the 10th african oil & gas trade and finance conference & exhibition presentation to: financing...

The 10th African Oil & Gas Trade and Finance Conference & Exhibition Presentation to: Financing Upstream and Downstream Assets April 4, 2006

Table of Contents The 10th African Oil & Gas Trade and Finance Conference Financing Upstream and Downstream Assets 1. Introduction1 2. Financing Upstream Assets3 3. Financing Downstream Assets10 4. Structural Enhancements15 5. Rating Agency Considerations17 6. Appendices19 Case Study: Gazprom19 Case Study: EGPC23 Merrill Lynch Commodities Credentials29 Merrill Lynch Commodities Capabilities32

Introduction

A number of companies in the energy industry have used oil, coal, gas and other commodity derivatives and contracted revenues to subsidise the cost of their borrowing. This typically involves monetising long term contracted sales to ensure lower credit risk and taking advantage of the natural long position that energy producers have in the underlying commodity to monetise this commodity position By embedding a strategic hedge into the financing, commodity producers are able to link debt repayment obligations to discrete project economics or to the more generalised returns of the underlying business This is particularly attractive at times such as this year, when the underlying commodity prices are high by historical standards and operating in contango It is straightforward when commodity products are an exchange-traded commodity with a transparent pricing mechanism In less liquid markets, alternatives may be found if the pricing of the underlying products are indexed to more liquid commodity products or markets Various commodity producers have also used financing techniques to raise debt on a limited or non-recourse basis as a means to maximise the proceeds in an asset disposal situation or to lower certain risks such as political and currency Financing of Commodity Related Assets 1

Introduction Legal jurisdiction of offtakers Local currency laws Contract for offtake arrangements (EFET, specific contracts) Negative pledge issues Tax issues Hedging requirements Legal/security arrangements Political risk Ratings Feasibility of more sophisticated credit derivative deals Key Considerations In Executing Structured Transactions 2

Financing Upstream Assets

3 Reserve Based FinancingSummary DescriptionTransaction Structure Advantages / Applicability Ease of execution Potential for borrowing base or fixed term structure May be applied to single field or entire portfolio Generally applicable to most jurisdictions large emerging markets bank investor universe Market capacity available in syndicated loans and high yield bonds Target License Holder Fields OilCo Lenders Proceeds Interest & principal Cash flow Restrictions (covenants to be met) Panther Fields Security in Shares of subs and upstream guarantees OilCo License Holder Fields OilCo Shareholders Lenders/ Investors Proceeds Interest & Principal Cash flow Restrictions (covenants to be met) Panther Security in Shares of subs and upstream guarantees Fields Reserve Based Financing is amortizing non-recourse debt that is repaid by the cash flows generated by reserves: May have borrowing base feature to fund future development (could be divided into a senior and subordinate tranches) Typically requires hedging program covering life of loan Waterfall provisions to ensure cash flows to equity are distributed only after servicing of debt Secured by pledge of shares of in operating companies and related production licenses and export contracts Structure designed to allow lender to gain control of the licences and assets in a default scenario and sell fields or appoint an operator for recovery

Focus on net cash flows available to service debt (CFADS) after paying all opex, capex, taxes, and royalties: Net cash flows based on 1P/P90 reserves and production only Mandatory hedging program yield EV Generally lend up to 65-70% against EV over life of financing Tenor/amortization structured as follows: Tenor up to 5 years Minimum annual debt service coverage ratio (DSCR) targets of 1.75x-2.00x Minimum Reserve Tail of 25-30% Senior secured 4 Financing Upstream Assets Reserve Based FinancingMarket Analysis Sovereign risk must be layered into credit assessment for both markets and may impact market capacity Syndicated Loan MarketHigh Yield Bond Market High yield investors focus on 1P/P90 but give additional credit to development reserves: Prefer to finance going concern business with strong growth prospects Key credit metrics drive ratings: Net Debt to EBITDA Net Debt to 1P reserves Reserve Life High yield issuers typically require active hedging programs Maturities of 5-7 years Senior unsecured

