Evaluate Energy
Oil & Gas Review Q2 2010
Eoin Coyne
+44 (0) 20 7392 9473
eoinc@evaluategroup.com
Richard Krijgsman
+44 (0) 20 7 392 9470
richardk@evaluategroup.com
Hannah Mumby
+44 (0) 20 7392 9472
hannahm@evaluategroup.com
EvaluateEnergy
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London
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T: +44 (0) 20 7 247 6120
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www.evaluateenergy.com
BP Horizon Woes Undermine Group Earnings
Reported net income for the Evaluate Energy Upstream earnings were aided by strong in-
Group of global oil and gas companies suf- creases in oil and gas production but were not
fered a 41% fall on Q1 ‘10 levels, as the huge enough to counter the effects of lower gas
$32 billion provision required by BP to meet prices, particularly in North America. Gas pro-
the cost of the Horizon oil spill, dampened duction for the group increased by 5% since
an otherwise steady quarter of earnings. Q1 ‘10, whilst the gas price represented by
Henry Hub dropped 15%. Oil production was
Normalised net income, which excludes BP’s marginally up and oil prices were largely un-
provision fell slightly by 9%, with lower gas changed since Q1 ‘10.
prices tempering strong results from a high
average WTI oil price of $78 for the quarter Downstream earnings carried the momentum
and improved R&M earnings. of Q1 ‘10 to improve further via a combination
of operating and cost efficiencies and im-
Capex and debt. Upstream capex witnessed a proved global refining and marketing mar-
resurgence, with a combination of improved gins. Looking forward the outlook is still not
confidence in future oil prices and signs of positive and many integrated companies are
more countries emerging from recession dur- still looking at exit strategies for certain down-
ing the quarter. Upstream capex reached $70 stream operations. In particular Murphy Oil
billion for the quarter, up 15% over Q1 ‘10. In are looking to exit their United Kingdom refin-
the downstream segment, companies are still ing and marketing operations and Total are
tentative to over commit investment and refin- rumoured to be selling off their Lindsey refin-
ery construction projects are largely limited to ery in the United Kingdom and their 500 ser-
NOC’s and emerging economies, with much vice stations.
of North America and Western Europe facing
a contraction in refining capacity. Shale Gas Surge Bolsters M&A Activity
Subdued US gas prices did not put off in-
Debt levels rose slightly on Q1 ‘10 levels but vestors in the US shale gas sector during the
remain virtually unchanged when the increase quarter as a flurry of deals pushed total
in debt from the largest company in the group, spending to $42 billion. US Shale gas deals
ExxonMobil, is taken out of the calculation. alone accounted for over a quarter of this
ExxonMobil doubled their debt level after as- value with non-US companies in particular
suming the debt owed by XTO Energy as part keen to gather the extraction skills built up
of their $41 billion acquisition. over several years in the US, via farm-in
agreements with existing operators.
Oil & Gas Prices
90.00 6.00
80.00
5.00
70.00
Gas Price in US$
Oil Price in US$
60.00 4.00
50.00
3.00
40.00
30.00 2.00
20.00
1.00
10.00
0.00 0.00
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr
2009 2009 2009 2009 2010 2010
WTI Brent Henry Hub
 2nd Quarter 2010 Review
M&A Review

Second Quarter Oil & Gas Deals Top $42 Billion as Companies Pile into Shale

The pace of M&A activity in the global E&P sector sustained carry for their partners and will team up with two compa-
the momentum of the first quarter with $42 billion of E&P nies with significant experience in shale gas extraction.
deals announced in the second quarter of 2010. Evaluate En-
ergy only includes officially announced deals in its analysis A major part of the motivation for Reliance for the deals is
and excludes rumoured deals. for the company to gain experience in extracting gas from
shale, with the US being far and away the leader in this field.
US Shale Gas Attracts Global Attention Reliance’s home country, India, is estimated to contain abun-
dant shale resources which have the potential to contain re-
The total value for the quarter is the second largest in the serves in excess of the country’s conventional resources.
past three years (the biggest being Q4 2009, a quarter domi- Due to government imposed restrictions, unconventional
nated by ExxonMobil’s $41 billion acquisition of XTO En- resources in India have so far been substantially untapped
ergy) and has been strongly driven by increasing interest in with little exploration or development taking place. How-
the US shale sector from domestic and international compa- ever on the back of the success of the US shale gas plays, the
nies alike. In total $12 billion worth of US shale gas deals government has recently declared that policy will be in place
were announced which represented over one quarter of for companies to take advantage of the resource within a
global E&P deals. year. At that time Reliance will aim to have a clear advan-
tage over its domestic peers. Already in Q3 2010 rumours are
The shale gas sector accounted for the largest deal an- circulating that Reliance has lined up a third billion dollar
nounced during the quarter with Royal Dutch Shell making US shale gas farm in.
their initial foray into the sector with its giant $4.7 billion
acquisition of Marcellus shale gas specialists, East Resources, Shale Gas Buzz Reflected in Lease Sales
Inc.. Shell will instantly own over a million acres of prospec-
tive shale gas lands from this transaction, owning a shale gas
The buzz of the shale sector also extended to government
portfolio that can only be bettered amongst the super-majors lease auctions with sales within shale areas attracting record
by ExxonMobil. bids. This was evident in the latest Michigan lease sale in the
Collingwood shale which reaped $178 million, a record for
Another company making a bold entrance to into the US the state and just under the $190 million raised in the past 81
shale scene was Indian conglomerate, Reliance Industries years combined. The June 2010 British Columbia lease sale
who farmed into two shale plays, the Marcellus shale in that focused on the Montney shale play attracted C$404 mil-
Pennsylvania with Atlas Energy, and the Eagle Ford shale in lion dollars of high bids whilst Alberta’s latest lease sale in
Texas with Pioneer Natural Resources. In total, Reliance has the Duvernay shale announced in early July grossed C$451
committed to spend $2.8 billion in cash payments and cost million of bids.

