Deloitte Oil & Gas Mergers and Acquisitions A subdued deal market follows brisk end-of-year activity

Oil & Gas Mergers and Acquisitions Report Midyear 213 Deloitte Oil & Gas Mergers and Acquisitions A subdued deal market follows brisk end-of-year activity Deloitte Center for Energy Solutions

Table of contents Vice Introduction Chairman's by Deloitte s introductory Vice comments Chairman, Oil & Gas 1 2 Industry Industry overview Overview 2 3 Exploration & Production Exploration and production 4 6 Midstream 6 Oilfield equipment and services 9 Oilfield Equipment & Services 8 Midstream 12 Refining & Marketing 1 Refining and marketing Summary 13 14 Conclusion 16 M&A Midyear 213 Report 1

Vice Chairman s introductory comments After a spate of deals at the end of the last year, the oil and gas industry took a bit of a breather from merger and acquisition (M&A) activity in the first half of 213. Both the number of deals and the value of those deals fell by 29% versus the same six months of last year. Total deal value in the first half of 213 totaled $79.9 billion, down from $113.2 billion in the first half of 212. Part of the decline likely stems from a push to complete deals during the fourth quarter of last year in anticipation of 213 tax increases, which resulted in an unusually slow first quarter of 213. However, worldwide economic concerns, combined with ongoing regulatory uncertainty, continues to hang over the oil and gas industry. Oil prices remained relatively strong, which continued to build confidence in upstream investments. North American natural gas prices also firmed up, which created greater certainty around gas assets. Sellers who were not inclined to sell at lower prices may be encouraged by prospects for an improved natural gas supply/demand balance and lead to greater deal activity in the latter half of the year. As a result, the shakeout which some have expected in upstream natural gas has not materialized. Many companies were able to get waivers on bank covenants or other provisions that avoided forced sales. With the prospects for liquefied natural gas (LNG) exports, a renaissance in the United States (U.S.) chemical industry, and increased demand from power generation and natural gas vehicles, many upstream gas companies seem willing to hold on until prices rise. The U.S. remained the center of deal activity in 213, accounting for almost half the transactions worldwide. Few large deals were announced in the first half of the year, with only 1 deals greater than $2 billion and the largest at $6.7 billion. Oil continued to attract most of the investment, much of which focused on asset purchases rather than corporate acquisitions. Plays such as the Bakken Shale in North Dakota and the Eagle Ford Shale in South Texas remained among the most active areas onshore. The deepwater Gulf of Mexico continues to be a hot play. Operators are finding it difficult to get rigs and the activity is expected to intensify. Internationally, China continues to be a very active buyer across a variety of regions. The growth of U.S. gas production is creating a ripple effect that is being felt across the global market. Gas that may likely have been imported to the U.S. is now going elsewhere, driving down prices in Europe. Shale development in the United Kingdom could cause prices there to moderate further. After the pause in first half activity, several factors remain in place for increased deal activity in the latter half of the year. Although interest rates are increasing, they remain at historically low levels, the U.S. economy is showing signs of growth and an abundance of capital is available for investing in energy. The climate change rules imposed by the Obama administration could likely boost the prospects for natural gas, which might help firm up prices. We continue to hear from domestic investors who are starting new funds targeting energy investments, as well as foreign investors looking to buy assets signs that more deals are on the way. John England Vice Chairman, U.S. Oil & Gas Deloitte LLP As used in this document, "Deloitte" means Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte Financial Advisory Services LLP. These entities are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. 2

