Bernstein Energy – Finding...

December 2013

Bernstein Energy – Finding Petroleumgy gFinding Opportunities in the Middle East & Levant

A Forgotten Role In Global Energy Markets?

Oswald Clint PhD, ACASenior Research Analyst

European & Russian Oil & Gas

Rob West, CFASenior Research Associate

European & Russian Oil & GasEuropean & Russian Oil & Gas

Oswald Clint PhD, ACASenior Research Analyst

[email protected] 20 7959 5089

Iain Pyle, CFA, ACASenior Research Associate

[email protected]

Rob West, CFASenior Research Associate

[email protected]

European & Russian Oil & Gas

BernsteinResearch.com

See Disclosure Appendix of this publication for important disclosures and analyst certifications

+44 20 7959 5089 +44 20 7170 0564 +44 20 7170 0589

The Forgotten Role Of OPEC Oil Supply...

690

hes 2004: 3x More

S h F OPEC2013: 3x More

S h F Sh l

4

5

60

70

80

4 (M

bpd)

ogle

Sea

rch Searches For OPEC

Than ShaleSearches For Shale

Than OPEC

2

3

30

40

50

h Si

nce

2004

mbe

r of G

oo

0

1

2

0

10

20

30

Gro

wth

Rel

ativ

e N

um

00

Jan-

04M

ar-0

4Ju

n-04

Sep-

04D

ec-0

4Fe

b-05

Ma y

-05

Aug-

05N

ov-0

5Ja

n-06

A pr-

06Ju

l-06

Oct

-06

Dec

-06

Mar

-07

Jun-

07Se

p-07

Dec

-07

Feb-

08M

a y-0

8Au

g-08

Nov

-08

Jan-

09A p

r-09

Jul-0

9O

ct-0

9D

ec-0

9M

ar-1

0Ju

n-10

Sep-

10N

ov-1

0Fe

b-11

May

-11

Aug-

11O

ct-1

1Ja

n-12

Apr-

12Ju

l-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13N

ov-1

3R

New Supply from OPEC New Supply from US Shale

Google Searches for Shale Google Searches for OPEC

BernsteinResearch.com 1

Source: Google Trend, IEA, EIA, HPDI, Bernstein Estimates

All but three OPEC countries receive a lower share of news coverage than their global share of production – Iraq, Nigeria and Libya

16.0%

USA12.0%

14.0%

RussiaChina

Norway8.0%

10.0%

New

s Fl

ow

IraqBrazil

AustraliaIndia

CanadaUKItaly2 0%

4.0%

6.0%

% o

f N

Libya Saudi ArabiaIranOther Opec

Countries

y

Mozambique

2 0%

0.0%

2.0%

-2.0%-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

% of Global Oil and Gas Production


Source: Company Reports, Bernstein Estimates

A Portrait of a Hydrocarbon Exporter: The Middle East Has 73-years of oil reserves and 150-years of gas reserves, producing 3x its oil demand levels

56%

% % %

60%

46%51

%

44%

51%

44%

%

51%

44%50%

l

26%

%

27%

25%

26%

36%

27%

28%

30%

40%

Glo

bal T

otal

% 10%

9%

19%

%8%

13%

11%

%9%

16%

13%

8%9%

15%

12%

9%

20%% o

f G

7%

9 8%8 89 89 9

0%

10%

Oil Reserves Oil Production Oil Demand Gas Gas GasDemand LNG Supply RefiningOil Reserves Oil Production Oil Demand Gas Reserves

Gas Production

GasDemand LNG Supply Refining Capacity

2003 2008 2013 2018


Source: BP Stat Review, IEA, Company Reports, Bernstein Estimates

The Middle East Represents Just One-Eight of the Global Majors’ Portfolios

100%

80%

Reg

ion

Offshore Gas, 24.7%

60%

tion

With

in

Onshore Gas, 14.1%

Offshore Oil,

20%

40%

% o

f Pro

duct

,35.8%

Onshore Oil, 25.5%

0%

20%

st a U % a a % e % c

%

Mid

dle

Eas

12.4

%

Nor

th

Amer

ica

15.3

%

FSU

9.7%

Latin

Am

eric

a16

.6%

Afric

a17

.4%

Euro

p16

.7%

Asia

Pac

ific

11.9

%



Countries in the Middle East Have Average “Total Fiscal Takes” of 85% versus a global average of 71%

IRANIRAQ100%

PSC SAUDI

UAE, QAT

SYRIA

YEM70%

80%

90%Royalty / Tax Non‐OECD

Royalty / Tax OECD RUSSIANORWAY

SAUDI ARABIA

Oman

50%

60%

70%

Take

(%) Middle East

US

CANADA

CHINA

30%

40%

Fiscal CHINA

10%

20%

0%0 1 10 100 1,000 10,000 100,000

2012 Hydrocarbon Production (kboed)


Source: Company Reports, IEA, Bernstein Estimates

The Majors’ Exposure In the Middle East Is Dominated By Gas (And Condensate) in Qatar and BP/Exxon/Shell/TOTAL’s UAE JV

9001,000

st

500600700800900

s M

iddl

e Ea

sn

(kbo

ed)

