Sirine Tajer – March 2011

‘Investment in Oil & Gas Industry in the MENA region’

Sustainable Development is “development which meets the needs of the present without compromising the ability of future

generations to meet their own needs”.

Brundtland Report, Our Common Future, United Nations, 1987

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CURRENT SNAPSHOT

Source: Platt’s

DATED BRENT PRICE (USD / B)

ALL TIME HIGH : USD 144.22/b Economic boom Demand-led High liquidity

24/02 - 30-MONTH HIGH : USD 119.79/b Fragile economic recovery Supply-led Apparent tight liquidity

Revolutions, consequential disruptions and medium term recovery in Tunisia, Egypt and Libya Egypt - Resumed Gas and LNG exports Libya - 1.3 Mbpd oil exports & of Gas exports

stopped Domino Effect : Bahrain, Oman, Yemen, Iraq, Syria,

Algeria… Iraq - Baiji refinery explosion (not uncommon) Yemen – Damaged oil pipeline and potential for

disruption for Total, DNO & Calvalley…

JASMINE REVOLUTION LEADING TO A … MENA POLITICAL TSUNAMI

JAPAN NATURAL TSUNAMI

25 years after Chernobyl Highlighted the danger of nuclear power (17% of world’s electricity) Announced Review of Nuclear Plans, Policies and Security by: Japan, Europe (Germany, UK…) China GCC (UAE, Saudi Arabia…)

EXPECTATIONS : Difficulties for financing & public approval for any new plants Potential Impact on the energy mix (gas, renewables and coal…)

on the medium term

DEMAND: China Oil demand hits all time high at 10 Mbpd According to IEA, world crude Oil supply rose to an all time high of

89 Mbpd in Feb. 2011

SUPPLY: OPEC crude oil output at c. 30 Mbdp with Gulf States mainly

offsetting the Libyan effect OPEC “effective” space capacity, excluding Libya, is now near 4

Mbpd, its lowest since end-2008

FUNDAMENTAL PARAMETERS

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INTERESTING CORRELATIONS

Source: Platt’s

Source: Datastream, Erste Group

Source: Datastream, Erste Group

International moderate rates environment with Fed increased expansion in Money supply• Correlation of 86% between the Fed balance sheet and

the S&P 500 since 2 years• Strong correlation between S&P500 and the Oil Price

• General current increase in commodities prices• According to Erste Group Research :

Since 1991, correlation between the oil price and Food Index of 0.91

Currently, the speculative net exposure on the CBOT has doubled on the Oil and Wheat, increased by 90% on copper and 40% on soy

INTERNATIONAL FINANCIAL LACK OF LIQUIDITY ?Oil & Commodities as a Refuge asset Class

FOOD FOR THOUGHT…In 2009, just after the financial crisis, when RasGas II / III and Mubadala approached the Equity Capital Markets to raise their respective USD 2.3 B and USD 1.25 B Project Bonds, they received a total of USD 33 B orderbook…

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HISTORICAL AND FUNDAMENTAL PERSPECTIVE

Source: EIA World Energy Outlook 2010

OIL PRODUCTION FORECAST BY TYPE IN MBPD OIL DISCOVERIES SINCE 1960S IN MBL

Source: EIA, Oil & Gas Journal, Erste Group, OPEC

Source: BP Statistical Review 2009 – including Canadian Oil Sands

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HISTORICAL AND FUNDAMENTAL PERSPECTIVE

Source: BP Statistical Review 2010, Datastream, Bloomberg, JP Asset Management

Conventional Oil

Heavy Oil

Bitumen

Oil Shales

THE END OF CHEAP OIL ? Expectations :

• Enhanced Oil Recovery (EOR) • Multidirectional and horizontal wells• Moving down the Resources Triangle• Offshore & Deeper horizons (Pre-Salt)• Efficiency technologies• Seismic R & D

Increasing technological requirement Increasing production costs

FOOD FOR THOUGHT…“The Stone age came to an end not by a lack of stones”

CHART OF THE MONTH

Table shows the oil price in real terms the past 150 years

If Brent crude remains at its year to date average, 2011 would become the strongest year for oil price since 1864

Consequences :• Relevant time for investments• GDP burden and consumers’ impact• Incentives for alternative energies

REAL OIL PRICE: FROM 1861 TO PRESENT

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MIDDLE EAST & NORTH AFRICA: OIL & GAS POSITION

RESOURCES STRATEGIC IMPORTANCE

MENA Oil & Gas proven reserves : • With c. 820 Bbl Oil reserves: 61% of world conventional

oil reserves and 56 % of world total oil reserves• With c. 83 Tcm in Gas reserves: 44% of world gas reserves

• MENA Oil & Gas exports :• More than 45% of world oil exports• Around 20% of world gas exports

Saudi Arabia: 1st oil reserves in the world & 2nd producer Qatar: 3rd gas reserves & world’s leading producer of LNG producer with 77 MT pa celebrated in Dec 2010 Iraq: 4th oil reserves with strong upside potential According to WEF, MENA expected to provide up to 80% in world’s growth in energy demand by 2030

Source: OPEC, EIA, BP Statistical Review, World Economic Forum

MENA OIL FLOWS (in Mbpd)

Country Crude Products

Suez Canal Egypt 0.8 – 1 1.2

SUMED Pipeline Egypt 1.1 -

Bab El-Mandab Yemen 0.8 2.5

Strait of Hormuz GCC / Iran 15-17 2Source: BP Statistical Review, Barclays Capital, Wells Fargo

