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UBS Investment Research

Asia Oil and Gas

Global oil & gas conference (Beijing) notes

UBS hosted its Global Oil and Gas Conference in Beijing UBS hosted a group of foreign and Chinese institutional investors for our Global Oil and Gas Conference in Beijing during 28-30 September. We brought together 17 management teams representing oil & gas sector companies from around theworld. We also invited industry experts and economists to share views at the event.In this note, we highlight the key points from the presentations and field trip.

Senior management teams and industry experts Attending companies included: BGP (of CNPC group), BP, CGG Veritas,Chevron, CNOOC, Dart Energy, Enviro Energy, Flex LNG, Green Dragon,INPEX, Niko, Oil Search, PetroChina, PTT Public, Salamander Energy, Sinopecand SOCO. We also invited expert speakers including IHS Automotive, Purvin &Gertz, Tri-Zen International, and UBS China economist Tao Wang.

Natural gas a common theme The management teams were upbeat and shared in common a focus on capturinglarge growth opportunities in the Asia Pacific area. Natural gas was a recurringtheme with the majority of the companies that presented. Also, several companiesshared an explicit strategy that focused on non-conventional sources of gas.

Field trip to site of China’s first shale gas discovery Enviro Energy and 74% owned TerraWest Energy hosted a group of investors for atour of its 653 sq km Junggar basin block in Xinjiang, Western China (PetroChina PSC). The company is currently working to develop coal bed methane reserves atthe block, and the block is the site of China’s first shale gas discovery.

Global Equity Research

Asia Pacific Ex. JP

Oil Companies, Secondary

Sector Comment

12 October 2010

www.ubs.com/investmentresearch

Peter Gastreich

[email protected]

+852-2971 6121

William A. FeatherstonAnalyst

[email protected]+1-212-713 9701

Gordon RamsayAnalyst

[email protected]+61-3-9242 6631

Cheryl Lee, CFAAnalyst

[email protected]+65-6495 5914

Piyanan PanichkulAnalyst


Ying LouAssociate Analyst


George ToriolaAnalyst

[email protected]+1 403 695 3634

Melanie SavageAnalyst

[email protected]+44 20 7568 7280

This report has been prepared by UBS Securities Asia Limited ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 24. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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Asia Oil and Gas 12 October 2010

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List of participants

For this year’s UBS Global Oil and Gas Conference, we invited 17 companies that span a wide range of sectors within oil & gas. All companies share in common strategies that are geared toward growth in Asia.

Table 1: List of companies

Company Country Sector

Dart Energy Australia Coal bed methane

Oil Search Australia Upstream exploration & production

Niko Resources Canada Upstream exploration & production

BGP (of CNPC) China Seismic services and manufacturing

CNOOC China Upstream exploration & production

Enviro Energy China Coal bed methane, shale gas, oil and carbon sequestration

Green Dragon China Coal bed methane and compressed natural gas (CNG)

PetroChina China Integrated oil & gas, refining and petrochemical

Sinopec China Integrated oil & gas, refining and petrochemical

INPEX Japan Upstream exploration & production

CGG Veritas France Seismic services and manufacturing

Flex LNG Norway Floating liquefaction units (LNGPs)

PTT Public Thailand Integrated oil & gas, refining and petrochemical

BP United Kingdom Integrated oil & gas, refining and petrochemical

SOCO International United Kingdom Upstream exploration & production

Salamander Energy United Kingdom Upstream exploration & production

Chevron United States Integrated oil & gas, refining and petrochemical

Source: Company data


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Speakers Dr Tao Wang, Managing Director, UBS Securities

Dr Tao Wang is a Managing Director and the Head of China economic research at UBS Securities in Beijing. Prior to joining the company, Dr Wang was Head of Greater China economics and strategy at Bank of America, and Head of Asian economics at BP. In those positions, she led the coverage of China’s macroeconomic development, monetary policy and exchange rate trends, and energy market developments.

Before that, Dr Wang was a Senior Economist at the IMF, responsible for studying China’s macroeconomic development and structural reforms. During the eight years she spent at the IMF, Dr Wang was involved in programme negotiations and annual consultations with many member countries, and published a number of research papers. She also worked as the Chief Asia Economist at DRI/McGraw-Hill (currently Global Insight). Dr Wang received a PhD in Economics from New York University and a bachelor’s degree from Renmin University, Beijing.

John Vautrain, Senior Vice President, Purvin & Gertz, Inc.

Mr Vautrain is Senior Vice President at Purvin & Gertz, Inc., a technical and economic consulting firm based in Houston, Texas. Purvin & Gertz is comprised of chemical engineers and focuses on techno-economic aspects of the energy and petrochemical industries. Mr Vautrain holds degrees in chemistry and chemical engineering. Before this, he was employed by Phillips Petroleum Company and Union Carbide Corporation in technical roles.

Mr Vautrain has been Manager of Purvin & Gertz’ Singapore office for over 10 years. Purvin & Gertz Singapore undertakes a wide range of work including market analysis as well as project evaluations in the Middle East. Mr Vautrain’s recent consulting experience in refining extends from the Middle East throughout Asia and Australia.


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Tony Regan, Principal Consultant, Tri-Zen International Pte Ltd

Mr Regan is the Principal Consultant at Tri-Zen International Pte Ltd, a Singapore-based energy consultancy that provides technical, commercial and financial advisory services to the oil, gas, chemicals and power sectors in Asia-Pacific. He focuses on natural gas, LNG, CBM and other unconventional gases.

Mr Regan has extensive international oil and gas experience, much of it gained during 25 years with Shell International and more recently, Nexant, where he was a Principal responsible for gas practices in Asia. With Shell he developed several new businesses and held senior management positions in Europe and Asia.

He was first introduced to the world of gas in the early 1990s when he held the position of Vice President, Energy, with Shell Korea and arranged the first spot cargoes of LNG to Korea from Australia and Brunei, and facilitated discussions that led to KOGAS becoming a lead customer for Oman LNG.

With Nexant Mr Regan led the team that provided LNG technical and commercial advisory services to PowerGas, the developer of the Singapore LNG receiving terminal. He has been an oil and gas consultant since 1998, and is a frequent speaker at conferences and on TV.

Lin Huaibin, Senior Market Analyst, IHS Automotive

Mr Lin is a Senior Market Analyst with IHS Automotive’s Asia research team, and is responsible for China auto market forecasts with a focus on the development of Chinese automakers. He has over six years’ experience in the automotive industry, including three years at Chery Automobile and three years working for Global Insight. During his time at Chery, he developed expertise in initiating homologation plans and formulating the company’s global market entry strategy. He also served as Project Manager at the Chrysler-Chery JV. Mr Lin holds an MSC in Financial Economics from the Norwegian School of Management, Norway, and a B.S in Auditing from Xiamen University, China.


