1. OIL & INVESTOR RISK

2. SUMMARY Oil industry going deeper and dirtier (oil at any cost) IOCs face rising costs & risks Assuming 2 o C will not be achieved Triad of policy pressures causing demand destruction Peak demand could leave IOCs stranded at the wrong end of the production cost curve Is RRR a disincentive for change?

3. DIRTIER & DEEPER Shedding alternatives to concentrate in oil & gas More extreme environments (ultra-deep, offshore Arctic) Unconventional (tar sands, kerogen, CTL, GTL, tight oil and shale gas) EOR

4. UNDERLYING TRENDS High Capex (increasing cost per flowing barrel) Escalating operating costs Rising operational risk (upstream & down) Low or negative growth Tighter margins

5. RISING ENVIRONMENTAL RISKS Rising emissions (tar sands, kerogen, shale gas? Tight oil? Deepwater? EOR? Refining) Water (tar sands, kerogen, shale, EOR, shale gas) Spills (deepwater, Arctic) – higher stakes Habitat destruction (tar sands)

6. INDUSTRY BULLISH ON DEMAND Population rising Middle classes growing in non-OECD Few viable alternative transport fuels Assumes stagnant policy and tech. progress Assume 2 o C wont be achieved

7. HEADING FOR 6 O C 1000ppm – 6 o C

8. Tar sands – inflated ambitions ScenarioCurrent Policies New Policies 450Announced Projects Mb/d4.64.13.37.7 2035 tar sands production under different IEA scenarios

9. DEMAND: POLICY PRESSURES Energy Security Volatile oil prices Climate change DEMAND DESTRUCTION

10. DECLINING OIL DEMAND FORECASTS

11. PEAK DEMAND? IEA (2010) 450S = 2018

12. HIGH OIL PRICE = HIGH VOLATILITY The Breakpoint Zone (CERA) a company will not invest in a project that requires a $100/bbl break even if the average oil price is $100/bbl. …the company will require a degree of comfort, which we calculate here is around $25/bbl, to make an investment in a marginal project. (Deutsche Bank: Dec 2010)

13. PRODUCTION COST CURVE

14. RESERVES REPLACEMENT

16. LONG TERM?

18. RESERVES ARE KEY RRR demands constant reacquisition of a non- renewable and fast disappearing resource Can we really expect 100% RRR ad-infinitum? Current reserves reporting reveals little about relative exposure to rising risks & costs What is the alternative?

19. WANTED! NEW METRICS Signal that RRR is no longer key Enhance risk assessment of reserves additions Incorporate climate risk into reserves additions Value alternative business models Reward alternatives Encourage diversification