STRATEGIC GEOGRAPHIC LOCATION

Source: BP Energy Outlook 2030

2030 HORIZON : SAUDI ARABIA & IRAQ BRIDGING ROLES

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MENA CHALLENGES & INVESTMENT REQUIREMENTS

DISCREPANCIES & ENERGY GAPS

Combined population of 320 M & Combined GDP of USD 2 T with strong GDP growth expectations

GENERAL REGIONAL OIL & GAS DEPENDENCY : in 2009, oil alone : • 21% of combined GDP• 60% of total exports

REGIONAL DISCREPANCIES : • GDP p.c : from Qatar (USD 69754) to Yemen (USD 1118)

• Net Oil-importers (Bahrain, Egypt, Jordan, Lebanon, Morocco and Tunisia)

• Oil-exporters (most of GCC, Algeria, Libya, Iraq, and Iran) Dependency on light refined products (Saudi Arabia

& UAE vis a vis) Gas regional shortage (Dolphin, first LNG imports by

Kuwait)

OIL & GAS INVESTMENTS REQUIREMENTS IN THE FULL VALUE CHAIN : • Oil new production, EOR & transportation• Oil vertical integration (refineries with higher complexity

factor and petrochemicals)• Gas new production (non associated & Sour, e.g. Shah

field in U.A.E ) & transportation, • Gas-based vertical integration (petrochemicals &

fertilizers)• Storage capabilities

KEY CHALLENGES: SUSTAINABLE DEVELOPMENT

ECONOMIC & SOCIAL REFORMS :• Young population (median age <30 years), high level of

unemployment & strong growth• Private sector development & Economic diversification

INFRASTRUCTURES UNDERINVESTMENT :• World Bank: 20% shortfall in installed electricity capacity• General gap : transportation, education, hospitals…

CRITICAL INVESTMENTS IN ENERGY EFFICIENCY:• Growth in Total primary energy demand at 3% p.a. and

Electricity demand doubling by 2020• 60% more energy intensive than OECD Countries• Study on 11 MENA Countries: 17.9 GW or 13.3% of total

capacity lost in transmission – a 10% reduction would save USD 5.5 B for new infrastructure investments

WATER SCARCITY: Water available p.c to be halved by 2050

FOOD FOR THOUGHT… Interdependent dynamics of Oil & Gas, Power, Infrastructures,

Water & Energy efficiencies

Saudi Case : Capacity increased from 21 MW in 2000 to 41 MW in 2010 Nearly 1 Mbpd for power generation Potential cost of 3 Mbl by 2028 with danger for international

energy balance

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MENA STRATEGIC INVESTMENTSENERGY INVESTMENTS (APICORP Research Feb. 2011)

• USD 530 B potential but 20% projects shelved (vs 29% in 2010)• USD 430 B of actual capital requirements

SECTOR DISTRIBUTION :

• USD 180 B in Oil & related• USD 154 B in Gas & related• USD 155 B in USD 95 B in Power generation

COUNTRIES DISTRIBUTION :• 70% in 5 countries (KSA, U.A.E, Qatar, Algeria & Egypt)• USD 130 B in Saudi Arabia • USD 74 B in UAE• USD 70 B in Qatar (maintained North Field moratorium)• USD 57 B in Algeria and USD 42 B in Egypt

GEOGRAPHICAL PATTERN OF ENERGY INVESTMENTS

42%

36%

22% Oil & relatedGasPower generation

Source: Apicorp Rsearch Feb-March 2011

SELECTED OFFICIAL FIGURES

MENA Energy Investments according to OPEC :• USD 167 B in natural gas investments (expanded capacity, production & transportation) up to 2015• Expected 39 Tcm of gas reserves to be discovered

Qatar MOF: USD 170 B in Oil & Gas and Infrastructures in the next 10 years

WEF 2010:• MENA Minimal required Energy & Infrastructure investments : USD 100 B p.a. (5% of annual GDP) • Half assessed to be currently mobilized

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A SIMPLE FINANCIAL CALCULATION

ENERGY REVENUES

Oil & Gas Investments•Capex•Opex•Financing Costs

Social & Economic Reforms

Infrastructure Investments & Energy efficiency

Renewables

REQUIRED DISCIPLINED & SUSTAINABLE INVESTMENTS

Equity & Debt Optimization – Cost Minimization

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Risk of shrinkage of traditional foreign financers with risk premium & D/E ratio reduction

Geographical diversification of contractual relationships & associated ECAs financing

Rediscovering the Silk Route : PetroChina / Fujairah Oil Storage projects ; Saudi Aramco in Fujian and potentially Qingdao refineries in China while Sinopec to take a stake in the RSRC in Yanbu ; KPC interest in Zhanjiang Refinery…

Financing diversification : Structured Financing, Asset Securitizations, Project Bonds

PPP Development for Infrastructure investments

FINANCIAL FOOD FOR THOUGHT

INTERNATIONAL INVESTORS / LENDERS REGIONAL INVESTORS / LENDERS

Marshall Plan

Governmental global sustainable investment (IFC Study)

Rigorous projects’ profiling & management – Hedging & Barter potentials

Regulatory & Legal framework maturity

Geographical diversification, Technology, R&D Investments

National employment development & know-how transfer

Potential for Co-investment between Government & private players: e.g. Mostorod refinery in Egypt..

Relatively solid regional banks (e.g. SATORP / Jubail) Strengthening (Credit bureaus in UAE & Qatar) Higher degree of pioneering & selective regional

diversification

Deeper contribution of Islamic financiers required (e.g. Sukuk market vis a vis SATORP / Jubail)

TRANSVERSAL ACTIONS