Presented by

David W. Tauber

Tauber Oil Company

2013 Carbon Black Asia Pacific Conference

David TauberTauber Oil Company

The Changing Energy Landscape

of North America

and its affect on

Carbon Black Feedstock

Agenda

• CBFS dependency on US Refineries.

• Sustainable advantages US Refineries– North America: The New Middle East– Economics of Shale Oil : WTI vs. Brent– World Refineries Utilization– North American Product Exports

• Factors affecting Availability and Pricing of CBFS– Effects of Shale oil / Canadian slate on

CBFS– Demand for Fuel Oil– Economic of Fuel Oil Arbitrage

USA 26%

Other America8%

EU-278%

China38%

NE Asia8%

So. Asia3%

ROW9%

USAOther AmericaEU-27ChinaNE AsiaSo. AsiaROW

Worldwide sources of Carbon Black Feedstock -2012

2011

World-wide Sources of Carbon Black Feedstock -2012

Coal Tar

Anthracene Oil

CBO Mix

Ethylene Tar

Local FCC

USA

China 60% 18% 16% 6% India 16% 2% 2% 17% 63%Europe 30% 3% 33% 18% 16%Korea 53% 1% 1% 36%Japan 20% 62% 4% 14%Rest of Asia* 8% 2% 21% 69%*Taiwan, Thailand, Malaysia, Indonesia

Total Carbon Black Exports from the U.S.

0 500 1000 1500 2000 2500 3000 3500

2011

2012

2013

3460

2657

2200

KT

Sustainable Advantages US Refineries

North America: New Middle EastThe US has become the fastest growing oil and gas producing country in the world, and is likely to remain so for the rest of this decade, and into the 2020’s.

Source: Citi Investment Research (“Riding Rough Waves: Oil and Gas Outlook” by Ed Morse, July 2012)

Source: Citi Research

Oil and Gas Producers

U.S Crude OilProduction& Imports

NORTH AMERICA - Shale Play

Source: RigData and Bentek Energy Lower 48 States, 01/15/12

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000 Williston Basin

Permian (Hz)

Miss Lime

Granite Wash

DJ Niobrara

Barnett Shale

Anadarko Basin

Permian Other

Eagle Ford

Gulf of Mexico

Rest of U.S.

Eagle Ford

Permian (Other)

Williston

Permian (Hz)

MBp

d

GOM

Rest of U.S.

Source: HPDI, Company filings, RJ estimates

U.S. Oil Production by Major Play 2009 - 2015

WTI vs. BRENT

WTI is expected to remain significantly discounted versus Brent, offering a distinct cost advantage for US refiners.

Despite narrowing, the WTI discount to Brent will continue to offer a distinct cost advantage for U.S. refiners

Displacement of the Oil

World Refining Utilization

Upwards trend in the capacity.

US Refining Utilization

Source: EIA, Citi Investment Research and Analysis

The significant crude cost advantage for U.S. refiners has driven high utilization, even for the less advantaged East Coast (PADD I) refiners

Global Natural Gas Costs

Source: Citi Investment Research and Analysis and Bloomberg

The growth in U.S. shale gas production is providing U.S. refiners a distinct advantage in utility and product upgrading costs that is expected to persist for the foreseeable future

U.S. Exports of Crude Oil & Petroleum Products

Finished Motor Gasoline

ResidualFuel Oil

PetroleumCoke

Distillate Fuel Oil

US Net Exporter – Total Products

Source: EIA, Citi Investment Research and Analysis

The combination of U.S. crude & natural gas cost advantage has moved the U.S. from being a net importer of products to making US the supplier of choice to Latin America, Europe & Africa

US Net Exporter - Products

European Refiners Lack Global Competitive Advantage

• Net cash margin analysis suggests majority ofEurope assets struggle to cover cost ofcapital.

• Weak demand fundamentals mean themajority of European assets sit in a lower3rd/4th quartile position.

• European refineries should be forced furtherdown the cost curve, as large scale, cost-competitive refineries are commissioned inEM.

• The growth in US unconventional oil, andabundant, cheap natural gas is expected toadvantage USGC economics, with the netlosers likely to be marginal Europeanrefineries.

• We expect another 24% of European refiningcapacity to be forced to close over thisdecade.

• Faced with a declining domestic market, European refiners have targeted North & Latin America and Africa for the disposal of surplus gasoline volumes.

European Refineries on the Global Net Cash Margin Curve(mbpd)

Global refining capacity is forecast to grow over 2 mil barrels per year, slightly exceeding global demand. This is expected to induce the gradual closure of ~ 1 mil barrels of lower complexity refining capacity in Europe

Source: Citi Investment Research (“Capturing the Full Refinery Margin Potential” by Seth Kleinman, 18 June 2012)

Conclusion: Refineries

North American Refinery’s Advantage• Location – Proximity to

new sources of Oil • Location – Proximity to

Markets • Location – Proximity to

cheaper Natural Gas

North American oil will displace foreign light oil imports and Canadian sour will

replace foreign heavy sour imports

Heavy – light Spread set too tight

with refinery upgrades and

increase in North American light oil

growth.

