investec gsf global energy fund presentation aug10 (hk)
TRANSCRIPT
GSF Investec Global Energy FundM k L d J th W hMark Lacey and Jonathan WaghornPortfolio ManagersAugust 2010August 2010
Important InformationImportant Information
● Investec Global Energy Fund (the "Fund") is an equity sector mutual fund. The Fund aims to achieve it l th b i ti i th it i t t f i t ti ll t d i th h t thcapital growth by investing in the equity instruments of internationally quoted companies throughout the
world involved in the exploration, production or distribution of oil, gas and other energy sources.
● Key risks of the product: Sector risk - The Fund invests in single sector and subjects to greater volatility than a broadly diversified portfolio. The sector may decline even while broader based equity market indices are rising. Smaller company risk – The Fund may invest in smaller companies and their shares may be less liquid and more volatile than the shares of larger companies due to the smaller number of shares in issue andand more volatile than the shares of larger companies, due to the smaller number of shares in issue and the frequently less diversified and less established nature of the business. These factors can create a greater potential for significant capital losses.
● In the worst case scenario, the value of the Fund may be worth substantially less than the original amount● In the worst case scenario, the value of the Fund may be worth substantially less than the original amount you invested and in an extreme case could be worth nothing.
● The investment decision is yours but you should not invest in the Fund unless the intermediary who sells it to you has explained to you that the Fund is suitable for you having regard to your financial situation, y p y y g g y ,investment experience and investment objectives.
● Investors should not only base on this material alone to make investment decisions. Please refer to the Fund Prospectus for the details of all risk factors.
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Target audienceTarget audience
This document is meant to be read only by professional investors, professional financial advisors and, at their exclusive discretion, their clients. No other person should rely on the information contained in this document.If you plan to show this to your clients, please ensure that you comply with any applicable y p y p y p y y pplocal marketing regulations.This document is not to be generally distributed to the public.
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Table of contentsTable of contents
● Introduction● Team and products ● Investment process● Fund’s structure● Fund’s structure● Investment case for energy equities● The macro outlook for energygy
− Key themes for 2010− Near term supply and demand
L t l d d d− Long term supply and demand− Gas markets
● Appendixpp− Performance
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The co-portfolio managersBackgroundBackground
Mark Lacey – 14 Years experience Jonathan Waghorn – 14 Years experience ● Co-Portfolio Manager Investec GSF
Global Energy Fund● Goldman Sachs Executive Director and
● Co-Portfolio Manager Investec GSF Global Energy Fund
● Goldman Sachs Executive Director and● Goldman Sachs, Executive Director and joint head of the Energy Research team
● Ranked number 1 analyst in oil and gas industry in 2007 Thompson Extel survey
● Goldman Sachs, Executive Director and joint head of the Energy Research team
● Rated 5 star analyst by Starmine for stock picking and earnings estimates (2007)industry in 2007 Thompson Extel survey
● Credit Suisse Asset Management, Energy and Resources Portfolio Manager
picking and earnings estimates (2007)● Previous energy research and industry
experience (Wood Mackenzie & Shell International)International)
Top rankings independently recognised by both oil companies and investors with a proven track record of alpha generation in both Long Only and Long/Short strategies
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t ac eco d o a p a ge e at o bot o g O y a d o g/S o t st ateg es
Global Commodities and ResourcesCore team
LDNBradley George
Portfolio Manager and Team Co ordinator
Core team
Portfolio Manager and Team Co-ordinatorGlobal Dynamic Resources. Global Gold
George CheveleyCo portfolio Manager Daniel SacksMark Lacey Jonathan WaghornLDN CPTLDN LDNCo-portfolio Manager
Global Dynamic Resources Base Metals & Bulks
Co-portfolio ManagerGlobal Gold
Co-portfolio Manager, Global Energy
Co-portfolio Manager, Global Energy
John ThompsonInvestment
Analyst, Soft Commodities
CPTKevin de Villiers
Trading
CPTDawid HeylInvestment
Analyst, Soft Commodities
LDNRuchir Patel
Trading
Scott WinshipInvestment Analyst,
Gold and Precious Metals
CPT LDN
● Cumulative market and industry experience of over 100 years● AUM of $4.5 billion in global commodities and resources as at 30 June 2010
An experienced team with diverse backgrounds
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p g
Global Commodities and ResourcesCurrent propositionsCurrent propositions
Global Commodities and Resources Fund Range
GSF Global Gold Fund$354m
OEIC Global Gold Fund*$162m
GSF Global Dynamic Resources Fund $114m
OEIC Enhanced Natural Resources Fund* $294mGSF Enhanced Natural Resources Fund* $58m
GSF Enhanced Global Energy Fund *$55m
GSF Global Energy Fund$1,236m
OEIC Global Energy Fund*$359m
● GSF launch date: 26 Nov 1990− Structure: Luxembourg SICAV
● OEIC launch date: 10 April 2006− Structure: UK OEIC
● Index: HSBC Global Gold
● Launch Date: 31 Jan 2008− Structure: Luxembourg SICAV
● Index: 50% MSCI World Materials and 50% MSCI World Energy
● OEIC launch Date: 1 May 2008− Structure: UK OEIC
● GSF launch date: 4 Jan 2010− Structure: Luxembourg SICAV
● Long/Short absolute return. Full UCITS III powersIndex: MSCI World Energy (50%)
● GSF launch date: 4 Jan 2010− Structure: Luxembourg SICAV
● Index: MSCI World Energy● Long/Short absolute return. Full
UCITS III powers
● GSF launch date: 25 Jan 1985− Structure: Luxembourg SICAV
● OEIC launch date: 29 Nov 2004− Structure: UK OEIC
● Index: MSCI World Energy
GSY B Global Commodities & Resources Fund*
● Index: MSCI World Energy (50%) and MCSI World Materials (50%)
GSY B Global Energy Long Short Fund* SA Commodity Fund *
● Launch Date: 31 Jan 2007− Structure: Guernsey B− Long/Short absolute return
Resources Fund$287m
● Launch Date: 15 Dec 2008− Structure: Guernsey B− Long/Short absolute return
Long Short Fund$56m
● Launch Date: 1 Feb 1995− Structure: South Africa
● Index: INVCM Benchmark
$78.5m#
Commitment to commodities and resources fund management business
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*The funds have not been authorised by the SFC and therefore are not available to Hong Kong investors. Fund sizes as at 31.07.10. #As at 30.06.10
Executive summaryThe Investec GSF Global Energy FundThe Investec GSF Global Energy Fund
● We seek to deliver returns that exceed those of the MSCI World Energy Index by:− Using the fundamental and rigorous investment process that is being used across all
Investec Asset Management’s energy products− Using our proprietary Energy Commodity Indicator to optimise the selection andUsing our proprietary Energy Commodity Indicator to optimise the selection and
timing of investments− Leveraging our numerous high quality industry contacts to get access to the best
industry and company informationindustry and company information● The Global Energy Fund has a high quality long term track record
− The Fund has returned 330% over ten years versus the MSCI World Energy Index (up 116%) in USD
Past performance should not be taken as a guide to the future and there is no guarantee that this investment will make profits; losses can be made.Source: Investec Asset Management Lipper to 31 07 10 NAV based (inclusive of all annual management fees but excluding any
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Source: Investec Asset Management, Lipper to 31.07.10, NAV based (inclusive of all annual management fees but excluding any initial charge), gross income reinvested, in US dollars. Performance is of the A Income share class. Performance would be lower had initial charges been included.
GSF Investment process
Investment processA structured and disciplined investment processA structured and disciplined investment process
Commodity Resource equity
Commodity analysisSupply/demand and break-even price analysis indicates likely commodity price trends
Commodity IndicatorScreening process that measures the daily interplay between major resource equities and their specific commodity mix
1 2
price trends specific commodity mix
Equity analysisP i t i d l ti d l
3Proprietary earnings and valuation models for companies
Q lit ti i4 Market consideration forward curve volatility liquidity Sell–side sentimentQualitative issues4 Market consideration, forward curve, volatility, liquidity. Sell side sentiment.Management meetings
High quality idea generation translated into various portfolios
Portfolio construction5 Selection and weighting of best commodity and equity ideas
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g q y g p
These internal parameters are subject to change, not necessarily with prior notification to shareholders.
