Sino Gas & Energy. Focus shifting away from resource growth A$0.07 AUSTRALIA. Event. Impact. Earnings and target price revision.

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1 AUSTRALIA SEH AU Price (at 4:59, 1 Mar 216 GMT) Outperform A$.7 Valuation A$ - DCF (WACC 12.4%, beta 2.2, ERP 5.%, RFR 3.8%) month target A$ month TSR % Volatility Index Very High GICS sector Energy Market cap A$m day avg turnover A$m.3 Number shares on issue m 2,74 Investment fundamentals Year end 31 Dec 214A 215E 216E 217E Revenue m.... EBIT m Reported profit m Adjusted profit m Gross cashflow m CFPS CFPS growth % nmf PGCFPS x nmf nmf nmf 6.8 PGCFPS rel x nmf nmf nmf.85 EPS adj EPS adj growth % nmf PER adj x nmf nmf nmf 6.9 PER rel x nmf nmf nmf.54 Total DPS.... Total div yield %.... ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x SEH AU vs Small Ordinaries, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March 216 (all figures in USD unless noted, TP in AUD) 1 March 216 Macquarie Securities (Australia) Limited Focus shifting away from resource growth Event SEH released an updated independent reserves estimate by RISC for its Linxing and Sanjiaobei PSCs. Given CRR is expected to be concluded this year, understandably activity is quickly moving away from growing reserves/resources to further development activity. Impact Growing confidence in the resource base: Discovered resource (i.e., 2P+2C) has risen by 7% to 4,793bcf with 26% and 41% of this now residing within the 1P and 2P categories, respectively. While this remains largely unchanged from last year on a 2P basis (39%) and we would have expected further 2P-to-1P conversions as SEH gains greater confidence in the resource, this more so reflects the addition of Linxing West resource. Given 2P reserves are artificially constrained by PSC cut-off (228 for Linxing and 233 for Sanjiaobei) we continue to believe that a better indication of EUR/well is gained from 2P+2C estimates, which point to a recovery of ~3.5bcf/well, up 2% higher compared to last year s estimate. EMV falls due to gas pricing: The value attributed to SEH's 2P reserves (on a EMV basis) has fallen by 16% to U$1.3bn, albeit still representing 14 times the current enterprise value of SEH. The reduction in value reflects the lower gas price assumptions, following the NDRC s cut to non-residential city gate prices last November and the subsequent revision to contractual pricing for SEH. Implied unit valuations for 2P reserves have fallen by 31% to ~U$2.3/mcf, highlighting the impact of gas prices on unit valuations. On an implied EV/2P+2C basis, unit valuations have fallen by 26% to U$1.5/mcf. Still on the productivity learning curve: Single interval tests continue to deliver improving flow rates. On a P5 basis, rates improved from <2mcf/d in 213 to ~372mcf/d in 215 or from ~3mcf/d to 577mcf/d on a mean basis. SEH has also demonstrated that it can successfully target higher productivity zones, with the P1 estimate rising from ~9mcf/d in 213 to as high as 1.5mmcf/d. While the P9 estimate has remained static, the wells targeting these intervals also delivered commercial productivity (i.e., >125mmcf/d) from other intervals. Earnings and target price revision NAV rises 1Acps to A$.46/sh: The growing 2P reserves base (where we adopt a more aggressive 5% risking vs resources at 1%) drives the upgrade. Medium-term earnings upgrades of ~3% are driven by lower opex rates and minor upward adjustments to our production forecasts following the receipt of initial gas proceeds at Linxing. Price catalyst 12-month price target: A$.25 based on a DCF methodology. Catalyst: CRR approval for Sanjiaobei by mid-216 for Linxing West by 4Q16. Action and recommendation Maintain an Outperform rating and a A$.25/sh target: Given CRR is expected to be concluded this year, understandably activity is quickly moving away from growing reserves/resources further to development. Furthermore, the change in EMV is largely explained by the change in gas pricing following the NDRC s cut to non-residential city gas prices last November. Please refer to page 1 for important disclosures and analyst certification, or on our website