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UBS analyst contacts UBS Oil & Gas Team

Name Coverage Telephone Email

Global

Louise Hough Global Research Marketing +44-20 7568 0448 [email protected]

Miles Kerstein Global Research Marketing +44-20 7567 2612 [email protected]

Nathali Tirado Global Research Marketing +1-212-713 4196 [email protected]

Europe

Jon Rigby Integrated +44-20 7568 4168 [email protected]

Alex Brooks Oilfield Services +44-20 7567 5804 [email protected]

Melanie Savage E&Ps +44-20-7568 7280 [email protected]

James J Miller Trading +44-20-7568 8102 [email protected]

Robbie Sparks Trading +44-20-7567 5867 [email protected]

United States of America

Bill Featherston E&Ps & Integrateds +1-212-713 9701 [email protected]

David Deckelbaum Mid-Cap E&Ps +1-212-713 6138 [email protected]

Angie Sedita Oilfield Services +1-212-713 3587 [email protected]

Neil Smith Trading +1-203-719 7470 [email protected]

Canada

George Toriola Integrateds/E&Ps +1-403-695-3634 [email protected]

Matt Donohue Integrateds/E&Ps +1-403-695-3639 [email protected]

Chad Friess Oilfield Services +1-403-695-3632 [email protected]

Matt Michalski Trading +1-203-644-6153 [email protected]

Asia/Australia

Peter Gastreich China +852 2971 6121 [email protected]

Gordon Ramsay Australia +61-392426631 [email protected]

Toshinori Ito Japan +81-352086241 [email protected]

John Chung South Korea / Taiwan +852 37124783 [email protected]

Prakash Joshi India +91-2261556057 [email protected]

Ruchi Patwari India oil services +91-22-6155 6053 [email protected]

Piyanan Panichkul Thailand +662-613 5753 [email protected]

Sebastian Tobing Indonesia +62-2125547035 [email protected]

Cheryl Lee Singapore +65-6495 5914 [email protected]

Ying Lou Regional small cap +852 29718186 [email protected]

Other Emerging Markets

Maxim Moshkov Russia +7-49564 82374 [email protected]

Constantine Cherepanov Russia +7-49564 82352 [email protected]

Lilyanna Yang Latin America +1-212-713 1086 [email protected]

Nishal Ramloutan South Africa +27-11322-7414 [email protected]












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Corporate presentations BGP (Zhu Qiang, Chief Economist; Niu Yan, Deputy Director of New Venture and Planning Department; Sun Wangmin, New Ventures & Planning Department)

BGP’s global footprint spans 45 offices worldwide and 61 crews in 32 countries. Outside of Asia, its key markets are in Africa (17 offices), Middle East (9 offices) and Central Asia (4 offices).

Revenue from its International business has grown from 30% of the total in 1998 to 58% of the total last year.

BGP estimates that its global market share increased from 14% in 2008 to 18% in 2009.

The company has traditionally focused on land service but has in recent years expanded into the offshore segment. Presently its fleet comprises 5 vessels fitted with a total of 10 streamers. Its fleet operates in the Bohai Bay, West Africa, North Africa, Middle East, and Asia Pacific.

BP Liming Chen, President of BP China)

BP has been in China since the mid 1970s and is the largest among international oil companies operating in China. The company has US$5 billion of investments in China and has JVs with Sinopec, Petrochina and CNOOC. BP employs 1,100 people directly and has 3,900 JV staff and 11,300 contractors. BP also has 770 dual-branded retail sites and is a major petrochemical producer in China.

In China, BP said it is expanding its existing downstream portfolio, investing in CBM, shale gas and deepwater (technology-led), and clean energy. BP said China has been trying to develop CBM for 15 years. BP has CBM technology which it uses in the San Juan Basin in the US and is in talks to bring that technology to China. BP is considering new refinery investment in China.

BP believes that from now to 2020, China will need to double oil imports to 8m bpd, add an average of 300-400 kbpd new refining capacity each year, triple gas supply to 280bcm, add 5-10 new LNG import terminals, build another 50m cum of strategic petroleum reserve capacity, and increase nuclear and renewable sources of energy from 8% to 15% of primary energy consumption.

In 2009 China overtook the US as the world’s largest energy market. BP said that by 2030 China is expected to account for nearly 27% of total world energy demand.

At the same time, BP believes China will need to reduce energy intensity by 20% every five years and reduce CO2 emission per unit of GDP by 40-45% when compared to the level in 2005.


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BP highlighted that methanol now makes up about 8% of the total gasoline pool. The government is currently performing studies to find the optimal level of methanol blending and could potentially mandate a higher level. However, BP said as of yet there is no definite time frame for this potential mandate.

Chevron (Steve Green, President, Chevron Indonesia)

The Asia-Pacific region represents 25% of Chervron’s (CVX) upstream portfolio, and a disproportionately larger percentage of its future growth. At year end 2009, proved reserves and total resource in the region were 2.8bn boe and 16.5bn boe, 25% and 26% of the companywide total, respectively. The region also comprises about 24% of companywide production. While Indonesia and Thailand are the largest producing areas for CVX in Asia-Pac, the greatest growth will come from Australia driven by its Gorgon and Wheatstone LNG projects. CVX is currently the largest gas producer in Thailand, Indonesia, and Vietnam.

CVX is well positioned for material gas demand growth in the Asia-Pacific region. While global demand for natural gas is expected to grow 50% by 2035, the rate of growth in the Asia-Pacific region is expected to be 3x the global rate. Of CVX’s over 150 Tcf of global gas resource, 73 Tcf is located in the Asia-Pacific region – the largest amongst IOCs. Also of this 73 Tcf, 50 Tcf is located in Australia, principally on the Northwest Shelf in the Carnarvon Basin. CVX is the largest resource holder in Australia, and is ahead of its competition in developing new LNG projects in the region, which should be an advantage in terms of delivering these projects on budget and on schedule.