200300400500

obal

Maj

ors

Prod

uctio

n

0100

ar eG

as

quid

s

quid

s

quid

s

n quid

s

quid

s

one

quid

s

E eGas

E eGas

en

eGas

n quid

s

an

eGas

quid

s

Gl o

Qat

aO

ffsho

r

UAE

O

nsho

reLi

q

UAE

O

ffsho

reLi

q

Qat

ar

Offs

hore

Liq

Om

anO

nsho

reLi

q

Iraq

Ons

hore

Liq

Neu

tral Z

oO

nsho

reLi

q

UAE

Offs

hor

UAE

Ons

hor

Yem

eO

nsho

r

Yem

enO

nsho

reLi

q

Om

aO

nsho

r

Qat

ar

Ons

hore

Liq

ExxonMobil BP Shell Chevron Total ConocoPhillips Eni

Petrobras Statoil BG Tullow Oil Premier Oil Repsol Galp



Petrobras Statoil BG Tullow Oil Premier Oil Repsol Galp

Clear winners in a year of exceptionally high dispersion...

.2%175%

Performance By Sector and Geography from 01-Jan-13 to 09-Dec-1314

1

125%

150%

e

7.6%

% % % % 8% %50%

75%

100%

Perfo

rman

ce

37

24.8

22.2

%

21.5

%

19.1

%

16.4

%

14.1

%

12.2

%

10.7

%

10.1

%

1.5%

1.4% 4.7%

26.8

14.4

%

11.2

%

20.8

%

0%

25%

50%P

-1.3

%

-4.5

%

-6.8

%

-7.5

%

-10.

6%

-11.

7%

-12.

9%

-19.

8%

30.8

%

31.0

%

-4.1

%

-50%

-25%

-3 -3

-75%

DN

O

Gen

el

Afre

n

BG

Con

oco

Rep

sol

Nov

atek

Che

vron BP

Exx

on

TOTA

L

Cai

rn

Sta

toil

Gal

p

She

ll

Eni

Luko

il

Gaz

prom

Pre

mie

r

Lund

in

Ros

neft

Cob

alt

Tullo

w

Bre

nt

SP

X

SD

LE15

EF

Inde

x

TSE

100

CI W

orld


C G M

MX

E FT

MS

Source: Bloomberg, Bernstein Estimates

Kurdistan Still has an c90% total fiscal take, but nevertheless leaves $5-6/boe of net income after relatively low, $1-2/boe of upfront capex/boe

Taq Taq - Kurdistan PSC ModelResources 822 Mboe 4 000

5,000

6,000

7,000

s ($

M)

Resources 822 MboePeak Oil Production Target 200 kbpdBrent Oil Price 90 $/bblInternational Discount / Premium to Brent 1% percentInternational Realization Oil Price 90.9 $/bblDomestic Oil Price 60.3 $/bbl -1,000

0

1,000

2,000

3,000

4,000

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0

Net

Cas

h Fl

ow

Decline Rate 10% /yearGas Oil Ratio 10% percentGas Price Assumption 4.0 $/mcfCentral Processing Facility Size 100 kbpdCentral Processing Facilities Required 2 #C t P C t l P i F ilit 290 $M

201

2012

2013

2014

2015

2016

2017

2018

2019

2020

202

2022

2023

2024

2025

2026

2027

2028

2029

2030

Net Cash Flow Capex Production Cost Royalty Cost Transportation Cost KRG Carry PSC Take Concession Tax

90%

100%

Cost Per Central Processing Facility 290 $MFacility Cost 2.9 $M/kbpdProduction Per Well 10 kbpdWell Cost 8.0 $M/wellLifting Costs 3.1 $/bblTrucking Costs 16 8 $/kboe/km

35.7 43.2 49.2 54.9 56.0 57.0 57.0 57.060%

70%

80%

90%

and

Inco

me

Trucking Costs 16.8 $/kboe/kmPipeline Transportation Cost 0.3 $/bblPipeline Construction Cost 1.8 $M/kmRecoverable Capex per barrel 1.3 $/boeRoyalty Rate 10% percentKRG Stake 25% percent

5.56.2 6.9 7 6 7 7 7 9 7 9 7 9

20%

30%

40%

50%

Shar

e of

Cos

t a

KRG Stake 25% percentIncome Tax Rate 15% percentCapacity Charge 30% percentDiscount Rate 10% percentNPV 2,210 $MNPV/boe 2.69 $/boe

5.8 5.1 5.4 5.8 5.9 6.0 6.0 6.0

3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1

6.9 7.6 7.7 7.9 7.9 7.9

0%

10%

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

NI / boe Production Cost Royalty Cost Transportation Cost KRG Carry Concession Tax PSC Take Other


y y p y

Five of the world’s top 10 regions of undiscovered resource are in the Middle East

200,000Mbo

e Mean Undiscovered Resources By Region - Top 10 Regions (Mboe)

I i lA ibili

140,000160,000180,000200,000

sour

ces

-M International Accessibility

Low High

80,000100,000120,000

ocar

bon

Res

20,00040,00060,000

ered

Hyd

ro

0

Sib

eria

n Ba

sin

ali B

asin

Fold

Bel

t

pota

mia

n ee

p Ba

sin

ger D

elta

nlan

d R

ift

asin

s

r Gha

war

pl

ift

Cas

pian

as

in

t Cen

tral

stal

Afri

ca

Cas

pian

as

in

Und

isco

v e

Wes

t B

Rub

Al K

h

Zagr

os

Mes

o pFo

rede Nig

Gre

en Ba

Gre

ater Up

Sout

h Ba

Wes

tC

oas

Nor

th B


Source: USGS, IEA, Bernstein Estimates

The Middle East’s 73-years of oil reserves are 1.5x higher than the global average and 3x the non-OPEC average of 26-years