Stage 1: Commodity analysisUnderstanding of major new supply sources
Stage 1. Commodity analysisSupply/demand and break-even price analysis indicates likely commodity
price trendsUnderstanding of major new supply sources
● Strong track record of fundamental oil and gas
price trends
commodity research from Goldman Sachs● Top 170 Oil and Gas Projects research was
highly regarded and extensively used within the g y g yindustry
Presented work to:● OPEC● OPEC● Saudi Aramco● Major Oils● Service companies● Global energy portfolio managers
Backgrounds in fundamental commodity research
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ac g ou ds u da e a co od y esea c
Stage 2: Commodity indicatorEach company has its own mix of commodities
Stage 2. The Commodity IndicatorScreening process that measures the daily interplay between major resource equities
and their specific commodity mixEach company has its own mix of commodities
● Commodity Indicator: Built bespoke commodity indicators to determine the relationship
and their specific commodity mix
between the performance of the mix of commodities that the company is exposed to (commodity indicator) vs. the performance of the company’s share price
● High correlation between a company’s commodity indicator and its share price. When g p y y pthese diverge, it provides a potential investment opportunity
Canadian oils have underperformed their commodity mix by 2%
Statoil has underperformed its commodity mix by
over the last 3 months, while the global Majors have underperformed theirs by 21%. Potential
17% over the last 3 months, while Repsol has outperformed its by 9%. Potential absolute return fundby % o e a
Long Only fund action: go overweight Majors, underweight Canadians
absolute return fund action: go long Statoil, short Repsol
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This is not a buy or sell recommendation for any particular security.Data as of mid 2009 and is meant for illustrative purposes only
Stage 3: Resource equity analysis Full financial and valuation models for companies
Stage 3. Resource Equity analysisProprietary earnings and valuation
models for companiesFull financial and valuation models for companies
● Company models: We have built individual d l t d t i i dcompany models to determine earnings and
valuations for around 150 companies● Our models are maintained by the Fund Managers
and contain our own forecastsand contain our own forecastsThe models have the following sections:● Commodity assumptions● Income statement● Income statement● Cash flow● Balance sheet
C it l t t● Capital structure● Margins, returns and gearing● Divisional analysis● Reserves and production summary● Relative valuation (multiples)● Absolute valuation (DCF and SOTP) Data as of mid 2009 and is meant for illustrative purposes only
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This is not a buy or sell recommendation for any particular security.
Stage 3: Resource equity analysisSummary valuation comparisons for companies
Stage 3. Resource Equity analysisProprietary earnings and valuation
models for companiesSummary valuation comparisons for companies
Valuation comparisons include:● Target prices and expected upside● Valuation multiples● IAM earnings estimates and consensus● IAM earnings estimates and consensus● Margins, returns, gearing and growth● Valuation assumptionsp● Share price performance● Benchmarking
The upside /downside to each target price is a key factor in both our Buy and Sell decisions
Data as of mid 2009 and is meant for illustrative purposes only
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p p y
This is not a buy or sell recommendation for any particular security.
Stage 4: Qualitative issuesMarket considerations and management meetings
Stage 4. Qualitative factorsMarket considerations and management
meetingsMarket considerations and management meetings
● We consider all of the following factors before making an investment● Meeting management. We will meet company management teams wherever possible
prior to investing to discuss current operational performance and costs● Trading patterns We have dedicated traders for all our equity and commodity trades● Trading patterns. We have dedicated traders for all our equity and commodity trades● Market liquidity. We monitor equity and commodity volumes, trading patterns and risk
appetitesS ll id ti t W i t i t l ti hi ith ll id t ti● Sell-side sentiment. We maintain strong relationships with sell-side counterparties
These qualitative issues complement the quantitative analysis andcomplete our stock selection process
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co p e e ou s oc se ec o p ocess
Stage 5: Portfolio ConstructionIntegrated Risk ManagementIntegrated Risk Management
● An integral part of our investment process d tf li t tiand portfolio construction
● Internal Risk Team is led by Richard Saldanha
● Risk team reports directly to Investec Asset Management CEO, Hendrik du Toit
● Internal EMA Risk System− Daily Portfolio Risk Reports (example on
right), showing Value-at-Risk (VaR) and Volatility and risk tolerances for all fundsM thl i k t d− Monthly risk report decomposes country, sector, valuation and asset risk factors with VaR Matrix at 99%, 95% and 90% confidence level90% confidence level
− Allows ‘what if’ scenario analysis
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#The funds have not been authorised by the SFC and therefore are not available to Hong Kong investors.
GSF Fund’s structure
Portfolio structure and construction limitationsInvestec GSF Global Energy FundInvestec GSF Global Energy Fund
● UCITS III Long Only Fund● Concentrated core portfolio, approximately 30-40 best ideas● Weighting dependent on level of conviction, mindful but not driven by the benchmark● Primarily a liquid portfolio
Mi i k t it li ti f US$500 illi lth h li idit i i t t f t− Minimum market capitalisation of c.US$500 million although liquidity is a more important factor− As of 31 December 2009, 95% of the portfolio could be liquidated in one day
● Sector universe− Integrated oils exploration & production equipment & services and downstream (refining and− Integrated oils, exploration & production, equipment & services and downstream (refining and
marketing)− Able to invest in coal and alternative energy although exposure is expected to be very limited
● Turnover – expected to be between 100 and 150%p
Risk Profile Investec GSF Global Energy Fund
Indicative Tracking Error 6 - 10%
Sub-sector weighting Up to 3.0x vs. index
Individual stock weighting 2% – 10% (for both index and non-index)
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These internal parameters are subject to change, not necessarily with prior notification to shareholders.
Performance attributionInvestec GSF Global Energy Fund 1H 2010 and 2009Investec GSF Global Energy Fund 1H 2010 and 2009
● Key +ve contributors vs the benchmark in 1H 2010 were:benchmark in 1H 2010 were:− Underweight BP. Overweight
Smith International, Baker Hughes and Marathon
● Key ve contributors vs the● Key –ve contributors vs the benchmark in 1H 2010 were:− Underweight ConocoPhillips and
Occidental. Overweight SevanMarine and WeatherfordMarine and Weatherford
● Key +ve contributors vs the benchmark in 2009 were:− Underweight ExxonMobil and
Chevron Overweight PetrobrasChevron. Overweight Petrobras, Afren, Quicksilver, Venture and Weatherford
● Key –ve contributors vs the benchmark in 2009 were:benchmark in 2009 were:− Underweight BG, Woodside,
NOV, Tullow, Schlumberger. Overweight ConocoPhillips and Frontier
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FrontierThis is not a buy or sell recommendation for any particular security. Source: Investec Asset Management
Portfolio attributes – Top ten holdings and benchmark positioningInvestec GSF Global Energy FundInvestec GSF Global Energy Fund
Sector weightings (%) Top ten holdings %
Date Fund MSCI World Energy
Integrated 49.1 57.3
E&P Oil Sands 3 5 3 4
Total S.A. 9.56
Exxon Mobil Corp. 9.15
Ultra Petroleum Corp. 6.38E&P Oil Sands 3.5 3.4
E&P 30.9 18.9
E&P subtotal 34.4 22.3
ENI S.p.A. 5.92
Noble Corp. 4.69
Marathon Oil Corp. 4.12Equipment and Services 15.1 12.9
Refining 0.4 1.7
p
BG Group PLC 3.94
Baker Hughes Inc. 3.91
Petrohawk Energy Corp. 3.65Other 1.0 5.8
Total 100.0 100.0
gy p
Chevron Corp. 3.57
The portfolio may change significantly over a short period of time
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The portfolio may change significantly over a short period of time.This is not a buy or sell recommendation for any particular security.Source: Investec Asset Management, as at 31.07.10.