Over the last 12 months, CVX believes it has discovered enough natural gas to support a fourth train at Gorgon. Sanctioned in September 2009, CVX plans to develop the 15 mtpa Gorgon LNG project with three 5 mtpa trains. Management estimates the first phase of development of the project will cost US$37 billion gross (CVX has a 47.3% equity interest), with initial gas production expected to occur in 2014. Peak production should reach 450,000boed. Since Gorgon’s sanction, CVX has had 9 discoveries in the basin which provided enough gas to support a 4th LNG train. Notably, CVX is currently 90% contracted for Gorgon (and 80% for Wheatstone), which are all oil linked at near oil parity. While it is seemingly hard to conceive why buyers would agree to near oil parity deals given the over-supply of natural gas, CVX highlighted that buyers (particularly Japan where security of supply is paramount) are willing to pay for CVX’s favourable position in the Australian LNG development queue, as it is more likely to deliver its projects on schedule. Management intends to spend a combined US$3.5bn on the Gorgon and Wheatstone LNG projects during 2010. The company expects to sanction the Wheatstone LNG project next year. The project was awarded Front End Engineering Design (FEED) contract for the first stage of development with peak production of 260,000boed in 2016.

CVX highlighted an attractive queue of development projects in China, Thailand, Bangladesh, and Indonesia.


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— China. While CVX produces just 16,000boed in China today, it is developing the large Chuandongbei sour gas project, and recently acquired 3 blocks in the South China Sea with material exploration potential. The sour gas project offers 5.0tcf of resource potential and requires CVX to build two sour gas processing facilities with combined capacity of 740mmcfd. CVX expects the cost of the Chuandongbei project to be around US$4.7 billion with peak gross production at about 117,000boed. First production from this three stage project is expected by the end of 2011.

— Thailand. CVX produced 210,000boed (8% of companywide total in 1H10) in Thailand, its second largest producing country in the Asia-Pacific region. It supplies one third of the country’s natural gas, and will add to its market share with the Platong II project. Platong II is a US$3.1 billion project with 420mmcfd of gross capacity expected to come on stream in 2012. CVX has a 69.8% equity interest in the development.

— Bangladesh. CVX produced 69,000 boed (3% of companywide total in 1H10) in Bangladesh, supplying 50% of the country’s demand. It is evaluating the potential expansion of its core three fields: Bibiyana, Jalalabad, and Moulavi Bazar.

— Indonesia. The 228,000boed of production in 1H10 (8% of companywide total) represents 40% of Indonesia’s oil production. CVX noted it is entering FEED stage at the Gendalo-Gehem gas development (210,000boed) in the ultra-deepwater offshore Kalimantan. Roughly 75% of the production will be directed to the Bontang LNG facility, with the balance going to domestic consumption.

— Vietnam and Cambodia are adjacent to CVX’s long-standing core position in the Gulf of Thailand. CVX expects to sanction Vietnam Block B in 2011, a US$4.3 billion development with 490mmcfd of capacity. CVX has a 42.9% equity interest in the project.

CGG Veritas (Thierry Le Roux, EVP Technology)

CGG Veritas believes that Seismic industry fundamentals remain robust but observes a slower pace of recovery. It notes that uncertainty due to the Gulf of Mexico accident is likely to affect progressive recovery as vessels repositioning out of the GoM continues to translate into lingering overcapacity.

Marine contract pricing has stabilized but the market is still about 10% over supplied and as a result, the company does not expect any price increase until mid 2011. The APAC region appears to be the most difficult market and the GOM is likely to remain imbalanced until 2011, ignited by accelerated supply increases and the Macondo impact.

Activity remains strong in its core land areas; with visibility increasing in the Middle East, Arctic and Shallow water environments.

The company believes that high-end Seismic services is increasingly vital and requires more technology. Sercel is performing better than expected and the management is expecting 12-15% growth for the current year with


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target margins of 26%. CGG expects revenue to be underpinned by increased technology intensity and mid cycle replacements. Sercel is also increasing its focus in the land segment.

CGG Veritas’ JV in Hebei, Sercel Junfeng, was set up in early 2004. The JV ownership is comprised of: Sercel (51%), BGP (25%) and management & employees (24%). The JV employs about 500 permanent employees and is managed by locals, while the board majority is from Sercel. Sercel Junfeng serves as the global manufacturing centre for Sercel geophones, as well as seismic cables for miscellaneous land/shallow water seismic acquisition systems. It also conducts some sensor-related R&D. The JV achieved more than RMB500m of revenue in 2009, with earnings before tax margins of more than 25%.

CNOOC (Cao Yan, Investor Relations)

Oil and gas production grew 38% and 57% YoY, respectively, during 1H10 to a combined 149mboe (823,000 boed). Growth throughout 2010 is being supported by many new projects. As new wells are drilled, the new projects can grow for 1-3 years before reaching peak production.

The company maintains its strong production growth outlook of 6-10% for 2011-2015 and believes that most of the incremental contribution will come from offshore China. CNOOC believes the low end of this guidance can come from organic growth while the high end may depend on additional reasonable new discoveries and M&A.

CNOOC continues to target 100% reserve replacement and notes the level reached 163% in 2009. Reserve replacement was below 100% in 2008 due to the low level of oil prices at the end of the year.

CNOOC said it does not set aside an exclusive budget for M&A but instead views this on an opportunistic basis. The company has an experienced team that is looking at many projects each year. The limited amount of M&A during 2007-2009 demonstrates, according CNOOC, that management is conservative when viewing potential acquisitions. CNOOC takes into account resource potential, return and risk.

CNOOC has not yet determined how it will book Iraqi reserves.

CNOOC thinks it’s not likely that Gulf of Mexico rigs move to offshore China. Mobilization and demobilization of the rigs would be very expensive.

CNOOC remained upbeat on the prospects for Liwan 3-1, China’s first deepwater project. According to CNOOC’s partner Husky (49%), major equipment and installation contracts are being tendered for the subsea portion of the project. UBS notes that Wood Mackenzie estimates recoverable reserves of 3.2tcf gas and 50mmbbl of condensate.

Dart Energy (Eytan Uliel, Chief Commercial Officer)

Dart is an international pure-play coal bed methane (CBM) company listed on the Australian stock exchange. Dart was formed by a de-merger and an acquisition scheme announced by Arrow Energy on 22 March, 2010. Dart demerged the international assets and other investments from Arrow,


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which was recently acquired by Shell and PetroChina for its Queensland CBM reserves / resources.

Dart is a global CBM company with an Asian focus. The value equation for Dart is based on its early identification of attractive markets with secure and strong local partners. Management believe technical excellence and access to strategically located low cost acreage in several parts of the world will help Dart deliver a strong margin and build capacity. Dart believes that production volume potential for CBM is unconstrained, given favourable policies toward CBM in its major emerging market focus areas.