299

1000

ars)

World Top 50 Oil Producers: Reserves:Production Ratios14

013

697 96 92 81 65 54 45 41 41 41 39 37 36 4 3 2

100

n R

atio

(Yea

4 4 4 3 3 3 34 33 32 28 24 22 22 21 21 21 19 19 19 19 19 18 18 18 17 17 16 16 15 12 11 11 10 10 9 8 7 610Prod

uctio

n

6

Res

erve

s:

1

enez

uela

Iraq

Can

ada

Kuw

ait

Iran

Liby

aEm

irate

sdi

Ara

bia

tal W

orld

zakh

stan

Nig

eria

Gab

onSu

dan

Qat

arVi

etna

mC

had

Italy

Ecua

dor

Yem

enM

alay

sia

eder

atio

nPe

ruAu

stra

liaAn

gola

S yria

zerb

aija

nAl

geria

zbek

ista

nBr

azil

Rom

ania

al G

uine

aIn

dia

Brun

eiC

ongo

Om

an&

Toba

go US

Egyp

tTu

nisi

and

ones

iaAr

gent

ina

Mex

ico

Den

mar

kC

hina

Nor

way

men

ista

nKi

ngdo

mC

olom

bia

Ve

Uni

ted

Arab

Sa

udTo

tKa

z MR

ussi

an F

e A

Az Uz R

Equa

toria

Trin

idad

& In A D

Turk

mU

nite

d C


U

Source: BP Stat Review, IEA, Company Reports, Bernstein Estimates

The Middle East Countries Have Some of the Most “Low Maintenance” Resources Globally, As Defined By The Required Rig Counts

140

116

10095

88100

120

rage

)

88 87

80

g (T

TM A

ve

4641

240

60

kbpd

per

rig

27

126

20

k

0Saudi Arabia

UAE Norway Qatar Kuwait UK Iraq Mexico Russia US


Source: Baker Hughes Rig Count, IEA, Bernstein Analysis

The Marginal Cost of Supply is the best predictor of oil prices justified by the fundamentals and was c$105 / barrel in 2012

Marginal Cost of Supply Curve

140

104.5

120

1402012 2011

HSECHK APC

92.3

80

100

ost (

$/bb

l)

BG

INPEX

IMO, REP

40

60

Mar

gina

l Co

M OR A R PC I P EX

XY

20

40

XOM

CEOST

L

PBR

CVX

RD

SA

PTR

TOT

CO

P

BP

ON

GC

EN SN

PEMO

X

00 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000

Oil Production (mbd)



The industry needs this level of oil prices to just break-even

10YrUS$/boe 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CAGR Y-o-YWTI 25.96 26.17 31.06 41.51 56.59 66.09 72.23 99.92 61.99 79.51 95.05 94.10 14% -1%Brent 24.40 25.02 28.87 38.32 54.51 65.42 72.71 97.69 62.04 79.73 111.05 111.94 16% 1%

Revenue 14.35 15.66 19.57 28.62 38.20 44.86 48.70 60.91 40.91 52.44 67.64 68.26 16% 1%Realization Spread 10.05 9.36 9.30 9.70 16.31 20.56 24.01 36.78 21.13 27.29 43.41 43.68 17% 1%Realization as % of Brent 59% 63% 68% 75% 70% 69% 67% 62% 66% 66% 61% 61%

Production Costs 3.52 3.96 4.72 6.02 7.60 9.00 10.39 16.65 13.21 16.60 21.51 22.64 19% 5%Exploration Expense 0.63 0.62 0.68 0.82 0.91 1.27 1.69 1.91 1.85 1.80 2.05 2.53 15% 23%DD&A 2.61 3.37 3.55 4.54 5.06 6.04 7.17 8.75 8.39 9.32 10.23 11.84 13% 16%SG&A & Other 0.54 0.87 0.73 1.10 1.72 1.56 1.90 2.41 2.18 2.02 3.04 2.66 12% -12%Unit Costs 7.30 8.82 9.68 12.48 15.30 17.87 21.16 29.72 25.63 29.73 36.84 39.67 16% 8%

Income Tax 2.97 2.95 3.90 8.56 11.99 14.06 14.54 14.45 6.88 10.42 13.94 13.44 16% -4%Implied CT Rate 42% 43% 39% 53% 52% 52% 53% 46% 45% 46% 45% 47%Net Income 4.08 3.89 5.99 7.58 10.91 12.93 13.00 16.74 8.40 12.29 16.86 15.15 15% -10%Net Income Margin 28% 25% 31% 26% 29% 29% 27% 27% 21% 23% 24.9% 22.2%

Organic F&D Costs 5.11 5.79 6.55 10.26 12.67 13.31 16.43 20.01 10.92 16.70 15.44 22.28 14% 44%Reserve Replacement Ratio 107% 136% 113% 97% 95% 121% 87% 90% 149% 101% 147% 109%Recycle Ratio 143% 136% 156% 126% 133% 152% 133% 137% 171% 140% 189% 133%

