GLOBAL E&P TRANSACTIONS H REVIEW PARTIAL PULL BACK FROM 2010 HIGHS

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1 GLOBAL E&P TRANSACTIONS H REVIEW PARTIAL PULL BACK FROM 2010 HIGHS JULY 2011 This document is the property of Rystad Energy. The document must not be reproduced or distributed in any forms, in parts or full without permission from Rystad Energy. The information contained in this document is based on Rystad Energy s global oil & gas database UCUBE, public information from company presentations, industry reports, and other, general research by Rystad Energy. The document is not intended to be used on a stand-alone basis but in combination with other material or in discussions. The document is subject to revisions. Rystad Energy is not responsible for actions taken based on information in this document. This document is joint property of Derrick Petroleum Services and PLS. References and citations to the document are encouraged but distribution or copying in any forms, in parts or full require permission from the owners. The information and analyses presented in this document are based on proprietary data contained in Derrick Petroleum Services Global E&P Transactions Database and general industry and company research. The document is not intended to be used on a stand-alone basis but in combination with other material or in discussions and is subject to revisions. Derrick Petroleum Services and PLS are not responsible for actions taken based on information in this document.

2 Key observations on global M&A activity H H global M&A pulled back from the record high last year US top region on its own, Asia replaces South America at number 2 with 14% of world total Corporate deals 39% of total, approximately on trend with 2010 Share of conventional deals at 67% of total, on trend with 2010 Majors turn their attention to acquisition of conventional assets. BP switches gears from divestitures to acquisitions Chinese take a pause, KNOC and Petronas step in Deals worth $90 billion still in play Global M&A deal flow in the first six months of 2011 normalized to the run rate of pre-2010 levels with a total transaction value of $69 billion, after hitting a record high of $217 billion for the full year of Deal volume, as measured by number of deals greater than $100 million in value, also marked a pull back from 2010 and was more in line with the volume in US continues to be the top region for M&A activity with 39% of deal share in H Second position is occupied by Asia with 14% on the back of the biggest deal of H1, the BP-Reliance deal. Russia and Canada could have been potential candidates for the second position, had it not been for the 3 large cancellations in Q Corporate deals as a share of the total was 39% in H1 2011, and within the historic range of 34-44% during , with 2009 being the outlier at 74%. A significant trend which started in 2010 where one E&P company sold a partial interest in another E&P company continued this year as well. Conventionals share of the M&A market was two-thirds of the total transaction value, close to the 2010 share of 72%. Within unconventional deals, Shale/Tight Gas deals extended their dominance since there were very few significant deals in CBM and oilsands. Majors stepped up their acquisitions for conventional assets, after focusing mostly on unconventionals from 2008 to Majors accounted for approximately 20% share of the global transaction value amounting to approximately $26 billion in the first half of 2011, 88% of which came from conventional deals. BP has switched gears from divestiture mode to acquisition mode, and did the biggest buy of the first half of Chinese NOCs were relatively quiet in the first half of 2011 after steadily increasing their acquisitions since Acquisitions by Chinese NOCs as a share of total global transaction value reduced to 4% in H from 16% in This was partially offset by other Asian NOCs like KNOC and Petronas stepping up their deal activity. Looking ahead, there is a robust supply of assets for deal making in H Of the total $90 billion worth of assets currently on the market, Brazil is the top contributor followed by US, Canada and Australia. 2

3 H global M&A pulled back from the record high last year The first half of 2011 saw a pullback in global oil and gas M&A from the record highs of The total transaction value for the first six months of 2011 at $69 billion was in the line with the run rate of 2009 when the total transaction value for the year stood at $149 billion, and slower than 2010 when the total transaction value for the year hit $217 billion. In terms of volume of deals, 2011 has so far seen robust M&A activity. Total number of deals in Q at 242 was at par with the record setting Q4 of Number of deals greater than $100 million in value in Q1 and Q was in line with the averages of previous years, except 2010 which saw most number of such deals. Value of global E&P transactions USD billion Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 H1 Total Q ExxonMobil acquisition of XTO Energy Number of transactions, split by high and low value deals Low value deals (<$100 million) High value deals (>$100 million) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Cancellations ($22.4 Bn): - BP-Rosneft: $15.6 Bn - CNPC-Encana: $5.5 Bn - Novatek-Itera: $1.3 Bn BHP Billiton- Petrohawk: 15.1 Bn