1) A Special Purpose Vehicle (SPV) created for purposes of the transaction issues Notes to Lenders/Investors in return for Proceeds from financing 2) Offtaker uses Proceeds to make a Prepayment to OilCogainst future deliveries of Product 3) Offtaker takes delivery of an agreed volume of Product (potentially from Designated Fields) for which it pays into Escrow Account held for the benefit of Lenders/Investors 4) Hedge counterparty makes payments to SPV under hedging agreements (if any) 5) Investors/Lenders are paid Debt Service from the Escrow Account Financing Upstream Assets Structure designed to achieve high rating/credit quality above sovereign ceiling by being secured by oil export contract Can include a AA or AAA surety bond from monoline insurance companies enabling the debt to be priced at lower levels Should be lowest cost funding source as generally structured to achieve investment-grade ratings Commodity offtake and hedge support rating and ensure maximum leverage against dedicated oil export volumes Prepaid Forward/Export Securitisation Structure 5 OilCo Hedge Payments (4) Proceeds (1) Prepayment (2) Offtaker Investors / Lenders Notes (1) Debt Service (5) Designated Fields Product (3) Product (2) Product (3) SPV SPV Escrow Account Payment for Product (3) Hedge Counterparty Onshore Offshore DescriptionTransaction Structure Advantages/Applicability

6 Financing Upstream Assets Prepaid Forward/Export Securitisation Case Study EGPC Transaction Structure Notes are backed by Forward Sale of crude oil and naphtha to issuer, which is then contracted to be sold via the Offtake Agreement subject to a floor price in the Hedge Agreement Transaction raised a total of $1.554 billion for EGPC at weighted average cost of borrowing of approximately 5.00% Issuance was first the SEN by Egyptian issuer and the largest international issuance by Egyptian corporate EGPC Noteholders PEL Offtaker Hedge Counterparty Egypt Offshore Forward Sale Agreement Offtake Agreement Hedge Agreement Indenture 1 2 3 4 Transaction Highlights Terms & Conditions

7 Prepaid Forward Sale Case Study - YPF Description YPF S.A.Structure 1 2 3 4 YPF sells forward to oil co, based on reserves in Argentina Oil co enters take-or-pay contract with highly rated oil trader and pledges contracts to investors SPV funds purchase of forward purchase via notes issues and pays proceeds to YPF Oil co meets desk service from proceed of sale of oil deliveries to oil trader Financing Upstream Assets From 1995 to 1998, YPF executed two successive forward sales for $400m and $350m respectively (a total value of $750m) In 1995 Oil co. SPV raised a total of $400m from seven year amortizing notes rated BBB, four notches above Argentinas foreign currency ceiling Under the sale, YPF sold a total of approximately 26.5 million barrels over a period of seven years YPF entered into a fixed price forward hedge with Oil Co. Both price of commodity and interest rate were fixed Between 1995 and 1998, YPF S.A. (based in Argentina) executed accessible VPPs with Oil Co. a special purpose company based off-shore Argentina. The total consideration for the VPPs was $750m Oil co. funded the purchase of the sale by way of amortising bonds placed in the international capital markets. The bonds were rated BBB, three to four notches above the foreign currency rating of Argentina Under the terms of the 1995 Sale, YPF sold approximately 26.5 million barrels of crude oil at a fixed price, over a period of 7 years The Sale was treated as debt for tax purposes and deferred revenue (non debt) for accounting purposes YPFs all in cost for the transaction was approximately 150bps lower than its unsecured shorter term cost of borrowing YPF registered an immediate reduction in its reserves In 2001, Merrill Lynch structured a similar transaction between Repsol S.A. and its subsidiary YPF Repsol for a consideration of $50m Pledge of Contracts Notes Issue 32 Cash Proceeds 3 VPP Contract 1 $400m 3 VPP Deliveries 4 YPF US Investors Oil CoAAA Oil Trader 2 Take or Pay Contracts 4 Production Payments