Dart has 16.0tcf of gas in place (GIP) in current CBM titles as certified by Netherland, Sewell and Associates (NSAI). Composite, where Dart has a 10% stake, has 18.0tcf of certified gross GIP in current CBM titles. Dart has an option to stage up to 100% ownership in Composite.

CBM is a margin business. The key is keeping costs down and managing the ramp up and build scale. While the economics can vary meaningfully, Dart estimates rough all-in costs for coal seam gas are US$3-4/mcf.

Dart has 8 blocks in Asia (China, India, Indonesia, Vietnam), 2 blocks in Australia, and options in Europe (UK and Poland via acquisition of Composite).

The Liulin pilot project (DTE 17.5%) is ongoing, the initial GSA signed, moved to early production and reserves upgraded.

Dajing (DTE 49%, PetroChina 51%) in China has gas in place of 6,589 BCF and a prospective resource of 3,481 BCF (NSAI). This block contains one major coal seam that averages around 70m thick. No commercial production has yet been established from the Dajing block and an exploration program is now being put in place that could contain more than a dozen wells.

The Sangatta West PSC (DTE 24%) covers 77 sq km and has gas in place of 587 BCF and a 2C contingent resource of 314 BCF. A pilot project is commencing, reserves certification and moving to early production.

Tanjung Enim (DTE 45%) has gas in place of 472 BCF and prospective resources of 307 BCF. Dart is to commence a 6 well exploration and pilot program.

While India appears to be least promising, it has potential to change as Dart gets awarded new blocks and restructures its holdings (exercises farm-ins).

Dart recently offered to acquire the rest of Apollo Gas (Dart 21%) in an all share transaction valuing Apollo at A$145m. Apollo is a NSW focussed (Newcastle / Gunnedah Basin) company.

Enviro Energy (Kenny Chan, CEO)

Enviro Energy has three main projects in China. These include TerraWest Energy (TWE) (74.25% stake) coal bed methane (CBM) and shale gas project in Xinjiang, Shanxi ECBM (enhanced coal bed methane)


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(20% stake), and Qian An Oil Development (50% stake) conventional oil in Jilin.

TWE has a 47% interest in a PetroChina production sharing contract (PSC) in Junggar Basin (Xinjiang). TWE plans to develop both CBM and shale gas at the site.

Enviro said the certified evaluation (NI 51-101 compliant) for CBM gas in place at the TWE project is about 26.7 bcf / square mile based on an evaluation area of 13 square miles, and that this is among the world’s highest potential for CBM. Enviro gave no estimate for shale gas in place but highlighted the geological formation thickness is about 750m.

TWE has started its 12-month pilot program for 10 wells and expects the total cost for the program will be about US$26m plus an additional US$2m to be spent on seismic. Enviro expects that TWE will need to drill up to 900 wells for CBM (six phases) and up to 496 shale gas wells (six phases).

The first West-East pipeline (WEP-1) is about 60 miles south of TWE’s block while WEP-2 runs directly through the PSC. The city center of Urumqi is about 20km from the PSC area and could be a meaningful source for off-take of gas, according to Enviro.

Partners in the Shanxi ECBM project include Petromin (20%) and China CBM (60%). The project involves injecting CO2 into the reservoirs to enhance recovery rates while simultaneously trapping the CO2, which can earn carbon credits.

The Jilin conventional oil project has remaining reserves of 5mbbl based on a 28% recovery rate.

Enviro highlighted favourable policies to encourage development of CBM including a VAT rebate on gas sales, a direct production subsidy of Rmb 0.2/cubic metre ($1.04/mcf) from the central government and about US$0.5/mcf from the Xinjiang provincial government, and a waiver of customs duties or import taxes on equipment imports.

Flex LNG (Jostein Ueland, CFO)

FLEX LNG’s business objective is to commercialise floating LNG liquefaction units. It has developed a generic FLNG design, the LNG Producer for this purpose. The company believes that this is adaptable for a broad range of field specific requirements. It has ordered four LNG Producer hulls at Samsung Heavy in Korea. All units have liquefaction capacity of up to 2.0m tpa. FLEX LNG’s largest shareholder is K-Line.

FLEX LNG believes that onshore LNG projects can be significantly more costly than “medium scale” FLNG vessels. It believes also that its medium-scale FLNG solutions can offer cost savings of US$1.5-2.5/mmbtu, compared with other land-based liquefaction methods.

The company believes that its offering of multiple medium sized FLEX LNG producers have a number of key advantages over ultra large LNG barges, such as shipyard capabilities. Vessel construction size is


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comparable to the current size range for FPSOs. Topside weight, which is a risk in vessel construction, is also within the comfort zone of shipyard capabilities.

FLEX LNG also believes that the size of its vessels are ideal as they result in lower liquefaction costs and superior NPV project cash flow over larger FLNG barge solutions.

On August 2010, Flex LNG announced an MOU with Saipem for exclusive cooperation on the development of an FLNG project with an Asian NOC for it’s offshore gas reserves in Australia. Saipem brings world class execution flexibility and more importantly financial backup.

Green Dragon (Randeep Grewal, Chairman and CEO)

China started opening up the CBM market in 1995. Green Dragon signed its first production sharing contract (PSC) in 1998 and five more subsequently. Green Dragon has spent the last 10 years developing technology that works for CBM in China (drilling horizontal wells and putting PVC pipes in place).

Green Dragon is an integrated gas player in China from upstream to downstream natural gas:

— Upstream: Green Dragon has six blocks covering 7,600 sq. km. with 25.5tcf of gas in place. The company said its 261bcf of 2P reserves are valued at US$1,255m on a PV10 basis (by NSAI). Production last year was 395.1mcf/d.

— Midstream: Green Dragon has three gas distribution centers in Beijing, Zhengzhou and Wuhu and will seek to add more through acquisitions

— Downstream: Green Dragon has 27 retail compressed natural gas (CNG) stations and noted retail prices are in the range of US$14-15/mcf.

According to Green Dragon, China's CBM resources are geographically tougher than in the U.S. and Australia. China's coal is rich in gas content, with about 600 cf/ton, compared with about 200 cf/ton for the U.S. and 400 cf/ton for Australia. However, permeability is low. The coals are very brittle.

Green Dragon brought in horizontal drilling technology from Australia in 2008 and this dramatically changed the outlook. Following relatively flat production from 2005-2007, production rose from 72.8mmcf (2007) to 395.1mmcf (2009). Post addition of in-seam technology, 3P reserves grew from about 4.6 billion PV10 to 9.4 billion PV10.