4 Top 20 global deals by value Shale deals continue, BP returns to acquisition mode The frenzy to acquire North American shale assets continued in H with BHP Billiton, Marathon, ExxonMobil, KNOC, CNOOC, Petronas and Sasol doing large acquisitions or JVs. Value of top 20 global E&P transactions H USD million BP acquires 30% interest in 23 blocks in India from Reliance IPIC acquires remaining 52.94% stake in Cepsa Chesapeake divests Fayetteville assets to BHP Billiton 4,990 4,750 7,200 BP returned to acquisition mode with the biggest deal of H when it acquired a 30% interest in Reliance Industries 23 blocks in India, including the prolific KG-D6 block, for $7.2 billion. Total acquires 12.08% stake in Novatek Marathon acquires additional Eagle Ford acreage from Hilcorp and KKR Hungary buys back 21.2% stake in MOL from Surgutneftegaz Petronas divests 14.9% stake in Cairn India to Vedanta and others Exxon acquires Marcellus Shale assets 4,054 3,500 2,600 2,120 1,690 Other large international acquisitions were done by Total in Russia, Sinopec in Australia. KNOC and Anadarko form Eagle Ford JV Sinopec acquires 15% stake in APLNG project from Origin and ConocoPhillips Grupo Petersen exercises option to acquire 10% stake in YPF 1,550 1,500 1,304 Chesapeake and CNOOC form Niobrara JV 1,267 ConocoPhillips sells remaining stake in Lukoil 1,243 Petronas and Progress Energy form Montney JV 1,103 Talisman and Sasol expand Montney JV 1,079 Laredo Petroleum acquires Broad Oak Energy 1,000 Range Resources sells Barnett shale assets to Legend Natural Gas 900 Pioneer Natural Resources divests Tunisian assets to OMV 866 Chesapeake signs VPP for Mid-Continent assets 850 Gazprom acquires 62.9% interest in Kovykta field from TNK-BP 773 4

5 Regional distribution of M&A activity US continues at the top; Asia replaces South America at No 2. United States with $27 billion or 39% of world total transactional value, continued to be the top region for M&A activity. There were 37 deals of transaction value greater than $100 million of which 6 were greater than $1 billion. All the top 5 deals involved shale assets. In H1 2011, Asia occupied the second position on the back of the BP-Reliance deal, closely followed by the former Soviet Union with deals by Novatek around its Yamal LNG project. Annual transaction value by region USD billion United States Canada Former Soviet Union South/Central America Australia Africa North Sea/Europe Asia Middle East Africa s share in the transactional values is 12% which includes the full value of Cepsa s acquisition by IPIC, but the major part of deal value is in fact for non E&P assets of CEPSA. Russia and Canada could have been potential candidates for the second position, had it not been for the large cancellations in Q such as BP- Rosneft, CNPC-Encana and Novatek-Itera H Annual transaction value: Top two regions and Rest of the world USD billion %=$147Bn 100%=$115Bn 100%=$150Bn 100%=$217Bn 6% 5% 2% 3% 2% 8% 2% 2% 5% 5% 10% 5% 6% 4% 3% 4% 34% 39% 41% 34% 2% 18% 24% 13% 17% 24% 4% 8% 13% 23% 15% 16% 6% 14% 3% 4% 12% H %=$69Bn 12% 10% 39% 5

6 Corporate deals 39% of total, approximately on trend with 2010 Corporate deal value as a share of total deal value in the first six months of 2011 was at 39%, as compared to 37%, 34% and 44% in 2007, 2008 and 2010 respectively. As compared to all these years, 2009 was an outlier with 73% share of corporate deals. It is believed that with the oil price collapse and the financial downturn of 2009, it was easier at that time for buyers to buy off companies than to negotiate asset deals. Deals by type of transaction %=$147Bn 100%=$115Bn 100%=$150Bn 100%=$217Bn 1% 7% 7% 48% 37% 2% 7% 26% 31% 34% 8% 2% 2% 15% 73% 1% 21% 30% 4% 44% H %=$69Bn 2% 1% Corporate M&A 23% 35% 39% Producing fields Fields under development Discoveries (undeveloped) Mix of asset types Amongst the corporate deals, the trend of transactions involving partial interests in companies continued this year as well. It was a significant trend observed in 2010 where one E&P company sold a partial interest in another E&P company. Notable deals seen so far in 2011 include the sale of 53% stake in Cepsa by Total; MOL s 21.2% stake sale by Surgutnetegaz; sale of 14.9% interest in Cairn India by Petronas; etc. This trend has picked up since 2010 (with cumulative transaction value at $46 billion) as compared to just $5.2 billion during Corporate deals with transaction value greater than $1 billion IPIC acquires remaining 52.94% stake in Cepsa Total acquires 12.08% stake in Novatek Hungary buys back 21.2% stake in MOL from Surgutneftegaz Petronas divests 14.9% stake in Cairn India to Vedanta and others Exxon acquires Marcellus Shale assets Grupo Petersen exercises option to acquire 10% stake in YPF ConocoPhillips sells remaining stake in Lukoil Laredo Petroleum acquires Broad Oak Energy 1,000 1,690 1,304 1,243 2,600 2,120 4,054 4,990 Sale of a partial stake in one E&P company by another E&P company 6