Portfolio attributes – Current portfolio over/under-weightsInvestec GSF Global Energy Fund
Top Fund over-weights and under-weights versus MSCI World Energy Index
Investec GSF Global Energy Fund
Overweights %
Ultra Petroleum Corp. 6.08
Total S A 4 60
Underweights %
Halliburton Co. -1.26
Apache Corp 1 61Total S.A. 4.60
Noble Corp. 4.30
ENI S.p.A. 3.44
Apache Corp. -1.61
Canadian Natural Resources Ltd. -1.74
Occidental Petroleum Corp. -2.95
Petrohawk Energy Corp. 3.43
Marathon Oil Corp. 3.02
Quicksilver Resources Inc. 3.02
Schlumberger Ltd. -3.32
Chevron Corp. -3.56
ConocoPhillips -3.63Q
Baker Hughes Inc. 2.95
Range Resources Corp. 2.79
p
Royal Dutch Shell PLC (CL B) -4.89
Exxon Mobil Corp. -5.02
The portfolio may change significantly over a short period of time
Southwestern Energy Co. 2.61 BP PLC -5.56
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The portfolio may change significantly over a short period of time.This is not a buy or sell recommendation for any particular security.Source: Investec Asset Management, as at 31.07.10
Investment style analysisInvestment style analysis
● Investments in the Global Energy Fund are likely to be impacted by many variables, including, but t li it d t th l b l l d d d f th ditinot limited to, the global supply and demand for the commodities
● Factors influencing supply include: − the actions of Organization of The Petroleum Exporting Countries (“OPEC”)
war and terrorismweathertax regimesthe price of oil itself which influences the marginal return of producing oil and natural gasthe price of oil itself, which influences the marginal return of producing oil and natural gas
● Factors influencing demand include: − economic growth around the world, and the relative growth of less developed countries versus
developed economiesdeveloped economiesweatherthe price of the commodity itself
● The Funds rely on a disciplined investment and portfolio construction process which may also not● The Funds rely on a disciplined investment and portfolio construction process which may also not work at times. Factors affecting this could include commodity price movements and broader equity market movements
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GSF The macro outlook for energy
Key energy sector themes for 2010 and beyondKey energy sector themes for 2010 and beyond
● OPEC actions: We expect compliance to slip further as Saudi bank rolls production increases l h i th ld i ll R ielsewhere in the world, especially Russia
● Range bound oil prices: We expect an average $70/bl Brent in 2010 (within a range of $60-85/bl) as OPEC supply the market in the short-term
● Destocking: We need to see inventories decline before prices can move significantly higher● Destocking: We need to see inventories decline before prices can move significantly higher● Iraqi production: It is too early to tell how much production can really increase over the next
10 years● Investment: We expect capital expenditure to increase slightly in 2010 and then accelerate further● Investment: We expect capital expenditure to increase slightly in 2010 and then accelerate further
in 2011 and beyond● Non-OPEC production: Lack of investment should see non-OPEC production slipping● US gas market recovery: g y
− We expect supply to fall and for inventories to decline, which is supportive to prices− We expect demand to show signs of a recovery, which is supportive to prices
● M&A activity: y− We expect the IOC’s and NOC’s to continue to be active in acquiring strategic assets− With the discovery of new low cost gas shales, we believe that this is a key focus area
● Share prices: Management quality, delivery and exploration success will be rewarded
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p g q y y p
Gas markets: more potential upside in gas than in oilGas prices appear more positively skewed than oil prices presentlyGas prices appear more positively skewed than oil prices, presently
● There is better fundamental economic support for natural gas prices than for oil prices● Oil is trading well above the marginal cash cost of extraction while natural gas is trading
close to it● Oil prices have more downside risk while gas price offer more upside potential● Oil prices have more downside risk while gas price offer more upside potential
7.5160.08.0
Price required for marginal producer to
make a 10% return on investment
6.0
80 85
120.06.0
$ / 6
1)
$ / m
cf)
Price required for average cost producer to
make a 10% return on new investment
3.880 - 85
55
40 0
80.0
2 0
4.0
Oil
pric
e (
Gas
pric
e ( $ Current spot price
Cash cost of current supply for a marginal
cost producer
35
0.0
40.0
0.0
2.0
G i i Oil i il i
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Source: Bloomberg, March 2010
Gas price versus gas economics Oil price versus oil economics
Gas markets: US gas prices are very depressedUS gas prices have not recovered with oilUS gas prices have not recovered with oil
● US gas prices are at depressed levels, despite the recent strength in crude prices● Weak industrial demand and fears of over-supply have caused this price reaction● We expect the US market to correct dramatically and for gas prices to rise from hereS US i (US$/ f)Spot US gas price (US$/mmcf)
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Source: Bloomberg, July 2010
Global Gas Demand: Gas demand growth outpaces oil demand growthdemand growth
● Global gas demand grew 2.4% CAGR over the last 15 years
● Growth in LNG demand of ~7% CAGR over the last decade outpaced that of overall gas demand
● During 2009 growth in China India UK and US offset material year on year declines in Japan South Korea and Taiwan● During 2009, growth in China, India, UK and US offset material year-on-year declines in Japan, South Korea and Taiwan
● LNG represents ~10% of total gas consumption, up from 6% in 2000
● LNG will continue to gain its share of global energy demand as countries move away from coal and oil (on a relative basis)
● In contrast, non-OPEC crude oil supply has grown by only 5 mmbpd (1% annually) during the last 10 years
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pp y g y y p ( y) g y
Sources: Tudor Pickering Holt & Co, April 2010
Gas demand: industrial demand recovery is criticalIndustrial demand represents 35-40% of total gas demandIndustrial demand represents 35-40% of total gas demand
● Between 35 and 40% of total gas demand is for industrial use− Industrial demand accounts directly for c.30%− 30% of power generation demand for natural gas is also for industrial use
● US industrial demand is still well below the December 2007 peak● US industrial demand is still well below the December 2007 peak● Recovery is underway, although we believe there is further to go● Gas is more leveraged to an industrial demand recovery than oilg y
U.S. natural gas demand, 2008Pipeline
3%
Commercial 14%
Industrial 30%
Power Generation
26%
Residential22%
14%
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Source: Simmons, March 2010
Other 5%
Gas markets: the cheapest energy sourceGas is cheaper than both oil and coal currentlyGas is cheaper than both oil and coal currently
● Depressed prices leave gas as the cheapest ‘energy molecule’ available● Power producers will switch from ‘dirtier’ coal into ‘cleaner’ natural gas at $4.50/mcf● The US gas market is likely to correct sharply as demand returns and supply falls
WTI oil vs natural gas price ratio
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Source: Bloomberg, July 2010
Gas demand: Gas should benefit from coal displacementGas is cheaper and cleaner than thermal coalGas is cheaper and cleaner than thermal coal
Natural gas futures vs MMBtu equivalent coal futures prices
Page 30 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Credit Suisse, April 2010
Gas demand: future demand from power generationAn easy option for governments to reduce carbon intensityAn easy option for governments to reduce carbon intensity
● Gas demand from power has grown significantly since 1997● Recent shale gas discoveries give confidence in future gas production● We expect further gas-powered electricity generation growth● Renewable energy economics are stretched while subsidies are likely to be delayed or● Renewable energy economics are stretched while subsidies are likely to be delayed or
restrained in the weak economic environment● Gas offers the cheapest, easiest route towards reducing carbon intensity
16
18
Gas consumption from power generation sector Capacity added by fuel type
6
8
10
12
14
bcfd
0
2
4
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
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Source: EIA, Simmons Source: Platts, Simmons
Gas supply: capex and drilling have reacted quicklyCuts likely to be too drastic and should lead to higher pricesCuts likely to be too drastic, and should lead to higher prices
● Given the cut in US drilling activity in 2009, we expect a supply response in 2010● US E&P capital expenditure fell sharply in 2009 but should rebound in 2010● The gas-directed rig count is rebounding with a larger share in horizontal rigs● The US market is back into balance There is a strong possibility that it goes into deficit
100%E&P Year-over-Year Change in Organic Capex (%)
● The US market is back into balance. There is a strong possibility that it goes into deficitBaker Hughes US gas rig count E&P year-over-year change in organic capex (%)
40%
60%
80%
0%
20%
40%
-40%
-20%
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Source: Bloomberg, July 2010
US shale gas production is an increasing source of supplyUS shale gas production is an increasing source of supply
● US shale gas production now represents around 17% of total US production. This compares to just 4% in 2004
● We expect US shale gas production to double over the next six years● Assuming well service costs remain stable gas producers will still need $6 50/MMBtu in● Assuming well service costs remain stable, gas producers will still need $6.50/MMBtu in
order to generate a cost of capital return
US Shale ProductionUS Shale Production
Page 33 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Credit Suisse, June 2010
Basic cost analysis provides an indication of fundamental supportsupport
● We estimate that total costs for the listed exploration and production companies is around $5 75/M bt$5.75/Mmbtu
● We estimate that total cash costs for the listed exploration and production companies is around $3.50/Mmbtu
E&P company total cost per Mmbtu E&P company total cash cost per Mmbtu
● We continue to invest in the low cost, high organic growth and high return companies
$
$8.00
$10.00
$5 00
$6.00
$7.00
$8.00
$2.00
$4.00
$6.00
$2.00
$3.00
$4.00
$5.00
$0.00 SD
PX
PW
TIS
MP
XD
AP
CK
WK
EQ
TR
OS
EB
BG
CR
KC
OG
MU
RO
XY
AP
AN
FXH
K RR
CE
OG
NB
LFS
TU
NT
CR
ZOD
VN
XE
CC
HK
UP
LS
WN
$0.00
$1.00
DP
TRS
D EQ
TP
ETD
PV
AK
WK
GM
XR
AP
CR
OS
EH
KFS
TB
BG
NFX
UN
TC
OG
DV
NR
RC
EO
GC
RK
XE
CC
RZO
CH
KU
PL
SW
N
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This is not a buy or sell recommendation for any particular security.Source: Credit Suisse, June 2010
Gas supply: prolific shale plays but high decline ratesShale play decline rates are prohibitiveShale play decline rates are prohibitive
● Average first year decline rates on the shale plays are around 70%● Over the first three years, declines average around 85%● At the same time, Gulf of Mexico gas production is down over 40% in the last 10 years● The shale plays are needed and the resource holders will be winners● The shale plays are needed and the resource holders will be winners...