8 VPP Case Study - Brasoil Description 1 2 3 4 Brasoil enters VPP contracts with SPV Petroleum Funding Corp, based on reserves in Angola, Colombia, and Brazil SPV enters back-to-back take-or-pay contracts with highly rated oil trader and pledges contracts to investors SPV funds purchase of VPP via anotes issue and pays Brasoil upfront SPV meets debt service from sale of VPP deliveries by oil trader Financing Upstream Assets In 1996, Brasoil, the international arm of Petrobras executed a VPP with Petroleum Funding Corp a special purpose company based off-shore Brazil Under the VPP, Brasoil sold $123m worth of production from designated properties in Angola and Colombia The VPP raised $90m in fixed seven year amortising notes rated BBB- in the international capital markets, three notches above Brazils foreign currency rating The VPP was a fixed value contract where commodity price was assumed by Brazil and production/reserve risk was assumed by investors Under the terms of the VPP, Brasoil sold approximately $123 million barrels of oil equivalent from properties in Colombia and Angola Which the terms of the VPP, Brasoil could deliver oil from back-up fields in Brazil Brasoils consideration was $90m, which was funded from proceeds of a 7-year amortising note issued in the international capital markets by PFC The notes were rated BBB-, four notches above the foreign currency rating of Brazil Brasoil executed a fixed value VPP pursuant to which it assumed price risk and PFC assumed production and reserve risk Brasoils all-in-cost for the transaction was approximately 175bps lower than its corporate cost of debt servicing Brasoil registered a reduction in reserves which was recognised over time Structure Colombian Reserves Pledge of VPP and T.O.P Note Issue 32 Cash Proceeds 3 VPP Contract 1 $90m 3 VPP Deliveries 4 Brasoil US Investors PFCAAA Oil Trader 2 Take or Pay Contracts 4 Angola Reserves Brazil Reserves Production Payments

9 Financing Upstream Assets Examples of Public Style Transactions

Financing Downstream Assets

10 Financing Downstream Assets Overview Merrill Lynch has been an active advisor in the most recent sales of downstream assets, from which we have determined that: Spending on downstream assets always carries the risk that refining margins/gas prices will decline below assumptions used in the initial investment decision Given price levels of recent asset sales, increasingly large amounts of capital are required to fund acquisitions, upgrades, or new construction of downstream assets Downstream producers can use risk management techniques to lock in margins and reduce volatility Strategic commodity hedging may be embedded in financings to reduce volatility, improve pricing, and increase debt capacity

11 Financing Downstream Assets Using Hedging To Finance Refinery Capex Investments in refining assets always carry the risk that refining margins will decline below the assumptions used in the investment case Refinery capital expenditures have a lag time of 3-5 years before production can come on stream Given the uncertainty around new build capacity in the refining sector and prevailing refining margins at the time of completion, it is prudent to use financing techniques that align the economics of upgrade programs with the cost of financing Commodity Linked Financing can help manage refining volatility and therefore: Lock in a portion of the value spent on upgrading assets Lower cost of funding Reduce volatility in the overall economics of the refining assets Benefit from improved accounting treatment for financial instruments with embedded derivatives (IFRS does not require mark to market for derivatives embedded within a financing) Merrill Lynch can create highly customised solutions to fit a refinerys specific operating and financial objectives Merrill Lynch can act as a credit enhancer to the financing by way of its physical and financial commodities capabilities

