Oil and Gas Investment Opportunities in 2009; Investing in the Storm

The “Perfect Storm” hits access to capital for growth

Precipitous decline in oil prices Dramatic reduction in free cash flow

Precipitous decline in global stock markets New equity difficult and dilutive

Credit crisis in global banking industry Reduced availability of debt as lenders became strongly risk averse Recent borrowers in difficulty with loan covenants

Topics

Markets

Surface Risk

E&P Activities

Opportunities

Summary

The futures market suggests that crude prices will rise steadily back to pre-spike levels, exceeding $60/STB. Current large Brent premium to WTI reflects glut at Cushing.

The futures market suggests that US Henry Hub spot natural gas prices will rise steadily back to pre-spike levels, around $7.50/MMBtu (flat nominal, falling real) before seasonal adjustments.

In the global market, the unique circumstances of each project mask any correlation between purchase price and crude price. The plotted trend line over time is not statistically significant

There are significant intra-regional differences, as well as inter-regional ones, especially in South America and Europe. Relative proportions of proved reserves and undeveloped reserves and resources further affect comparisons

Large data sets like deepwater GoM bids suggests that valuations are dominated by short term crude prices. With current spot prices over $20/STB below the end of the strip in real terms, bargains abound for those with a long term view (and cash)

New World Order

Wave of resource-based nationalism

Expansion of NOCs role as E&P companies

Lower Risk Tolerance for exploration projects

Emergence of natural gas

Enforcement of anti-corruption standards

Terrorism

Climate change & pollution management

Communications have improved

Surface Risk; Selection of Current Issues

Ukraine;Contract title risk

Peru; Government corruption effects new license holders

Nigeria; Land & security problems

Colombia; Ecopetrol takes back oil field

Bolivia; Political crisis paralyses activity

USA; Obama threat of changes & environment

Russia; Appropriation of foreign companies

Kazakhstan; Reinforced environmental audits

Ecuador; Tax changes & migration to new contract

Indonesia; Hard-line contract discussions

Central Africa; DR Congo situation

Canada; Environmental

UK; Offshore unions unhappy with vacation ruling

Surface Risk; Challenges

Less control over country-specific risk

Country & Company-specific Challenges

Country

Government Risk Instability Risk

Bureaucracy Leadership/political succession

Nationalism NOC competition

Expropriation Mass strikes

Contractual stability Riot/war

Infrastructure & markets

Currency

Company

Government Risk Instability Risk

Property rights Facility disruption

Boundary claims Kidnapping

Breach of contract Boycott

Equipment approval Sanctions

Permits

Environmental

Illegal state & organised activities

Adapted from Berlin et al (2003)

Perception of Risk Varies

Example of a Risk Ranking

1. Pakistan

2. Nigeria

3. Iran

4. Venezuela

5. Indonesia

6. Ukraine

7. Philippines

8. Thailand

9. Saudi Arabia

10. IndiaSource; Leading analysts global risk index (October 08)

Tolerance varies depending

on nature & options to

mitigate, reduce & absorb

Not uniform within a

country

Georgia, Myanmar, Sudan?

Other Latin America?

Indonesia, Philippines,

Thailand attract investment!

Changes UK Fiscal System

1975; Three tiers; Royalty, PRT & CT introduced

1978; PRT increased to 60%

1979; PRT increased to 70%

1981; New duty (SPD) introduced

1983; SPD abolished, PRT increased to 75%, special conditions for NNS

1988; Special conditions extended to SNS & onshore

1993; PRT adjustment & other changes

2002; Royalty adjustment & new supplementary charge introduced

2004; PRT adjustment & incentive (EES) introduced

2008; Reforms aimed at older assets, PRT adjustment

2009; New incentives for small fields

White Nile (Sudan)

A – April 2005: WN announced it had entered into licensing agreement in August 2004 & assurances of title given

B – April 2005: Overhyped Regal well effect AIM

C – August 2005: VP of country & strong WN supporter killed

D – Sept 2005: Total SA threatens legal action over claims to license

E – Jan 2007: WN ordered to disclose documents

F – May 2007: Indications license resolution possible

– June 2007: Resolution made by the NPC to remove WN from disputed block.