... but so will the service companiesDecline rates on US gas shale plays
Page 35 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Simmons, March 2010
Gas supply: LNG volumes need at least $6 mmcfIt is unlikely that significant volumes will go to the US marketsIt is unlikely that significant volumes will go to the US markets
● We expect around 10bcf/d of new global LNG supply by end 2011 vs end 2008
Return Sensitivity Analysis (IRR%)by end 2011 vs end 2008
● Whilst new LNG projects have started, the majority of these volumes have been contracted
● Current prices indicate that any excess (spot) LNG
Gas Price $/mmcf
$4 $5 $6 $8 $10 $12
Without NGLs 0% 4% 7% 11% 15% 19%● Current prices indicate that any excess (spot) LNG cargoes will go to Asian markets, not to the US
● US gas prices need to be higher to incentivise LNG supply
With NGLs 8% 10% 12% 16% 19% 21%
Regasification Capacity (Bcf/d) 2006 2007 2008 2009North America 5 1 5 1 10 7 15 2
Global LNG netback prices ($/mmcf)New LNG supply coming into the market
F b N tb k T bl ($/ bt )North America 5.1 5.1 10.7 15.2Europe 8.2 10.2 13.4 14.7Total 13.3 15.3 24.1 29.9Percentage Increase 15% 58% 24%
Liquefaction Additions (Bcf/d) 2H08 1H09 2H09 1H10Nigeria (Train 6) 0.5Qatar (Qatargas 4, Rasgas 6) 2.0A t li (NWS 5) 0 6
February Netback Table ($/mmbtu)Destination Ports
Cove LakePoint Altamira Charles Spain Belgium UK India Japan Korea
$5.60 $5.80 $5.04 $4.80 $5.35 $5.45 $7.20 $7.80 $7.80Algeria 4.90 4.87 4.12 4.62 4.98 5.09 6.07 5.84 5.91Egypt 4.63 4.58 3.86 4.43 4.71 4.83 6.35 6.12 6.19Nigeria 4.35 4.68 3.94 4.08 4.55 4.65 5.94 5.91 5.97e
Port
s
Australia (NWS 5) 0.6Indonesia (Tangguh) 1.0Yemen (Yemen LNG) 0.9Russia (Sakhalin II) 1.3Qatar (Qatargas 5, Qatargas 6, Rasgas 7) 3.0Total 0.5 2.6 3.2 3.0
Nigeria 4.35 4.68 3.94 4.08 4.55 4.65 5.94 5.91 5.97Qatar 4.01 3.97 3.24 3.78 4.08 4.18 6.90 6.73 6.78Trinidad 5.20 5.32 4.58 4.05 4.60 4.70 5.45 5.39 5.44Source: Waterborne LNG
Sour
ce
Page 36 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Tudor Pickering, Investec Asset Management estimates, April 2010
Gas equities: M&A activity in the North American gas marketExxon has made the boldest move We expect others to followExxon has made the boldest move. We expect others to follow
● Exxon’s $43 billion takeover of XTO is based on expanding their US shale gas expertise globally
E&P acquisitionsexpanding their US shale gas expertise globally.
● In addition, there have been a number of other acquisitions in the North American gas sector over the last two years
● We cross reference our company valuations against these deal metrics
● On our estimates, we value companies based on the following approximate valuations:following approximate valuations:− Marcellus $9k/acre− Haynesville $20-25k/acre
H Ri $7k/− Horn River $7k/acre− Fayetteville $8-10k/acre
● Based on these valuations, at $7/mmbtu, we still see significant upsides to a number of the US E&Psignificant upsides to a number of the US E&P companies
Page 37 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
This is not a buy or sell recommendation for any particular security.Source: Company data, Investec Asset Management estimates, April 2010
Gas equities: Exxon acquisition of XTOValuation and RoACE of XTO at different gas pricesValuation and RoACE of XTO at different gas prices
● Exxon acquired XTO at the end of 2009 for $43bn, with a takeout price of c.US$48/sh● We believe Exxon paid for a long term gas price of around $5/mcf● At $7/mcf gas, the RoACE on the acquisition for Exxon is around 7%● Exxon acquires XTO’s knowledge as well as its US acreage● Exxon acquires XTO’s knowledge as well as its US acreage
XTO valuation at various gas prices RoACE for Exxon’s purchase of XTO at various gas prices
Page 38 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
This is not a buy or sell recommendation for any particular securitySource: Investec Asset Management, March 2010
Gas equities: gas equities offer potential upside even at $5/mcfUpsides at different gas prices for US gas E&PsUpsides at different gas prices for US gas E&Ps
● We see 60-80% upside in gas E&Ps at a $6/mcf long term gas price● Even at $5/mcf, we see upside averaging over 40%● We believe these names offer attractive upside and downside support● All five names have some production hedged through 2010/2011● All five names have some production hedged through 2010/2011
E&P sum of the parts valuation at various gas prices
Page 39 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
This is not a buy or sell recommendation for any particular securitySource: Bloomberg, March 2010
Oil markets: near-term oil supply/demand balanceDe-stocking is required in the short-termDe-stocking is required in the short-term
● We expect 2010 to be a year of de-stocking with OPEC crude production gradually increasing
Mmb/d 2008 2009 2010F
Flat year on year demand growth is in line with current IEA andOECD demand 47.6 45.5 45.5 Flat year-on-year demand growth is in line with current IEA and OPEC forecasts for 2010
Non-OECD demand 38.7 39.2 39.7 Our 2010 forecast is below current IEA forecasts (40.6mb/d) and above the current OPEC forecasts
Total demand 86.3 84.7 85.2
Non-OPEC supply 50.6 50.5 50.5 Flat non-OPEC production could prove optimistic in 2010 given the slow down in investment in 2008 and 2009
OPEC NGLs 4 7 5 4 5 8OPEC NGLs 4.7 5.4 5.8
OPEC 12 supply 31.0 28.6 28.6 Based on current OPEC production rates
(Deficit)/surplus (0.2mb/d) (0.3mb/d) Over the next 12 months we believe we need OPEC production to increase only marginally n order to keep the market balanced
Page 40 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Investec Asset Management, IEA, December 2009
Near-term supply/demandDe-stocking is required to overcome the current inventory overhangDe-stocking is required to overcome the current inventory overhang
● There is still around 61 days of forward cover in OECD stocks● We need this forward cover to return to more normal levels of 52-56 days● A return to these levels will allow crude prices to move sustainably higher
OECD total (crude + products) inventories, bn bbl OECD total inventories, days’ demand
Page 41 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Collins Stewart Europe Limited, May 2010
