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Jersey Investment Briefings – February 2011 Richard Robinson Gorilla View: “Death of Cheap Oil Supply” February 2011.

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Presentation on theme: "Jersey Investment Briefings – February 2011 Richard Robinson Gorilla View: “Death of Cheap Oil Supply” February 2011."— Presentation transcript:

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2 Jersey Investment Briefings – February 2011 Richard Robinson Gorilla View: “Death of Cheap Oil Supply” February 2011

3 Jersey Investment Briefings – February 2011 Ashburton European Equity Fund* Ranking among European Equities funds Data Source - Lipper 1 1 st Top quartile performance 1 1

4 Investment Process

5 Jersey Investment Briefings – February 2011 Short term Stock selection Screening model (Valuation & Momentum) Bottom up (CROCI*, P/NAV, DCF) Technical (RSI, Volume, MACD**) Relative valuation Analyst Input Meet management (where possible) Inventories, sector indicators, etc. Qualitative research Long term Mid term Death of Cheap Oil Supply Billion Boomers Global themes actively managed in Europe Performance underpinned by differentiated Investment Process Diverging West Internal Feedback + Analyst Feedback + Independent + General Research Recovering West Austerity Busters Incubator Oil Services Oil E&P Integrated Alternative Energy Consumer and Lifestyle Hard Commodities Infrastructure Consumer Logistics Deleveraging consumer Stable Demand Increased Tax Revenue Increased Gov. efficiency Clean and Green Innovation Financials Others

6 Jersey Investment Briefings – February 2011 Long term Death of Cheap Oil Supply Gorilla View: “Death of Cheap Oil Supply”

7 Demand

8 Jersey Investment Briefings – February 2011 Source: The IEA, June 2009 Production (mn boe/day) Spare capacity (%) Demand Recovery leading to tighter future spare capacity  Normally the world operates with a ‘cushion’ of spare capacity.  Draw downs have brought spare capacity down to ‘average levels’ But… by 2015 spare capacity to disappear

9 Jersey Investment Briefings – February 2011 Demand Recovery leading to tighter future spare capacity Source: The IEA, June 2009 Production (mn boe/day)  Normally the world operates with a ‘cushion’ of spare capacity.  Draw downs have brought spare capacity down to ‘average levels’ But… by 2015 spare capacity to disappear

10 Jersey Investment Briefings – February 2011 GDP is set to grow at a healthy 4-5% for the next 5 years GDP is forecast to grow at a higher pace Source: IMF and Bernstein estimates and analysis

11 Jersey Investment Briefings – February 2011 GDP is set to grow at a healthy 4-5% for the next 5 years We believe IEA estimates are conservative as oil demand tends to grow faster when GDP growth averages 4-5% Source: IMF and Bernstein estimates and analysis Global Oil Demand vs GDP Global Oil Demand Growth Global GDP Growth

12 Jersey Investment Briefings – February 2011 Death of cheap oil supply Source: IEA, Pareto, October 2009 IEA oil demand forecasts, E in Mtoe Increased oil demand from developing countries to more than offset OECD demand decline….

13 Jersey Investment Briefings – February 2011 Where is the demand growth coming from? 87.5 Source: Bernstein (Dec 2010) 94 China Other Asia Middle East Latin America US Africa Former Soviet Union Other Europe North America (ex-US) Europe Oceania

14 Jersey Investment Briefings – February 2011 Annual per capita demand from China is currently 2.5bbls. - Approx. 1/10 th US per capita demand Over 1m cars a month were bought last year China …and the gap in per capita consumption should narrow Per Capita Oil Consumption bbl/capita/yr E 2020E Source: BP Statistical Review, Global Insight, Bernstein estimates

15 Jersey Investment Briefings – February 2011 China Annual per capita demand from China is currently 2.5bbls. - Approx. 1/10 th US per capita demand Over 1m cars a month were bought last year Source: China NBS, Bernstein analysis

16 Jersey Investment Briefings – February 2011 US (No.1): 842 /1000 UK (No.22) :458/1000 China (No. 143) 128 /1000 US (No.1): 842 /1000 UK (No.22) :458/1000 China (No. 143) 128 /1000 China Annual per capita demand from China is currently 2.5bbls. - Approx. 1/10 th US per capita demand Over 1m cars a month were bought last year

17 Jersey Investment Briefings – February 2011 China Annual per capita demand from China is currently 2.5bbls. - Approx. 1/10 th US per capita demand Over 1m cars a month were bought last year Transport now represents 36% of China demand… …up from 15% in 1990 Source: China NBS and Bernstein estimates and analysis

18 Jersey Investment Briefings – February 2011 Production Depletion Oil Production 1999 – 2020e, existing and new production needs Source: IEA; Pareto

19 Jersey Investment Briefings – February 2011  We are more reliant on offshore oil + offshore oil is getting deeper -Onshore production declines at 3.4% annually -Offshore production declines at 7.3% annually -Deepwater production declines at 13.3% annually  We are more reliant on offshore oil + offshore oil is getting deeper -Onshore production declines at 3.4% annually -Offshore production declines at 7.3% annually -Deepwater production declines at 13.3% annually 89% Offshore Production Depletion

20 Supply

21 Jersey Investment Briefings – February 2011 “Death of Cheap Oil Supply: Oil Services” Long term Mid term Oil Services Oil E&P Alt. Energy Integrated Death of Cheap Oil Supply

22 Jersey Investment Briefings – February 2011 “Death of Cheap Oil Supply: Oil Services” Source: MMS, BERR and Bernstein estimates, 2009.

