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Global Outlook for Oil and Natural Gas IPAA Annual Meeting November 7, 2007 Houston, TX Jeff Dietert Managing Director, Research Simmons & Company International.

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Presentation on theme: "Global Outlook for Oil and Natural Gas IPAA Annual Meeting November 7, 2007 Houston, TX Jeff Dietert Managing Director, Research Simmons & Company International."— Presentation transcript:

1 Global Outlook for Oil and Natural Gas IPAA Annual Meeting November 7, 2007 Houston, TX Jeff Dietert Managing Director, Research Simmons & Company International

2 S IMMONS & C OMPANY INTERNATIONAL 2 Oil Macro Outlook Limited supply visibility. Potential for higher prices: Growing challenges for non-OPEC supply. –Diminishing IOC access via asset nationalization. –Increasing government rent. –Aging work force and infrastructure. –Cost escalation & service company constraints. –Limited data available to assess future outlook for supply. Healthy non-OECD demand. Rising call on OPEC crude & uncertain spare capacity. Weak US dollar. Risks that could negatively impact prices : Weak OECD demand. Uncertain US economic outlook. Mild winter weather outlook.

3 S IMMONS & C OMPANY INTERNATIONAL 3 Historical Oil Demand Growth OECD and non-OECD Oil Demand, Demand has been slowed by oil price spikes and recessionary periods. Non-OECD oil demand has been more resilient and pronounced than the OECD.

4 S IMMONS & C OMPANY INTERNATIONAL 4 Oil Demand Growth Focused in the Non-OECD Per Capita Oil Consumption Demand Growth Segmentation Per capital consumption in the developing world is a fraction of the OECD average. Non-OECD demand has grown at ~3% pa (~1.2 mb/d), despite higher oil prices.

5 S IMMONS & C OMPANY INTERNATIONAL 5 Non-OPEC Oil Supply We expect non-OPEC supply to be flat in 2008 and down in , putting substantial pressure on OPEC supply growth to meet non-OECD demand growth. Non-OPEC Supply Growth Stalls After 2007

6 S IMMONS & C OMPANY INTERNATIONAL 6 Non-OPEC Supply: Accelerating Declines North Sea Declines and Field Peaks by Decade Sources: Government sources, Simmons & Company International North Sea Peak Output by Year of Startup

7 S IMMONS & C OMPANY INTERNATIONAL 7 Non-OPEC Supply – Second Largest Oil Field in Rapid Decline Cantarell Production History and Forecast Cantarell Production Forecast Sources: PEMEX, Simmons & Company International

8 S IMMONS & C OMPANY INTERNATIONAL 8 Limited OPEC Spare Capacity Effective spare capacity is 2.66mb/d (per IEA), only ~3% of global demand. Little information is available to assess the deliverability of the spare capacity. The major is low quality crude in Saudi Arabia, vs. demand for light sweet crude. Risks to physical disruptions have increased. World Demand vs Spare Capacity Source: IEA OPEC Crude Production

9 S IMMONS & C OMPANY INTERNATIONAL 9 Natural Gas Macro Outlook Above-average supply visibility in 2007/2008. Tight market Factors that could drive prices higher: Increasing demand pull from Asia. Uncertain outlook for Russian natural gas supply. Growing power generation demand. Declining Canadian production. Risks that could negatively impact prices: Growing U.S production, aided by Independence Hub & Rockies Express. Increasing LNG liquefaction & regasification capacity. Mild winter weather outlook. Declining industrial demand. Relatively high storage levels and growing storage capacity.