ADC

EF

G

B

Country-specific Risk

G

Regal Petroleum (Ukraine)

A – April 2005: Overhyped Greek well downgraded

B – May 2005: Access to pipeline in Ukraine questioned

C – June 2005: Chairman resigns; positive market reaction

– Q3 & Q4, 2005: State firms question validity of Ukraine licenses & RP lose appeal

E – Q1, 2006: Local Ukraine partner engaged

F – Dec 2006: Kiev court dismisses claims against RP

G – Nov 2007: New CEO; improved credibility: market confidence in management

D

F G

A

B C

E

Company-specific Risk

D

Surface Risk; Observations

Industry could do a better job of anticipation

Where there is a history expect it

Generally countries are open to negotiation

All political systems have been successfully worked with

Instability/conflict of government often a catalyst to problems

Correlation between risk acceptance & technical prospectivity

NW Europe

Oilexco to sell UK assets to Premier for US$500 million (Mar09)

Storm Ventures acquires Silverstone; main assets UK-gas basin (Jan09)

Dana acquires Bow Valley; main assets UK (Feb09)

Petrol Ofisi buys certain Toreador assets in Turkey (Mar09)

UK-listed Indago winds down & returns cash to shareholders (Apr09)

BP profits for 1Q fall by 62% (Apr09)

Northern Pet buys ATI Oil in deal valued at US$17 million; Italy assets (Apr09)

Russia & Eastern Europe

Russia and Ukraine gas payment & pipeline issues effect Europe; discussions on alternative pipeline(s) (Apr09)

Russia;- BP & AAR agree deal to align BP – TNK interests in JV (Jan09)- Russian-player Urals Energy in financial difficulties (Dec08)- ONGC acquires Imperial Energy for US$2.2 billion; key assets Russia (Jan09)

Kazakhstan;-Canamens takes stake in Roxi’s Kaz acreage (Jan09)- ONGC closes in on stake in Satpayev block in Kazakhstan (Jan09)- CNPC buys KMG assets in Kazakhstan for US$3.3 billion (Apr09)

Cadogan to sell Ukraine asset(s) to augment funds (Apr09)

Africa

Somalia pirate problem escalates(Mar09)Ghana’s Jubilee

oil field grows & new discovery (Apr09)

ENI acquires First Calgary Petroleum for US$954 million; key assets; Algeria (Sept08)

Victoria Oil to acquire Bramlin; key asset Cameroon, London IPO US$10 million planned (Nov08) Uganda:

-oil potential confirmed-Tower Resources secures funding(Jan09)

Libya gains >US$5.4 billion in 2008 after contract changes (Jan09)

Middle East & Indian Subcontinent

Slow progress in Iraq & terms toughened (Apr09)

Significant gas discoveries deepwater Israel by Noble (Apr09)

Heritage completes sale of Oman assets to RAK for US$28 million (Apr09)

Indian bid round opened (Apr09)

Aramco & ConocoPhillips Saudi refinery delay (Jan09)

BP acquires an interest in Orient’s Pakistan licenses (Dec08)

India offers Qatari’s a 10% stake in Petronet LNG (Jan09)

Afghan bid round opens (Apr09)

Noble Energy’s Israel Deepwater Discovery; New Opportunities in Eastern Mediterranean

Tamar-1 & Dalit-1 significant gas discovery, Tamar-2 spudded

Cyprus 2nd bid round & farmouts

Pelagic & other Israel farmouts & open acreage

Few deepwater wells; Egypt, Lebanon, Syria, Turkey & Greece upgraded; open acreage & farmouts; boundary issues

East Asia

Indonesia to offer 24 blocks for bid (Apr09)

Horizon transfers Thai assets to Pearl (Feb09)

Indonesia oil production declines; formally leaves OPEC (Jan09)

BG buys Petroleum Resources stake in Thai-Cambodia overlapping zone (Apr09)

Husky to spin Asian assets into new HK based company; main asset Liwan gas field, deepwater China (Apr09)

Australasia PNG;- Merlin Energy buys US$800 million stake in LNG project (Dec08)- Abu Dhabi group invests US$1 billion in Oil Search (Dec08)- First sale LNG announced by ExxonMobil (Apr09)- InterOil announce world record gas test results (Apr09)

Australia (CSG);- Arrow Energy pays A$551 million for Pure Energy’s acreage (Dec08)- Shell completes A$742 million acquisition of interests in Arrow Energy (Dec08)- AGL makes A$171 million offer for Sydney Gas (Jan09)- Arrow Energy signs MOU with ONGC for JV (Jan09)- British Gas offers A$4.9 billion for QGC; after failing with Origin Energy (Jan09)- Arrow Energy pays A$400 million to Beach for sale of assets (Apr09)

PTTEP pays A$170 million for Coogee Resources (Dec08)

InterOil - Antelope-1 – PPL 238

382 MMcfg/d & 5,000 BCPD

545 MMcfg/d (max calculated

absolute flow)