The SIS (horizontal) wells cost US$1.3mn per well to drill and produce 300 -350mcf/day while the vertical wells cost US$350,000 per well and produces 100-150mcf/day. Reserve life per well 15-17 years.


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Niko Resources (Edward Sampson, Chairman of the Board, President and CEO)

Niko Resources is a Calgary-based international exploration and production Company. Its most significant assets in Asia are in India and Indonesia. The company also has assets in Bangladesh, Iraq, Madagascar, Pakistan, and Trinidad and Tobago. In these seven countries, Niko has 36 blocks, of which 26 are operated by Niko.

Niko’s flagship asset is the 10% non-operated working interest in the D6 offshore block in India’s Krishna Godavari Basin (40tcf gas in place). The company expects significant production growth from the block commencing 2011. Total development on this block to-date amounts to less than 5% of its 1.9 million acres. Niko expects gas production to ramp up from 2.1bcf/day currently to 2.8bcf/day by the end of 2011.

In addition to the D6 block in India, Niko has ongoing drilling programmes at the NEC-25 block in India, as well as in Kurdistan and in central Trinidad. The company also plans to drill its first exploration well on its D4 block in Q4/11. Seismic programmes are underway in Madagascar and Indonesia (Cendrawasih, East Bula, Searm, West Papua IV).

Niko has 16 exploration blocks in Indonesia, and this makes the company the second largest holder of acreage in Indonesia next to the state-owned Pertamina. Niko believes that Indonesia has significant unexplored deepwater acreage and fiscal terms are attractive. The company has utilised multi-beam and Niko’s SeaSeep technology to select acreage from a 1mn sq km study area. Exploration drilling activity in Indonesia is expected to begin in the second half of 2011.

Oil Search (Peter Botten, Managing Director

Oil Search is Papua New Guinea’s (PNG) largest E&P company and is 15% owned by the PNG government. It operates all of PNG’s producing oil and gas fields and also has exploration interests in the Middle East and North Africa.

The PNG assets currently have gross production of about 40,000boed and the company’s net interest is about 21,000boed. The company’s proven reserves base is about 344mboe while 2P reserves are 567mboe.

Oil Search has a key stake in the US$15bn Exxon-operated PNG LNG project that reached a final investment go ahead decision in late 2009, is currently under construction, with first sales due 2014 (6.6mmtpa capacity, 2 trains, fully contracted).

PNG LNG has a strong customer base - SINOPEC, TEPCO, Osaka Gas, CPC. Oil Search believes these foundation buyers are also interested in buying further LNG from the potential future expansion of PNG LNG.

PNG LNG has very attractive LNG pricing of US$11-12/mmbtu at US$75 oil – at lower oil prices get oil price parity. At higher oil prices the maximum discount to the oil price is around 8%.


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PNG fiscal terms are also quite good. The project has an agreement in place that covers 10.5 TCF of production. This would include a potential T-3 expansion.

The PNG LNG project tax rate of 30% rises at 17.5% ROR and 20% ROR to max rate of 41.7%. Note, PNG oil production is currently taxed at 50%, but the oil fields brought into the PNG LNG project get reclassified as gas fields when PNG LNG starts up. Oil Search also expects to see reserve augmentation in the oil fields which have associated gas (UBS est c2 TCF in these fields).

Oil Search believes the PNG government and XOM are very supportive of PNG LNG expansion (T-3). Despite a massive 9.1 TCF of 2P reserves already dedicated to the project, certified 1P gas reserves still fall short for T-3 (XOM works off 1P reserves).

The PNG LNG JV is considering moving forward future Hides appraisal drilling (currently scheduled for 2012) which could possibly go a long way to support PNG LNG T-3. Hides gas field drilling is required to test the depth of the gas water contact (presently undefined) / northern segment of the structure. The c5TCF gross of 2P booked Hides gas reserves has potential to almost double (optimistic high case).

Oil Search is looking for a PNG LNG T3 commitment by the end of 2012. Rolling over Chyoda on site will be important to retain key liquefaction personnel and to help lower the cost of expansion.

Most importantly, T-3 expansion is a hugely attractive investment. Oil Search estimates it has an IRR of around 30%. Note, we assume PNG LNG (T-1 and 2) has an IRR of around 17% alone.

While Oil Search is also now talking up a potential T-4 expansion, the expansion is some time off. PNG LNG T-4 would also be underwritten by new fields that are located outside of the existing JV.

The PNG LNG project is currently on time (2014) and on budget (US$15bn). Oil Search's focus is clearly on delivering PNG LNG and to prove up the gas resource base for expansion. Partners in PNG LNG are: XOM (33% and operator), OSH (29%), PNG government (17%), STO (14%), Nippon (5%), landowners (3%).

PetroChina (Hou Chuangye, Vice President & Senior Engineer, PetroChina Natural Gas & Pipeline Company)

China’s natural gas demand is forecast to increase rapidly. China’s natural gas consumption increased by 15.4% annually from 2000 to 2009, far exceeding the annual growth rate of 2.7% during the previous 20 years. China consumed about 88.7bcm of gas in 2009. PetroChina forecasts that China’s natural gas demand will reach 235bcm in 2015, 350bcm in 2020 and 500bcm in 2030.

China’s total gas consumption ranks fifth highest in the world. However, the consumption is low on a per capita basis at only 68cum last year, or about 15% of the world average. In 2009 gas was the fuel source for 17%


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of power plants, coal (41%), water and electricity (16%), nuclear (15%). Out to 2030 power gen will account for 39% of the growth in gas demand.

City gas and natural gas for power generation usage will keep rising while usage as industrial fuel and chemical consumption decreases, according to PetroChina. Natural gas consumption has gradually moved to the more economically developed eastern regions as a result of pipeline construction.

China’s domestic gas production, expected to grow fast, will still lag demand and will rely on imported gas for about half of consumption. Domestic output is expected to reach 200bcm in 2020, accounting for 51% of demand and it will reach 300bcm in 2030, 46% of demand. A breakdown of imported gas sources is as follows:

— Imported gas from Central Asia may hit 55-60bcm in the second stage;

— Imports from Russia may hit 68bcm annually;

— So far, PetroChina, Sinopec and CNOOC have signed agreements since 2004 to import LNG from Australia, Indonesia, Qatar and Papua New Guinea

— Plans to import natural gas from Myanmar are making “good progress”

China is rich in unconventional gas resources. China contains 36.8tcm of coal bed methane (CBM) reserves at less than 2,000 meters, 12tcm of tight sandstone gas reserves, 31tcm of shale gas reserves and more than 60tcm of gas hydrate. CBM is under early development stage in China with production capacity to reach just 0.5bcm in 2010. Recoverable CBM resources are expected to be 10.9tcm and China proved 134.3bcm of reserves as at the end of 2008. Production of unconventional gas is forecast at 50bcm by 2030.