Financing Downstream Assets Refining Margin Linked Bonds Refining Margin Linked BondIllustration Refinery raises debt in market through issuance of a bond linked to refining margins: Investors have two options with the refining margin indexed bond: Investor receives refining margin participation Investor receives standard coupons by swapping the refining margin risk with ML Bond has either a fixed or floating coupon and either an amortisation schedule or bullet repayment, with a variety of potential refining margin indexation features Refinery continues to buy crude and sell refined products in the market at spot Refinery receives dividends from refinery that are proportional to the refining margin economics Refinery has achieved a refining margin hedge indirectly via the refining margin bond to secure minimum dividend performance on the refinery asset 12 Refining Margin Hedge Oil Cash Payments Export Buyers Refinery Oil Supplier Bond Investors Regular Bond Merrill Lynch Bond Investors Refinery Bond Product Cash Payments Crude Oil Refined Products Refining Margin Linked Bond Issuance

13 Financing Downstream Assets Margin / Spread Indexed Bonds IllustrationDescription Benefits Borrower issues USD debt for which repayment will be linked to its refining margin: Borrower pays more when margins are higher and less when margins are lower Debt can be either structured as: Bullet repayment = Coupon linked to Margin, in which the Coupon owed fluctuates as Margins rise/fall Amortizing = Principal repayment linked to Margin, in which the Coupon stays flat but Amortization fluctuates as Margins rise/fall Repayment is closely linked to ability to pay, which improves the overall credit profile of the borrower Interest rate will be lower than current borrowing as investor has opportunity to benefit from increased margin levels If principal indexed to margin, more substantive hedge on production and downside exposure is capped Refinery sells up-front a portion of production margin Standard RepaymentMargin RepaymentMarginStandard SpreadMargin Indexed SpreadMargin Coupon Linked to Margin Principal Linked to Margin

14 Financing Downstream Assets Project Finance Considerations The success of the financing will depend on the following factors Credit Risk: Security: What security will be available for the financing? What are the legal parameters in the relevant jurisdiction for perfection over that security? Recourse v. Non-Recourse: Will lenders/investors have access to the parent companys balance sheet for the transaction or only to the project company? Completion Risk: Investors/lenders are unlikely to be comfortable with completion risk: Turnkey contract from creditworthy contractor Guarantee from creditworthy sponsor Sovereign Risk: Many project finance transactions have included some measure of sovereign risk Political Risk Insurance (PRI) may be used for projects in high-risk countries Market Risk: Traditional project finance lenders are not always willing to take market risk New investors (i.e., infrastructure funds, hedge funds, project bond investors) have emerged that are more willing to take market risk for appropriate rates of return

Structural Enhancements

15 Third Party Guarantees Surety Bond Structural Enhancements It may be possible to incorporate a double-A or triple-A surety bond from Monoline insurance companies (the Insurer) enabling the debt to be priced at lower levels In such a structure, the Insurer would guarantee the timely payment of principal and interest to investors and would assume the performance risk of the exporter, the credit risk of the buyer and the sovereign interference risk Exporter Investors Designated Customer(s) Trust Insurer Guarantee US$ Debt ServiceUS$ Exports Surety Bond Agreement

16 Contractual Agreements Back-up Buyer/Supplier Structural Enhancements The incorporation of a long-term purchase and/or supply contract with or a highly rated third party serves as a structural enhancement to mitigate the credit risk of the Export Customers and non-performance by the Exporter $ debt service Notes Russia Collection Account Cayman Islands Trust U.S.$ $ Payments for Oil Offshore Export Customers Investors Third Party (the "Back-up Buyer/ Supplier") Exporter (The "Issuer") Exports Back-up Purchase/ Supply Contract $ Payments for Oil

Rating Agency Considerations

17 Rating Agency Considerations Key Credit Criteria Credit Risk Payment Risk Supply Risk Price Risk Sovereign Risk Exporter operating performance Established export markets (Designated Buyers) High quality Buyer Exporter track record Overcollateralization will help mitigate $ risk Sovereign (e.g. product re-direction) risk mitigated by buyer consent agreements Growing importance of certain exports to emerging market economies ConsiderationsMitigants Ratings Methodology for Structured Financings

