more renewables and is

targetingby2025tohaveanenergymixof30%fromgas,

20%fromoil-basedfuels,30%fromcoal,andtherestfrom

renewablessuchasgeothermalandsolarpower.Indonesia

hashundredsofactiveandextinctvolcanoes,givingitthe

potentialtoproduceanestimated27,000MWofelectricity

fromgeothermalsources.However,thatpotentialremains

largelyuntappedbecauseofthehighcostsofproducing

geothermalenergy.







21

Country ProfileJapan

Japanisthethirdlargestoilconsumerintheworldbehind

theUSandChinaandthesecondlargestnetimporterofcrude

oil.Itisalsotheworld’slargestimporterofLNGandcoal.

Japaneseoildemandhasbeendecliningforyears,withthe

country’sfallingpopulationfocusingonconservationand

greenerfuels.TheMinistryofEconomy,TradeandIndustry

(METI)forecastthattotaloildemandwoulddeclinebyan

averageof3.5%ayearuntilthescalyearendinginMarch

2015.Inlightofthecountry’slackofsufcientdomestic

hydrocarbon resources, Japanese energy companiescontinuedtoactivelypursueparticipationinupstreamoil

andnaturalgasprojectsoverseasoverthelastsixmonths,

providingengineering,construction,nancial,andproject

managementservicesforenergyprojectsglobally.

The overcrowded rening industry is expected to see a

change after new regulations for reners to boost their

ability toprocess heavyoil into lighter oil productsby

March2014byeitherbuildingnewresiduecrackingunits

orbycuttingdowntheircapacities.Thecountry’sshrinking

domesticmarketoffersrenerslittleincentivetoinvestin

costlynewunitstomeetthetradeministry’sdirective.The

JapaneseGovernmentlookedtonarrowthegapbetweenJapan’sheavyoilcrackingratioofabout10%ofrening

capacity,withratiosofaround19%inEurope,theUSand

someAsiancountries.

Oil Sector

Japan hasvery limiteddomestic oilreserves, amounting

to44millionbarrelsasofJanuary2010,accordingtothe

EIA. Japan’s domestic oil reserves are concentrated

primarily along the country’s western coastline. The

country reliesheavily on imports,especially those from

theMiddleEast,tomeetlocaldemand,makingJapanthe

world’sthirdlargestnetimporterof oil.Japanmaintains

government-controlledoilstockstoinsureagainstasupplyinterruptionandthecountryhastotalstrategicoilstocks

of590millionbarrelsattheendofApril2010.Japanis

thethirdlargestpetroleumconsumerintheworld,behind

theUSandChina,consuming4.4millionbbl/dofoilin

2009.However,oildemandinJapanhasbeendeclining

since2005.Thecountry’sindustrialsectorisalsoshifting

tonatural gas use. Fuel substitution isoccurring in the

residential sector as high prices have cut demand for

keroseneinhomeheating.

Japanhad 738Bcf ofproven naturalgas reservesas of

January2010,accordingtotheEIA.Approximately50%

ofJapan’sdomesticgassupplyisproducedinitslargest

naturalgaseld intheMinami-Nagaoka on thewestern

coast of Honshu, where 125 Bcf of natural gas was

produced in 2009. Japan relies on imports to meet its

naturalgasneedsduetoitslimitednaturalgasresources.

Japanistheworld’slargestimporterofLNGand,inthe

rsthalf2010,whereitsLNGimportsreachedarecord

becauseofthehugeincreaseinthepurchaseofthefuel.AccordingtodatafromJapan’sMinistryofFinance,the

purchaseofthecleanerburningfuelroseto34.68million

metrictonsinthesixmonthsthroughtoJune2010from

31.65milliontonstheyearearlier.Importsfellabout8.7%

inthersthalfof2009fromthepreviousyearbecauseof

theglobalrecession.