Industry overview A busy fourth quarter followed by a pullback in M&A activity After a flurry of activity in the fourth quarter of 212, the oil and gas industry deal market slowed during the first half of 213. Total deal value declined 76% between the fourth quarter of 212 and the first quarter of 213, dropping from $162.8 billion to just $38.7 billion in the first quarter. We saw a big push to get deals done at the end of 212, said John England, Vice Chairman, U.S. Oil & Gas, Deloitte LLP. Deal activity in the energy industry historically has displayed a strong degree of seasonality, with transactions surging at the end of the year. This year s decline, however, was more marked than in previous years, with first-half deal count dropping 29% to 24 from 338 deals a year earlier. The slowdown in deal count was evident in all geographical areas. M&A activity in Canada showed particular weakness, with less than 5% of the deals announced in the first half of 212. Brian Pyra, Alberta Leader of M&A and Head of Oil & Gas Taxation in Canada, Deloitte Canada attributes the decline to continued difficulties for junior and intermediate industry players to access Canadian capital markets, as well as regulatory changes that make it harder for national oil companies (NOCs) to purchase Canadian assets. Elsewhere in the world, deal activity slowed across many continents. The depressed activity elsewhere, in Asia and Europe, could be chalked up to weaker economic conditions, said Jed Shreve, Principal, Deloitte Financial Advisory Services LLP. The U.S. continues to be the largest market for oil and gas transactions. While deal count was down from 212 levels for the first six months of 213, the big jump in fourth quarter 212 transactions may indicate borrowed activity from 213. We had several large deals late in the year that had a big fourth-quarter impact, said Jim Dillavou, Partner, Deloitte & Touche LLP. Those included Rosneft s $56 billion acquisition of BP-TNK, Freeport McMoRan Copper & Gold s purchase of Plains, and the CNOOC/ Nexen deal in Canada. Oil & Gas M&A deals by value and count (In $ billions) 18 (count) 25 16 Note: M&A activity examined in this report represents mergers and acquisitions involving oil and gas companies between the first quarter 211 and the second quarter 213 with values greater than $1 million, including transactions with no disclosures on reserves and/or production. Our analysis has excluded several transactions between affiliated companies to provide a more accurate picture of M&A activity in the sector. Deloitte s methodology takes a deeper look into the M&A transaction data. 2 14 12 15 1 8 1 6 4 5 2 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Asset value Corporate value Total deal count M&A Midyear 213 Report 3

The market does not like uncertainty and we are only getting uncertainty from the tax world. Jason Spann Partner Deloitte Tax LLP Year-end changes in tax policy may have also provided buyers and sellers with an incentive to get deals done before 212 came to a close. There were tax advantages to doing deals in the fourth quarter, and that may have taken a bite out of first half activity this year, said Trevear Thomas, Principal, Deloitte Consulting LLP. Adds Jason Spann, Partner, Deloitte Tax LLP, The capital gains rate increased, the overall tax rate increased, and the government put into effect a Medicare tax affecting individuals on the sales of their investments. That was part of the push to get transactions done before the end of the year. Looking ahead, Mr. Spann believes uncertainties surrounding potential changes in U.S. taxation of oil and gas activities may continue to weigh on the deal market. The market does not like uncertainty and we are only getting uncertainty from the tax world, he said. For example, the question remains whether the government may end the deduction for intangible drilling costs. Despite the unclear tax picture, oil and gas prices have been stable, with U.S. gas prices in particular recovering somewhat from the steep declines of 212. Meanwhile, increased North American crude production helped reduce the effects of global oil price volatility. In time past, an event such as unrest in an oil-producing country would likely have sent a price shock through the entire system, said Mr. Thomas. This is dampened because of the growth in North American supply, bringing a degree of stability to the markets. Abundant supplies of natural gas and natural gas liquids continue to benefit the U.S. economy through lower prices, but fortunately for producers, prices moved up considerably during the first half of the year. Gas prices improved this year, to more than $4 per million of British thermal units (MMBtu) during much of the second quarter of the year, said Mr. Shreve. Natural gas liquids pricing also dropped a good bit last year, but has somewhat improved. Although somewhat below this level currently, U.S. natural gas prices more than $4 per MMBtu is a good sign, and is where acreage becomes more economical to drill. 4

The slowdown in activity may have many causes, but does not seem to stem from a shortage of cash, credit, or interested buyers. The private equity players and international buyers that have fueled the market for oil and gas assets continue to be active. Mr. Thomas noted that of the 1 largest deals during the first half of 213, at least 6% involved international buyers. In oil and gas, U.S. companies and independent oil companies have typically driven activity, so to have that many other large international buyers in the top 1 is an interesting trend, he said. Private equity players remain active as well. We continue to see interest from private equity companies, said Mr. England. More energy funds are being started and a lot of capital has come into this space. With that much dry powder, there are going to be deals. Spann agrees, We continue to see interest from private equity capital to develop and invest in the U.S. energy infrastructure. There have been a number of new players focused on the energy sector, which provided even more options for capital. Gas prices improved this year, to more than $4 per MMBtu during much of the second quarter of the year. Jed Shreve Principal Deloitte Financial Advisory Services LLP M&A Midyear 213 Report 5