18 Rating Agency Considerations The Concept IssuerInvestor Trust Foreign buyer(s) Good track record Decent credit Export contract Long-term Binding and enforceable Take and/or pay Strong credit(s) Good name(s) U.S. $ payments Debt service OnshoreOffshore Transaction Rating AAA AA A BBB BB B CCC CC C Foreign Currency Local Currency Piercing the Sovereign Ceiling

Appendices

Case Study: Gazprom

19 Flow of Funds (1) Case Study: Gazprom Transaction Overview Gas Sales Contracts USD Payments under Gas Sales Contracts going into Collections Account Provided there is no Holding Event and the minimum Debt Service Reserve balance is met, cash is distributed to Gazprom from the Collections Account Gazprom makes debt service payment under the Loan Agreement Gazprom International S.A. uses payments under the Loan to make principal and interest payments on Notes 1 2 4 5 3 Noteholders (Trustee) Designated Buyers Gazprom International S.A. Luxembourg Fiduciary (Collection Account, Reserve Account) Gazprom/ Gazexport Debt Service Under the Loan Distribution of proceeds from Gas Supply Debt Service on the Notes Payment for Gas Supply Distribution of proceeds under the event of default Payment in USD Natural Gas Flow 5 4 2 3 1 Gas Supply Offshore Russia ____________________ (1)For a detailed description see Appendix A

20 Breakdown by Investor TypeBreakdown by Investor Location Allocation Concentration Analysis Allocation Case Study: Gazprom High Quality and Broad Distribution (Europe and Asia)

21 Breakdown by Investor TypeBreakdown by Investor Location High Quality and Broad Distribution (U.S.) Allocation Concentration Analysis Allocation Case Study: Gazprom

22 On the US$1.25bn size Gazprom saves circa US$15m in interest cost per annum Gazproms spreads have tightened significantly since the SEN was issued Access to the investment grade market has materially improved Gazproms borrowing costs Reduced Borrowing Costs Gazprom Bond Yields (2) ____________________ (1) Source: Bloomberg (2)Gazprom 2003 9 5/8% Matures 1 March 2013, Gazprom SEN, Russian Sovereign Debt 1996 3.0% Matures 14 May 2011 Case Study: Gazprom Russian SovereignGazprom SENGazprom Unsecured YTM Trading Levels vs. Benchmark (1) Trading Levels Over Swaps (1)

Case Study: EGPC

23 Case Study: EGPC Transaction Summary

24 Case Study: EGPC Pre-Paid Forward: Contractual Agreements Contractual Agreements EGPC sells forward to PEL under the Forward Sale Agreement (FSA) and commits to deliver fixed volumes of crude and naphtha PEL and Off-taker enter into an Offtake Agreement (OTA) where Off-taker commits to buy at market price the volumes of crude and naphtha delivered by EGPC to PEL Off-taker is highly rated entity (Aa3/A+) PEL enters into a Hedge Agreement (HA) with Off-taker providing a floor price for the crude and naphtha Hedge payments are guaranteed by Off-taker (Aa3/A+) Indenture governing the issuance of Notes EGPC Noteholders PEL Off-take Hedge Egypt Offshore Forward Sale Agreement Offtake Agreement Hedge Agreement Indenture 1 2 3 4

25 Case Study: EGPC Pre-Paid Forward Sale: Flow of Funds Flow of Funds PEL issues notes to investors and uses proceeds to pay EGPC for the FSA EGPC delivers fixed volumes of crude and naphtha to PEL on a monthly basis Off-taker purchases crude and naphtha from PEL at market prices MSCG makes hedge payments if crude or naphtha market prices fall below the floor prices PEL uses payments received from OTA and HA to pay debt service on a quarterly basis Cash flow from OTA and HA provide a min 1.11x DSCR After payment of all obligations, PEL pays excess cash, if any, to EGPC EGPC Noteholders PELOff-take Crude & Naphtha Hedge Payment Market Price Debt Service 1 2 3 5 Fixed Volume Up-front Payment 6 Price Balance 1 Proceeds from Notes 4 Cash $ Physical bbl/mt