Cash Flow (Pro-Forma) 7.32 7.89 10.22 12.94 16.89 20.23 21.87 27.41 18.64 23.40 29.15 29.53 14% 1%Capex 6.72 9.24 8.38 10.59 14.20 18.82 19.37 24.21 18.95 26.76 26.76 28.60 12% 7%Capex/DD&A 2.57 2.74 2.36 2.33 2.80 3.12 2.70 2.77 2.26 2.87 2.61 2.41Free Cash Flow 0.60 (1.35) 1.84 2.35 2.69 1.41 2.50 3.19 (0.31) (3.36) 2.39 0.92 -7% -61%Re-Investment Ratio 92% 117% 82% 82% 84% 93% 89% 88% 102% 114% 92% 97%

Maginal Cost of Production 25.30 29.50 36.27 45.17 57.55 54.39 63.81 96.14 67.80 83.23 92.26 104.52 13% 13%Cash Cost of Production 9.69 9.72 12.45 15.00 21.66 23.04 24.35 32.36 24.02 28.87 39.65 44.20 16% 11%

WTI/ Marginal Cost 1.03 0.89 0.86 0.92 0.98 1.22 1.13 1.04 0.91 0.96 1.03 0.90WTI/ Unit Cost 3.56 2.97 3.21 3.33 3.70 3.70 3.41 3.36 2.42 2.67 2.58 2.37Brent/ Marginal Cost 0 96 0 85 0 80 0 85 0 95 1 20 1 14 1 02 0 92 0 96 1 20 1 07


Source: Bloomberg, Bernstein analysis and estimates

Brent/ Marginal Cost 0.96 0.85 0.80 0.85 0.95 1.20 1.14 1.02 0.92 0.96 1.20 1.07Brent/ Unit Cost 3.34 2.84 2.98 3.07 3.56 3.66 3.44 3.29 2.42 2.68 3.01 2.82

Mature regions have seen vast numbers of wildcats, near-constant drilling...


Source: IHS, Petroleum Atlas, Company Reports, Bernstein Estimates

“Negligible” exploration occurred in 2005-2010 in core OPEC countries


Source: IHS, Petroleum Atlas, Company Reports, Bernstein Estimates

5,000 wildcats in the Middle East have had an average success rate of 33%, which is well above the global average success rate of 27%

35%30000

Total Wells (1900-2010) Success Rates (%) 1400

d Pe

r

25%

30%

35%

25000

30000

dcat

s

1000

1200

Dis

cove

red

15%

20%

25%

15000

20000

ess

Rat

e (%

)

mbe

r of W

ild

600

800

Res

ourc

es D

Dis

cove

ry

5%

10%

15%

5000

10000 Succ

e

Num

200

400

n A

vera

ge R

0%

5%

0

5000

Eas

t

C.I.

S.

Afric

a

eric

a

East

alas

ia

rope

h a (e

x-)

0

200

East

.I.S.

frica

eric

a

East

asia

rope

Mea

n

Mid

dle C A

Latin

Am

e

Far

Aust

r a Eu

Nor

tAm

eric

aU

S)

Mid

dle

E C A f

Latin

Am

e

Far E

Aust

ral

Eur


World Energy Usage – c13Bn Toe, 29% coal, 31% oil, 21% gas


Source: IEA, Company Reports, Bernstein Estimates

Middle East Energy Usage – 47% oil, 52% gas


Source: IEA, Company Reports, Bernstein Estimates

Hence our oil price forecasts are calculated as a multiple of marginal cost, driven by OPEC effective spare capacity as per the historical relationship

1 1

1.2

1.3

7%

8%

9%

(Rat

io)

man

d (%

) R‐Squared = 70%

0.9

1.0

1.1

4%

5%

6%

argi

nal C

ost

As

a %

of D

em

0.6

0.7

0.8

1%

2%

3%

Oil

Pric

e / M

a

e C

apac

ity A

0.50%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

WTI

O

Spar

e

Spare Capacity % of Demand WTI / Marginal Cost


Source: IEA, Bernstein Analysis

“OPEC Spare Capacity” today is really “Saudi Arabian Spare Capacity”?

7

5

6

Mbp

d)

3

4

Capa

city

(M

1

2Spar

e

0

1

-08

r-08

y-08 -08

-08

-08

-09

r-09

y-09 -09

-09

-09

-10

r-10

y-10 -10

-10

-10

-11

r-11

y-11 -11

-11

-11

-12

r-12

y-12 -12

-12

-12

-13

r-13

y-13 -13

-13

Jan

Ma r

May Ju

lS

e pN

ov Jan

Ma r

May Ju

lS

e pN

ov Jan

Ma r

May Ju

lS

e pN

ov Jan

Ma r

May Ju

lS

e pN

ov Jan

Mar

May Ju

lS

e pN

ov Jan

Ma r

May Ju

lS

e p

Saudi Arabia Nigeria UAE Angola Iran Algeria Ecuador Kuwait Libya Qatar Venezuela Iraq


Source: IEA, Bernstein Analysis & Estimates

20

Oil Production Forecasts By Country

Neutral Syria1%

Yemen1%35%35

Qatar3%

Zone2% Oman

4%

1% 1%Other

1%30%

35%

25

30

35

al (%

)

untr

y (M

bpd)

Saudi Arabia

UAE11%

20%

25%

10

15

20

of G

loba

l Tot

a

ctio

n B

y C

ou

41%

Kuwait10%10%

15%

0

5

10

4 5 6 7 8 9 0 2 3 4 5 6 7 8 9 0 2 3 4 5 6 7 8 9 0 2 E E E E E E E E

% o

Oil

Prod

uc

Iran13%

Iraq13%

1984

1985

1986

1987

1988

1989

1990

1991

199 2

1993

1994

1995

1996

1997

1998

1999

2000

2001

200 2

2003

2004

2005

2006

2007

2008

2009

2010

2011

201 2

2013

E20

14E

2015

E20

16E

2017

E20

18E

2019

E20

20E

Saudi Arabia Iran IraqKuwait UAE QatarKuwait UAE QatarNeutral Zone Oman SyriaYemen Other % of World Supply


Source: IEA, BP Stat Review, Bernstein Estimates

Barriers to ramping back up?