Long term demand: Non-OECD is the key driverPer capita oil demand and car density remain very lowPer capita oil demand and car density remain very low
● Non-OECD oil demand has grown at 2.6% pa (1973-2008) versus the OECD at 0.5%pa● China and India per capita oil demand is a fraction of OECD levels● Car density is rapidly increasing in China and India, and still a fraction of the OECD● In contrast US and western European per capita demand will likely moderate● In contrast, US and western European per capita demand will likely moderate
2009 per capita oil demand (bl)Per capita oil demand (bl)
Global oil use by sub-sector
Ref inery fuel
Heating7%
Road construction
4%
Other6%
p ( )
2009 Oil Demand (mb)
Population (in mil)
Oil Consumption per capita (bls)
US 6,948.1 308.7 22.5
TransportPetrochemicals
Industrial fuel8%
Ref inery fuel5%OECD 16,615.0 1,190.6 14.0
Japan 1,589.0 127.7 12.4
Germany 895.0 82.1 10.9
Cp
64%Petrochemicals6%
China 3,303.0 1330.1 2.5
India 1,211.7 1,166.0 1.0
Source: IEA, Investec Asset Management estimates 2008
Page 42 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: OECD and BP
, g
Long term demand: Car density and ownership growthWhilst the growth has been strong we do not expect it to slow significantlyWhilst the growth has been strong, we do not expect it to slow significantly
● We expect China to consume more units on an annual basis than the US by 2011● We estimate that car density in China and India will double within five yearsInternational car sales – key markets (millions of units) Car density (cars per 1000 of population)
1990-99 2000 2001-2007 2008 2009 2010F
Global Sales 39.2 46.6 49.5 52.2 50.9 52.7
North America 16.4 19.8 19.4 15.9 12.7 13.9
Canada 1.3 1.6 1.6 1.6 1.5 1.5
United States 14.6 17.4 16.7 13.2 10.4 11.5
2000 2004 2007 2009E 2010E 2014E
Total W. Europe 467 492 495 499 500 508Russia 140 169 206 231 234 265Total Eastern Europe 147 171 199 221 225 252Total N. America 359 374 380 372 367 357China 4 9 16 24 29 47
Mexico 0.5 0.9 1.0 1.0 0.8 0.9
Western Europe 13.1 14.8 14.6 13.5 13.6 12.5
Germany 3.6 3.4 3.3 3.1 3.8 3.2
Eastern Europe 1.18 2.4 2.5 4 3 3.2
Russia 0 8 1 1 4 2 7 1 5 1 6
China 4 9 16 24 29 47India 5 6 6 8 9 13Japan 413 438 451 452 450 452Korea 171 220 247 268 280 329Total Asia 31 35 40 43 46 54Argentina 140 128 145 165 172 196Russia 0.8 1 1.4 2.7 1.5 1.6
Asia 6.9 7.9 10.8 15.1 17.7 18.8
China 0.3 0.6 2.6 5 7.3 8.8
India 0.3 0.6 0.8 1.2 1.5 1.6
South America 1.6 1.9 2.2 3.7 3.9 4.3
B il 0 9 1 2 1 4 2 2 2 5 2 7
gBrazil 90 96 107 119 124 147Total S. America 76 79 89 99 102 119S.Africa 87 92 107 105 104 112Grand Total 109 116 122 126 127 135
Brazil 0.9 1.2 1.4 2.2 2.5 2.7
Page 43 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Scotia Capital/Investec Asset Management, February 2010 Source: Global Insight, February 2010
Long term demand: Non-OECD demand growth What if China and India follow the paths of South Korea and the USAWhat if China and India follow the paths of South Korea and the USA
● Industrial production growth in non-OECD countries should have a bigger impact on overall oil d d i f ddemand going forward
● Whilst we expect OECD oil consumption per capita to reduce over time, this will be more than offset by the industrialisation of China and India alone
90%
100%OECD Demand Non‐OECD Demand
Non-OECD as a % of global demand Per capita oil consumption (barrels per year)
27 530.032.5 Japan USA South Korea China India
50%
60%
70%
80%
17.520.022.525.027.5
)20%
30%
40%
5.07.5
10.012.515.0
0%
10%
Source: Simmons & Company; Investec Asset Management estimates
0.02.5
Source: Simmons & Company; Investec Asset Management estimates February
Page 44 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Simmons & Company; Investec Asset Management estimates,February 2010
Source: Simmons & Company; Investec Asset Management estimates, February 2010
Long term supply: declines and poor explorationA lack of exploration success and increasing decline ratesA lack of exploration success and increasing decline rates
● A lack of new discoveries and increasing declines should limit long term production growth● Oil resources are still abundant, they are just not as low cost and accessible as those discovered
between 1920 and 1970
Average oilfield decline rate (% p.a.) A lack of exploration success
>20%20%
25%
g ( p ) p
350
400
450
6.0
7.0
bls)
420bn
red
(bnb
ls)
10%11%
16%
15%
200
250
300
350
3.0
4.0
5.0
disc
over
y si
ze (b
nb
/ res
erve
s di
scov
er
4%5%
10%
5%
10%
20bn
0
50
100
150
0 0
1.0
2.0
Ave
rage
mbe
r of d
isco
verie
s
0%Before1960s
1960s 1970s 1980s 1990s 2000s
01850-1899
1900-1909
1910-1919
1920-1929
1930-1939
1940-1949
1950-1959
1960-1969
1970-1979
1980-1989
1990-1999
2000-2006
0.0
Volume discovered (bnbls, LH axis)Number of discoveries (LH axis)Average discovery size (bnbls, RH axis)
Num
Page 45 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Goldman Sachs and Investec Asset Management estimates, 2010 Source: AAPG
g y ( , )
Long term supply: Reserve additions and value creation through explorationthrough exploration
● Aside from a few companies, exploration success has been limited
250%
Reserves added to exploration since 2000 as a % of SEC reservesNet present value of discoveries as a % of EV
70%
80%
150%
200%
50%
60%
100%
150%
30%
40%
50%
0%
10%
20%
0%
Gal
pTu
llow
INPE
XBG
Mur
phy
Rel
ianc
eC
airn
Indi
aPe
trobr
asW
oods
ide
Re p
sol
Soco
Mar
atho
nN
oble
Ene
r gy
ENI
Sino
pec
Cor
pAn
adar
koH
usk y
Ene
rgy
TOTA
LC
hevr
onSt
atoi
lR
DSh
ell
A pac
heC
NO
OC
Hes
sBP
BHP
Billi
ton
Con
ocoP
hilli p
sEx
xonM
obil
Petro
chin
aN
exen
Enca
naD
evon
Ene
r gy
Luko
il
0%
Soco
INPE
XC
airn
Indi
aTu
llow
Gal
pPe
trobr
as BGM
urph
yAn
adar
koM
arat
hon
Woo
dsid
eC
hevr
onN
oble
Ene
rgy
Rep
sol
Hes
sR
elia
nce
BPTO
TAL
Enca
naC
NO
OC
Stat
oil
Nex
enC
onoc
oPhi
llips
RD
Shel
lPe
troch
ina
Dev
on E
nerg
yEN
IEx
xonM
obil
Apac
heH
usky
Ene
rgy
Sino
pec
Cor
pBH
P Bi
llito
n
Page 46 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
This is not a buy or sell recommendation for any particular security.Source: Goldman Sachs, February 2010
Non-OPEC production: key regions are decliningNorth Sea Mexico and US falling fast despite capex spend Is Russia next?North Sea, Mexico and US falling fast despite capex spend. Is Russia next?
