Global Equity Research

13 January 2012

Global LNG
Full steam ahead, but cross-basin arbitrageurs beware Henry Hub price diffusion
European Oil & Gas Fred Lucas

(44-20) 7155 6131 J.P. Morgan Securities Ltd.

Nitin Sharma

(44-20) 7155 6133 J.P. Morgan Securities Ltd.

Australian Oil & Gas Benjamin Wilson

(61-2) 9220-1384 J.P. Morgan Securities Australia Limited

Asian Oil & Gas Brynjar Eirik Bustnes, CFA
(852) 2800-8578 J.P. Morgan Securities (Asia Pacific) Limited

Indian Oil & Gas Pradeep Mirchandani, CFA

(91-22) 6157-3591 J.P. Morgan India Private Limited

Russian Oil & Gas Nadia Kazakova, CFA

(44-20) 7325-6373 J.P. Morgan Securities Ltd.

North American Oil & Gas Joseph Allman, CFA
(1-212) 622-4864 J.P. Morgan Securities LLC

Katherine Lucas Minyard, CFA
(1-212) 622-6402 J.P. Morgan Securities LLC

Global Commodity Research Colin P. Fenton
(1-212) 834-5648 JPMorgan Chase Bank NA

See page 245 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

J.P. Morgan’s Global Oil & Gas Research Network
UK Integrateds Fred Lucas
(44-20) 7155 6131

Americas Exploration and Production Joseph Allman, CFA
(1-212) 622-4864

UK & European Oil Services & Equipment Andrew Dobbing
(44-20) 7155 6134

Jeanine Wai
(1-212) 622-6489

Jessica Lee
(1-212) 622-9812

James Thompson
(44-20) 7325 9460

European Integrateds Nitin Sharma
(44-20) 7155 6133

Americas Oil Services & Equipment J. David Anderson, PE, CFA
(1-212) 622-6684

Samantha Hoh, CFA
(1-212) 622-5248

UK Exploration & Production Jessica Tadj-Saadat, CFA
(44-20) 7155 6636

William S Thompson
(1-212) 622-9978

Emerging Oils – Russia Nadia Kazakova, CFA
(7-495) 937 7329

Americas Integrated Oils Katherine Lucas Minyard, CFA
(1-212) 622-6402

Andrey Gromadin, CFA
(7-495) 967 1037

Igor Grinman
(1-212) 622-6596

Emerging Oils – Asia Brynjar Bustnes
(852) 2800 8578

Emerging Oils – LatAm Caio Carvalhal
(55-11) 3048-3946

Sophie Tan
(852) 2800 8578

Felipe Dos Santos
(55-11) 4950-3796

Sukit Chawalitakul
(66-2) 684 2679

South African Oils Alex Comer
(44-20) 7325 1964

Australian Oils Benjamin Wilson
(61-2) 9220 1384

Head of Global Commodity Research Colin Fenton
(1-212) 834-5648

Daniel Butcher
(61-2) 9220 1405

Indian Oils Pradeep Mirchandani, CFA
(91-22) 6157 3591

Energy Strategy – Oil Lawrence Eagles
(1-212) 834-8107

David G Martin
(44-20) 7777-0211

For Specialist Sales advice, please contact: Hamish Clegg
(44-20) 7325 0878

Energy Strategy – Gas Scott Speaker
(1-212) 834-3878


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

J.P. Morgan Global Oil & Gas Equity Coverage
UK Integrateds - Fred Lucas BG Group, BP, RD Shell A & B UK & European Oil Services & Equipment - Andrew Dobbing Aker Solutions, Amec, CGG Veritas, Petrofac, Saipem, Subsea 7, TGS Nopec, Technip, Tecnicas Reunidas James Thompson - Cape, Hunting, Lamprell, PGS European Integrateds - Nitin Sharma ENI, Essar Energy, Galp Energia, OMV, Repsol YPF, Statoil, TOTAL UK E & P - Jessica Tadj-Saadat, CFA Afren, Cairn Energy, Enquest, Genel Energy, Heritage Oil, Ophir Energy, Serica Energy, Soco, Tullow Oil Emerging Oils – Russia - Nadia Kazakova, CFA C.A.T Oil, Eurasia Drilling Company, Gazprom, Gazprom Neft, HMS Group, MOL, Novatek, PKN Orlen, Rosneft, Surgutneftegaz, Surgutneftegaz Prefs Andrey Gromadin, CFA Alliance Oil Company, Bashneft, Bashneft (pref), Integra, Lotos, Lukoil, Tatneft, Tatneft Prefs, Tupras Emerging Oils – Asia - Brynjar Bustnes CNOOC, China Oilfield Services Limited, Inpex Corporation, MIE Holdings, PetroChina, S-OIL Crop, SK Energy, Sinopec Emerging Oils – Thailand – Sukit Chawalitakul PTT, PTTEP, Thai Oil Australian Oils - Benjamin Wilson, Daniel Butcher AWE Limited, Beach Energy, Oil Search, ROC Oil, Santos, Woodside Petroleum Indian Oils - Pradeep Mirchandani, CFA BPCL, Cairn India Ltd., Essar Oil, GAIL, Gujarat Gas Gujarat State Petronet Ltd., HPCL, Indian Oil, Indrapastha Gas, Oil India Ltd., ONGC, Petronet LNG Ltd., Reliance Industries Ltd. South African Oils - Alex Comer Sasol Emerging Oils – LatAm – Caio Carvalhal Ecopetrol. Gran Tierra Energy, HRT, Lupatech, OGX, Petrobras, Pacific Rubiales, Tenaris USA Exploration & Production - Joseph Allman, CFA ATP Oil & Gas, Anadarko Petroleum, Apache Corp., Approach Resources, Atlas Energy, Berry Petroleum, Brigham Exploration, Cabot Oil & Gas, Carrizo Oil & Gas, Chesapeake Energy, Cobalt International Energy, Concho Resources, Continental Resources, Denbury Resources, Devon Energy, EOG Resources, EQT Corp., EXCO Resources, El Paso Corp., Goodrich Petroleum, McMoran Exploration, Newfield Exploration, Noble Energy, PDC Energy, Penn Virginia Corp., PetroQuest Energy, Pioneer Natural Resources, Plains E&P, QEP Resources, Quicksilver Resources, Range Resources Corp., SM Energy, SandRidge Energy, Southwestern Energy, Swift Energy, Ultra Petroleum, Venoco Inc., Whiting Petroleum Corp., Williams Companies USA Oil Services & Equipment - J.David Anderson, PE, CFA Baker Hughes, Cameron Int’l, C&J Energy Services, Diamond Offshore, Dresser-Rand, DrilQuip, Ensco, Exterran Holdings, FMC Technologies, Halliburton, National Oilwell Varco, Noble Corp, Rowan Companies, Schlumberger, Transocean, Weatherford Inernational Integrateds - Katherine Lucas Minyard, CFA USA - Chevron, ConocoPhillips, Exxon Mobil, Hess, Marathon Oil, Murphy Oil, Occidental Petroleum Canada – Baytex Energy, Canadian Natural Resources, Cenovus Energy, Husky Energy, MEG Energy, Nexen, Suncor Energy, Talisman Energy, Lone Pine Resources, Penn West Exploration


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

Table of Contents
One-minute, one-page synopsis .............................................6 Introduction – global thematic research ................................7 Executive Summary .................................................................9 Global theme – LNG demand growth....................................15 LNG market .............................................................................17 North American LNG export potential ..................................27 LNG pricing – the Henry Hub threat......................................30 Global LNG supply & demand scenarios .............................37 Origin of LNG competitive advantages ................................50 Competitive ranking of LNG players.....................................55 Alternative strategies to play LNG theme ............................60 Company Profiles ...................................................................63 BG Group ................................................................................64 BP ............................................................................................80 RD Shell...................................................................................87 ENI ...........................................................................................96 Repsol YPF ...........................................................................100 Statoil ....................................................................................105 TOTAL ...................................................................................108 Chevron.................................................................................113 Exxon Mobil ..........................................................................117 Gazprom................................................................................121 Novatek .................................................................................130 Oil Search..............................................................................132 Santos ...................................................................................136 Woodside ..............................................................................141 Origin Energy........................................................................149 Inpex ......................................................................................151 Overview China LNG ............................................................158 CNOOC ..................................................................................165 PetroChina ............................................................................167 Sinopec .................................................................................168 Overview India LNG..............................................................169 Petronet LNG ........................................................................171


....747.013...H PetroChina Petronet LNG Ltd.......208 Equity Ratings and Price Targets Company BG Group BP Royal Dutch Shell B ENI Repsol YPF Statoil TOTAL Chevron Corp Exxon Mobil Corp Gazprom Novatek Oil Search Santos Limited Woodside Petroleum Inpex Corporation CNOOC Sinopec Corp ......lucas@jpmorgan..175 Appendix III: LNG importing countries.77 85.OL TOTF. Bloomberg.....AX 1605....63 134.....900 1..08 5....869.959..86 80...Fred Lucas (44-20) 7155 6131 fred..20 152....173 Appendix II: LNG export projects.88 10......T 0883....HK [12 Jan 12] ORG.370.674......77 8.00 n/c 92.. Origin Energy Symbol BG..AX [12 Jan 12] STO....49 Cur OW OW N OW N UW OW UW UW N UW N OW UW OW UW OW UW N OW Prev n/c n/c n/c n/c n/c n/c N n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c n/c Price Target Cur Prev 1.L RDSb..AX Mkt Cap ($ mn) 75....AX [12 Jan 12] 1605.40 n/c 8.......191......465..64 n/c 750.HK [12 Jan 12] 0857.HK PLNG..00 412..RTS NVTKq.Morgan estimates...........50 n/c 9..015.800 575 n/c 2............40 39.298.....904.....16 113........T [12 Jan 12] 0883.01 34...83 14.33 86.. n/c = no change.....MC STL.....44 24.HK [12 Jan 12] 0386.......BO ORG.. 5 ..70 234..414 16.L ENI..50 22....182 Appendix V: Floating LNG ..HK 0857.00 n/c 25.187 Appendix VI: A brief history of LNG ..........60 13.400 n/c 21.50 n/c 190......316......178 Appendix IV: LNG shipping ..29 29......40 129..427...... J.78 161..00 n/c 145.000 15...000 n/c 12.PA CVX XOM GAZP..90 6.448 475 2.... All prices as of 11 Jan 12 except for OSH........AX STO.....29 2...00 n/c 49...L Global Equity Research 13 January 2012 Appendices Appendix I: LNG exporting countries .011..190 Appendix VIII: Company financials.57 12.95 n/c Source: Company data...........AX [12 Jan 12] WPL............75 32.AX [12 Jan 12]..02 8...042...L OSH.............286.38 139..189 Appendix VII: Glossary of terms in LNG ..37 510.90 n/c 8.00 n/c 18..AX WPL.60 215....20 40.....01 n/c 18..875..88 107...55 Price CCY GBp GBp GBp EUR EUR NOK EUR USD USD USD USD AUD AUD AUD JPY HKD HKD HKD INR AUD Rating Price 1..85 12.94 n/c 82.......397......MI REP...00 n/c 6.....HK 0386..00 120..262......P.......986...00 47.....59 n/c 44.......17 26....60 76......72 19..

the Middle East and elsewhere. With this caveat. Santos and TOTAL and also cite alternatives in OFS. most notably in Asia Pacific. energy flexibility. Inpex (PT Y750. projects start late and new demand centers grow Our BULL scenario is supportive of oil priced indexation for long term contracts and continued regional price arbitrage 2012-14 New Henry Hub priced & sourced exports in 2015+ and deeper market liquidity will then tighten regional price dispersion We favor four IOCs .6 – upside 46%) and TOTAL (PT €49 – upside 22%). our top global IOC picks with Overweight recommendations are BG Group (PT 1900p . a 2011-18 CAGR of 6% (versus 2000-10 CAGR +8%).lucas@jpmorgan. Given the aforementioned themes and project delay risk. E&P and Shipping sectors to play LNG theme 6 . On this basis. de-carbonization of GDP growth and a continued transition away from nuclear power The Arab Spring and the Fukushima tragedy have only emboldened the script in favor of global LNG. However. Our note also lists alternative plays in Equipment & Services (given the potential for $1 trillion of capital investment 2012-18E). Indian demand reaches 20 MT by 2015 (2011E 10 MT). energy infrastructure renewal. we believe that the global LNG market will remain tight for the next 2-3 years given a notable slow down in liquefaction capacity additions (2011-13E +27 MT pa. LNG markets will stay tight 201214 as capacity growth slows. Santos (PT A$18.Fred Lucas (44-20) 7155 6131 fred. Notwithstanding its relatively high cost. Near term this is supportive of oil-indexed LNG contract pricing and supports meaningful regional price differentials 2012-14 which will provide suppliers with portfolio flexibility with profitable cargo diversion opportunities. a new pricing paradigm is emerging in the shape of Henry Hub indexed supply contracts for US gas sourced LNG exports. We continue to encourage investors to maintain / build exposure to names that are exposed to the global LNG theme. We acknowledge that the LNG market dynamics are complex and a clear understanding of the global supply-demand balance is very difficult given limited public disclosure on contract pricing and off-take flexibility. We review the LNG strategies. we believe that the case for LNG is underpinned by five very durable.000 – upside 47%).com Global Equity Research 13 January 2012 One-minute. +9% versus 2008-10 +82 MT pa. +40%). so continuing the displacement of coal by natural gas (v) given rising popular opposition. one-page synopsis Five big themes underwrite LNG–energy security. stimulate investment and reduce unemployment (iv) the decarbonization of economic growth as a social imperative. We estimate that the number of countries with LNG import capabilities will rise from 25 (90 import terminals) at end 2011 to 48 (160 terminals) by end 2015. From this. but also supported by an increasing number of new LNG importers in Europe.BG Group. Inpex. the LNG market will continue to tighten 2012 to 2014 and will be supply constrained from 2015 to demand reaches 368 MT by 2018E (2011E 249 MT). high risks of further project delays and very resilient demand patterns. investable and politically charged themes: (i) national energy supply security (ii) national energy supply flexibility (iii) national energy infrastructure renewal to improve system resilience to supplydemand shocks. Chinese LNG demand surpasses 30 MT in 2016 (2011E 12 MT). we have a bias to our BULL case set of assumptions . a further slow down in nuclear power generation.upside 31%). This will mitigate cross-basin arbitrage opportunities thus reducing the strategic value of portfolio supply flexibility and re-promoting the importance of water-tight long term contracts. asset spreads and competitive positioning of 20 companies. These factors will continue to drive long term LNG contract agreements close enough to oil price parity to warrant the very large upfront capital investment that LNG export chains mandate. E&Ps (small companies do not easily survive long cycle LNG projects) and Shipping (we anticipate robust rates through to 2013 and play this through the ship builders and the ship owners). Given this and a meaningful deepening LNG market liquidity post-2014. this will likely elevate depressed US gas prices and lead to tighter regional gas price dispersion. In the absence of meaningful domestic gas shale supplies.

Fred Lucas (44-20) 7155 6131 fred. We also analyzed various metrics that enable downstream performance to be measured and more clearly understood by 7 Refining is. In that note. by combining cross-border company comparison with a top-down industry value chain analysis. we examined the IOC portfolio transition to the upstream via downstream divestments / upstream acquisitions and rising upstream capital reinvestment. this provides investors with superior industry insights and stock selection advice.P. Industry is redeploying capital upstream and raising exploration intensity 1. In that note. Figure 1: Holistic approach to analyzing the global oil & gas sector BG Group Chevron Woodside Santos TOTAL Statoil x MACRO – Alpha skew Oil market Gas (LNG) market x Refining industry COMPANY SPECIFIC . (8 September 2011). In our view. we examined the global capacity outlook in refining and drew some very bearish conclusions about refining margins and returns over the near and medium Global Equity Research 13 January 2012 Introduction – global thematic research This is the third of JPM’s globally themed oil & gas research pieces.Alpha Execution risk Portfolio risk Growth potential Capital stewardship x Restructuring potential Valuation anomaly Source: J. 2.lucas@jpmorgan. Global Downstream – Refining – a long and painful sunset for many. a bad industry for many years BP ENI . Morgan. (23 September 2010). and will remain. We also set out various long term metrics that enable upstream performance to be more clearly understood by investors and companies to be ranked accordingly. the shape of things to come. As per the schematic above. In these global notes we tackle important industry themes by linking a comprehensive top down (macro) view of specific parts of the industry value chain with a detailed bottom-up (company) analysis and cross-border competitive analysis. we aim to provide more detailed and holistic insights and a different perspective to conventional silo-bound company specific research. Global Upstream – Upstream.

listed players in LNG. via (long) positions in capacity enablers (EPC providers. it is the ‘destination’ fuel of choice that ensures this happens whilst facilitating multi-lateral energy relationships to develop. We then ranked the developed market and emerging market IOCs and NOCs accordingly. We conclude that LNG is no longer a ‘transition' fuel that reduces global carbon intensity. we examine the demand drivers. software and hardware manufacturers) and (short) positions in the most challenged European refiners. LNG demand trends are very firm. Global LNG – Full steam ahead. We discuss the hallmarks of a good LNG business and perform a competitive ranking of the world's leading. We anticipate that robust global demand for LNG will keep the market tight 2012-14. We defined multiple ways to play this negative theme. Thereafter. but cross-basin price arbitrage 3. the onset of new LNG supplies from North America directly linked to a Henry Hub price index and overall deeper market liquidity (as the number and scale of LNG supply points increase – we estimate potential for 118 MT pa of incremental capacity 2012-16 which is 42% of YE 2011 global capacity) will likely reduce regional price dispersion and volatility. capacity growth outlook and pricing dynamics of global LNG. This will ultimately constrain cross-basin arbitrage opportunities. but cross-basin arbitrageurs beware the Henry Hub Global Equity Research 13 January 2012 investors. In this note. 8 . (13 January 2012). although project delays may extend the arbitrage window. long term pricing is robust. most likely from 2015 onwards.lucas@jpmorgan.Fred Lucas (44-20) 7155 6131 fred. We review the exposures of key names and assess their competitive positioning in the global LNG hierarchy.

Levels of regasification capacity will continue to exceed export capacity. Given the aforementioned structural LNG demand drivers. We assume that gas shale does displace LNG demand in China and Europe is in a deep recession in 2012 and only gradually emerges from there in Global Equity Research 13 January 2012 Executive Summary LNG infrastructure build out dovetails in to a number of global themes – multi-lateral energy security.Fred Lucas (44-20) 7155 6131 fred. private sector investment and lower carbon economic growth LNG infrastructure projects (liquefaction and re-gasification) rely on private sector investment and they create local employment. we also see a world where energy flows will become more. we do not expect import capacity to be a constraint on LNG demand per say. Following the Arab Spring. we feel that this outcome will be closer to reality than our BEAR case which assumes that all new capacity is commissioned on schedule and operates at 85% in its first year whilst existing capacity operates at 100%. been written. From the perspective of government. We believe that the after effects of Fukushima on global energy markets will be felt for years to come. we estimate that the aggregate liquefaction capacity will rise from 291 MT to 350 MT pa in 35 plants. will provide those LNG suppliers with portfolio flexibility with profitable cargo diversion opportunities. As such.enabling asset) may be built in 18-24 months. the threat of energy supply dislocations and rising environmental awareness. We estimate that global aggregate re-gasification capacity will rise from 565 MT pa at end 2011 to 778 MT pa by end 2015 located in 48 countries and 160 terminals. The Fukushima tragedy has just added impetus for governments to steer energy dependency away from nuclear. LNG re-gasification terminals (the import. Over the same period. we estimate that there was approximately 291 MT of liquefaction capacity located in 18 countries and 27 plants (LNG export) and 565 MT of re-gasification (LNG import) capacity located in 25 countries and 90 terminals. This represents a capacity CAGR of 8%. Under this set of assumptions. in turn. Our BULL case assumes liquefaction projects due on stream 2013 onwards are delayed by 12-months and operate at 75% capacity in their first year whilst existing capacity operates at 95%. Furthermore. Under this scenario. However. In 2011. The Durban UN Climate Change Conference has helpfully defined the road map for negotiations on a comprehensive climate change agreement and lent clear support for investment in the low-carbon economy. The LNG market will continue to tighten 2012 to 2014 and will be supply constrained from 2015 to 2017. a 2011-18 CAGR of 6%. in many respects. We also assume that gas shale does not meaningfully displace potential Chinese demand. politicized and energy diversification will be ever more important. Chinese demand surpasses 30 MT in 2016. the market may well remain supply constrained which enforces an element of demand latency not seen at other point in the hydrocarbon value chain. LNG infrastructure projects have many of the key desirable attributes. global demand reaches 368 MT by 2018. global demand only reaches 291 MT by 2018 (24% below our BULL case demand estimate) and Chinese demand only reaches 19 9 LNG demand will not be constrained by import capacity BULL case sees market tightening further in 2012 and demand constrained by supplies 2014-17 BEAR case will see liquefaction projects deferred 2014 onwards . This is supportive of oil-indexed LNG contract pricing and should support meaningful regional price differentials which. a cross-border gas pipeline may take over a decade to sanction and build. From an importer’s perspective. The script for rapid growth in LNG has. a capacity CAGR of 5%.lucas@jpmorgan. especially those fighting against high unemployment. not less. large fiscal deficits. they diversify a country’s energy supplies / augment energy security whilst also ultimately reducing its carbon footprint. We model two simple BEAR and BULL global LNG supply/demand scenarios.

can transform the global supply-demand situation over night. Similarly. QPC. Curtis LNG.Malaysia and ADNOC – Abu Dhabi). most often surpluses. Qatar. the world’s largest supplier. All of Qatari LNG output transits via the Straits of Hormuz.Fred Lucas (44-20) 7155 6131 fred. Indeed.we are confident that more long term contracts will follow at close to LNG has fewer and more disciplined players New LNG capacity is often contracted before it is built 10 . we estimate that in the seven year period 2012 to 2018. if the world looks like it is heading in to this scenario.lucas@jpmorgan. long project lead times and the need to discover and certify very substantial (at least 3-4 TCF) gas resources. In contrast. As our global note on refining cautioned. However. Provided equity project sponsors are pricesensitive. for a variety of reasons. Any blockade of this choke point. GLNG. completely absent from refining. So far. QC LNG. unwanted refining capacity growth across such a broad population of players is very likely to occur – indeed.Qatar. which we believe they are given rising capital costs and high levels of equity financing following the withdrawal of project finance capacity. Demand concentration in LNG is also quite Global Equity Research 13 January 2012 MT in 2016. is another support for sustained market equilibrium. Browse. Capacity displacement does not occur in LNG – new plants are typically built given firm demand for their incremental output. we estimate that two thirds of new refining capacity 2011-16 has a NOC sponsor behind it. e. Prelude. We believe that the risk of a maverick NOC pursuing a major LNG export project without firm long term off-take contracts has now passed – the upfront capital and market risks are simply too high. Furthermore. For example. Sunrise and Bonaparte) for evidence of robust long term demand at pricing close to oil price parity. LNG is blessed by a very small population of very rational IOCs (around 50-60) and a tiny population of disciplined NOCs (e. Refining is dogged by a large. as occurred in Japan in 2011 as a result of Fukushima which drove Japan’s 30% Y-o-Y LNG demand growth. less than 5% (c.g. Levels of spare liquefaction capacity do not really change 2012-15 versus prior years but will rise substantially thereafter. Such a high impact. AP LNG. Petronas . Ichthys. we estimate that over 60% of the aggregate capacity of these twelve projects (118 MT pa) already has firm contracts . fragmented population of players (many hundreds) that includes many non-commercial NOCs. new projects will only proceed with robust long-term pricing agreements and output that is largely bound up to long term firm buyers. albeit temporary. LNG supply shocks pose a more severe ‘tail risk’ to market equilibrium. we estimate that Japan consumed 36% of global LNG (89 MT of 249 MT) in 2011.high capital intensity. a relative niche business given a number of entry barriers . would have a major impact on the global LNG market and cargo clearing prices in Europe and Asia Pacific. new refineries are built without contracted off-take and thus must often marginalize higher cost / less efficient existing refineries to secure their place in the market. The long term (20 years or more) contracting convention in LNG. The dynamics of LNG are completely different to refining Refining is an industry that is prone to cyclical capacity imbalances. single demand shock could simply not occur in refining. liquefaction projects which have not yet been sanctioned with an expected on stream date 2016-18 will almost certainly be deferred. Wheatstone. LNG capacity is very highly concentrated when compared to refining. has 77 MT of capacity which is approximately 27% of global capacity. LNG is. We continue to monitor progress on no less than twelve green field LNG projects in Australia (Pluto.g. Gorgon. and will remain. Libya and potentially Iran). Sonatrach Algeria. Country specific demand shocks.12 MT) of identified global capacity growth is NOC sponsored (in Algeria.

our top global picks to play the LNG theme are BG Global Equity Research 13 January 2012 oil price parity. As a reminder. Inpex. Sponsoring much of this incremental demand is. Santos and TOTAL. LNG offers a choice of multiple sources and added procurement flexibility that a conventional pipeline off-take agreement cannot provide. piped gas which may be used as a geo-political influence. At the start of 2012.g. Amongst the integrated names. of course. Our note also provides an extensive range of alternative LNG plays in the E&P. we therefore continue to encourage investors to raise their equity portfolio exposure to listed names with a meaningful position in the LNG segment. Equipment & Services and Shipping sectors around the world. China’s continued integration in to global energy markets and its desire to develop multilateral energy relationships rather than become too dependent on any particular source e. 11 .Fred Lucas (44-20) 7155 6131 fred.lucas@jpmorgan.

GLNG is last in queue of 4 competing coal bed methane to LNG projects in Queensland. Capacity Liquefaction: 12. 12 .We value BP’s LNG business at $10bn or 33 pence per share.35 per mmbtu. RD Shell Involved in LNG since industry conception in early ranks 8th in our 11 company competitor ranking.lucas@jpmorgan. capped at oil price equivalent of $38/bbl). Following years of purposefully avoiding large infrastructure projects. firm growth options post-Angola LNG (on stream H1 2012).3% stake in Woodside which RD Shell is looking to exit.2 MT pa) and Tiga (1. Operator of project that is front of queue of CBM to LNG projects in Australia – successfully contracted output from first two trains at close to oil price parity. Morgan.9 MT pa operational.7 MT pa (91% leased) Earnings . Rights to MLNG Dua (1.2 MT pa operational. Global position with very strong development pipeline with potential to more than double liquefaction capacity by 2020.2 MT pa operational. Pioneering development of world's first floating LNG project (Prelude FLNG) – numerous potential applications of this on other stranded gas deposits. Reasonable exposure to re-gasification capacity (57% of net liquefaction capacity).9 MT pa under development Re-gasification: 23.we value RD Shell's LNG business at $50bn or just over 500 pence per share.8 MT pa (71% leased) Earnings . Opportunity to supply Bontang LNG facility in Indonesia with coal bed methane – could be a world first. left without any identifiable. Capacity Liquefaction: – 19.We value BG Group's LNG business at around $22bn or 409 pence per share (but this figure depends on the apportionment of value for QC LNG). Re-gasification: 6. Other large players are replicating BG Group’s portfolio strategy of buying its own LNG and using an array of supply contracts to optimize sales to different markets. now has world's number one position with c. $3. At $3. BP Acquired a strong position in Atlantic LNG (Trinidad) via Amoco which was expanded very cost effectively.Fred Lucas (44-20) 7155 6131 fred. Given its upstream heritage and pedigree. Given pre-salt capital commitments and finite capabilities. Valuation . Browse 50% and Pluto LNG 90%) are held through 24. Certain project interests (Sunrise 33%. BP is a bit of an ‘also ran’ in global LNG . Cost inflation. Tangguh LNG contracted on a very low price to CNOOC (2. magnified by AUD/USD appreciation at QC LNG project could further trim NPV following adverse fiscal changes. Key Threats Advent of US LNG exports will almost certainly reduce regional price arbitrage 2015 Global Equity Research 13 January 2012 Stock specific summary For seven European names featured in this note.LNG represents around 10% of RD Shell’s 2011E earnings.6 MT pa. No upstream supply position to two LNG plants in Oman or any real chance of securing upstream supplies (not involved in tight gas exploration in Oman). Plant expansions in Indonesia have also proven problematic historically. will struggle to pursue another major LNG project in parallel with QC LNG Trains 1-2. RD Shell ranks 2nd in our 11 company competitor ranking. Table 1: Stock summary – LNG SWOT summary + segment profile / valuation of UK companies Key Strengths / Opportunities BG Group Innovated contractual concept of flexible destination LNG cargoes and differentiated by taking on multiple supply purchase agreements to build a portfolio of low cost supply options. Ranks 4th in our 11 company competitor ranking.9 MT pa (85% leased) Earnings . Just pipped by Exxon Mobil. Failed to really see and grasp the regional price arbitrage opportunity – 90% of LNG volumes still sold under long term contract with limited destination flexibility (although most long term contract are set on robust oilprice indexed terms).9 MT pa under development.7 MT pa under development. Source: J. Capacity. 8.0 MT pa) set to expire in 2015 and 2023 respectively. 20 MT pa net operational capacity of which over 50% is located in Asia Pacific. Re-gasification: 14. 0. likely to add a third train at QC LNG.P. Subject to results of drilling campaign over next 6-months.LNG represents around 30% of BG Group’s 2011E earnings. Angola LNG may be obliged to sell in to the low priced US market. 7. Upstream portfolio lacks any clearly identifiable green field LNG growth option – BP may look to remedy this via acquisition / alliance in order to establish more long-lived assets.LNG represents around 10% of BP’s 2011E earnings. No upstream supply position in Abu Dhabi to ADGAS. we highlight the key qualities and exposures to the LNG value chain (Tables 1 and 2). Valuation . floating LNG is not low cost and may need more than one application to generate a robust return. Late to realize the importance of a resource and liquefaction position in Asia Pacific – had to buy its way in to the play (QGC and Pure Energy). Key Weaknesses Retains leased rights to excessive (idle) volume of US re-gasification (LNG import) capacity. potential to lead East Africa's first green field LNG project in Tanzania. in our view.500 per ton (before any cost escalation to budget). Valuation . Earnings & Valuation Capacity Liquefaction: 7.000 to $3. Australia – at greatest risk of delays and cost inflation.

Capacity Liquefaction: 1. Statoil Recent discoveries in Barents sea could likely activate Statoil's plans for expansion of its liquefaction capacity in Norway. TOTAL scores quite well and ranks 5th= in our 11 company competitor ranking.adding to its LNG volume flexibility. Statoil's gas strategy remains focused on piped gas – it therefore has a limited focus on the LNG business.19MT pa liquefaction capacity Global position with strong development pipeline with potential to deliver significant growth in liquefaction capacity through to 2020.7MT pa projects under development.7 MT pa operational. Well regarded for its technical and project execution strength in LNG business. Repsol YPF has committed limited capex to this business stream.8MT pa (59% leased). Key Threats LNG gas supplies are mostly routed into Italy/Europe – weakening demand will likely have a negative impact on segmental earnings.LNG represents around 7% of ENI’s 2011E earnings. ENI's first liquefaction plant was commissioned in 1977. Acquisition of Distrigas helped ENI diversify its LNG supply portfolio.LNG represents around 15% of Repsol YPF’s 2011E earnings. On-going political instability in Yemen is a potential threat for Yemen LNG operations. Repsol YPF Repsol YPF's LNG business is focused on higher margin LNG marketing and trading. Re-gasification: 7. 13 .We value Statoil’s LNG business at NOK9. TOTAL is not averse to relying on its balance sheet to gain access to resources and projects.7MT pa Earnings . 2.6bn or just NOK3 per share. 0. Morgan. Statoil ranks 11th in our 11 company competitor ranking.9MT pa operational. Stream JV with Gas Nat adds to the company's capacity for contract portfolio arbitrage and optimization. prolonged plant outages.LNG represents around 2% of Statoil’s 2011E earnings. Valuation .com Global Equity Research 13 January 2012 Table 2: Stock summary – LNG SWOT summary + segment profile / valuation of European companies Key Strengths / Opportunities ENI Strong presence in all the phases of LNG business . Capex needs for the various upstream developments in Repsol YPF's portfolio means that it is unlikely LNG will reemerge as an axis of growth for this name.lucas@jpmorgan. Capacity Liquefaction: 18. Valuation .We value Repsol YPF’s LNG business at €2. Key Weaknesses Portfolio is largely ex-growth with only one green field project (Angola LNG) on the company's near term agenda Lacks ambition of expanding into the higher margin gas arbitrage business.1 MT pa operational.7MT pa under development Re-gasification: 11. shipping.liquefaction. regas and marketing. Statoil 's LNG assets have an Atlantic basin bias – a common weakness amongst the euro names. LNG strategy is focused on just the development of the company's equity gas resources via long term contracted off-take agreements.5bn. Given the size of recent discovery in West Africa (Mozambique). no projects under development. Snohvit LNG has faced numerous technical issues since its commissioning which have caused undesirable.LNG represents around 22% of TOTAL’s 2011E earnings. LNG business has slipped in the company's list of strategic priorities. ENI ranks 9th in our 11 company competitor ranking. Capacity Liquefaction: 5.4MT pa operational. Limited liquefaction position in the higher demand growth Asia-pacific basin.Fred Lucas (44-20) 7155 6131 fred. Earnings & Valuation Capacity Liquefaction: 5. Valuation .We value ENI’s LNG business at €5bn. alongside Woodside. Yamal LNG and Shtokman LNG. TOTAL Long history in the LNG business – was involved the first liquefaction plant in the world and now has c. TOTAL has a small equity stake (24%) in Ichthys but is forced to commit a high number of engineering staff to the project given the in-experience of the operator.5MT (90% leased) Earnings . ENI may lead a multi train (3+) LNG facility in the country. New leadership in Peru (led by President Humala) could impose higher taxes/adverse contractual changes on Peru LNG. Statoil is responsible for marketing the Norwegian state's share of Snohvit output .We value TOTAL’s LNG business at €18bn. Valuation . Utilization rates for the Cove Point regas terminal are likely to remain very low over the next few years. LNG business is largely based in OECD – very low risk of contractual changes or supply disruption.g. Earnings . Growth pipeline is exposed to many capital intensive and technically challenging projects e. ENI has a history of reliance on acquisitions to fuel its upstream growth ambitions Capacity.P. Inpex. Source: J. It ranks 10th in our 11 company competitor ranking. no projects under development Re-gasification: 10 MT pa Earnings . Both of the recent growth projects (Peru LNG and Canaport) are tied to very weak LNG demand in North America. Re-gasification: 16.

Relevance of LNG to company 11. Plant vintage 3. Figure 2: Competitive ranking of top listed LNG players Repsol YPF Woodside BG Group RD Shell Chevron TOTAL Santos 1.Fred Lucas (44-20) 7155 6131 fred. On this basis. Liquefaction scale 2. Integrated chain presence 9. Exxon Mobil and RD Shell are the outright global leaders with Chevron and BG Group not far behind. Capacity location 4.lucas@jpmorgan. we have scored the LNG portfolios and strategies of 11 of the 20 companies featured in this note using 11 key parameters. Trading capability 10. Plant operatorship Global Equity Research 13 January 2012 As per Figure 2. Quality of LNG disclosures OVERALL SCORE (Max 44) 29 4th 21 8th 31 3rd 17 9th 33 1st 32 2nd 16 10th 23 x 7th 15 11th Statoil Exxon Mobil ENI BP 26 5th= 26 x 5th= OVERALL RANK (1-11) Source: J. Morgan. Greenfield growth potential 7.P. 14 . Brownfield expansion potential 6. LNG train size 5.

3 23 4. are fast becoming the new global gas ‘super highways’ of choice of the 21st century. The new ‘big gas links’ that join North Global Equity Research 13 January 2012 Global theme – LNG demand growth LNG is becoming the world’s new gas super highway of choice Connectivity between the world’s regional natural gas markets continues to increase. Figure 3: Location. 15 . schedule and scale (MT pa) of new liquefaction capacity 4. Europe and Asia Pacific are being formed via the synchronized development of LNG regasification (import) terminals and liquefaction (export) facilities.3 4 1.4 2.2 6.3 5 60% global demand 3.4 5.6 7.5 5.3 8 9.7 4.5 10.lucas@jpmorgan.2 3. Morgan. This mirrors the changes in the upstream industry – to non-conventional oil & gas and to the offshore (deeper waters.2 17. we estimate that between 2012 and 2018 up to 287 MT of liquefaction capacity may be built – this represents growth of almost 100% (given YE 2011 estimated capacity 291 MT pa) and a 7 year CAGR of 10%. However.floating LNG (Australia). (Qatar) Potential 10% CAGR capacity growth 2011-20 Approaching its 50th anniversary.P.6 22 5 3.5 2 3.3 3. partly as a result of more large capacity pipeline interconnectors.3 44 1.5 4 23 7 2 5 9. This period will see a number of world firsts .4 9.6 5 62 8 3.6 12 4. this magnitude of growth is completely unprecedented in the history of the LNG industry (Figure 4).7 4.7 2.5 1 1.8 (EG) Existing facility 2011 start up 2012E start up 2013E start up 2014E start up 2015E start up 2016E start up 2017E start up 2018E start up Source: J. connected by LNG transportation vessels. crossborder gas transmission networks face increasing political opposition given the ever greater importance of energy security and the geopolitical risks that pipeline import dependency can generate.6 19. more complex sub-surface).7 5. These infrastructure nodes.5 5 30% global demand 10 18 5 20 9.8 19.9 38.3 20.8 6.Fred Lucas (44-20) 7155 6131 fred. coal seam gas to LNG (Australia) and tight gas / gas shale to LNG (likely in Canada and the USA). Since the first liquefaction plant was commissioned in Algeria in 1964.6 (Trinidad) 15.

Gas costs . most likely in 2015-16 and as the global market liquidity deepens (given the potential for 42% or 118 MT pa of incremental capacity 2012-16).P. it is inevitable. Regional price dispersion will tighten As the physical interconnection between regions deepens.e.g. that regional spot gas prices will start to converge – with the lowest (currently North America) rising and the highest (Asian LNG) falling. gas shale 6. Presently. Energy security .carbon costing is spreading from OECD to non-OECD 3.desire to diversify supply sources i. assuming (as we do) that North America will export increasing volumes of LNG from 2015 Global Equity Research 13 January 2012 Figure 4: Global LNG export capacity additions by year (MT) 120 800 700 100 80 Unprecedented decade long growth in LNG capacity driven by: 1.creation of new low cost supply sources e.some countries will not pipe gas to their neighbours 5.Fred Lucas (44-20) 7155 6131 fred. in our view. 16 .heightened popular opposition post-Fukushima ------> 7 year 2012-18 +287 MT pa could require $1 trillion investment 600 500 60 400 300 40 200 20 100 0 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 Capacity additions (MT pa) Cumulative capacity (MT pa) Cumulative liquefaction trains 0 Source: J. avoid pipelines 4.society's preference for lower carbon fuels e. Henry Hub 1-month trades at just $3 per mmbtu. gas 2. Environment . Geopolitics . This extreme price difference will not survive when molecules of low cost gas from North America eventually reach Asian markets. Nuclear risks . Economics . CBM. Morgan.g. an oil price equivalent of almost $110 per barrel.lucas@jpmorgan. an oil price equivalent of less than $20 per barrel whilst LNG cargoes are being sold in Tokyo for $18 per mmbtu.