140 0%

Our Iraqi production forecast is just 6.1Mbpd by 2020

Iranian Carbonates Decline Rapidly Without EOR

10

12

)

-5.0%

0.0%

e Per

Wel

l

Median =

UpperQ =

Lower Qu

6

8

duct

ion

(Mbp

d

-15.0%

-10.0%

ual D

eclin

e Rat

e ‐25.4% declin

‐18.4%

uartile = ‐30.45 7 3.

1 3.6 4.

1 4.4 4.6 4.9 5.

2 5.6 6.

1

2

4Iraq

Prod

-20.0%

Aver

age A

nn

ne 4%2.

52.

1

1.3 2.

01.

8 2.0 2.1 2.4

2.4

2.5 2.7 3

0

2

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020 -30.0%

-25.0%

SCB Base CaseIEA Projections (2012)Rystad Energy (2012)Wood Mac (2011 Forecasts)Iraq Revised Target (2012)Iraq Original Target - Signed PSCs

-35.0%

SIAG

06

SIAH

03

SIAG

03

SIAH

02

SIAG

02

SIAH

01

SIAG

01

SIAG

04

SIAH

06

SIAH

04

SIAH

05


Source: IEA, Rystad Energy, Wood Mackenzie, News Reports, Bernstein Analysis; Taheri & Sajjadian, 2006. Use of Reservoir Simulation for Optimizing Recovery Performance of One of Iran's Oil Fields

Iraq Original Target Signed PSCs

22

While prices falling into the low 90s $/bbl Brent increases the proportion of OPEC countries approaching budget deficits forcing widespread cuts

60%

% of World Supply From Oil Producing Countries (OPEC + Russia) In Deficit

201350%

60%

ply

(%) World Supply from OPEC + Russia

Cuts ?2013

30%

40%

rld O

il Su

p

Deficit Surplus

Cuts ?

201220%

30%

rtio

n of

Wo

0%

10%

Prop

or

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

102

104

106

108

110

112

114

116

118

120

122

124

126

128

130

132

134

136

138

140

Brent Oil Price ($/bbl)


Source: IMF, IEA, Bernstein Estimates

Our oil price forecasts are well above the forward curve

180

$142

$153 $160

$146$153

140

160

($/b

bl)

$111 $109 $110 $111 $113 $120

$128

$121

$135

$146

120

140

e Fo

reca

sts

(

$80 $95 $94 $96

$101 $103 $111

100

Oil

Pric

e

$80

$96

60

80

2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Brent Crude ($/bbl) WTI Crude ($/bbl) Forward Curve Brent ($/bbl) Forward Curve WTI ($/bbl)


Source: Bloomberg, Bernstein Analysis

Disclosure AppendixDisclosure Appendix


Valuation Methodology – European Integrated Oils

Our target prices for the European Integrated Oils are calculated by applying our estimates for 2013 cashflow per share (CFPS) to a forward price-to-cashflow (P/CF) multiple. This P/CF multiple is generated through the relationship, and historically strong correlation, between 12 month forward P/CF multiples and Return on Average Capital Employed (ROACE) within the Integrated Oils group Our calculation utilizes this relationshipAverage Capital Employed (ROACE) within the Integrated Oils group. Our calculation utilizes this relationship and an estimated long term, through the cycle ROACE to generate the target P/CF multiple. We use $110/bbl Brent and $4.25/mcf for US gas in 2013 and $111/bbl Brent and $4/mcf Henry Hub in 2014.


Valuation Methodology – European E&P’s Our target prices for the European Integrated Oils are calculated by applying our estimates for 2013 cashflow per share (CFPS) to a forward

price-to-cashflow (P/CF) multiple. This P/CF multiple is generated through the relationship, and historically strong correlation, between 12 month forward P/CF multiples and Return on Average Capital Employed (ROACE) within the Integrated Oils group. Our calculation utilizes this relationship and an estimated long term, through the cycle ROACE to generate the target P/CF multiple. We use $110/bbl Brent and $4.25/mcff US i 2013 d $111/bbl B t d $4/ f H H b i 2014

Our price targets for the European E&Ps are set using Net Asset Valuation models assuming a long term real oil price of $90/bbl.Exploration potential from the next 12 months worth of drilling activity is also captured by risking each company identified prospect based on basin location and historical trends for wildcat exploration.

for US gas in 2013 and $111/bbl Brent and $4/mcf Henry Hub in 2014.

Our price target for GALP is based on a Sum-of-the-Parts valuation. We value the Upstream production assets using DCFs and a long term real oil price of $90/bbl; we value exploration on a risked basis as for E&Ps; forward P/E multiple and DCFs are used to value Refining & Marketing; and DCFs are used for Gas & Power.