23 Jersey Investment Briefings – February 2011 “Death of Cheap Oil Supply: Oil Services” Source: MMS, BERR and Bernstein estimates, 2009.

24 Jersey Investment Briefings – February 2011 “Death of Cheap Oil Supply: Oil Services” Source: MMS, BERR and Bernstein estimates, 2009.

25 Jersey Investment Briefings – February 2011 Frontier drilling getting deeper Source: The Swordpress Source: Bernstein “Death of Cheap Oil Supply: Oil Services”

26 Jersey Investment Briefings – February 2011 Deteriorating quality Source: Bernstein “Death of Cheap Oil Supply: Oil Services”

27 Jersey Investment Briefings – February 2011 Deteriorating quality Source: The Swordpress Source: Bernstein “Death of Cheap Oil Supply: Oil Services” Deteriorating quality

28 Jersey Investment Briefings – February 2011  Strong pick up in project spend  Predicated on a $65 oil price $30 ‘ BUFFER ’ Source: Pareto Change in E+P Spending Budgets USD/BBL Growth %

29 Jersey Investment Briefings – February 2011 Projects are not coming on in time... Non-OPEC annual gross capacity added e Source: IEA; Wood Mackenzie; BP; Pareto

30 Jersey Investment Briefings – February 2011 Oil service companies best positioned to benefit from capex cycle Integrated companies (RDS, Total, BG, Repsol) – strong balance sheets offering high yields, not that geared to oil price E+P Companies (Tullow) – strong focus on oil finds in Brazil and West Africa with potential angle on consolidation Oil services (Saipem, Seadrill, Acergy, Subsea, Technip, Petrofac, Amec, BWOffshore) – offshore and onshore exposure to capex cycle Alternative Energy – prefer specialist, non-commoditised part suppliers Source: Ashburton Source: Thomson Financial Datastream, MFG, March 2010 Portfolio allocation Death of Cheap Oil Supply (as at ) Death of Cheap Oil Supply, Oil E&P, 1.4 Integrated 1.7 Oil Services, 28.02

31 Jersey Investment Briefings – February 2011 GORILLA VIEWSUB THEMENAV DEATH OF CHEAP OIL SUPPLY Oil Services Oil E&P 2.64 Integrated 4.55 BILLION BOOMERS Consumer and Lifestyle 7.55 Real Estate 0.00 Hard / Soft Commodities 9.85 Infrastructure Financial Intermediation 0.00 Russia 1.14 AUSTERITY BUSTERS 9.19 Increased Tax Revenue 0.00 Stable Demand 6.18 Deleveraging Consumer 1.56 Increased Gov. Efficiency 1.45 INNOVATION 1.07 Tech Mobility 0.00 Personalised Medicine 1.07 Step Increases in Efficiency 0.00 CLEAN AND GREEN Water Usage 0.00 Renewable Energy 0.00 Alternative Energy 0.00 Cleaner Fossil Fuels 4.33 More Efficient Use of Resources 6.82 OTHER Financials 5.14 Recovering Western Consumer Bottom Up 1.01 CASH 0.59 Gorilla View - Europe

32 Conclusion

33 Jersey Investment Briefings – February 2011 Summary of key points  Oil demand correlation to Global GDP is likely to strengthen, as high growth (stronger macro) economies become demand driver.  Demand to grow circa 2-3% (accelerating in 2 nd half of decade).  Field Attrition to accelerate past 4.5% in the second half of decade.  Replacement needs for oil will move past 7.5%.  Supply to become very tight 2013 onwards.  Oil Companies capex needs to grow in order to meet demand in 2 nd half of decade.  Projects take 4yrs + to complete  Oil Services to experience strong demand. As oil deteriorates in quality, flow rates decline and we move deeper and deeper offshore

34 Thank you Active Investment Managers

35 DISCLAIMER Ashburton (Jersey) Limited is referred to in this context as ‘Ashburton’. This document does not constitute an offer or solicitation to any person in any jurisdiction in which Ashburton is not authorised or permitted to communicate with potential investors, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this document, and should be satisfied in doing so that there is no breach of local legislation or regulation. The information is intended solely for use by Ashburton clients or prospective clients, and should not be reproduced or distributed except via original recipients acting as professional intermediaries. This document is not for distribution in the United States. Prospective investors should inform themselves and if need be take appropriate advice regarding applicable legal, taxation and exchange control regulations in countries of their citizenship, residence or domicile which may be relevant to the acquisition, holding, transfer, redemption or disposal of any investments herein solicited. Any opinions expressed herein are those at the date this material is issued. Data, models and other statistics are sourced from our own records, unless otherwise stated. Ashburton believes that the information contained is from reliable sources, but we do not guarantee the relevance, accuracy or completeness thereof. We caution that the value of investments and the income derived, may fluctuate and it is possible that an investor may incur losses, including a loss of the principal invested. Past performance is not generally indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Ashburton (Jersey) Limited (Company Registration No ) is a member of the FirstRand Group, is regulated by the Jersey Financial Services Commission and has its registered office at 17 Hilary Street, St Helier, Jersey JE4 8SJ. Ashburton (Jersey) Limited is registered as a Foreign Investment Services Provider in South Africa in accordance with Section 8 of the Financial Advisory & Intermediary Services Act 2002.


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