In 2010.Fred Lucas (44-20) 7155 6131 fred. LNG’s global gas market share has actually been relatively slow to rise – it was 6% in Global Equity Research 13 January 2012 LNG market Regional gas markets LNG represented 9% of global gas consumption in 2010 We must first put the global LNG market in to clear context – identifying its size and relative importance in today’s global gas industry. alongside the Middle East. Given a lack of inter-connecting pipelines. As per the insert chart in Figure 5. the world is essentially split in to three gas markets – North America. BP Statistical Review of World Energy 2011 17 .P. Figure 5: Global gas consumption 2010 .8% 200010.. the world consumed 307 bcfpd of natural gas with a CAGR of 2.regional splits and LNG dependency 8% LNG 82 bcfpd 27% of world 1% CAGR 2% LNG 110 bcfpd 36% of world 2% CAGR 55 bcfpd 18% of world 7% CAGR 31% LNG 35 bcfpd 12% of world 7% CAGR 10 bcfpd 3% of world 6% CAGR 0% LNG 14 bcfpd 5% of world 4% CAGR 6% LNG GLOBAL GAS 2010 307 bcfpd 2% 2000-10 CAGR 9% LNG 2500 2000 1% LNG 3500 3000 1500 1000 500 0 2001 2002 2003 2004 2005 L NG 2006 Piped + domestic gas 2007 2008 2009 2010 Source: J. the regional penetration of LNG is clearly very different – just 2% of North America versus 31% of Asia Pacific which. Of this figure. 91% of global gas is therefore either piped (21%) or consumed within the country of its production (70%). The more fragmented economies of Asia Pacific are much more dependent (31%) on LNG for their gas. Figure x shows the sizes of the regional gas markets in 2010 and. LNG consumption was approximately 29 bcfpd which was a 9% global market share. Europe and Asia Pacific. the percentage of consumption that was satisfied by LNG.lucas@jpmorgan. within each region. has experienced the highest rate of gas demand growth 2000-10 of 7%. North America (98%) and Europe (92%) rely primarily on regional gas production / piped gas. Morgan. Behind this average of 9% in 2010.

even when global economic growth collapsed in 2008. driven by accelerating Japanese consumption post-Fukushima and continued growth in Chinese LNG imports. in 2010 Japanese consumption of LNG represented 31% of total global consumption.Korea Spain UK Taiwan France China USA 2010 LNG consumption (MT) Cumulative (RHA) India Source: J.P. J. Morgan.Fred Lucas (44-20) 7155 6131 fred. We note that China was the seventh largest consumer of LNG. global LNG consumption has grown at a compound rate of 8% 2001-10 which is over 3x the rate of global gas consumption growth.MT pa 250 2001-10 global demand CAGR +8% +23% 200 +7% LNG demand MT pa +12% 150 +13% +5% 100 +5% +6% +7% +0% 70% 60% 50% 40% 30% 50 20% 10% 0 2001 2002 2003 Asia 2004 Europe 2005 2006 2007 N America 2008 2009 2010 2011E 0% 2001 2002 2003 2004 Japan 2005 2006 Europe 2007 2008 2009 2010 2011E S & C America Middle East Asia less Japan Middle East S & C America N America Source: BP 2011 Statistical Review of World Energy. Global demand of LNG is very concentrated – top ten countries consumed 87% in 2010 As per Figure 8. Source: BP 2011 Statistical Review of World Energy. Figure 7: Global LNG consumption . highlighting the comparatively resilient nature of LNG Global Equity Research 13 January 2012 LNG demand profile LNG demand growth has averaged 8% pa 2000-10 As per Figure 6.2010 (MT) 80 70 60 50 40 32 30 20 10 0 20 14 11 10 9 9 9 68 100% 90% 80% 70% 60% 35 50% 40% 30% 20% 10% Others 0% Japan S. We expect global LNG growth to have averaged approximately 15% in 2011. As a reminder of the concentration of LNG region & country +15% 100% 90% 80% Figure 6: Global LNG consumption . Morgan.P.lucas@jpmorgan. 18 . J. Of note.P. just eclipsing US demand in 2010. the ten largest consumers of LNG represented 87% of global demand in 2010. Figure 8: Global LNG consumption by country . Morgan. global LNG consumption was flat.

that is equivalent to just 13 MT pa of LNG. The Chinese government now regards gas as cornerstone of its primary energy mix over the next decade given its availability (both domestically and via piped and LNG imports) and clean burning qualities when compared to coal. We believe that China will continue to nurture multi-lateral energy relationships rather than develop a dependency on any particular source country. Figure 9: World's 10 largest gas consumers (2010 .bcm pa) 800 700 600 500 400 300 200 100 0 USA Russia Iran China Japan UK Canada Saudi Germany Arabia Italy Source: BP 2011 Statistical Review of World Energy Based on 2010 primary energy consumption.lucas@jpmorgan. and more importantly imported LNG.109 bcm). if gas penetration of the primary energy diet of Brazil. On the same basis. We note that China is actually already the fourth largest consumer of gas in the world (Figure 9). We believe that Chinese gas consumption is supply-constrained due to a lack of import infrastructure. 19 . is a key variable in the global LNG market.Fred Lucas (44-20) 7155 6131 fred. it will require an extra 27 bcm pa which is equivalent to 20 MT pa of LNG (Figure 10). China's appetite for gas. Presently. either major import pipelines or re-gasification terminal capacity. if the penetration of gas in China’s primary energy diet increases by just 1% (from 4% to 5%). India. South Korea and Japan rises by 1% in aggregate. So. China imports approximately 15% of its gas requirement (2010 total gas consumption Global Equity Research 13 January 2012 Chinese demand for imported LNG is a key swing variable China’s increasing integration to global energy markets will continue to impact regional and global supply-demand dynamics.

2. As per Figure 4. LNG demand growth drivers Our database on global LNG export projects enables us to present a 55+ year overview of LNG plant construction. This is in stark contrast to capacity additions in oil and refining where output is more typically sold in to a global spot market which thus risks free-flowing (uncontracted) product-on-product competition Environmental issues shaping regulatory & policy change Society is fast becoming more conscious of its environmental footprint and is accepting fuller responsibility for its consequences e. Wave of capacity growth is unprecedented in the 50 year history of LNG Looking ahead. 1989 and 1999. This is spurring the substitution of higher carbon Policy bias continues to mitigate CO2 emissions 20 .com Global Equity Research 13 January 2012 Figure 10: Global energy markets .g. the world’s first large scale liquefaction plant was commissioned in 1964 in Algeria.Korea India Brazil World's largest primary energy consumer . The pace and uninterrupted intensity of capacity growth is completely unprecedented in the 50 year history of the global LNG industry. It is very important to note that LNG export capacity is not built on the basis of speculative demand. undesirable climate change and attendant human health issues. we forecast a decade of uninterrupted annual capacity growth. There was then a nine year period (2002-10) of sustained capacity growth.432 mmboe China 10% 0% -5% 0% 5% 10% 15% 20% Growth in gas consumption 2000-10 Source: J.lucas@jpmorgan. Global additions were infrequent and small until 1978-79.P. So capacity is therefore locked up before it is built. Morgan. We cite several key demand-related factors that underpin this capacity growth outlook. slow growth gas markets USA Gas as % of primary energy 30% Spain 20% Germany Japan S.gas penetration & rate of growth of gas demand (blob sizes correspond to size of country’s primary energy) 60% Russia 50% UK 40% Saturated.Fred Lucas (44-20) 7155 6131 fred. High capital intensity necessitates that capacity is built with water-tight off-take agreements that typically run for 20 or more years.

0135 0. Table x shows the absolute and relative CO2 intensity of energy derived from oil.7 10.3 17. China’s per capita emission rate was roughly half that of Japan in 2007. in 2007 (the last available accurate data for all countries featured) PR China’s CO2 emissions (6.0906 100 LNG 0.Fred Lucas (44-20) 7155 6131 fred.6 Ukraine 5. but four times that of India. Morgan.lucas@jpmorgan.0495 55 As per Figure 11. This continues to support investment in the low-carbon economy.a clear reminder that global economic (GDP) growth drives emissions.Korea Mexico Source: World Resources Institute 21 . This trend is spreading from G20 countries to developing economies where CO2 emissions are escalating with industrialization.3 tons per person in that year). the aggregate CO2 emissions of the world’s top ten emitting countries increased 26%. coal by lower carbon fuels such as natural gas.9 1. coal and LNG Carbon produced to generate 1 GJ energy (T) Molecular weight of Carbon Dioxide Atomic weight of Carbon CO2 produced to generate 1 GJ energy (T) Ratio if coal = 100 Source: J.2 US EU China Russia Japan India 1997 2007 Canada S. Oil 0.0686 76 Coal 0. LNG’s CO2 footprint is 45% lower than coal's.1 19.4 6. a CAGR of 2.7 billion tons) over took the emissions from the USA.0247 0.P. The two key action points from the recent Durban UN Climate Change Conference were to continue the Kyoto Protocol and to negotiate (the Durban Platform) a comprehensive climate change agreement that will be legally binding. coal (carbon) and gas (LNG).7 4.g. although the latter still bears the highest per capita emission rate ( Global Equity Research 13 January 2012 fuels.4% .4 9.3 CO2 emissions – metric tons per persons 8. e. Figure 11: Carbon dioxide emissions (billion MT) 8 7 6 5 4 3 2 1 0 11.0187 44 12 0. Between 1997 and 2007. Table 3: The comparative emissions footprint of oil.

Exxon Mobil estimates that wind. It expects the share of electricity generation from natural gas to rise from 20% to 30%. we suspect that the much higher cost of renewable alternatives (Figure 13) will keep these at the fringes of the global energy diet. In the absence of game-changing new technology.Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 The environmental threat from CO2 emissions continues to bias government policy towards natural gas substitution. gas emits up to 45% less CO2 than coal. Baltic Sea and the English Channel will be cut to 0.A current example of regulation that is set to bolster demand for gas is the Cross State Air Pollution Rule (CSAPR). A total retrofit of a vessel to LNG propulsion is estimated to cost around €15m. When used for electricity.lucas@jpmorgan. the conversion enables the vessel owner to qualify for lower NOX emission taxes. 1. US power and vehicles . So. 2. Marine fuel –The UN-backed global shipping regulator. This Act would provide federal incentives for the use of natural gas as a vehicle fuel. Indeed. Exxon Mobil forecast that global electricity demand would be 80% higher in 2040 versus 2010. 22 . Presently. the International Maritime Organization (IMO). The cost of low-sulfur bunker oil is now on a par with LNG. we also note the revival earlier in 2011 of the New Alternative Transportation to Give Americans Solutions Act (NAT GAS Act).1% from January 2015. is pushing for LNG to replace marine fuel oil. The combustion of LNG leads to lower carbon emissions and virtually no SO or particle emissions. issued by the US Environmental Protection Agency (EPA). solar and bio-fuels will represent just 4% of the world energy in 2040 (Figure 12). demand for gas for electricity generation is expected to rise by 170%. The CSAPR is forcing US utilities to convert from coal-fired power generation to gas-fired.the Honda Civic Natural Gas. The 1% sulfur content limit in the North Sea. caps and subsidies for alternatives). In its recent review (The Outlook for Energy – A view to 2040). in effect. the US public can only buy one car powered by natural gas . the purchase of natural gas fueled vehicles and the installation of natural gas vehicle refueling infrastructure.g. In certain countries e. Substitution of coal by gas in the electricity sector We share a fairly common view – gas will continue to substitute for coal as more governments impose policies that place a direct cost on carbon emissions (via taxes. Norway. Exxon Mobil expects overall demand for natural gas to rise by more than 60% through to 2040 – this is the highest rate of growth for any major energy source. Staying in the US.

We believe that burgeoning population growth (7 billion now. Energy systems need greater redundancy to accommodate demand / supply shocks….e.4% 0.2% 400 14 Much higher costs will continue to keep these renewable options at the margin of the global energy mix GAS SHARE OF GLOBAL PRIMARY ENERGY 20% 21% 12 300 Global Equity Research 13 January 2012 Figure 12: Global primary energy mix outlook 700 Figure 13: Average cost of US electricity in 2030 (2011 cents) 27% 25% 5. coal etc). This reduces transmission line losses which may average 10% in OECD and as much as 15% in non-OECD. At the opening ceremony for the Nord Stream pipeline (8 November 2011). This is manifesting in an unprecedented pace of construction of new LNG re-gasification (import) terminals with their attendant choice of suppliers. Gas-fired power generation is also 50% more energy efficient than its coal equivalent. Gas-fired turbines have a 60% efficiency rate.6% 10 $60 per T CO2 8 200 6 No CO2 cost 100 2010-40 CAGR 0.7% 4 2 0 1990 2000 Oil Gas Coal Nuclear 2010 Biomass / Waste Hydro 2025E Other Renewables 2040E 0 Coal Gas Nuclear Onshore wind Offshore wind Geothermal Solar PV Solar Thermal Source: Exxon Mobil (The Outlook for Energy – A view to 2040) Source: Exxon Mobil (The Outlook for Energy – A view to 2040) Of course. The nightmare of every government (and indeed the event that can trigger social unrest and changes to government) is when a country's energy supply systems fail and. gas. must import energy in the form of oil. Gasfired stations may be permitted and built in less than 2 years versus 4-5 years for a coal-fired plant. Finally. the accelerated growth in a global Middle Class and the shifting identity of the world’s energy creditors / debtors render energy security as one of the key and enduring investment themes of the 21st Century.infrastructure projects also create employment Energy security For most governments of countries that carry energy deficits (i. Furthermore. we believe that LNG will play a key role in the global energy equation. given the local employment benefits of these infrastructure projects. to reach 9 billion by 2050 according to the UN). in Italy.0% 1.lucas@jpmorgan. we sense that governments want to develop more redundancy and flexibility in to their energy infrastructure systems.Fred Lucas (44-20) 7155 6131 fred. given a far smaller emissions footprint. Europe’s Energy Commissioner (Gunther Oettinger) referred to Europe’s diversification strategy and its efforts to secure natural gas supplies from countries other than 23 Intra-sovereign trust is decreasing not increasing .' Following the Libyan oil & gas supply outages in 2011 and the Fukushima gas demand shock. the switch from coal to gas is not only driven by the cost of carbon. quite literally 'the lights go out. only 40 units are converted in to usable electricity.3% 20 18 600 22% 500 2. A new turbine powered by coal is 40% efficient – so for every 100 units of primary energy that go in to the plant. Geopolitics It is clear to us that governments do not want to build a greater dependency on piped gas imports.2% 16 -0. gas-fired plants may also be located closer to demand centers.g. Planning permission processes are also being accelerated e. maximizing the security of supply at a reasonable price is more important than trying to minimize prices at the expense of increased supply risk. especially when the source supplier(s) has proven itself unreliable.

The 1. which will require the construction of a third regasification terminal. Germany and Switzerland decided to phase out nuclear power generation. has also decided not to extend the 40-year life-spans of its three existing plants. provided other LNG buyers with greater choice.scaling back the country’s nuclear portfolio to around 50 percent by 2025 .lucas@jpmorgan. Specifically. the 1.Fred Lucas (44-20) 7155 6131 fred. the US is seeking to limit Russia's ability to use piped gas supplies as a source of geopolitical leverage and influence. 1. In July. Mexico has put all new nuclear plant projects on hold and Thailand has cancelled its nuclear development program altogether. In addition. The Japanese government has recently published a report indicating that it will take 30 years or more to decommission the Fukushima Daiichi plant. The country’s 2010 power development plan was to build 2-5 1 GW nuclear stations with the first two operational by 2020. In its place. The growth in US gas shale production has displaced the need for US LNG imports which has. the Electricity Generating Authority of Thailand (EGAT) is planning to build a series of combined-cycle gas-fired power plants. In the Global Equity Research 13 January 2012 Russia. the Japanese government announced that all nuclear reactors will be required to submit to a “stress test” leading to further delays before reactors are allowed to reopen (reactors are typically shutdown for routine maintenance every 13 months).272 MW Jingshan facility is due for closure 2018-19. thus constraining their ability to use energy supplies as a geopolitical tool of influence. Taiwan. who supports an unabated nuclear program. be commissioned in 2016 (2. this has rendered it more difficult for countries such as Iran and Venezuela to promote their first green field LNG export projects. however. elections are now only four months away. In France.this has already led to a longer than normal spring maintenance season in 2011. the Nuclear Regulatory Commission (NRC) is also imposing additional regulations over the next five years . which generates 19% of its electricity from nuclear.000 study in to a possible LNG import terminal in Lithuania. only 11 of Japan’s 54 nuclear reactors are currently operating (20% of 49. Indirectly. We also note that in 2008. The 1. 2. the US government (via the US Trade and Development Agency) funded an $826. Their position . Nuclear has lost popular support post-Fukushima . the USTDA funded a similar study in to a Romanian LNG terminal. 24 .970 MW Guosheng plant by 2021-23 and the 1. Our view is that in so doing. Following this and due to safety inspections.9 GW installed capacity).700 MW Lungmen).differs markedly from President Sarkozy.this has created space for LNG and renewables (wind) Nuclear substitution by gas The Fukushima disaster (11 March 2011) led to a total of 14 nuclear reactors in Japan (6) and Germany (8) being closed. A fourth facility will. Fukushima triggered a review many countries which has already led some to initiate a phased withdrawal from nuclear. 3.903 MW Maanshan facility in 2024-25. Taiwan’s Bureau of Energy estimates that the country’s LNG import needs could rise from 12 to 20 MT pa.224 km Nord Stream gas pipeline from Russia to Germany is a dual pipeline project capable of supplying 27 bcm of natural gas but this could increase to 55 bcm in September 2012 when the second line becomes operational. 4. The outcome could have major implications for the future of nuclear power in Europe as a whole. The opposition Socialists may well push nuclear as a campaigning issue. Germany decided to close the country’s 17 nuclear power stations by 2022 rather than 2036. in turn. As a direct result.

Figure 14: Nuclear power – global consumption growth .'three strikes and you are out' 300 250 200 Chernobyl 26 Apr 1986 Nuclear Consumption growth (TWh) 150 Three Mile Island 28 Mar 1979 100 Fukushima 11 Mar 2011 50 0 2007 2008 2009 2010 2011E 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 -50 -100 Middle East S. As per Figure 14. also has tentative plans to add eight reactors to its base of two. 25 . We feel that Fukushima will accelerate the switch away from nuclear. Austria. & Cent.P. So. Australia. BP 2011 Statistical Review of World Energy. The energy market after-shocks of Fukushima have reduced demand for Uranium – this has had a dramatic impact on the price of Uranium. The price of Uranium has fallen from $70 per pound to just over $50/pound (Figure 15). Although Chernobyl did not deter the USA. The share price of Cameco Corp. Since the Chernobyl accident.lucas@jpmorgan. Fukushima was the world's third. one of the world’s largest producers of Uranium has also more than halved (Figure 16). Norway and Sweden. it is fair to say that the growth in nuclear power capacity has not cancelled Global Equity Research 13 January 2012 However. Brazil’s Electronuclear (owned by Electrobras) nascent nuclear program. driven to diversify the country’s fuel mix. France and the UK from nuclear power. Morgan. very high profile nuclear incident. Canada. Japan. we note that PR China continues with its program to build twenty-seven new reactors. nuclear energy consumption has been on a clear downward pathway. some countries did respond to popular concerns e. global growth in nuclear energy consumption peaked in 1985. America Africa Asia Pacific North America Europe & Eurasia Aggregate growth/(decline) Source: J. New Zealand.Fred Lucas (44-20) 7155 6131 fred. Italy. Denmark.g.

lucas@jpmorgan. Morgan.Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 Figure 15: Uranium price .P. Morgan. 2011 2011 26 .$ per pound 70 65 60 55 50 45 40 2010 Source: J. Figure 16: Cameco share price (C$) 45 40 35 30 25 20 15 2010 Source: J.

this project appears to have a firstmover advantage.1 to 0. could begin operations as early as 2015 with Asia-Pacific as the target market. Indeed.9 MT pa in mid-2012. the operator ConocoPhillips recently reversed its decision to mothball the plant after signing new supply contracts with producers from Alaska’s Cook Inlet Basin. appeared that they would stop in 2011 because the plant was no longer commercially competitive. However. The exports. the shale gas revolution literally changed the gas market “overnight. respectively. The owners expect completion of the FEED in early 2012 and an FID sometime in 2012. there may be greater reliability and sustainability of supply with this project compared to others.5 MT pa (or around 500 mmcfpd). to Japan for 42 years. Cheniere Energy has signed three long-term Sale and Purchase Agreements (SPAs) with BG Group.2 bcfpd) in recent years. The Kitimat facility. and LNG imports decreased from 1. Planned capacity for Phase 1 is 5 MT pa (or close to 700 mmcfpd). within the next five years. Sabine Pass (Cameron Parish. Sabine Pass is shaping up nicely As for the US. and GAIL (India).Fred Lucas (44-20) 7155 6131 fred.7 bcfpd to 1. the plant was put in ‘preservation mode’ in November.” Bucking an earlier trend of annual natural gas production declines.1 MT pa (0. since 1969. most of the announced liquefaction projects are facilities on the same site as existing or planned re-gasification terminals. US has exported LNG from Alaska since 1969 Gas shale has transformed the potential for LNG exports Proposed export facilities in Canada and US Kitimat LNG is advantaged by location on west coast In western Canada.1 bcfpd in 2010.d. However.5 bcfpd in 2005 to 59. Operators conceived of or constructed the re-gasification terminals at a time when it seemed that the USA would need increasing LNG imports.5 MT pa each for a total of 18 MT pa. which have averaged 1. Apart from the existing Kenai terminal. Gas Natural Fenosa (Spain. Louisiana) has made progress towards potentially exporting Global Equity Research 13 January 2012 Joseph Allman. Among other possible projects in western Canada. and in more substantial quantities. owned by Apache (40%). EOG (30%) and EnCana (30%). This plant offers a relatively short route to Asia (estimated 11 shipping days). Whereas many stranded gas projects include an individual field or collection of discoveries. In North America. Another benefit of this plant versus some other plants around the world is the connection to the North America natural gas grid. a site previously planned for an LNG re-gasification terminal likely will be the site of the country’s first LNG liquefaction plant. Korea Gas Corp and Gas Natural SDG SA (Spain) have signed 20-year preliminary agreements to buy 40% and 30% of the North American LNG export potential North America LNG exports – nothing new The United States has exported LNG from Kenai.allman@jpmorgan. it looks like North America (including the USA and Canada) is on the verge of exporting LNG from other plants. Each contract is for 3. The four trains at Sabine would export 4. Alaska. CFA (1-212) 622-4864 Joseph. Thus. 27 . The Department of Energy (DOE) has approved 16 MT pa of exports from Sabine Pass. US natural gas production grew from 49. the owners of Kitimat are sizeable companies that have significant tested and producing natural gas resources in western Canada (primarily Horn River Basin shale) and massive additional back-up gas supplies throughout North America. and it plans to resume exports of around 1.2 bcfpd over the same period.lucas@jpmorgan. Latin America).

Fred Lucas (44-20) 7155 6131 fred. it probably is just a matter of time before we hear about supply agreements into Sabine Pass.25 $2. regulatory Global Equity Research 13 January 2012 Table 4: Sabine Pass LNG contracts Company BG Gas Natural Fenosa GAIL Source: Company website Train Volumes (Mtpa) 1 2 4 3.5 Period 20 years 10 year extension option 20 years 10 year extension option 20 years 10 year extension option Planned Fixed Sales Charge Start Up (per MMBtu) 2015 2016 2017 $2.00 % of Henry Hub (NYMEX) 115% 115% 115% Sabine Pass still requires FERC approval for its operation and construction. if this plant ever begins operations. they likely will take it. The three SPAs are contingent upon. first two-train contract with the EPC contractor. If Cheniere is unable to satisfy these contingencies by the end of 2012 (BG Group. so financing appears to be a real risk to the success of the Sabine Pass project.lucas@jpmorgan. Cheniere also announced that it plans to build a liquefaction plant on another site that it previously had planned for a re-gasification terminal. Thus. with the Eagle Ford Shale as the primary source of the natural gas. and the project’s FID. 2012. the Sabine Pass liquefaction terminal may be unique if it does not require explicit resource dedication / reserve certification.9bn. but those plants are at earlier stages than Sabine Pass. If gas producers can receive a premium to Henry Hub for an extended time. given the depth and liquidity of the US gas market. also requires that Cheniere secure financing by March 31. Other plants are at earlier stages Other plants are seeking approval for LNG exports. However. for some reason. In Table 5 we show those plants and the ones mentioned previously. it would not begin exporting LNG until the latter part of this decade at the earliest. We assume that. Gas Natural Fenosa) or mid-2013 (GAIL).5 3. it could cause LNG exports to be lower than the planned liquefaction capacity.5 MT pa of liquefaction capacity.49 $3. The Corpus Christi (TX) site could add an addition 13. 28 .5 3. Bechtel. upstream suppliers are not comfortable with Cheniere’s credit or with signing long-term contracts for gas sales at 115% of Henry Hub. which Cheniere hopes to start in early 2012. The $3. either party could terminate the contracts. If. Wait to see who will supply Sabine Pass We are not aware of any contracts with customers to send their gas to Sabine Pass for export. Cheniere receiving financing. as long as they are comfortable with the size of their resources. among other things. Cheniere has significant debt obligations.

Louisiana Canada Kitimat.0 13. The main concern driving these studies appears to be the potential increase in domestic natural gas prices due to LNG exports.S are not significant importers and therefore an Unrestricted DOE license is important.9 Filed with NEB 7.S). expected Q1 2012. is key The DOE recently indicated that it would not issue any additional unrestricted export licenses before it completes a review of the impact of liquefaction projects on US markets.5 NA Notes: 1.0 13. Louisiana Cove Point. 29 . Currently. the law appears to allow the DOE to change any contract if. next step is securing FERC approval for building infrastructure (in the U.7 Export license status1 Developer Expected Start-up Secured unrestricted DOE. The second study by an external agency will evaluate the impact of LNG exports on the overall economy. Texas Cameron.2 Secured NEB 1. awaiting FERC Secured DOE (FTA2 only). Comments from a DOE official indicate the department’s desire to honor the sanctity of the Sabine Pass contract. Encana BC LNG Export Cooperative Shell 2015 NA NA NA NA NA NA 2015 NA NA 5. Br. Company websites Key review underway Outcome of DOE review. BC Prince Rupert Islands. most of the plants that we mentioned above have a license to export to countries that have a free trade agreement (FTA) with the US.5 15. as LNG exporters can tap importing markets which typically pay a much higher gas price compared to the US.S Sabine Pass. BC Export capacity (Mtpa) 18. The review includes two studies that are in progress with expected completion in 1Q 2012. Maryland Coos Bay. for example. Louisiana Freeport. Columbia (BC) Douglas Island.5 12. it deems the arrangement a threat to energy security or if it finds a higher-priority use for the natural Global Equity Research 13 January 2012 Table 5: Proposed LNG export plants in North America Proposed Terminal U. only Sabine Pass has secured an unrestricted export license. EOG. However. Countries with a Free Trade Agreement with the U. Securing a DOE permit is the first step. Source: FERC.Fred Lucas (44-20) 7155 6131 fred. The first study is an analysis by the EIA on the effect of LNG exports on domestic natural gas prices. awaiting FERC Secured DOE (FTA2 only) 2 Secured DOE (FTA only) 2 Secured DOE (FTA only) Pre-filing stage Filed with DOE (FTA2 only) Cheniere Energy Conoco & multiple partners Southern Union & BG Dominion Fort Chicago & Energy Projects Development Cheniere Energy Sempra Energy Apache. this license is of limited practical use as the current FTA list includes only 15 countries and none is a major LNG importer.0 7. Of the planned US projects. Texas Lake Charles. However. Oregon Corpus Christi. 2.lucas@jpmorgan.5 9.

com Global Equity Research 13 January 2012 Global Commodities Research Colin Fenton (1-212) 834-5648 colin.g.0 14. per boe. unseasonably warm winter in North America has significantly cut into US gas heating demand. followed closely by three major supply purchasing agreements.0 4.brown@jpmorgan.00 per mmbtu (less than $20 per boe) to price levels that cannot be ignored by consumers paying the equivalent of $ LNG pricing – the Henry Hub threat LNG Pricing Phase Shift Ahead? Global shale gas revolution challenges the oil-linked price mechanism for LNG In 2011. forcing spot NYM natural gas below $3. or more.lucas@jpmorgan.fenton@jpmorgan. Asia buys over 60% of global LNG and almost every proposed project targets these high value oil linked markets.Fred Lucas (44-20) 7155 6131 fred.0 16. including a large Asian buyer.0 8. and alternative energy sectors. coal.0 6. Morgan. The granting of these licenses.0 10.p. The recent approval of an export license for Cheniere’s Sabine Pass terminal in Louisiana (with whom JP Morgan has a commercial arrangement). On top of all of this.0 2. as well as for fuel makers in the petroleum. has only underscored the latent appetite for this cheap resource. Asian LNG Price US Natural Gas Futures Dec-12 Oct-13 Aug-14 Jun-15 Apr-16 30 .com Any changes to Asian pricing are crucial These are critical risks for the gas industry. the United States and Canada each granted permits for the commercial export of LNG—the first of their kind in North America.P. Figure 17: Henry Hub Forward Price versus Asian LNG Price Implied by Crude Forward Curve $/MMBtu 18. Massive regional price spread sends a signal to Asian buyers The prospect of a major new low-cost LNG supplier entering the market has emboldened some buyers and is worrying to potential suppliers at the high end of the cost curve—notably some of the Australian green field and expansion projects.0 12. gives renewed urgency to the longstanding questions of:  how long can the cumbersome Asian oil-linked pricing formulas endure?  what will replace them if pricing formulae change? Jeff Brown (65) 6882 2215 jeff. plus several more permit applications in queue.0 Feb-12 Source: J. The potential rewards for success (and costs for failure) are enormous: the shale gas boom has opened a greater than $10 per mmbtu gap between 5-year forward Henry Hub prices and the price implied by recently agreed oil-linked LNG price formulas.

directed toward Asia. which explains how the wide spreads between Henry Hub and Asian oil-linked LNG have been able to persist to date. as seen recently. the tanker market is very tight or Asia pulls all the available cargoes. Atlantic Basin spot cargoes bound for Asia generally trade at the highest Atlantic Basin alternative (generally either the UK National Balancing Point.. which have a well developed infrastructure for receiving LNG imports.0 25. Spot LNG will likely act to equalize gas prices across regions. like the UK. When LNG is tight. Because Asia is typically short LNG. Spot LNG trade already has an impact on liquid markets. the trend toward greater international trade volumes in LNG. but these are typically short-lived.e. LNG prices can spike above oil prices. Morgan. DOE data show that upwards of 94% of Canadian gas pipeline flow into the US is in the “spot market”. Also. Figure 18: Asian LNG spot price versus Henry Hub. particularly during seasonal spikes.0 2001 Source: J.0 10.P. and oil price equivalent $/MMBtu 30. Asian spot LNG prices can rise to oil prices on a heating equivalent basis. Spot volumes are pushed to or pulled from the UK depending on NBP pricing relative to competing markets. Spot LNG is the liquidity skin that may reduce price dispersion Representative Asian LNG Price US Natural Gas (HH) UK NBP Crude Oil Equivalent 2003 2005 2007 2009 2011 31 . including contracts). or a continental price) plus transport cost. NBP. on a heating equivalent basis LNG is well over three times as expensive as oil to transport. If. For reference. But spot LNG trade accounts for only a small percentage of total global LNG trade (i. NBP. though we also believe the US and Canada may find themselves competing with other new suppliers far sooner than they might expect.0 20. As discussed elsewhere in this collaborative study. and the LNG tanker market is relatively small and often tied to long-term contracts. just as movements in crude oil keep price spreads relatively Global Equity Research 13 January 2012 Regional prices are already linked Spot LNG is already closely linked to international gas prices Asian LNG is already linked to international gas markets in the spot market. will likely prove durable. Going forward.0 0. or scheduled to be delivered within 12 months. a key challenge will be trying to anticipate what portion of the LNG trade migrates from long-term contracts to short-term contracts and opportunistic cash market transactions.lucas@jpmorgan. oil can be pulled into heating and power. and total global international trade in LNG supplies only about 10% of global gas consumption. Because gas tends to be more efficient than oil in power generation.Fred Lucas (44-20) 7155 6131 fred. displacing gas and effectively placing a ceiling on LNG prices.0 15.0 5. So there are limits today on the extent to which spot LNG can balance global gas markets.

and (2) it has had numerous projects at various stages of development by international oil companies for decades. but they are generally thought to follow the construct outlined above." floors/ceilings. long-term contract terms typically change quickly. There were some variations. Generally. As buyers’/sellers’ market expectations evolve. The contracts prices were centered at around $22-to-$25/bbl crude. Heretofore. and some price ceilings fixed below $4 per mmbtu for 20-year contracts. because: (1) it is a relatively high-cost construction Global Equity Research 13 January 2012 Long-term contracts are still oil linked but pricing formulas vary widely with cost trends Historic pricing convention links LNG price to oil price Asian long-term LNG contracts for deliveries over periods of up to 25 years. such as “S-curves. Australian LNG projects have long set marginal cost Most interestingly. wider ranges in agreed-upon coefficients and other variations in pricing formulas have emerged. although the contracts remain oil linked.90 *Note that there are numerous variations on the basic formula. the major structural shifts in the LNG market—and associated impacts on domestic gas markets—have been transmitted through changes to long-term contract pricing and terms.60-0. where they believed they had to compete with coal use. when Japanese and Korean buyers dominated the global LNG market. the pricing formula has a small fixed component plus a coefficient multiplied by crude price (by convention. the agreed pricing terms are generally set in the market by the full development costs of the marginal seller. Prior to 2003. Morgan. The example is a terrific illustration of the strategic position conferred by a prudent and forward-looking consumer hedging strategy. Before 2003 the slope was typically . but pricing terms were similar across contracts. The long-standing 85% oil price linkage norm changed around 2002-to-2003 when projects in Trinidad demonstrated that LNG construction costs could be pushed to very low levels (about $200 per T) and major new projects in Qatar. but typically for 15-to-20 years have historically been linked to crude oil prices.P.Fred Lucas (44-20) 7155 6131 fred. Source: J. This price range may seem incredible today. usually the Japanese Customs Cleared Crude (JCC) price even for non-Japanese Asian buyers). Figure 19: Basic LNG pricing formula PLNG = A x PCrude Oil + B where: PLNG is the price of LNG in US$/MMBtu A is the “slope” indicating the crude linkage. etc. as competition among buyers and sellers has intensified and their relative negotiating power has ebbed and flowed. typically about US$0. Over the past decade. EPC cost nadir and new target markets shifted pricing models 32 .1485 PCrude Oil is the price of Japan Customs Cleared (JCC) crude oil in US$/barrel B is the “constant” which was often representative of transport cost.lucas@jpmorgan. LNG was typically priced at about 85% of the benchmark international oil price. but because the full development and delivery cost for Australian LNG projects was less than $3 per mmbtu at the time. Indonesia and Australia decided to look past slower-growing established markets in Japan and Korea and altered their pricing strategies to push into China and India. as witnessed several times over the past decade. Because long-term contracts underpin the viability and thus approval (or scuttling) of new gas projects and encourage buyers to build out receiving infrastructure and downstream industry—all of which require a 3-to-5 year lead— even small changes to market expectations can have a major impact on capex planning and thus future LNG business growth.. This spot in the market has long been held by Australia. such as the introduction of “S-curves” that softened the oil linkage at high and low oil prices. Oil linkages quickly dropped to about 30%. the market was offered down to these levels through a tender process initiated by a major Chinese buyer.