Leading Companies

JX Holdings (TYO: 5020)

JXHoldingsisJapan’slargestrener.Thecompanyreported

totalnet salesof¥9.6trillion(US$119.04billion)forthe12months endedMarch 31,2011. Itsoperating income

reached¥334.402billion(US$4.15billion)forthenancial

year,withtotalnetincomefortheyearof¥311.736billion

(US$3.96billion).ItsbasicEPSfortheperiodwas¥125.35

(US$1.55).In Januarythisyear,thecompanyannounced

thatitsafliateNipponOilExploration(NOE)hadmadea

gas-condensatediscoveryinBlock16-2offshoreVietnam.

VietnamisoneofNOE’skeyE&Pareasand,apartfrom

Block 16-2, NOEX also has interests in Block 5-1b/c

offshore Vietnam, which is currently in the exploration

phase.The JXHoldings afliate also has an interest in

Block15-2,hometotheRangDongandPhuongDongoil

elds,whicharecurrentlyintheproductionphase.

Idemitsu Kosan (TYO: 5019)

Idemitsu Kosan is involved primarily in petroleum

products, petrochemical products, oil exploration and

production, coal, and other businesses. The company

reportednetsalesof¥3.659trillion(US$45.37billion)for

theyearendedMarch31,2011—17.6%higherthanthe

netsalesof¥3.112trillion(US$38.59billion)reportedfor

thecomparableprior-yearperiod.

Sector Overview Natural Gas Sector







22

Country Profile - Japan

Its operating income surged 189.6% over the period to¥128.771billion(US$1.6billion),whileitsnetincomewas

upalmosttenfoldto¥60.683billion(US$752.47million)

from ¥5.977 billion (US$74.12 million). The bullish

nancialresultwasduelargelytotherecoveryofoverseas

economies,improvingoilandgasdemand,aswellasthe

bottomingoutofdomesticconsumerspending.Higheroil

pricesalsofavoredthecompanynancially.

Market Outlook

Likemanyofitsregionalcounterparts,oneimportanttarget

forJapangoingaheadistoreduceitsrelianceonenergy

imports, especially from the politically unstableMiddle

East.Thecountryshouldcontinuetolooktowardsoffshoremethanehydratestoshoreupitsenergysecurity.Japanhas

beenworking towards this unconventional source since

itconrmed40Tcfofmethanehydratesinthesouthern

Sea of Kumano in 2007. Commercial test drilling for

controversialfrozenmethanegasalongitscoastisslated

tobeginthisyear,withplanstobegincommercialoutput

ofmethanehydratesby2018.

Japan is estimated to have enough methane hydrate in

itsseaoorsedimentstoprovideenergyequivalentto 90

years of thenation’s natural gasusagetoday.However,

manyscientistsandenvironmentalistsareconcernedabout

theenvironmentalimpactoftheenergysource.Methaneitselfisagreenhousegas,whichis21timesasdamaging

ascarbondioxideandanyleakagefromwellscouldbea

majorenvironmentalproblem.







23

Country ProfileSouth Korea

SouthKoreaisoneoftheworld’slargestenergyconsumers.

Thecountryhas nodomesticreserves,making itoneof

the world’s top energy importers. The country is the

fthlargestimporterofcrudeoilandthesecondlargest

importerofbothcoalandLNGintheworld.LNGaccounts

forabout15%andcoal25%,whileoilproductsmeet45%

ofthecountry’senergyneeds.Oilaccountedforthelargest

portionofSouthKorea’sprimaryenergyconsumptionin

2009.However,itssharehasbeendecliningsincethemid-

1990s,whenitreachedapeakof66%.

Havingnointernationaloilornaturalgaspipelines,South

KoreareliesexclusivelyontankershipmentsofLNGand

crudeoil.SouthKoreaishometosomeofthelargestand

mostadvancedoilreneriesintheworldandthesetanker

shipmentsofLNGandcrudeoilarereneddomestically.

State-ownedoil,gas,andelectricitycompaniesaggressively

soughtoverseasexplorationandproductionopportunities

overthelastsixmonthsinanefforttoimprovethenation’s

energysecurity.

Oil Sector

SouthKorea,Asia’sfourthlargestbuyerofoilandthetenth

largestconsumerofoilintheworld,consumedovertwo

million bbl/din 2009.The country iswholly reliant on

importstomeetitsdemand,asithasnoprovendomestic

crude oil reserves. InMay 2010, the country increased

its crude imports by 21.5% as reners expanded fuel

productiontomeetinternationalorders.Accordingtothe

MinistryofKnowledgeEconomy,duringthesameperiod,

itsimportsroseto75.3millionbarrelsfrom62.0million

theyearearlier.