Exploration and production A sharp falloff in deal activity The most notable trend in transaction activity in the oil and gas industry during the first six months of 213 was the decline in upstream deals. Purchases in North America continued to account for much of the transaction activity, but at a slower pace than in 212. Total deal value for exploration and production transactions in 213 fell 43% from a year earlier to $43.4 billion. Deal count tumbled to 162 from 263. North America continues to be the place where many deals are occurring, said Mr. Thomas. However, the picture across the board is not as rosy as in recent years. While it is too soon to tell whether the euphoria over North American unconventional resources is dissipating, dampened buying activity in North America may signal an industry that is shifting its attention from acquisitions to development. In the past several years, some really exciting areas have opened up for exploration and development in North America, including the Marcellus, the Eagle Ford, and the Bakken, said Mr. Dillavou. That created excitement and people were making transactions around those areas. Now companies are focusing on developing those areas that were acquired. Mr. Shreve also believes a slowdown in deal count could reflect a consolidating industry. In the upstream segment we used to see lots of properties swapped, he said. Now however, fewer companies are aggregating quality assets and that should slow down the deal count. Despite protracted weak prices for U.S. natural gas, distress sales of properties have been fairly limited. Now, as natural gas prices slowly improve, the economics are becoming more clear for the gas side of the business, commented Roger Ihne, Principal, Deloitte Consulting LLP. With more stable prices, valuations for natural gas assets become less of a moving target. Exploration and production M&A deals by value and count (In $ billions) 16 14 12 1 8 6 4 2 (count) 18 16 14 12 1 8 6 4 2 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Asset value Corporate value Total deal count 6

U.S. rotary rig count in the U.S. Gulf of Mexico (average) 6 5 4 3 2 1 Jan-1 Mar-1 Source: Baker Hughes May-1 Jul-1 Sept-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sept-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sept-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 International buyers remain interested in U.S. properties. China was again the leader, with three deals in the first half of 213 for U.S.-based assets, noted Mr. Thomas. We sense that first, international players are more active buyers and second, they are looking for opportunities in the U.S. The Gulf of Mexico is an area of particular interest. We see a high level of interest in Gulf properties, said Mr. Dillavou. People now understand the rules of development and what they need to do under current regulations. In Canada, the number of upstream transactions fell sharply to 31 in the first half of 213 from 72 a year earlier. U.S. buyers in particular were less active in the Canadian market. Many M&A waves in the Canadian oil and gas industry started with American companies coming to Canada and buying assets, commented Mr. Pyra. In this cycle, we have seen very little interest from the U.S., with most buyers coming from Asia, particularly the Chinese. However, regulatory conditions in Canada have changed. We saw significant regulatory changes in Canada during the last part of 212, which made it harder for NOCs to acquire assets in the country, noted Mr. Pyra. Under the new rules, only two large upstream deals took place in Canada in 212, including Chinese-owned CNOOC Ltd. s $15.1 billion acquisition of Nexen, Inc. The Chinese are still interested in owning Canadian assets, said Mr. Pyra. However, they have had to change their strategy to take minority positions. Joint ventures have long been the vehicle of choice for international buyers wanting to participate in the U.S. upstream market. The joint venture construct appears to still be the preferred structure for these buyers to invest in, said Mr. Thomas, who expects more activity from overseas buyers. There is a perception that the U.S. regulatory framework is easier to deal with than that of other countries, so the U.S. is a great place to buy and activity should continue. M&A Midyear 213 Report 7

Canadian exploration and production M&A deals by count (Deal count) 6 5 49 48 4 36 33 3 28 28 26 2 22 2 12 1 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Total deal count 8

Oilfield equipment and services Service intensity, production increases underlie a healthier deal market Buyers and sellers were active in the oilfield services segment during the first half of 213, with the number of transactions rising to 51 from 39 in the first half of 212. The total deal value reached $11.1 billion, compared to $7.4 billion the same period a year earlier. While oilfield service transactions have in the past taken place mostly in North America, this year deals were scattered across the globe, with 16 acquisitions involving European companies and another 11 taking place in Asia. Many of the largest transactions involved offshore companies. Offshore activity continues to be strong, noted Mr. Dillavou. Consolidation has been going on for a long time, but this space also seems to produce new companies sprouting up all the time, with new ideas. While the offshore market was active, the single largest transaction based on deal value during the first half of 213 was GE Energy s $3.3 billion purchase of Lufkin Industries, Inc., a U.S. maker of lift equipment for oil and gas wells. Through acquisitions, GE Energy has quietly become one of the largest oilfield equipment and services companies in the U.S., noted Mr. Ihne. Elsewhere in the U.S., a rush to get deals done in the fourth quarter of 212 among the smaller companies may have borrowed activity from the first half of 213. We saw a rush to get deals done by year-end, particularly in the oilfield services segment, because of pending tax law changes, said Mr. Spann. The acceleration of activity into the end of 212 likely tempered some of the activity in the first half of 213. Through acquisitions, GE Energy has quietly become one of the largest oilfield equipment and services companies in the U.S. Roger Ihne Principal Deloitte Consulting LLP Oilfield equipment and services M&A deals by value and count (In $ billions) 18 42 (count) 15 36 12 3 24 9 18 6 12 3 6 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Asset value Corporate value Total deal count M&A Midyear 213 Report 9