2 Focus shifting away from resource growth SEH released an updated independent reserves estimate by RISC related to the Linxing and Sanjiaobei PSCs. While discovered resource (i.e. 2P+2C) has only risen by 7% to 4,793bcf, 26% and 41% of this now reside within the 1P and 2P categories, respectively. While this remains largely unchanged from last year on a 2P basis (39%), this more so reflects the addition of Linxing West resource. Given CRR is expected to be concluded this year, understandably activity is quickly moving away from growing reserves/resources further to development. The value attributed to SEH's 2P reserves (on an EMV basis) has fallen by 16% to U$1.3bn, albeit still representing 14 times the current enterprise value of SEH. The reduction in value reflects the lower gas price assumptions, following the NDRC s cut to non-residential city gate prices last November and the subsequent revision to contractual pricing for SEH. Implied unit valuations for 2P reserves have fallen by 31% to ~U$2.3/mcf, highlighting the impact of gas prices on unit valuations. On an implied EV/2P+2C basis, unit valuations have fallen by 26% to U$1.5/mcf. We have made several modelling changes which drive a significant 1Acps increase in NAV to A$.46/sh. This is largely driven by the growing 2P reserves base that we risk at 5% compared to 2C resources at 1%. While we continue to see considerable valuation upside for SEH we have retained our A$.25/sh target price. Medium-term earnings upgrades of ~3% are driven by lower opex rates and minor upward adjustments to our production forecasts following the confirmation of payments from Linxing. Little further extensions to the discovered area, but improving single well recovery While the scale of the resource base is well known, the results from the 215 work program (including 2 wells drilled, 25 well tests and results from ongoing pilot production testing) have seen minor adjustments to single well assumptions across the core Linxing (West) & Sanjiaobei PSCs as well as an initial reserves/resources booking across the Linxing (East) prospective area. Fig 1 The area attributed to reserves has grown by only 7% to 631km 2, largely reflecting the additions across Linxing East Fig 2 While discovered resources only increased by 7%, 26% and 46% of this now reside in the 1P and 2P reserves categories, respectively 2,5 SEH net gas (bcf) 2P 2C P5 Prop Resources 2, 1,5 1, , Source: Company data, March 216 Source: Company data, Macquarie Research, March 216 Discovered, reserves area rose from 588km 2 to 631km 2, reflecting the addition of 36km 2 within the Linxing East Area. Indeed there were no changes to the discovered (2P+2C)/prospective areas across Linxing West and Sanjiaobei, reflecting the mature nature of the CRR process across these areas (with final approval expected in 216). Discovered resource (i.e. 2P+2C) has risen by 7% to 4,793bcf, with 26% and 41% of this now residing within the 1P and 2P categories, respectively. While this remains largely unchanged from last year on a 2P basis (39%) and we would have expected further 2P-to-1P conversions as SEH gains greater confidence in the resource, this more so reflects the addition of Linxing West resource. 1 March 216 2