The majority of SouthKorea’s crude oil imports comefrom theMiddleEast, with thePersianGulfaccounting

fornearly75%ofits2009totaloilimports.Theindustrial

sector accounts for more than half of South Korea’s

oil end-use consumption, largely due to its signicant

petrochemicalindustry.SouthKoreahad2.7millionbbl/d

ofcrudeoilreningcapacityatsixfacilitiesasofJanuary

1,2010, accordingto the EIA, and has the sixthlargest

reningcapacityintheworld.

Natural Gas Sector

SouthKorea,theworld’ssecondlargestbuyerofLNGafter

Japan,increasedimportsofthefuelinthersthalfof2010tomeetrisingdemandfrompowerproducersandtobuild

winterstockpiles.SouthKoreasawitsnaturalgasdemand

Sector Overview

Table 6: South Korean Oil Imports by Source, 2009

Others, 26%

Saudi Arabia, 27%

Iraq, 6%Qatar, 6%

Iran, 8%

Kuwait, 13%

UAE, 14%

Source: Energy Information Administration







24

Country Profile - South Korea

risebacktopre-recessionlevelsoverthesecondhalfof2010.Purchases climbed to2.74millionmetric tons in

October2010from2.47milliontonstheyearearlier.The

improvedsalesdataindicatedarecoveryofconsumption

topre-recessionlevels.ThecountrypaidUS$516.84aton,

equivalentto aboutUS$9.82permillionBritish thermal

units(Btu),anincrementof13%fromtheyearearlier.

The state-run KoreaGas Corp expects the nation’s gas

demand toincrease by11%betweenOctober2010and

March2011asaneconomicrecoveryboostsconsumption.

SouthKorea uses onaverage approximately 70% ofits

LNG during the period because ofthe spike inheating

needsduringthewintermonths.Thecountryhasmulti-year

contractsforpurchasesofLNGfromcountriesincludingQatar, Russia, Indonesia, Oman, Malaysia, Australia,

Indonesia,BruneiandYemen.

Leading Companies

SK Energy (KSE: 96770)

SouthKorea’sleadingenergyprovider,SKEnergy,reported

thatitsthirdquarterrevenueandoperatingprotrose11%

and 296%year-on-year to stand at KRW10.167 trillion

(US$1.017billion)andKRW325billion(US$32.5million)

respectively.Itsnetincomerose36%toKRW343.8billion

(US$34.38 million) from the same period in 2009. SKEnergy’s quarterly operatingprot wasup signicantly,

by 296% year-on-year, to KRW325 billion (US$32.5

million), mainly due to the turnaround ofits petroleum

businessandafavorableperformancefromtheexploration

andproductionbusiness,inspiteofaweakperformanceby

itspetrochemicalbusiness. SKEnergy’soverall revenue

growthforthequartercomparedtothesameperiodofyear

2009waslargelydrivenbythehigherproductpricesfrom

riseincrudeoilpricesandhigheroperationrates.

S-Oil Corp (KSE: 10950)

S-Oil,SouthKorea’sthirdlargestoilrener,reportedmuch

improvednancialresultsof2010.ThecompanyreportedrevenuesofKRW20.53trillion(US$2.053billion)forthe

year, compared with the KRW17.424 trillion (US$1.74

billion)it reportedover 2009.Itsoperatingincome rose

from KRW349 billion (US$34.9 million) to KRW813

billion (US$81.3 million) for the period, while its net

incomewasupfromKRW273billion (US$27.3million)

toKRW705billion (US$70.5million). S-Oil completed

itsOnsanReneryExpansionProjecttowardstheendof

Maythisyear.AtotalofKRW1.3trillion(US$130million)

wasspentontheproject,withthepost-expandedrenerycapable of producing 1,600,000 tons of para-xylene,

600,000tonsofbenzene,andvariousotherpetrochemical

products.