China has to address the issues of gas price, unconventional gas development, storage and gas for power generation to meet its demand.

— China’s domestic gas price is low and thus natural gas doesn’t have an advantage compared with other alternative energy sources. It can’t compete with coal either, even though gas is more environmentally friendly, emitting 40% less CO2. The National Development and Reform Commission, China’s top economic planner, is studying a new gas pricing mechanism.

— Based on what happened in North America, large scale development of unconventional gas resources will change the demand supply picture. China has large unconventional gas resources and is underdeveloped.

— Underground storage is key to the transmission process of natural gas yet China’s natural gas storage is still at start-up stage. It is necessary to strengthen storage development as China’s consumption soars. Storage availability still very low at just 2% of usage vs 16% in the US, 21% in Russia.


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— China has gas-fired power generation capacity of 30 million KW, 3.8% of total installed capacity. Gas used to generate power in 2009 in China was 15bcm, about 17% of total gas consumption (below the world average). The industry needs support from the government on issues such as low grid power prices. Regional and local governments may subsidize gas fired plants to reach environmental and energy intensity reduction goals.

PTT Public (Khun Penchan Jarikasem, EVP)

PTT is state-owned and the only integrated oil, gas and petrochemical conglomerate in Thailand. PTT’s core gas business includes 4.4bcfd of gas transmission capacity and 4.1mtpa of separation plant capacity. The company has 66% stake in PTT Exploration & Production and 49% stake in PTT Chemical. Its associated refiners account for more than 80% of Thailand’s refining capacity.

Commissioning of the new Gas Separation Plant 6 - PTT targets to commission the GSP#6 in November and believes it could ramp-up the utilisation rate to 100% by year-end. This, combined with the commissioning of the company’s ethane separation plant (ESP) since Jul-10, would increase PTT’s total gas product capacity to 6.7mtpa from 4.1mtpa at the end of 2009.

Gas demand in Thailand – Energy demand in Thailand tends to grow along with GDP growth. Given strong gas demand in 2010 (14% YTD), the Power Development Plan 2010 could underestimate Thailand’s gas demand growth (projected at 3.1% CAGR in 2010-2015). PTT has planned its investment projects to cope with rising demand (below).

— LNG terminal – PTT’s first LNG terminal is targeted to be completed in 2011. It has total capacity of 5mtpa and PTT has contracted 1.0mtpa of LNG from its partner in Qatar.

— 4th transmission pipeline will be completed in 2013. This will increase PTT’s pipeline capacity by 1,400mmcfd.

M&A among PTT associates – PTT has put the merger plan of IRPC and PTTAR on hold, due to a legal issue. The company, however, is still looking to consolidate its associates. In the long term, it would like to have only one flagship refinery associate and one petrochemical associate. PTT plans to list Star Petroleum (36% stake, JV with Chevron) and sell all of its stake after IPO.

Outlook– PTT believes the market refining margin (GRM) has bottomed and could be sustained at US$3-4/bbl range in 2H2010. It expects lower petrochemical spreads, both olefins and aromatics, due to the additional supply, particularly from China and Middle East.

Salamander Energy (James Menzies, CEO)

Salamander is a pure Asian E&P company with primary focus in Indonesia and Thailand. The company is also focused on Laos and Vietnam. Given the strong anticipated growth in Asian gas demand, and


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very low penetration by global comparison, Salamander is focusing not just on oil exploration but is also actively looking for gas.

The company’s proved and probable reserves are about 66.3mmboe. Salamander is targeting production of 30,000boed by 2013, which would be up from about 16,000boed during 1H10.

Salamander is now on a six well drilling campaign and targets 66mmboe risked and 270mmboe un-risked resources. The next well result is due in 10-14 days (Mandarin in the Kutai PSC in Indonesia).

Production at the Bualang field in Thailand is up to 10,000boed and the company believes there are still good drilling prospects. The fiscal terms in Thailand are also said to be favourable. This having been said, management said that the value of a barrel of oil discovered in Thailand is worth twice as much as one discovered in Indonesia.

In Indonesia gas prices have more than doubled. The Kambuna gas-condensate field (3,500bpd of condensate and 40mmcd of gas) received bids of up to $7/mcf with inflation escalators.

Salamander is looking for acquisitions of the order of US$50-200m, mainly in their existing areas of operation. But the company is also interested in Malaysia.

Salamander’s capex program is fully funded. The 2010 capex budget is US$110mn and the 2011 budget has not been set but is expected to be US$150mn at the top end. The company’s balance sheet is fairly strong with net debt of US$98.2mn and cash of US$168mn.

SOCO International (Ed Story, CEO)

SOCO is an international oil and gas E&P company. It currently has producing and development assets in Vietnam and exploration projects in Vietnam and West Africa.

SOCO’s strategy is to leverage on exploration success, and control risk by technology and diversification. To maximise project returns, it often stays long enough to reap project benefits before exiting, and leverages on efficient tax structure.

SOCO has 133.4mbbl of 2P reserves (124.2m in Vietnam and 9.2m in Congo).

SOCO has just sold its stake in Thailand’s Bualuang offshore Block B8/38 to project partner Salamander for US$105m. This will increase SOCO’s cash on hand to US$360m. In 2010, it estimates capex of US$200m in total (US$150m for Vietnam and US$50m for Africa).

In Vietnam, it expects to start production at TGT (Te Gian Trang) development area in August 2011 and add a second well in 2012. Salamander expects to drill 7 wells in total with 50% probability of success and believes it should be able to confirm estimated reserve in October.


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Appraisal area TGD (Te Giac Den, c50% held by SOCO) in Vietnam could add 50% to reserves. Currently it is under the testing phase. The company believes this well could also produce a result in October. TGD has recoverable hydrocarbons of 100mboe (P50), according to Salamander.

The company expects significant potential in the Democratic Republic of Congo. The Nganzi area has estimated recoverable resources of 465mbbl. The company expects drilling could add 250mbbl net. SOCO has acreage on the Congo side of Lake Albert, which it believes is more prospective than Tullow’s acreage on the Uganda side. Furthermore, the fiscal terms are more attractive than in Uganda, according to management.


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Consultant presentations IHS Automotive (Lin Huabin, Senior Market Analyst)

About 40% of Chinese villages still don’t have paved roads to the nearest market town. China plans to have 110,000km of railway by 2012. This compares with the current US level of about 240,000km.