● Mexico, North Sea and US oil production has been falling at c. 8% p.a. over the last few years. Assuming this decline rate slows to c 4% p a non OPEC production remains under pressuredecline rate slows to c. 4% p.a., non-OPEC production remains under pressure
● Given the maturity of the Russian oil fields, we believe that oil production from this region has peaked● These decline rates should accelerate if oil prices were to weaken as a result of reduced capital expenditureNorth Sea Mexico
4,000
5,000
6,000
7,000( )
1500
2000
2500
3000
3500
4000
1,000
2,000
3,000
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
E
2012
E
2015
E
0
500
1000
1500
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
E
2012
E
2015
E
7,000
8,000
9,000
10,000
7 000
9,000
11,000
13,000
United StatesRussia Oil Production (mbl/d)
3,000
4,000
5,000
6,000
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
E
2012
E
2015
E
1,000
3,000
5,000
7,000
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
E
2012
E
2015
E
Page 47 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
2 2 22 2 2
Source: Investec Asset Management / Tudor Pickering, February 2010
Long term supply: lack of project sanctions recentlyThe industry faces technical and resource-based challengesThe industry faces technical and resource-based challenges
Water depth is getting deeper. This will impact both extraction costs per barrel and production delays
Lack of project sanctions since 2006 is likely to make post 2010 volume growth difficult extraction costs per barrel and production delayspost 2010 volume growth difficult
Page 48 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Goldman Sachs, September 2009
Non-OPEC production change year-on-yearProduction from Brazil is unlikely to offset declinesProduction from Brazil is unlikely to offset declines
● Early indications are that Brazil’s sub-salt discoveries could contain as much as 60 billion barrels of il i loil in place
● Significant first production is not expected until 2014, but significant investment is needed to achieve this target3,000
2,000
2,500
,
eclin
e) k
bls/
d
500
1,000
1,500
uctio
n gr
owth
/ (d
e
1 000
-500
0
n-O
PE
C y
oy p
rod
-1,500
-1,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
No
Perfect delivery Delivery in line with history
Page 49 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Goldman Sachs, February 2010One percent more decline in the base One percent decline and historical delivery
OPEC: We need OPEC’s spare capacityBased on a conservative demand outlook we see a need for investment in the industryBased on a conservative demand outlook, we see a need for investment in the industry
● If demand grows from current levels, then OPEC spare capacity will be needed and could be fully tili d b 2012utilised by 2012
● In addition to non-OPEC producers, the OPEC member countries also need to invest heavily
Call on OPEC crude (mmb/d) OPEC spare capacity (% utilised)
$100
$120
$140
32
33
34
35
110 0%
115.0%
120.0%
$60
$80
$100
29
30
31
32
$/bb
l
mm
bpd
100.0%
105.0%
110.0%
C c
apac
ity u
tilis
atio
n
Physical limit to demand
$0
$20
$40
25
26
27
28
85.0%
90.0%
95.0%
OP
EC
$0 25
Call on OPEC Crude WTI
85.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
E
2010
E
2011
E
2012
E
2013
E
2014
E
2015
E
Base case Historical delivery 1% increase in decline rates Historical delivery and decline increase
Source: Goldman Sachs, February 2010Source: Simmons & Company, February 2010
Page 50 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
, yp y, y
OPEC: Iraq is the real wild cardA significant amount of investment is neededA significant amount of investment is needed
● Oil reserves of 115 billion barrelsOPEC – available spare capacity (50% of Iraq plans)
● Projects announced so far are targeted to add 6.1mmb/d of additional capacity by 2017!
● Over $12 billion p.a. of capital expenditure is 6 %
8 %
1 0 %
needed over this period
0 %
2 %
4 %
0 6 0 7 0 8 0 9 E 1 0 E 1 1 E 1 2 E 1 3 E 1 4 E 1 5 E 1 6 E 1 7 E 1 8 E
10 %
12 %
OPEC – available spare capacity (Iraq plans fulfilled)
4 %
6 %
8 %
0 %
2 %
06 07 0 8 0 9E 1 0E 1 1E 1 2E 1 3E 1 4E 15E 16E 17E 18E
Page 51 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Collins Stewart, Investec Asset Management estimates, February 2010
Long term supply: marginal cost likely to remain highCanadian tar sands projects are the marginal future producersCanadian tar sands projects are the marginal future producers
● The industry will have to develop Canadian tar sands projects to satisfy global demand● These projects require, on average, around $80/bl to make a cost of capital return● These projects will set long term crude prices
Oil price required to make a Cost-of-Capital break even ($/bl) for potential new projects
Canadian tarCanadian tarsands projects
Page 52 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Goldman Sachs, January 2010
Long term supply: higher marginal cost of supplyWe estimate that the marginal cost for oil in 2009 is around $80/blWe estimate that the marginal cost for oil in 2009 is around $80/bl
● The development of marginal projects is currently in question, whilst spare capacity exists
● Once the spare capacity is exhausted, more marginal fields will be needed, thus supporting higher crude prices
Industry marginal cost curve (US$/boe)
Page 53 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Goldman Sachs
Refining – not as bad as the 1980s Spare capacity is still quite high thoughSpare capacity is still quite high though
Global refining capacity versus demand (kb/d) Global refining excess capacity by product
40% 50%
ty MS Estimates
60,000
80,000
100,000
b/d
20%
25%
30%
35%
30%
40%
s %
of P
rodu
ct C
apac
i
20,000
40,000
kb
5%
10%
15%
20%
0%
10%
20%
rld E
xces
s C
apac
ity a
s
-
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
e20
12e
2014
e
0%
Global MD capacity Global LD capacityGlobal FO capacity Global 'others' capacityWorld Tot Pdts Consumption (kb/d) Global excess cap as % total capacity
-10%19
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
10e
2012
e20
14e
Wor
Light Distillates Middle Distillates Fuel Oil
World Tot Pdts Consumption (kb/d) Global excess cap as % total capacity
Page 54 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Morgan Stanley, June 2010
Refining – Product margins and capacity differ by regionRefining Product margins and capacity differ by region
Europe Excess Capacity – less diesel, more fuel oil60% MS Estimates 60%ci
ty MS Estimates
N.America Excess Capacity – lots more fuel oil, still short gasoline
20%
30%
40%
50%
y as
% o
f Pro
duct
Cap
acity
-20%
0%
20%
40%
acity
as
% o
f Pro
duct
Cap
ac
-30%
-20%
-10%
0%
10%
Euro
pe E
xces
s C
apac
ity
-100%
-80%
-60%
-40%
Nor
th A
mer
ica
Exce
ss C
apa
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
e20
12e
2014
e
Light Distillates Middle Distillates Fuel Oil
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
e20
12e
2014
e
N
Light Distillates Middle Distillates Fuel Oil
60%
y
MS Estimates
APAC Excess Capacity – longer fuel oil, balanced light and middle distillate capacity
70%ty
Middle East Excess Capacity – not the export threat that is widely perceived
0%
20%
40%
ty a
s %
of P
rodu
ct C
apac
ity
30%
40%
50%
60%
70%
city
as
% o
f Pro
duct
Cap
acit
MS Estimates
-80%
-60%
-40%
-20%
84 86 88 90 92 94 96 98 00 02 04 06 08 0e 2e 4e
APA
C E
xces
s C
apac
i
-10%
0%
10%
20%
4 6 8 0 2 4 6 8 0 2 4 6 8 e e e
Mid
dle
East
Exc
ess
Cap
ac
Page 55 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
e20
12e
2014
e
Light Distillates Middle Distillates Fuel Oil
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
e20
12e
2014
e
Light Distillates Middle Distillates Fuel OilSource: Morgan Stanley, June 2010
GSF Investment case for energy equities
Investment: Energy equities relative to energy commoditiesEnergy equities provide more leverage than the crude priceEnergy equities provide more leverage than the crude price
● The GSF Global Energy Fund has t f d th d il i i 1994
Long term performance in USD(F D b 1994 t J l 2010)outperformed the crude oil price since 1994
● We believe energy equities are likely to outperform the commodity long term as a result of:
(From December 1994 to July 2010)
1 600
1,800
2,000Investec GSF Global Energy A Inc (MF)
MSCI World/Energy TR (IN)
WTI crude oilresult of:− Operational leverage: if the crude price
doubles, the operating profit of a company with a 50% margin will trebleG th t i
1,000
1,200
1,400
1,600
ance
gro
wth
− Growth: most energy companies can grow while commodity investments have no ability to grow
− Exploration success: most energy400
600
800
Per
form
a
Exploration success: most energy companies deliver value through exploration which is not available directly through the commodity
0
200
Dec
-94
Jun-
95D
ec-9
5Ju
n-96
Dec
-96
Jun-
97D
ec-9
7Ju
n-98
Dec
-98
Jun-
99D
ec-9
9Ju
n-00
Dec
-00
Jun-
01D
ec-0
1Ju
n-02
Dec
-02
Jun-
03D
ec-0
3Ju
n-04
Dec
-04
Jun-
05D
ec-0
5Ju
n-06
Dec
-06
Jun-
07D
ec-0
7Ju
n-08
Dec
-08
Jun-
09D
ec-0
9Ju
n-10
Past performance should not be taken as a guide to the future and there is no guarantee that this investment will make profits; losses can be made.Source: Lipper to 31 07 10 NAV based gross income reinvested annualised and gross of annual management
Page 57 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Lipper to 31.07.10, NAV based, gross income reinvested, annualised and gross of annual management fees in US dollars. The performance is shown since inception of MSCI World Energy index at 30.12.94. Source: Bloomberg to 31.07.10 for WTI crude oil
Investment: Energy equities versus a crude ETFEnergy equities have strongly outperformed crude oil ETFsEnergy equities have strongly outperformed crude oil ETFs
● The Investec Global Energy fund has d li d b tt i t t t th th
Performance in USDdelivered a better investment return than the ETF Securities crude oil ETF (CRUD LN), since its inception (October 2006)
● The Investec Global Energy Fund has
(From October 2006 to July 2010)
● The Investec Global Energy Fund has delivered strong correlation with the crude price over this period
Past performance should not be taken as a guide to the future and there is no guarantee that this investment will make
Page 58 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Past performance should not be taken as a guide to the future and there is no guarantee that this investment will make profits; losses can be made. Source: Bloomberg, July 2010, based on ‘A’ Income Share.