We could see a significant pickup in future transactions among Canadian service companies. Brian Pyra Partner Deloitte Canada 1

U.S. onshore rig count 2,5 2, 1,5 1, 5 Jan-1 Source: Baker Hughes Mar-1 May-1 Jul-1 Sept-1 Nov-1 Jan-11 A falloff in drilling activity in the U.S. in the past year and the resulting downward pressure on service company margins may have negatively affected profitability, but might have spurred M&A activity in the segment. Profitability of companies heavily tied to natural gas production have been most affected. When gas prices fell in the first half of last year, activity and rig counts dropped significantly in the gas fields, said Mr. Dillavou. Oil production has partly, but not totally made up the slack and that is an influencing factor in M&A activity. The long-term domestic outlook remains positive for the oilfield services segment, given the continued rise in North American Shale production and increasing technical complexity of the operations required to support that production. Despite the negative short-term drivers of profitability during the first half of the year, lower valuations, the need for scale, advancing technologies, and Mar-11 May-11 Jul-11 Sept-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sept-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 the service intensity of shale continue to support strong activity in the oilfield services segment in the U.S., said Mr. Thomas. However, in Canada, M&A activity in the oilfield services segment was quiet, with only seven deals taking place in the first half of 213. But, the outlook remains bright and opportunities for service companies are extensive, according to Mr. Pyra. We could see a significant pickup in future transactions among Canadian service companies, he said. Canadians have been producing from marginal and unconventional properties for years, and the service industry is characterized by many small companies that have developed new technologies and may be sellers at this time. Companies from Australia, the U.S., and Asia are looking at Canadian service companies and wanting to acquire those technologies. M&A Midyear 213 Report 11

Midstream Moderate deal activity in a growing segment The steady rise in production from North America s unconventional oil and gas fields is bringing renewed growth prospects and new capital investment to the once-sleepy midstream segment. Midstream operators are reaping the benefits of rising incremental demand for gas and liquids transport, as abundant domestic supply keeps prices in check and the U.S. petrochemical industry revives. For the first half of 213, total deal value in the midstream space reached $25.1 billion, up from $18.7 billion during the first six months of 212. As in the past, most deal activity took place in the U.S. It is an active marketplace, said Mr. Thomas. Many large deals have already taken place, but second-tier midstream players are consolidating. Master limited partnerships (MLPs) remain particularly active in the midstream sector, accounting for six of its 1 largest deals. MLPs are still the dominant players, said Mr. Shreve. Some integrated companies are forming MLPs. We expect to see healthy volume continue in this space, whether it comes from MLPs consolidating or integrated companies creating new MLPs to maximize valuations. Mr. Spann agreed noting, There continues to be a lot of interest from companies and investors around formation of MLPs, given Many large deals have already taken place, but second-tier midstream players are consolidating. the lower costs of capital and premium market valuations. The relative strength of midstream M&A activity is evident in the fact that the two largest transactions during the first half of 213 took place in this segment of the energy industry. When included as a midstream asset, the largest deal was Royal Dutch Shell Plc s $6.7 billion purchase of LNG import and export terminals in Spain and Latin America from Repsol SA. Interest in LNG assets is on the rise, especially in North America, given the number of projects being proposed in the U.S. and Canada noted Mr. Ihne. Again, the availability of North American Shale gas could be influencing asset values around the world. Trevear Thomas Principal Deloitte Consulting LLP Midstream M&A deals by value and count (In $ billions) 5 (count) 25 4 2 3 15 2 1 1 5 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Asset value Corporate value Total deal count 12

We continue to see activity around the major basins, such as the Eagle Ford and the Permian. Jim Dillavou Partner Deloitte & Touche LLP The outlook for the midstream market appears healthy as companies continue to seek capital to create the infrastructure needed to get oil and gas to market from new U.S. production areas. We continue to see activity around the major basins, such as the Eagle Ford and the Permian, said Mr. Dillavou. Production is still outstripping infrastructure. There are plenty of opportunities for investment, so this continues to be an area of high interest. M&A Midyear 213 Report 13