Possible global best; Vertical well gas flow Vertical column in an onshore reef

Low cost LNG facility being

discussed

Highlights potential of

Miocene carbonates

Elk/Antelope

Global LNG Liquefaction Capacity ~2020

North America

StatoilHydro acquires stake in 50 GoM blocks from BHPB (Apr09)

Berry sells certain Colorado assets for US$154 million (Mar09)

Indian Oil Company puts on hold Canadian oil sands investments (Jan09)

Total partners with IDT in Colorado oil shale projects (Jan09)

Mexico oil production plummeting (Jan09)

Suncor acquires PetroCanada for US$15 billion (Jan09)

Nexen increases stake in Alberta Long Lake project for US$582 million (Dec08)

South America

Peru;- BPZ & Shell deal discontinued (Jan09)- Ecopetrol & KNOC acquire Petro-Tech for US$900 million (Feb09)

Ecuador suspends ENI & Perenco oil production (Jan09)

PetroFalcon cancels farmin deal with Chevron in Venezuela (Jan09)

Brasil is global hot-spot for oil discoveries (Apr09)

Murphy sells Ecuador assets to Repsol for US$87 million (Mar09)

Hocol buys M&P Colombian assets for US$748 million (Mar09)

Selection of Buyers 2009 (Market Cap US$)

The Majors & large NOCs Well-capilitalised independents & smaller NOCs

Healthy smaller players with synergies

ExxonMobil, $397B Sinopec, $73B Dragon Oil , $1B

Shell, $153B StatoilHydro, $55B JKX, $310MM

Chevron, $139B Apache, $23B Pearl E&P, $139MM

PetroChina, $136B British Gas, $30B Afren, $123MM

Indian NOCs Hess, $17B Twinza, Private

BHP Billiton, $101B Petronas, $5.4B

Petrobras, $101B Cairn Energy, $3.2B

BP, $128B PKN Orlen, $3.2B

Total, $105B TAQA, N/A

ENI, $85B Santos, $5.6B

ConocoPhillips, $70B KNOC, Kufpec, PTTEP, SPC

Selection of Sellers 2009 (Market Cap US$)

Mainly conventional production & reserves

Mainly unconventional production & reserves

Smaller producers, early stage discoveries &/or frontier exploration

British Gas, $30B Encana, $31B Tullow Oil, $4.5B

Marathon, $18.7B Nexen, $7.8B Cairn Energy, $3.2B

Anadarko, $16B Falcon Oil & Gas, $183MM Soco International, $1.1B

Newfield Exploration, $2.4B Nautical Petroleum, $23MM Heritage Oil, $765MM

Forest Oil, $1.3B JKX, $310MM

Premier Oil, $1B Pan Orient, $112MM

Dana, $1.1B Salamander, $244MM

Venture Production, $750MM Serica, $82MM

Carrizo, $428MM Sterling Energy, $87MM

Santos, $5.6B Kosmos, Private

Afren, $123MM

USA Onshore Transactions, Price Comparisons

Recent analysis shows that same or similar assets would

receive a transaction price in 2008/2009 1/3 to 2/3 the price

received 2 years ago

Without adjusting reserve categories for risk, the standard

10% discount rate applied by the buyer has increased to 25-

40%

Monthly cash flow transaction multiples are 60-120X

Looking Forward Eventual low commodity prices will trigger M&A activity

Distressed companies forced to sell or liquidate

Global upstream CAPEX down ~25%

Service costs reduced to reflect demand

Exploration projects stalled or acquired: Unfunded deepwater & high risk exploration projects shelved, or assets acquired Government bid rounds will be delayed, low bid, or fail Renegotiations of work programmes is likely to be acceptable Government re-bidding of contracts & improved terms for qualified companies Acquisitions of distressed companies cheaper than initiating projects

Private Equity: Private Equity groups well funded & in a good position to be “patient” Cash available for “right” projects

Summary

Transaction activity to take-off

Capital is limited as Risk Tolerance falls, available for the

right projects but the cost is higher

Acquisition opportunities for larger producers

Non-producers in strained capital situation very vulnerable

Governments to reconsider fiscal terms & work programmes

Less competitive country-bid rounds offer opportunities

Current Mandates, April 2009

New Guinea EnergyEvaluation and farmout of six onshore Papua New Guinea

PPLs

Sun ResourcesFarmout of onshore Thailand license L20/50

Sherritt International CorporationFarmout of seven offshore Turkey licenses, Black Sea

Blue EnergyFarmout of four offshore PPLs in the Eastern Gulf of Papua

Seha CorporationSale of interest in Sarkramabas and West Bozoba

Concessions, Pre Caspian Basin, Kazakhstan

MND Exploration and Production

Farmout of Barkhan block, onshore Pakistan