Investment: A valuation opportunity in energy equitiesEnergy equities are not pricing in our long term commodity assumptionsEnergy equities are not pricing in our long term commodity assumptions
● We believe we are in the middle of an investment cycle in the energy industry− Energy equities generally outperform markets during investment phases
● Energy equities have historically outperformed the crude price● While the near term commodity may be uncertain● While the near term commodity may be uncertain …
… energy equities seem to be discounting a more bearish long term outlook than we expect
Th M j d E&P h d t d d t i i i f d il i● The Majors and E&Ps have de-rated and are not pricing in forward oil prices− The E&P companies are trading at asset-backed valuation discounts− We believe it is still cheaper to buy oil and gas on Wall Street than to explore for ite be e e s s c eape o buy o a d gas o a S ee a o e p o e o
● The Service companies have de-rated as if the investment cycle is over
Page 59 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Energy equities: a long investment phase aheadThe investment phase is continuingThe investment phase is continuing
● We still need to build more oil and gas production capacity to satisfy long term demand growth
● We expect the current investment phase to last for another 10+ yearsEnergy stocks and net investment, long term
13.4
11 0
11.5
Net Energy
gy , gExploitation
phaseExploitation
phaseExploitation
phaseExploitation
phaseInvestment
phaseInvestment
phaseInvestment
phase
12.8
13.1
10.0
10.5
11.0Net Energy investment(right axis)
11 9
12.2
12.5
8.5
9.0
9.5Net Energy
Capital Stock(left axis)
11.3
11.6
11.9
8 5 9 6 3 0 7 4 8 5 9 6
7.0
7.5
8.0
Page 60 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
1901
1908
1915
1922
192 9
1936
1943
1950
1957
1964
1971
1978
1985
1992
1999
2006
Source: Goldman Sachs
Investment: Energy equities sector relative performanceThe energy sector historically outperforms during investment phasesThe energy sector historically outperforms during investment phases
● Energy equities generally outperform during investment phases
2.5Energy stocks
outperformEnergy stocks underperform
Energy stocks outperform
Energy stocks vs S&P 500, recent
1.5
2.0
embe
r 197
3
18 years
12 years 18 years +20 years
1.0
base
d to
100
, Nov
e
0 0
0.5
Reb
Investment phase
Investment phase
Consolidation phase
Consolidation Phase
0.0
Nov
-73
Nov
-75
Nov
-77
Nov
-79
Nov
-81
Nov
-83
Nov
-85
Nov
-87
Nov
-89
Nov
-91
Nov
-93
Nov
-95
Nov
-97
Nov
-99
Nov
-01
Nov
-03
Nov
-05
Nov
-07
Nov
-09
US oils relative to US markets
We expect this investment phase to be significantly longer than the 1970’s
2030
Page 61 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
e e pec s es e p ase o be s g ca y o ge a e 9 0 sSource: Datastream, January 2010
Oil company valuations are still below historic levelsDespite crude prices being significantly higher than historic levelsDespite crude prices being significantly higher than historic levels
● The super-majors have de-rated significantly over the last ten years. The emergence of new titi h d i thicompetition has driven this
22x BP Ch E M bil RDSh ll TOTAL
Independent E&P companies are trading below the long term marginal cost of extraction
Super-majors have not priced in the rise in commodity prices
16x
18x
20x
22x
low
BP Chevron ExxonMobil RDShell TOTAL
10x
12x
14x
adju
sted
cas
h fl
4x
6x
8x
EV
/ de
bt a
0x
2x
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
E
2010
E
2011
E
Page 62 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
2 2 2
This is not a buy or sell recommendation for any particular security.Source: Investec Asset Management, March 2010
Company Exposure: It is more difficult to differentiate between integrated oil companiesintegrated oil companies
● All the companies below have strong free cash generation, but the European companies tend to hi h di id dpay a higher dividend
The European Majors offer around 6% dividend yields
The global Majors offer around 6% free cash flow yieldsyields yields
7.0%
8.0%BP Chevron ExxonMobil
RDShell TOTAL8.0%
10.0%
BP
Chevron
ExxonMobil
RDShell
4.0%
5.0%
6.0%
end
yiel
d
2.0%
4.0%
6.0%
h flo
w y
ield
TOTAL
2.0%
3.0%Div
ide
-2.0-%
0%
Free
csh
0%
1.0%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-6.0-%
-4.0-%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
E20
10
E20
11
Page 63 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
E E
This is not a buy or sell recommendation for any particular security.Source: Investec Asset Management, March 2010
Company Exposure: Differentiating between E&P companies globallyglobally
● Companies with strong reserve growth tend to have strong organic production growth and therefore th hi h t tthe highest returns
A number of E&P companies offer very high production growth outlooks
These production growth outlooks are backed by solid reserve growth and reserve backing
600
700
0, 2
003) Ultra Petroleum
Anadarko900
1000
1100
Ultra Petroleum
Anadarko
production growth outlooks solid reserve growth and reserve backing
400
500
(reba
sed
to 1
00 Apache
Chesapeake
Quicksilver
Range Resources600
700
800
d to
100
, 200
3) Apache
Chesapeake
Quicksilver
Range Resources
200
300
nd g
as re
serv
es
200
300
400
500
duct
ion
(reba
sed
0
100
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Oil
a n
0
100
200
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Pro
d
Page 64 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
2 2 2 2 2 2 2 2 2 22 2 2 2 2 2 2 2 2 2
This is not a buy or sell recommendation for any particular security.Source: Investec Asset Management, March 2010
Oilfield Service companies have de-ratedThey are discounting a slowdown in investment going forwardThey are discounting a slowdown in investment going forward
● Strong investment from OPEC and non-OPEC producers should lead to increasing revenues for th t h l l d i th ilfi ld i tthe technology leaders in the oilfield services sector
US Oilfield Services EV/DACF US Oilfield Services Price/Book26 7.5
22
5.5
6.5
14
18
3.5
4.5
6
10
0 5
1.5
2.5
6
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E
2011
E
Baker Hughes Halliburton Schlumberger
Smith International Weatherford Average
0.5
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E
2011
E
Baker Hughes Halliburton Schlumberger
Smith International Weatherford Average
Page 65 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
This is not a buy or sell recommendation for any particular security.Source: Investec Asset Management, March 2010
An investment opportunity in the energy sectorWe see an average of nearly 40% upside to target pricesWe see an average of nearly 40% upside to target prices
● We believe our universe of c.150 modelled companies have an average upside potential of nearly 40%
● The Top 20 upsides may average around 140%, with the bottom 20 may average around -40%
Page 66 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Investec Asset Management, June 2010
GSF Appendix
Investec GSF Global Energy Fund performanceInvestec GSF Global Energy Fund performance
Percentage growth, Total return$$ gross
100
120 Investec GSF Global Energy A Inc (MF)MSCI World/Energy TR (IN:IN)S&P 500 TR (IN)
5 year cumulative performance of Investec GSF Global Energy Fund versus MSCI World Energy Index &
60
80
owth
MSCI World Energy Index & S&P 500
20
40
Per
cent
age
gro
31.6%
16.8%
-40
-20
0 -0.9%
Past performance figures shown are not indicative of future performance. Source: Lipper to 31 07 10 NAV based (inclusive of all annual management fees but excluding any initial charge) gross
5 years from 31/07/05 to 31/07/10
-40Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
Page 68 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Lipper to 31.07.10, NAV based (inclusive of all annual management fees but excluding any initial charge), gross income reinvested, in US dollars. Performance would be lower had any initial charge been included and will vary between different share classes dependant upon their applicable charges.