3 Excluding the additions from Linxing East (with additional wells added relating to this area) and assuming no change to spacing (RISC previously adopted 13-acre spacing), we estimate that EUR/well across the core acreage has risen to ~2.2bcf/well, which comes despite a 6% reduction in estimated Gas Initially In Place (due to lower net pay assumptions across gas intervals), highlighting improved recoverability assumptions. Given 2P reserves are artificially constrained by PSC cut-off (228 for Linxing and 233 for Sanjiaobei), we continue to believe that a better indication of EUR/well is gained from 2P+2C estimates, which point to a recovery of ~3.5bcf/well, up 2% higher compared to last year s estimate. Fig 3 RISC s estimation for reserves is based on a probabilistic approach to a 13-acre development with 2P reserves capped by the PSC cut-off the 2P+2C recovery per well of ~3.5bcf is a truer reflection of technical recovery (this has risen by 2% compared to previous estimates despite a 6% fall in GIIP) 1P 2P (Total) 2P (LW) 2P (Core) 3P 2C (Total) 2C (LW) 2C (Core) 2P+2C (Total) 2P+2C (LW) 2P+2C (Core) P5 (Total) P5 (LW) P5 (Core) Area km % hydrocarbon bearing % 28% 28% 28% 16% 44% 4% Spacing Acres % of lands developed % 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% Implied wells locations # , ,434 1, Economic deliverability % 94.8% 94.8% 94.4% 94.8% 94.8% 95.1% 96.4% 95.1% 94.9% 94.6% 94.9% 95.% 95.% 95.% Successful wells # , ,361 1, Risking % 1.% 1.% 1.% 1.% 1.% 9.% 9.% 9.% 96.4% 99.% 96.3% 67.5% 67.5% 67.5% Economic EUR bcf/well Reserves Bcf 1,25 1, ,859 2,723 2, ,751 4, ,61 2, ,972 Source: Company Data, Macquarie Research, March 216 Despite further two successful horizontal wells last year, RISC continues to assume a vertical well development model (with ~1% of wells likely to be horizontal under the current base case). Management suggested that horizontal wells could be successfully deployed to target higher productivity intervals (namely shallower sections). That said, despite TB-3H being drilled 33% faster than TB-1H in 213 and the impressive initial productivity witnessed across a number of well results, there are no plans for additional horizontal wells in the 216 budget. Single zone productivity continues to move higher Despite a wide range in initial productivity across single zones (indeed this is the first time that SEH has provided a full spectrum of results, previously only highlighting average and max rates), SEH continues to demonstrate that it is delivering yoy improvement, which will underpin single well economics under a development setting. It is encouraging to see that single interval tests continue to deliver improving flow rates. On a P5 basis, rates improved from <2mcf/d in 213 to ~372mcf/d in 215 or from ~3mcf/d to 577mcf/d on a mean basis. SEH has also demonstrated that it can successfully target higher productivity zones, with the P1 estimate rising from ~9mcf/d in 213 to as high as 1.5mmcf/d. While the P9 estimate has remained static, in a number of instances those wells that have targeted exploration-like zones have also delivered commercial productivity (i.e. >125mmcf/d) from other intervals. Consequently capital efficiency is largely preserved. Development wells will likely be completed across two or more zones, pointing to ultimate initial productivity of mmcf/d based on current mean-to-p1 results (albeit with some deteriorating over time as the better quality reservoirs are full developed leaving lesser quality, deeper sands). Despite this positive trend, we continue to conservatively assume a 75mcf/d initial flow rate under a development setting. 1 March 216 3