Market Outlook

South Korea is one country that has been successful

in itsefforts toweanitselfoff itsheavydependenceon

oil.Accordingto theKorea EnergyEconomicsInstitute

(KEEI),oilcouldaccountfor39.5%ofSouthKorea’stotal

energydemand in2011, comparedwith 53.2% in2000.

Thisdemand isexpected todeclinefurtherto 38.6%in

2013.AccordingtotheKEEI,thecontinueddeclineinoil

consumptionwillbeduetoanincreaseintheuseofnaturalgasandnuclearpower.Otherfactorsaffectinglong-term

demand include more stringent efciency standards, as

wellasapopulationthatwillbegintodeclinein2019.

SouthKorea’sLNGdemandis set togrow in2010 and

2011,ledbystrongdemandfromthepowersector.The

KEEI estimates South Korea’s LNGconsumption grew

approximately20%to29.8millionmtin2010,withfurther

growthof10.3%to32.9millionmtexpectedin2011asthe

countryattemptstomeetstrongerpowerdemandattributed

tothestrongconsumptionbypowerutilitiesthataccountfor

30%oftotalcountry’stotalLNGdemand.SouthKoreanoil

andcompanieshavealsoupgradedmanyoftheirreningfacilities,increasedtheirupstreaminvestment,andbegun

investinginalternativeenergyprojects.







25

Currency Conversion Table

Sources: Federal Reserve Bank of New York, Bank Indonesia

Currency exchange rates as of July 8, 2011

Currency Unit Units per US$ US$ per Unit

Australian Dollar (A$) 0.9322 1.0727

Chinese Yuan (RMB) 6.4645 0.1547

Hong Kong Dollar (HK$) 7.7818 0.1285

Indian Rupee (Rs) 44.4100 0.0225

Indonesian Rupiah1

(Rp) 8,567.0000 0.0001

Japanese Yen (¥) 80.6400 0.0124

Malaysian Ringgit (RM) 2.9915 0.3343

South Korean Won (KRW) 1,056.9000 0.0001ISIEmergingMarketsPDF in-jaipuriaimdemo from 110.234.16.130 on 2011-11-08 07:33:41 EST. DownloadPDF.






26

The Scope Of This Report

This reportdiscusses theoiland gassector in theAsia-Pacic, focusingon themarkets inAustralia, China, India,

Indonesia,JapanandSouthKorea.Thereportexaminesthecurrentenvironmentaswellasglobalandregionalaffairs

thatinuencethedevelopmentofthevariousindustrysegmentsusingavailabledata.Keynancialresultsofleading

publiccompaniesandothermajorplayersintheindustryarealsoprovided.

Researchanalystsdrawonarangeofcredibleindustryandcompanydatasourcesaswellasnewsandinformation

servicestoresearchandanalyzethecurrenttradingenvironment,industrylandscapeandmarkettrendsandoutlookfor

aparticularsector.Primarysourcesareused,unlessotherwiseindicated,andincludecompanydata,e.g.annualreports

andcompanynancialresults;macroeconomicandtradedata;dataandinformationfromglobalandcountryregulatory,

industryandtradebodies;governmentdata;andreportsfromindustryorganizationsandprivateresearchorganizations.

Industriescoveredbytheindustryreportsaredenedbystandardindustryclassicationsystemsandleadingcompanies

areidentiedonthisbasis.SICsrelevanttotheindustryinclude:1311(CrudePetroleumandNaturalGas);1321(Natural

GasLiquids);1381(DrillingOilandGasWells);1382(OilandGasExplorationServices,GeophysicalMappingand

Surveying,OtherOilandGasFieldExplorationServices);1389(OilandGasFieldService,NEC);2911(Petroleum

Rening);3533 (Oil andGasFieldMachinery andEquipment); 4612(Crude PetroleumPipelines); 4613(Rened

PetroleumPipelines);and4619(Pipelines,NEC).