10 S IMMONS & C OMPANY INTERNATIONAL 10 Global Natural Gas Supply Growing About 8 bcfd/Year Y/Y Change in Global Natural Gas Production

11 S IMMONS & C OMPANY INTERNATIONAL 11 Natural Gas Supply Visibility A large number of major supply projects provide visibility for late 2007 & 2008 global supply growth. ***LNG Liquefaction Additions: over 4 bcfd in both 2008 and *** Texas Production Growth: +1.8 bcfd y/y. ***Independence Hub/GOM: +0.8 bcfd to 1bcfd by YE'07. ***BP/Atlantis/GOM: +0.2 bcfd by YE'07. ***Rockies Express Pipeline: +1.5 bcfd of capacity by Jan'08. ***Orman Lange/Norway: Initial production Oct'2007, increasing to over 2 bcfd in Major Contributors to Supply Growth Y/Y

12 S IMMONS & C OMPANY INTERNATIONAL 12 Russian Supply – Dependent on Yamal Post 2010 Gazprom Production Outlook, bcm/y

13 S IMMONS & C OMPANY INTERNATIONAL 13 Russian Supply: Critical to Europe Russia Natural Gas Exports

14 S IMMONS & C OMPANY INTERNATIONAL 14 Growing Domestic Production Reported Production Statistics GOM production has been flat m/m since October Independence Hub should add ~ 1.0 bcfd by YE07. Texas production growth is accelerating (primary Barnet Shale), currently +1.8 bcfd y/y. Wyoming production has been pipeline capacity constrained since October Rockies Express will add 1.5 bcfd of pipeline capacity starting Jan 2008.

15 S IMMONS & C OMPANY INTERNATIONAL 15 Natural Gas Demand Weather Dependent Residential and Commercial Winter Demand Variance

16 S IMMONS & C OMPANY INTERNATIONAL 16 Natural Gas Demand Weather Dependent Power Generation Summer Demand Variance

17 S IMMONS & C OMPANY INTERNATIONAL 17 Natural Gas Demand Secular Growth in Power Generation Incremental Net Generation Y/Y Natural gas fired generation has supplied 64% of incremental electricity since Natural gas fired generation capacity is underutilized, while coal and nuclear generation is running at near full capacity. Gas demand in the power sector has grown at ~1 bcfd and over the last three years.

18 S IMMONS & C OMPANY INTERNATIONAL 18 Appendix D: Disclaimer Analyst Certification: I, Jeff Dietert, hereby certify that the views expressed in this research report to the best of my knowledge, accurately reflect my personal views about the subject compan(ies) and its (their) securities; and that, I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) or views in this research report. Important Disclosures: For detailed rating information, go to Additional information is available upon request. Research analysts compensation is based upon (among other things) the firm's general investment banking revenues. Simmons & Company International may seek compensation for investment banking services from other companies for which research coverage is provided. The firm would expect to receive compensation for any such services. Foreign Affiliate Disclosure: This report may be made available in the United Kingdom through distribution by Simmons & Company International Limited, a firm authorized and regulated by the Financial Services Authority to undertake designated investment business in the United Kingdom. Simmons & Company International Limited's policy on managing investment research conflicts is available by request. The research report is directed only at persons who have professional experience in matters relating to investments who fall within the definition of investment professionals in Article 19(5) Financial Services and Markets Act (Financial Promotion) Order 2001 (as amended) ("FPO"); persons who fall within Article 49(2)(a) to (d) FPO (high net worth companies, unincorporated associations etc.) or persons who are otherwise market counterparties or intermediate customers in accordance with the FSA Handbook of Rules and Guidance ("relevant persons"). The research report must not be acted on or relied upon by any persons who receive it within the EEA who are not relevant persons. Simmons & Company International Limited is located at 33 Queens Road, Aberdeen, Scotland; and 40 Piccadilly 3rd Floor, London, United Kingdom. Disclaimer: This is based on information obtained from sources which Simmons & Company International believes to be reliable, but Simmons & Company does not represent or warrant its accuracy. The opinions and estimates contained in the represent the views of Simmons & Company as of the date of the , and may be subject to change without prior notice. Simmons & Company International will not be responsible for the consequence of reliance upon any opinion or statement contained in this e- mail. This is confidential and may not be reproduced in whole or in part without the prior written permission of Simmons & Company International.


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