26 Case Study: EGPC FSA: Core Commercial Agreement

27 Case Study: EGPC Hedge Agreement Protects Against Price Exposure

28 Case Study: EGPC Robust Debt Service Profile Principal & Interest Payments No basis risk between Offtake and Hedge Based on the same index monthly average EGPC is obligated to deliver commodity products at a minimum DSCR of 1.11x eliminating any possible basis risk US$ mm 1.8x (At Current price) 1.11x InterestPrincipal

Merrill Lynch Commodities Credentials

Structured Transactions Executed by Team Members YPF executed a US$400 million Forward Sale of Oil with a 7-year maturity and a 4.4-year average life. The Notes were issued by a SPE, offshore Argentina, and were backed by a Forward Sale Agreement between the SPE and YPF as well at a Commodity Hedge Agreement. The financing was able to achieve an investment grade rating of BBB/Baa3 from both S&P and Moodys, respectively, and was priced at a spread of 143bps over U.S. Treasuries. The Notes issued by the SPE were "wrapped" by a "AAA" monoline insurance company, enabling YPF to realize significant savings on its cost of debt. Braspetro executed a US$90 million Forward Sale of Oil with a 7-year maturity and a 4.4-year average life. The Notes were issued by a SPE and were backed by a Forward Sale Agreement between the SPE and Braspetro (a fully owned subsidiary of Petrobrs, the Brazilian state oil company) which provided for oil deliveries from Petrobrs offshore oil fields in Angola and Colombia to meet debt service payments to the new Noteholders. The financing was able to achieve an investment grade rating of BBB- and was priced at a spread of 215bps over U.S. Treasuries. Merrill Lynch structured and placed a $1.25 billion structured-export bond for Gazprom. The issue was backed by proceeds of long term export contracts between Gazprom and both Gasunie and ENI. The bonds had a maturity of 15 years and were rated BBB-/BBB from both S&P and Fitch, respectively. The bonds were placed in the US and Europe pursuant to a Reg 144a and RegS placement. Merrill Lynch structured and executed a US$1.5 billion Forward Sale of Oil for the Egyptian General Petroleum Corporation. The Notes were issued by a SPE and were backed by a Forward Sale Agreement between the SPE and EGPC as well as a Commodity Hedge Agreement. The financing was able to achieve an investment grade rating of AAA/Aaa from both S&P and Moodys, respectively, for the class A-1 and A-2 notes and a rating of BBB/Baa1 for the class A-3. Commodity Finance Experience Structured Transactions 29

Merrill Lynch arranged for the structuring and placement of a C$75 million 3-year Crude Product Storage Program for the Ultramar Corporation. The transaction was designed to reduce inefficient working capital and achieve off-balance sheet debt treatment while maintaining product ownership with Ultramar. Ultramar monetized its refined products inventory by selling the product to a special purpose vehicle and retained the right to repurchase the product at maturity. A back-to-back swap hedge converted the fixed price sale into floating. Merrill Lynch structured and sole managed a US$100 million 5-year Oil-Linked loan for Rafineria Gdanska, a Polish refiner and Brent consumer. The fund provided financing for the expansion and upgrading of a "hydroskimming" refinery at Gdansk. The loan was offered in conjunction with an asset swap package converting the companys variable oil-linked interest payments into U.S. dollars. Interest payments were indexed to Brent and increased linearly with any dollar decrease in oil prices below $15/bbl. Triton Oil executed a US$125 million Forward Sale of Oil with a 5-year maturity and a 3.8-year average life. The Notes were issued by a special purpose entity (SPE) located offshore Colombia and were backed by as Forward Sale Agreement between the SPE and Triton Colombia (a fully owned subsidiary of Triton Energy based in the U.S.) as well as a Commodity Hedge Agreement. The financing was able to achieve an investment grade rating of BBB from Duff and Phelps and was priced at a spread of 220bps over U.S. Treasuries. Structured Transactions Executed by Team Members Merrill Lynch sole managed a US$50 million Oil-Linked Loan for Slovnaft, a Slovakian refinery. The oil-linked facility has raised a total of US$175 million for the Company since 1994 with maturities ranging from 1.5 to 7 years. The financing enabled the Company to receive a subsidy on its interest cost by allowing investors to participate in a portion of the companys improved profitability, which results from low Brent oil prices. Commodity Finance Experience Structured Transactions 30