In 2008. and Mexico. with new contracts surpassing the 50% threshold against higher mid-points for oil prices. including the US Energy Information Administration. Many market observers. and it held the line on pricing. US exports have a large. Since the Great Recession crude linkages have fallen back as numerous Australian LNG projects have raced to secure buyers and get to Final Investment Decision (FID). Over the 2005-2006 interval. The Tohoku earthquake slowed the pullback from a tight crude linkage on the prospects for much higher Japanese LNG demand. much of the Qatari LNG was targeted at the Atlantic Basin. it is important to remember that several proposed US LNG export projects have a unique cost advantage. The combination of demand pull and several unplanned outages (Hurricanes Katrina. in that they have already built out berthing and storage facilities in anticipation of LNG imports which never materialized. Meanwhile construction costs rose quickly as both upstream and downstream service providers were stretched. in our view. introducing a new threat in the value proposition. Qatari pricing discipline remains key Recently oil price discounts of 15%+ have been taken Will new supplies undercut pricing and threaten Australian LNG? Australian LNG projects are clearly at the high end of the cost curve and may be thought of as “marginal” supply. and signed. Canada. Critically. but by 2008 the rapid growth of shale gas in the US had altered market dynamics and Asia was a much tighter Global Equity Research 13 January 2012 History shows that pricing models can change quite quickly The LNG market subsequently shifted again when oil prices began to ratchet upwards starting in late 2003. willing to pay high prices to fuel its strong growth. The United Sates has some 13. Originally. Asian buyers were understandably concerned that North America would pull away Asian LNG and there was talk of LNG sellers possibly demanding Henry Hub based pricing from Asian buyers (demonstrating just how quickly the LNG market can change with shifts to large domestic gas markets. currently planned but un-contracted Australian LNG still stands a high probability of eventually finding buyers and moving ahead.35 MT pa of LNG import capacity but only imported 9. several contracts with roughly a 100% crude oil linkage. Rita) eventually lifted US Henry Hub gas prices to a cyclical high above $15 per mmbtu and NBP prices briefly above the equivalent of $22 per mmbtu. Qatar was the only major incremental source of supply. the Australian projects at the high end of the cost curve are especially vulnerable. but recently some long-term contracts are said to have a 80% crude linkage. So long as the perceived long-term demand for LNG exceeds the perceived long-term supply at an 80% crude oil linkage. in this case the US). Chinese state oil companies moved aggressively to sign new LNG long term contracts just as an unprecedented wall of new Qatari supply was poised to surge into the market. In response to these prices. linkage ratios with oil began to move higher even as oil prices rose. in-built cost advantage In this context. The Qatari LNG projects demanded. Analysts and investors.2 33 .lucas@jpmorgan. as China’s inexorable energy appetite became apparent. projected that the US would quickly become one of the world’s largest LNG importers and eventually pass Japan to become the largest importer. dozens of LNG receiving terminals were planned on both coasts in the US. But if substantial volumes of lower cost LNG begin to push into Asia.Fred Lucas (44-20) 7155 6131 fred. have rightly questioned whether adequate returns in Australian LNG projects can be achieved at this level. The LNG market was so tight and nervous about the prospects of China taking in all of the available LNG that longterm contract prices were bid up to oil parity.

the US Energy Information Agency estimates China has the largest shale reserves in the world. presenting unique challenges and potentially higher cost. were to be displaced it would not necessarily mean that LNG prices would decline sharply because the next marginal seller is also high cost. has already altered industry’s long-term views on the availability of supply. Qatar now appears to be relaxing its pricing terms in acknowledgement of the new. but three keys were: (1) a strong political push. Based on the experience with US shale gas. and (3) early foreign involvement. the most obvious candidate to radically alter long-term supply expectations would be an acceleration of shale gas development in China and other major buyers. these facilities require some modifications and gas liquefaction must be added.1 trillion cubic meters (tcm) of technically-recoverable reserves. For example. one of which has already received required approvals and has signed gas sales agreements. realities. US threat has pushed sellers to accept lower contract pricing Overall. but this figure is still larger than the US resource. Clearly. Qatar has chosen to push for high price coefficients and keeping the Asian market “tight”. China’s ability to follow in the footsteps of US developments and technology is a major advantage in quickly closing the cost gap. is a sudden shift in the domestic gas supply outlook among major buyers. spread over a range of smaller basins.Fred Lucas (44-20) 7155 6131 fred. and domestic pipeline expansions all lagged before China surprised observers with swift shifts in priorities and quickly ramped up development in these areas. This wide cost differential easily overcomes the higher cost of shipping LNG from the USGC to Asia. Doubts about China’s ability to get large-scale projects done quickly have repeatedly been proven wrong: overseas upstream acquisitions. Grassroots USGC projects are similarly high cost if transport costs are included. which are often deeper. spurred Australian sellers to offer somewhat better terms to secure supply agreements before this threat escalates further. Chinese industry pegs its shale gas reserves somewhat lower (26 tcm). …but China’s ability to execute large projects is not in doubt 34 .6 bcfpd pa of liquefaction.000 per T in Australia. LNG re-gasification/import terminals. the rise of alternative LNG suppliers is a significant challenge for Australian LNG operators. the full cost of LNG from Western Canada to Asia is very similar to Australia. Because of below and above ground challenges. poses a potential threat in that it sends over 30 MT pa of LNG into the Atlantic Basin which could be redirected into high priced sales in Asia.lucas@jpmorgan. if still evolving. All eyes on China gas shale…. or about 50% more than the US. This has. broad marine basins. it appears that a hard push by North American projects. The challenge for China is that while the US is generally developing shallow. in turn. China gas shale faces many challenges…. There is no question that China has substantial shale resources. The simple fact is LNG itself is expensive and at the high end of the natural gas cost curve. particularly as their costs continue to Global Equity Research 13 January 2012 MT pa of LNG in 2010. Numerous drivers contributed to the changes. But it must be clarified that if some. China has a mix of different structures. in the early stages costs are likely to exceed the US. there are four proposed projects for 6. at 36. (2) competition among the state majors. but reportedly these costs amount to some US$500-800 per T versus over US$3. In the past. the world’s largest LNG producer. several of which involve Asian buyers. In fact. one which can dramatically alter the long-term LNG price outlook. As such the biggest threat to all LNG projects. although these can fall rapidly as infrastructure expands. or even all of the Australian projects. It must also be noted that Qatar. Of course. Currently.

but the official also discussed new subsidies for shale gas. We have disagreed with this price view.5 bcm of shale gas output in 2015 will come from the region. so necessary infrastructure is already in place. including a Japan. Asian utilities do eye each other closely. In late 2010. where China’s first horizontal shale gas well was completed.prospects for gas-based pricing for Asian LNG We expect gas-linked pricing to penetrate Asia Given the rapid growth and increasing liquidity of the global LNG market. arguing that both the floor and ceiling of this range would likely be violated between 2011 and 2015. These are aggressive targets. Historically. is arid so water access presents challenges. Singapore is already the regional pricing hub for oil products.50 to $6. Korea. particularly in Japan where oil still plays a substantial role in power generation during periods of peak demand. would trade in a $4. The market already sees several Asia spot LNG price quotes. In August.lucas@jpmorgan. a government official tasked with designing new plans for shale gas development said that China hopes to produce 60 to 80 billion cubic meters (bcm) per annum by 2020. The key area to watch is Sichuan. given that they exceed announced company plans. trapped in the North American market. The region has among the most promising reserves. Sichuan is also a major conventional gas-producing region. Taiwan price marker from pricing agency Platts. which we understand has presented some difficulties in the early stages of development. At a recent Shale Conference in Shanghai. wider participation by domestic and foreign companies and strong pressure on companies that win future tenders to aggressively explore and develop new plays. the head of the National Energy Administration said China’s powerful State Council was urging faster shale development. the consensus among North American gas producers predicted that spot gas. With that said. as novel pathways for clearing supply and demand emerged and as volatility picked up 35 Utilities behavior can be herdlike…. Oil price linkages were more familiar and easier to explain to utility customers. The other major promising region.when one moves…. Watch for news from the Sichuan and Tarim basins Conclusion . Among the main challenges we see for Sichuan is the structural complexity. Simple arithmetic of US LNG exports reaching Asia are compelling .Fred Lucas (44-20) 7155 6131 fred. with Petrochina saying that 1 bcm of its targeted 1. as described above. though Shanghai is also a major regional contender. lest their competitive position becomes eroded. including the widespread adoption of “S-curves”. which is also already slated for expansion. Singapore aspires to become a regional LNG trading hub with the opening of a re-gasification terminal in 2013. ample water which is necessary for Global Equity Research 13 January 2012 Chinese government has ambitious shale output aspirations Developments over the past few months further show political support aligning for shale gas. the Tarim Basin. Asian utilities were reluctant to link LNG prices to Henry Hub in the US or the UK National Balancing Point due to basis risk. as well as the coming amplification of the shale gas phenomenon to global proportions. We have seen several examples of this “follow the leader” behavior. The state utilities also need to demonstrate that they are securing the best deals available in the market.50 per mmbtu range (Henry Hub basis) through 2011 and 2012 before beginning to find support in 2013. so adding LNG to the fold makes sense. we think it is likely that gas-linked pricing will take-off in Asia. and perhaps more importantly.. If one utility jumps to a new pricing system others are likely to try it. following on an estimated 6 bcm by 2015. Early development efforts of the state majors and foreign companies are focused on the region.

Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

sharply for fundamental reasons. Cheniere estimates transportation costs from the US Gulf Coast to Asia are about $2.80 per mmbtu. Given that China and Japan are already paying $12 to $16 per mmbtu for LNG on a delivered basis, if the Sabine Pass option were available today, spot Henry Hub physical gas could be $6.13 to $9.61 per mmbtu today and still be competitively priced with oil-linked molecules in North Asia. The midpoint of the imputed range implies $7.87 per mmbtu. This is more than 2X the current spot price. The imputed range is also generally above the price level that many in industry believe will be the ceiling for the spot price for many years. But violation of that supposed ceiling at $6.50 is an outcome consistent with the economics of marginal cost and the wide dispersion in fuel prices (more than $80 per boe) waiting to be arbitraged. There is a ready analogue in the rail and truck investments that have been pursued in 2011 to narrow the Brent-WTI spread after its historic blow-out over $20 per bbl (historic norm is about $1.50 per bbl WTI above Brent). Rail shipments of petroleum and petroleum products in the US Midcontinent surged in 2011, according to the Association of American Railroads, as Bakken barrels moved toward the NYM delivery hub at Cushing, OK and onward to the Gulf Coast.
Henry Hub can price to Asian import costs, well above marginal cost of US marginal cost of production

Similarly, the potential for North American gas prices to reflect the marginal molecule in Asia consumption, rather than local production costs in a US basis, is reminiscent of the marginal cost economics that became so obvious in oil in 2008. That year, an oil sands producer in Canada or a deep water producer in the Western Gulf of Mexico or offshore Angola, who might have carried production costs somewhere between $50 and $65 per bbl, still received upwards of $140 per bbl on every barrel for a short period of time because at that instant the marginal molecule of global oil demand (driven by Asia) called upon the marginal molecule of supply (biofuels in Romania and the US) and every barrel in the world cleared off that marginal price.


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

Global LNG supply & demand scenarios
We use our global database on LNG projects to forecast operational capacity as far out as 2020 (please see Appendix II). We run two simple global LNG supply-demand scenarios (a BULL and a BEAR case) and examine the potential supply deficit / surplus under each.
Re-gasification capacity sets a country’s limit to import LNG

In both scenarios, we are subject to the key boundary condition that LNG imports cannot exceed a country’s expected re-gasification capacity based on existing and planned import terminals. For many countries that will import LNG for the first time, we assume a modest build up in re-gasification terminal utilization i.e. LNG imports will remain a tactical, but secondary source of gas to existing piped gas imports and domestic supplies for most countries e.g. in Europe. However, we do assume that these import terminals will be built and partly used. For example, in Europe we assume 2015E-17E LNG demand of 4-9-14 MT pa respectively from countries that do not currently import LNG (a combination of Albania, Croatia, Cyprus, Estonia, Germany, Lithuania, Poland, Slovenia, Sweden and the Ukraine). In truth, this represents a very small fraction of their aggregate gas demand, currently sourced via import pipelines. We also assume that certain countries that currently import LNG, but which look set to export LNG (e.g. Canada and the USA) experience an accelerating decline in LNG imports as exports commence in 2015-16.

Fukushima really was a ‘bomb in the LNG pond’

Under both scenarios we assume that Japanese LNG consumption will remain unusually high 2011 and 2012, only then reducing in 2013 given the return of much of its nuclear generation capacity. We note that J.P. Morgan’s forecast for Japan’s 2011 demand (source - Tomohiro Jikihara, Japanese utility analyst) of 89 MT represents 30% Y-o-Y growth and an increment of 21 MT. To put this in to context, this is more than half of the global growth in LNG in 2010 (+40 MT). Under both scenarios, we also assume a loss of operating capacity of 2 MT pa 20112014 and 1 MT pa 2015-16 arising from the exhaustion of upstream gas supplies e.g. to Arun LNG (Indonesia – original capacity 12.5 MT pa – we note that BPMigas has recently confirmed that Indonesia will likely only export around 300 LNG cargoes in 2012 versus 367 in 2011 and 427 in 2010), Kenai LNG (USA – original capacity 1.5 MT pa) and MLNG Tiga (Malaysia – original capacity 7.4 MT pa). We acknowledge that such a long range demand forecast will be error prone given LNG demand can be dislocated by numerous variables other than the economy: (i) weather – either very cold in the Northern Hemisphere or very hot in the Middle East (ii) the availability of hydro-electricity - we really cannot forecast local rainfall (iii) unexpected supply disruptions – perhaps arising from domestic or import pipeline shut downs (iv) government policy changes - for example, the Spanish government passed a decree in Spring 2011 to incentivize the burning of coal; this has contributed to a likely 20% Y-o-Y decline in Spanish LNG imports. We note that during the seven year period 2005 to 2011, the global LNG system operated with almost 20% of theoretical spare capacity (based on 100% nameplate capacity of existing plants).

Some capacity retirement expected


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012


Table 6: LNG demand outlook (MT pa)
Europe Middle East / Africa China India Japan Rest of Asia Latin America North America Market share Europe Middle East / Africa China India Japan Rest of Asia Latin America North America YoY growth Europe Middle East / Africa China India Japan Rest of Asia Latin America North America Effective supply capacity Spare capacity 2005-2011 average
Source: J.P. Morgan.

2005 35 0 0 4 56 29 1 13 138 25% 0% 0% 3% 40% 21% 0% 9% 100%

2006 42 0 1 6 60 32 1 13 154 27% 0% 0% 4% 39% 21% 0% 8% 100% 21% NM NM 32% 7% 11% 5% -2% 12% 182 18%

2007 39 0 3 7 65 33 1 18 165 24% 0% 2% 4% 39% 20% 0% 11% 100% -7% NM 287% 25% 9% 2% 13% 37% 7% 190 15%

2008 40 0 3 8 67 35 1 10 165 24% 0% 2% 5% 41% 21% 1% 6% 100% 4% NM 15% 8% 4% 7% 54% -44% 0% 198 20%

2009 50 1 6 9 63 34 2 13 177 28% 0% 3% 5% 35% 19% 1% 7% 100% 25% NM 72% 17% -7% -5% 94% 28% 7% 221 25%

2010 64 2 9 9 68 43 7 15 217 29% 1% 4% 4% 31% 20% 3% 7% 100% 27% 230% 68% -4% 9% 29% 181% 15% 23% 254 17%

2011E 68 3 11 9 89 48 9 12 249 27% 1% 5% 4% 36% 19% 3% 5% 100% 6% 40% 20% 7% 30% 11% 27% -18% 15% 273 10%

2012E 67 4 15 12 89 51 11 12 260 26% 1% 6% 5% 34% 20% 4% 5% 100% -3% 27% 30% 31% 0% 7% 32% -1% 5% 280 7%

2013E 68 4 18 16 75 56 13 11 262 26% 2% 7% 6% 29% 21% 5% 4% 100% 3% 12% 25% 31% -15% 9% 16% -5% 1% 280 7%

2014E 72 5 23 18 78 63 14 10 283 25% 2% 8% 6% 27% 22% 5% 4% 100% 6% 16% 25% 11% 3% 13% 11% -11% 8% 285 1%

2015E 78 7 27 20 80 70 18 9 308 25% 2% 9% 6% 26% 23% 6% 3% 100% 8% 47% 18% 11% 3% 10% 21% -13% 9% 295 -4%

2016E 86 9 31 22 82 75 20 8 331 26% 3% 9% 7% 25% 23% 6% 2% 100% 10% 17% 15% 11% 2% 8% 12% -11% 8% 318 -4%

2017E 94 9 34 24 83 78 22 7 352 27% 3% 10% 7% 24% 22% 6% 2% 100% 10% 9% 10% 10% 2% 4% 10% -7% 6% 367 4%

2018E 99 10 37 27 84 81 23 7 368 27% 3% 10% 7% 23% 22% 6% 2% 100% 5% 3% 10% 10% 1% 4% 7% -4% 4% 426 16%

170 24% 18%

 Supply - We assume the start ups of all new liquefaction plants in 2013 and onwards are 12-months late and new plants only operate at 75% capacity in their first year of operation. We assume that all plants then run at 95% of capacity (which would vary through the year according to seasonal demand).  Demand – We assume (i) a European recession in 2012, but recovery in 2013 onwards (ii) domestic shale gas fails to materially displace LNG demand in China (as occurred in the US).


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

Figure 20: BULL CASE - LNG effective supply / demand outlook (MT pa)
450 400


Market cover runs down 2011-16



10% 17% 25% 24% 18% 15% 20%







0 2005 2006 2007 2008 Europe India Latin America 2009 2010 2011 2012E 2013E China Rest of Asia Effective operating capacity 2014E 2015E 2016E 2017E 2018E Middle East / Africa Japan North America

Source: J.P. Morgan.

 As per Table 6, under this scenario global demand rises from just under 250 MT pa in 2011E and almost reaches 370 MT pa by 2018E, a potential demand CAGR of 6%.  2012E global demand grows 5% to 260 MT.  Japanese demand holds at 89 MT pa in 2011 and 2012, declining to 75 MT in 2013 (2010 68 MT) as nuclear plants are re-commissioned.  Chinese demand surpasses 30 MT pa in 2016 (2010 9 MT and 2011E 11 MT) and reaches 37 MT pa in 2018 (2010 9 MT and 2011E 11 MT). The Chinese government has estimated total Chinese gas demand of 300 bcm pa by 2020. If we assume 8% pa LNG demand growth 2019-2020, this would imply that 20% of China’s gas needs could be supplied by LNG by 2020. This seems reasonable under a scenario where gas shale supplies are not the game-changer they were in the US gas market.  The global supply / demand balance tightens 2012-17. There is a risk of zero spare capacity by 2014-15. As a result, global LNG demand may be supply constrained from 2015 to 2017. If we extrapolate 2018 demand at 4% pa for two years, we infer 2020 LNG demand at just over 400 MT.  We suspect that this scenario (or something like it) may explain why China remains keen to contract long term supplies that are scheduled to commence in 2014-15, accepting oil price indexation for long term contract pricing..  Under this scenario, we expect regional gas price differentials to remain high for the next 2-3 years (until US LNG exports with a Henry Hub cost profile commence), offering low cost LNG suppliers with portfolio flexibility profitable opportunities to divert cargoes to an oil price indexed Asia Pacific market.


followed by a 15% decline in 2013 (iii) the onset of shale gas production starts to displace material volumes of potential LNG demand in China from 2013 Global Equity Research 13 January 2012 LNG SUPPLY-DEMAND BEAR CASE Table 7: LNG demand outlook (MT pa) Europe Middle East / Africa China India Japan Rest of Asia Latin America North America Market share Europe Middle East / Africa China India Japan Rest of Asia Latin America North America YoY growth Europe Middle East / Africa China India Japan Rest of Asia Latin America North America Effective supply capacity Spare capacity 2005-2011 average Source: J. 40 . Morgan.  Demand – We assume (i) a European recession in 2012 and a slow-paced recovery in 2013-14 (ii) reflecting a faster return of nuclear capacity.P.lucas@jpmorgan. We assume existing plants run at 100% of capacity (this varies through the year according to seasonal demand).Fred Lucas (44-20) 7155 6131 fred. 2005 35 0 0 4 56 29 1 13 138 25% 0% 0% 3% 40% 21% 0% 9% 100% 2006 42 0 1 6 60 32 1 13 154 27% 0% 0% 4% 39% 21% 0% 8% 100% 21% NM NM 32% 7% 11% 5% -2% 12% 182 18% 2007 39 0 3 7 65 33 1 18 165 24% 0% 2% 4% 39% 20% 0% 11% 100% -7% NM 287% 25% 9% 2% 13% 37% 7% 190 15% 2008 40 0 3 8 67 35 1 10 165 24% 0% 2% 5% 41% 21% 1% 6% 100% 4% NM 15% 8% 4% 7% 54% -44% 0% 198 20% 2009 50 1 6 9 63 34 2 13 177 28% 0% 3% 5% 35% 19% 1% 7% 100% 25% NM 72% 17% -7% -5% 94% 28% 7% 221 25% 2010 64 2 9 9 68 43 7 15 217 29% 1% 4% 4% 31% 20% 3% 7% 100% 27% 230% 68% -4% 9% 29% 181% 15% 23% 254 17% 2011E 68 3 11 9 89 48 9 12 249 27% 1% 5% 4% 36% 19% 3% 5% 100% 6% 40% 20% 7% 30% 11% 27% -18% 15% 288 16% 2012E 61 4 13 11 80 49 10 11 239 25% 1% 6% 5% 33% 21% 4% 5% 100% -11% 17% 20% 15% -10% 2% 19% -8% -4% 295 24% 2013E 60 4 15 13 68 52 11 10 233 26% 2% 7% 5% 29% 22% 5% 4% 100% -2% 13% 15% 15% -15% 7% 8% -9% -2% 302 30% 2014E 62 5 17 13 69 59 12 8 245 25% 2% 7% 5% 28% 24% 5% 3% 100% 3% 18% 10% 5% 1% 12% 9% -16% 5% 313 28% 2015E 66 7 18 14 70 64 14 6 259 25% 3% 7% 5% 27% 25% 6% 2% 100% 6% 50% 5% 5% 1% 9% 20% -27% 6% 337 30% 2016E 72 8 19 15 71 68 16 5 273 26% 3% 7% 5% 26% 25% 6% 2% 100% 9% 18% 5% 5% 1% 6% 10% -18% 5% 390 43% 2017E 78 9 20 15 71 70 17 4 285 28% 3% 7% 5% 25% 24% 6% 2% 100% 9% 9% 5% 5% 1% 2% 7% -10% 4% 452 59% 2018E 81 9 21 16 72 71 18 4 291 28% 3% 7% 5% 25% 25% 6% 1% 100% 3% 3% 5% 5% 0% 3% 4% -4% 2% 552 89% 170 24% 19%  Supply .We assume all new liquefaction plants are commissioned on schedule and then operate at 85% capacity in their first year of operation. a 10% decline in Japan’s LNG consumption in 2012 from the record high of 89 MT in 2011.

we infer 2020 LNG demand at around 320 Global Equity Research 13 January 2012 Figure 21: BEAR CASE . This scenario would thus be characterized by more limited opportunities for regional price arbitrage.  Chinese demand only reaches 19 MT pa in 2016 (2010 9 MT pa and 2011E 11 MT and our Bull Case estimate of 30 MT). This is more 24% below the implied demand figure under our BULL scenario in 2020 of just over 400 MT.lucas@jpmorgan. under this scenario. projects which have not yet contracted off-take / been sanctioned with an on stream date 2016-18 will almost certainly be deferred as sponsors will struggle to contract off-take based on an acceptable long term pricing structure as LNG-on-LNG competition escalates.  As per Table 7.Fred Lucas (44-20) 7155 6131 fred.  If we extrapolate 2018 demand at 2% pa for two years. the value of supply flexibility would thus be reduced. global demand rises from around 250 MT in 2011E and only reaches around 291 MT by 2018. Morgan.  The market’s spare supply capacity averages over 20% (higher than the average ‘spare’ capacity 2005-2011 of around 19%) through to 2015 before rising substantially 2016-18. a potential demand CAGR of just 2%.  If the world looks like it is heading in to this scenario.LNG supply / demand outlook (MT pa) 450 400 350 Market cover rises to 25-30% 300 30% 16% 24% 30% 28% 250 17% 25% 24% 18% 15% 20% 200 150 100 50 0 2005 2006 2007 2008 Europe India Latin America 2009 2010 2011 2012E 2013E China Rest of Asia Effective operating capacity 2014E 2015E 2016E 2017E 2018E Middle East / Africa Japan North America Source: J.P. we would expect regional gas price dispersion to narrow as more LNG supply points emerge with material spare capacity.  2012E global demand declines 4% to 239 MT. 41 .  Under this scenario.

Fred Lucas (44-20) 7155 6131 fred. Although the underlying drivers to the global LNG demand trends.45% or 320 MT pa of capacity) has yet to be sanctioned. Indeed. one might say the odds of late project completion is one in three.000 per ton.P. the current rate is typically over $3.from a low of $200 per ton. by very many factors other than the weather and the state of the global economy. As Warren Buffet wrote ‘forecasts tell you little about the future. especially as it relates to a number of preFID projects scheduled to be on stream 2016 onwards. So. Capacity growth risks Project delays and cancellations .and sometimes just never happen 42 . look to be very secure. So. in our view.As per Figure 24. Morgan’s analysis of LNG projects 2000-2010 shows that 34% were delivered behind schedule (versus 66% on or ahead of schedule) and 38% are over budget (63% on or under budget). we must consider potential dislocations that could jeopardize the tremendous pace of capital investment. a 15-fold increase.lucas@jpmorgan. As a result. As per Figure Global Equity Research 13 January 2012 Why we might (well) be wrong Long term forecasts are usually wrong for unexpected reasons We have been researching the global energy sector for long enough to acknowledge that long term energy supply-demand forecasts are very often wrong for unexpected reasons . LNG sits within a complex energy matrix. We have also witnessed very significant capital cost escalation for LNG projects (Figure 23) . We consider eight specific factors that could slow down either the pace of capacity growth or LNG demand. To present a narrower bandwidth for the future would be too presumptuous. we note that looking beyond 2015. almost half (c. demand for LNG can be disrupted.the unseen unknowns usually unhinge the most complicated spreadsheets. both positively and negatively. we do not apologize for presenting two extreme scenarios that show two very different market environments. that are in turn driving the liquefaction capacity growth. virtually all projects that are tentatively scheduled to be on stream 2016 to 2020 have yet to be sanctioned. even given a direct oil price to LNG price linkage. of the 710 MT pa that could be on stream by 2020. the economics of a project are so severely damaged that the project is cancelled. J. but a lot about the forecaster’ Mega-infrastructure projects often fall behind schedule…. It is conceivable that project capital costs continue to escalate to a level where.

but this could happen. Source: J. Indeed.P.$ per ton of capacity 4000 3500 3000 2500 Figure 24: Global LNG project execution efficiency 2000-10 45% 40% 35% 37% 34% 29% 42% 38% FID PENDING UNDER DEVELOPMENT 30% 25% 2000 1500 1000 500 0 20% 15% 21% PRODUCING 10% 5% 0% Ahead of schedule On schedule Behind schedule Under budget On budget Over budget Source: J. unprecedented for a buyer to demand and secure a complete price renegotiation .P. long term LNG sales and purchase agreements include windows for contract price re-openers. Global Equity Research 13 January 2012 Figure 22: LNG capacity at risk (MT pa) 700 320 MT pa or 45% 2020E capacity yet to be sanctioned 650 600 550 500 Projects that are likely to slip or may not happen 450 400 Projects that are likely to slip 350 Projects that may slip 300 250 2010 2011 Operating capacity 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Projects under development Projects with defined FID timeline Projects without clear FID timeline Source: J. Figure 23: LNG project capital (EPC) costs . is global contract price contamination once Henry Hub based export price agreements proliferate.Fred Lucas (44-20) 7155 6131 fred. we have already seen three such contracts signed by BG Group. as we see have discussed in the section on LNG price risks. Gas Natural and GAIL with Cheniere.P. Morgan. The key risk. It is. if not all. Henry Hub S-curve could contaminate regional pricing Price revocation / contamination as Henry Hub diffuses in to global LNG price structures – Most. as yet. This can lead to modest changes to the long term price agreement. buyers negotiating a contract for a green field project might insist 43 . Morgan. Equally.lucas@jpmorgan.

we are only aware of the RasGas I and RasGas II-III bonds ($2. This may lead to an increase in LNG related bond issuance.Texas. such bonds do not permit a staged drawdown and also require bi-annual interest payments before a project has started. It seems very unlikely that populist policies post-Mubarak will see any LNG expansion in Egypt even if more gas is discovered (which is required to support a third train at ELNG) Qatar – Qatar has a moratorium on any further development of its super giant North field in order to preserve its resources for future generations. Lake Charles – Lousiana. However. At present. Trinidad & Tobago / Egypt—Both countries have stalled brown field expansion of existing LNG facilities (Egypt . Sovereign downgrades have also made it more expensive for such banks to lend. This moratorium is to be reviewed in 2014. 3.ELNG Train 3. no new LNG export licenses will be granted by the DoE. The conclusions of these two studies will likely determine whether any or all of the remaining four applications for export projects which total 55 MT pa (Freeport LNG .g. We note that four LNG export projects on the US Gulf Coast (Sabine Pass. This has already occurred with BG Group in Egypt LNG. Basle III (to apply from 2015) imposes a Net Stable Funding Requirement (NSFR). USA . it can also lead to higher domestic gas prices. will be approved. 44 .com Global Equity Research 13 January 2012 on a ’fusion’ of oil and US gas price linkage – this could undermine the project economics and lead to a deferral / cancellation. Another form of this risk can occur if a government revises the terms (sales price formula) of an LNG export sales contract. This will force banks to hold 10x more capital reserves and the capital reserves must cover the undrawn portion of the project finance facility. At the very least. 2. The US Department of Energy (DoE) is now conducting two studies (one via the US Energy Information Administration and the other via private consultancy) on the potential gas price impacts of these exports on the domestic natural gas market and on public interest in general. Freeport.ALNG Train X) in order to slow the depletion of gas resources and to prioritize domestic consumption. steel. Bond market may have to replace project finance Project finance withdrawal – Given the extreme capital intensity of liquefaction projects. 1. Such project finance has historically been secured through special purpose vehicles once upstream reserves have been fully certified and a long term LNG off-take agreement has been signed.lucas@jpmorgan. The conventional sources of project finance loans have been the large commercial banks and government owned multi-lateral lenders (e.23bn face value rated A3 by Moody’s). will delay the development of an LNG export hub along the Gulf Coast. inward investment and ultimately taxes. This can threaten the efficiency of local industry e. lobbied by some powerful domestic industry groups.g. autos.this is a meaningful 12% of total US gas consumption in 2010 (66 bcfpd). So. Damietta LNG Train 2 and Trinidad .Oregon). Although the project will create employment. LNG projects can create and threaten local employment Politics – The decision by a government to approve an LNG export scheme can be a very controversial one. participants have historically depended on project finance in order to limit the more expensive equity finance component. Cove Point LNG – Maryland and Jordan Cove . governments must strike a balance between the two. JBIC). Lake Charles and Jordan Cove) could together export over 8 bcfpd . Until these studies are concluded. fertilizers and petrochemicals which can in turn threaten employment. inward investment and tax receipts.Fred Lucas (44-20) 7155 6131 fred.It is conceivable that the US government. we expect lower priced Henry Hub based S-curves to reduce regional price dispersion and thus erode returns from regional LNG arbitrage trading.

only intersected a 27m column of hydrocarbons and was deemed subcommercial).com Global Equity Research 13 January 2012 Failure to prove up sufficient gas resources – Woodside has had to delay Pluto Train 2 (WDS 90%) following disappointing drilling results (the Cadwallon-1 well. Woodside plans another five wells to mid-2012 to prove up sufficient gas to progress a second train. Ophir Energy) and Kribi LNG (GDF Suez. we list the liquefaction export projects that are at above average risk of delay or failure because of government depletion controls. economic sanctions.Fred Lucas (44-20) 7155 6131 fred. potential reserve threshold risks. All have tentative start up years 2017-2020. 45 . In Table 8. WA-434-P.g. e. The total capacity at risk is almost 187 MT pa (84% green field) which is spread across 43 trains (39 green field projects). politics and vulnerable (sub-scale) sponsors. Cameroon). Tanzania LNG (BG Group. There are numerous green field projects which have yet to clear the commercial gas reserve threshold (around 5 TCF for one train).lucas@jpmorgan.

0 2.0 186.6 4.0 7. Morgan.8 Trains 1 1 1 1 2 2 3 1 1 2 2 1 1 2 4 1 3 2 3 2 3 1 1 1 1 43 Project type Brownfield Brownfield Greenfield Greenfield Greenfield Greenfield Greenfield Greenfield Greenfield Greenfield Greenfield Greenfield Brownfield Greenfield Greenfield Brownfield Greenfield Greenfield Greenfield Greenfield Greenfield Greenfield Greenfield Greenfield Greenfield FID No No No (2013E) No No No No No No (2012E) No No No No (2014E) No (2012) No No No No No No Yes No No Yes No (2012) Potential On stream 2018 2018 2018 2018 2018 2019 2020 2018 2018 2017-18 2017 TBC 2018 2018 2020 2019 2017 2020 2020 2020 2019 2020 2019 2017 2017 Gas shale revolution could recur in China. LNG demand growth risks Gas shale revolution in the US repeats elsewhere – No one (as best we know) in the oil & gas industry fully anticipated the rapid pace of gas shale supply growth in the USA which now accounts for one third of total US gas production (close to zero in 2000 versus over 10 bcfpd in 2010).7 7.8 5.lucas@jpmorgan.6 10.0 16.8 Global Equity Research 13 January 2012 Table 8: LNG projects at risk Country Project Gas depletion controls.8 10.2 3.Fred Lucas (44-20) 7155 6131 fred.0 9.0 3. Figure x shows the volume weighted (based on technically recoverable resources) average and range of estimated break even gas prices for the various US gas shale plays.5 15. domestic market prioritisation Egypt Damietta LNG T2 Trinidad ALNG Train X Potential reserve threshold risk Cameroon Kribi LNG Tanzania Tanzania LNG T1 Economic sanction risk Iran Pars LNG Iran LNG Persian LNG Political risk Australia / East Timor Sunrise FLNG Brazil Santos FLNG Canada Progress LNG Prince Rupert Georgia Azerbaijan LNG Indonesia Tangguh LNG T3 Nigeria Brass LNG OK LNG NLNG T8 USA Lake Charles LNG Cove Point LNG Cameron LNG Jordan Cove LNG Russia Yamal LNG Pechora LNG Venezuela Gran Mariscal de Ayacucho Vulnerable sponsor risk Australia South Australia LNG PNG Gulf LNG (PNG FLNG) TOTAL CAPACITY AT RISK Source: J.P.6 8.g.0 12.0 2. the use of Nitrogen or LPGs to fracture shale and the use of briny water from deep-source aquifer. This unexpected source of low cost gas supply has left most of the country’s LNG import terminals running at very low utilization rates and has enforced the deferral / cancellation of all new import terminals / terminal expansions.0 3. 46 . Poland.7 1.5 6. We note that technology continues to evolve in the US gas shale.0 5. Schlumberger’s HiWAY fracking technique can yield up to twice daily production versus standard slick water fracs. so the cost curve remains a dynamic one e. Further developments that could reduce costs include top-side water recycling.0 10.4 8.0 15. Argentina….6 2. Capacity (MT pa) 4.

we note that China's gas shale resource is spread across 150 basins. Drilling costs – It is still very early days.5 6.Unlike the US. This reflects both difficult terrain and deeper shale horizons. but drilling costs (per the PetroChina / RD Shell alliance in the Fushun-Yongchuan block in Chengdu) are presently much higher than the US. the EIA estimates that China may hold 1. Location . Water availability / environmental footprint – Access to water is a problem given well fracturing needs. the key challenges for the commercialization of China’s gas shale resource include: a.5 4. Some of China’s potential gas shale is also thought to be clay rich which is typically associated with much lower well production rates.Fred Lucas (44-20) 7155 6131 fred. 47 .5 EAGLE FORD FAYETTEVILLE CANADA Montney 5.S.5 OTHERDEVONIAN (OHIO) 7. but face capacity bottlenecks. Figure x shows the range of estimated break even gas prices for gas shale from four basins (basin complexes) .Shale Gas and U.0 5. Baker III Institute for Public Policy .lucas@jpmorgan.0 Break even price ($/mmbtu) Break even price ($/mmbtu) MEXICO POLAND CHINA 6. Baker III Institute for Public Policy .0 Figure 26: Break even price of potential non-US sources of gas shale 8.0 6. Tarim / Junggar / Tuja and Songliao .5 ANTRIM HAYNESVILLE MARCELLUS 6.Shale Gas and U.275 TCF of technically recoverable gas shale resources – this is 19% of the EIA's estimated global gas shale resource and compares to 862 TCF in the USA (Figure 27). We also understand that a number of the shale plays contain high levels of inert gases that would have to be stripped out and contained. c. Ordos. Other basins are remote from any infrastructure that would have to be installed.0 7. As per Figure x.S. d. In our view. Regulated gas pricing – Domestic gas prices are regulated at levels that are below the free market price of imported LNG.0 WOODFORD BARNETT 5.Sichuan / Jianghan.5 4.5 SWEDEN GERMANY AUSTRIA Global Equity Research 13 January 2012 Figure 25: Break even price of various US gas shale sources 7. it is conceivable that China could rapidly unlock its gas shale potential which could quickly displace its need for incremental LNG imports. China has set a target to grow gas shale production to 15-30 bcm by 2020.0 CANADA Horn River 4. Some of these basins are located close to existing gas infrastructure.0 0 20 40 60 80 100 120 140 160 180 200 Mean technically recoverable resources (TCF) 0 50 100 150 200 250 Mean technically recoverable resources (TCF) Source: James A. b. National Security (July 2011) Although we feel it will be at least 1-2 years before its potential is known. many of which are located a long way from demand centers. Prices may need to rise to incent risk-taking in gas shale. National Security (July 2011) Source: James A.the volume weighted break even price is close to $7 per mmbtu.

48 .com Global Equity Research 13 January 2012 e. Since 2006.Fred Lucas (44-20) 7155 6131 fred. in many key respects. piped gas price concessions could follow….one bringing gas from western Siberia to the existing West-East pipeline. As per the recent news confirming Gazprom’s willingness to refund certain buyers. on the pioneering efforts of risk / reward seeking independent explorers that worked the play and encouraged effective technological changes in horizontal drilling and fracturing. Baker III Institute for Public Policy . We note the recent agreement between Beijing and Ashgabat (Turkmenistan) to increase gas exports to China from 40 to 65 bcm pa (the original 30-year supply deal for 30 bcm pa was signed in 2006 and was increased to 40 bcm pa in 2008 with supplies commencing in 2009). China lacks an equivalent community of suitably incentivized risk-takers and is more obviously dependent on a few. Figure 27: Estimated technically recoverable gas shale resources (TCF) 1400 1200 1000 800 600 400 200 0 Technically Recoverable Shale gas resources (TCF) * Romania. If Gazprom yields on price to protect its market share. China and Russia have been negotiating the supply of 68 GM3 over 30 years via two proposed pipelines from Russia to China . National Security (July 2011). Gazprom has not been prepared to yield on price and has seen some of its market taken by LNG imports and piped gas from Central Asia e. Turkmenistan.S. this could quickly displace some of China's potential need for imported LNG. this could slow down the pace of the play’s evolution. we sense that Gazprom remains very keen to protect its export markets. the other to be supplied from East Siberia. Bulgaria Source: EIA (March 2011). At the very least.lucas@jpmorgan. No community of risk-taking independents – The successful development of US gas shale relied. The EIA’s estimates for China and the USA are much higher than those from the James A. LNG on piped gas competition – This is not a new phenomenon. this reflects different views on most likely recovery factors. Hungary.Shale Gas and U. much larger companies to mature its gas shale potential.g. Gazprom could ‘blink’. Amongst other things.