27

Key References

GlobalBP Statistical Review of World EnergyAcomprehensiveguidetoenergymarketstatistics.http://www.bp.com/centers/energy

Energy Information Administration (EIA)AstatisticalagencyoftheUSDepartmentofEnergy.http://www.eia.doe.gov

International Energy Agency (IEA)Anintergovernmentalbodycommitted toadvancingsecurityofenergysupply,economicgrowthand environmentalsustainabilitythroughenergypolicycooperation.http://www.iea.org

Organization of Petroleum Exporting Countries (OPEC)Comprisedof11oildevelopingcountries,OPEC’sprimarymissionistostabilizeoilpricesandhelpproducersachieveareasonablerateofreturnontheirinvestments.http://www.opec.org

Australia

Australian Bureau of Agricultural and Resource Economics (ABARE)AgovernmenteconomicresearchagencythatprovideseconomicanalysisandforecaststoenhancethecompetitivenessoftheAustralianagricultural,mineral,energyandforestryindustries.http://www.abare.gov.au

Australian Bureau of Statistics (ABS)Australia’snationalstatisticalagency.http://www.abs.gov.au

Australian Institute of Petroleum (AIP)Arepresentativeof Australia’s petroleum industry.http://www.aip.com.au

Australian Petroleum Production and Exploration Association (APPEA)ArepresentativebodyoftheoilandgasexplorationandproductionindustryinAustralia.http://www.appea.com.au

Australian Trade CommissionAustralia’stradeandinvestmentdevelopmentagency.http://austrade.gov.au

China

General Administration of CustomsAfullministerial-levelgovernmentagencythatdirectlyreportstotheStateCouncilofChinaandmanagesallthecustomsregionsnationwide.http://www.customs.gov.cn







28

National Development and Reform Commission (NDRC)Amacroeconomicregulatorydepartmentthatdevelopsnationaleconomicstrategies,long-termeconomicplansaswellasannualeconomicplans.http://www.ndrc.gov.cn

India

India Brand Equity Foundation (IBEF)A public-private partnership between the Ministry ofCommerce and Industry, the Government of India, and theConfederationofIndianIndustrywhoseprimaryobjectiveistobuildpositiveeconomicperceptionsofIndiaglobally.http://www.ibef.org

Ministry of Petroleum and Natural GasTheministrythatdevelopsandcoordinatespolicy,lawandprojectsrelatedtopetroleuminIndia.http://www.petroleum.nic.in

Indonesia

Badan Pelaksana Minyak dan Gas Bumi (BP Migas)AregulatorybodyresponsibleforallupstreamoperationsinIndonesia.

http://www.bpmigas.com

Indonesian Petroleum Association (IPA)ArepresentativeofIndonesia’spetroleumindustry.http://www.ipa.or.id

Ministry of Energy and Mineral Resources (MEMR)TheministryresponsiblefordevelopingIndonesia’ssubstantialenergyandmineralresources.http://www.setjen.dpe.go.id

Japan

Ministry of Economy, Trade and Industry (METI)METIisresponsibleforawiderangeofindustrialelds,includingbasicindustries,machineryandinformationindustries,andconsumergoodsindustries.Itisalsoinchargeofaffairsrelatedtoforeigntrade,hightechnologies,environmental protectionandindustriallocation,energyandotherareas.http://www.meti.go.jp/english

Petroleum Association of Japan (PAJ)PAJisanassociationofrenersandprimarydistributorsinJapan.ItsmainactivitiesincludecollectingtheopinionsofitsmembercompaniesandcompilingtheproposalstobeincorporatedintotheGovernment’spetroleumpolicy.http://www.paj.gr.jp/english/index.html

South Korea

Korea Energy Economic Institute (KEEI)TheKEEIcontributestonationalenergypolicy-makingbycollecting,analyzing,anddisseminatingenergyinformation.

http://www.keei.re.kr/keei/main_eng.html

Korea Petroleum Association (KOPA)KOPAaimstoattainasoundandsystematicdevelopmentofthepetroleumindustrythroughthepromotionofmutualunderstandingamongmemberrms.http://eng.oil.or.kr

Ministry of Commerce, Industry and Energy (MOCIE)MOCIEplaysapivotalroleinSouthKoreaneconomicpolicyregardingindustrialdevelopment,internationaltradeandenergyresourcemanagement.http://www.mocie.go.kr/eng







29

Notes to Comparative Data

- All gures are in United States dollars.