GALP Net Reserves ValuationSummary Country Total NPV NPV NPV/share

EV M Boe $M EUR M EUR/share

Upstream Production 116 1,936 1,434 1.73Development 1997 9,816 7,271 8.77Exploration 551 2157 1598 1.93

Downstream R&M - Spain and Portugal 4,582 3,394 4.09

Gas & Power Spain and Portugal 3,835 2,840 3.43

Associates 648 480 0.58

Net Debt (End 2012 E) (243) (180) (0.22)

Minority Interest (1,537) (1,139) (1.37)


Equity value 2,664 21,193 15,699 19.00

Source: Bernstein estimates

Valuation Methodology – European E&P’s (cont’d)

We value R

Net A

sset Vsegm

ents w

UpstreamC

ountry / Blo

Producing / Under D

eC

alculated based on DC

Europe

Trinidad & Tob aS

outh America

North Am

ericaA

frica

Brazil

Identified FieldsB

M-S

-9B

M-S

-9B

M-S

-9B

M-S

-9B

M-S

-9B

M-S

-7B

M-S

-48B

M-S

-48B

M-C

-33B

M-C

-33B

M-S

-44

Brazil ExplorationTotal B

razil JV

Other Identified Explo

LiberiaP

eruC

olumbia

Alaska

Algeria

Kazakhstan

US TO

TALIrelandN

orway

Norw

ayN

orway

Mauritania

Angola P

re-SaltE

ast Canada

East C

anadaLibyaK

urdistanK

urdistanN

amibia

Other Exploration

Total Upstream

Other Segm

ents

LNG

Refining &

Chem

icalsM

arketingG

as Natural Fenosa

Net D

ebtC

orporate Costs

YPF Investment

YPF Com

pensationM

inority Interests

Repsolon a su

Valuation, using

we apply long t

ockField

velopment Assets Excludi n

CF

ago(E

xcluding Brazil)

Carioca

Sapinhoa

Abare W

estIguaçu N

orteA

bareP

iracucaV

ampira

Panoram

ixP

ao de AcucarG

aveaS

agitario

orationLB-10B

lock 57 (x3)JaripeoN

orth Slope (x2)S

E IlliziA

daiG

oM P

rospectsD

unquinB

onnaB

rattholmen

Imsa

TA-10 Block

t3 W

ellsC

upidsM

argareeN

C 186 / N

C 115

Piram

agrunQ

ala Dze

License 0010

Methodology

Assum

e no value follos

DC

F with 10%

discounD

CF w

ith 10% discoun

Current Enterprise Va

End 2013 estim

ate, asM

ultiple of 2014 cost eM

arket value of 11.9%A

ssume $5B

n value oB

ook Value at YE 201 um

of the parts g a $90/bbl reaterm

average P

Stake

Gross

Reserves (M

boe)

ng Brazil15%

89315%

2,95315%

58715%

40015%

10022%

64524%

6724%

021%

50021%

30015%

3006,745

10%200

54%250

30%150

70%150

26%50

30%500

Var.940

25%1700

40%100

50%100

30%100

70%50

25%1000

25%250

20%250

82%200

100%150

80%150

44%496

owing sale to Shell

nt factor.nt factor.

alue02/12/2013

ssuming LN

G sale

estimate

% stake

of bonds for compensation

2

basis. For the al long term

oil P

E ratios

Net

Reserves (M

boe)R

isk

Net

Re(

134100%

443100%

88100%

60100%

15100%

14270%

1670%

070%

105100%

63100%

45100%

1,111

40020%

2010%

13520%

4520%

105100%

13100%

15010%

48620%

4250%

400%

500%

3015%

3520%

25020%

6315%

5015%

16420%

15020%

12020%

2185%

Upstream

busiprice. For the o

t Risked

eserves M

boe)N

PV per boe ($)

( U

1344.7

4438.2

884.6

603.7

153.7

994.6

112.5

02.5

1054.6

634.6

454.6

1,0646.0

805.0

24.0

273.0

96.0

1058.0

12.92.5

156.0

508.0

02.0

05.0

05.0

55.0

72.5

506.0

96.0

86.0

332.0

302.5

242.5

114.0

2013 Earnings (EU

Rm

)M

-400

Total SOTP Valu iness w

e use aother business

NPV

USD

M)

NPV

(EUR

M)

NPV(E

136101

5,0113,712

4,7713,534

4,1263,056

2,6971,998

16,74012,400

634470

3,6112,674

405300

222164

5641

457339

2821

00

483358

290215

207153

6,3924,735

400296

86

8160

5440

840622

3224

9067

396294

00

00

00

2317

1813

300222

5642

4533

6649

7556

6044

4432

1,620

PE M

ultipleValuation (EU

Rm

)Valuashare

0-515

5,84010,220

-8,05210x

-4,0001,9043,704-741

ation


a


V/Share EU

R)0.082.852.712.351.53

9.51

0.362.050.230.130.030.260.020.000.270.160.123.63

0.233.86

0.000.050.030.480.020.050.230.000.000.000.010.010.170.030.030.040.040.030.02

1.24

14.62

ation per e (EU

R)

0.00-0.404.487.84

-6.18-3.071.462.84

-0.57

21.00

Valuation Methodology – European E&P’s (cont’d)BG NAV

BG NAV Model

mcf/boe conversion factor 6.0

Our price target for BG is also based on a Sum-of-the-Parts valuation so that we capture the value from two key assets, namely, the Brazilian