6bn. In Global Equity Research 13 January 2012 Diminution or an end to unsustainable domestic gas price subsidies – Many countries still use a government owned central buyer of LNG to aggregate LNG imports. state owned producers of domestic gas sell gas at a regulated gas price of $4 2 per mmbtu.25 per mmbtu. 1. In Taiwan. The government plans to increase gas prices by $1 per mmbtu every 6-months until December 2015. Although provincial governments are allowed to adjust gas prices within a 10% range from the centrally mandated priced. 7. thus burdening the government with an effective subsidy bill for the imported LNG.5/kg). Despite these protests. Petronas pays market rates for Malaysia’s imported gas.5 per mmbtu for re-gasified volumes from its two LNG import terminals (Bahia Blanca and Escobar). 4. In India.34 per mmbtu for industrial users.55 to $4. in 2011 cargoes of LNG were purchased and imported via Fujian at double the price at which the gas was subsequently sold to end users. 10% of the country's total energy subsidy bill. In May 2010. 6. parts of Bangkok (Thailand) were paralyzed as truckers and taxi drivers blocked off streets near to PTT HQ to protest the government’s plan to steadily raise NGV (natural gas for vehicles) prices by Bt6/kg (from Bt8. the Malaysian government raised gas prices from $3.98 to $5. Taiwan’s budget deficit continues to undermine its currency which amplifies the scale of the gas subsidy since LNG imports are US dollar denominated. Earlier this month. In Argentina. natural gas subsidies cost the Egyptian government approximately $1. YPF pays ENARSA (the country’s state owned buyer of gas) $3.lucas@jpmorgan. In the fiscal year 2011-12. 3. beginning 16th January. 2.55 per mmbtu for electricity generation and from $4.In the meantime.Fred Lucas (44-20) 7155 6131 fred. A depreciating local currency magnifies the cost of this subsidy since imported LNG is US dollar denominated. industrial end users pay as little as $1. leading to excessive consumption and waste. 5. 49 . In June 2011. government owned CPC sells gas to Taipower at a government adjusted price of $13 per mmbtu whilst it pays as much as $18 per mmbtu for LNG imports. This entity then sells the gas on to industrial and commercial users at much lower prices. the government insists that NGV prices must rise as overly cheap prices are distorting the entire energy market in Thailand. the Chinese government raised regulated domestic gas prices by 25%.

leased rather than ow ned directly Financing .Be people --------------------------------------------------------> st . regasification unit . reduced emissions Ownership . unloading berths for Q-Max Location .rights to high % price upside SHIPPING Vessel scale & design .close to key demand centres Location .low cost. accessible onshore setting Plant design . air vaporisation system Floating storage.high baseload + peaking capability Operating costs .multiple loading berths for Q-Max Construction timing .captures LNG boil off.Be contractors -----------------------------------------------------> st .few environmental / land ow issues ner Location .permissioned for export option SALES CONTRACTS Low cost.Fred Lucas (44-20) 7155 6131 fred.close to source gas ORIGINS OF LNG COMPETITIVE ADVANTAGE KEY VALUE DRIVERS ------> GLOBAL CAPABILITY & POSITIONING <------REGASIFICATION TERMINAL Terminal scale .co-ordinate utilization of all assets across demand cycle ------> HIGH RETURN.maximize availability Storage capacity . movable <--------------------------------------------------------. we believe that it is possible for the ‘best in class’ players to derive very attractive returns from the LNG suite of businesses across multiple cycles provided they possess and sustain all the key competitive advantages that we cite for each of the four key streams (liquefaction.simple.maximise operational flexibility Source gas .maximise operational flexibility Output capacity profile .supported by strong trading function Diversion rights .politically stable environment .ideally built in to bottom of dow ncycle Location .close to inland demand centres Pipeline connectivity . to cycle bottom Ownership .P. long-liv resource ed Terminal efficiency .limited daily quantity tolerance range Destination flexibility . on board reliquefaction Vessel age . low boil off (0.low fixed cost component Reloading capability .lucas@jpmorgan.ideally 20 year contracts Long term offtake contract . 50 .access to premium priced markets Storage capacity . adequately supervised w clear policies & procedures ith < price re-openers .Portfolio optim ization -------------------------------------------------------> . re-gasification and sales contracts – see Appendix VII for a full glossary of terms).NGL extraction.incentivised for operational excellence. HIGH FREE CASH FLOW BUSINESS <------Source: J. aligned to upstream suppliers . Figure 28: Sources of competitive advantage on the LNG value chain Companies that create gas chains and position on the best links in those chains generate very good returns LIQUEFACTION PLANT Plant scale .low rate ring fence Asset integrity / reliability .low fixed & variable costs Construction timing .low cost.potential for hub Location .unconstrained shipping access Location .participation of customers Financing .ideally leased via LT tolling agreement Leasing agreement .cheaper and faster to build.> 5MT pa mega trains .> 3MT pa Terminal design .at or close to oil price 6:1 parity .com Global Equity Research 13 January 2012 Origin of LNG competitive advantages LNG has relatively high entry barriers As per Figure 28.optimum levels of vessel finance Capacity coverage . shipping.Q-Max and Q-Flex.optimum levels of project finance Fiscal regime .in to cycle bottom Ownership .to enable exploitation of price differentials . reliable sources .correctly incentivised for operational & HSE excellence <-----------------------------------------------------.15% per day) LNG fuel usage .

This typically limits participation therein to the larger IOCs and NOCs which have the balance sheet capacity for such large. LNG’s relatively high levels of capital intensity have helped to limit the population of players. adequate and reliable supplies of source gas. The returns from LNG liquefaction infrastructure (when acting as an isolated tolling facility) are typically reasonable. The makes a very material difference to plant economics. so too does liquefaction by giving gas the reach to higher priced markets. a less well run plant suffering from unreliable. a well run plant can reach close to 100% of nameplate operating capacity in a year without maintenance (which usually occurs every 2-3 years). we believe that the highest returns may be derived from players with appropriate levels of control / ownership of all key infrastructure returns and capital intensity High High Returns Low Natural Gas production Liquefaction Shipping & Marketing Re-gasification terminals Delivery and Marketing Capital intensity Low Source: J. However. Morgan.P. As per Figure 30. export capacity.Fred Lucas (44-20) 7155 6131 fred. Liquefaction participation requires a big balance sheet and a long time horizon In Figure 31. declining gas supplies may only achieve 30-40% utilization. which is thus fortunately characterized by a comparatively small number of very rational and return-seeking players.10%) and stable provided the plant is efficiently operated and maintains consistently good utilization rates (> 90%). With respect to liquefaction. shipping capacity and import capacity since this infrastructure cluster enables and supports the development of a very high return trading function. long lead infrastructure projects.e. especially given a portfolio of flexible LNG supply Global Equity Research 13 January 2012 Integrated presence can secure the highest returns Just as storage facilities and pipelines help to maximize the value of gas. Liquefaction plants must have good uptime 51 .a two train green field LNG project may now cost more than $20bn including the upstream supply and pipeline infrastructure. we depict the capital intensity and return volatility of the four key activities on the LNG value chain. but not excessive (c. Liquefaction is by far the most capital intensive link on the value chain .lucas@jpmorgan. Companies that have evolved a presence and skills across the entire value chain are ideally placed to create new gas chains and extract maximum value there from. Figure 29: Activity links on the LNG value chain . This has certainly helped to protect the returns extracted from the LNG value chain. coupled to plant efficiency can make a very material difference to plant economics. However.

8 MT pa – Qatargas II Trains IV and V and Ras Gas 3 Trains VI and VII). often less than $1bn. Until recently it was Train 4 of Atlantic LNG in Trinidad and Tobago with a production capacity of 5. Returns to the terminal owner may be more volatile.P.lucas@jpmorgan.typically hedged back to back – means that the volatility of returns is quite low. The nature of most LNG trade . If the owner simply tolls for usage (i. enabling Global Equity Research 13 January 2012 Figure 30: 2010 liquefaction plant utilization rates by country (%) * 100% 90% Operating at capacity Ramping up Production issues 80% Declining gas supplies 70% Ramping up 60% 50% 40% Ramping up 30% 20% 10% 0% Source: J. LNG vessels are relatively expensive to build ($200m to $300m) and returns there from will depend on the duration and terms of charter. LNG trading is not capital intensive per say. although it requires ancillary. The capital cost of re-gasification terminals are substantially lower. does not take any price or spread risk). 52 .Fred Lucas (44-20) 7155 6131 fred. returns may be reasonable depending on utilization (see Appendix III). * Utilization is defined as LNG exports divided by nameplate operating capacity Scale of liquefaction train also matters The world's average train capacity has almost trebled from the first trains (1 MT pa) to almost 3 MT pa. Vessels left exposed to the spot market will typically generate volatile returns (see Appendix IV). Morgan.2 MT pa.e. The largest LNG train now in operation is in Qatar (7.

the LNG would quickly vaporize and (barring exceptional atmospheric conditions which have only once occurred in the USA – see Appendix VI) disperse in to the atmosphere. intensity versus volatility of returns SHIPPING High Charter Least desirable exposure VOLATILITY OF RETURNS Lease Medium REGASIFICATION Regional arbitrage TRADING Low Tolling model Train phasing LIQUEFACTION Most desirable exposure Low Source: J. steel. capacity for modules from a limited number of yards etc). In the 50+ year history of liquefaction.P. Morgan. this has only occurred once (in Algeria in 2004 – see Appendix VI). 53 . an LNG plant could experience a catastrophic explosion if the gas entering the plant and being processed prior to liquefaction encountered an ignition point. The largest risk to LNG liquefaction returns is capital cost overruns and project delays . to lose a lot of money in LNG. This is a very legitimate investor concern given already high unit capital costs (EPC > $3. Similarly. Medium High CAPITAL INTENSITY Hard to lose money in LNG As we depict in Figure 32. However.Fred Lucas (44-20) 7155 6131 fred. In theory.a combination of both can rapidly reduce project returns to an economic break-even. unlike a tanker oil Global Equity Research 13 January 2012 Figure 31: LNG value chain . it is quite difficult. an LNG vessel could run aground or be sabotaged. thus causing its cargo to leak. albeit never impossible. especially in Australia where there are numerous projects competing for the same underlying resources (skilled and craft labor.lucas@jpmorgan. the economic loss would be limited to the value of the cargo and vessel.000 per ton of annual capacity are more than 10x the cycle low just ten years ago) and the unprecedented scale of capacity growth over the next decade.

even if left largely idle. Given low fixed operating costs. Medium High ENTRY BARRIERS LNG trading is a very difficult market to penetrate The entry barriers to LNG trading are surprisingly high – new entrants require more than just experienced traders and trading systems. 54 . an LNG terminal will not generate large losses.P. Furthermore.entry barriers versus potential for large losses Least desirable exposure High POTENTIAL FOR LARGE LOSSES Participation in all four areas can reduce risk and enhance overall returns Medium SHIPPING LNG spill bears low environmental risk LIQUEFACT ION Risk of major industrial accident Terminals have low fixed costs TRADING Bilateral OTC trading Low REGASIFICATION Most desirable exposure Low Source: J. Since most LNG trading is arranged with back-to-back supply agreements. either via owned vessels or the charter market. Global Equity Research 13 January 2012 Figure 32: LNG value chain .Fred Lucas (44-20) 7155 6131 fred. certain ships can unload at certain terminals (e.lucas@jpmorgan. Traders must also have access to shipping. but the market's liquidity is typically held captive by the LNG liquefaction owners / upstream suppliers who are understandably very reluctant to release volumes for traders to trade with. the trading party does not bear volume or price risk on execution – the spread is locked in. From an LNG buyer’s perspective. They must have access to cargoes. So. we believe that the stock market ought to assign a higher than normal multiple (value) to LNG trading versus other lower quality trading functions in the oil & gas industry. The entry barriers to re-gasification are lower given much lower capital intensity than export facilities and capital barriers may be side-stepped via long term capacity rental agreements. many import terminals cannot accommodate Q-Max vessels). However. companies with a material exposure to LNG trading need to better inform the market about this business. This can make it even more difficult to efficiently connect volumes to buyers. the trader must ideally have a track record of reliable delivery – the buyer will not risk delivery failure.

NOCs. but ultimately rewards both very well. Unsurprisingly. This helps to induce robust capital discipline across the cycle which is further reinforced by the need to contract off-take before project sanction – little or no LNG export capacity is therefore built on a speculative basis. assets and global positioning of 20 of the 34 listed companies identified below. 55 . perhaps. DOMINANT E&PS. In Figure x. Exxon Mobil and RD Shell stand out leaders Figure 33: Nature of key players in the LNG space Listed IOCs. Consolidation also plays a role . there are comparatively few players in LNG – it is an industry that has typically attracted some of the IOCs and some of the NOCs. compared to upstream (thousands of players) and refining (many hundreds of players). we split them according to market status and ambition and whether they are integrated (present in liquefaction.Fred Lucas (44-20) 7155 6131 fred. This research note takes a detailed look at the LNG strategies. Morgan.Figure 33 highlights just over 50 of the key players including both IOCs and Global Equity Research 13 January 2012 Competitive ranking of LNG players Identity of listed players Population of players in LNG much smaller than refining or E&P As we have already noted. This results in a relatively small number of players . This reflects relatively high entry barriers (high capital intensity. Utilities INCUMBENTS INTEGRATED RD Shell Exxon Mobil AGGRESSIVE GROWTH BG Group Chevron ConocoPhillips TOTAL BIT PLAYERS BP GDF SUEZ ENI E. There are many ways to categorize the listed players in the global LNG market.lucas@jpmorgan.smaller E&P companies that find themselves part of an LNG development are very often acquired before project sanction. two of the world’s largest and oldest listed oil companies (Exxon Mobil and RD Shell) show clear dominance of the space – LNG requires a large balance sheet and a long strategic wavelength. long lead times etc) and the need to discover very substantial gas resources (not a natural exploration priority for most small E&P companies). * HQCEC – China Huanqiu Contracting & Engineering Corporation – a subsidiary of CNPC.P. shipping and re-gasification) or not.ON Gas Natural Kansai Electric KOGAS Mitsubishi Mitsui Repsol YPF RWE Statoil TEPCO Inpex Santos NICHE PROJECTS Gazprom Novatek NEW ENTRANTS CNOOC PetroChina Sinopec PTTEP UPSTREAM or DOWNSTREAM ONLY Woodside GALP Marathon Oil Oil Search Origin Energy Petronet LNG Brunei NOC CIC Oman NOC Anadarko Apache BHP Billiton Encana Talisman HQCEC Sonangol Unlisted NOCs QPC NNPC Sonatrach Petronas ADNOC LNOC Petoro Pertamina Source: J.

The world’s largest NOC. the top three players (RD Shell. to enable new entrants to accelerate their growth in LNG. those with the largest LNG presence are QPC (Qatar). Notwithstanding Saudi's need for more gas to supply burgeoning domestic industrial growth (e. Saudi Aramco. Limited disclosure constrains peer group analysis Other oil & gas companies include LNG earnings in their reported upstream results and the non-upstream earnings may only be seen (and often not explicitly) with their once annual FAS 69 Supplementary Oil & Gas disclosures. Global Equity Research 13 January 2012 A few NOCs also have a very big presence in LNG Amongst the unlisted National Oil Companies. We see little point in assessing the competitive positioning of new and niche players alongside the more established.g. Chevron and Woodside jump up the ranking by 2015. Petronas is the only NOC to have positioned itself in LNG projects in and outside its home country. We expect to see more international alliances between NOCs and NOCs and IOCs. Exxon Mobil and TOTAL) look set to remain the top three by 2015. 10-15 MT pa and >15 MT pa. NNPC (Nigeria). We note that ONGC of India has confirmed it is in discussions with Gazprom of Russia. is unlikely to move in to LNG Competitive positioning It is difficult to perform a detailed competitive ranking of the companies featured in this note given limited disclosures by many of these companies on their LNG businesses. 5-10 MT pa. Since each company can score a maximum of four on each metric. a new set of leaders emerges later this decade. BP’s looks set to slip to fifth place as it will be over-taken by BG Group. as per PetroChina with RD Shell in Australia. Of these names. Sonatrach (Algeria) and Petronas (Malaysia). the analyzable metrics are limited . for most companies. Saudi Aramco. So. PetroChina and Sinopec. although RD Shell provides some additional disclosure on its Gas & Power business which largely comprises LNG (Gas & Power is reported as part of its upstream segment).Fred Lucas (44-20) 7155 6131 fred. plastics. larger players since by definition it will be weak. Of note. Liquefaction scale – We position the companies in to four simple categories based on their net liquefaction capacity: < 5 MT pa. does not have any presence in LNG. cement and water desalination). this internationalization strategy is now being replicated by the three listed Chinese NOCs – CNOOC. World’s largest NOC. As per Figure 34. So. In many respects. moving in to sixth and seventh position respectively. 11 key parameters to think about when looking at an LNG portfolio 56 . this gives a maximum score of forty-four. we have scored eleven of the twenty companies that we feature in this note on the eleven metrics detailed below. So. We note that only two companies (BG Group and Repsol YPF) actually report LNG as a separate segment. However. they are replicating the entry strategy pursued by the Japanese utilities which contract for some of the LNG off-take and also take an equity position in the project. in order to give an idea of competitive standing of the better established players.we cannot measure margins or returns on capital and. we doubt Saudi Aramco will develop a presence in LNG (as a potential importer) given its ability to burn crude oil for power if required to do so. we have limited information on LNG purchase and supply contracts.

So.7 MT pa. Furthermore. plants that were built around this time have the advantage of a lower unit capital cost. 3. For a company to score above average. Liquefaction plant vintage – Given the very high level of cost inflation since the LNG cost curve bottomed out in 2003 to 2006. 57 .lucas@jpmorgan. the global average train size will continue to grow through this decade – we estimate it will rise from 3. 2. we favor companies with a concentration of portfolio capacity built at or around the bottom of the EPC cost cycle specific to liquefaction. As second best. We are concerned that companies with a high growth dependency on CBM to LNG projects in Queensland (Australia) will experience both cost over-runs and project schedule delays. 4. we favor companies with a liquefaction location bias to Asia Pacific since they ought to be able to reach the key demand centers at lower cost. they will have exited project finance debt repayments and will thus be generating regular dividends to their owners (typically prevented if not constrained whilst project related debt repayments are underway). it must have more than half of its net capacity in Asia Pacific. Global Equity Research 13 January 2012 Figure 34: Net liquefaction capacity (MT pa) 35 30 25 20 15 10 5 0 RDS XOM TOT BP BG ENI REP CVX 2011 2015E WDS STL STOS OS Source: J. We score companies based on the likely evolution of their capacity dispersion based on identified liquefaction developments. there are scale economies to the construction of liquefaction trains. plants built in the period 2006 and beyond have experienced material cost inflation.Fred Lucas (44-20) 7155 6131 fred. Average train size – Liquefaction facilities have fixed costs. we favor North Africa (including the Middle East) as a location over the Atlantic Basin. Conversely. As per Appendix II. So.P. Liquefaction capacity location – Given much stronger demand trends in Asia Pacific.1 MT pa to 3. We also favor companies with older facilities – even though they will likely have smaller train sizes. we favor companies which have above average unit train size (> 3 MT pa).

For example. LNG trading capability – Given very substantial regional natural gas (LNG) price differences. minority working interests. such as BP provide far too little information on the performance of its LNG business.g. 8. Plant operatorship – We favor companies that have a senior position. Brownfield expansion potential – As we have discussed. We cannot see any reason for BP not to improve its disclosure standards on this important segment. However. BG Group estimates that the unit capital costs of a third train on QC LNG will be 40% lower than for Trains 1 and 2. we favor companies with an upstream / liquefaction bias as opposed to a re-gasification bias. as a result of a large if not dominant working interest.g. brown field plant expansion can typically be achieved at attractive unit costs given existing facilities that do not have to be duplicated e. The ideal LNG portfolio has multiple customers and multiple supply points with in-built flexibility to supply from the optimum source. in the operating company of an LNG plant as opposed to small.lucas@jpmorgan. many companies simply fail to disclose enough about their LNG business to ensure a full and fair valuation of their LNG position. loading facilities and marine jetty. especially if the outlook for latter is to be left largely idle. As we have cautioned. 10-15% and >15%. However. Integrated chain presence – As we have argued. we favor companies that have a high level of intrinsic organic growth potential when looking out to 2015. 9.We position the companies in to four simple categories: < 5% 2012E group earnings from LNG sub-segment. 7. 58 . So. we believe that the best returns from the LNG value chain may be achieved when a company has a full chain presence from upstream through liquefaction. Quality of LNG segment disclosures – Good levels of public disclosure are vital in order to permit an accurate analysis and valuation of the LNG exposure of a Global Equity Research 13 January 2012 5.Fred Lucas (44-20) 7155 6131 fred. So. 11. Green field growth potential – We favor companies with clearly identified liquefaction growth projects that will add materially to the operating base and LNG earnings base. local government support and available land. 10. 6. plant utilities. 5-10%. Some companies e.g. EBIT or post tax earnings). Relevance of LNG to company . we restrain our score if we feel the growth projects are particularly challenging e. We favor companies that provide an explicit quarterly disclosure on LNG earnings (turnover. This earnings exposure is typically positively correlated to LNG segment value exposure. in the Russian Arctic. shipping and re-gasification. volumes and capital investment. we favor companies which have an embedded expansion option in their existing liquefaction plants given upstream resource cover. Other companies. in our view. we favor companies with supply flexibility and ownership of / access to the enabling assets (access to shipping and a trading capability) that allows them to exploit cross-basis LNG price arbitrage as fully as possible with a proven track record of supplying LNG in to many (or all) of the world’s 25 importing countries. BG Group provide very good and explicit disclosure on their LNG business.

Morgan. BP and the remaining European names. Integrated chain presence 9. 59 . Trading capability 10. Brownfield expansion potential Global Equity Research 13 January 2012 Figure 35 shows how we score and rank eleven of the twenty companies that are featured in this note that have a well developed presence in the LNG space. Our chosen categorization defines a leadership group comprising 5-6 companies. LNG train size 5. Plant vintage 3. Figure 35: Competitive ranking of top LNG players Repsol YPF Woodside BG Group RD Shell Chevron Santos 1.lucas@jpmorgan. Capacity location 4. out-scoring RD Shell (32 points) by just one point which in turn out-scores Chevron by one point (31 points). BG Group (29 points) ranks fourth and TOTAL (26 points) ranks a joint fifth with Woodside. Exxon Mobil ranks first (33 of 44 points). Relevance of LNG to company 11. This top tier is followed by a second tier of companies with smaller exposures to LNG – this includes Santos.P. Quality of LNG disclosures OVERALL SCORE (Max 44) 29 4th 21 8th 31 3rd 17 9th 33 1st 32 2nd 16 10th 23 x 7th 15 11th 26 5th= TOTAL Statoil Exxon Mobil ENI BP 26 x 5th= OVERALL RANK (1-11) Source: J. Plant operatorship 8.Fred Lucas (44-20) 7155 6131 fred. Liquefaction scale 2. Greenfield growth potential 7.

there may be over 40 LNG export projects built. downstream on the LNG chain or across the entire LNG value chain.5% working interest in the prolific Offshore Area 1 (Rovuma Basin). Investors are not limited to an exposure to the equity owners of LNG export infrastructure. there is actually far greater choice given a larger population of players with a more diversified set of segment exposures.Focus on equity owners of LNG export projects. as opposed to our BEAR scenario) and pricing outlook on LNG. As we have already highlighted. The only problem with the majority of this specific set of companies is that LNG (earnings. We very much doubt that the two smaller names (Ophir Energy and Cove Energy) will participate in their respective LNG developments. 3) OILFIELD SERVICE & EQUIPMENT PROVIDERS – Invest in the companies that help to design and build LNG export and import infrastructure. TOTAL also has an above average exposure to LNG. we highlight four broad alternative investment categories. More likely. Indeed. as clarified below. the operator of the block.lucas@jpmorgan. we believe that the most leveraged to LNG are BG Group. RD Shell and Santos. although we are concerned that the news flow relating to its LNG development projects (GLNG – Australia. Invest in smaller cap names exposed to niche project developments Within this category. 2) NICHE PROJECT EXPOSURE – Invest in smaller names with a niche exposure to LNG project commercialization. Of the companies that we cite. Investors can therefore choose where to play the economic value concentration – upstream via project commercialization and subsequent LNG linked price realizations. one in Tanzania (Greenfield) and the second in Equatorial Guinea (brown-field) (iii) Cove Energy— another relatively early stage exploration company which an 8. Invest in large cap.8% exposure to the Ichthys LNG project (Australia) and a 60% exposure to the Abadi Floating LNG project (Indonesia) (ii) Ophir Energy – an early stage exploration company with exposure to two potential LNG projects. we highlight three names: (i) Inpex – this company has a 74. The aggregate new capacity totals 287 MT pa which is more than the Invest in the capacity enablers 60 . Shtokman LNG and Yamal LNG – Russia) may be challenging. we cite fifteen listed names (5 in each region) that have a material top line and profit exposure to the LNG construction wave. Mozambique. 1) ADVANTAGED PROJECT PORTFOLIO OWNERS . project development news) is only a modest share price driver. is that both companies will monetize their stakes or be taken over. Ichthys LNG – Indonesia. discoveries thereon have already proved up over 10 TCF of prospective resources which is enough to support a two train LNG project. According to Anadarko. As per Figure 36. in our view. we note that the board of Cove Energy has recently put the company up for sale (5 January 2012 – Company Formal Sale Process). LNG project portfolio owners This is perhaps the most conventional route for LNG market exposure. there are many ways for stock market investors to take exposure to the global LNG Global Equity Research 13 January 2012 Alternative strategies to play LNG theme Four broad ways to play the positive LNG theme With the backdrop of our positive secular demand growth (as expressed in our bias to believe our BULL supply / demand scenario. This strategy mirrors the one that we have recommended to play the build out in global refining capacity.Fred Lucas (44-20) 7155 6131 fred. over the seven year period 2012-18. As per Figure 36. In the case of LNG.

P. General Maritime (USA) filed for Chapter 11 bankruptcy protection. import structures) Chiyoda Daewoo (modules) Samsung (modules) GE (turbines) Fluor Foster Wheeler Hyundai (modules) KBR (+ Storage.500 per ton. hook-up) Source: J. Exmar NV. We expect LNG vessel day rates to remain firm through 2012 and in to 2013 (see Appendix IV). compressors) Technip (+ import terminals. If we simply assume an average EPC cost of $ Global Equity Research 13 January 2012 global operational capacity at end 2010. there are a few relatively small listed entities that own LNG ships.lucas@jpmorgan. Hoegh LNG and Wartsila OYJ (propulsion conversions). 61 . These names are a good way to play very robust and rising charter rates as the volume of traffic increases and the average distance rises between LNG sources and LNG demand centers. Frontline (Norway) announced a financial restructuring and Torm (Denmark) increased the size of its rights issue from $100m to $300m. 4) LNG SHIPPING – We sub-divide this category in to the LNG ship owners and the LNG ship builders. insulation) Kentz (electrical. marine transfer) Facility start up Clough Foster Wheeler Import pipelines Allseas Saipem Technip (Global Industries) Support services Cape (access. In mid-November. We name five in Europe – Awilco LNG. Some of the world’s largest LNG ship owners are private companies and thus out of conventional institutional reach. this may require another $60bn of capital investment. processing plants) Clough (+ civils. marine facilities) Leighton Worley Parsons (+ storage and loading) Saipem (+ import terminals) Siemens (turbines. Table 9: LNG value chain service & equipment providers Facility layout & design Amec Chiyoda Clough Foster Wheeler KBR Maire Technimont Saipem Technip Worley Parsons Engineering Bechtel CB&I Chiyoda Clough Foster Wheeler JGC KBR Kellog Technip Worley Parsons Project Management Bechtel CB&I Chiyoda JGC KBR Kellog Foster Wheeler Saipem Technip Worley Parsons Liquefaction Air Products & Chemicals Chart Industries (cooling stacks) Linde Procurement & Construction Bechtel CB&I (+ civil engineering. So. In Table 9. LNG is a key driver of the industry's capital expenditure cycle that most equipment and service providers depend on. Given an average cost of $750m. The conditions and outlook for LNG shippers is a complete contrast to the situation facing oil tanker owners where freight rates have fallen below vessel operating costs. In addition. as many as 80 new re-gasification terminals will be built.Fred Lucas (44-20) 7155 6131 fred. this may require capital investment between $850billion and $1 trillion. In addition. Morgan. we name five listed Asian ship builders that are directly involved in the construction of new LNG vessels with yards in either South Korea or Singapore. Golar LNG. civils. Invest in the ‘floating pipeline’ owners and builders We estimate that the global LNG fleet is currently around 360 vessels. we list some of the key service names with a meaningful exposure to LNG capital investment.000-$3. However. Global Equity Research 13 January 2012 Figure 36: Different ways to play the global LNG market via listed equities EPC PROVIDERS North America Chicago Bridge & Iron [CBI US] FMC Technologies [FTI US] Fluor Corp [FLR US] Foster Wheeler [FWLT US] KBR [KBR US] Europe Cape [CIU LN] Linde [LIN GR] Saipem [SPM IM] SBM Offshore [SBMO NA] Technip SA [TEC FP] Asia Chiyoda Corp [6366 JP] Daelim Industrial Co.Fred Lucas (44-20) 7155 6131 fred. Ltd [000210 KS] GS E&C [006360 KS] JGC Corp [1963 JT] Worley Parsons Ltd [WOR AU] SHIP / FSRU OWNERS / CONVERTERS Europe Awilco LNG [ALNG NO] Exmar NV [EXM BB] Golar LNG [GOL NO] Hoegh LNG [HLNG NO] Wartsila OYJ [WRT1V FH] Asia STX Pan Ocean [028670 KS] (3) INDIRECT PLAY Strategy GLOBAL INVESTMENT THEME LNG demand growth (4) INIDRECT PLAY Strategy SHIP BUILDERS Asia Daewoo Shipbuilding & Marine [042660 KS] Hyundai Heavy Industries [009540 KS] Samsung Heavy Industries [010140 KS] Sembcorp Marine [SMM SP] STX Offshore & Shipbuilding [067250 KS] (2) NICHE PROJECT Strategy ADVANTAGED INTEGRATED PLAYERS USA Chevron [CVX US] Exxon Mobil [XOM US] Europe BG Group [BG/ LN] RD Shell [RDSB LN] TOTAL [FP FP] Asia Santos [STO AU] Woodside Petroleum [WPL AU] NICHE PROJECT EXPOSURE Europe Cove Energy [COV LN] Flex LNG [FLNG NO] Ophir Energy [OPHR LN] North America CheniereEnergy [LNG US] InterOil [IOC US] LNG Energy [LNG CN] Asia Energy World Corp [EWC AU] Inpex [1605 JP] Liquefied Natural Gas Ltd [LNG AU] Medco Energi Internasional [MEDC IJ] Noble Group [NOBL SP] Oil Search [OSH AU] PetronetLNG [PLNG IN] (1) REGIONAL WINNERS Strategy Source: J.P. 62 . Morgan.

Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 Company Profiles Company Profiles 63 .

UK. BG Group has long had a distinctive production bias to gas (Figure 51). but below average unit BG Group Figure 37: BG Group .). BG Group's strategy is thus differentiated from the oil majors . 64 .4 (Dragon LNG. 100%) 15.2 7.Location of LNG assets 6. Italy.5 (QC LNG. finding gas and creating gas value chains remain at the very heart of BG Group's very successful strategy (Figure 38). 29. in Brazil (ComGAS. LNG strategy assessment Integrated gas chains at the heart of BG Group's strategy…. 100%) 4. * BG Group owns 40% of GLNQ which owns and operates the 2.75% ***) (Trinidad & Tobago. Chile – it has a 21-year supply commitment of 1. This has run as far downstream so as to include helping to develop a country's downstream market for gas e.this is differentiated to other IOCs Notwithstanding BG Group’s prolific success in the oil biased pre-salt play . So.5 MT pa LNG import terminal in Quintero Bay.5 6. 0%) * 2. ** Effective average interest in Atlantic LNG Trains 1-4. 0%) 8.A. Sao Paolo) and India (Gujarat and Mahanagar gas supply franchises). *** Effective average interest in ELNG Trains has a focus on both ends of the gas value chain and positions itself on the most desirable links.9% **) (Quintero LNG. connecting low cost gas to high value markets has been and remains at the epicenter of BG Group’s strategy.P.0 (Brindisi LNG. 36.g.Fred Lucas (44-20) 7155 6131 fred. Via LNG.lucas@jpmorgan. Global Equity Research 13 January 2012 Fred Lucas (44-20) 7155 6131 fred.1 (Egypt.lucas@jpmorgan. Morgan.2 (Elba Island. 50%) 17.3 (Lake Charles. Chile.0 (Jurong Island. ENDESA and Metrogas S. BG Group connects multiple markets (demand centers) to upstream gas resources and multiple sources of gas to markets.7 MT pa to its three partners (ENAP. offshore Brazil. This has led to an upstream portfolio with below average unit costs.8%) Operational Liquef action capacity (MT pa) Liquef action capacity under development (MT pa) Operational Re-gasif ication capacity (MT pa) Re-gasif ication capacity under development (MT pa) Source: J. 80%) 4. Global Equity Research 13 January 2012 Figure 38: BG Group's strategy – distinctive. Hitherto. Its ability to compress LNG project cycle times has been helped by its ability to contract for off-take itself (so reducing often lengthy marketing timelines). Figure 40: Pace of LNG project commercialization (Years) FID PENDING Figure 39: Liquefaction projects . For example.Fred Lucas (44-20) 7155 6131 fred. 65 . QC LNG remains on track for first LNG within six years of BG Group's first move in to Australian coal bed methane in 2008 via an alliance with Queensland Gas Company (QGC). participating in the construction of its first LNG project (Atlantic LNG) in the mid1990s. BG Group's plants in Trinidad & Tobago (Atlantic LNG) and Egypt (Egypt LNG) registered the lowest unit capital costs of any liquefaction facility (Figure 39). but moved aggressively and efficiently BG Group has also proven itself able to commercialize LNG projects faster than any other rival (Figure x). but non-exclusive focus on gas Global Gas Major Connect gas to high-value markets • Build & access markets • Serve customers Secure competitively priced resources • Equity reserves • Contracted resources Skills to succeed across the gas chain Source: J. Indeed. its gas exposure had been focused on upstream assets and piped gas. If we exclude the experience of legacy British Gas which actually imported the first cargo of LNG in to the UK from Algeria in 1964 (the British Gas Council – see Appendix VI).P. Morgan. shortening (elongating) lead times really unlocks (erodes) project value.lucas@jpmorgan. as well as careful choice of service contractors. Morgan. BG Group has proven itself to be the strategic innovator in global LNG…. Source: J. Given the typical long lead times for LNG projects.P.unit capital costs ($ per Ton) 4000 3500 3000 2500 18 16 14 12 UNDER DEVELOPMENT BG projects 2000 1500 1000 500 0 10 8 6 PRODUCING 4 2 0 Egypt LNG Atlantic LNG QC LNG LNG project to EPC contract RasGas Qatargas Nigeria EPC award to first LNG Source: J. Morgan. the period of its entry coincided with the bottom of the liquefaction cost curve. Relatively late arrival to LNG. BG Group was actually a relatively late arrival to the LNG industry.

Gas market foresight led BG Group to make some well timed contractual innovations which leveraged what is otherwise a relatively low return business. seeing its presence and capabilities therein as a plank of its global integrated gas strategy.lucas@jpmorgan. BG Group has driven industry change in the LNG world and must be regarded as a strategic innovator in what was relatively static industry. BG Group moved both decisively and very aggressively in to the LNG business. Martin Houston spear-headed this particular growth axis within BG Group soon after it was separated from legacy British gas. First to secure large and long term secure access to US import capacity . 66 . as the US gas price weakened. and thus secure then high US gas prices (when Henry Hub spot gas was $8+ per mmbtu). Indeed.P. In our view.Fred Lucas (44-20) 7155 6131 fred. but rather using its experience in gas marketing it inserted a ‘few new pages’. BG Group may be fairly described as the ‘Agent Provocateur’ of the LNG business. In many respects. He was recently appointed COO and is widely regarded by investors to be a leading contender to be BG Group’s next CEO in 2013 when the incumbent. those same import rights gave BG Group assured market access for its contracted supplies which it could then divert to higher priced markets. multiple LNG import terminals (leased). a rule book as to how upstream producers and liquefaction owners were supposed to contract was ripe for some innovative thinking. the world’s deepest and most liquid gas market. BG Group didn’t tear up this rule Global Equity Research 13 January 2012 As with many things that it does. However.capturing value along the entire LNG value chain PRODUCTION Low Cost Supply LNG VALUE PROPOSITION LIQUEFACTION SHIPPING REGASIFICATION Midstream margin MARKETS Downstream Margins Portfolio Optimisation & Leverage Swap & Arbitrage Source: J. multiple LNG liquefaction facilities (owned). Sir Frank Chapman. the LNG industry was trapped by historic convention and conservatism . BG Group used its re-gasification capacity rights as secure market access to anchor flexible destination third party supply contracts. LNG ships (owned and chartered)and long / short term supply and off-take contracts (Figure 41). The LNG industry had a well established modus operandi – in effect. So. Morgan.This move was originally intended to secure access for LNG exports from other countries to reach the US market. BG Group did not follow the entire LNG ‘rule book’…it appended some new rules Understanding the dynamic nature of gas value chains. Strategic firsts Specifically. Figure 41: BG Group . BG Group innovated in the following commercial areas: BG Group’s many firsts… 1. has indicated he intends to retire from the board. BG Group went on to very purposefully establish an exposure to every part of the LNG value chain – starting with low cost upstream gas supplies.