Top 20 Deals in Q2 2010

Rank Acquirer Target Company Total Target Country Target Resource Type Cost per Cost per
Acquisition Business boe/d of boe of 1P
Cost (000) Segment Production Reserves

1 Royal Dutch Shell East Resources, Inc 4,700,000 United States E&P Shale Gas 470,000 -
2 Sinopec ConocoPhillips 4,650,000 Canada E&P Oil Sands 153,259 19.67
3 Apache Corp. Mariner Energy 3,868,341 United States E&P Various 61,402 21.35
4 Sinochem Corporation Statoil ASA 3,070,000 Brazil E&P Offshore - Shallow Water - -
5 Reliance Industries Limited Atlas Energy Inc 1,700,000 United States E&P Shale Gas - -
6 SandRidge Energy Arena Resources, Inc. 1,629,356 United States E&P Onshore Conventional 200,496 23.53
7 Reliance Industries Limited Pioneer Natural Resources 1,145,000 United States E&P Shale Gas 545,238 -
8 Crescent Point Energy Corp Shelter Bay Energy Inc. 1,075,513 Canada E&P Onshore Conventional 183,974 60.78
9 Apache Corp. Devon Energy Corp. 1,050,000 United States E&P Offshore - Shallow Water 54,310 26.92
10 BG Group EXCO Resources 985,200 United States E&P Shale Gas 337,783 44.61
11 Canadian Natural Resources Unspecified 956,961 Canada E&P Onshore Conventional 34,177 -
12 Northern Blizzard Resources Inc Nexen 933,037 Canada E&P Onshore Conventional 62,202 23.92
13 Kinder Morgan Energy Partners, L.P. Petrohawk Energy 921,000 United States Midstream Pipelines - -
14 Quantum Resource Management, LLC Denbury 889,000 United States E&P Onshore Conventional 68,385 16.46
15 ACON Investments LLC Marathon Oil Corp 800,000 United States R&M Refining - -
16 China Investment Corporation Penn West Energy Trust 781,837 Canada E&P Oil Sands 643,487 -
17 MISC Berhad VTTI B.V. 735,000 Various Midstream Storage - -
18 ARC Energy Trust Storm Exploration Inc 691,371 Canada E&P Shale Gas 70,147 23.92
19 Pilot Travel Centers CFJ Properties 626,000 United States R&M Marketing - -
20 Legacy Oil + Gas Inc CanEra Resources Inc 557,812 Canada E&P Onshore Conventional 113,839 -

© 2010 Evaluate Energy Ltd www.evaluateenergy.com Date: 21st September 2010

 2nd Quarter 2010 Review

Second Quarter Oil & Gas Deals Top $42 Billion as Companies Pile into Shale
Oil Sands Attracts Chinese Investment
Q2 2010 Global E&P Deals by Resource Type

The Canadian oil sands sector attracted US$5.5 billion worth of

deals during the quarter. The vast majority of this value came
from two deals, with Sinopec acquiring ConocoPhillips’ 9% inter-
est in Syncrude for $4.65 billion and China Investment Corp ac-
quiring a 45% interest in Penn West Energy Trust’s Peace River Shale Gas
Shale oil
assets for $780 million. After CNOOC’s failed acquisition of Uno- CBM
cal in 2005 due to strong public and political opposition, govern- Onshore Conventional
Offshore - Deepw ater
ment-backed Chinese companies have been developing a portfo-
Offshore - Shallow Water
lio of global assets via more low-key acquisitions of a variety of Oil Sands

non-controlling and partial interests. Within Canada the focus of

the assets deals from Chinese companies have been on Oil Sands
projects with four significant acquisitions taking place since 2009.

Horizon Fallout Threatens Offshore Asset Deals

ties. A further setback occurred in September 2010 when a Gulf
Offshore assets attracted $9.4 billion worth of deals during the of Mexico rig caught fire echoing the recent BP Horizon oil rig
quarter with two companies accounting for over two thirds of the disaster. The incident however, which involved no fatalities was
value. Sinochem acquired a 40% interest in the Peregrino field far smaller in comparison and there has been no announcement
offshore Brazil for $3 billion and Apache acquired Gulf of Mexico from Apache as yet indicating that the deal may be in jeopardy.
assets for $1.05 billion from Devon and agreed to acquire Mariner
Energy for $3.9 billion (of which approximately 65% of the value Divestiture Plans Promise Lucrative Exit to 2010
is attributable to Gulf of Mexico assets). Both of the Apache acqui-
sitions were negotiated and announced before the deepwater Ho- With BP and ConocoPhillips both announcing that they plan to
rizon oil rig explosion and subsequent leak of 4 million barrels of shore up their balance sheets via large divestitures, deal value
oil. The fallout of the leak put the safety merits of deepwater Gulffor the remainder of 2010 should remain strong. BP have indi-
of Mexico exploration onto the political agenda and led to a sus- cated that they will be divesting $30 billion of assets in order to
pension of deepwater drilling while new safety measure were cover costs related to the Gulf of Mexico oil spill with a large
devised. The acquisition of Devon’s assets closed in June despite variety of regional assets rumoured to be up for sale. Conoco-
these measures due to the assets lying in shallow waters. Phillips have also announced plans to divest $10 billion of assets
during 2010. $4.65 billion of this target was realised when they
The acquisition of Mariner Energy which includes deepwater as- sold their 9% stake in syncrude to Sinopec during Q2 ‘10.
sets has not yet closed and Mariner Energy is still trading below In addition to the $10 billion sale ConocoPhillips has reported
Apache’s offer price. This is indicative of the apprehension in the that they intend to divest their investment in Lukoil, worth an
market that the deal may be scuppered by new regulations, possi- estimated $US 9 billion.
bly increasing operating costs and decreasing drilling opportuni-

Quarterly De al Value by Res ource Type

80,000, 000

70,000, 000

60,000, 000

50,000, 000 Other

Oil Sands
40,000, 000 Offshore
Shale Gas
30,000, 000 Onshore Conventional

20,000, 000

10,000, 000

-
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10

*For corporate deals involving various resource types, Evaluate Energy has estimated the deal value for each segment.