Merrill Lynch sole managed a US$250 million Aluminum Indexed Loan to fund Dubals expansion of an aluminum smelter. Debt service payments under the five-year facility were indexed to the price of aluminum, thereby providing guaranteed economics on the project. The company was able to realize an issuing spread of LIBOR plus 0.50% through the aluminum price hedge. The loan was neither guaranteed by the government nor was the company rated. The financing was awarded Deal of the Year by International Financing Review. Merrill Lynch placed and structured a non-recourse securitization of existing Coal Contract Receivables to facilitate the tax-efficient sale of the operating coal company. The US$193million issue was placed in the 144A market in two tranches of 16- and 21-year maturities with a Baa2/BBB rating and were issued at a spread of 160 and 210 basis points over U.S. Treasuries. The Notes, issued via a special purpose entity, were secured by proceeds of the coal contract and acquirers (RTZ) undertaking to deliver coal in accordance with the contract terms. Merrill Lynch sole managed a 500,000 troy ounce Gold Denominated Bond (US$200million) with a 10- year maturity and 5-year call and put structure with a Baa3/BBB rating. The bonds were offered in conjunction with an asset swap package which converted fixed gold ounces into a fixed US$ price. Due to low gold interest rates when compared to U.S. dollar rates, Poseidon realized significant cost savings on its debt. Structured Transactions Executed by Team Members Merrill Lynch structured and lead managed an offering of US$200 million Rule 144A Eurobond Secured Export Notes with a 10-year final and a 6.3-year average life. The Notes were issued by a special purpose entity located offshore Brazil and were backed by the Companys exports of certain soybean based commodities via an Export Contract and a Resale Contract. The remittance of payments to an offshore trust enabled the transaction to achieve a BBB- from S&P and execution as a public style 144A. Commodity Finance Experience Structured Transactions 31

Merrill Lynch Commodities Capabilities

32 Global Presence Houston Energy Trading - Gas, Power, Oil, Coal, Weather New York Calgary Toronto Mexico Sao Paulo The Americas London Energy Trading - Gas, Power, Oil, Coal, Emissions, Weather Madrid Paris Johannesburg Europe & Africa Singapore Oil & Products Trading Tokyo Mumbai Sydney Hong Kong Asia Pacific Energy Trading Platform IBK, Energy & Power Team IBK, Metals & Mining Team Merrill Lynch Commodities Capabilities

European Trading and Risk Management (MLCE) Merrill Lynch acquired Entergy- Koch Trading (now Merrill Lynch Global Commodities MLCE) from Entergy and Koch Industries on 1 November 2004 to become one of the leading energy firms in the world. Portfolio of products and services include risk management, trading of gas, power, oil, refined products, emissions and weather. Merrill Lynch offer a comprehensive range of customisable wholesale market solutions which includes: Risk Management: we help clients mitigate risk associated with fluctuating prices Structured Products: we help clients capture value by creating opportunities to identify and offset risk Asset optimisation: we assist firms in managing and extracting the most value from their assets Present in 11 European Power Markets 33 Merrill Lynch Commodities Capabilities