4 Fig 4 Testing to date highlights that deliverability in upper zones is both the highest and most consistent, but deep intervals are also testing well Fig 5 SEH continues to demonstrate that it can deliver improving single interval productivity which bodes well for IP rates under a development setting 3,5 Flow rate (mmscf/d) # of wells 3 3, Average flow rate Max flow rate # of wells 25 2,5 2 2, 15 1,5 1, Upper zone Mid-Upper Zone Middle Zone Mid-Lower Zone Lower Zone Comingled Tests Source: Macquarie Research, March 216 Source: Company Data, March 216 Valuation estimates largely driven by revised gas pricing The value attributed to SEH's 2P reserves (on a EMV basis) has fallen by 16% to U$1.3bn, albeit still representing 14 times the current enterprise value of SEH. The reduction in value reflects lower gas price assumptions, following the NDRC s cut to non-residential city gate prices last November and the subsequent revision to contractual pricing for SEH. Implied unit valuations for 2P reserves have fallen by 31% to ~U$2.3/mcf, highlighting the impact of gas prices on unit valuations. On an implied EV/2P+2C basis unit valuations have fallen by 26% to U$1.5/mcf. Despite SEH highlighting faster drilling times (5% improvement so far this year and further efficiency expected later this year) and a 1% yoy improvement in average drilling costs, RISC has left its estimate for all-in capex/opex unchanged at U$1.2/mcf. Although some of these efficiencies could relate to the depressed rig market, which could prove a short-term benefit, it would appear that there is some level of conservatism regarding this assumption. Furthermore, with over 12 wells now drilled, further drilling time efficiencies are likely to be limited to >5%. Unit opex fell from U$.7/mcf to U$.5/mcf last year and this has remained largely unchanged. Assuming vertical drilling/completion costs of U$1.6m/well and recoverability of 3.5bcf/well (on a 2P+2C basis) and all-in unit capex rates of U$.7/mcf, this would point to over U$1bn of gross full-field compression/gathering/pipeline investment across the 2P reserves + 2C resource base. With SEH suggesting that each incremental 25mmcf/d of brownfield capacity will cost ~U$1m, a ramp-up to ~5mmcf/d would cost at least >U$2m (gross) given the need to invest in new greenfield central processing facilities. While RISC previously assumed gas prices of U$9.76/mcf, this has fallen to U$7.16/mcf which is more consistent with recent contracts (U$7.1/mcf with Shanxi Guoxin at Sanjiabei and U$7.4/mcf with Shanxi GuoHua at Linxing). SEH continues to trade at a substantial discount to RISC s estimate for EMV (as it has historically). Indeed we estimate the average risking implied by the share price to RISC s 2P+2C+Prop valuation has averaged merely 6% over the last six years which appears more akin to exploration than SGE s appraisal/development assets (particularly given the solid resource to reserves conversion). We currently risk SEH s 2P+2C+P5 resource base at 2%, which we continue to believe is conservative. 1 March 216 4

5 Fig 6 While our unrisked valuation for 2P reserves is below RISC s estimate we estimate significantly higher 2C case Fig 7 SEH s historical share price implies ~6% risking to RISC s estimate for net EMV over the last six years our NAV assumes an average ~2% risk 1,4 Unrisked valuation (U$m, net to SEH) Implies unit valuation (U$/mmcf) 2.5 3,5 Net SEH value (U$m) 3,76 25% 1,2 1, 2. 3, 2,5 2,258 2,569 2,649 2% , 1,5 1,556 15% 1% 4 2 Reserves Contingent Prospective.5. 1, % % Macq EMV (2P+2C+P5 Prop) Enterprise Value Implied risking Source: Company Data, IRESS, Macquarie Research, March 216 Source: Company Data, IRESS, Macquarie Research, March 216 Ambitious full-field development plans remain intact SEH anticipates that the CRR approval will be granted in mid-216 for Sanjiaobei and 4Q16 for Linxing West with preparation for O likely to commence concurrently ahead of ODP in 217. Nonetheless, SEH envisages a fairly step ramp-up in activity post ODP, which could see plateau production of 3-5mmcf/d across both PSCs, reached as early as 22/21. At plateau SEH believes that it can deliver 2-3% of Chinese domestic gas production. Based on