© 2010 Evaluate Energy Ltd www.evaluateenergy.com Date: 21st September 2010

 2nd Quarter 2010 Review
Financials

Net Income Hit by Record Loss for BP

Net income for the Evaluate Energy group of oil and gas Total Group Net Income
companies dropped by 41% on Q1 ’10 levels, with the fall-
70,000
out from the BP’s deepwater Horizon explosion dominat-
ing the income drop. BP reported a company record loss in 60,000

Q2 ’10 after recognising a $32 billion pre-tax charge ($22 bil- 50,000
lion post-tax) to cover costs incurred so far, and future ex-
40,000

Mln US$
pected costs arising from the Gulf of Mexico oil spill. Negat-
ing exceptional items, normalised net income dropped mar- 30,000

ginally by 9% since Q1 ’10, as lower gas prices tempered the 20,000

continued strong returns from oil sales and improved returns
10,000
from refining and marketing. Quarter-on-quarter net income
was up by 31% due to higher oil and gas realisations and con- 0
1st Qtr 2009 2nd Qtr 2009 3rd Qtr 2009 4th Qtr 2009 1st Qtr 2010 2nd Qtr 2010
siderably higher earnings from the downstream segment.
Net income (Unadjusted) Net Income (Normalised)

ExxonMobil Single-Handedly Pushes Up Debt Level

Cash flow from operating activities increased by 69% quar-
Group Total
ter-on-quarter and 8% since Q1 ‘10. Despite the increased
cash earnings the weighted average debt-to-equity level has 120,000 45.0%

crept up by 0.7 of a percentage point since Q1 ‘10. The debt 44.5%

100,000
levels for the group would have remained on par with Q1 ‘10 44.0%

levels had ExxonMobil’s debt level been excluded as the com- 43.5%
80,000

Debt/Equity %
43.0%
pany reported a double digit debt-to-equity level for the first
Mln US$

60,000 42.5%
time since 2004. ExxonMobil concluded their acquisition of
42.0%
XTO Energy during Q2 ’10 which although funded with eq- 40,000
41.5%
uity, Exxon also assumed XTO Energy’s debt, which stood at
41.0%
$10.2 billion at the time of the acquisition. Chesapeake Energy 20,000
40.5%
improved their debt-to-equity level more than any other com- 0 40.0%
pany in the group since Q1 ‘10, after divesting various stakes 1st Qtr 2009 2nd Qtr 2009 3rd Qtr 2009 4th Qtr 2009 1st Qtr 2010 2nd Qtr 2010

in their US shale assets to strengthen their balance sheet. Operating Cash Flow Weighted Average Debt/Equity

Trends in Net Income & Cash Flow

N et In co m e ($m ln ) % C hg % C hg O pe ra tin g C ash F lo w ($ m ln ) % C hg % Ch g
C o m p an y 2009 20 10 2010 20 10 20 10 2 009 2010 2010 2010 2010

2n d Q tr 1st Q tr 2n d Q tr vs Q 2 09 vs Q 1 10 2n d Q tr 1s t Q tr 2n d Q tr vs Q 2 09 vs Q 1 10
An adarko P etroleum -226 7 16 -40 NM NM 1 228 1317 1566 28% 19%
Ap ache C orp. 443 7 05 860 9 4% 2 2% 824 1153 1932 135% 68%
BG G roup 761 9 60 602 -2 1% -3 7% 1 029 1958 1864 81% -5%
BP 4385 60 79 -17150 NM NM 6 757 7693 6753 0% -12%
Cana dian N atural Re sources 141 8 28 644 35 7% -2 2% 1 088 1301 1737 60% 34%
Ceno vus En ergy In c. 49 4 18 291 49 7% -3 0% 689 784 455 -34% -42%
Ches apeak e E nergy C orp. 237 7 32 235 -1% -6 8% 737 1183 1795 144% 52%
Chev ron 1745 45 52 5409 21 0% 1 9% 3 284 7517 7603 132% 1%
Cono coP hil lips 859 20 98 4164 38 5% 9 8% 2 567 3040 3475 35% 14%
Dev on E nergy C orp. 314 11 92 706 12 5% -4 1% 1 030 1495 1397 36% -7%
Ec opetrol 307 10 14 911 19 7% -1 0% -160 1826 2952 NM 62%
En Can a 239 14 77 -505 NM NM 1 961 -772 893 -54% NM
EN I 1149 30 34 2293 10 0% -2 4% 3 007 6217 5764 92% -7%
EO G R es ources -17 1 18 60 NM -4 9% 671 620 681 1% 10%
Ex xonM obil 3950 63 00 7560 9 1% 2 0% 2 197 13046 9235 320% -29%
G azprom Ne ft 1195 7 27 747 -3 7% 3% 994 881 1483 49% 68%
Hes s C orp 100 5 38 375 27 5% -3 0% 616 825 981 59% 19%
Luko il (U S G A A P ) 2324 20 53 1949 -1 6% -5% 1 195 849 1278 7% 51%
Ma ra thon 413 4 57 709 7 2% 5 5% 132 829 618 367% -25%
Mu rp hy O il 159 1 49 272 7 1% 8 3% 95 763 492 420% -35%
Nexe n 17 1 77 246 131 6% 3 9% 313 588 256 -18% -56%
Noble E nergy -57 2 37 204 NM -1 4% 266 420 209 -21% -50%
Nov atek 226 3 77 235 4% -3 8% 1 421 2210 2067 45% -6%
O cc identa l 682 10 64 1063 5 6% 0% 492 1020 962 96% -6%
OM V 199 4 72 424 11 3% -1 0% 10 399 10742 1 0898 5% 1%
Pe tro bras (U S G A A P ) 3991 43 17 4246 6% -2% 3 869 5525 7914 105% 43%
Pe tro China 4612 47 64 4821 5% 1% 1 001 1679 2122 112% 26%
Reps ol-Y P F 599 9 39 817 3 6% -1 3% 2 376 2287 4895 106% 1 14%
Ros neft 1612 24 31 2476 5 4% 2% 919 4782 8096 781% 69%
Royal Du tch S hell 3822 54 81 4393 1 5% -2 0% 266 418 391 47% -6%
So uthwes tern E nergy C o. 121 1 72 122 1% -2 9% 4 725 4130 3725 -21% -10%
St atoil AS A 12 18 73 576 473 2% -6 9% 132 254 1769 1239% 5 96%
Su ncor -44 6 84 463 NM -3 2% 1 000 1079 872 -13% -19%
T alis m an En ergy 55 2 18 582 96 3% 16 7% 2 677 7181 6213 132% -13%
T otal 2994 35 67 3898 3 0% 9% 626 982 788 26% -20%
Va lero E nergy -254 -1 13 583 NM NM 622 617 680 9% 10%
Su b $10 bln M arke t Cap G roup -557 23 42 2222 NM -5% 3 551 5239 4551 28% -13%
G ro u p T o tal 36557 631 50 37465 2% -41% 64 595 101680 10 9362 69 % 8%