Daily sales . Morgan.Volume balancing .Customer interface .QGC and Pure Energy.Business development Source: J.and the value of a portfolio of supply points 3. Most of its competitors (owners of upstream resource and liquefaction capacity) continued to look to monetize their upstream resources via third party buyers under fixed destination contracts. In many respects. Logistics . First to invoke the concept of ‘portfolio supply’ – BG Group also pioneered the concept of a portfolio sales agreement wherein a buyer agreed to purchase a defined volume of LNG over a defined period – as per a conventional LNG sales and purchase contract.Location/time arbitrage ….Market/volume risk mgt . Changes in either price or volumes were restricted and limited to informal negotiation between buyer and seller. Dedicated LNG vessels ran these so-called ‘milk runs’ with no ability to divert. Figure 42: LNG supply and portfolio optimization EVOLVING THE CONCEPT OF LNG (GAS) MARKETING Marketing . Three competing projects in Queensland that are led by Santos. BG Group negotiated different price upside rent sharing agreements with each supplier. The seller of LNG was obliged (by contract) to supply that cargo to a pre-agreed import terminal over 20+ years. BG Group’s QC LNG project is now clearly in front of queue. This enabled BG Group to retain overall supply flexibility and thus optimize its portfolio’s diversionary capabilities.fixed destination contracts. Although its somewhat ambitious attempt to acquire Origin Energy failed. it successfully acquired two other listed companies . Asian buyers of LNG prized the certainty of price and volume provided by these long term Global Equity Research 13 January 2012 …first to recognize the value of supply flexibility… 2. First to use coal bed methane as a source for an LNG export project – BG Group was the first of many non-Australian companies to move to aggregate upstream real estate rights in Australia – specifically with coal bend methane to LNG supply potential.lucas@jpmorgan. 67 Likely to be first to supply and convert non-conventional gas to LNG 4.P. Of the four best defined projects that will liquefy and export gas from coal seams. BG Group used its insights in to gas markets and its US re-gasification capacity rights (that ensured access to a deep market to place the LNG if it had to) to procure large volumes of LNG which it could then divert to the highest margin markets.Gas scheduling . BG Group used its experience of gas marketing (Figure 42) to pioneer the concept whereby the buyer of LNG negotiated the right to divert LNG cargoes to multiple markets at its discretion – converting the historic concept of batch LNG supplies to something much more valuable.Fred Lucas (44-20) 7155 6131 fred.Deal capture Optimisation .Customer fulfillment .Transportation mgt . The key difference is that BG Group committed to supply the LNG volumes from its portfolio of supply sources rather than a specific facility or contract (see Table 11 – contracts with GSPC of India and Tokyo Gas). First to purchase large volumes of LNG with diversionary rights – The LNG industry was set up under a simple commercial model which was invariant for decades . This choice allowed BG Group to divert cargo flows to the highest priced markets around the world.Projects . .Term sales .

a subsidiary of Gas Natural Fenosa (GNF).00 per mmbtu. we believe that the risks that BG Group ultimately assumed were well worth taking.2 MT pa upon the commencement of T2 (expected 2016). This gives BG Group another low cost source of LNG which is not yet dedicated to any particular market without exposing itself to the capital requirements of a liquefaction facility. A second flexible component will see BG Group pay 115% of the Henry Hub price. Thereafter 15% of this fee ($0. Rapid innovation also surfaced a number of strategic errors 68 . Cheniere was granted an export license from the US DOE on 20 May 2011 for up to 15 MT pa without constraints on where the LNG is exported to.3. BG Group is responsible for shipping costs (spot rates currently around $1 per mmbtu to Europe and $3 per mmbtu to Asia although BG Group will have its own shipping capacity at below current spot rates) to source volumes from the US pipeline system. 5.Fred Lucas (44-20) 7155 6131 fred. Louisiana. Gas Natural Fenosa (GNF) will purchase close to 500 MMcf/d of LNG from the Sabine Pass liquefaction facility for a period of 20 is targeting selling c. (Cheniere) for 3.25 per mmbtu to cover procurement. GAIL will purchase LNG on an FOB basis for a purchase price indexed to the monthly Henry Hub price plus a fixed component of $3. GAIL will purchase bridge volumes of 0. Under the agreement. Furthermore. BG Group will pay Cheniere a fixed take-or-pay fee of $2. Gas Natural Aprovisionamientos. with an extension available for another 10 years. GNF will pay a take-or-pay tolling fee of $2. a. although we expect all projects to run over budget (not least due to AUD/USD appreciation) and behind schedule (as most LNG projects do). As below. none have had very severe consequences for the profitability of its LNG franchise or the group. GAIL has agreed to purchase c.P. even with hindsight.34 per mmbtu) escalates with inflation. This is 33% higher than BG Group’s equivalent deal which clearly benefited. liquefaction and loading costs in Year 1. as we highlight below. GAIL (India) Limited. Strategic errors However. We believe that being first will give BG Group a cost and execution advantage over competing projects.14 MT pa of the capacity under long-term SPAs. L. First to sign a long term purchase contract for LNG exports from the East Coast of the USA – BG Group recently signed a 20 year supply agreement with Cheniere Energy Partners. Fortunately. The SPA has a term of twenty years and an extension option up to ten years. a subsidiary of the Gas Authority of India.5 MT pa from the Sabine Pass facility in western Cameron Parish. we note that Cheniere has since entered in to two further sale and purchase agreements. Prior to the commencement of T4 operations (expected 2017). b. Sabine Liquefaction is developing a liquefaction project at the Sabine Pass LNG terminal that would include up to four liquefaction trains capable of producing 18 MT pa .5 MT pa of LNG from train Global Equity Research 13 January 2012 ConocoPhillips and RD Shell follow in its wake. Sabine Liquefaction is advancing towards making a final investment decision for the construction of first two trains (Phase 1). This means that 78% (7 MT pa) of the 9 MT pa capacity of Phase 1 has been contracted. once again. BG Group’s pioneering and aggressive growth strategy in LNG has also included some strategic errors.lucas@jpmorgan. from its ‘first mover’ status.48 per mmbtu and the same flexible component as BG Group (115% Henry Hub).

Fortunately. As the LNG demand growth outlook in the Atlantic Basin slowed. has generated very strong earnings through cargo diversions. BG Group management indicated that its Brindisi re-gasification terminal would be operational by mid-2007 with a capacity of 6 MT pa (BG Group to have 80% of the terminal’s capacity while the remainder will be subject to regulated third party access). it had sold to 22 of 23 LNG importing countries and purchased cargoes from 12 of 18 LNG exporting countries. the US actually imported less than 9 MT of LNG. To be fair. BG pushed the start date back to 2009. management showed US LNG demand forecasts ranging from over 40 to over 60 MT by 2010. In September 2006. In 2003 (BG’s LNG Business – 13 November 2003). this strategy looked increasingly 'second best' to one that positioned BG Group on the ground in Asia Pacific. BG Group’s management described Asia Pacific as a ‘mature region with a supply over-hang’ – it expected Atlantic Basin LNG demand to triple by 2010 causing market tightness and real price tension. 69 Over-exposed to US regasification capacity which is now largely redundant Italian re-gas project has been delayed 7-8 years . In November 2003.g. Figure 45 shows the diminishing number of cargoes that BG Group has sold in to the US market as the US gas price has weakened.  Italian re-gasification project has stalled – BG Group initiated a new regasification terminal in Italy (the country’s first since 1971). it focused on what it believed would be a higher growth LNG demand opportunity in the Atlantic Basin. Indonesia and promoted such projects as Pacific LNG to take gas from Bolivia through to an export terminal in Chile (which now imports LNG) and OK LNG (in September 2006. management indicated an FID for this four train 22 MT pa Nigerian green field project would occur in early 2007). however. We acknowledge. At the time. Reflecting this view.  US re-gasification capacity rights could have been much smaller. By 2011. BG Group actually sold out its position in Tangguh LNG. In 2010. PNG LNG. the fixed cost lease payments which BG Group must make to keep these facilities largely idle are small. it joined (if not led) the industry ‘gold rush’ .Fred Lucas (44-20) 7155 6131 fred. This has seen BG Group’s leased capacity rights largely unused in 2011. this was seen as a potentially attractive arbitrage play with the US Global Equity Research 13 January 2012 Strategic focus on Atlantic Basin rather than Asia Pacific was a mistake  Entry to Asia Pacific LNG market could have been much sooner – Although BG Group attempted to enter Asia Pacific based LNG projects e. we must acknowledge that BG Group effectively 'globalized' its LNG business without investing in several capital intensive liquefaction centers via multiple customers and supply propositions.BG Group’s decision to take on very significant US re-gasification capacity was based on a view that the US would have a rising need for imported LNG – this proved totally incorrect following the surge in US gas shale production. BG Group’s LNG pricing thesis in the last decade was that Henry Hub would over-take oil price indexation in Asia – it believed that Asia would cease to be the premium market for LNG and Henry Hub pricing would actually exceed oil indexed pricing. primarily as a result of the advent of US gas shale which reduced that country’s need for LNG (see below) and as China entered the Asia Pacific demand picture. in turn. it failed do so and thus failed to establish a resource / liquefaction presence in Asia Pacific. This bold LNG price outlook has essentially done a ‘back-flip’ with BG Group now very keen to see its equity LNG off-take sold on an oil price link. In 2003. Instead. that secure access to the deep US gas market via these import terminals enabled BG Group to develop a very flexible portfolio which.lucas@jpmorgan. with a view to import third party LNG from Damietta LNG in Egypt and to divert cargoes from Egypt LNG Train 2 directly to the Italian market.

Although it was one of the first large players to move in to the Australian coal seam gas to LNG opportunity. Strategy always recognized potential for market dislocations.Fred Lucas (44-20) 7155 6131 fred. The timing of first deliveries to the Brindisi terminal is dependent on how soon access to the site can be restored and resolution of the various outstanding legal matters. destination and pricing flexibility.In order to protect a very important earning stream and to reassure the market about its sustainability in what (pre-Fukushima) looked like a potentially over-supplied LNG market when viewed back in 2009.8bn to $2. construction activities have been suspended since February 2007. BG Group was also late to spot the US gas shale opportunity .9bn to $ were most other non-US companies  Like many others.4bn is $ Global Equity Research 13 January 2012 However. That said. rising by 23%. the companies and assets that BG Group purchased have seen total 3P resources rise from c. that BG Group has raised its 2011 LNG segment EBIT guidance three times (i) from $1. Fortunately.lucas@jpmorgan. We expect BG Group management to refresh its LNG EBIT guidance for 2012 and 2013 at its Annual Strategy Update on 7 February 2012.2bn (ii) from the latter to ‘the high end of the range of $1. It thus left only 20% of its volumes with source. management reduced its portfolio flexibility just when its value could have been maximized following the market dislocation caused by Fukushima. We note that the full Environmental Impact Assessment (EIA) which was completed in 2003 is still valid.BG Group missed the US gas shale opportunity (as did almost every other non-US independent) and thus arrived late to the play via a joint venture with EXCO Resources in 2009. Late to US gas shale party….9bn (mid-point of first guidance range) to $2. arguably it could have done so sooner with an increased organic bias. So. Moving when it did necessitated acquisitions to ‘muscle’ in to the play – an earlier organic build up might have been done at lower cost.2bn’ (iii) from the latter to $2.4bn with its Q3 2011 results (announced 25 October 2011). we believe that BG Group has given up very meaningful upside by its prior period hedging strategy – this is apparent from Figure 46 which shows a notable decline in estimated EBIT per LNG cargo in 2010-11. BG Group locked in 80% of its LNG off-take at fixed or ‘semi-fixed’ prices 2010-12. yet locked in high percentage of prices and volumes to certain buyers 2010-12 70 . however.0bn to $1.5 TCF to over 20 TCF.5bn. Sales volumes were thus left substantially un-hedged in 2013 onwards based on their assessment that the market would tighten in 2013. management should have retained greater flexibility in order to exploit market dislocations. We must acknowledge.9bn to $2. We note that the EBIT upgrade from $1. albeit as did most of its competitors. As such. the hedging levels reduce in 2012 and. according to management BG Group will be substantially unhedged in 2013.we estimate to over 15%. Fukushima then triggered a further acceleration in global demand growth in 2011 . With hindsight. If this increase is exclusively tied to superior margins on the 20% floating component of its portfolio only. so its acquired resources have since grown very materially. EBIT guidance could have reached over $4bn.  Locked in LNG sales volumes and prices in 2009 for 2010-12 . Global demand strengthened dramatically during 2010 as the global economy recovered. this might imply that un-hedged.

Bolivia (Pacific LNG) and Iran (Pars LNG) or experienced open-ended delays e.25 90.5 4.0 97.8 4.0 32. All of BG Group’s liquefaction trains have operated very safely and reliably since their commissioning.1 1. BP 50% BG Group 25%.1 7. Singapore LNG Tokyo Gas.e. 71 .18 MT pa. So.0 Net capacity MT pa 0. Global Equity Research 13 January 2012 Liquefaction assets Legacy operating assets were built at very low cost at the bottom of the liquefaction EPC cost curve As per Table 10.11% GDF Suez (100%) BG Group (100%) Total operational capacity Firm development projects Australia QC LNG Train 1 2014 Train 2 2015 Total development capacity Source: J. BG Group’s existing portfolio of liquefaction assets bears limited expansion options. BG Group has contracted gas that could either be used to support a fifth train or backfill existing trains in Trinidad.9 35.75%) 4.4 2. Realistically.9 Tolling Tolling Qunitero LNG. The average capacity of BG Group’s six operational trains is 3. Gas Natural 40% BG Group 50%. charge the users a liquefaction tolling fee. With the exception of BG Group’s first train (Train 1. Others train partners 71.5 28.2 Plant type Merchant Tolling Tolling Tolling Tolling Tolling Off-take agreements GdF Suez 60%. No real expansion options given government policies in Egypt and Trinidad Table 10: Liquefaction interests Plant Trinidad & Tobago Train 1 Train 2 Train 3 Train 4 Egypt Train 1 Train 2 Start date 1999 2002 2003 2005 2005 2005 Gas Supply mmcfpd 520 560 560 800 565 565 BG Group equity supply No Yes Yes Yes Yes (50%) Yes (50%) Capacity MT pa 3.g.5 3. BG Group thus turned its strategic focus to coal seam gas in Australia given clearer political support and an ‘easier’ business environment. BG Group has interests in six operational LNG trains . Atlantic LNG. given robust government gas depletion controls and the prioritization of domestic gas uses (power. with the exception of Train 1.P. Atlantic LNG) which operates as a merchant facility (i. This capacity is split 63% Atlantic Basin and 37% North Africa.g. BG Group turned its strategic focus to coal bed methane in Australia Ideally. Also. BP 75% BG Group 28.89%.four in Trinidad & Tobago (Atlantic LNG) and two in Egypt (Egypt LNG) with a total net capacity at end 2010 of 7.1 3.4 5.6 3. both in 2009) and subsequent asset acquisitions.4 3. We note that BG Group was discussing the concept of a fifth train (third train) with the government of Trinidad (Egypt) back in 2002. it needs to discover more gas in Egypt to warrant a third train.5 38.5 32. BG Group supplies equity upstream gas to all of its liquefaction trains which act as tolling facilities.2 3. BG Group took the leading position in the world’s emerging hub for coal seam gas to LNG projects in Queensland. BG Group would have added additional green field capacity sooner (in order to optimize contractor engagement and deployment of in-house project capabilities). all of BG Group’s LNG train interests operate under a tolling model i. fertilizers and residential).6 7.5 1. we believe that it is presently unlikely that either Atlantic LNG or Egypt LNG will be able to add a fifth / third train respectively. This secures the invested capital therein with a reasonable rate of return.1 1. CNOOC for both trains Conventional projects delayed. it buys gas which BG Group does not produce and sells the LNG directly). 700 700 Yes (95%) Yes (98.3 1.25 4. However.8 1.7 MT pa. Via a series of corporate acquisitions (QGC and Pure Energy.lucas@jpmorgan.e. but its participation in potential projects was either cancelled e.6 BG Group equity % 26. Olakola LNG (Nigeria).Fred Lucas (44-20) 7155 6131 fred.

BG Group remains confident that Train 1 will be commissioned in 2014. This could see BG Group’s net liquefaction capacity exceed 20 MT pa by 2018.7 to 3. In order to sanction a third or fourth train. Queensland BG Group now has two trains under construction in Queensland. The CEO has indicated that a third train is unlikely to be sanctioned before H2 2012. BG Group is pursuing one further potential liquefaction project. Train 3 QC LNG continues to look very likely Tanzania could be its next green field project Subject to the outcome of its multi-well offshore drilling program (first well spud late December 2011 with results likely in Q1 2012). at least. In July 2011.lucas@jpmorgan. These two trains will raise the average capacity of its suite of trains from 3. BG Group and Southern Union received US DoE approval to export up to 15 MT pa over a 25-year period to countries that have free trade agreements with the USA. We note that the site in Queensland has space for up to 5 trains with a total capacity of 20 MT pa. If we include three trains at QC LNG (each 4. Notwithstanding flooding in Queensland. its average train size increases to 4.7 MT pa. Australia (QC LNG). This. in our view. A third train at QC LNG in Australia is also looking very likely. BG Group would like to sanction a third train within 18months of taking FID on the project’s first phase. in addition to the 7. at least three other competing CSG to LNG projects will follow it. but the ideal time is before the end of Q3 2012 to maximize project efficiency.97 MT pa under development. there is potential for acreage swaps with other companies and supply collaboration given other companies may have incentive to supply sooner to a third party export project. The average (gross) size of BG Group’s operational liquefaction trains is 3. Indeed. with the first of these due to be commissioned in 2014 and the second in 2015. For now. Alternatively. So. For now.2 MT pa. BG Group must convert more of its equity owned 3P resource to 2P and 1P. given the scale of estimated resources (last estimated by BG Group to be 3P resources of 21 TCF – February 2011) and the progress that BG Group is making contracting the off-take from a third train. BG Group may also ultimately lead a green field LNG project in Tanzania.25 MT pa) and one train at Tanzania LNG ( Global Equity Research 13 January 2012 Front of project queue in CSG to LNG. which disrupted BG Group’s land drilling campaign. which could be operational by 2016-7. Santos FLNG looking less likely One more option for US LNG exports 72 . BG Group (Walloons CSG) recently agreed such a gas supply agreement with Toyota Tsushu Corporation to take gas from ATP 651P for twenty years. BG Group has indicated that the FLNG will be held in reserve as an additional flexibility to be deployed later.Fred Lucas (44-20) 7155 6131 fred.25 MT pa train with BG Group owning 100%. QC LNG is a great opportunity for BG Group to demonstrate that its track record reflected its core competencies rather than a benefit of the easier construction cycle / easier project types. we also see potential for a third 4. It also looks very likely to be the world’s first liquefaction plant to be supplied from non-conventional coal seam gas (CSG). will define the scope for regular LNG exports via an FLNG scheme in the Santos Basin. Central to BG Group’s strategy is the ability to source low cost gas (ideally at a small premium to Henry Hub) and sell it as LNG in Asia Pacific on an oil price index. in turn. if not in addition. a 3 MT pa floating LNG solution in the Santos Basin (Brazil) looks unlikely in the near term with the gas more likely destined for the domestic market via pipeline. We believe that Petrobras must first define a master plan for Brazilian gas supplies which more clearly defines the role of domestic supplies and piped/LNG imports.9 MT pa and will be BG Group’s 7th and 8th trains in just 12 years.6 MT pa). this remains credible – we note BG Group’s differentiated track record of LNG project delivery. QC LNG will be BG Group’s first liquefaction position in Asia Pacific and to be located in an OECD country.

we note that BG Group retains title (90% to be reduced to 60% if the Consolidated Contractors Company and the Palestine Investment Fund exercise their participation options at development sanction) to. BG Group may pick up short-lived supplies in the market – it buys and sells spot LNG cargoes on an ad hoc basis.2 Up to 12. 73 .1 3.g.4 S&P agreement start up Q4 2005 Q1 2006 Q4 2006 Q2 2007 Q3 2007 2014 TBC TBC Start up 2009 2013 2014 2014 2014 2015 Years 20 20 17 20 20 20 20 Years 21 20 20 20 21 20 Shipping FOB FOB FOB FOB CIF TBC CIF Source QC LNG LNG portfolio LNG portfolio QC LNG LNG portfolio QC LNG + LNG portfolio BG in LNG export project Yes Yes No Yes No Yes No No BG in LNG import project Yes Yes No No No No Source: J. Two discoveries were made in 2000 (Gaza Marine-1 and Gaza Marine-2) with contingent resources estimated to be 1 TCF. Morgan. Their agreement includes an option to extend by up to 10 years.. sourced from projects in which BG Group does not participate) and others from BG Group equity LNG projects (e.6 Up to 0. BG Group remains long LNG supplies Table 11: BG Group . some from third parties (i. Ltd Firm supply (MT pa) 2.0 Up to 2.7 Up to 3. The enabling hardware required (or firm access thereto) was low cost shipping capacity and low cost import capacity. in Egypt and Trinidad).0 Supply (MT pa) Up to 1. BG Group has a diversified set of long term supply sources.7 MT pa excluding NLNG Train 7).5 2. Including the recently announced agreement to purchase 3. Chile * Singapore GSPC.5 3. As such. in 2008 it closed its office in Israel. * BG Group’s supply contract in to Chile is on a US Henry Hub index (the higher of Henry Hub or Brent until end 2013 and then a pure Henry Hub link) which provides BG Group with an internal hedge if the Henry Hub price rises very significantly thus raising the cost of its LNG via its supply deal with Cheniere (Sabine Pass). In addition to these volumes. and is operator of.3 27.5 3. In 2007.sources of contracted LNG and contractual supply obligations Long term sources of LNG supply (purchase contracts) Atlantic LNG Trains 2-3 Egypt LNG Train 2 Equatorial Guinea Atlantic LNG Train 4 Nigeria LNG Trains 4-5 Queensland Curtis LNG Trains 1-2 Sabine Pass LNG * Nigeria LNG Train 7 Long term LNG supply commitments (sales contracts) Quintero LNG. BG Group ended gas sales negotiations with the Israeli government and. As per Table 11. LNG supply sources & contractual commitments to supply BG saw the value in portfolio optimization In essence.5 2.3 8. Tokyo Gas Global Equity Research 13 January 2012 1 TCF offshore Gaza could feed Noble’s LNG export scheme Finally. BG Group was the first company to recognize that a set of LNG purchase agreements and another set of LNG sales agreements created a portfolio optimization business opportunity with a very different set of value drivers to a conventional LNG business.Fred Lucas (44-20) 7155 6131 fred. the offshore Gaza Marine license.5 MT pa from Sabine Pass (USA) with Cheniere Energy and assuming that Nigeria LNG Train 7 is eventually sanctioned. The enabling ‘software’ was a very good understanding of the pricing dynamics in multiple markets and very strong relationships with many high quality downstream customers.5 3. China Chubu Electric Power Inc. the aggregate supply sources may reach 27 MT (24.lucas@jpmorgan.e. BG Group’s LNG supplies are not overly dependent on the performance any specific asset / source.4 1.3 1. India CNOOC.P.

BG Group’s LNG portfolio remains long supply sources versus contracted supply obligations. LNG re-gasification capacity As per Table x.6 MT pa. in turn. does not disclose details on its supply agreements . BG has also signed 15 gas sales contracts with various customers (primarily local utilities) in Singapore totaling 2.either to buy or sell LNG. BG Group is responsible for supplying up to 3 MT pa of LNG for up to 20 years with initial deliveries in 2013. BG Group also has six contracts to supply LNG that total up to 12. whilst its LNG purchase contracts (with itself and third parties) are set closer to parity with a Henry Hub gas price index. we understand that all of its sales contracts to third parties are set close to oil price parity. BG Group has agreed to supply up to 3 MT pa from its global portfolio of LNG sources. from Tanzania LNG that could start up 2018-19.Fred Lucas (44-20) 7155 6131 fred. Access via both these terminals (neither owned by BG Group) is an absolutely vital piece of enabling infrastructure access that has allowed BG Group to take on long term LNG supply sources which Global Equity Research 13 January 2012 We have not included QC LNG Train 3 volumes (4. As per Figure 49. 74 . hitherto a piped gas market only. BG Group. but may be purchased in part or outright by BG Group. e. As per Table 12.g. In 2008. the other two may be supplied from anywhere within BG Group’s supply portfolio. the Energy Market Authority (EMA) of Singapore appointed BG Group as the aggregator of LNG demand for the Singapore market.4 MT pa – four of these are specifically sourced from QC LNG. in common with all of its competitors.5 MT pa of LNG re-gasification capacity on the East Coast of the USA via its capacity rights to the Lake Charles and Elba Island LNG import facilities. This is a key competitive advantage that leaves BG Group in a very strong position to continue to divert LNG cargoes to the highest priced markets given its ability to send cargoes to the US East Coast as the lowest priced market of last resort. According to BG Group’s management (February 2011 Strategy Update). However. This excludes potential new sources of supply.3 MT pa) which are currently being marketed. BG Group will also look to aggregate and offer customers spot volumes. According to BG Group’s management its firm supply volumes could reach 32 MT by 2017-18 and it sees a ‘blue sky’ upside supply scenario with over 50 MT pa of supplies by the end of this decade. left it very well positioned to exploit regional price arbitrage by re-directing cargoes to premium priced markets.lucas@jpmorgan. 75% of its LNG sales contracts will be oil priced linked by 2015 (70% of total sales will be oil / oil price indexed versus 50% in 2010). BG Group has 21. Supply portfolio leaves ample flexibility to reach highest priced markets BG Group was the first LNG player to recognize and exploit the value of supply flexibility. Its supply configuration leaves BG Group effectively ‘long LNG supplies’ that are not contracted to any specific destination.

4 3. Management believes that as an LNG principle (i.2 2. So. having taken delivery of four vessels in 2010 it does not have any vessels under construction although it is finalizing a JV structure with CNOOC for the design and construction of two LNG Global Equity Research 13 January 2012 Table 12: BG Group .this is 38% larger than the global average vessel size (estimated to be around 78. It is committed to supply 1.170 cubic meters or around 108.9 4. we cannot criticize 75 .7 4. ENDESA and Metrogas. charters the remaining nine vessels (two under time charter and seven under bare boat charter contracts). Its shipping activities are today directed towards meeting the needs of the group’s LNG and crude oil trading. Morgan. BG Group would have advantaged rights to yard capacity in Asia should it want to build more vessels.0 6. ** Petronas owns the other 50% *** BG Group currently holds no capacity in the terminal but has the option to acquire capacity if needed to support BG Group’s downstream market development.000 DWT .4 2.4 3. a company with firm supply and off-take contracts). BG Group has a core fleet of 13 LNG vessels.5 6. USA Elba Island. LNG shipping assets BG Group has a long history in LNG shipping having been involved in the development of both the prototype and the world’s first working LNG carriers. BG Group also has a number of smaller and slightly older LNG vessels (2005-10) which it charters.8 0.7 MT pa to its three partners – ENAP.lucas@jpmorgan.Fred Lucas (44-20) 7155 6131 fred. The average size of its core fleet of thirteen boats is 152. BG Group has firm access to around twenty vessels – four via direct ownership.9 4. BG Group’s LNG shipping strategy is designed to optimize the trade-off between operational flexibility and the after-tax cost of supplying LNG. * Of which 1.2 MT pa may be supplied by Marathon. BG Group does not own any of the much larger Q-Max or Q-Flex vessels and.8 Contract Leased Leased Leased Leased Owned Option to access Owned Aggregator role Source: J. Italy Jurong Island. USA * Dragon LNG. nine under long term charter agreements and the balance via shorter term charter agreements subject to its needs and the market conditions. Singapore Total new capacity Start date Phase 1 Jan 2004 Phase 2 July 2006 Phase 3 Mar 2010 Jan 2004 . It owns four of these ships terminal capacity rights Terminal Lake Charles. Such secure access to shipping capacity filled an important ‘infrastructure link’ that enabled BG Group to take on re-gasification capacity rights.0 4. via a sale and leaseback arrangement. Chile *** Total operational capacity Expansions / developments Brindisi LNG. At any time. In essence. to lock in long term supplies of LNG and to build a downstream customer base. Rights to shipping were a key enabling asset for BG’s LNG strategy BG Group originally built out its shipping capacity via chartering when the LNG shipping market was short.2 0.500 DWT).P. UK ** Quintero LNG.e.2 4.0 BG Group capacity rights / equity % 100 100 100 50 0 80 0 Net Capacity MT pa 13. BG Group discloses more on its LNG business than any other company that is featured in this note. Indeed. Capacity reflects facility’s second expansion. BG Group has done 9 sale and leasebacks – it only owns four vessels LNG portfolio valuation Superior disclosure enables more rigorous analysis and valuation BG Group is one of the very few companies to present an LNG EBIT and associated operational and financial information.0 23.May 2007 July 2009 Jan 2011 TBC 2013 Re-gasification capacity MT pa 13.

however.583 25% (396) 1.585 25% (396) 273 56 972 2009 2.743 25% (436) 2. £13bn or 375 pence per share We assign a relatively low value to BG Group’s liquefaction assets in Egypt and Trinidad which.750 417 936 Source: J.000 112 (581) 2013E 3.Fred Lucas (44-20) 7155 6131 fred. Table 13: BG Group .983 1.178 25% (545) 2. With these caveats.242 35% (973) 1.200 95 83 2011E 2. We forecast that BG Group's gearing ratio will rise (Q3 2011 27%). Morgan. in our view. This shift has knock-on consequences for BG Group's free cash flow.lucas@jpmorgan. At some point. this analysis underlines that a business which has recently (2007 to 2010) generated positive free cash flow will (2011 to 2013) quite likely generate negative free cash flow given BG Group’s move back in to more capital intensive liquefaction in Australia.000 117 (250) 2014E 3.449 1. this stream is enabled by a shipping fleet. Around $20bn. LNG negative free cash flow 2011 to 2015 BG Group is one of the few companies where it is possible (given differentiated disclosure policies on this business) and it makes sense to value its LNG business separately and. indeed.750 267 264 2015E 4. the Brazilian pre-salt).496 30% (749) 1. we are able to perform more meaningful analysis on BG Group’s LNG business compared to all other companies featured in this note. somewhat arbitrarily.LNG segment notional free cash flow (£m) £m EBIT $m EBIT Tax rate Notional Tax Capex Depreciation Cash flow 2001 42 29 25% (7) 104 2 (80) 2002 12 8 25% (2) 117 4 (107) 2003 126 77 25% (19) 301 5 (238) 2004 182 99 25% (25) 417 13 (330) 2005 329 181 25% (45) 422 24 (262) 2006 643 352 25% (88) 496 38 (194) 2007 1.974 3.460 1. as we have discussed. In order to safeguard its single-A credit rating – a stated priority of management . Rather than value each of these 76 . which we also expect to be negative 2011 to 2014 given heavy capex commitments elsewhere in its upstream portfolio (e. We can estimate a notional free cash flow from its LNG business (Table 13).525 25% (381) 1. Atlantic LNG).50 and USD/AUD Global Equity Research 13 January 2012 its disclosure policies as we do for some other companies – we can only commend BG Group for its disclosure leadership. In our view.20). act as tolling plants (with the exception of Train 1. we expect BG Group to clarify how the rent from this project may be apportioned. until then there are dividend constraints (iv) BG Group does not give specific capital expenditure guidance for LNG – it only guides for group capital expenditure (Feb 2011 guided to $21bn in 2011-12 with $10bn in 2011 assuming reference conditions which include USD/£ 1.g. we must make the following caveats about this analysis: (i) although we understand that LNG profits are channeled through relatively low tax rate jurisdictions.we expect BG Group will divest more nonstrategic assets. It does. it is very important to do so.674 1.405 1.518 107 (267) 2012E 2. report LNG capex when spent each quarter. re-gasification terminal access rights and an advantaged LNG trading function. Consequently.342 2. It is not yet clear how much of the value of QC LNG will be concentrated within the LNG factory gate versus Upstream and/or in Shipping & Marketing. which we expect will peak in 2013-14 at around 35% (ND/ND+E). We have. we do not know the effective tax rate on this stream (ii) we exclude working capital movements and interest payments (iii) actual cash flows from liquefaction projects are typically constrained until project finance debt has been repaid.047 521 25% (130) 194 45 242 2008 2. assigned 55% of our total value for QC LNG to the LNG segment.P.551 25% (388) 653 49 559 2010 2.830 2. We assign a much higher value to BG Group’s Shipping & Marketing stream. However.

5 13. its shipping capacity and re-gasification access rights and a very experienced trading function. The stream represents around 33% of our group EBIT forecast for 2012. This profit is recorded in the LNG Shipping & Marketing sub-segment reported by BG Group. skills and customer relationships. However.Fred Lucas (44-20) 7155 6131 fred. the most valuable piece of the franchise is the capability to buy large volumes of reliable and low cost LNG (ideally priced off Henry Hub) and to sell it close to oil price parity. the sell-side range for the value of this stream runs from 200 pence to 760 pence with a mean around 400 pence.6 per share. As above. it is enabled by BG Group’s contractual architecture.0 Implied EV/EBITDA 2012E As per Table 14. the UK) and low capital requirements (with the exception of QC LNG.7bn. we feel that this is relatively low. the implied 2012E PER is around 10x. Value is dominated by portfolio of low cost supply contracts which can reach highest priced markets Clearly.P. approximately 19% of our sum-of–the-parts of around £19. This segment valuation equates to a 2012E segment EV/EBITDA multiple of 7. * enabled by capacity rights at LNG import terminals.4bn . as Global Equity Research 13 January 2012 components separately. 77 .831 288 15.7bn or 225 pence per share Net capacity MT pa 4. but putting an accurate boundary around the profits and cash flows of BG Group’s LNG business is trickier given the ‘blurred’ value boundaries around QC LNG.g.1 7. Table 14: Valuation of BG Group's LNG franchise Pence £m per share 606 87 3.5 457 13 3. Our valuation of this arbitrage profit stream assumes a compression in the margin over Henry Hub past-2015 when we assume North American LNG exports will grow and thus reduce regional LNG price dispersion. Again. it is easier (and arguably more sensible) to value the Shipping & Marketing stream as a whole. analyst estimates vary depending how much of QC LNG’s value is allocated to the upstream segment versus the LNG segment.5x which we feel is conservative given the (i) durability of the stream (ii) the very low risk nature of price arbitrage trading profits (iii) its high free cash conversion characteristic given low taxes (the profit is realized in low tax rate jurisdictions e.this equates to around 409 pence per share. If we assume a 25% segment tax rate. we value BG Group’s LNG franchise at around £14bn or almost $21.lucas@jpmorgan.951 409 Source: J. recognizing that these underlying tangible and intangible assets support it. ships (owned and chartered) + long term supply and sales contracts Infrastructure / capability Atlantic LNG Trains I-IV Egyptian LNG Trains I-II Queensland Curtis LNG I-III Shipping & Marketing + enabling assets & capabilities * We value the LNG franchise at £7.0 9. Morgan.6 8.057 90 6. However. much of the necessary infrastructure has already been either built or leased) (iv) 2012E EBITDA is still suppressed by some out-of-the-money fixed price hedges relative to spot pricing (v) such a distinctive array of assets. This compares to cumulative sunk investment (un-depreciated) by end 2011 of around £5. Figure 47 shows how BG Group's LNG realizations have achieved consistently large premiums over and above Henry Hub average quarterly prices. According to the company (December 2011).5 2. putting a definitive value on a flexible set of supply agreements is difficult.

com Global Equity Research 13 January 2012 Figure 43: Liquefaction capacity .0 2.0 8.0 3.0 EBIT per cargo £m 2003 2004 2005 2006 2007 2008 2009 2010 2011e 124 118 117 182 231 227 222 215 211 8 6. Morgan. £m) 14 12 10 10. Morgan.0 9.0 (MT pa) 25 Figure 44: Sources of LNG and LT supply commitments (MT pa) 30 25 20 Possible 20 15 15 Under construction 10 10 5 5 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12E 13E 14E 15E 16E 17E 18E Trinidad Trains 1-4 Egypt Trains 1-2 Australia Trains 1-3 Tanzania Train 1 0 05 06 ALNG T2-3 07 08 ELNG T2 09 EG 10 ALNG T4 11 12 NLNG T4-5 13 QC LNG 14 15 Sabine Pass 16 17 NLNG T7 18 19 20 Supply commitments Source: J.0 5. Source: J.0 0.P.0m per cargo 4 2 0 Source: J. Source: J.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 CYCLE VOLUME WEIGHTED AVERAGE £4.0 7. Morgan.P.lucas@jpmorgan.Fred Lucas (44-20) 7155 6131 fred. Figure 45: LNG cargoes sold by quarter 80 70 60 50 40 6 30 20 10 0 2003 Q3 2004 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 USA RoW Henry Hub ($/mmbtu.P. RHA) Figure 46: EBIT per LNG cargo by quarter (estimated. Morgan.P. 78 .0 4.

Morgan.515 300 6 4 2 0 2003 100 0 2004 2005 2006 Henry Hub 2007 2008 2009 2010 2011 (100) 2001 2002 2003 2004 2005 2006 Liquefaction 2007 2008 2009 2010 2011 Shipping & Marketing Business development Average LNG cargo realisation Source: J. 79 .P.585 1.Fred Lucas (44-20) 7155 6131 fred.P. Morgan. Morgan. Source: J.lucas@jpmorgan.P.P. Morgan. Morgan.583 1.551 1. Source: J. Figure 49: LNG portfolio balance Liquefaction 25 20 15 10 Figure 50: BG Group .SOTP and share price premium / (discount) 2000 1800 1600 1400 1200 5 0 1000 800 600 Share price averaged 3% premium over long term NAV per share growth averaged 21% pa over long term 55% 45% 35% 25% 15% 5% (5)% (15)% (25)% (35)% (45)% 01 02 03 04 05 06 07 08 09 10 11 LT supply MT Re-gasification 400 200 2011 2015E Core NAV (p share) Share price premium / (discount) RHA Source: J.P.oil versus gas production mix (%) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 Oil Gas 2007 2008 2009 2010 2011e 2012e Source: Global Equity Research 13 January 2012 Figure 47: LNG price realization by quarter ($/mmbtu) 20 18 16 Realisation premium protected by hedging in 2009-2011 Figure 48: LNG EBIT composition by quarter (£m) 700 600 500 14 $/mmbtu 12 10 8 200 400 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 29 8 77 99 181 352 521 1. Figure 51: BG Group .

Rather.6%) 16. Most recently as operator. However. long-lived and high value gas value chains. 33%) 7. Giant fields 3. * Effective average working interest in Atlantic LNG Trains 1-4. very profitable and long-lived integrated gas Global Equity Research 13 January 2012 Fred Lucas (44-20) 7155 6131 fred.7%) Operational Liquefaction capacity (MT pa) Liquef action capacity under development (MT pa) Operational Re-gasif ication capacity (MT pa) Source: J. 30%) 5. we regard as a weakness BP’s inability to develop more. Indonesia. As per Figure 53.1 7. Gas value chains BP has neglected LNG for too long and may have to play catch up BP has created some important. 37.Fred Lucas (44-20) 7155 6131 fred.3 (NW Shelf.Location of key LNG assets (Isle of Grain. This occurred under the leadership of Sir John Browne who steered BP away from too many long lead. ** BP has certain rights to supply gas in to Damietta LNG. LNG strategy assessment According to BP. specifically oil related. 13%) (Dapeng. quicker payback upstream projects.1 (Atlantic LNG.9 (Cove Point. the creation of gas value chains is one of the three core drivers of upstream growth: 1. Trinidad & Tobago. Italy.2 (Angola LNG. Browne wanted to build one of the lowest cost and highest return upstream portfolios and LNG did not easily fit within that strategy.1 6.2%) 5. per say . 10%) (Tangguh LNG.that is a low return tolling business. but does not have any ownership of the facility. Abu Dhabi. Deep water 2. USA. Morgan.4 (Rovigo.7 (Damietta Train 1. 0% **) 15. very capital projects.P. focusing more on higher return.lucas@jpmorgan. 16. RD Shell's first liquefaction position was operational five years before BP. Turkey and eventually parts of Europe via the South Caucasus Pipeline (SCP).lucas@jpmorgan.6 (ADGAS. China. 50%) 3. UK. 39%*) 7. but since the 1970s RD Shell has grown its LNG far more aggressively and now 80 . 13.3 5. We are not critical of BP’s reluctance to invest in liquefaction. we feel that BP has somewhat neglected its LNG business and turned away from LNG related growth opportunities for too BP Figure 52: BP . BP has connected gas offshore Azerbaijan (Shah Deniz field) to downstream markets in Georgia.