- All gures are as r eported by the company.

- N/A = Data Not Available.

- N/L = Not Listed.

- Companies ranked by total revenue for the full year most r ecently reported.

Defnitions

- Total Revenue = All revenues, including net sales, operating revenues, interest income, royalties, excise taxes etc.

- EBITDA = Earnings before interest, taxes, depreciation and amortization.

- EPS Cont Operations = Earnings Per Share as reported by company excluding extraordinary items.

- Total Current Assets = All assets expected to be realized within the next year, includes cash, accounts receivable and inventories.

- Long Term Debt = Debt due to be paid at a date more than one year in the future.

- Return on Equity = The company’s earnings divided by its equity (book value).

- Prot Margin = The company’s net income as a percent of revenues.

Comparative Company Data | ASIA-PACIFIC

Company Country Ticker Exchange Primary SIC Other SICs

China Petroleum & Chemical Corp China 386 HKSE 1382 1311 4925 5169 2865 2911

PetroChina Co Ltd China 857 HKSE 1311 4923 2911 5171 2899 5172

Indian Oil Corp Ltd India 530965 BSE 1311 2911 5172 2992 5171

CPC Corporation Taiwan China 1328 TWN 1311 4613 2911 1382 5172 2869

CNOOC Ltd HKG 883 HKSE 1311 1321 1381 6231 6719

Hindustan Petroleum Corp Ltd India 500104 BSE 2911 5171 5172 5169

Oil and Natural Gas Corp Ltd India 500312 BSE 1311 2911

Caltex Australia Ltd Australia CTX ASX 2911 5172

Woodside Petroleum Ltd Australia WPL ASX 1311 2911 1382 4923 4922

Petronas Gas Bhd Malaysia 6033 KLSE 4925 4923

Company Total Revenue - FYE - 1 Total Revenue - FYE - 2 Total Revenue - FYE - 3 EBITDA - FYE - 1 EBITDA - FYE - 2 EBITDA - FYE - 3

China Petroleum & Chemical Corp $284,719,645,718 $192,723,343,111 $219,117,456,691 N/A N/A $11,624,239,493

PetroChina Co Ltd $222,315,524,766 $149,278,703,829 $157,192,639,469 $45,484,253,090 $34,405,389,226 $37,114,236,711

Indian Oil Corp Ltd $58,567,323,098 $56,638,927,595 $58,626,987,172 $4,549,886,999 $2,123,755,782 $4,325,823,888

CPC Corporation Taiwan $29,218,655,848 $27,195,760,364 $23,845,943,462 -$3,705,541,733 $952,936,961 -$57,076,550

CNOOC Ltd $27,770,660,633 $15,435,706,054 $18,532,029,618 $15,197,299,122 $8,268,908,382 $9,823,824,205

Hindustan Petroleum Corp Ltd $25,235,898,327 $25,548,372,846 $27,800,119,567 $817,359,935 $408,302,006 $593,124,922

Oil and Natural Gas Corp Ltd $23,838,679,602 $21,554,651,820 $25,266,746,295 $6,780,342,398 $6,113,683,436 $7,725,515,257

Caltex Australia Ltd $19,254,181,884 $16,173,842,382 $16,468,405,373 $715,972,274 $622,790,834 $198,197,185

Woodside Petroleum Ltd $4,254,000,000 $3,949,096,876 $4,147,532,493 $3,013,000,000 $3,467,938,409 $2,915,059,816

Petronas Gas Bhd $1,046,873,548 $970,420,129 $999,152,213 $371,442,140 $327,877,664 $425,984,242

Company Net Income - FYE - 1 Net Income - FYE - 2 Net Income - FYE - 3 EPS - FYE - 1 EPS - FYE - 2 EPS - FYE - 3

China Petroleum & Chemical Corp $10,892,651,350 $9,045,108,286 $3,657,360,508 $0.82 $0.71 $0.05

PetroChina Co Ltd $22,876,388,334 $15,606,180,276 $18,583,131,398 $0.12 $0.08 $0.09