© 2010 Evaluate Energy Ltd www.evaluateenergy.com Date: 21st September 2010

 2nd Quarter 2010 Review
Segmentals

Upstream: Gas Realisations Drag Down Earnings

Upstream earnings for the group dropped slightly on Q1 ‘10 Total Group Upstream Earnings
levels, decreasing by 9% but were up by 61% quarter-on-
45,000
quarter. An average oil price as per the WTI benchmark was
40,000
in line with Q1 ‘10 at $78 per barrel whilst the gas price meas-
35,000
ured by Henry Hub, decreased by 15%. The struggling gas
30,000
price in the US resulting from strong gas supply and a slow

Mln US$
25,000
rebound in the North American economy, led to a drop in up-
20,000
stream earnings despite increased production for the group.
15,000
The US gas price is not expected to increase significantly this
10,000
year, with unconventional gas development adding a further
5,000
boost to 2010 production. With LNG facilities in the country
0
focused on regasification rather than liquefaction, finding a 1st Qtr 2009 2nd Qtr 2009 3rd Qtr 2009 4th Qtr 2009 1st Qtr 2010 2nd Qtr 2010
market outside of North America for any overcapacity in the Total Adjusted Pre-tax Upstream Earnings Total Adjusted Post-tax Upstream Earnings
gas supply in the short to medium-term will not be feasible.

Downstream: Earnings Rebound Continues

Refining and marketing earnings continued its recovery in Total Group Downstream
Q2 ‘10, rising 43% quarter-on-quarter and 63% on Q1 ‘10 lev- 7,000
els. The increasing earnings are a result of improved margins,
6,000
with refining margins doubling quarter-on-quarter for Cono-
5,000
coPhillips and Valero. Companies such as Sunoco and Valero
Mln US$

also benefited from drives in previous quarters to improve 4,000

efficiency when it became evident that the US refining sector 3,000

would face a prolonged period of overcapacity due to sup- 2,000

pressed demand. Valero and Sunoco chose to mothball or di-
1,000
vest at a large discount to historic prices, refineries which were
0
deemed surplus to requirements until demand recovered to 1st Qtr 2009 2nd Qtr 2009 3rd Qtr 2009 4th Qtr 2009 1st Qtr 2010 2nd Qtr 2010
pre-recession levels.
Total Adjusted Pre-tax Downstream/Midstream Earnings
Total Adjusted Post-tax Downstream/Midstream Earnings

Trends in Upstream & Downstream Earnings

U p s tr e a m ($ m ln ) % C h g R e fin in g & M a r k e tin g ($ m ln ) % Ch g T ax N ote s
C om pany 2 00 9 2 0 10 2 01 0 20 0 9 20 1 0 2010 R e p o r tin g

2 n d Q tr 2 n d Q tr vs Q 2 0 9 2 n d Q tr 2 n d Q tr vs Q 2 09 S ta tu s

An ad a rko P e tro le u m -9 2 6 54 NM n /a n /a NM P re H ig h e r c o m m o d it y p ric e s

Ap ach e C o rp . 92 0 1 5 38 67% n /a n /a NM P re R e co rd p ro d u c tio n le v e ls, 1 0 % u p q u a r te r o n q u a r te r

BG G ro u p 74 6 4 99 -3 3 % n /a n /a NM P re
BP 4 53 9 6 1 83 36% 846 18 4 3 11 8 % P re H ig h e r o il re a lisa t io n s

C a na d ia n N a tu ra l R e so u rce s 90 6 1 0 98 21% n /a n /a NM P re R a m p e d -u p p ro d u ctio n f ro m t h e H o rizo n O il S a n d s p r o je ct

C e no vu s En e rgy In c. 59 0 4 10 -3 0 % 108 -7 0 NM P re C e n o v u s sp u n o f f in l a te 2 0 0 9
C h es a p ea k e E n erg y C o rp . 54 7 5 53 1% n /a n /a NM P re
C h ev ro n 1 85 7 4 5 42 145% -9 975 NM P os t H ig h e r o il re a lisa t io n s, i m p ro v e d r e fin e ry m a rg in s

C o no co P h il lip s 1 05 6 1 9 09 81% 20 713 3 46 5 % P os t Im p ro ve d o il a n d g a s re a lisa t io n s

D e v o n E n e rg y C orp . 54 5 8 62 58% n /a n /a NM P re H ig h e r r e a lisa tio n s

Ec o pe trol n /a n /a NM n /a n /a NM P re
En C a n a 1 56 9 4 91 -6 9 % -1 2 NM P re S w in g in u n re a l ise d h e d g in g f ro m a la rg e g a in to a lo ss
EN I 2 84 9 4 3 27 52% 210 318 52% P re H ig h e r o il re a lisa t io n s a n d re f in in g m a rg in s
EO G R es o u rce s 10 6 2 86 170% n /a n /a NM P os t L o w e r d o w n s tre a m s a le s a n d re a li sa t io n s

Ex xo n M o b il 3 81 2 5 3 36 40% 512 12 2 0 13 8 % P re H ig h e r u p str e a m p ro d u c tio n a n d re a lisa t io n s

G azp ro m N e ft 1 13 4 5 68 -5 0 % -57 3 982 NM P os t H ig h e r liq u id s re a lis a tio n s