IHS projects the Chinese car market will reach 25m units by 2015. IHS expects China’s automobile sales will grow by 22.46% in 2010 (excluding imports) and this follows an increase of nearly 51% in 2009. However, IHS estimates that sales growth will moderate to a more sustainable 7-9% per annum over the coming 3 years as government subsidies are removed.

IHS believes the gasoline sales statistics support the idea that the recent high growth in auto sales are real and not the result of government stockpiling of automobiles, as some market watchers have claimed.

According to IHS, less than 8% of auto sales are financed by bank credit. This compares to 85% in the US and 75% in India and 27% in Russia, for example. Buyers of cars are mostly private (83% in 2008 and 89% in 2009).

Of the 4.5m unit increase in auto sales in 2009, IHS believes that about 2.6m unit sales can be attributed to the impact of government subsidies.

Car penetration in China is still low by world standards. Last year, China had about 33 vehicles per 1,000 people. The highest penetration is in Beijing (184 vehicles per 1,000 people).

IHS noted that increasing car scrapping rates should drive replacement demand in coming years. The level in 2005 was just below 5% and has risen this year to an estimated 7.8%.

IHS said that the government targets alternative energy vehicles accounting for 5% of the market by 2015. However, IHS believes this is too ambitious because there are no common industry standards yet.

IHS believes that some Western cities in China may have reasonable potential for CNG (compressed natural gas) for vehicles. This is because the area has an abundance of cheap gas resource. However, given the cost of transportation to the coastal areas, gas may be expensive relative to gasoline.

Purvin & Gertz (John Vautrain, Senior Vice President)

On a global basis, there is a significant surplus in refining capacity and it will take some time to work the surplus off. Purvin and Gertz believes it could take up to five years to work off the surplus.

Refining capacity will need to be rationalized in Europe, the US and Japan with smaller, lower conversion refineries being the most likely to close. Australian refiners are also at some risk due to the weakness of older, small refimeries even in an importing market. Purvin and Gertz notes that Japan is moving ahead with closures and said that the government has even put into place a proactive rule which imposes minimum proportion for FCC or other conversion capacity relative to crude oil capacity. However, the US


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has been slow to permanently shut capacity and in some European countries there are political impediments to closure.

Asia and the Middle East are expected to drive well more than half of the incremental demand growth for oil products over the coming 10 years. Also, demand will be increasingly driven by light products. Light products are expected to account for nearly 77% of global demand by 2020.

Purvin & Gertz noted that almost all the major Asian countries have become net light fuel product exporters. So these countries are no longer an opportunity for Atlantic basin or Middle East refiners. Indonesia, Vietnam and Australia are the only remaining significant importers.

Conversion capacity (secondary upgrading units) has expanded more rapidly than crude distillation (CDU) capacity. Conversion capacity as a percentage of CDU capacity is up from 32% in 2000 to an estimated 39% this year. This is expected to expand to 41% by 2015.

In all major markets, diesel prices are expected to run anywhere from US$3-8/bbl premium to gasoline prices during 2010-2020. Purvin & Gertz expects demand growth for diesel to outstrip the demand growth for gasoline and believes that diesel will be tight overall relative to gasoline on a global basis. Government energy policies are likely to be supportive of dieselisation given the high efficiency of the fuel versus gasoline. Finally, most conversion capacity of global refineries is geared toward gasoline (FCC).

Purvin & Gertz believes net refining margins are likely to remain depressed through 2011 or 2012. Gradual recovery is expected if looking through 2015 but this is not expected to reach the peak levels of 2003-2008. Asia appears to have the most reasonable prospects for refinery re-investment by 2015, but some markets like the US may look worse given higher exposure to gasoline and less certain prospects on demand growth.

Asian countries have made some progress toward advancing fuel standards, but are still well short of the standards in other major regions. Adoption of relatively advanced EURO III, IV and V standards will be expensive. High sulphur diesel and gasoline (>500 ppm) are being rapidly phased out, but significant amounts of low sulphur gasoline (150ppm) and diesel (350/500 ppm) are expected to remain in the refined product pool.

Tri-Zen International (Tony Regan, Principal Consultant)

Tri-Zen believes the current glut of LNG will turn to a modest deficit by 2H11 and a material deficit by 2015. And despite the current state of over-supply, Mr. Regan noted that buyers failed to gain advantage as long term contracts are still being set near oil price parity, consistent with comments from other producers at the conference.

LNG liquefaction capacity grew 38% over the last 2 years. LNG as a percentage of global gas demand has increased from 3.5% in 1990 to 8.5% in 2009 and should reach 14% by 2014. Over half of global LNG demand comes from the Asia-Pacific region.


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Assuming strong gains in energy efficiency, global gas demand should grow 50% by 2030. This assumes ExxonMobil's forecasts that global population will grow from 6.7 billion in 2005 to 8.0 billion in 2030 and its forecast that global GDP will double from US$40 trillion to US$80 trillion. Despite a doubling in global GDP, gains in energy efficiency according to ExxonMobil should boost energy demand by a lesser 35%. Tri-Zen forecasts natural gas demand to grow 50%, with consumption increases led by the Asia Pacific region’s 160% increase. LNG supplies are forecasted to increase 375% to meet this longer term growth.

Tri-Zen forecasts the current state of oversupply in global gas turns to a modest deficit in 2H11 and a material deficit by 2015. Demand for LNG should double between 2009-15 but liquefaction capacity is forecast to increase by just 30% over this period. Assuming LNG plants operate at their historical utilization rate of 90% of capacity, the current glut of 9.8mtpa this year should evolve to a modest 5.6mtpa deficit in 2011 and to 103mtpa by 2015. Tri Zen emphasized that very few new liquefaction facilities are under construction and a number of project sanctions have been delayed. Eight projects with 57mtpa of capacity promised to be sanctioned this year have been delayed. Even assuming these projects are sanctioned in the next 1-2 years, Tri Zen forecasts a 66mtpa shortfall by 2015.

Despite the current state of oversupply, Tri Zen noted that sellers continue to benefit from securing long term contracts near oil price parity. Tri Zen has seen only modest concession on term prices, but did note that the percentage of LNG sold on a spot and short term basis has climbed from the mid-single digit percentage range 10 years ago to about 20% today and does not expect spot supply to exceed 25%. And given their forecast for an emerging shortfall in LNG supplies, Tri Zen expects LNG suppliers to continue to receive longer term contracts indexed to oil.