Fred Lucas (44-20) 7155 6131 fred. Figure 53: BP versus RD Shell . but one where we expect the alliance to move downstream in to LNG re-gasification / liquefaction capacity (MT pa) 25 20 15 10 5 0 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 BP Source: J. Looking to form two new potential gas (LNG) chains We see the potential formation of two new gas (LNG) chains within BP’s grasp. but RIL will continue to acquire LNG for its own requirements for the time being. in to a full presence across the entire Indian gas value chain. Morgan. RIL already imports LNG cargoes via Petronet LNG and has been forced to import LNG via the Hazira terminal due to the unexpected decline in gas production from the KG-D6 gas complex. 81 .com Global Equity Research 13 January 2012 sits with a much fuller LNG growth pipeline than BP. a 50:50 JV to source gas globally. this is a long term opportunity. We understand that OGS will be responsible for securing and marketing LNG to RIL’s existing customers. including LNG. and market it in India. We feel that this is a portfolio issue that BP’s current CEO (Bob Dudley) may look to remedy through acquisition or strategic alliance.LNG projects are managed by the upstream performance units in which they reside. BP is looking beyond its recently acquired upstream position.P. potentially supplied by BP’s LNG portfolio.  India – Via its upstream / downstream alliance with Reliance Industries Limited.lucas@jpmorgan. RD Shell BP does not have a head of Global LNG . anchored in the Krishna Godavari Basin. However. there is a head of BP’s LNG merchant trading business who sits within BP’s global trading operation. Realistically. We note that BP and RIL have recently set up India Gas Solutions (IGS). one in India and another one in Indonesia.

This ought to be a near term opportunity . West Aru I and II. As such. On 21 November 2011. BP may supply coal bed methane to an LNG plant before BG Group does so in Australia. On 30 November 2009. Sugico owns 55%. Actually. BP’s current management has a more pragmatic stance towards LNG and may look to raise BP’s exposure to LNG. BP (via VICO. in the Arafura Sea.5 bcfpd gas from the North Slope to Alberta – launched 2008) in 2011. it appears that BP has really only taken on a new LNG project once per decade since the 1970s. a pipeline could be built to supply ConocoPhillips' Kenai LNG plant which is likely to be mothballed otherwise. Indonesia. BP has been very obviously building its acreage position in Indonesia with a eye to supply gas to the Bontang LNG facility. it is less than that since it acquired its LNG position in Trinidad via its merger with Amoco (1998) and its supply position to Bontang LNG in Indonesia via its acquisition of ARCO (1999. In Global Equity Research 13 January 2012  Indonesia – In the past two years. Preliminary studies on the block suggest it has a CBM resource potential of 4 TCF (ENI now estimates 13 TCF).lucas@jpmorgan. BP was awarded 100% in the North Arafura PSD seismic operations are to start in 2012.Fred Lucas (44-20) 7155 6131 fred. BP is a minority partner in Angola LNG which is due on stream in 2012 and is operated by Chevron. As per Figure 54. II and III PSCs are operated by BP with 45%. As we have mentioned. Having pulled the plug on its $35bn Denali pipeline project with ConocoPhillips (to bring 4.Tangguh LNG (Indonesia). Will Valdez LNG ever happen? 82 . The PSC overlays the same acreage as the conventional PSC (BP 37. Alternatively. we wait to see if BP and others can create an alternative LNG export scheme using the same source gas. We believe that the quality of BP's portfolio would be enhanced with the addition of one or two more long-lived legacy LNG assets. In November 2010. BP was awarded another four CBM PSCs in Central Kalimantan .8%) which supplies gas in to the Bontang LNG plant.given existing gas production infrastructure. BP also acquired a 32% interest in the West Papua I and III PSCs from Chevron. Tangguh is BP’s only operated LNG project BP has only actively pursued one green field LNG project as operator in its entire 102 year history .the Tanjung IV PSC is operated by Pertamina with 56% and BP 44%. BP was awarded 100% of two offshore PSCs.8%. In April 2011. this would not be on stream much before 2020. development ought to be rapid. In theory. a 50:50 joint venture with ENI) signed a PSC to develop the Sanga-Sanga coal bed methane project in East Kalimantan. ENI 37. gas (North Slope holds at least 35 TCF) could be piped 800 miles from the North Slope to a liquefaction plant at Valdez. VICO – 50%). The Kapuas I. Realistically.

8 BP equity % 34.0 42. Indonesia.7 0. The average capacity of BP’s liquefaction trains is around 3.8%) Yes (16. China.1 1. BP supplies equity gas to all its equity owned liquefaction facilities.5 4. Korea.7 10.7%) Yes (16. three in Abu Dhabi (ADGAS – Das Island – operated by the JV) and two in Indonesia (Tangguh LNG.0 12.55 MT pa for 20 years).2 MT pa.6%) 5. 40% Gas Natural and 20% EGAS).6 MT pa for 20 years). 5. as per BG Group – operated by the JV). Spain US.7 Plant type Merchant Tolling Tolling Tolling Tolling Tolling Tolling Tolling Tolling Tolling Tolling Tolling Tolling Tolling Markets served US.0 10.6 MT pa for 25 years) Posco (0.1 3. With the exception of ADGAS (Abu Dhabi).2 0.4 0.7 0. but does not own any equity in the liquefaction plant (which is effectively owned 40% ENI. BP only operates one facility .5 2. *** Long term supply contracts with CNOOC (2. although as we have noted. BP also has an equity supply agreement with Damietta LNG.125 MT pa for 15 years) and Sempra (3.7%) Yes (16.but watch this space BP does not yet have any exposure to LNG projects to be supplied from nonconventional gas.2%) Yes (37.4 1. China.4 2.2 Global Equity Research 13 January 2012 Liquefaction assets BP has interests in fourteen trains in four facilities As per Table 15.5 2.3 0.649 371 BP equity gas supply Yes (34.6 Source: J.5 37.lucas@jpmorgan.2 2. No presence in CBM to LNG….2%) Capacity MT pa 3.4 5. Table 15: BP .7 16. five in Australia (NW Shelf – operated by Woodside).4 2.7 0.4 2.5 MT pa (45%) is located in Asia Pacific with the balance in the Atlantic Basin (48%) and the Middle East (7%).9 0.0 10.7 MT pa for 20 years).4 0.4 1.401 mmcfpd) and 11% of its total production in 2010 (3.7%) No No No Yes (37.Tangguh LNG.3 2. Bintuni Bay of Papua Barat – operated by BP) with a total net capacity at end 2010 of 12.2 MT pa.4 3.5%) Yes (42.2 0.8 16. Of this.2 0.0 13.7 1. Spain US.liquefaction interests Plant Start date Trinidad & Tobago (Atlantic LNG) Train 1 1999 Train 2 2002 Train 3 2003 Train 4 2006 Australia (NW Shelf) * Train 1 Train 2 Train 3 Train 4 Train 5 Abu Dhabi (ADGAS) Train 1 Train 2 Train 3 1989 1989 1992 2004 2008 1977 1977 1994 413 63 2.2 37.822 kboepd).7 16.3 2.4 0.2 Net capacity MT pa 1.7 16.0 37.7 2. Korea Japan Indonesia (Tangguh LNG) Train 1 2009 Train 2 2010 Egypt (Damietta) Train 1 2005 Total operating capacity Development projects Angola LNG 2012 Total development capacity Mexico.8 0.4 4.496 Net gas supply (mmcfpd) 1.0 5.Fred Lucas (44-20) 7155 6131 fred.four in Trinidad & Tobago (Atlantic LNG.7 16.1 **3.2 0. coal bed methane from the Sanga Sanga CBM PSC could potentially be used as a supply source in Indonesia (to the Bontang LNG facility). So. 83 . K-Power (0. Spain US. BP has a supply contract to Bontang LNG.7%) Yes (16. Dominican Republic Japan.0%) Yes (42. Tohoku Electric (0.P. We note that 2. Japan *** Yes Yes (13. Morgan.7%) Yes (16.5 bcfpd of BP equity gas was processed through a liquefaction plant in 2010 – this represents almost 30% of its total gas output in 2010 (8.5 3. Similarly.5%) Yes (37. BP has interests in fourteen operational LNG trains .5 42. * Train capacity is shown as it is today following upgrades ** Average capacity.8 3.

more generally. BP has also yet to confirm that the Tangguh LNG project has sufficient proven reserves to support a third train – this requires an additional 5 TCF over the existing P1 reserve base of 14 TCF.3 7. There is potential for a fourth train at ADGAS. but this has yet to be sanctioned by the operator. BP retains capacity rights to a total of 6.4 BP equity 30% 13% 50% 33% Net capacity MT pa 2.8 Contract Owned Leased Leased Leased BP is not involved in any new re-gasification projects. UK (leased. We believe that this reflects a long term historic strategic aversion to liquefaction projects and.8 MT pa (around 905 mmcfpd) of LNG re-gasification capacity via four operational terminals in China (owned).0 0. Morgan. ADNOC. 84 . Start date 2006 2009 2005 1976 Gross capacity MT pa 6.7 5. LNG re-gasification capacity BP's re-gasification capacity is 57% of its liquefaction capacity As per Table 16. perhaps by buying in to an LNG development or acquiring a company with rights therein. declining domestic gas reserves (Indonesia) and competing projects (Australia).re-gasification terminal rights Re-gasification terminals China Dapeng Italy Rovigo UK Isle of Grain Phase 1 USA Cove Point Total operational capacity Source: J.7 2. Italy (leased).com Global Equity Research 13 January 2012 BP’s LNG portfolio is going exgrowth We see limited potential for the addition of further trains at any of its facilities given government gas depletion controls and priority given to domestic needs (Egypt and Trinidad). LNG. BP is the only foreign company to own a piece of a Chinese re-gasification terminal (30% Dapeng) – this is its only part-owned facility.4 6.9 3. We sense that BP may look to remedy this situation. a 20-year contract is in place with BP/Sonatrach for this first phase of capacity to enable them to import LNG into the UK from other countries) and USA (leased). This ex-growth feature of its LNG portfolio is clearly not a particular strong position. Government officials have indicated that FID may be taken in 2013 with first production from a 3.8 MT pa of re-gasification capacity which equates to just 57% of its net operational liquefaction capacity.Fred Lucas (44-20) 7155 6131 fred. Table 16: BP . BP only has one firm development project – Angola LNG – which is nearing completion and due on stream in early 2012. BP thus retains access to 6.7 1.P.8 MT pa train in 2018.lucas@jpmorgan.

P.900. is an issue that BP’s management may seek to address.7 via operating leases and 1 via a time charter. BP's LNG business is significantly less profitable. it might draw attention to the fact that. Table 17: BP .000 155.000 155. Morgan. alongside the LNG businesses of RD Shell and BG Group.174.000 138. This underlines BP’s under-exposure to the LNG industry which. this is not a very constructive disclosure stance and could be improved without compromising BP’s competitive position in any way. However. nor does it disclose levels of invested capital or capital investment.500 1.0 110. The average size of these 8 vessels is Global Equity Research 13 January 2012 LNG shipping assets BP does not own any of its LNG vessels As per Table 17.Fred Lucas (44-20) 7155 6131 fred.813 M3 or around 104. given the strategic importance assigned to integrated gas chains.000 155. BP has direct access to 8 modern LNG vessels (the oldest was delivered in Q4 2002) .000 155.5 104.200 DWT .9 110.2 Contract Leased Leased Leased Leased Leased Leased Leased Time charter LNG portfolio valuation Around $8bn or just 26 pence per share BP does not explicitly disclose the financial performance of its LNG business – it is included in its upstream segment without incremental disclosure. In our view. Tangguh LNG sells on an FOB basis to CNOOC (i. some of BP’s LNG joint ventures have their own dedicated LNG shipping fleets. This discloses the contribution from Midstream activities which includes LNG processing facilities and transportation. However. We anticipate higher earnings in 2012 once Angola LNG is commissioned and given the more favorable market environment more generally.813 Capacity T 97. Atlantic LNG also sells on an FOB basis.this is 33% larger than the global average vessel size (estimated to be around 78. 85 . If we assign a PER of 10x.000 138. Delivery date Q4 2002 Q1 2003 Q3 2003 Q3 2007 Q3 2008 Q3 2008 Q3 2008 Q1 2011 Capacity M3 138.LNG vessel portfolio LNG vessels British Trader British Innovator British Merchant British Emerald British Ruby British Sapphire British Diamond Golar Arctic Total operational capacity Average capacity per vessel Source: J.e. Angola LNG charters shipping capacity. we can estimate the earnings contribution from its LNG portfolio using BP’s once annual supplementary information on oil and natural gas.9 97. BP does not own or have direct access to any of the much larger Q-Max or Q-Flex vessels. we have assumed that given the size of BP's interests in liquefaction facilities that all LNG profits feature within associates (which are reported post-interest. CNOOC provides its own ships). Tangguh LNG charters ships for other contracts that are on a delivered basis.500 146. In addition. As per Table 18.000 M3.0 110.000 140. This would imply 2009-10 average earnings of around $776m.7 833.000 M3. The ADGAS joint venture also has 7 dedicated ships with a combined capacity of around 960.9 97.7bn or around 33 pence per share.500 DWT). This represents just 4% of our sum-of-the-parts of BP.lucas@jpmorgan. this would imply an NPV of around $9.0 99. The North West Shelf project has 7 dedicated ships with a combined capacity of c.0 110. tax and minorities).

Morgan.LNG portfolio valuation 2010 ($m) UK Rest of Europe US Rest of North America South America Africa Russia Rest of Asia Australasia Gains Underlying Implied LNG Tax Total post tax Total estimated LNG earnings 2010-09 average earnings 2012E earnings potential 2012E PER (x) Implied LNG valuation ($m) Pence per BP share % of BP SOTP Subsidiaries pretax earnings 23 42 -347 3 49 -26 4 -23 -13 -288 0 -288 0 0 0 721 776 969 10 9.liquefaction capacity (MT pa) 14 12 10 8 6 4 2 0 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Abu Dhabi NW Shelf Trinidad Indonesia Angola Source: J.P.304 721 721 2009 ($m) UK Rest of Europe US Rest of North America South America Africa Russia Rest of Asia Australasia LukArco divestment gain Underlying Implied LNG Tax Total post tax Total estimated LNG earnings Subsidiaries pre-tax earnings 925 17 719 833 17 -27 -37 518 -315 2. 86 . Morgan.304 0 1.P.lucas@jpmorgan.Fred Lucas (44-20) 7155 6131 fred. BP 2010 Report & Accounts – supplementary information on oil and natural gas Figure 54: BP .com Global Equity Research 13 January 2012 Table 18: BP .674 0 0 0 830 Associates posttax earnings 0 5 29 134 214 56 -113 611 0 936 0 936 830 830 Source: J.650 976 1.694 33 4% Associates posttax earnings 0 4 27 238 199 63 255 518 0 1.

20. 25%) (Bonny LNG. Within RD Global Equity Research 13 January 2012 Fred Lucas (44-20) 7155 6131 fred.Fred Lucas (44-20) 7155 6131 fred. 30%) (NW Shelf.6 MT pa. 30%) 7. we expect gas will represent 57% of group output. Malaysia. 25%). Australia. Spain) RD Shell Summary of key LNG assets Figure 55: RD Shell . 6.3 31. unlike BG Group. 21. However. in common with BP.6 1. RD Shell has a more limited interest and presence in the downstream supply of gas to end users. 11%) 21.lucas@jpmorgan. Prelude FLNG (3. 74%) (Dua and Tiga.7 (Sakhalin LNG. India. 87 . Mexico) 7.6%) (Qatargas. RD Shell does not have a dedicated individual who is responsible for global LNG.9 MT pa.7%) 16.7 (Hazira. Spain and Mexico that it does not own – these capacity rights are shown.2 (Elba Island and Cove Point) 8. global LNG now falls under the International Upstream segment – Malcolm Brinded has executive responsibility for this business.2 3. Morgan. 2010 was the first year when gas (51%) was more than half of group output. integrated gas chains are central to RD Shell’s upstream strategy. Gorgon. 100%). Qatar. RD Shell has long had a relatively high exposure to natural gas production.3 MT pa.9%). By 2015. 21.4%).Location of key LNG assets 9.8 (Pluto. technology and partnerships. Wheatstone *) Operational Liquef action capacity (MT pa) Liquef action capacity under development (MT pa) Operational Re-gasif ication capacity (MT pa) Source: J. as per Figure 59.6 7. Prelude.2 (Costa Azul. Gorgon LNG train 1-3 (15 MT pa. As a result of its gas chain capabilities. LNG strategy assessment Integrated gas chains are central to RD Shell's upstream strategy RD Shell has a clearly defined upstream growth strategy with three central planks:  Build resources  Accelerate resource to value conversion  Differentiation through integrated gas leadership. Indeed.5%) (Huelva and Barcelona. Nigeria. 27. RD Shell has import capacity rights via terminals in the US. 15%) (Qalhat LNG. Wheatstone LNG Trains 1-3 (8. As per BP and BG Group. So. ** With the exception of the Hazira re-gasification terminal (74% owned).lucas@jpmorgan.8 14.5 (Brunei LNG. * Pluto LNG Train 1 (4.6 (Oman LNG.8 2.

In the meantime. as BG Group did. RD Shell’s position in global LNG is world leading which is clearly contrasted to BP's much smaller position. output capacity 14. Unlike BP and Exxon Mobil. Qatar. the Qataris continue to realize robust prices for their LNG exports. RD Shell has a tendency to want to build and own exposure to capital intensive processing assets and a reluctance to reduce that exposure when perhaps it could/should. first class reputation and proven project delivery capabilities. It is debatable whether the source gas for Pearl GTL (1. In 2003.2 MT pa). It is similarly over-exposed to refining. Perhaps because it was unwilling to risk changing its reputation in the LNG industry or perhaps because it simply failed to see the opportunity. Pearl’s first train was successfully commissioned in 2011 (originally scheduled for 2009) and its second train is currently being commissioned. Brunei and Malaysia). RD Shell could have taken on more LNG supplies itself We feel that RD Shell is somewhat over-exposed to the capital intensive. it also planned an offshore re-gasification terminal in the Gulf of Mexico with a RD Shell must prove that GTL is a valid / superior alternative to LNG Joined the US re-gasification ‘gold rush’ 88 . Given the size of its balance sheet and its unrivalled experience in all aspects of the LNG industry. In our view. Like so many others. lower return end of the LNG value chain – liquefaction. the Middle East (Oman and Qatar). In 2003. Malaysia.Fred Lucas (44-20) 7155 6131 fred.7 MT pa or 6% net capacity in 2012 (Angola LNG). both BP and RD Shell took their first respective exposures to LNG in the early-mid 1970s – RD Shell in Brunei and BP in Abu Dhabi. RD Shell also has developed a distinctive strategic alternative for gas monetization . RD Shell has two operational GTL facilities – both 100% owned (Bintulu. Russia (Sakhalin) and Asia Pacific (Australia. RD Shell missed this contractual innovation. RD Shell had net liquefaction capacity of almost 20 MT Global Equity Research 13 January 2012 RD Shell is the global LNG ‘supremo’ RD Shell actually provided the technology for the world’s first liquefaction plant at Arzew.2 MT pa potential projects). Pearl GTL has cost over $18bn (more than three times its original budget of $5bn to $6bn) and taken several years to develop. whilst North American demand would accelerate.9 MT pa projects underway and a further +19.7 kbpd and Pearl GTL. lower cost LNG train in Qatar. From the perspective of a shareholder in RD Shell. the answer will depend on the premium prices realized for the GTL products and the operating performance of Pearl GTL. RD Shell has liquefaction capacity in the Atlantic Basin (Nigeria).lucas@jpmorgan. GTL effectively competes with pipelines and LNG as a route to get stranded gas to market. it took re-gasification capacity rights at Cove Point and Elba Island (Table 20). RD Shell could have penetrated the market for LNG arbitrage more aggressively had it taken on more equity / third party LNG flows directly. at or close to oil price parity. LNG has historically been the preferred choice to GTL given LNG’s lower capital intensity. BP’s LNG growth options are much more limited with only one development to add 0. As per Figure x. it believed that Asian demand for LNG would slow. output capacity 140 kbpd).gas-to-liquids (GTL). RD Shell was also caught out by the view that the US was set to become a major LNG importer. Strategic errors & unanswered questions It is quite tricky to fault RD Shell’s global LNG position – it is the world’s number one with a distinctive global presence. Consequently. RD Shell also has the potential to more than double its net liquefaction capacity by 2020 (+8. Interestingly. simpler and more proven technology and robust LNG pricing – gas resource owners have been able to contract for 20+ years at or very close to oil price parity. Algeria. Yet we estimate that by end 2011. 61% larger than BP's net capacity (12.6 bcfpd) might have been more wisely dedicated to another.

However. the Russian government approved the project's higher budget and cost recovery items and the PSA remained intact. This transaction closed in April 2007. RD Shell also took re-gasification capacity rights in Mexico via the Baja and Altamira terminals to supply both Mexico and the US – it has recently sold its position in Altamira. via InterGen. RD Shell was operator and the dominant owner (55%) of Sakhalin-2. Ahead of it are BG Group's QC LNG (T1-2 Global Equity Research 13 January 2012 capacity of 7 MT pa. The original budget of around $10bn (defined March 2003) effectively doubled to $20bn which delayed tax payments to the Russian government since Sakhalin-2 was a Production Sharing Agreement (PSA).g. and was then slow to exit the business having taken major write-downs. the original solution to address this issue (first announced July 2005 and originally expected to complete early 2006) was a swap of a 25% stake in Sakhalin for a 50% stake in the Zapolyarnoye Neocomian field in the Arctic.45bn cash. This was RD Shell’s sixth and largest LNG project. Regrettable move in to gas-fired power Many IOCs including BG Group moved in to power as a means to monetize gas and then exited when they realized that the return uplift to their business was negative. Instead. Clearly. Sakhalain-2 was RD Shell’s first and only operated LNG project to experience major cost over-runs and delays. This would have helped to maintain RD Shell’s overall resource position in Russia and diversified its portfolio therein. thus diluting RD Shell’s ownership to 27. At the time. All of these trains were actually delivered under budget and/or ahead of schedule. Santos’s Gladstone LNG (T1-2 7. Nigeria LNG T1-3. but was never built. Sakhalin LNG has run very efficiently. Mitsubishi 20%) by half.Fred Lucas (44-20) 7155 6131 fred. Australia. since Gazprom took ownership in the project. RD Shell is now fourth in the queue of CBM-to-LNG projects in Queensland. RD Shell paid a price for this LNG project’s delays and cost over-runs via material dilution at a price well below market value. The move followed much negative publicity in Russia which focused on the project’s environmental track record and cost over-runs.8 MT pa) and ConocoPhillips’s APLNG (T1-2.0 MT pa).5 MT pa). it was controversial for Gazprom not to have been involved at all in Russia’s first and only LNG project. InterGen’s power assets were targeted users of RD Shell’s gas (LNG) e. it is perhaps a shame that RD Shell’s 'alliance’ with Gazprom which was initiated in 1997 seems to have generated such little benefit or advantage to RD Shell. However. we are quite hopeful that a third train at Sakhalin will be sanctioned. Between 1999 and 2003.5%. 9. we are concerned that RD Shell’s 50:50 project with PetroChina (Curtis Island LNG) will suffer from an over-heating of the Australian skilled and semi-skilled labor market 89 RD Shell was heavily diluted in Sakhalin LNG Could APLNG be RD Shell’s next Sakhalin-2? . The project’s start up was also delayed from 2007 to 2009. perhaps in 2012-13.lucas@jpmorgan. Gazprom announced that it would purchase 50% plus 1 share in Sakhalin Energy Investment Company (SEIC) for $7. RD Shell’s project status was also changed to Technical Advisor. However. in our view. RD Shell bulked up in power more than others. the La Rosita (1 GW) plant in Mexico via the Baja re-gasification terminal with LNG from Sakhalin-2. Furthermore. This move evenly diluted the three western owners of SEIC (RD Shell 55%. The PSA was signed in the 1990s under President Yeltsin and was one of just three PSAs signed by the Russian authorities with western companies. Mitsui 25%. Given the number of competing LNG projects in Australia. we estimated that this stake had a market value in excess of $10bn (around $5 per boe for partly developed resources). In our view. Malaysia Tiga T1-2 and NWS T4). This facility was scheduled to start up in 2007. In late December 2006. in exchange. it was partner in a total of 8 new LNG trains (Oman LNG T1-2.

One of RD Shell's problems was that it arrived late to the CBM-to-LNG play. RD Shell’s net liquefaction capacity is spread 51% in Asia Pacific. Between 2012 and 2017. RD Shell may. a potential candidate to apply RD Shell’s Floating LNG technology). 24% Middle East and 25% in the Atlantic Basin. have missed the opportunity to take ‘a seat of influence’ at the East African LNG table . Nigeria. Sunrise LNG (Woodside 33. including the world’s first floating LNG facility (Prelude FLNG) that are now underway which will add another 8. Bow Energy via an alliance with PetroChina. Ideally in our view.g. Since then. Texaco. Russia and Qatar). This ranks RD Shell as the largest owner of liquefaction capacity of all the Global Equity Research 13 January 2012 and contract hardware at the top of an EPC cost cycle. Venezuela LNG and Olakola LNG (Nigeria). RD Shell awarded Samsung Heavy Industries and Technip the contract to design.and its LNG exposure Liquefaction assets Almost 20 MT pa operating capacity spread across seven countries RD Shell’s first liquefaction asset was commissioned in Brunei in 1972.perhaps acquisitions could change that. jointly acquiring Arrow Energy and.9 MT pa of net capacity.2 MT pa. Brunei.3% stake in Woodside (which also owns 16. Browse LNG T13 (Woodside 50%) and the NW Shelf T1-5 (Woodside 16.lucas@jpmorgan. with sanction not expected before end 2013 and a start up in 2018. We would only cite Iran LNG (and Iran GTL Assaluyeh). Shell announced the go ahead for the world’s Four green field developments underway to add almost 9 MT pa 90 . As highlighted. Oman.4%. ConocoPhillips and TOTAL). This will dilute RD Shell’s upstream project pipeline and will clearly reduce its overall exposure to LNG – neither particularly desirable. nine LNG plants (including two in Malaysia and two in Oman) and twenty-seven trains with an average capacity of 3. RD Shell now has a total net operating capacity of approximately 19. RD Shell has made it clear that it intends to exit its 24. it loses an indirect exposure to a number of LNG projects e. more recently. Tullow and Gazprom). but might have missed the East African LNG opportunity…. we count another four green field projects involving eight trains. RD Shell has yet to disclose a capital budget for this project. In May 2011.3% position in Woodside (although it has not clarified the method of exit e. Pluto T1-2 (Woodside 90%). build and install multiple FLNG facilities over a period up to 15 years. In contrast. RD Shell would have acquired Woodside to consolidate its position in Australian LNG. There are not too many historic examples of identified leads that failed to be commercialized. By exiting. Farewell to Woodside…. it has developed an extremely impressive portfolio of liquefaction assets. there are not too many examples of green field opportunities that RD Shell has missed. Not too many ‘dead leads’. RD Shell has a very good track record of defining an LNG growth opportunity and delivering the project efficiently.67%). Of note. In common with other IOCs (BG Group. in our view.67%) and via its 24. With the exception of Sakhalin-2. Its interests in the North West Shelf (Australia) are held directly (16. in July 2009. Malaysia.Fred Lucas (44-20) 7155 6131 fred. Chevron. Petronas. however. Energy Africa.g.7%). RD Shell was obliged to buy in to the play. at the earliest. Over a decade since RD Shell first proposed FLNG to develop the Kudu gas field. it was a late arrival to the Australian CBM-to-LNG play. offshore Namibia (a field that is still undeveloped and since its discovery in 1974 has seen seven operators – RD Shell. another market placing for cash or an asset swap with Woodside). RD Shell does not operate any one of these liquefaction plants or trains.7 MT pa which is spread across a total of seven countries (Australia. Following the 10% placing in 2010.

RD Shell has also expressed some interest in joining the Gulf LNG project. RD Shell could have more than 48. The acting petroleum secretary of PNG (Rendle Rimua) has said that RD Shell is the state’s preferred LNG operator. By 2020. Later in the project life.from Inpex).com Global Equity Research 13 January 2012 first floating LNG (FLNG) facility. In our view. from the Concerto field. No other company has this scale. A floating solution remains the preferred option for the Greater Sunrise LNG project that is located in the joint development area of the Timor Sea. This represents potential growth of +146% versus YE 2011 operational capacity and a potential capacity CAGR 2011-20 of 11%. Development options include another 20 MT pa Looking beyond these projects. The vessel will process gas initially from seven subsea wells in the Prelude field in the Browse Basin and. RD Shell is also looking at floating LNG applications in Iraq and Indonesia (following its 30% acquisition in to the Abadi project – the Masela field in the Arufura Sea . if not extend its global leadership in global liquefaction. Iraq and Nigeria) and five brown field projects (Australia. global footprint or density of identifiable growth opportunities. Nigeria and Russia) with a total of 16 trains. we see potential to add another 20 MT pa via six green field projects (Australia x3. gas is also expected to come from the Crux field. 91 . but the government of East Timor wants an onshore liquefaction facility to be located in their country.Fred Lucas (44-20) 7155 6131 fred. Prelude FLNG will be the world’s first floating LNG facility and it will be RD Shell’s first 100% owned and operated liquefaction facility. led by InterOil in Papua New Guinea.lucas@jpmorgan.5 MT pa in a total of 56 liquefaction trains. The addition of a third LNG train on Sakhalin Island is also looking more likely – please refer to the section on Gazprom. in a second phase. Indonesia. this really underlines RD Shell’s potential to continue.

4 0.0% 15.6 5.6% 19.8 3.6% 21.0 4.3% stake in Woodside Petroleum.0% 25.6 5.Khawr al-Amaya FLNG Nigeria Train 7 Train 8 Olakola LNG Russia .5 1.2 4.7% 20.4 1.0 5.0% 100.9 0.4 2.8 7.3 1.5 0.1 0.6 3.7 1. 92 .0 21.6% 30.7% 25.3 19.6% 34.0% 11.0% 25.0 3.0 3.5 1.0% 15.5 0.7 0.0% 15.7% 20.6% 21.0 1.4 3.0% 25.2 2.4 0.0 3.2 3.3 2.0% 20.5 1.9 4.0% 15.4 0.Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 Table 19: RD Shell .0% 30.6 3.lucas@jpmorgan.9 4.5 4.9 0.5 2.0 12.2 0.5% 30.3 8.5 0.7% 20.9 0.2 3.0 2.4 3.5 2.5 1. * Includes stakes held directly and via 24.8 2.9 3.5 2.6% 21.6 8.4 0.4 0.5 2.9% 25. Morgan.4 4.5 12.2 4.7% 25.3 0.0% 100.Sakhalin Train 3 Total development potential Start date 1989 1989 1992 2004 2008 1972 1972 1973 1974 1974 1995 1995 1995 2003 2003 1999 1999 2002 2005 2006 2007 2003 2004 2006 2009 2009 2011 RDS equity supply Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No Yes Yes Yes Gross capacity MT pa 2.5 1.4 0.4 22.7 0.0% 21.0 8.0 2.6 2.6 2.0% 6.6 3.0% 25.0% 30.0% Net capacity MT pa 0.7 4.0 4.6 0.5% 27.0% 25.6% 25.3 2.1 1.4 0.5 0.5 2012 2016 2016 2017 No Yes Yes Yes 21.8 4.9 0.8 3.7 0.2 1.5% Source: J.9 0.5 1.9% 50.5 2.3 15.4 1.6% 21.5 1.0% 15.liquefaction assets Liquefaction plant Australia (NW Shelf) * Train 1 Train 2 Train 3 Train 4 Train 5 Brunei (Brunei LNG) Train 1 Train 2 Train 3 Train 4 Train 5 Malaysia Dua Train 1 Train 2 Train 3 Tiga Train 1 Train 2 Nigeria (Bonny LNG) Train 1 Train 2 Train 3 Train 4 Train 5 Train 6 Oman Oman LNG Train 1 Train 2 Qalhat LNG Train 1 Sakhalin (Sakhalin LNG) Train 1 Train 2 Qatar (Qatargas 4) Train 7 Total operational capacity Development projects underway Australia Pluto LNG Train 1 * Gorgon LNG Trains 1-3 Prelude FLNG Wheatstone LNG Trains 1-3 Total development capacity Potential developments Australia Pluto LNG Train 2 * Curtis Island LNG Trains 1-2 Browse LNG Trains 1-3 * Sunrise FLNG * Gorgon LNG Train 4 Indonesia – Abadi FLNG Iraq .7% 20.P.6 2.7 0.9 3.4 0.4% 2015 2018 2017-18 2018 2017 2019 2017 2019 2020 2020 2016 No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 4.6 8.6% 21.9 RDS equity 20.5% 27.0% 27.

93 . RD Shell has interests in around a quarter of the world’s LNG vessels in operation. TOTAL (25%) and Mitsui (25%) sold their ownership of Altamira to a 60:40 JV of Vopak and Enagas. the Shell Shipping organization (Shell International Trading & Shipping Company Limited) is based in London. Spain Lusbu. Perth and Tokyo.Fred Lucas (44-20) 7155 6131 fred. USA and Mexico (leased). This represents 76% of RD Shell’s net liquefaction capacity (19. * Nakilat owns another 20 Q-category vessels via JVs. Singapore. USA Elba Island. Georgia.9 MT pa (c.Class NWS .000 130. RD Shell (50%). The intention of this agreement is to develop Nakilat’s shipping expertise.Class Nakilat Q-Max & Q-Flex * Number of vessels 8 7 12 5 30 Average vessel capacity (cm) 75.000 Average vessel capacity (Tons) 53.3 Total capacity (Tons) 426 646 1150 461 Routes Brunei to Japan. Spain (leased).2 14.3 0. USA Baja.P. S.LNG vessel portfolio LNG vessel class B . California.2 bcfpd) via seven operational terminals in India (partly owned).8 2.P. with operations in Houston. India Altamira. Morgan. Maryland.9 1. * In 2011. Georgia.8 92. Through joint ventures and direct ownership. bringing exotic sea shells and kerosene from the East to Europe in the late 1800s (in 1833 Marcus Samuel expanded from selling antiques to oriental shells). Today. so that operational management of the ships can be transferred to Nakilat 8-12 years after delivery of their last vessel.3 95.Class G .2 0. Morgan. This includes around 30 vessels managed via its partnership with Nakilat Shipping (Qatar) Limited (a wholly owned subsidiary of Qatar Gas Transport Company Ltd or Nakilat) following an agreement at the end of 2006.Class NLNG .7 2. It currently manages more than 60 LNG carriers (Table 21). Mexico Elba Island.8 4.2 92. the balance is leased under long term (20 year or more) lease Global Equity Research 13 January 2012 LNG re-gasification capacity RD Shell’s re-gasification capacity is 92% of its liquefaction capacity As per Table 20.000 135. LNG shipping assets RD Shell has interests in or manages around one quarter of the world’s LNG fleet Shell actually started corporate life as a shipping company. Table 21: RD Shell . Mexico Huelva. Just 15% of its capacity is owned.Korea General Nigeria to NW Europe NW Shelf to Asia Managed on behalf of Nakilat (Qatar) Source: J. USA Start up 2005 2006 1988 1969 2003 2008 2006 2010 Capacity right period Owned 2010-34 2010-34 2003-23 2008-28 2006-36 2010-35 RD Shell capacity rights (MT pa) 2. Table 20: RD Shell – re-gasification capacity Terminal name Hazira Altamira * Huelva Barcelona Cove Point Costa Azul Elba Island Elba Island expansion Total re-gasification capacity Location Gujarat.7 MT pa at end 2011). RD Shell has re-gasification capacity rights to total of 14.9 RD Shell Ownership 74% Leased Leased Leased Leased Leased Leased Source: J. Spain Barcelona. the Hague.000 130.

it is especially important for investors to appreciate the significant value of RD Shell’s LNG portfolio. it used to provide an annual disclosure (in its annual strategy presentation) via a graph that broke out LNG earnings explicitly. although much of this (c. Gorgon and Pluto (both under development) projects.this incorporates LNG (including LNG marketing and trading) and Gas-to-Liquids operations. Qatargas 4 (commissioned). In our view. This value captures some of the value of RD Shell’s stake in Woodside (current market value around $7bn) as well as some of the upstream reserve value of gas supplies in to liquefaction facilities (as above.6bn – if we take 85% of the total (assuming 15% of this figure might be generated by non-LNG related activities). RD Shell reported post-tax earnings of $4. we infer a potential equity valuation of just over $50bn. Some years ago. This represents just over £5 per share and just under 20% of our sum-of-the-parts value of around £26. Our FY 2011E estimate is $6. In addition. the associated upstream oil and gas production activities from projects where there are integrated fiscal and ownership structures across the value chain are also included in Integrated Gas. we also expect a fuller contribution from Pearl GTL as Train 1 completes a full quarter of revenue / profit generation and Train 2 is then fully commissioned during H1 2012. we measure an underlying post-tax contribution from LNG in 2011 of approximately $5. RD Shell’s cumulative capital expenditure in Integrated Gas & Power was $25.lucas@jpmorgan.Fred Lucas (44-20) 7155 6131 fred. Pearl GTL (Train 1 shipped its first cargo in June 2011 and Train 2 was commissioned in November 2011). the percentage of group earnings sourced from Integrated Gas has increased from around 10% closer to 20% as RD Shell has increased its operational LNG capacity and LNG pricing has risen on a lagged relationship with the higher oil price. Power generation and coal gasification activities are also included in Integrated Gas results. 94 . one better than BP.$19bn) would have been dedicated to Pearl GTL (RD Shell 100%). If we apply a multiple of 9x to this stream (90% of RD Shell’s LNG is sold under long term contracts with 80% oil price indexed on a 3-6 month lag – so 2011 earnings are reflecting an oil price > $100 per barrel). North West Shelf and Qatargas 4). Sakhalin LNG. We note that in almost 6 years from 2006 to 2011. We value LNG franchise at around $50bn or £5 per share In the first 9-months of 2011.3bn. However. These include the Sakhalin II (Sakhalin LNG – an integrated PSA) and North West Shelf projects that are on stream. Tricky to value given limited financial disclosures on LNG business RD Shell no longer explicitly discloses the performance of its global LNG business which is now included in its Upstream International segment.6bn from Integrated Gas. As per Figure 56. RD Shell does disclose the performance of its Integrated Gas business each quarter .com Global Equity Research 13 January 2012 LNG portfolio valuation LNG is a very important component of RD Shell’s overall value and will remain a very important enabler for higher margin gas production growth. From Q4 2011 onwards.6bn.