H e s s C o rp 24 6 4 88 98% -3 0 -1 9 NM P os t H ig h e r r e a lisa tio n s

L uko il (U S G A A P ) 1 54 5 1 5 34 -1 % 907 690 -2 4 % P os t

Ma ra th o n 21 0 3 72 77% 165 421 15 5 % P re H ig h e r u p str e a m re a lis a tio n s a n d r e fi n e ry m a r g in s
Mu rp h y O il 14 3 2 24 57% 28 84 20 1 % P re H ig h e r r e a lisa tio n s
N e xe n 30 4 5 04 66% 44 6 -8 7 % P re
N o bl e E n e rg y 13 6 3 20 135% n /a n /a NM P re
N o v a te k n /a n /a NM n /a n /a NM P re
O cc ide n ta l 1 08 3 1 8 59 72% n /a n /a NM P os t H ig h e r o il re a lisa t io n s
OMV 38 1 7 04 85% 47 255 44 5 % P re H ig h e r u p str e a m re a lis a tio n s a n d d o w n st re a m m a rg in s
Pe tro b ra s (U S G A A P ) 2 64 2 4 5 71 73% 27 4 4 -1 8 7 NM P re H ig h e r p r o d u ct io n a n d o il r e a lisa tio n s
R e ps o l-Y P F 23 7 4 65 96% 453 673 49% P os t In cre a s e d sa le s a n d re a lisa t io n s

R o s n e ft 1 08 1 3 2 47 200% 47 0 2 67 6 2 44% P re L a rg e p o r tio n o f u p st re a m n e t b a ck is in c lu d e d in R & M fo r R o sn e f t

R o yal D u tch S he l l 2 20 6 3 2 60 48% 19 4 2 10 1 8 -4 8 % P re H ig h e r u p str e a m re a lis a tio n s

So uth w e s tern E n erg y C o. 17 4 1 62 -7 % n /a n /a NM P re

St a to il AS A 3 85 4 5 5 79 45% -21 6 -2 3 2 NM P re H ig h e r o il re a lisa t io n s
Su nco r -43 8 1 0 03 NM 144 183 27% P os t M e r g e d w ith P e t ro - C a n a d a in Q 3 0 9
T a lis m an En erg y -32 4 6 01 NM n /a n /a NM P re
T o ta l 2 00 3 2 7 69 38% 215 607 18 2 % P re
Va le ro E n e rg y n /a n /a NM 41 10 3 2 2 41 7 % P re H ig h e r r e fin in g m a rg in s

Su b $ 1 0 b l n M a rke t C a p G ro up 53 7 2 9 00 440% -6 292 NM

G ro u p T o ta l 3 7 10 5 59 8 19 61% 1 22 9 3 1 75 6 7 43% P le a se n o te the to tal su m s p re a nd p ost ta x e a rni n g s

© 2010 Evaluate Energy Ltd www.evaluateenergy.com Date: 21st September 2010

 2nd Quarter 2010 Review
Financial Analysis

Return on Capital Slips from Lower Gas Returns

ROACE (post tax, post non-recurring items) on an annual- Group Total Return on Average Capital Employed
ised basis decreased by 2.5 percentage points from Q1 ‘10
25.00%
and increased by 6 percentage points quarter-on-quarter.
ROACE levels for the group had been steadily increasing in 20.00%

2009 and Q1 ’10 along with the rejuvenated oil price. In Q2 ’10
15.00%

ROACE %
with the oil price stagnating and the gas price as per Henry
Hub suffering a dip, the returns for the group also declined. 10.00%

Offsetting the decreased returns from the gas price were better
5.00%
results from the refining and marketing segment, with Valero
Energy posting a net profit after 4 previous quarters of report- 0.00%
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
ing a loss. The US based super-majors (Chevron, ConocoPhil-
2009 2010
lips and ExxonMobil) out-performed their peers with average
annualised ROACE of 33% for the quarter.

Capital Expenditures Rise on Oil Price Confidence

Capital spending increased by 13% compared with Q1 ‘10 Total Capex
and by 10% quarter-on-quarter to reach $88.1 billion in total
for the group. The upstream segment accounted for the larg-
est increase, rising 27% quarter-on-quarter. The upstream sec- 100,000
90,000
tor was still in a state of uncertainty in Q2 ‘09 due to the low oil 80,000
price, but with three consecutive quarters of a price over $75 70,000
60,000
Mln US$

per barrel leading up to Q2 ‘10, the increased confidence is 50,000

reflected in the group’s upstream spending levels. Refining 40,000
30,000
and marketing has continued to attract a comparatively low 20,000
level of investment. Although Q2 ‘10 saw an upturn in earn- 10,000
0
ings from refining and marketing, the outlook for demand for 1st Qtr 2009 2nd Qtr 2009 3rd Qtr 2009 4th Qtr 2009 1st Qtr 2010 2nd Qtr 2010

oil products in North America and Europe is still not strong

enough to warrant significant investments in capacity. Upstream Refining and Marketing Midstream & Power Chemicals Other

Trends in ROACE & Capex

R OA CE C A P E X ($ m ln )
C om pany 2009 2 010 2010 2 n d Q tr 2 0 0 9 2 n d Q tr 2 0 1 0

2 nd Q tr 1 s t Q tr 2 n d Q tr E&P R &M O th e r T o ta l E&P R&M O th e r T o ta l