7 Share of conventional deals at 67% of total, on trend with 2010 In H1 2011, share of conventional deals in the total transacted value was approximately 2/3 rd. This is the same level as that in 2010 and In 2009, share of conventional deals was only about half of the total, in part because of the $41 billion ExxonMobil-XTO deal which raised the scales in favour of unconventionals. In H1 2011, of the 78 deals with a transaction value of more than $100 million, 56 were conventional and 22 were unconventional. The number of unconventional high value deals greater than $1 billion, matched the conventional ones during H There were a total of 132 Shale/Tight Gas deals this year with cumulative deal values crossing $20 billion of which the top 5 deals accounted for more than 60% or $12.7 billion, all of which took place in US shales: BHP-Chesapeake; Fayetteville Marathon-Hilcorp; Eagleford ExxonMobil-Phillips/TWP; Marcellus KNOC-Anadarko; Eagleford CNOOC-Chesapeake; Niobrara Share of conventional and unconventional deals %=$147Bn 100%=$115Bn 100%=$150Bn 100%=$217Bn 3% 6% 1% 90% 31 2% 3 23% 15% 60% 34% 14% 51% Number of deals with transaction value greater than $1 billion 1% % 3% 19% 6 72% H %=$69Bn 0% 3% 30% 67% Conventional Unconventional 8 8 Conventional Shale/Tight Gas Oilsands CBM H

8 Majors turn their attention to acquisition of conventional assets After spending more than $80 billion over on unconventional deals, Majors are now buying conventional assets. Of the deals in H1 2011, 88% of the acquisitions by Majors was attributed to conventionals whereas a mere 12% was to unconventionals. Overall, the acquisition transaction values seen so far in 2011 are consistent with BP made a transition from its divestitures strategy to being a part of a few aggressive acquisitions this year. BP made the biggest deal of the year so far by acquiring assets from Reliance for $7.2 billion. In another deal, which was cancelled, BP tried to acquire 9.5% of Rosneft stock in exchange for 5% of its stock. The conventional assets acquired by the Majors included India: BP-Reliance Russia: Total-Novatek Australia: Shell-Chevron Deal value of Major s acquisition split by conventional/unconventional assets USD million 1,104 18, ,577 17,913 Acquisitions by Majors in H split by conventional/unconventional assets/portfolios USD million 8,918 7,800 11,674 1, H *BP to acquire Rosneft shares worth $8B BP acquires 30% interest in 23 blocks in India from Reliance Total acquires 12.08% stake in Novatek Exxon acquires Marcellus Shale assets Total to acquire 20% interest in Yamal LNG Shell acquires 8% interest in Wheatstone and Lago fields from Chevron Chevron acquires additional Marcellus acreage from Chief Oil & Gas and partner 419 1,690 *BP s acquisition of Rosneft Shares 4,054 Unconventional Conventional 7,200 7,800 Conventional Unconventional Total to acquire 49% interest in two Polish shale gas concessions from ExxonMobil BP and Rosneft had agreed to swap shares, each worth $7.8 Billion. The total deal value assigned to the transaction was $15.6 billion, according to the worth of assets being transacted. For that part of the deal where BP is the acquirer, the deal value is $7.8 billion 8

9 Chinese take a pause, KNOC and Petronas step in Since 2008, Chinese NOCs had been ramping up their acquisition spend year after year. However, in the first six months of 2011, share of deals by Chinese NOCs fell for the first time from 16% in 2010 to 4% in H Part of the reason for the decline was the cancelled $5.5 billion CNPC-Encana Canadian shale gas JV. The two deals greater than $1 billion by Chinese NOCs were the APLNG deal in Australia by Sinopec and the Niobrara JV with Chesapeake by CNOOC. Acquisitions by other Asian NOCs increased to 5% of the total deal value in H from 3% in 2009 and KNOC and Anadarko formed a JV in Eagle Ford shale in Texas. Petronas and Progress Energy formed a Montney JV for $1.1 billion. KNOC also spreads its operations in Kazakhstan oilfields through the acquisition of a 95% stake in Altius Holdings for $451 million. Acquisitions by Chinese and other Asian NOCs USD billion %=$147Bn 100%=$115Bn 100%=$150Bn 100%=$217Bn 0% 99% 1% % 4% 6% 86% 11% 3% 81% % 3% Sinopec KNOC CNPC (China) Sinopec (Listed) ONGC (India) H %=$69Bn 4% 5% 91% CNOOC (China) CNPC (Petro-China) Sinochem Petronas PetroChina- Encana: $5.4 Bn PTTEP (Thailand) 5.8 Chinese NOC Asian NOC Others 9