our forecast for Chinese gas production of 164bcm in 22, this equates to mmcf/d. Indeed our base case forecast for Chinese domestic gas production incorporates ~3bcm of gas supplied from the Ordos Basin, albeit with the majority of this coming from CNPC s Changqing tight gas field. SEH believes that 7-8 wells will be required a year to deliver this plateau across each PSC (i.e., a total wells). However, given our more conservative assumption surrounding initial productivity, we estimate up to ~2 wells p.a. will be required to reach plateau. Fig 8 Following ODP we anticipate that drilling will have to increase to ~15-2 wells per annum to ensure that production can ramped up to plateau levels Fig 9 Our base case forecasts for production growth we forecast a ~42mmcf/d plateau albeit with a lot depending on timely ODP 25 # of wells 7 Gross production (mmcf/d) Linxing appraisal Sanjiaobei appraisal Linxing 2P development Sanjiaobei 2P development Linxing 2P Sanjiaobei 2P Linxing 2C Sanjiaobei 2C Source: Company data, Macquarie Research, March 216 Source: Company data, Macquarie Research, March March 216 5

6 Changes to valuation We have made a number of modelling changes which see our NAV rise by 1Acps to A$.46/sh and drive medium-term earnings updates of >3%. Despite the increase in NAV, we have retained our target price of A$.25/sh with an Outperform recommendation. With regards to single well assumptions we now assume all-in capex of U$1.6m/well (while vertical well costs have fallen to merely U$1.4m/well we assume an additional U$2k to reflect dual completion across development wells) and recovery of ~3.5bcf which is consistent with the revised reserves report. We currently assume ODP for both Linxing West and Sanjiaobei in mid-217, with development drilling expected to ramp up post this. Given greater drilling productivity we have assumed more wells are drilled in the initial stages of development driving minor production increases from 218 onwards. We have adjusted our development model to reflect the balance between reserves/resources well locations across discovered areas and the economic cut-off for PSCs. Larger 2P reserves (which we risk more aggressively at 5% compared with 2C resources at 1%) drives a significant portion of the NAV uplift. Based on our development model we now forecast plateau production of ~42mmcf/d will be achieved by 22/ March 216 6

7 Macquarie Wealth Management Fig 1 financials (SEH) Share Price: A$.7 Outperform Shares: 273.7m Profit & Loss 1H15A 2H15E 214A 215E 216E 217E Price assumptions 1H15A 2H15E 214A 215E 216E 217E Sales Revenue U$m CNY/USD add other income U$m Avg. Gas Price U$/mmscf Total revenue U$m Oil-Brent US$/bbl less operating costs U$m (2.5) (4.) (4.8) (6.6) (7.2) (7.5) 3.98 EBITDAX U$m (2.5) (4.) (4.8) (6.6) (7.2) (7.5) Production 1H15A 2H15E 214A 215E 216E 217E less exploration expensed U$m Natural gas bcf EBITDA U$m (2.5) (4.) (4.8) (6.6) (7.2) (7.5) LNG k tonnes less dep. & amort. U$m (.) (.) (.) (.1) (.1) (.1) Condensate kbbl less other non-cash costs U$m (.4) (.4) (.5) (.8) (.8) (.9) Oil kbbl add associaties U$m.6 (2.1) (.9) (1.5) LPG k tonnes EBIT U$m (2.4) (6.6) (6.2) (8.9) (5.4) 3.9 Total production kboe less net interest U$m (2.1) (.8) Pre-tax operating profit U$m (4.5) (5.3) (5.7) (9.8) (.2) mmboe Crude Gas LNG Condensate LPG less tax expense (incl PRRT) U$m (.9) 6. Net operating profit U$m (4.5) (5.3) (5.7) (9.8) (.2) 14.6 add non-recurring items U$m (1.4) (1.4) Reported profit U$m (5.9) (5.3).8 (11.2) (.2) Adjusted profit U$m (4.5) (5.3) (5.7) (9.8) (.2) EPS (Adjusted) Ac (.3) (.4) (.4) (.7) (.) 