A n a d a r k o P e t r o le u m -4 % 1 2% 6% 828 n /a 86 9 14 12 54 n /a 11 3 1367
A p a ch e C o rp . 17% 2 5% 27% 1042 n /a 52 10 95 22 86 n /a 14 1 2427
B G G ro u p 23% 3 1% 13% 1347 n /a 414 17 61 24 33 n /a 33 7 2770
BP 16% 2 6% 22% 3566 8 38 414 48 18 51 96 925 91 6212
C a n a d ia n N a t u r a l R e s o u 8% 1 5% 14% 409 n /a 3 4 11 14 61 n /a n/a 1461
C e n o v u s E n e r g y In c . n /a n /a n /a 193 2 30 2 4 25 2 86 162 13 461
C h e s a p e a k e E n e rg y C o r 8% 2 0% 7% 1074 n /a n /a 10 74 17 11 n /a n/a 1711
C h e v ro n 14% 3 0% 33% 3710 10 91 148 49 49 44 22 549 72 5043
C o n o c o P h il lip s 8% 2 0% 29% 2059 5 23 90 26 72 17 45 226 38 2009
D e v o n E n e rg y C o rp . 6% 2 0% 14% 1059 n /a n /a 10 59 20 72 n /a n/a 2072
En Can a 4% 2 6% -2 % 899 n /a 14 9 13 12 10 1 12 1223
EN I 15% 2 6% 22% 3809 1 82 1113 51 04 40 05 187 124 8 5441
E O G R e s o u rce s 1% 1 0% 6% 611 n /a 87 6 98 12 25 n /a 54 1279
E x x o n M o b il 25% 4 0% 36% 4905 8 17 840 65 62 53 42 584 59 3 6519
G a z p ro m N e ft 8% 1 8% 16% 399 3 19 n /a 7 18 5 55 180 n/a 735
H e s s C o rp 6% 2 3% 17% 670 15 n /a 6 85 8 68 33 n/a 901
L u k o il ( U S G A A P ) 20% 1 7% 17% 1123 3 04 147 15 74 12 73 304 14 5 1722
M a ra t h o n 14% 1 3% 19% 929 7 13 8 16 50 8 28 256 14 1098
M u rp h y O il 11% 1 7% 21% 494 54 1 5 48 4 65 109 1 575
N exe n 7% 1 2% 13% 549 3 70 6 22 7 21 7 61 789
N o b le E n e rg y 4% 1 0% 11% 294 n /a 29 3 23 4 81 n /a 38 519
N o v a te k 21% 3 3% 23% 151 n /a 0 1 51 1 96 n /a 3 199
O c c id e n t a l 16% 2 4% 23% 631 n /a 200 8 31 7 09 n /a 15 9 868
OMV 8% 2 0% 19% 679 1 20 145 9 44 2 65 96 26 3 624
P e t ro C h i n a 17% 1 6% 16% n /a n /a n /a n /a n /a n /a n/a n /a
P e t ro b r a s ( U S G A A P ) 24% 2 0% 18% 4129 22 37 1575 79 41 49 63 3425 121 6 9604
R e p s o l- Y P F 7% 1 4% 12% 467 5 95 3922 49 84 2 88 602 69 6 1586
R o s n e ft 15% 1 9% 20% 1669 2 41 245 21 55 16 64 420 10 2094
R o y a l D u tc h S h e l l 11% 2 1% 18% 5497 24 92 64 80 53 57 68 1018 12 6798
S o u th w e s te r n E n e r g y C o 31% 3 6% 24% 402 n /a 54 4 56 4 41 n /a 10 2 544
S t a t o il A S A 36% 5 4% 40% 2739 2 85 163 31 87 26 79 135 13 0 2943
Su ncor -8 % 6% 12% 518 23 n /a 5 41 11 80 171 74 1425
T a lis m a n E n e r g y -1 % 1 2% 12% 754 n /a n /a 7 54 12 78 n /a n/a 1278
T o ta l 18% 2 4% 25% 3678 11 39 200 50 17 34 23 706 20 2 4332
V a le r o E n e r g y -2 % 0% 16% n /a 6 16 n /a 6 16 n /a 403 n/a 403
W i llia m s C o m p a n ie s 8% 1 2% 9% 229 n /a 352 5 81 2 69 n /a 25 0 519
S u b $ 1 0 b ln M a rke t C a p 5% 1 1% 11% 4018 2 53 683 49 53 76 19 199 69 6 8514
G ro u p T o t a l 55528 130 89 11121 797 38 705 80 10698 678 6 8 8064

© 2010 Evaluate Energy Ltd www.evaluateenergy.com Date: 21st September 2010

 2nd Quarter 2010 Review
Upstream Operating

Oil Production Creeps Higher

Crude oil and NGL production increased by 2% quarter-on- Group Oil/NGL Production
quarter but decreased by 1% on Q1 ’10 levels. There were
30,000
significant organic increases in production from BHP Billiton
and Chesapeake Energy. BHP Billiton has been steadily ramp- 25,000

ing up oil production over the past 3 years. With various Gulf
20,000
of Mexico projects coming onstream in that time, BHP’s liq-

(000) b/d
uids production stands 30% higher than Q2 ‘09. Chesapeake 15,000

Energy’s liquids production has come as a byproduct of the

10,000
increase in production from their gas focused assets. Offsetting
the increases in production was BP’s result which reported a 5,000

decrease of 143,000 b/d of production quarter-on-quarter due

0
mainly to the impact of the Gulf of Mexico oil spill. 1st Qtr 2009 2nd Qtr 2009 3rd Qtr 2009 4th Qtr 2009 1st Qtr 2010 2nd Qtr 2010

US Canada South America Europe Africa Middle East Asia Pacific Rest of World

Gas Production Makes Large Leap Quarter-on-Quarter

Reported natural gas production increased by 5% quarter- Group Gas Production
on-quarter but decreased by 6% on Q1 ‘10, a quarter with
120,000
seasonally high demand due to colder weather. The most
significant rise in production came from ExxonMobil, who 100,000
completed the acquisition of XTO Energy during the quarter
80,000
to become the largest gas producer in the United States. Large
(mmcf/d)

increases also came from Royal Dutch Shell and Total who 60,000
have both been significantly ramping up production since Q2
40,000
’09, especially within integrated LNG projects. Shell had a pro-
duction boost from their Sakhalin II and Nigeria LNG projects, 20,000
whilst Total benefited from the start up of the second liquefac-
0
tion Train in their Yemen LNG project. 1st Qtr 2009 2nd Qtr 2009 3rd Qtr 2009 4th Qtr 2009 1st Qtr 2010 2nd Qtr 2010

US Canada South America Europe Africa Middle East Asia Pacific Rest of World

Trends in Oil & Gas Production

O i l P ro d u c tio n 0 0 0 b /d % Chg G a s P r o d u c tio n m m c f/d % Chg N ote s
C om pany 2009 20 10 2010 2009 2 010 2010

2 n d Q tr 2 n d Q tr vs Q 2 09 2 n d Q tr 2 n d Q tr vs Q 2 09
An a d a rko P e tro le u m 228 2 64 16% 2336 2 324 -1 % S a le s 6 % u p q u a rt e r o n q u a rt e r
Ap a ch e C o rp . 290 3 48 20% 1770 1 792 1% S ix fo ld in c re a se in o u t p u t in A u s tra lia
BH P B il lito n 197 2 57 30% 981 991 1% C o m p a n y h a s J u n e ye a r -e n d .