Country Regime Oil Gas Total NPV10 ($90/bbl) NPV NPV NPVMbbls Bcf Mboe $/boe $M £M £/share

Brazil Lula 1,913 338 2,250 7.5 16,914 11,127 3.26Brazil Cernambi 660 116 776 6.6 5,070 3,336 0.98Brazil Sapinhoa 728 129 857 7.2 6,301 4,145 1.22Brazil Carioca 897 158 1,056 4.2 4,295 2,825 0.83Brazil Iara 1,026 181 1,208 3.6 4,114 2,707 0.79y , y,

Santos Basin reserves and the Australian coal-bed methane-to-LNG assets

Australia 0 8,616 1,436 9,790 6,441 1.89Concession LNG 0 7,986 1,331 7.0 9,317 6,129 1.80Concession 0 631 105 4.5 473 311 0.09

UK Concession 197 1,236 403 15.0 6,054 3,983 1.17Kazakhstan PSC 358 2,409 759 4.8 3,643 2,397 0.70Egypt PSC 22 3,249 564 4.4 2,480 1,631 0.48Tunisia Concession 31 752 156 10 0 1 564 1 029 0 30

More specifically, we use DCF's to value the Upstream assets using a long term real oil price of $90/bbl; forward price-to-earnings multiple for

Tunisia Concession 31 752 156 10.0 1,564 1,029 0.30US Shale Gas Concession 5 2,713 457 2.4 1,097 722 0.21

Trinidad 13 2,181 376 4.2 1,730 1,138 0.33PSC 7 2,011 342 4.7 1,606 1,057 0.31Concession 6 171 34 3.6 123 81 0.02

Thailand Concession 12 648 120 12.4 1,488 979 0.29India PSC 26 278 72 10.2 735 483 0.14forward price to earnings multiple for

LNG business; and utility multiples to value the downstream power and transmission businesses.

Bolivia PSC 30 682 144 4.0 575 378 0.11Norway Concession 90 104 107 6.0 644 424 0.12Algeria PSC 0 157 26 2.4 63 41 0.01

Total 10,766 66,554 43,785 12.84

ResourcesAustralian CBM 0 11,385 1,898 4.5 8,539 5,618 1.65Brazil (Parati Corcovado Abare West) 300 0 300 3 5 1 050 691 0 20Brazil (Parati, Corcovado, Abare West) 300 0 300 3.5 1,050 691 0.20US Shale Gas 0 5,787 964 2.4 2,315 1,523 0.45

Risked ExplorationGlobal 4,583 2.0 9,166 6,030 1.77

Total 18,511 87,623 57,647 16.91

Upstream DCF 87,623 57,647 16.9



p , ,LNG Business (Includes Liquefaction) EV/EBITDA Multiple 18,996 12,497 3.7Net Debt -11,856 -7,800 -2.3Market Value 94,763 62,344 18.00

Valuation Methodology – Russian Oil & Gas

We use DCF valuations to determine our price targets, incorporating WACC rates ranging from 12-15% and terminal growth rates ranging from 0% to 3%

DCF CUR WACC Terminal Growth

Target Price

Ga prom $ 12 9% 1 0% 12 0Gazprom $ 12.9% 1.0% 12.0Novatek $ 11.7% 3.0% 137.0Rosneft $ 12.7% 1.0% 7.3Lukoil $ 13.4% 1.0% 57.0SurgutNG $ 14.5% 1.0% 8.0SurgutNG $ 14.5% 1.0% 8.0



Risks

Oil prices forecasts are heavily dependent on GDP expectations. As such, should GDP be stronger than expected or weaker than expected it could materially change the outlook for oil demand and prices and for the cash flow generation of the peer group. In addition supply disruptions caused by weather or terrorism remain a material risk and would place further upward pressure on pricing. The greatest risk to our target prices is a significant decline in crude oil prices, as these stocks commonly trade in line with commodity prices. Additionally, downward revisions to production volume targets could adversely impact share y y p y, p g y pprices. For the European Majors, the greatest risk to our target prices is a significant decline in crude oil prices, as the Majors commonly trade in line withcommodity prices. Additionally, downward revisions to production volume targets could adversely impact share prices.

For BG specifically unsuccessful pilot test results or delays associated with the Brazilian Lula sub-salt wells, material delays to the ramp up of production from Brazilian fields and further cost increases for Australian CBM-LNG.

For GALP specifically further weakness in European refining margins represent a key risk. Unsuccessful pilot test results or delays associated with the Brazilian Lula development would also impact the shares.

Risks to our Statoil price target include: further weakness in oil prices given the high correlation with the E&P stocks and oil prices, and unsuccessful exploration results in the Barents Sea and the Ultra Deepwater Gulf of Mexico Failure to meet production guidance would also materially impact theexploration results in the Barents Sea and the Ultra Deepwater Gulf of Mexico. Failure to meet production guidance would also materially impact the company's shares due to the weaker than average historical performance.

For Repsol, specific risks to our rating include: delays to the company's major Upstream projects and resultant cost increases; potential downgrades of the credit rating; further weakness in the European refining & marketing environment; any political change affecting the company's Venezuelan projects.

Specific risks to our Tullow price target include unsuccessful exploration holes offshore in the Atlantic and in Uganda given the high implied market expectations for continued exploration success in the region. Additionally, downward revisions to production volume targets or delays to production increases in Ghana & Uganda would also adversely impact the share price.