1.1 EPS Grow th % 3% -4% 27% -34% 98% 6231% DPS (Ordinary & Special) Ac Franking % % % % % % % EFPOWA shares on issue m 1,87 2,7 1,531 1,938 2,69 2,69. Cashflow Analysis 1H15A 2H15E 214A 215E 216E 217E Reserves 1H15A 2H15E 214A 215E 216E 217E Cash from operations U$m Natural gas bcf less operating costs U$m (3.7) (4.) (4.6) (7.7) (7.2) (7.5) Condensate mmbbl less interest paid U$m (.5) (.4) (.2) (.9) (1.) (.8) Oil mmbbl less tax paid U$m (.9) Total 2P reserves mmboe Gross cashflow from operati U$m (4.) (4.4) (3.8) (8.4) (7.8) (8.7) less capex U$m (17.2) (5.6) (25.7) (22.8) (13.7) (64.7) 2P Reserves / production years less acq./inv. U$m EV / 1P reserves US$/boe nmf nmf nmf nmf add other U$m - (1.7) (2.6) (1.7) - - EV / 2P reserves US$/boe less dividends U$m EV / Total resources US$/boe add debt movements U$m (1.5) 35.7 add equity movements U$m 63.2 (.1) (.) Per bbl statistics 1H15A 2H15E 214A 215E 216E 217E Net cashflow U$m 44.8 (11.8) (22.1) 33. (22.9) (37.7) Sales Revenue / boe U$/boe add exchange rate adj. U$m (1.1) (.4) (1.) (1.5) - - EBIT / boe U$/boe (43.87) (12.33) (628.43) (75.48) (11.66) 4.3 Increase in cash U$m 43.7 (12.2) (22.1) 33. (22.9) (37.7) Profit / boe U$/boe (81.79) (82.79) (582.27) (82.33) (.51) 16.9 Net debt at year end U$m (69.8) (56.7) (27.7) (56.7) (34.1) 39.3 Opex/boe U$/boe Capex/boe U$/boe , Balance sheet 1H15A 2H15E 214A 215E 216E 217E DDA/boe U$/boe Cash & cash eq. U$m Cash flow /boe U$/boe (73.6) (68.84) (389.5) (7.77) (16.69) (9.6) Current assets U$m Fixed assets U$m Ratio analysis 1H15A 2H15E 214A 215E 216E 217E Total assets U$m EV/adjusted EBITDA ratio x x nmf nmf nmf 5.1 x 1.2 x Current liabilities U$m EV/adjusted EBIT ratio x nmf nmf nmf nmf 6.4 x 1.3 x Total liabilities U$m P/E ratio x nmf nmf nmf nmf nmf 6.2 x Shareholder equity U$m P/CFPS ratio x nmf nmf nmf nmf nmf nmf FCF yield % nmf nmf nmf nmf nmf nmf Financials (adjusted for associates) 1H15A 2H15E 214A 215E 216E 217E Dividend yield %.%.%.%.%.%.% Total revenue U$m EBITDA U$m.1 (3.1) (5.6) (2.9) WACC of 12.4% EBIT U$m (.3) (3.6) (6.2) (3.9) Developing assets U$m A$ps % Pre-tax operating profit U$m (4.5) (4.9) (5.7) (9.3) Linxing West PSC - 2P risked 5% NPAT U$m (4.5) (5.3) (5.7) (9.8) (.2) 14.6 Sanjiaobei PSC - 2P risked 5% Static assets & exploration Ratio analysis 1H15A 2H15E 214A 215E 216E 217E Linxing West PSC - 2C risked 1% 74.5 ND/ND+E % -77% -59% -37% -59% -29% 19% Sanjiaobei PSC - 2C risked 1% 36.2 EBIT interest cover x nmf nmf x -1. x -5.5 x 5.2 x Linxing East CSG risked 1% 4. Dividend payout ratio % % % % % % % Linxing West PSC - Prop risked 5% 7. ROA % -1% -4% -6% -6% -3% 2% Sanjiaobei PSC - Prop risked 5% 8.1 ROE % -3% -3% -6% -6% % 9% Financial assets ROIC % -6% -12% -12% -19% -7% 1% Cash 66.4 Effective tax rate % % % % % % 6% Debt (1) (.1) Adjusted EBITDA Margin % 5% nmf nmf nmf 31% 64% SGE Non-qualifying costs (8) (.) Adjusted EBIT Margin % nmf nmf nmf nmf 25% 6% Corporate costs (33) (.2) Free cash flow U$m (18) (1) (3) (28) (21) (73) Risked NPV Shareprice prem/(disc) to NPV -85% Sensitivities (Adjusted earnings) Valn 215E 216E 217E - core NPV per share (A$).37 Shanxi gas price (+.1 RMB/m3) U$m.46 (9.8) risked NPV per share (A$).46 delta unrisked NPV per share (A$) %.% 353.4% 11.5% Currency (+.1 ) U$m.45 (9.8) (.4) 14.2 delta (.) - (.2) (.4) -1.%.% -73.8% -2.5% Source: Company data, Macquarie Research, March March 216 7

8 Fig 11 NAV break-down Developing Assets Interest Unrisked Unrisked Risk Risked Risked USD/boe Aps Aps % NPV -RMB.25 +RMB.25 mmboe USD (m) mmboe USD (m) risked unrisked /cu.m Base /cu.m Linxing West PSC - 2P 31.7% % % Sanjiaobei PSC - 2P 24.% % % Sub Total 82 1, % Static Assets & Exploration Linxing West PSC - 2C 31.7% % % Sanjiaobei PSC - 2C 24.% % % Linxing East - 2P+2C 25.% % %... Linxing West PSC - Prop 31.7% % %.1..1 Sanjiaobei PSC - Prop 24.% % % Linxing East - Prop 25.% % %..1. Sub Total 256 1, % Financial Assets Cash % Debt (1) (.1) (.1) -1% (.1) (.1) (.1) SGE Non-qualifying costs (8) (.) (.) -1% (.) (.) (.) SEH Corporate costs (33) (.2) (.2) -5% (.2) (.2) (.2) Sub Total % Overall total 338 mmboe AUDm % core NPV per share (A$) risked NPV per share (A$) unrisked NPV per share (A$) Diluted number of shares (m) 2,11 Ordinary Shares on Issue (m) 2,74 In-the-money options outstanding (m) 27 Exchange Rate.75 WACC (post tax) 12.4% Share Price.7 Price premium (discount) to NPV -85% Source: Company data, Macquarie Research, March March 216 8