BG G ro u p 191 1 75 -8 % 2712 2 730 1% R a m p u p o f T u n isia n p ro d u ct io n

BP 2526 23 83 -6 % 8580 8 484 -1 % D e cr e a se d p ro d u ct io n in t h e G u lf o f M e x ico

C a n a d ia n N a tu ra l R e s o u rc e s 327 3 91 20% 1341 1 166 -1 3 % P ro d u ct io n in cre a s e s fr o m H o riz o n O il S a n d s
C e n o vu s E n e rg y In c. 106 1 29 21% 864 751 -1 3 % C o n sid e ra b ly ra m p e d u p p ro d u c tio n fr o m F o st e r C re e k
C h e s a p e a k e E n e rg y C o rp . 35 48 40% 2245 2 497 11%
C h e v ro n 1839 19 10 4% 4988 5 016 1% P ro d u ct io n r a m p u p s m a in ly in th e U S

C o n o co P h il lip s 1603 15 48 -3 % 5348 4 909 -8 % N a tu ra l fie ld d e c lin e

D e v o n E n e rg y C o rp . 253 2 39 -5 % 2792 2 617 -6 % P o rt f o lio d ive st it u re s

Ec o p e tro l 424 4 97 17% 570 583 2%

En C a n a 136 24 -8 3 % 3788 3 202 -1 5 % C e n o vu s a sse t s w e re sp u n -o f f in la te 2 0 0 9
EN I 986 9 80 -1 % 4290 4 319 1%
EO G R e s o u rce s 72 98 36% 1645 1 629 -1 % P ro d u ct io n g r o w th in th e B a kke n a n d F o rt W o r th b a sin s

Ex x o n M o b il 2346 23 25 -1 % 8041 10 025 25% P ro je ct ra m p u p s in Q a ta r a n d h ig h e r d e m a n d in E u ro p e

G a zp ro m N e ft 921 9 96 8% 287 334 16%

H e s s C o rp 288 3 02 5% 711 679 -5 %
L u ko il (U S G A A P ) 1974 19 40 -2 % 1374 1 752 28% In c re a s e d p r o d u ct io n fr o m m a jo r N a kh o d k in sk o e g a s f ie ld
M a ra th o n 303 2 66 -1 2 % 958 840 -1 2 % Tu rn a ro u n d o f p ro d u c tio n f a cilit ie s in E q u a t o ri a l G u in e a
M u rp h y O il 118 1 32 12% 147 348 136% M o st ly a t tr ib u ta b le t o th e ra m p u p o f K ike h , M a la ys ia
N e xe n 174 1 79 2% 201 240 19%
N o b l e E n e rg y 81 87 7% 754 793 5%
N o v a te k 69 80 16% 2934 3 210 9%
O cc id e n ta l 550 5 48 0% 1002 1 333 33% R a m p u p i n p r o d u ct io n in B a h ra in
OMV 168 1 74 3% 823 809 -2 %
Pe tro C h i n a 2330 23 58 1% 5469 5 969 9%
Pe tro b ra s (U S G A A P ) 2094 21 56 3% 2520 2 538 1%
R e p s o l-Y P F 441 4 48 2% 2785 2 516 -1 0 % S t a rt u p o f p r o d u ct io n fr o m t h e S h e n z i f ie ld , G u lf o f M e xic o a n d h ig h e r L ib ya n p r o d u ct io n

R o s n e ft 2127 23 15 9% 1137 1 148 1%

R o ya l D u tch S h e l l 1648 16 55 0% 7544 8 440 12% R a m p u p s in R u ss ia a n d B ra zil
So u th w e s te rn E n e rg y C o . 0 1 47% 815 1 077 32% In c re a s e d p r o d u ct io n fr o m Fa ye t te v ille S h a le p la y
St a to il A S A 1032 9 81 -5 % 4182 4 704 12%
Su n co r 304 5 32 75% 192 613 219% C o m p le t e d a cq u is itio n o f P e tr o -C a n a d a in Q 3 0 9

T a lis m a n En e rg y 186 1 50 -1 9 % 1107 1 200 8% A ss e t d ive stit u re s

T o ta l 1328 13 27 0% 4686 5 549 18% R a m p -u p in p ro d u ct io n f ro m L N G p ro je c ts

W i llia m s C o m p a n ie s n /a n /a NM 1233 1 168 -5 %
Su b $ 1 0 b l n M a rke t C a p G ro u p 437 5 04 15% 7377 7 468 1%
G ro u p T o ta l 28131 287 46 2% 100529 105 760 5%

© 2010 Evaluate Energy Ltd www.evaluateenergy.com Date: 21st September 2010

 2nd Quarter 2010 Review
Downstream Operating

Product Sales Boosted by North American Demand

Refined product sales increased by 5% since Q1 ‘10 and by Product Sales

5% quarter-on-quarter. The improved demand in the United 45,000

States was largely responsible for the rise with a 7% increase in 40,000
sales since Q1 ‘10 for the group in the US alone. The forecast 35,000
for demand is still poor however and unless there is a major 30,000
improvement in the US economy the independent down-