Refining and marketing Few transactions as U.S. refiners adapt to changing crude supplies Deal activity in the downstream segment was very quiet during the first half of 213. The total value of refining and marketing transactions was only $31 million, a significant decline from the $1.6 billion in total value for downstream transactions in the first six months of 212. We have a hypothesis that in time we may see more consolidation in this space, as the newly independent downstream players rationalize their portfolios, while others make acquisitions in order to grow and increase competitiveness, said Mr. Thomas. However, we did not see that happening in the first half of 213. While the downstream deal count has been declining for the past three years, the value of downstream deals during the first half of 212 jumped sharply as two large non-u.s. deals drove deal value upward, creating a difficult comparison. We had a fairly active year last year, with large transactions taking place as the integrated companies shed assets, said Mr. Ihne. Currently, however, we do not see a lot of deal activity in the U.S., with some uncertainties affecting the downstream segment. Refining and marketing M&A deals by value and count (In $ billions) 7 (count) 12 6 5 4 3 2 1 1 8 6 4 2 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Asset value Corporate value Total deal count 14

While low U.S. natural gas prices and their positive impact on operating costs continue to benefit the domestic refining industry, a dramatic narrowing of the spread between Brent and West Texas Intermediate crude prices has put a damper on the immediate outlook for many U.S. refiners. Looking ahead, increasing supplies of domestic crude oil and natural gas continue to breathe new life into America s downstream segment. In the near term, however, in addition to the narrowing of the Brent and WTI spread, U.S. refiners continue to struggle with the changing makeup and location of its crude supplies. Water-borne imports of light, sweet crude from Africa have all but disappeared, replaced by growing quantities of light, sweet crude from U.S. producers. Refiners on the Gulf Coast, with capacity geared to refine quantities of heavy crude, are grappling with the changing mix and deciding whether to invest in configuration changes to handle the new supplies. Uncertainty over approval of the Keystone XL pipeline, with its potential to deliver more heavy crude supply to the Gulf from the Canadian oil sands, is another factor that refiners must take into account when weighing their long-term investment options. M&A Midyear 213 Report 15

Conclusion Too soon to tell if quiet deal market signals a trend Deal activity showed a marked decline during the first half of 213. However, it is premature to identify this as a longer-term trend, particularly given the surge in transactions during the fourth quarter of 212. The falloff in activity was concentrated in the upstream segment. Upstream M&A, though still accounting for the most activity among all energy industry segments, fell off sharply around the globe, possibly influenced by economic concerns in Europe and Asia and tax and regulatory uncertainties in North America. Midstream and oilfield services deal activity remained healthy in the first half of 213. The promise of North American unconventional finds is rapidly shifting to production and delivery, changing the dynamics of energy industry activities domestically and abroad. Looking farther ahead, capital spending and transaction activity likely will accompany growing worldwide energy demand. We do not think investors are moving away from the energy industry, said Mr. Shreve. World population trends continue to support growth in global energy demand. Over the near term, oil and gas investors face regulatory, economic, and political uncertainties in many parts of the world. However, rising worldwide demand and the capital needed for new projects, such as pipelines to serve growing North American production and for technology to explore in deep waters and harsher environments offshore will likely keep industry investors occupied for years to come. 16

For more information, please contact a Deloitte Oil & Gas professional: Jim Dillavou Deloitte & Touche LLP Houston jdillavou@deloitte.com +1 713 982 2137 John England Deloitte LLP Houston jengland@deloitte.com +1 713 982 2556 Roger Ihne Deloitte Consulting LLP Houston rihne@deloitte.com +1 713 982 2339 Dan Melvin Deloitte Services LP Houston damelvin@deloitte.com +1 713 982 3577 Brian Pyra Deloitte Canada Calgary bpyra@deloitte.ca +1 43 53 148 Jed Shreve Deloitte Financial Advisory Services LLP Houston jshreve@deloitte.com +1 713 982 4393 Jason Spann Deloitte Tax LLP Houston jspann@deloitte.com +1 713 982 4879 Trevear Thomas Deloitte Consulting LLP Houston trethomas@deloitte.com +1 713 982 4761 For more information about the Deloitte Oil & Gas Group and the Deloitte Center for Energy Solutions, visit us at www.deloitte.com/energysolutions. M&A Midyear 213 Report 17

Center for Energy Solutions About the Deloitte Center for Energy Solutions The Deloitte Center for Energy Solutions provides a forum for innovation, thought leadership, groundbreaking research, and industry collaboration to help companies solve the most complex energy challenges. Through the Center, Deloitte s Energy & Resources Group leads the debate on critical topics on the minds of executives from the impact of legislative and regulatory policy, to operational efficiency, to sustainable and profitable growth. We provide comprehensive solutions through a global network of specialists and thought leaders. With locations in Houston and Washington, D.C., the Deloitte Center for Energy Solutions offers interaction through seminars, roundtables and other forms of engagement, where established and growing companies can come together to learn, discuss and debate. www.deloitte.com/energysolutions This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. Copyright 213 Deloitte Development LLC, All rights reserved Member for Deloitte Touche Tohmatsu Limited