9 Fundamentals Macquarie Wealth Management Macquarie Quant View The quant model currently holds a strong negative view on Sino Gas & Energy. The strongest style exposure is Earnings Momentum, indicating this stock has received earnings upgrades and is well liked by sell side analysts. The weakest style exposure is Price Momentum, indicating this stock has had weak medium to long term returns which often persist into the future. 518/553 Global rank in Energy % of BUY recommendations 1% (6/6) Number of Price Target downgrades Number of Price Target upgrades Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Energy) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. Karoon Gas -1.5 Karoon Gas Senex Energy -1.8 Senex Energy % -8% -6% -4% -2% % 2% 4% 6% 8% 1% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. Karoon Gas.4 Karoon Gas Senex Energy.1 Senex Energy % -5% -3% -1% 1% 3% 5% 7% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Price Upside Relative Turnover Consensus Recommendation Sales Revisions 3 Month Price to Cash FY Earnings Stability Operating Leverage NTM Price to Earnings FY1-32% Negatives Positives -19% -25% -18% 17% 16% 14% 21% -4% -2% % 2% 4% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score Percentile relative to sector(/553) Percentile relative to market(/393) Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 1 March 216 9

10 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie South Africa Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3 index return Neutral (Hold) return within 5% of Russell 3 index return Underperform (Sell) return >5% below Russell 3 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 6 1% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 4 6% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3 4% in a year. Low medium stock should be expected to move up or down at least 25 3% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 215 AU/NZ Asia RSA USA CA EUR Outperform 5.68% 61.4% 53.16% 47.9% 65.22% 43.59% (for global coverage by Macquarie, 5.33% of stocks followed are investment banking clients) Neutral 31.51% 24.66% 34.18% 47.7% 29.71% 34.62% (for global coverage by Macquarie, 5.2% of stocks followed are investment banking clients) Underperform 17.81% 14.3% 12.66% 4.39% 5.7% 21.79% (for global coverage by Macquarie, 3.78% of stocks followed are investment banking clients) SEH AU vs Small Ordinaries, & rec history (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March month target price methodology SEH AU: A$.25 based on a DCF methodology Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 8-Jan-216 SEH AU Outperform A$.25 9-Sep-215 SEH AU Outperform A$.3 27-Apr-215 SEH AU Outperform A$.35 3-Mar-215 SEH AU Outperform A$.4 15-Aug-214 SEH AU Outperform A$.35 Target price risk disclosures: SEH AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Unforeseen changes in the proposed program by Chinese SOE's stemming from the CNPC anti-corruption investigations. Delays in the NDRC implementing pricing reforms in coming years which could impact gas pricing Lack of availability of drilling services to ensure the proposed work program can be delivered Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN , AFSL , a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN AFSL ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business 1 March 216 1

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