P.LNG sales by quarter (MT) Global Equity Research 13 January 2012 Figure 56: RD Shell . Morgan.0 25% 2000 5.production mix .P. Figure 58: RD Shell .0 500 5% 1.P.oil versus gas 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 Notable shift to gas 40 35 30 25 20 15 10 5 0 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Brunei Australia Malaysia + Indonesia Nigeria Oman Russia Qatar Iraq LNG sales 01 02 03 04 05 06 07 Oil 08 Gas 09 2010 11e 12e 13e 14e 15e Source: J.Fred Lucas (44-20) 7155 6131 fred.0 20% 1500 4.0 2006 2007 2008 2009 2010 2011 Source: J. % of group) 2500 30% Figure 57: RD Shell . Morgan.Net liquefaction capacity and sales (MT pa) 50 45 Figure 59: RD Shell .Integrated Gas earnings ($m.lucas@jpmorgan.0 0 2004 2005 2006 2007 2008 2009 % of group earnings 2010 2011 Integrated Gas earnings 0% 0. 95 .0 1000 10% 2. Morgan. Morgan. Source: J.P.0 15% 3. Source: J.

we also concede that these potential developments are still many years off.2 ENI Summary of key LNG assets Figure 60: ENI . ENI's LNG business resides within two business segments – Upstream (Liquefaction assets) and Gas & Power (Re-gasification terminals and LNG vessels).4%) (Brass LNG (FEED). 4%) 3. However. Global Equity Research 13 January 2012 Nitin Sharma (44-20) 7155 6133 nitin. 21.5%) Operational Liquef action capacity (Mt/y) Liquefaction capacity under construction(Mt/y) LNG project (FEED or under study) (Mt/y) Operational Re-gasif ication capacity (Bcm/y) Re-gasification under development (Bcm/y) Source: J.2 2.lucas@jpmorgan.5 22 8. 3. 9.4%) 22. This partly reflects ENI’s origins as a pipeline company and its ownership of utility assets.8 (Sagunto. 11%) (Angola LNG. 10.sharma@jpmorgan.6%) (Qalhat LNG. 13.Location of key LNG assets (Zeebrugge.7 (Bontang. 50%) (Cameron. We do not believe that ENI has an ambitious growth outlook for this business or intends to be a serious player in the LNG arbitrage market. Given the size of ENI's discoveries/gas resource base in Mozambique and Indonesia (CBM) – the company's liquefaction capacity is likely to see significant growth over the medium term as the company looks to monetize these equity gas resources. Morgan Strategy focused on development of the company’s equity gas resources ENI's strategy for its LNG business has been driven by two objectives – optimum monetization of its equity gas (especially in Africa) and meeting the gas requirements of Italy given ENI’s 'nation' status.Fred Lucas (44-20) 7155 6131 fred.2 5. 40%) 15. 17%) 11.5 (Nigeria LNG T7-T8 (FEED). 40%) (Pascagoula.2 10 (Egypt.P.2 (Darwin plant. capacity rights) 8.5 (El Ferrol.1 (Nigeria LNG T1-T6. We also believe that ENI's execution portfolio carries risk of delays – both Nigeria LNG and Brass LNG have already been pushed back and we remain cautious on the delivery schedules of both these projects. Recent discoveries should drive LNG growth 96 .25%) 5.5%) 3. 56%) 3.6 (Panigaglia.

The LNG output from the project was originally planned to go to the US East Coast (ENI has back up regasification capacity) but given a collapse in US LNG import needs. Indonesia. Angolan cargoes may well be shifted to Europe/Asia. Only one green field development on agenda Mozambique holds early promise Mamba South. ENI has potential developments of 3. Nigeria.1MT pa net in Nigeria – Brass LNG and two additional trains in NLNG. Indonesia) was commissioned in 1977 – so the company has been active in this business for more than three decades. In our view. this is a reflection of the company's reliance on piped gas imports from North Africa and Russia to supply its Gas Marketing business that is largely Europe focused. The project is nearing its completion and is expected on-stream in early Global Equity Research 13 January 2012 Greater international focus and ambition in LNG arbitrage business needed to deliver growth We believe that the weaker outlook for Italian gas demand means that ENI needs to increasingly focus on international markets to deliver growth in its gas marketing business .Fred Lucas (44-20) 7155 6131 fred. ENI's pipeline of liquefaction projects is not very strong . Both of these projects are yet to be sanctioned. We expect this giant gas discovery to provide a much needed boost to ENI's LNG business. these interests are (with the exception of Damietta LNG) typically small. ENI now has a total net operating capacity of approximately 5. minority interests. But the relative growth in the company's LNG liquefaction portfolio has been limited in recent years – no new projects have been commissioned in the last 5 years. In our view. Area 4 block is the biggest operated discovery to date by ENI which is already looking at a multi-train (> 3) LNG green field project.a process that was started by ENI's acquisition of Distrigaz in 2009 but needs to progress at a faster pace. Oman and Australia). this is an obvious growth segment as the company looks to finalize its plans (likely divestment) for the non-core regulated businesses in Italy (SRG). Liquefaction assets ENI has interest in 10 trains in 5 countries ENI's first liquefaction plant (Bontang LNG.7 MT pa which is spread across five countries (Egypt.lucas@jpmorgan. Given the history of delays in these projects. Furthermore. 97 . the presence of KOGAS (one of the biggest LNG buyers in the world) as a partner in the block is an obvious plus for the marketing aspect of this potential LNG development. As per Table 22. we believe that there is a risk of further slippages in both these projects.there is only one firm LNG development project in ENI's portfolio (Angola LNG). We also believe that ENI needs to define a clearer growth strategy for its LNG arbitrage business.

with a capacity of 98 .2 4 4 4 3. This represents 149% of ENI’s net liquefaction capacity (5.40% 10.4 0.0 Global Equity Research 13 January 2012 Table 22: ENI .6 8. Spain.7 2019 2020 2018 Yes Yes Yes 5.5 3.4 0.1 0.3 1.liquefaction interests Liquefaction plant Egypt Damietta (Train 1) Indonesia Bontang (A-H) Nigeria (Bonny LNG) Train 1 Train 2 Train 3 Train 4 Train 5 Train 6 Oman Qalhat LNG (Train 1) Australia Darwin LNG Total operational capacity Development projects underway Angola Angola LNG Total development capacity Potential developments Nigeria Nigeria LNG (Train 7) Nigeria LNG (Train 8) Brass LNG Total development potential Source: J.2 3.40% 3.2 13.40% 10. Belgium and USA) across two continents. ENI owns four LNG carriers: LNG Portovenere and LNG Lerici.8 11. Just 10% of its re-gasification capacity is owned.4%) Yes (7%) Yes (7%) Yes (10%) Yes (7%) Yes (7%) Yes (7%) No Yes (11%) Gross capacity MT pa 5.40% 10.2 ENI equity interest 40% 9. Morgan Start date 2005 1977 1999 1999 2002 2005 2006 2007 2006 2006 ENI equity supply Yes (20%) Yes (8.8 2. Table 23: ENI – re-gasification terminal rights Capacity right period 20y 10y 10y Owned.2 0.1 Plant type Tolling Merchant Merchant Merchant Merchant Merchant Merchant Merchant Merchant Merchant ENI off-take (MT pa) 2.40% 17.7 Terminal name Cameron El Ferrol Sagunto Panigaglia Zeebrugge Total re-gasification capacity Expansions/developments Pascagoula Total new capacity Source: J.0% 56% 0% ENI capacity rights (Bcm pa) 6. no expiry till 2027 30y Gross Capacity (Bcm pa) 15.4 5. the balance is leased under long term agreements. Morgan Location Louisiana.9 1.2 0.00% 10.5 3.P.00% 4.0 8.2 2.7 0.00% LNG re-gasification capacity ENI's re-gasification capacity is significantly above its liquefaction capacity As per Table 23.3 0.2 3.7 0. USA Spain Spain Italy Belgium USA Start up 2009 2007 2006 1971 1987 2012 Ownership Through UFG Through UFG Indirect ownership via SRG LNG shipping assets ENI's owns a fleet of 4 LNG vessels ENI manages its LNG shipping assets via a 100% subsidiary – LNG Shipping.7 3.1 0.5 MT pa) via five operational terminals in four countries (Italy.1 22.2 11.7 3.5 0.3 0.3% 50.4 0.40% 10.3 0.40% 10.7 5.2 3.25 1.5 bcm pa (8.5 10.lucas@jpmorgan.0 10.Fred Lucas (44-20) 7155 6131 fred.7 MT pa at end 2011).5% 21.6%) 5. ENI has re-gasification capacity rights to a total of 11.P.50% 11.9 1.7 0.60% 0.2 ENI equity 40.00% Net capacity MT pa 2.9 0.4 2012 Yes (13. It is also clear that the majority of ENI's re-gas capacity is owned indirectly by the company via its stakes in Snam Rete Gas (SRG) and Union Fenosa Gas (UFG).0 0.5 5.40% 10.

Spain.0 Global Equity Research 13 January 2012 65. we infer a potential equity valuation of c.0 Possible 14 7. Further. €1. with a capacity of 40. their LNG cargoes are usually loaded in Algeria and unloaded in Italy. and France.0 1 3.€300m is the contribution of NLNG and Union Fenosa Gas (associate/subsidiary contributing the bulk of ENI's LNG earnings) with the remainder generated by LNG volume arbitrage/trade and a regulated return on re-gas assets in Italy (owned by SRG).4 per share Figure 61: ENI .000 M3 each and LNG Palmaria and LNG Elba. a number of its LNG liquefaction / re-gasification assets are owned via subsidiaries and associates – making it even more complicated to assess the performance of this business.P.5 8.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Egypt Indonesia Nigeria Oman Australia Angola LNG sales 0 0 2006 Italy Rest of Europe 2007 Extra European markets 2008 Bontang (Indonesia) 2009 PoinFortin (Trinidad & Tobago) Bonny (Nigeria) 2010 Darwin (Australia) Source: J. Figure 62: ENI . We estimate that ENI's LNG business generates approximately €500m of net income of which c.0 Under Construction LNG sales (Mtpa) 12 10 5. Morgan 99 .5 1.LNG sales by plants (MT pa) 3 16 We value LNG franchise at around €5bn or €1.0 1. Morgan Source: J.0 2.0 2 6 2.lucas@jpmorgan.5 8 4.0 0. LNG portfolio valuation Almost no disclosure on the performance of ENI’s LNG business As highlighted before.Net Liquefaction capacity and sales (MT pa) 10. ENI's gas value chain sits within different segments thus providing us with almost zero disclosure on the earnings contribution of its LNG business.0 4 0. This represents c. These LNG carriers operate in the Mediterranean region.0 2 Liquefaction capacity (Mtpa) 6.000 M3 each.P.4 per share and just under 5% of our sum-of-the-parts value of around €28.Fred Lucas (44-20) 7155 6131 fred. If we apply a multiple of 10x to this stream (higher multiple given that our earnings estimate does not capture all of ENI’s LNG exposure due to lack of disclosure). €5bn.

25% and 22.Location of key LNG assets (Bilbao.7 8 8 (Trieste.Fred Lucas (44-20) 7155 6131 fred. 75%) (Reganosa. T2.7 (Qalhat LNG.7 (Sagunto.7 (Egypt. However. Repsol YPF does not have any foothold in the growing Asia Pacific LNG market. 30. 1. Peru LNG is a case in point . & T4 * * Indirect stake through Gas Natural (Repsol owns 30. 20%) Operational Liquef action capacity (Mt/y) Liquefaction capacity under construction(Mt/y) LNG project (FEED or under study) (Mt/y) Operational Re-gasif ication capacity (Bcm/y) Re-gasification under development (Bcm/y) 4 (Escobar. 25%.lucas@jpmorgan.Repsol YPF holds a 20% equity stake in the project. 29%)** * Repsol has 20%.5%)** 6. …but ambition since has been scaled back Over-reliance on North American LNG demand was a strategic mistake 100 .2 (Atlantic LNG T1-T4.1 (Canaport.sharma@jpmorgan. Repsol YPF Summary of key LNG assets Figure 63: Repsol YPF . Repsol YPF’s strategy was to focus on its marketing strength whilst committing limited capital to the LNG business.5% respectively in Atlantic T1. 30.14%)** 4. 25%) 2.8%)** ( Global Equity Research 13 January 2012 Nitin Sharma (44-20) 7155 6133 nitin.8%)** 0. The profitability of and returns from both of its most recent growth projects in LNG (Peru LNG – pricing of majority of long term supply volumes linked to Henry Hub and Canaport regas terminal – suffers from low utilization) were directly linked to robust LNG demand in North America.5%) 3. 12%)** (EcoElectrica. Unsurprisingly. Morgan.8%)** 10 3. 15%)** 15. the company's ambitions for the LNG segment have since been scaled back for two key reasons: (i) a significant exposure to the Atlantic Basin meant that weakening LNG demand in North America has been a constraint on the company's original growth plans (ii) a strategy of capex avoidance for the LNG business has resulted in a portfolio that has effectively zero growth optionality in near/medium term. 6.8% in Gas Natural which owns 50% of UFG) Source: J. the prolific rise of US gas shale supplies and the negative consequence for US gas prices have been negative for the business. T3.6 5. 2. Effective Interest 23%*) 5 (Atlantic LNG T5. but is entitled to 100% of the plant off take. Focus on LNG business as a growth driver… Repsol YPF created an LNG division in its re-organization in 2007 – a clear indication of its sharpened focus on this business stream as an important growth driver.4 (Peru LNG.

2 3.9 1.32% 1.0 5.6 0.00% 25.20% 12.P.14% Net capacity MT pa 0.1 1. However.1MT pa based on a fifth train at Atlantic LNG.5 0.2 5. 12% Egypt and 1% Oman.a green field project previously on its agenda has now fallen off the radar altogether. Morgan Start date 2010 1999 2002 2003 2005 2005 2006 Repsol equity supply Yes Yes Yes Yes Yes No No Gross capacity MT pa 4.4 3 3.00% 22.5 5.00% 25.9 0.00% 20. No new green field developments on agenda Table 24: Repsol YPF . 70% Trinidad and Tobago.50% Merchant 101 . The capacity is split 17% Peru. the status of this project is 'still unconfirmed' and given the prevailing weak LNG demand in North America.5 3.9 0.1 1.Liquefaction interests Liquefaction plant Peru Peru LNG Trinidad & Tobago Atlantic LNG Train 1 Train 2 Train 3 Train 4 Egypt (through Gas Natural) Damietta (Train 1) Oman (through Gas Natural) Qalhat LNG (Train 1) Total operational capacity Potential developments Trinidad & Tobago Atlantic LNG Train 5 Total development potential Source: J. Repsol YPF has development potential of 1. Repsol YPF does not have any new green field LNG projects in view.Fred Lucas (44-20) 7155 6131 fred. Persian LNG (Iran) .lucas@jpmorgan. The start up of Peru LNG has been an obvious plus for the operating performance of the division (Figure 66 and Figure 67). Repsol YPF has direct interests in five liquefaction trains and an in-direct interest (via Gas Natural) in two further trains with four trains in Trinidad and Tobago and one each in Global Equity Research 13 January 2012 Liquefaction assets Repsol YPF legacy assets concentrated in Atlantic basin As per Figure 63Figure 63.7 Repsol equity 20.6 0. the outlook for this project is looking challenged. Oman and Egypt.1 Plant type Merchant Merchant Merchant Merchant Merchant Tolling Merchant 2017 Yes 5 22.1 3.

Figure 64: Repsol YPF – LNG supply and delivery points Source: Stream 102 .719.7 6.0 2.8% 30. Qatar.5% 29.8% Repsol capacity rights (Bcm pa) 0.800 M3 (Table 26).000 M3 to 173.9 Ownership Equity interest Equity interest Through Gas Natural Through Gas Natural Through YPF Through Gas Natural Through Gas Natural Through Gas Natural LNG shipping assets Repsol YPF's LNG shipping assets managed via JV with GasNat.17bcm pa of LNG volumes (around 296 cargoes pa) and has a fleet of 20 LNG vessels (2. The LNG cargoes are sourced from Trinidad & Tobago.1 0.lucas@jpmorgan.8% 30.0 Global Equity Research 13 January 2012 LNG re-gasification capacity Repsol YPF's re-gas capacity is 126% of its liquefaction capacity As per its liquefaction capacity.000 M3) with vessel sizes ranging from 35. Argentina and Japan (Figure 64).7 10 0.7 7.Fred Lucas (44-20) 7155 6131 fred. This JV manages c. a 50/50 JV with Gas Natural.5 2. USA. Repsol YPF's LNG shipping assets are managed via Stream. Repsol YPF's re-gasification capacity is also concentrated in the Atlantic Basin. Morgan Location Spain Canada Puerto Rico Spain Argentina Spain Italy Italy Start up 2003 2009 2000 2006 2011 2007 2014+ 2014+ Full Capacity (Bcm pa) 2.6 8.0 3.5 0.4 1. France.1% 2.2 0.0 Repsol equity interest 25% 75% 15% 6.1 10. Brazil.5 4.7 4. Mexico.P. Nigeria and Libya and delivered to Spain.1 MT pa at end 2011). Its re-gas capacity represents 126% of its net liquefaction capacity (5. Table 25: Repsol YPF – re-gasification terminal rights Terminal name Bilbao port Canaport EcoElectrica Sagunto Escobar Reganosa Total re-gasification capacity Expansions/developments Trieste Taranto Total new capacity Source: J.

500 138. If we apply a multiple of 7x to this stream (low multiple given the above average exposure of the company's portfolio to the depressed North American market – 75% of the Peru LNG volumes priced off Henry Hub).000 138.LNG vessel portfolio LNG vessel name Anabella SCF Arctic SCF Polar Norman Lady Catalunya Spirit Madrid Spirit Bilbao Knutsen C.000 138.P.short term LNG portfolio valuation Repsol YPF's creation of a stand alone LNG division in its re-organization in 2007 ensures that we have explicit disclosure on the financial performance of this business.719.000 138.000 138. Stream Vessel capacity (m3) Global Equity Research 13 January 2012 Table 26: Repsol YPF .000 Comments Gas Natural chartered Gas Natural chartered Gas Natural chartered Gas Natural chartered Gas Natural chartered Repsol Chartered Repsol Chartered Gas Natural chartered Repsol Chartered Repsol Chartered Repsol Chartered Repsol Chartered Repsol Chartered Repsol Chartered Repsol Chartered Repsol Chartered Repsol Chartered Repsol Chartered . €350m of operating income in 2012 (€250m operating earnings of Repsol YPF's LNG segment and c.Villalba Sestao Knutsen Iberica Knutsen Hispania Spirit Barcelona Knutsen Sevilla Knutsen Valencia Knutsen Ribera del Duero Knutsen Castillo de Santisteban STX Frontier Maersk Methane Trinity Arrow Golar Grand Total capacity Source: J.400 165.short term Repsol Chartered .900 145.000 71.lucas@jpmorgan.000 138.400 173.500 87.000 173.000 173.500 154.000 140.500 71. €2. This improvement in disclosure was a very positive step in our view – and we believe it would be beneficial if the company went further to report the segmental tax and adjusted net earnings for LNG also.5bn. 103 .5bn or €2 per share We estimate that LNG will contribute c. Morgan.500 173. We value LNG franchise at around €2. we infer a potential equity valuation of share of Repsol YPF).000 2.short term Repsol Chartered .800 153.000 173.Fred Lucas (44-20) 7155 6131 fred.€100m contributed by LNG business of Gas Nat . This represents close to € 2 per share and just under 7% of our sum-of-the-parts value of around €28.

lucas@jpmorgan.5 5 2 Liquefaction capacity (Mtpa) LNG sales (Mtpa) 4 4 1.5 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Angola Trinidad & Tobago Egypt (through G N) Oman (through G N) L NG sales (TBtu) 0 0 2007 2008 2009 LNG sales by quarter (Mt) 2010 2011 Source: J.Morgan Source: Company presentation.Liquefaction capacity and sales (Net MTpa) 7 7 Figure 66: Repsol YPF .P. Morgan. Source: J.LNG cargoes sold and LNG volume(Tbtu) 120 400 100 350 100 80 80 # of cargoes 60 300 Repsol LNG Volumes (Tbtu) 60 250 40 40 200 20 20 0 2007 2008 2009 Adjusted operating income (M€) 2010 2011 0 2008 2009 # of cargoes 2010 Repsol LNG Volumes (Tbtu) 2011E 150 Source: J.Adjusted operating income by quarter (M€) 140 120 Figure 68: Repsol YPF .P. J.LNG sales by quarter (MT) 3 6 Possible 5 6 2.Morgan 104 .P.5 3 3 1 2 2 1 1 0.P.Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 Figure 65: Repsol YPF .Morgan Figure 67: Repsol YPF .

24%) 10. a niche presence in LNG. Statoil does not have equity interest in the regasification terminal Source: major shift towards LNG is expected Given its historic roots in piped gas and the dominant position that the company enjoys within Europe's gas markets.9bcm/yr.5 (Shtokman (FEED). Processing and Renewable Energy segment. 33. Statoil diverted 14 cargoes away from the US into Europe and Asia. it is very unlikely that there will be any major shift in the company's approach towards LNG.Fred Lucas (44-20) 7155 6131 fred.sharma@jpmorgan. Morgan Developing a world class LNG business has not been at the forefront of Statoil's corporate strategy given that a very high percentage of its upstream gas volumes are sold via pipeline in to Europe.lucas@jpmorgan. it is clear that the focus of the company's small LNG business is shifting away from the Global Equity Research 13 January 2012 Nitin Sharma (44-20) 7155 6133 nitin. Piped gas will remain the 'backbone' of Statoil. 105 .Location of key LNG assets (Snohvit LNG. The company's exposure to LNG business is limited to one liquefaction plant (Snohvit) located in Hammerfest. However. In Statoil Summary of key LNG assets Figure 69: Statoil .9* (Cove Point*.. It has..53%) 4. Norway and its capacity rights to the Cove point re-gasification terminal in the US. Statoil has also significantly reduced its commitments relating to re-gas capacity at the Cove point terminal.P. and will retain. 0%) Operational Liquefaction capacity (Mt/y) Liquefaction capacity under construction(Mt/y) LNG project (FEED or under study) (Mt/y) Operational Re-gasification capacity (Bcm/y) * Statoil have a long term contract with the operator of Cove point with capacity rights of 10.2 7. Statoil's LNG business sits within its Manufacturing. Furthermore.

No green field developments on the agenda Statoil does not have any green field projects on its near/medium term agenda (Table 27).8 Plant type Merchant 2018 No 7.2 Statoil equity 33. both international participants require 'water tight' and supportive fiscal arrangements (including tax concessions) before agreeing to sanction this project.2 bcm pa (or one third of Cove Point’s capacity) and the second is for 100% of the Cove Point Expansion (CPX) capacity of approximately 7. 106 .it is the first and only LNG liquefaction plant in Europe.64% (net Statoil is 34%) of the total output from the project primarily to the USA (Cove Point) and Spain (sold to Iberdrola).7 bcm pa –total regasification capacity of 10.53% Net capacity MT pa 1. The Shtokman gas and condensate field was discovered in 1988. TOTAL 25% and Gazprom 51%).3. Morgan Start date 2007 Statoil equity supply Yes Gross capacity MT pa 4.P. USA.8 1.5 24. Table 27: Statoil . therefore the company markets c. Statoil acknowledges that the timeline of this project remains uncertain and final fiscal terms for the project are yet to be agreed. The project has experienced considerable technical issues since its commissioning.00% Merchant LNG re-gasification capacity Negotiated significant reduction in the Cove point regas capacity Statoil has two long-term capacity contracts (with Dominion Resources) for capacity rights at the Cove Point LNG re-gasification terminal in Maryland. Recent press reports suggest that Statoil (and TOTAL) want significant fiscal support for the Shtokman project. Whilst we believe that Snohvit is a world class project. if not beyond. The first is for Global Equity Research 13 January 2012 Liquefaction assets Snohvit – Europe's first and only liquefaction plant Snohvit LNG was commissioned in 1997 . Statoil is currently evaluating an expansion plan for this project with natural gas feed stock from the Goliat field. it is clear that the end 2011 FID timeline has now slipped in to 2012.9 bcm pa. In our view.lucas@jpmorgan. Either way. In our view. we also highlight its history of delays and operational issues.4 1. This long-term capacity agreement was renegotiated in December 2010 – we understand that the Cove Point expansion capacity contract term has been reduced from 18 to 10 years.4 1.Liquefaction interests Liquefaction plant Norway Snohvit Total operational capacity Potential developments Russia Shtokman LNG Total development potential Source: J. We also believe that the utilization level of this terminal is particularly low as Statoil is diverting cargoes from Snohvit to Asia and Europe.Fred Lucas (44-20) 7155 6131 fred. the reliability of this asset is still not beyond doubt although management is now confident on the reliability of the plant. Statoil is also responsible for marketing the Norwegian state's share of Snohvit output. Shtokman is still pre-FID (Statoil stake 24%. Numerous outages at this plant were related to leakages in the sea water heat exchangers. This project has been on the drawing board for over 10 years. We believe that Snohvit could play a vital role in the company's plan to develop gas discoveries in the remote Barent sea.

2bn – we expect more cargoes to be diverted to Europe/Asia and capacity at Cove point to remain under-utilized. We value LNG franchise at around Nkr9.Fred Lucas (44-20) 7155 6131 fred.Nkr9.6bn or Nkr3 per share 107 . LNG portfolio valuation LNG business resides within the MMR segment Given the very small size of Statoil's LNG business. This means that assessing the financial performance of the company's LNG business is not straightforward due to lack of adequate disclosure. we infer a potential equity valuation of c. Our FY 2012E estimate for the LNG business operating income is Nkr1. the company does not report this business as a separate segment .it resides within Statoil's Manufacturing. We estimate that 65-70 cargoes of LNG per year are shipped from the Snohvit liquefaction plant.lucas@jpmorgan. If we apply a multiple of 8x to this stream. Processing and Renewable Energy segment. This represents just over Nkr 3 per share and just under 2% of our sum-of-the-parts value of around Global Equity Research 13 January 2012 LNG shipping assets Statoil charters a fleet of 4 LNG vessels Statoil charters a fleet of four LNG vessels of which three are on long term charters (Arctic Discoverer.6bn. Arctic Princess and Arctic Voyager) and one is on a short term charter.

2 (Yamal LNG.Location of key LNG assets 7. 24%) Operational Liquefaction capacity (Mt/y) Liquefaction capacity under construction(Mt/y) LNG project (FEED or under study) (Mt/y) Operational Re-gasification capacity (Bcm/y) Re-gasification under development (Bcm/y) Source: J. the first liquefaction plant in the world. 17%) 10 5.9 MT pa. TOTAL now has a very strong position on the global LNG stage .2 (Bontang. As per Figure 70Figure 70. 27.5 (Qatargas 2. has a well diversified presence.9 (Adria. 27. (Yemen LNG. TOTAL aims to be 'world leader in LNG' by 2030 108 .9 40 10 ( TOTAL Summary of key LNG assets Figure 70: TOTAL . .62%) 3. TOTAL has a long history in the LNG business – it was the joint operator of the Arzew plant (Algeria).7 6.7 MT pa projects underway and a further 7.6 MT pa of potential projects.7%) (Nigeria LNG T7 (FEED). 25%) 15 4.36%) (Qatargas 1.Fred Lucas (44-20) 7155 6131 fred. in particular in the second half of this decade. TOTAL plans to have a balanced exposure across the LNG value chain. Capacity rights) 5 (Fos Global Equity Research 13 January 2012 Nitin Sharma (44-20) 7155 6133 nitin. Morgan LNG strategy assessment LNG is a key plank in TOTAL's growth strategy TOTAL's strategy for its LNG business is driven primarily by the company's bullish outlook for global gas demand. TOTAL has aggressive investment plans for this subsegment and is looking to deliver 50% growth in its LNG volumes by end 2020. 41. 5%) 22.P.25 (South Hook. TOTAL has net liquefaction capacity of almost 18.lucas@jpmorgan. 10%) 7.5%) (Ichthys LNG (FEED). Capacity subscribed by Total .2 (Adgas.4%) 8.16.6%) (Qalhat LNG. growth of 47% relative to its 2005 base.6 8. 25%) (Brass LNG (FEED).2 (Angola LNG. 15%) 6.4 5.04%) (GLNG. We estimate that by end 2011.5 (Shtokman (FEED). 15%) (Oman LNG.10Bcm/y) 21.7 7.35%) 10 (Dunkirk. 26%) 9.sharma@jpmorgan.2 7. 13. 20%) 21 (Snohvit LNG. Train 5 .5%) 8.03%) (Sabine Pass.7 (Altamira. A notable acceleration in TOTAL's LNG investment took place in 2000s. 2. 18. TOTAL also has the potential to increase its net liquefaction capacity by more than 50% by 2020 based on 2. 8.54%) 39. 28.8 (Nigeria LNG T1-T6. TOTAL’s LNG business sits within its upstream business segment – its disclosure on LNG on a standalone basis is limited.

Oman). Nigeria. Competing with BG Group in that space will be challenging.5 MT pa from GLNG.2 MT pa in 12 liquefaction plants. This represents potential growth of +54% versus YE 2011 operational capacity and a capacity CAGR 2011-20 of almost 5%. TOTAL will add 2.7mt of net capacity to its portfolio of LNG projects .6 MT pa 109 . 17% in Africa (Nigeria) and 4% in the Europe (Norway). in our view. We also believe that TOTAL has plans to expand its LNG arbitrage capture.6 MT pa via 3 green field projects (Australia.Fred Lucas (44-20) 7155 6131 fred. TOTAL also committed to an off take contract of 1. TOTAL ranks 3rd in the global ranking of the IOC liquefaction capacity. these include TOTAL's first LNG project (GLNG) using unconventional source gas (coal seam gas). TOTAL’s net liquefaction capacity is located 49% in Asia Pacific (Indonesia). TOTAL is obviously making good progress on its LNG growth agenda – but we feel that delivery on budget and on time will remain the key challenges especially on the projects in the 'potential development' category (Table 28). The company has a net liquefaction operating capacity of 18. bearing high political and technical risks e. Qatar.from 2 projects under development (Angola LNG and GLNG. Overall both projects show good momentum with Angola LNG very close to its scheduled start up in early 2012.lucas@jpmorgan. Beyond Global Equity Research 13 January 2012 Project pipeline contains many capital intensive and technically challenging projects TOTAL's growth pipeline has many capital intensive and challenging LNG projects. Russia) and 1 brown field project in (Nigeria).9MT spread across seven countries in three continents – so bears a diversified geographical footprint which is likely to grow as projects in Australia (Ichthys LNG) and Russia (Shtokman LNG) come on-stream. In 2010. Yamal LNG. 2 green field developments underway increase the capacity by 14% Development options include another 7. 30% Middle East (Abu Dhabi. TOTAL could have a total of 29. Yemen. by 2020. Australia). Shtokman LNG and Ichthys LNG. Liquefaction assets Almost 19 MT pa of net operating capacity spread across seven countries TOTAL has an impressive portfolio of operational liquefaction assets – its footprint expanded in Asia following the start up of the Qatar LNG 2 and Yemen LNG in 2010 (Table 28). It is clear that TOTAL has emerged as a key LNG player on the global scene but we sense that the next leg of its growth will be more challenging – with pressure on both timelines and costs –risks that are all too common within the IOC landscape.g. Indeed. we see potential to add another 7. In particular. TOTAL acquired a 20% integrated position in this project (the upstream resources and the LNG project). We estimate that 2012-16. As such.

00% 15. Just 41% of its capacity is owned with the balance leased under long term (20 year or more) lease agreements.04% 10.2 0.54% 5.1 0.lucas@jpmorgan.2 13.00% 15. Morgan TOTAL equity supply No Yes No Yes Yes Yes Yes Yes Yes No No No Yes Yes Gross capacity MT pa 6.2 0.6 Plant type Merchant Merchant Merchant Merchant Merchant Merchant Merchant Merchant Merchant Tolling Tolling Tolling Merchant Merchant Merchant Yes Yes 5. TOTAL has re-gasification capacity rights to a total of 17 bcm (12.5 0.7 9.00% 16.6 0.2 3. This may position the company well to capture more LNG arbitrage opportunities.3 0.00% 5.8 18.00% 15.6 3.00% Merchant Merchant Merchant Merchant Merchant LNG re-gasification capacity TOTAL's portfolio will become long LNG supplies given limited growth in re-gas capacity As per Table 29.9 MT pa at end 2011).00% 15.2 4 4 4 3.7 1.8 1.40% Net capacity MT pa 2. It is clear that TOTAL's portfolio will become increasingly long liquefaction as new liquefaction assets come on-stream and given limited growth in re-gas capacity.5 0.5 1.5 0.Fred Lucas (44-20) 7155 6131 fred.7 2.7 22.00% 15.00% 20.0 2.2 0.6 0.2 TOTAL equity 39.4 5 8.7 2.00% 25.62% 41.5 15 24.9 Global Equity Research 13 January 2012 Table 28: TOTAL.2 0.6 3.8 4.00% 15.5 10 7.00% 17.6 3.9 0.50% 5.7 9.0 10.P.50% Merchant Merchant Yes Yes Yes Yes No No 8.3 1.liquefaction interests Liquefaction plant Start date Yemen Yemen LNG 2009 Indonesia Bontang T1-T9 1977 Abu Dhabi (ADGAS) ADGAS 1977 Nigeria (Bonny LNG) Train 1 1999 Train 2 1999 Train 3 2002 Train 4 2005 Train 5 2006 Train 6 2007 Oman Oman LNG Train 1 2003 Train 2 2004 Qalhat LNG Train 1 2006 Qatar Qatargas 1 1999 Qatargas 2 (T5) 2010 Norway Snohvit 2007 Total operational capacity Development projects underway Angola Angola LNG 2012 Australia GLNG 2015 Total development capacity Potential developments Australia Ichthys LNG 2016-2017 Nigeria Nigeria LNG (Train 7) 2019 Nigeria LNG (Train 8) 2020 Brass LNG 2018 Russia Shtokman LNG 2018 Yamal LNG 2019 Total development potential Source: J.6 MT) pa via five operational terminals in five countries across three continents.70% 18.0 0.2 5.3 0.0 1. 110 .6 3.2 3.3 2. This represents 66% of TOTAL’s net liquefaction capacity (18.60% 27.00% 15.00% 15.2 7.54% 2.9 7.

14% of our sum-of-the-parts value of around €56/share.7 2.P. This represents €8 per share and c.8 2 2. India Altamira * Altamira. in recent years the company has indicated the approximate contribution of this business to the overall upstream segment. We encourage any such move.8 10. In 2010 TOTAL indicated that the LNG business accounted for 20% of adjusted net earnings of its upstream segment or around €1.8bn.36% LNG portfolio valuation Limited financial disclosure TOTAL does not explicitly disclose the performance of its global LNG business which is included in its upstream segment. However. Our FY 2011E estimate for the upstream segment net income is around €9bn and we expect the LNG business contribution to increase to 25% or €2. we infer a potential equity valuation of just over €18bn.3bn (9M 2011 contribution is 25%).04 1.3 21 40 10-13 10 TOTAL equity interest 26% 0% 28% 8. If we apply a multiple of 8x to this stream.0 16. We value LNG franchise at around €18bn or €8 per share 111 .com Global Equity Research 13 January 2012 Table 29: TOTAL – re-gasification terminal rights Terminal name Location Hazira Gujarat. Mexico Fos Cavaou France South Hook United Kingdom Sabine Pass U. We believe that management is increasingly aware of the need to demonstrate the value of its LNG business and is therefore looking to increase the disclosure on this sub-segment.7 4.S.lucas@jpmorgan.4% TOTAL capacity rights (Bcm pa) 1. This value captures some of the value of TOTAL’s upstream reserve value of gas that feed in to its liquefaction facilities.Fred Lucas (44-20) 7155 6131 fred. Morgan Start up 2005 2006 2009 2009 2008 (Phase 1) and 2009 (Phase 2) 2014 2017 Full Capacity (Bcm pa) 4 6.3 1.7 8.7 0 27.A Total re-gasification capacity Expansions/developments Dunkerque LNG France Adria LNG Croatia Total new capacity Source: J.

Fred Lucas (44-20) 7155 6131 fred.lucas@jpmorgan. Morgan Figure 73: TOTAL .P.5 10 1 5 0.5 0 1999 2000 2001 2002 2003 2004 Indonesia 2005 2006 2007 2008 2009 Oman 2010 2011 2012 Norway 2013 2014 2015 Australia 2016 2017 2018 2019 2020 Yemen Abu Dhabi Nigeria Qatar Angola Russia 0 2007 2008 2009 LNG sales by quarter 2010 2011 Source: J.LNG sales by quarter (MT) 4 3.Liquefaction capacity – net (MT pa) 35 30 Figure 72:TOTAL . Morgan Source: J.LNG sales by plants (MT pa) 14 12 10 8 6 4 2 0 1998 1999 2000 2001 2002 2003 2004 Qatar (Qatargas I) 2005 2006 2007 Oman 2008 2009 2010 Yemen LNG Indonesia (Bontang) Nigeria (NLNG) Abu Dhabi (Adgas) Qatar (Qatargas II) Norway (Snohvit) Source: J.5 25 Possible 3 2.P.5 20 Under Construction 2 15 Global Equity Research 13 January 2012 Figure 71: TOTAL . Morgan 112 .P.

minyard@jpmorgan. 47%) Operational liquefaction capacity (MT pa) Liquefaction under construction (MT pa) LNG project (FEED or under study) ( MT pa) Operational re-gasification capacity (bcm pa) Source: J. In West Africa.6 (Olokola LNG.l. securing an outlet for Chevron’s a large worldwide natural gas resource base and leveraging Chevron’s skills in major capital projects execution. LNG development is a key component of this strategy. both of which are also in Australia.7-20%) 12.2Bcm/y) 40 (Delta Caribe .lucas@jpmorgan. maximizing and growing the base business. both operated by Chevron. Chevron also has non-operated interests in the Browse Basin fields that will feed the Browse LNG development.9 (Wheatstone. 16. capturing and effectively incorporating new core upstream Global Equity Research 13 January 2012 Katherine Lucas Minyard.0 16. Chevron holds an interest in the Angola LNG project which is close to completion and in Olokola LNG in Nigeria which remains in concept stage. 74%) LNG exposure is Australia focused Chevron’s LNG position is primarily focused on the Asia-Pacific region. In our view. Chevron Summary of key LNG assets Figure 74: Location of key LNG assets (Sabine Pass. Capacity subscribed by Chevron – 10. leading the industry in selection and execution of major capital projects.3 5. with major Australian LNG developments at Wheatstone and Gorgon.Fred Lucas (44-20) 7155 6131 fred. growing and developing equity gas resource base. achieving superior exploration success. 36%) (Gorgon LNG. and in the North West Shelf Venture. 17%) 15. LNG strategy assessment LNG has long been a key strategic focus Chevron’s upstream strategy is to grow profitably in core areas and build new legacy positions by achieving world-class operational performance. serving as the flagship projects. 20%) (Browse. 8. 113 . 10%) 4. and identifying.2 (NW Shelf. CFA (1-212) 622-6402 katherine.P.7 12.0 (Angola LNG.