WTI – BRENT spread to tighten as the projects (such as pipelines /rail

capacity increases) reconnect market

to WTI

Shale Oils vs. WTI – Key Qualities

PROPERTY Bakken WTI Eagle Ford

WCS

API Gravity 41 39 47 21

Sulfur, wt% 0.2 0.32 0.1 3.5

Distillation Yield, volume %

Lt Ends C1 – C4 3.5 3.4 7

Naphtha C5 - 360ºF 36.3 32.1 48 19.2

Kerosene 360 – 500ºF 14.7 13.8 27 8.8

Diesel 500 – 650ºF 14.3 14.1 13 8.8

Vacuum Gas Oil 650 – 1050ºF 26.1 27.1 3 26.0

Vacuum Residue 1050ºF 5.2 9.4 2 37.2

Shale Oils vs. WTI – Vacuum Bottom Qualities

Vacuum Resid 1050+ Bakken WTI Eagle Ford

WCS

Yield, Volume % 5.2 9.4 2.0 37.2

API Gravity 14.0 11.4 16 2.6

Sulfur, wt% 0.75 1.09 0.5 5.5

Vanadium, ppm 2 87 0.6 High

Nickel, ppm 7 41 2.2 High

Concarbon, wt% 11.3 18.2 8.0 23.5

U.S. Refinery Yield

Finished Motor Gasoline

Distillate Fuel Oil

Residual Fuel Oil

Petroleum Coke

US Fuel Oil Production - decline reflects lighter crude grades

Unit: 100 k bpd

Refinery ModelFCCUMargin

Summary

Crude Type: WTI

Gas10,774 5%MMBTU

PP's3,341 10%

BB's5,686 17%

VGO + CHGO33,214 Gasoline(18 api) 19,899 60%

LCO/HCO6,165 19%

Slurry1999 6%

Total Volume Gain = 17%

FCCU

–Demand for both finished fuel oil and blend components remain strong.

–China Fuel Oil demand has skyrocketed.

Worldwide Fuel Oil Demand

Fuel Oil Supply-Demand Summary

Supply Demand

China continues to import fuel oil from Singapore.

US & Canada ECA has reduced limit sulfur in marine fuel from 3.5% to 1%, increasing

demand for low-sulfur fuel oil.

Closures of refineries globally will decrease the volume of low sulfur fuel oil available.

Japan has suspend its 54 nuclear reactors,95% of nuclear capacity, 19% of total power capacity, remains shut adding roughly more

than 700k/d fuel Oil.

Overall global coking and cracking capacity is expected to increase, leaving less residual

barrels to market.

Going forward, the low sulfur fuel oil market is expected to continue being tight due to lower supply andincreasing demand.

Global crude supply growth will most likely be heavier grades, and domestically, will be lighter.

Current Market Overview

Resid Exports from U.S. Gulf Coast

Source: Simmons International

Economics of Fuel Oil Exports

10/12/12 12:00 AM

Singapore 380 MOPS per $ / MT 609.00$

US GULF COAST 3% 91.00$ Cracked M 100 97.00$

Freight $ per M/T 20.00$ RME 380 11.2M 380X 4.5X 0.5X 140M 86x .10X 200X 40X 40X 100X 15X TSE .10XCnversion Factor bbls to meter ton 6.1

597.06$ RME 380 10.5 338 2.45 0.0 222 50 0.034 84 18 26 9 8.7 0 0.0

* For Visc Blends enter APICost Components Volume *API *Visc(cst) Sulfur S&W Flash Pour Ash Van Al Sil Na MCR Styrene Asph %

Discount of $2.0 per Bbl over US GULF 89.00 Slurry 20,000 -2.0 300.0 3.00 200 50 0.050 4 70 70 1 10.0 0 0.0 20.0Premium of $6.00 per Bbl over US GULF 96.00 M100 80,000 14.0 350 2.31 0.1 230 50 0.030 104 5 15 11 8.4 80.0

~ $ 12/Mt

Fuel Oil Blending Economics as of October’ 13 sets a floor price for slurry.

CONCLUSION

Count on US Refineries to keep operating at a sustainable rate.

The world is Fuel Oil short, and that does not appear to be changing any time soon.

Carbon Black Feedstock will have to compete against fuel oil economics to ensure a

sustainable supply.

As refiners change, the quality of CBO will change but it’s still the most reliable in the

world, but will fluctuate more than in the past due to what we have talked about here today.

Question&

Answer

davidt@tauberoil.com

Source Data: CBO Monitor, Citibank, Goldman Sachs, EIA, BP Statistical Review