(000) b/d
25,000
stream companies are not expected to return to the high levels 20,000
of profits experienced between 2005 and 2007 in the near fu- 15,000
ture. This is reflected in the share prices of Valero, Tesoro and 10,000
Western Refining which are all trading at heavy discounts to 5,000
their 2007 trading prices. Oil product inventories, the widely 0
used barometer of underlying refining economics have risen 1st Qtr 2009 2nd Qtr 2009 3rd Qtr 2009 4th Qtr 2009 1st Qtr 2010 2nd Qtr 2010

higher than the level experienced in the US in Q2 ‘09. US Canada South America Europe Asia Pacific Rest of World

Refinery Runs Rebound

Refinery runs for the group increased by 2% quarter-on- Refinery Runs
quarter and by 5% since Q1 ‘10. The bulk of the increase
35,000
came from the US operations of the group, where refinery
30,000
runs increased by 9% on the back of an upturn in demand. The
25,000
most significant increase in refinery throughput was recorded
by Marathon who benefited from a full quarter of operation
(000) b/d

20,000

from their expanded Garyville refinery in Louisiana. The $3 15,000

billion construction project was approved prior to the global 10,000

recession when the outlook for refining margins was still
5,000
strong and added 180,000 b/d when completed at the start of
0
2010. Since the demand crash in 2009 there have been no ma- 11,878 12,274 12,176 11,371 11,541 12,554
jor refinery projects sanctioned in the US with a widespread 1st Qtr 2009 2nd Qtr 2009 3rd Qtr 2009 4th Qtr 2009 1st Qtr 2010 2nd Qtr 2010

medium-term forecast of refinery oversupply in the US. US Europe Rest of World

Trends in Product Sales & Refinery Runs

O il P r o d u c t S a le s 0 0 0 b /d % Chg % Chg R e f in e r y R u n s 0 0 0 b /d % C hg % C hg
C om pany 2 009 2010 2 010 2010 2010 20 09 2010 20 10 2010 20 10

2 n d Q tr 1 s t Q tr 2 n d Q tr vs Q 2 0 9 vs Q 1 10 2 n d Q tr 1 s t Q tr 2 n d Q tr vs Q 2 09 vs Q 1 10
A n a d a r k o P e tr o le u m n /a n /a n /a NM NM n /a n /a n /a NM NM
A p a ch e C o rp . n /a n /a n /a NM NM n /a n /a n /a NM NM
B H P B il lito n n /a n /a n /a NM NM n /a n /a n /a NM NM
B G G ro u p n /a n /a n /a NM NM n /a n /a n /a NM NM
BP 5 750 6097 5 944 3% -3 % 22 69 2428 24 29 7% 0%
C a n a d ia n N a tu r a l R e s o u r c e s n /a n /a n /a NM NM n /a n /a n /a NM NM
C e n o v u s E n e r g y In c . n /a n /a n /a NM NM 2 02 178 1 90 -6 % 7%
C h e s a p e a k e E n e rg y C o rp . n /a n /a n /a NM NM n /a n /a n /a NM NM
C h e v ro n 3 262 3074 3 182 -2 % 4% 18 93 1881 18 71 -1 % -1 %
C o n o c o P h il lip s 3 112 2809 3 044 -2 % 8% 25 68 2312 25 23 -2 % 9%
D e v o n E n e rg y C o rp . n /a n /a n /a NM NM n /a n /a n /a NM NM
E c o p e tro l n /a n /a n /a NM NM 2 92 294 2 97 1% 1%
En Can a n /a n /a n /a NM NM n /a n /a n /a NM NM
EN I 920 906 970 5% 7% 6 70 663 7 03 5% 6%
E O G R e s o u rce s n /a n /a n /a NM NM n /a n /a n /a NM NM
E x x o n M o b il 6 487 6144 6 241 -4 % 2% 52 90 5156 51 92 -2 % 1%
G a z p r o m N e ft 663 712 723 9% 2% 6 45 730 7 00 8% -4 %
H e s s C o rp 455 514 435 -4 % -1 5 % 2 86 250 2 31 -1 9 % -8 %
M a ra th o n 1 371 1355 1 610 17% 19% 9 59 1003 12 29 28% 2 3%
M u rp h y O il 539 479 508 -6 % 6% 2 48 170 2 07 -1 7 % 2 2%
N exe n n /a n /a n /a NM NM n /a n /a n /a NM NM
N o b le E n e rg y n /a n /a n /a NM NM n /a n /a n /a NM NM
N o v a te k n /a n /a n /a NM NM n /a n /a n /a NM NM
O c c id e n ta l n /a n /a n /a NM NM n /a n /a n /a NM NM
OMV 440 448 497 13% 11% 4 54 417 3 85 -1 5 % -8 %
P e tro C h i n a 1 499 1569 1 612 8% 3% 22 41 2393 24 58 10% 3%
P e tro b r a s ( U S G A A P ) 2 460 3169 3 319 35% 5% n /a n /a n /a NM NM
R e p s o l- Y P F 1 228 1156 1 175 -4 % 2% 10 39 961 9 91 -5 % 3%
R o s n e ft 963 953 930 -3 % -2 % n /a n /a n /a NM NM
R o y a l D u tc h S h e l l 6 174 6163 6 615 7% 7% 31 36 2998 32 96 5% 1 0%
S t a to il A S A n /a n /a n /a NM NM n /a n /a n /a NM NM
Su ncor 207 503 542 162% 8% 1 72 406 3 92 127% -3 %
T a lis m a n E n e r g y n /a n /a n /a NM NM n /a n /a n /a NM NM
T o ta l 3 652 3517 3 986 9% 13% 21 75 1993 21 41 -2 % 7%
V a le r o E n e r g y n /a n /a n /a NM NM 23 92 2095 23 37 -2 % 1 2%
W i llia m s C o m p a n ie s n /a n /a n /a NM NM n /a n /a n /a NM NM
L u k o il ( U S G A A P ) 2 144 1980 2 246 5% 13% 13 64 1246 13 66 0% 1 0%
C V R E n e rg y 125 n /a 124 -1 % NM n /a n /a n /a NM NM
G ro u p T o t a l 41 009 41099 43 207 5% 5% 282 97 27573 289 37 2% 5%

© 2010 Evaluate Energy Ltd www.evaluateenergy.com Date: 21st September 2010