10 Robust supply of assets for deal making in H The total value of all oil and gas assets currently on the market is about $90 billion. This is approximately the same value of supply as was available at the beginning of 2011 and twice the supply at the beginning of ExxonMobil to exit Block 31 in Angola Maurel & Prom put up for sale ConocoPhillips to divest Vietnam assets Noreco considers strategic alternatives ADNOC seeks partner to develop Shah gas field 100% = $89.4 Bn Brazil features with a small number of high value Deals in Play followed by Australia. The majors with assets on market in these regions include Shell with offshore oil blocks in Brazil and its remaining stake in Woodside in Australia. ConocoPhillips has on offer 60% interest in Caldita and Barossa gas fields in Timor Sea. US and Canada have a large number of deals on the market including many in various shale plays. Shell to divest remaining stake in Woodside Inpex offers interest in Ichthys project Origin Energy to sell additional stake in Queensland s APLNG project ConocoPhillips to sell 60% interest in Caldita and Barossa gas fields in Timor Sea KOGAS to sell 10% stake in Australia's GLNG project Encana seeks JV partners for developing Cutbank Ridge acreage Australia 13% Cenovus Energy seeks JV partner to develop Alberta oil sands assets EnCana seeks JV partner for development of unconventional gas in British Columbia Apache to divest certain Canadian conventional assets worth $1billion Nexen seeks JV partner for British Columbia shale gas acreage ConocoPhillips to divest certain assets in Alberta and British Columbia Others 17% Canada 19% Brazil 26% United States 25% OGX to sell 30% interest in oil discoveries offshore Campos Basin Eni to sell 33.34% stake in Galp Energia Galp Energia to sell 30% stake in Brazilian assets Shell to divest stakes in oil blocks offshore Brazil Chesapeake to sell 20% equity interest in Marcellus Shale operations Seneca Resources seeks JV partner for Marcellus assets Helix Energy to divest oil & gas business Nabors Industries to sell E&P assets Parallel Petroleum put up for sale Chesapeake seeks JV partner for Utica shale Chevron to sell interests in Cook Inlet assets ConocoPhillips offers Eagle Ford/Austin Chalk acreage Chesapeake seeks JV partner for Mississippian play XTO to sell certain shallow GoM assets EOG offers Marcellus acreage 10

11 Implied reserves value for oil continued to recover in 2011 On a worldwide basis, the implied reserves values, $/2P reserves (entitlement*), increased marginally from the year end 2010 levels but still below the high levels reached during early The dip in Q was largely due to deals in FSU where per boe prices are typically low. Excluding the FSU deals the average $/boe would have been $14.9 in Q $/boe 2P Entitlement reserves for worldwide transactions For the US, implied proved oil reserves values increased marginally with H average touching $15.9/boe for proved reserves. However, gas reserves decreased during the same period to $11.6/boe albeit still above their 2009 levels. For Canada, the separation of implied reserves values for gas and oil widened further in H1 2011, following the last years trend. For the full year, the average price of oil deals increased to $17.4/boe for 2P gross reserves and of gas reserves decreased to $8.9/boe. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q $/boe Net proved reserves for US $/boe Gross 2P reserves for Canada Gas Oil H H Note: All deals with Deal Value greater than $10 million have been considered in this analysis. Implied reserves by country and by hydrocarbon type is readily available for US and Canada whereas the rest of the world gives limited data sets for statistical analysis. * Entitlement reserves are net of royalties and government share of profit oil 11

12 CONTACTS DETAILS Derrick Petroleum Services is an independent oil and gas research and consulting firm based in Bangalore, India. The Company s research and databases have worldwide coverage, with special emphasis on emerging plays and international transactions. PLS, Inc. is a leading industry research, transactions and advisory firm based in Houston, Texas. PLS publishes various information reports on mergers, acquisitions, divestments, capital markets, exploration, drilling and midstream services and manages a multiple listing service for assets on the market. Contact person Yashodeep Deodhar yashodeep@derrickpetroleum.com Contact person Ronyld Wise rwise@plsx.com