Tri Zen does not expect North America to become an LNG exporter. Despite the planned Kitimat facility in Canada and early plans along the Gulf Coast, Tri Zen believes shale gas is too expensive relative to Middle East supplies preventing North America from becoming a competitive global LNG exporter. Additionally, Tri Zen believes the volatility of North American prices would inhibit North American exporters from attracting Asian buyers which have traditionally focused on security of supply.

UBS (Dr. Tao Wong, Head of China Economic Research)

UBS believes China’s economy is heading for a soft landing. China’s economic growth has slowed throughout this year, led by decelerating heavy industry production as a result of the slowdown in stimulus-related investment growth. The end of a brief de-stocking in the heavy industry sector helped to push up industrial production in August, but Tao expects that the impact of the property tightening and energy saving measures will bring GDP growth to 8~8.5% (y/y) in Q4 2010 (7% q/q).

The less strict enforcement of energy saving measures in Q1 next year and new investment programs should help push up investment and GDP growth from Q1 2011. UBS baseline forecast is for 8.5-9% GDP growth and 3.5% inflation in 2011.


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The pick up in CPI inflation so far this year was mainly led by food prices, partly due to the recurrent bad weather conditions. Tao thinks the likely reduction in grain output will likely help to push CPI inflation to 3.5-4% in the next couple of months.

However, given that credit and activity growth have slowed, global demand remains weak, and sequential food price increase will likely drop, Tao expects a moderation in CPI inflation by year end forecasts 3% inflation on average in 2010.

Property prices rose strongly in the first few months of the year, stayed flat following the property tightening measures, but threaten to rebound again because of (i) a lack of credibility in the government’s resolve in containing property prices, and (ii) strong demand that is fuelled by the increasingly negative real interest rates and lack of investment alternatives.

The market has switched from concerns about a hard landing and expectations of policy relaxation to worries about more serious property tightening and a possible rate hike. Tao thinks macro policies will remain stable this year – the RMB 7.5 trillion credit target will be unchanged, and no serious property tightening measures will be rolled out.

UBS expects the government to implement the existing property measures more strictly to help stabilize property prices. To ensure a gradual exit from the stimulus and help balance the negative impact of property tightening measures, Tao expects new investment programs to be enacted for 2011 and beyond, in the context of “12

th five year plan”,

“balancing regional development” and developing the “new strategic industries”.

A rate hike this year, which can help anchor inflation expectations and contain asset prices, cannot be ruled out. However, the UBS view is that we should not consider this a true tightening, as it would not affect the amount of bank lending.

For 2011, Tao believes the more exciting story is not macro but structural for China. UBS sees regional development and industrial upgrading as key themes driving investment, especially capex spending in 2011, while the change of the growth model to rely more on consumption, energy price and property tax reform, interest rate liberalization and RMB appreciation are all potentially exciting topics for the market over the medium term.


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Field trip (Enviro Energy) A visit to TerraWest CBM project (Junggar basin)

Senior management of Enviro Energy and 74% owned TerraWest Energy (TWE) hosted a group of institutional investors for a tour of its 653 sq km Junggar basin block in Xinjiang, Western China. TWE holds a 47% stake in the PSC with PetroChina (53%). The block is located just outside the capital city of Urumqi (population 2.8m) and the second West-East pipeline runs through the block.

TWE is just entering the first of six planned development phases for CBM. The block is also the site of China’s first shale gas discovery (2009).

According to the company, the combined gross thickness of the Xishanyao (J2X) and Badaowan (J1B) CBM coal seams is about 45m (net) while the thickness of the shale gas bearing formation is about 750m. A recent independent appraisal of 5% of the block in accordance to the NI 51-101 standard showed it holds 26.7 bcf/sq. mile of gas in place (CBM).

The company started its testing phase at the block only recently as it took some time to get government approval, according to management. Sub-zero weather also hinders operations during the winter months.

We visited two well sites with management. A rig had just been erected at the well site which was first drilled in 2008 and we were told testing to determine the gas flow would begin soon. Another well site will also be tested in similar timeframe. It takes about 3-4 weeks for the drilling and another 3-4 weeks to frac and dewater.

Gas flow at the wells will be tested during the current pilot production stage and could reach as high as 750mcf/day based on coal thickness and gas content, according to management. If testing is successful, initial gas sales may begin as early as this year as the company is already in talks with city utilities in Urumqi. The gas would be compressed into CNG and trucked to the city initially and a 20km pipeline will have to be built in the future. The gas price would be more than US$7/mcf including government subsidies.

TWE will immediately start drilling the first of 10 pilot production wells to be completed and operated over the next 12 months for a cost of about US$1 million per well. Enviro has planned 2011 Capex of $26 million and has cash of about US$25 million following a recent share placement.

A PSC agreement is usually 30 years long. The initial exploration period is five years and can be extended for five more years given evidence that exploration activities are going on. The foreign party pays 100% of the cost during the exploration period and once production starts, Capex will be shared between the foreign partner and the Chinese party based on percentage ownership of the PSC.


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Statement of Risk

We believe oil prices are the number one risk in the sector. Our valuation of oil companies is based on global crude oil price forecasts. UBS forecasts Brent crude oil prices of US$86/bbl in 2008, and US$79/bbl in 2009. We have a normalised long-term Brent oil price assumption of US$73/bbl. Any deviation from the above forecasts could change our investment conclusions.

Analyst Certification

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.


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Required Disclosures This report has been prepared by UBS Securities Asia Limited, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.

For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request.

UBS Investment Research: Global Equity Rating Allocations

UBS 12-Month Rating Rating Category Coverage1 IB Services2

Buy Buy 51% 37%Neutral Hold/Neutral 40% 33%Sell Sell 9% 22%UBS Short-Term Rating Rating Category Coverage3 IB Services4

Buy Buy less than 1% 20%Sell Sell less than 1% 0%

1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. Source: UBS. Rating allocations are as of 30 September 2010. UBS Investment Research: Global Equity Rating Definitions

UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition

Buy Buy: Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event.

Sell Sell: Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event.


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KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any, follows. UBS Securities Asia Limited: Peter Gastreich; Ying Lou. UBS Securities LLC: William A. Featherston. UBS Securities Australia Ltd: Gordon Ramsay. UBS Securities Pte. Ltd.: Cheryl Lee, CFA. UBS Securities (Thailand) Ltd.: Piyanan Panichkul. UBS Securities Canada Inc: George Toriola. UBS Limited: Melanie Savage. This report was sent to the issuer prior to publication solely for the purpose of checking for factual accuracy, and no material changes were made to the content based on the issuer's feedback. Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.


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