1. The Oil Industry: Peak Oil Misperceptions & Realities May 2008 Mark Payton Director, Strategic Planning & Development Mustang Engineering

2. Disclaimer Views presented in this paper reflect only the personal opinions of the author, and do not reflect the views or opinions of Mustang Engineering, its parent company Wood Group or any of its affiliates

3. Oil Prices- Trends Oil is one of most volatile commodities around!

4. Oil Prices The highest – ever!

5. Gasoline Prices Higher and higher!

6. Gasoline Prices Prices have largely tracked increases in crude prices

7. Gasoline Prices – Are we the Victims of Greedy Oil Companies? Margins have fallen from highs achieved in mid 2007 as refiners can’t pass along prices increases without cutting demand – which is already happening! However, at $ 12 barrel (29 cents/gallon) margins are somewhat high compared to “historic” ranges of approximately 27 cents/gallon since 2003

8. Why are prices so high???

9. Oil Demand Demand has been growing steadily worldwide But only at a 1% annual rate worldwide! Demand growth 1980-2008 1.2% annually Demand growth 200-2008 1.4% annually Demand growth 205- 2008 <1% annually

10. Oil Demand The U.S. and China together account for 33% of all oil demand and together with India and a handful of others over 70% of all demand growth over the past 5 years

11. Oil Demand Directly linked to Increasing prosperity Increasing use of cars Number of people All of these have been the case in those places that have accounted for the bulk of the increase in demand for oil

12. Oil Supply While demand is growing supply isn’t Reserve growth has exceeded consumption in only 7 of the past 28 years – and only once since 2000

13. Oil Supply Official Crude Reserves are subject to much skepticism – and in many cases don’t account for actually oil that’s been produced!

14. Oil Supply Total discoveries have been dropping steadily since the 60’s

15. Oil Supply Major discoveries (Giant and Supergiant fields) have been dropping steadily for 30 years

16. Oil Supply This is in spite of huge, growing capital spending on exploration and production that now exceeds $ 325 billion 19% average annual growth

17. Oil Supply Is Oil running out? Have we reached Peak Oil?

18. What is Peak Oil? Peak Oil doesn’t mean oil is “running out” – at least not right away Peak oil is the point in time when the maximum rate of global petroleum production is reached, after which the rate of production enters its terminal declinepetroleum production M. King Hubbert first used the theory in 1956 to accurately predict that United States oil production would peak between 1965 and 1970. M. King Hubbert

19. Peak Oil – Hype or Reality? Of the 65 largest oil producing countries in the world 54 have passed their peak of production

20. Peak Oil – Hype or Reality Production of Crude has flattened and may have actually peaked in 2005

21. What’s All of this Mean??

22. What’s All this Mean?? Oil Prices are high because of shrinking supply and speculative pressures High prices will probably be the norm unless demand falls off quite a bit - even then a commodity in short supply usually commands high prices Energy related spending as a percent of World GDP is the highest it’s been since the 1980’s

23. What’s All this Mean?? More spending on oil means less for other things US Consumers have lost over $ 250 billion in spending capacity in the past year and nearly $400 billion in the past 5 years With less money to spend a recession is inevitable – the question is its duration The last time oil prices were this high (in real terms) the economy was in the doldrums for over 3 years (and longer in Houston!!)

24. What’s All this Mean? Whether we are actually at Peak Oil isn’t knowable until after the fact But the data says that supply is shrinking and Peak Oil isn’t a matter of if but when And it may be closer than we’d like!