Indian Oil Corp Ltd $2,449,785,638 $470,921,444 $2,129,919,043 $0.94 $0.21 $0.83

CPC Corporation Taiwan -$3,678,692,217 $357,616,218 -$428,256,476 -$0.32 $0.06 -$0.08

CNOOC Ltd $8,254,376,553 $4,318,332,558 $6,503,297,865 $0.19 $0.10 $0.15

Hindustan Petroleum Corp Ltd $328,566,817 $148,857,281 $339,793,249 $0.97 $0.44 $1.00

Oil and Natural Gas Corp Ltd $4,394,011,150 $3,962,637,545 $5,037,022,045 $2.02 $1.82 $2.31

Caltex Australia Ltd $323,401,634 $283,083,064 $22,871,743 $1.19 $1.05 $0.09

Woodside Petroleum Ltd $1,577,000,000 $1,635,039,426 $1,231,094,072 $2.04 $2.33 $1.79

Petronas Gas Bhd $288,333,789 $254,544,800 $341,664,759 $0.15 $0.16 $0.17

CompanyTotal Current Assets -

FYE - 1Total Current Assets -

FYE - 2Total Current Assets -

FYE - 3Long-Term Debt -



FYE - 3

China Petroleum & Chemical Corp $39,478,882,565 $29,478,617,161 $24,239,465,994 $26,408,611,195 $21,357,351,865 $18,633,252,302

PetroChina Co Ltd $43,448,025,146 $43,114,088,611 $32,966,365,479 $19,927,180,225 $12,517,721,022 $4,814,537,883

Indian Oil Corp Ltd $11,089,719,779 $6,950,199,360 $11,042,560,717 $11,019,248,806 $9,306,404,596 $9,670,178,104

CPC Corporation Taiwan $5,425,286,006 $6,236,734,263 $5,424,311,909 $2,305,486,089 $1,079,164,418 $831,798,649

CNOOC Ltd $15,269,861,626 $10,379,534,752 $9,345,684,698 $1,777,421,128 $2,719,692,562 $2,031,802,694

Hindustan Petroleum Corp Ltd $3,731,954,637 $2,568,975,306 $3,885,019,305 $5,420,551,758 $4,729,410,771 $4,309,348,611

Oil and Natural Gas Corp Ltd $6,926,114,787 $5,992,614,144 $8,485,016,565 $1,395,860,490 $1,289,249,270 $235,262,922

Caltex Australia Ltd $2,312,248,763 $1,839,601,026 $1,423,756,159 $437,424,871 $387,600,576 $496,163,998

Woodside Petroleum Ltd $1,579,000,000 $2,435,471,269 $582,460,521 $4,512,000,000 $4,972,570,401 $2,038,267,173

Petronas Gas Bhd $842,298,532 $680,836,505 $662,478,556 $134,155,400 $123,325,437 $141,955,359

Company Return on Equity (Most Recent Yr) Proft Margin (Most Recent Yr) Date FYE - 1 Date FYE - 2 Date FYE - 3

China Petroleum & Chemical Corp 18.07 N/A 31-Dec-2010 31-Dec-2009 31-Dec-2008

PetroChina Co Ltd 16.06 10.29 31-Dec-2010 31-Dec-2009 31-Dec-2008

Indian Oil Corp Ltd 20.96 4.18 31-Mar-2010 31-Mar-2009 31-Mar-2008

CPC Corporation Taiwan -56.63 -12.59 31-Dec-2008 31-Dec-2007 31-Dec-2006

CNOOC Ltd 25.22 29.72 31-Dec-2010 31-Dec-2009 31-Dec-2008

Hindustan Petroleum Corp Ltd 12.15 1.30 31-Mar-2010 31-Mar-2009 31-Mar-2008

Oil and Natural Gas Corp Ltd 19.45 18.43 31-Mar-2010 31-Mar-2009 31-Mar-2008

Caltex Australia Ltd 10.35 1.68 31-Dec-2010 31-Dec-2009 31-Dec-2008

Woodside Petroleum Ltd 14.22 37.07 31-Dec-2010 31-Dec-2009 31-Dec-2008

Petronas Gas Bhd 11.74 27.54 31-Mar-2010 31-Mar-2009 31-Mar-2008







303434

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