Risks to our Premier price target include further weakness in oil prices given the high correlation with the E&P stocks and oil prices, and exploration success providing a material transformational discovery, which would make the company more attractive relative to peers.

Risks to our Cairn price target include further weakness in oil prices given the high correlation with the E&P stocks and oil prices. Furthermore, underlying negative performance in Cairn India, dry well catalysts and additional acquisitions all present risks

Russian equities fall into the emerging market (EM) category and are therefore sensitive to the risks associated with EM economies such as currency


Russian equities fall into the emerging market (EM) category and are therefore sensitive to the risks associated with EM economies such as currency devaluation, debt default and political risk, all of which could materially alter the outlook for the companies.


Disclosure Appendix

Disclosure Appendix

SRO REQUIRED DISCLOSURES

References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited, and Sanford C. Bernstein (business registration number 53193989L) it f Alli B t i (Si ) Ltd hi h i li d tit d th S iti d F t A t d i t d ith C R i t ti N 199703364C ll ti l53193989L), a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C, collectively.

Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration, productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to, generating investment banking revenues.

Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for stocks listed on the U.S. and Canadian exchanges, versus the MSCI Pan Europe Index for stocks listed on the European exchanges (except for Russian companies), versus the MSCI Emerging Markets Index for Russian companies and stocks listed on emerging markets exchanges outside of the Asia Pacific region, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-Japan) exchanges - unless otherwise specified. We have three categories of ratings:

Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.

Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.

Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead.

Not Rated: The stock Rating, Target Price and estimates (if any) have been suspended temporarily.

As of 06/11/2013, Bernstein's ratings were distributed as follows: Outperform - 38.4% (0.9% banking clients) ; Market-Perform - 49.0% (0.4% banking clients); Underperform - 12.6% (0.0% banking clients); Not Rated - 0.0% (0.0% banking clients). The numbers in parentheses represent the percentage of companies in each category to whom Bernstein provided investment banking services within the last twelve (12) months.

Accounts over which Bernstein and/or their affiliates exercise investment discretion own more than 1% of the outstanding common stock of the following companies BG/.LN / BG Group PLC, PMO.LN / Premier Oil PLC, TLW.LN / Tullow Oil PLC, BP/.LN / BP PLC, RDSA.LN / Royal Dutch Shell PLC, RDSA.NA / Royal Dutch Shell PLC, RDSB.LN / Royal Dutch Shell PLC, RDSB.NA / Royal Dutch Shell PLC.

The following companies are or during the past twelve (12) months were clients of Bernstein, which provided non-investment banking-securities related services and received compensation for such servicesThe following companies are or during the past twelve (12) months were clients of Bernstein, which provided non investment banking securities related services and received compensation for such services BP / BP PLC, BP/.LN / BP PLC.

An affiliate of Bernstein received compensation for non-investment banking-securities related services from the following companies BP / BP PLC, BP/.LN / BP PLC.

This research publication covers six or more companies. For price chart disclosures, please visit www.bernsteinresearch.com, you can also write to either: Sanford C. Bernstein & Co. LLC, Director of Compliance, 1345 Avenue of the Americas, New York, N.Y. 10105 or Sanford C. Bernstein Limited, Director of Compliance, 50 Berkeley Street, London W1J 8SB, United Kingdom; or Sanford C. Bernstein (Hong Kong) Limited, Director of Compliance, Suites 3206-11, 32/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong, or Sanford C. Bernstein (business registration number 53193989L) a unit of AllianceBernstein (Singapore) Ltd which is a licensed entity under the Securities and Futures Act and registered with Company Registration No 199703364Cregistration number 53193989L) , a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C, Director of Compliance, 30 Cecil Street, #28-08 Prudential Tower, Singapore 049712.


Disclosure Appendix12-Month Rating History as of 06/19/2013

Ticker Rating Changes BG/.LN O (IC) 01/22/09 BP M (IC) 08/03/10 BP/.LN M (IC) 08/03/10 CNE.LN M (RC) 01/29/13 O (IC) 01/22/09 ( ) ( )E M (RC) 03/09/12 EAD.FP M (RC) 02/15/13 O (RC) 12/17/09 ENI.IM M (RC) 03/09/12 FP.FP O (IC) 08/03/10 GALP.PL O (RC) 05/26/10 LKOD.LI M (RC) 06/28/12 U (IC) 01/15/09 NVTK LI O (RC) 06/28/12 M (RC) 04/20/11NVTK.LI O (RC) 06/28/12 M (RC) 04/20/11 OGZD.LI O (RC) 07/16/09 PMO.LN O (RC) 06/28/12 M (RC) 08/23/11 RDS/A M (RC) 03/09/12 RDS/B M (RC) 03/09/12 RDSA.LN M (RC) 03/09/12 RDSA.NA M (RC) 03/09/12 RDSB LN M (RC) 03/09/12RDSB.LN M (RC) 03/09/12 RDSB.NA M (RC) 03/09/12 ROSN.LI M (RC) 01/29/13 O (RC) 06/28/12 U (IC) 01/15/09 SGGD.LI M (RC) 06/28/12 U (IC) 01/15/09 STL.NO M (RC) 06/28/12 U (RC) 04/20/11 TLW.LN O (IC) 01/22/09 TOT O (IC) 08/03/10 Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated Rating Actions: IC ‐ Initiated Coverage, DC ‐ Dropped Coverage, RC ‐ Rating Change

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Bernstein Energy – Finding...

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