Investec GSF Global Energy Fund Cumulative performance vs IndicesCumulative performance vs. Indices
YTD 1 year 3 years 5 years 10 years
$ % % % % %
Investec GSF Global EnergyInvestec GSF Global Energy Fund A Inc -6.5 7.4 -11.4 31.6 330.0
MSCI World/Energy TR -9.1 3.7 -19.8 16.8 115.6
R l ti fRelative performance
Fund v MSCI World Energy 2.6 3.7 8.3 14.9 214.4
Past performance figures shown are not indicative of future performance.Source: Lipper to 31 07 10 NAV based (inclusive of all annual management fees but excluding any initial charge) gross income
Page 69 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Source: Lipper to 31.07.10, NAV based (inclusive of all annual management fees but excluding any initial charge), gross income reinvested, in US dollars. Performance would be lower had any initial charge been included and will vary between different shareclasses dependant upon their applicable charges.
Investec GSF Global Energy Fund performance
Returns in USD Annualised
Investec GSF Global Energy Fund performance
Performance
1 month 1 year 3 years 5 years 10 years
$ % Chg Q % Chg Q % Chg Q % Chg Q % Chg Q
Investec GSF Global Energy A Inc -6.9 4 7.4 2 -4.0 1 5.6 1 15.7 1
MSCI World/Energy TR 9.5 3.7 -7.1 3.1 8.0
Equity Natural Resource sector average* 8.3 6.7 -8.5 4.8 11.2
YTD 2009 2008 2007 2006 2005
$ % Chg % Chg % Chg % Chg % Chg % Chg
Investec GSF Global Energy A Inc -6.5 48.4 -45.0 37.6 10.1 62.3
Calendar year performance
MSCI World/Energy TR -9.1 27.0 -37.7 30.4 18.4 29.4
Equity Natural Resource sector average* -8.8 51.0 -50.0 41.0 22.6 42.5
Past performance figures shown are not indicative of future performance. Source: Lipper to 31.07.10, NAV based (inclusive of all annual management fees but excluding any initial charge), gross income reinvested in US dollars Performance would have been lower had any initial charge been included and will vary between different
Page 70 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
reinvested, in US dollars. Performance would have been lower had any initial charge been included and will vary between different share classes dependant upon their applicable charges. * Unweighted average of the offshore funds in Lipper Global Equity Sector Natural Resource.
BiographiesBiographies
Mark Lacey Jonathan WaghornPortfolio Manager and Sector Specialist Energy Portfolio Manager and Sector Specialist EnergyPortfolio Manager and Sector Specialist, Energy2 years with the firm14 years experience
Portfolio Manager and Sector Specialist, Energy2 years with the firm14 years experience
Mark joined Investec Asset Management in February 2008 as a portfolio manager and energy specialist in the global commodities and resources team.
Mark was previously employed at Goldman Sachs where he was an Executive Director and joint head of the highly ranked energy research team. In 2007, Mark was the number one rated oil and gas analyst in the leading investment survey “Thompson Extel” Prior to Goldman Sachs Mark spent three years at JP Morgan as a European
Jonathan joined Investec Asset Management in February 2008 as a portfolio manager and energy specialist in the global commodities and resources team.
Previously, Jonathan spent eight years at Goldman Sachs where he was an Executive Director and joint head of the highly ranked energy research team. Jonathan was rated a 5 star analyst by “Starmine” for his stock-picking and earnings estimates in the oil and gas sector Prior to working at Goldman Sachs Jonathan spent two yearsExtel . Prior to Goldman Sachs, Mark spent three years at JP Morgan as a European
oil and gas analyst. Mark was also a commodities portfolio manager at Credit Suisse Asset Management for six years.
Mark graduated from Nottingham Trent University with a BA Honours degree in Business Studies.
oil and gas sector. Prior to working at Goldman Sachs Jonathan spent two years working for Wood Mackenzie as a UK oil and gas analyst, which involved detailed economic modelling of oil and gas facilities and companies. Jonathan began his career as a drilling engineer for Shell International in the Netherlands, where he spent three years.
Jonathan graduated from Bristol University in 1994 with an Honours degree in Physics and in 1995 was awarded an MSc in Semiconductor Physics from Bristol University.
Page 71 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Important informationImportant informationThis document is not for general public distribution. If you are a private investor and receive it as part of a general circulation, please contact us at + 852 2861 6888.The value of this investment and any income generated from it will be affected by changes in interest rates general market conditionsThe value of this investment, and any income generated from it, will be affected by changes in interest rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which it invests. Investors are not certain to make profits; losses may be made.
All the information contained in this document is believed to be reliable but may be inaccurate or incomplete. A full explanation of the characteristics of the investment is given in the prospectus Any opinions stated are honestly held but are not guaranteed and should notcharacteristics of the investment is given in the prospectus. Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
Past performance figures shown are not indicative of future performance. Investment involves risks. Investors should read theProspectus for details, including the risk factors.
This is not a buy or sell recommendation for any particular stock The portfolio may change significantly over a short period of timeThis is not a buy or sell recommendation for any particular stock. The portfolio may change significantly over a short period of time.
THIS DOCUMENT IS PROVIDED FOR GENERAL INFORMATION ONLY. IT IS NOT AN INVITATION TO MAKE AN INVESTMENT NOR DOES IT CONSTITUTE AN OFFER FOR SALE. THE FULL DOCUMENTATION THAT SHOULD BE CONSIDERED BEFORE MAKING AN INVESTMENT, INCLUDING THE PROSPECTUS AND SIMPLIFIED PROSPECTUS OR OFFERING MEMORANDUM, WHICH SET OUT FUND SPECIFIC RISKS, IS AVAILABLE FROM INVESTEC ASSET MANAGEMENT.OU U S C C S S, S O S C SS G
This document should not be distributed to private customers who are resident in countries where the Fund is not registered for sale or in any other circumstances where its distribution is not authorised or is unlawful. Please visit www.investecassetmanagement.com/registrations to check registrations by country.
THIS INVESTMENT IS NOT FOR SALE TO US PERSONSTHIS INVESTMENT IS NOT FOR SALE TO US PERSONS.
Telephone calls may be recorded to confirm your instructions
This document has not been reviewed by the SFC. Issuer: Investec Asset Management Asia Limited.
Page 72 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Contact detailsContact detailsKK CheungDirector, Regional Business Development
Sandy ChanSenior Manager, Business Development
Tel: +852 2861 6881Email: [email protected]
Tel: + 852 2861 6885Email: [email protected]
Noel MakNoel MakManager, Business DevelopmentTel: +852 2861 6887Email: [email protected]
Investec Asset Management Asia LimitedSSuites 2604-06, Tower 2The Gateway, Harbour CityTsimshatsui, KowloonHong Kong
www.investecfunds.com.hk
Page 73 | Investec GSF Global Energy Fund | FOR PROFESSIONAL ADVISORS USE ONLY04853
Telephone calls may be recorded for training and quality assurance purposes. Issued by Investec Asset Management, August 2010