MLCs European Activities Merrill Lynch Commodities Capabilities ____________________ (1)Available during 2005 34 London Based Operations UK Belgium Netherlands France Spain Germany Nordic Denmark Austria Global (excluding N.America) Merrill Lynch GasWeatherPower UK NBP Zeebrugge TTF (Netherlands/ Germany) CoalOil/ProductsEmissions Brent Gasoil Fuel oil Oil products API 2 (ARA) API 4(RBCT) EU ETS MetalsCommodityIndices Exotics and Hybrids (1) GSCI GSCI sub-indices MLCI Others Precious Metals (1 st stage) Base metals (2 nd stage) Baskets Exotics Cross- commodity Cross asset- classes

MLCI North America: Delivers, markets and trades natural gas, power, weather derivatives and other energy-related commodities. Leverages base assets, wholesale trading capabilities and industry relationships to capture higher-margin opportunities Maintains long-term growth through expansion of existing business and continued new product development Trade 57.5 BCF/day (50 financial, 7.5 physical) Financial volume accounts for 5-8% of market on a typical trading day Manage over 150 BCF of gas storage throughout US Manage 2.5 BCF of transport across major US pipelines Trade over 182 TWh annually Significant trading presence in each NERC region across the US Over 5,000 MW of generation capacity under management Leading trader and developer of weather linked products Temperature/weather linked products to manage risk associated with power, gas, hydro and other weather driven commodities A leading risk manager for Utilities, hedge funds producers and other owners of energy infrastructure Products include futures, caps, floors, and other combinations Natural Gas (Physical & Financial) Power (Physical & Financial) Weather Risk Management Northern Cal SoCal San Juan Station 65 Chicag o Leidy Zone 6 M3 Rockies Mid Con Permian Basin Katy Henry Hub AECO All Major US Gas Markets US Trading & Risk Management (MLCI) 35 Merrill Lynch Commodities Capabilities

Tailored Risk and Liability Management Solutions A Broad Array of Risk Management Products Risk Management Tools Managing concentrated balance sheet credit exposures Forward credit spread hedges (issuance and repurchase) Credit Risk Management Managing long-dated FX exposures Financing transactions Transactional versus strategic hedging Cross-border acquisition hedging Foreign Currency Risk Management ALM analysis Pension Risk Tax solutions Strategic Risk Management Hedging an anticipated debt issuance (e.g. bonds private placement) Hedging existing floating rate debt (e.g. bank loans, CP) Managing fixed/floating exposures - ongoing asset- liability management Hedging debt repurchase Hedging hybrid instruments Tailored financing solutions Fixed Income Risk Management Exotic currency exposure hedging Cross-border financing Hedging Country Risk Emerging Market Risk Management Managing commodity price risk can be done in combination or separately from these various risk management tools Commodity Risk Management Merrill Lynchs Risk Management teams specialise in developing and executing Risk Management solutions for its clients The teams aim to identify the key risks embedded within our clients businesses and create strategies in conjunction with management which seek to optimally hedge risks inherent in daily operations, as well as in more specific situations, such as raising new debt or completing an acquisition 36 Merrill Lynch Commodities Capabilities

37 Disclaimer Merrill Lynch prohibits (a) employees from, directly or indirectly, offering a favorable research rating or specific price target, or offering to change such rating or price target, as consideration or inducement for the receipt of business or for compensation, and (b) Research Analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investor clients. This proposal is confidential, for your private use only, and may not be shared with others (other than your advisors) without Merrill Lynch's written permission, except that you (and each of your employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the proposal and all materials of any kind (including opinions or other tax analyses) that are provided to you relating to such tax treatment and tax structure. For purposes of the preceding sentence, tax refers to U.S. federal and state tax. This proposal is for discussion purposes only. Merrill Lynch is not an expert on, and does not render opinions regarding, legal, accounting, regulatory or tax matters. You should consult with your advisors concerning these matters before undertaking the proposed transaction.

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