7 bcfpd. First gas is expected in 2014E. and related storage and transportation infrastructure. Total investment is estimated at $ Global Equity Research 13 January 2012 Australian LNG developments commercialize largest natural gas resource base in the country.9 MT pa liquefaction facility. making the upcoming developments perhaps far more important than the existing production. was natural gas (456 mmcfd net to Chevron). In 2009. a 5. and 25% of its proved natural gas reserves. Chevron also operates and holds a 92% interest in the Iago and Wheatstone fields. and China. with utilities in Japan and South Korea as primary clients. and a domestic pipeline. First volumes are currently scheduled for 2016E. as of most recent guidance. Chevron holds a 19. or 2. Chevron estimates its net investment in Wheatstone would be in the range of $16bn to $22bn. which includes an 8. including the impact of selling down equity. all from the non-operated North West Shelf (NWS) Venture. which operates offshore fields to feed five LNG trains and a domestic gas plant.1 bcfpd of natural gas. In 2010. the LNG was scheduled to be delivered to the US. but gas destinations may be less lucrative than Asia-Pacific. a separate domestic natural gas facility. The ~$40bn Gorgon project is expected to commercialize 40 TCF of natural gas from the Jansz and Gorgon fields via liquefaction at a three-train.0bn. which we estimate would be modest. As of mid-2011. with an ultimate target of at least 80%. West Africa LNG adds geographic diversity. The project is also expected to supply 125 mmcfd of natural gas for domestic use in Angola.7% interest in the project. More recently. Only operational plant is NWS Venture Chevron’s currently-producing LNG operations in Australia are in the NWS Venture.lucas@jpmorgan. east of Lagos along the Gulf of Guinea coast. off the northwest coast of Australia.Fred Lucas (44-20) 7155 6131 fred. Chevron’s current LNG production in Australia is close to 50 kboepd. in late 2007. Also in West Africa. in which it holds just over 47% interest and serves as operator. Chevron holds a 16. The facility is designed to process 1. The dominant resources and projects in Chevron’s LNG portfolio are in Australia. As of project sanctioning. South Korea. At the time of the project’s sanctioning. and at last update. resulting in average daily sales of 670 mmcfd of re-gasified LNG and 63 kbpd of NGLs. raising the potential for Henry Hub-based pricing if the gas cannot be sold in to another higher priced destination. we estimate this will increase another 420 kboepd once Gorgon and Wheatstone are fully operational. About 70% of the NWS natural gas. which will provide 80% of full-capacity natural gas for the liquefaction facility. NWS produced over 630 kboepd (106 kboepd net to Chevron). Chevron also holds a 36. and most of these sales were governed by long-term contracts. Chevron had agreements in place for the sale of more than 90% of its equity LNG under long-term contracts with crude oil-indexed pricing. Chevron had awarded more than $25bn in contracts and the project was ~30% constructed. However. Although there is no timing for a final investment decision. or half of the total production. the vision is for a multitrain liquefaction facility northwest of Escravos. of which more than 70%.6% interest in the onshore project.5% interest in Olokola LNG in Nigeria. was sold as LNG to utilities in Japan. Chevron sanctioned the Gorgon LNG project. where the company holds more than 10% of its year-end 2010 net proved oil equivalent reserves. 15 MT pa facility on Barrow Island.2 MT pa LNG plant expected to begin operations in 2012E. Chevron sanctioned the Wheatstone project. Gorgon LNG is well underway Wheatstone LNG now following Angola LNG on stream early 2012 114 .4% interest in the Angola LNG project. Chevron had contracted 60% of its equity LNG off-take. Chevron operates and holds a 73.

we are reluctant to factor projects not yet approved into our outlook.1 6.3 Comments Preliminary field development plan submitted in 2010 FID timing remains uncertain Declaration of commerciality accepted by Venezuela in 2010 Source: Company reports.4 Chevron Interest 17% 47% 74% 36% 40% Net capacity (MT pa) 2.2 45. LNG re-gasification assets Very small presence in US regasification Chevron’s primary presence in the LNG market is in the liquefaction of equity gas and the marketing of LNG cargoes. CVX holds a onesixth interest in seven LNG tankers that transport LNG cargoes for the project. we would prioritize Browse LNG over projects in Venezuela and West Africa.6 1. Table 30: Chevron . although it has indicated that the long-term contracts for both projects are indexed to oil. 115 . will be outside the Asia-Pacific region. industry sources. we expect Chevron to remain focused on its net long position in global LNG instead of its US domestic re-gasification presence. Just over 10% of its capacity.Fred Lucas (44-20) 7155 6131 fred. consistent with the Asia-Pacific focus in the portfolio as a whole. largely concentrated in Australia and focused on sales to the Asia-Pacific market.7-20% 20% 10% Location Australia Australia Australia Angola Start-up 1989 2014 2016 2012 Gross capacity (MT pa) 16. given Chevron's proven familiarity with Australian LNG developments and the marketing of LNG into Asia.3 15. Morgan.P. LNG portfolio valuation At this point. Given the pricing imbalance between international natural gas— especially oil-linked pricing—and North American natural gas. Chevron reports its LNG operations as part of the international upstream segment.9 18. Chevron will hold 18. However. Chevron does not disclose realized prices for its NWS LNG. However.major liquefaction assets Liquefaction plant Asia-Pacific North West Shelf Venture Gorgon Wheatstone West Africa Angola LNG Total capacity Potential developments Browse LNG Olokola LNG Plant Delta Caribe LNG Location Australia Nigeria Venezuela Interest 16.7 7. choosing among the potential developments. primarily into the Asia-Pacific Global Equity Research 13 January 2012 Liquefaction assets Big interests in big LNG projects Upon completion of the Wheatstone project in 2016E.9 5. having contracted capacity of 1 bcfpd at the third-party Sabine Pass re-gasification terminal in Louisiana. and J. we note that Chevron does have a small presence in re-gasification.3 MT pa of net liquefaction capacity.0 8. and has also not disclosed full commercial terms for its Gorgon and Wheatstone projects. Although there is also the potential for additional LNG projects. the Angola LNG project. LNG shipping assets Consistent with its ownership interest in the NWS LNG project. which we expect would be the logical target market for Browse LNG cargoes.lucas@jpmorgan.

and $19. and we do not at this point assign any value to Chevron’s contracted re-gasification capacity in the US. though we note that our analysis does not include any net benefit to Chevron from future equity sell-downs. Given that the facility has been delivering LNG since 1989. which would suggest an LNG price of $14 per mcf at a long-term oil price of $90/bbl. and remain at current levels of roughly 320 mmcfpd net to Chevron. For Angola LNG. or about $1. we assume shipments continue to the expiration of the current concession. staggering the capex and production to adjust for the difference in timing of the two projects. We assign no value to other future projects that are not yet approved. Using these parameters. in the initial years of the project. given that the project is recently sanctioned. accounting for 14% of our $120 per share price target. Gorgon. This corresponds to just over $9. given that the start-up is expected in 2012E. and also assume net maintenance capex of about $30m pa (or $0. we model a forward NPV (excluding our estimate of capex spent through the end of 2011) of $40. or just over $2 per share.8 per share. with prices and costs escalating at 2% annually. we would estimate that 95% of the capital expenditures have not yet been spent. Wheatstone and Angola LNG. noting that cargoes delivered elsewhere could be a source of improved economics. net to Chevron. we estimate the remaining NPV of the Angola LNG project at $3. Assuming a 25-year life and a 2% annual price and cost inflation factor.0bn in capital expenditures will have been spent as of the end of 2011. we focus on four projects: NWS. For Wheatstone. Overall. We also assume pricing consistent with our outlook for North American LNG pricing. net to Chevron.lucas@jpmorgan.1bn. Although we do not have specific LNG pricing for each contract from Chevron. We base our revenues on a delivered LNG price of $7.9bn net to Chevron. For Gorgon and Wheatstone. we assume that the majority of the $9. corresponding to about $3. Our model suggests that on a $6 per mcf natural gas price long-term. making the project less valuable in terms of forward NPV than Gorgon. we would estimate free cash flow of $300-400m annually through 2034E.1bn for Chevron’s 47.4 per share. this would result in a net NPV of $4. the Angola LNG project would generate $250m in free cash flow Global Equity Research 13 January 2012 Estimated LNG value $17 per share In valuing Chevron’s LNG portfolio.3% interest.25 per mcf). through 2034E. For NWS LNG. On our estimates.3bn for the project as a whole. We model oil-linked pricing for the three Asiafocused projects and Henry Hub-based realized pricing for Angola LNG. we employ the same DCF model template. we assume pricing is somewhat less favorable than the new contracts being signed in Asia Pacific. or $6.2 per mcf.7bn net to Chevron.4bn for the full project.5 per share. or 8% of our long-term $90/bbl oil price modeling assumption. we estimate the remaining NPV of the four main LNG projects at just under $17 per share.Fred Lucas (44-20) 7155 6131 fred. For Gorgon. we base our pricing on the broader industry curve provided by the company in recent presentations. 116 . We estimate a year-end 2011 NPV of $9.

Exxon Mobil sees LNG meeting 15% of global gas demand by 2040.Location of LNG assets 21 (South Hook. LNG strategy assessment Strategy acknowledges the long term potential of gas Exxon Mobil’s upstream strategy is to Global Equity Research 13 January 2012 Katherine Lucas Minyard. * Average effective interest shown for RasGas Trains 1-7. selectively pursue.3 (RasGas. 25%) Operational Liquef action capacity (MT pa) Liquefaction under construction(MT pa) LNG project (FEED or under study) (MT pa) Operational Re-gasif ication capacity (bcm pa) Source: J. 30%) 5 6. with demand growth outstripping local production capacity in Asia-Pacific and Europe. LNG. On the receiving end. Adriatic LNG in Italy.5%*) 13. 24%) 36. Exxon Mobil sees natural gas as the fastest-growing major fuel over the next three decades.0 (PNG LNG.l.P. Guided by a multi-decade view on the evolution on the energy supply-demand balance that suggests power generation is the single-largest driver of energy demand through 2040. LNG portfolio centered in Qatar ExxonMobil’s LNG portfolio is largely weighted toward liquefaction facilities in the Middle East.lucas@jpmorgan. 50%) 15. Exxon Mobil also holds an interest in an LNG plant in Indonesia. and Golden Pass LNG in Texas.Trains 1-7.Trains 4-5 . and is participating in two major LNG projects currently under development—Gorgon in Australia and PNG LNG in Papua New Guinea.9 8 21 (Adriatic. 117 . CFA (1-212) 622-6402 katherine. 33%) (Gorgon. Exxon Mobil has re-gasification capacity in three major terminals: South Hook LNG in Wales. 29.Fred Lucas (44-20) 7155 6131 fred. evaluate.8 (PT Exxon Mobil Summary of key LNG assets Figure 75: Exxon Mobil . Morgan. 69%) (Qatargas 1 Trains1-3. 18%) (Qatargas 2 . and more specifically a large aggregate position in 12 LNG trains in Qatar. and capture the highest-quality resource opportunities ahead of competition.6 (Golden Pass terminal. 10%) 15.6 (Scarborough.minyard@jpmorgan. Additionally. 24%) 9.

and Unipec Asia Company Ltd. and Exxon Mobil has contracted its equity gas to Petrochina and India’s Petronet LNG. Exxon Mobil is partnered with Qatar Petroleum in the development of the North Field. Exxon Mobil will hold just over 10 MT pa of net liquefaction capacity in the region. Exxon Mobil’s currently-producing facilities in Qatar and its facilities under development in Australia and PNG also benefit from oil-linked pricing.5 MT pa of liquefaction capacity. is expected to commercialize 40 TCF of natural gas from the Jansz and Gorgon fields via liquefaction at a three-train. expected during the middle of the decade. Liquefaction assets Once Gorgon and PNG LNG are complete. The remainder will be in the Australia/Southeast Asia region. PNG LNG will provide a long-term LNG supply to four major customers in Asia: Chinese Petroleum Corporation. commercializing in excess of 25 billion boe of non-associated natural gas. The project is estimated to cost $15bn for the first phase. As mentioned above. When both projects are complete. Also has growth positions in Australia and PNG Southeast Asia position expanding as Gorgon and PNG LNG join PT Arun LNG in Exxon Mobil’s portfolio. and the US. Exxon Mobil increased its net position in Middle East LNG to 15. providing balance in a global portfolio that also has a large North American natural gas resource position. and is expected to commercialize 9 TCF of natural gas over the life of the project. Osaka Gas Company Ltd. 15 MT pa facility.6 MT pa of net liquefaction capacity. the Chevron operated Gorgon project. Outside the Middle East. RasGas Trains 6 & 7). in which Exxon Mobil holds a 25% interest. a subsidiary of Sinopec. The PNG LNG project includes a 6. Asia. participating in the Gorgon project and serving as operator of the PNG LNG project.Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 Exxon Mobil has positioned itself accordingly in the LNG market. Cargoes from Qatargas 1 supply LNG to Japan and Spain.lucas@jpmorgan. 60% of which will be its current position in Qatar. with a portfolio that is largely designed to commercialize large natural gas deposits as delivered LNG cargoes into the growing Asian market. while shipments from Qatargas 2 are primarily delivered to the South Hook LNG terminal in the UK. Tokyo Electric Power Company. accounting for nearly 80% of its current liquefaction capacity. First gas is expected in 2014E. 118 . Exxon Mobil will hold 25.6 MT pa facility. with first LNG volumes expected in 2014. Taiwan. Cargoes from the seven RasGas trains are delivered to Europe.8 MT pa LNG projects (Qatargas 2 Trains 4 & 5. Exxon Mobil is growing its LNG position in the Australia-Pacific region. Qatar is the world’s largest LNG exporter Qatar position dominates producing portfolio as Exxon Mobil commercializes vast non-associated gas resource. With the start-up in 2009 and 2010 of four new major 7. with LNG deliveries targeting the Asian market as well as the European market.

4 Global Equity Research 13 January 2012 Table 31: Exxon Mobil . and the US Gulf Coast.7 1.2 Location Australia Interest 50% Exxon Mobil Interest 10% 24% 25% 30% 34% 30% 30% 30% 30% 25% 33% 26% Net capacity (MT pa) 1. and accounting for 14-17% of our $92 per share price target.7 4.3 2. Morgan.367 LNG portfolio valuation As with Chevron.P. in the UK. It holds an interest in three large LNG terminals.5 per share.3 4.7 4.Fred Lucas (44-20) 7155 6131 fred. Italy. 119 . we view the re-gasification assets and other related LNG infrastructure as supporting the commercialization of the LNG. Location UK Italy US Gulf Coast Start-up 2009 2009 2010 Gross capacity (mmcfpd) 2.315.8 2.000 775 2. industry data.7 7.P.3 to $15. heavily skewed to the currently-producing facilities in Qatar and Indonesia.5 per share We estimate the total value of the liquefaction portfolio is $64bn to $75bn.6 4. rather than as stand-alone commercial assets. LNG re-gasification assets Modest re-gasification position Exxon Mobil’s re-gasification assets are in Europe and the US.8 7. Morgan. we would expect Exxon Mobil to focus on its European re-gasification facilities rather than its US facility in the near term.6 Liquefaction plant Middle East QatarGas 1 (Trains 1-3) QatarGas 2 (Trains 4.lucas@jpmorgan.4 1.liquefaction facilities Gross capacity (MT pa) 9. Given Exxon Mobil’s view that Europe will continue to need imported LNG.775 Interest 24% 69% 18% 29% Net capacity (mmcfpd) 480 535 352 1.6 1. we believe we can approximate the remaining NPV of its LNG portfolio with a few key parameters.0 6.LNG re-gasification facilities Re-gasification facility South Hook LNG terminal Adriatic LNG terminal Golden Pass terminal Total capacity Source: Company reports and J. Exxon Mobil’s LNG operations are embedded in the international E&P segment results.8 15.2 25.2 RasGas Train 3 RasGas Train 4 RasGas Train 5 RasGas Train 6 RasGas Train 7 Asia-Pacific PT Arun LNG plant Gorgon LNG PNG LNG Total capacity Potential developments Scarborough Location Qatar Qatar Qatar Qatar Qatar Qatar Qatar Qatar Indonesia Australia Papua New Guinea Start-up Various 2009 1999 2004 2005 2006 2009 2010 1978 2014 2014 Comments Development planning progressing Source: Company reports. and the company does not disclose pricing formulas or the specific economic details of its LNG projects.8 13.000 4.0 3. Table 32: ExxonMobil . as at this point.7 1. However.9 15.6 6.6 97.5) RasGas Train 1. and the current pricing imbalance between European natural gas and North American natural gas. or $13. We focus on the liquefaction projects. LNG estimated value $64bn to $75bn or $13.1 3. and J.

At a government take level of 40%. we would estimate near-term annual free cash flow generation of just over $4. for $1. We base our pricing on the broader industry curve shown in recent Chevron presentations. with the successful start-up of the last four major LNG trains in Qatar in 2009 and 2010.4bn net to Exxon Mobil. we would anticipate that 19. and as such we do not necessarily believe they would receive pricing commensurate with what we have modeled for Gorgon and Wheatstone. or 10-12% of our long-term oil price of $90/bbl. net to Exxon Mobil. This corresponds to $2. we would estimate project free cash flow of a bit under $3bn annually once the project were up and running. For Gorgon.5-14.0 per share on a 60% net government take. RasGas.5bn. we note that the majority of Exxon Mobil’s liquefaction capacity is up and running. leaving just over $10bn in remaining capex between 2012E and project start-up in 2014E. we would expect the majority of the LNG volumes from these projects to command oil-linked pricing. As such.3 per share in value. and PT Arun LNG projects.lucas@jpmorgan. we are comfortable modeling a long-term blended LNG price of $9-10. making these projects sources of cash for the rest of the corporate portfolio . and $10. or returns to shareholders. or $6. For Gorgon. Assuming another 25 years of operations.9-12. 120 . this analysis results in a net NPV of $47. we use a loftier pricing curve.2 per share on a 40% net government take assumption. or just below $1bn annually for Exxon Mobil on a 33% interest. Using these parameters.8 per mcf. other investment opportunities. associated with Exxon Mobil’s interests in the Qatargas.6 MT pa of net capacity.1 per share. as the cargoes are primarily delivered to the Asian and European markets. we use a similar valuation method as that discussed in the Chevron Global Equity Research 13 January 2012 First. Finally. or $9. this would increase to a range of $11.4bn. with prices and costs escalating at 2% annually.1 per share on blended pricing of 10-12% of the oil price. as the project only received final approval in 2009. we estimate a net producer take of 50%. We also assume net maintenance capex of just under $250m annually (or $0. We have also used a long-term LNG price of $14 per mcf to correspond with $90/bbl long-term oil.8bn to $58.for LNG-related investment. and would drop to $8.25 per mcf).1bn for its 25% interest. As a comparison. we model a forward NPV (excluding our estimate of capex spent through the end of 2011) of $40.Fred Lucas (44-20) 7155 6131 fred. Second. We model a forward project NPV of $19. In the absence of specific fiscal terms. for PNG LNG.5bn. We also estimate about 35% of the $15bn in capital investment would have already been spent as of year-end 2011. which would suggest an LNG price of $14 per mcf at a long-term oil price of $90/bbl. similar to what we used for Gorgon. given what we believe are relatively newer contracts. Although the contracts are not necessarily as new as some of the more recently-signed contracts throughout the industry. should require only maintenance capex.4bn for the full project.2-10.

We understand that the idea to enter the LNG markets only came to Gazprom's CEO Alexey Miller (appointed in 2001) after his visit to the World Gas Congress in Tokyo in 2003. At first.kazakova@jpmorgan. Gazprom seemed to be interested only in downstream (transportation to degasification) operations.6 MT pa). but it has had little interest in LNG until very recently. where the LNG market’s development was showcased. Buying 50% plus 1 share of the RD Shell-operated Sakhalin-2 project in February 2007 gave Gazprom its first access to liquefaction capacity (50% of 9. CFA (44-20) 7325-6373 nadia. he instructed his management team to develop Gazprom's LNG strategy. The foray into LNG began with some one-off re-sale operations of LNG cargoes and swap operations with BP and GDF SUEZ in 2005-2006. Morgan.2 Costa Azul.P.2 (Sakhalin-2) (Sakhalin-2 train 3) Vladivostok LNG 1. There are plans for green field liquefaction capacity in the Arctic (Shtokman LNG). Pacific (Vladivostok LNG) and brown field expansion of Sakhalin-2 (Trains 3 and 4).5 Operational Liquef action capacity (Mt/y) Liquef action capacity under construction(Mt/y) LNG project (FEED or under study) (Mt/y) Operational Re-gasif ication capacity (Bcm/y) Source: J. After Miller's return to Moscow. Apart from the equity stake in Sakhlin-2.summary of LNG assets (net capacity) Global Equity Research 13 January 2012 Nadia Kazakova. GG LNG buys and sells 121 Gazprom holds 50% plus 1 share in Sakhalin-2 project.8 Cameron LNG. Lake Charles 4 Gazprom Figure 76: Gazprom . Sakhalin-2 LNG remains the only operational LNG project in Russia.Gazprom Global LNG (GG LNG).lucas@jpmorgan. At the moment. Gazprom set up a stand-alone LNG marketing subsidiary.Fred Lucas (44-20) 7155 6131 fred. It is headquartered in London with regional offices in Singapore and Houston. operated by RD Shell A separate subsidiary Gazprom Global LNG was set up to build a well-head to end user chain . Mexico 2. RD Shell-developed liquefaction technology of double-mixed refrigerant and direct contacts with some of the world’s largest end-users of LNG in the Asia Pacific region.75 (Shtokman 1) 4. Resource rich but technology poor Gazprom has the largest gas reserves and gas production among listed oil & gas companies. preferring to stick to its core business of pipeline gas.

5%) and Mitsubishi Corporation (10%)). The current book value (as of 2Q11) is RUB151. and equity investments along the entire value chain from well-head to end user. participating in LNG projects abroad and purchasing LNG from independent projects and developing its own LNG marketing business. The plant officially opened with a delay in February 2009. 50% stake in Sakhalin -2 is valued at $5. Mitsui and Co. which could potentially amount to 14% of the global LNG market via new LNG production projects in Russia. The carriers are on long-term charter and owned and operated by a RussoJapanese shipping consortium.6 MT of LNG (2x 4. Kuwait.  Globalize company's presence on foreign markets. Sakhalin Energy produced 5. Around 98% of the annual LNG plant capacity is contracted on a long-term basis. Sakhlin-2 has three purpose-built double-hulled LNG tankers. The project (both upstream development and LNG operations) is operated under a PSA agreement that was signed in 1996. options. Liquefaction assets RD Shell-built Sakhalin -2 remains the only operational LNG plant in Russia The Sakhalin-2 liquefaction plant has 2 trains with total name plate capacity of 9. The rest is supplied to South Korea. and Taiwan. and other destinations including India. valuing the entire operations (oil & gas upstream/mid-stream and LNG) at $10. Gazprom owns 50% plus 1 share (RD Shell (27. which was tailored for severe cold seasons in Sakhalin. It charters LNG carriers and has arrangements to use re-gas capacity at the Costa Azul LNG terminal in Baja California. LNG strategy assessment Gazprom's has a clear LNG manifesto .4 bn or $5. diversify supplies and consolidate position of Gazprom as an international energy company. It has a long-term arrangement (2009-2028) to buy 1 MT pa of LNG from Sakhalin Energy.3 bn for the stake.000 M3 Stena Blue Sky is on long-term charter from Stena Bulk.Fred Lucas (44-20) 7155 6131 fred. 10 MT in 2010 and 5.the Lunskoye-A platform (Lun-A) and Piltun-Astokhskoye-B platform (PA-B). each with 145. The gas liquefaction process in the LNG plant uses RD Shell-licensed double mixed refrigerant (DMR). (12.3 MT of LNG in 2009.5% – 1 share).6bn. GG LNG also structures complex deals with Gazprom affiliates involving pipeline gas.600 km of onshore pipelines via an onshore processing facility and a booster station. About 65% of the overall LNG volume produced is supplied to Japan. Mexico (100% owned by Sempra).45 bn in April 2007.900 km of pipelines to liquefaction plant/export facilities in Prigorodnoye 122 . The fall in book value is due to redemption of preference shares and dividends paid.  Target countries of the Asia-Pacific region and to a lesser extent countries of the Atlantic region and Europe as primary markets for sales of LNG in the mediumterm. Gazprom purchased 50% plus 1 share in Sakhalin Energy for $7.5 MT pa by 2030.3bn in Gazprom's books Offshore gas platforms linked by 1.000 M3 capacity.5 MT in H1 2011.Strategy for LNG Production and Delivery – which forms part of Gazprom’s overall strategy:  Achieve LNG production levels of 76. China.8 MT pa). time swaps. They are linked to the LNG plant by 300 km of offshore and 1.lucas@jpmorgan. The natural gas for liquefaction is produced at two offshore gas platforms .com Global Equity Research 13 January 2012 LNG in single and multi-cargo deals. An extra tanker was leased in Sep 2011 – the 145.

a manifold for an underwater production facility rather than floating production platforms – cutting edge technology in Russia.48 9. the source of gas for the expansion would be existing gas reserves of Piltun-Astokhskoye & Lunskoye fields. While both fields could be a source for Sakhalin-2 expansion. The existing facilities have already allocated space for an extra train and it might be relatively easy to fit an extra 4. However. given estimated gas reserves of 230 bcm (Source: Interfax). additional gas reserves are required.could precede Vladivostok LNG The addition of an extra train to the existing LNG plant at Prigordnoye in Sakhalin appears to be the quickest and most economical way for Gazprom to add LNG capacity.42 0. The nearby South Kirinskoye field could be launched in 2013.5 0. That could be a win-win situation for Gazprom: it would be able to sell Kirinskoye field gas at a much better margin than if sold domestically or eventually via Vladivostok LNG (unlikely to be launched before 2017).possibly access to liquefaction capacity in Australia – in exchange for a deal to expand Sakhalin-2.5 Global Equity Research 13 January 2012 Table 33: Sakhalin-2 long-term supply contracts Contract signed Nov-04 Jun-04 Jun-05 Oct-04 Feb-05 Jul-05 Apr-06 May-06 Aug-07 Mar-09 Apr-09 Apr-09 Jan-11 Contracts for the supply of LNG from Sakhalin-2 TEPCO Kyūshū Electric Power Company Toho Gas Shell Eastern Trading Ltd Tokyo Gas Korea Gas Corporation Hiroshima Gas Co. In our view.0 1. Gazprom has recently accelerated development of the Kirinskoye field and a larger Kirinski block.1 1. Gazprom might also get access to brand new liquefaction assets outside Russia.5 0. It is situated near to the Sakhalin-2 Lunskoye field and is part of Salkhalin-III Kirinski block.2 bcm (estimated gas reserves of 100-130 bcm). According to media reports (Bloomberg). RD Shell may offer Gazprom assets in Asia.5 2. Bloomberg. Officially. the Kirinskoye field/Kirinky block fields are the most obvious sources of gas.21 0. Output from the South Kirinskoye field (part of Kirinsky block) could be double that. Morgan estimates.2 9.5 0.0 0.5 Contract dates 2007-2029 2009-2027 2009-2027 2008-2027 2007-2031 2008-2028 2008-2028 2010-2030 2011-2026 2009-2028 2009-2028 2011-2012 Term FOB X-ship X-ship X-ship FOB FOB FOB FOB X-ship X-ship (?) X-ship X-ship Destination Japan Japan Japan Mexico (?) Japan South Korea Japan Japan Japan Japan Mexico (?) Mexico (?) India Contract signed Jun-11 Jun-11 Jun-11 Contract dates 25 years 25 years 25 years Term X-ship (?) X-ship (?) X-ship (?) Destination India India India Source: J. RD Shell would get additional equity liquefaction capacity at a fraction of the 123 .5 2.lucas@jpmorgan.2 1. Kirinsky block fields could potentially supply gas to Sakhalin-2 First gas production at the Kirinskoye field is planned for Q4 2012. the current plan is to connect the Kirinskoye field to the Sakhalin-Khabarovsk-Vladivostok pipeline rather than to a much nearer Sakhalin-2 pipeline.Fred Lucas (44-20) 7155 6131 fred. if Sakhalin-2 explanation is approved as early as end 2011/early 2012.5 7. The annual gas production of the Kirinskoye field is estimated at 4.P.5 37 over 20 years 1. Sakhalin-2 expansion seems to be seriously considered.6 MT facility on to the existing LNG chain. It uses sub-sea production trees.6 99% MT pa 2. Gazprom is currently developing the offshore Kirinskoye field.Ltd Tōhoku Electric Power Company Chūbu Electric Power Company Osaka Gas Gazprom Global LNG (GG LNG) Shell Eastern Trading Ltd * Guharat State Petroleum Company (GSPC) Estimated total contracted Total capacity Capacity booked under long-term contracts Other contracts for LNG from unidentified sources GAIL Petronet Guharat State Petroleum Company (GSPC) Estimated total contracted MT pa 1.

a consortium of Japanese companies and Gazprom agreed to conduct a pre-FEED for the construction of a liquefied natural gas (LNG) plant with production capacity of 10 MT pa. Gazprom Global LNG (GGLNG) orders 2 new LNG tankers and signs supply contracts with India Another indication that Sakhalin-2 expansion might go ahead is the recent news that Gazprom Global LNG (GGLNG) ordered 2 new LNG tankers in July 2011. LNG projects targeting Asian markets might be given priority The East Siberian gas field developments are technically challenging There are numerous technical challenges to the Chayandinskoye gas field development: high levels of helium. In April 2011. The area is currently sparsely populated and has a number of nature reserves. delays are extremely likely. The 2. It might speed up the construction of LNG liquefaction facilities. The plant is to sit at the end of the yet-to-be constructed Yakutia-Khabarovsk-Vladivostok (Perevosnoy Bay) pipeline. The cost of the LNG plant is estimated by Gazprom to be $7bn (as of May 2011). The timing suggests that Gazprom is confident of having extra LNG available within the medium term – again. Delivery dates are too early for Vladivostok LNG. 124 .Fred Lucas (44-20) 7155 6131 fred. Sakhalin gas could be fed into Vladivostok LNG Potentially. in Perevoznoy Bay (south west from Vladivostok). Korea and China) are very Global Equity Research 13 January 2012 cost at a time when LNG prices in target markets (Japan. In our view. Perevoznoy Bay is effectively on the route of this extension and the pipe can potentially feed a future LNG plant (rather than take gas to Korea). They will be built in South Korea and delivered in Q4 2013 and Q2 2014.32 TCM gas /584 mmb oil field is under exploration . The construction of the gas pipeline might start in 2012. The plan is to build a 10 MT pa liquefaction plant on the Russian Pacific coast. Along with timing/technical issues. There is a newly launched 6 bcm gas pipeline from Sakhalin to Vladivostok (to be expanded to 30 bcm). Potentially.lucas@jpmorgan. We would rate this project as the most likely to be implemented among all other Gazprom's projects (Vladivostok and Shtokman). 70% of LNG output would go to Japan and 30% to South Korea.035 km gas pipeline would feed from the giant Chayandinkoye oil and gas field in the Yakutia region. there are also environmental concerns.5 MT each) for 25 years.first commercial oil production is not expected before 2014 and first gas before 2016. The 1. The study was to be completed by end 2011. the pipeline is to be extended 239 km to the Russia/North Korea border (at Khasan). but would be perfect to service Sakhalin-2 Train 3. If Gazprom sticks to the current time-table. the LNG plant could be launched in 2016-2017. The final decision will depend on the outcome of political negotiations/pre-FEED studies. The construction of the second large gas pipeline and a large LNG plant in the region could be taxing.5 MT pa of LNG (2. low reservoir pressure and hydrate formation in producing wells. Green field projects Vladivostok LNG. a preliminary feasibility study on the compressed natural gas (CNG) pilot project and a preliminary study on gas-chemical complex project. there is an alternative scenario for Vladivostok LNG development. Under the current plan. pointing to Sakhalin-2 expansion being seriously considered. We have also seen GGLNG signing MoUs with three Indian gas companies to supply up to 7. and then across North Korea to South Korea. The gas is fed from existing Sakhalin-1 fields with plans to link in Sakhalin-3 green fields. but the recent cuts in Gazprom's capex budget for 2012 might indicate some delays in both field development and pipeline build-out. in our view.

The original idea was to develop the field and link it to 7.5 MT pa.7 bcm pa (for 25 years).P. in our view. The gas will be supplied to 7.5 MT LNG plant at Teribeka in Murmansk region as well as in to a 1.9 tcm Shtokman gas field was discovered in 1988. China Timing: after 2017 Investments: $7 bn for LMG plant       Source: J. one train LNG plant to be built 125 . The Shtokman development would require three stages. The new land pipeline would supply domestic customers in the Leningrad region as well as international buyers via Nord-Stream pipeline. East Siberian gas via Sakha-Yakutia-KhabarovskVladivostok pipeline Key market: Japan. The Global Equity Research 13 January 2012 Figure 77: East Siberia/Far East gas developments Figure 78: Key facts for Vladivostok LNG  Summary: The plant is being planned in Vladivostok (Far East) based on gas production from East Siberia and Sakhalin Shareholders: Gazprom and foreign partners Capacity: based on preliminary estimates annual capacity could amount to 10mn tons annually Source of gas: Sakhalin1/Sakhalin-2 state’s share piped via SakhalinKhabarovsk-Vladivostok pipeline. It lies 555 km offshore to the east of Murmansk in the Barent Sea and is in 350m of water. primarily to the US. drilling of sub-sea wells and a 580-km subsea pipeline to the onshore facilities. The field would also be connected by a pipeline into the Russian Unified Gas system for supplies to domestic and international customers (via the Nord Stream). Source: Gazprom. LNG output was to be exported.365-km Teribeika-Volkhov trunk pipeline.lucas@jpmorgan. During 1st stage of development. It would involve construction of one offshore platform (there is one for each phase).5 MT liquefaction facilities (onshore at Teriberka). Note: Sakhalin—Khabarovsk-Vladivostok pipeline is now complete (6 bcm capacity) On the drawing board for over 10 years and remains the least likely to take off the ground Shtokman LNG. a 7. The initial (stage 1) production capacity is planned at 23. Korea. The Shtokman development has been on the drawing board for over 10 years and remains the least likely to take off the ground. The project would require 8 LNG tankers for the first stage of the operations.Fred Lucas (44-20) 7155 6131 fred. Stage one is the most complex and capital intensive stage. Morgan estimates.

8bn for LNG plant and tankers. Total cost of all three stages is estimated at up to $44 bn.157bn (as of end Q2 2011). A final investment decision has been delayed from end 2011 to early 2012. Morgan estimates. The second and the third trains are discussed with 7.5mn ton capacity each Source of gas: 1. The second and the third stages will expand production capacity to 72 bcm and potentially to 95 bcm pa (for 50 years) and liquefaction capacity to 14. $10.4 MT pa. TOTAL (25%) and Statoil (24%). The current book value of Shtokman Development AG (100%) is $1. Gazprom has postponed the Shtokman development a number of times and currently plans to put the field on stream in 2016 and to start LNG production in 2017.P. FID expected 2010 Shareholders: Gazprom (51%). Statoil (24%) Capacity: 1st phase: LNG plant with capacity of 7. 126 .5 bn boe) Shtokman gas field Key market: Europe. Total investment budget is $44bn incl. Source: Gazprom Total costs of the first stage of more than $20bn are to be shared proportionally by Stage-1 shareholders: Gazprom (51%). trains 2.9 tcm ( Global Equity Research 13 January 2012 Figure 79: Shtokman field development Figure 80: Key facts  Summary: LNG plan is planned near Murmansk (Russian North ).5mn tons. Asia Timing: Train 1 – 2017.lucas@jpmorgan.3 – 20182020(?) Investments: $28bn (1st stage) incl. Total (25%).Fred Lucas (44-20) 7155 6131 fred. $17bn for LNG       Source: J.

all part of Port Transportation Technological Complex. Large scale project in a remote location. The wells will be joined by subsea pipelines and manifolds. but Russian LNG would compete with Russian piped gas. $13bn). in harsh weather conditions From a technical point of view.000 mcm each First stage (23. LNG deliveries in 2014. at 550 km. European markets could be an option. Sea Port and Gas Treatment Unit. There might be a more complex option of swap operations with other LNG producers targeting Asian gas Global Equity Research 13 January 2012 Table 34: Projected cost of Shtokman development Projected Shtokman costs.3 16. They include zero production tax on gas and gas condensate for 12 years.5 2. 580-km sub-sea pipeline to 7. automatically regulated butterfly valves and hydrate inhibitor injection systems. the surge of US gas shale production and the decline in US gas prices has killed these plans. The key element of the field development is subsea completion of wells.4 MT pa liquefaction at stage 2 and 3 1.P. a single 7.Fred Lucas (44-20) 7155 6131 fred. LNG Storage. equivalent to the northern part of the North Sea (strong winds.5 3. $bn Sea production complex LNG plant Onshore pipeline LNG tankers Total costs Source: J. state subsidies for the infrastructure development (estimated at approx.5 MT pa LNG plant at Teribeika in Murmansk region Increase LNG capacity from 7. Argue FSU (as of May 09). Onshore.all in a remote area. the foreign shareholders in Shtokman consortium have effectively said that Shtokman is uneconomic under the current Russian tax regime. Morgan estimates. However. the project envisages construction of an LNG Plant.7-25bcm of capacity with output maintained for 25 years) = $15bn. a unique subsea pipeline would need to be built and a mega-LNG plant to be constructed . It would be the longest ever built. construction of 2 offshore platforms. Launch pipeline deliveries in 2013. to shore over very uneven seabed.400km onshore link to North European Gas Pipeline (NEGP) 8-12 LNG tankers with capacity of up to 250. financed proportionally to stakes. In addition. However. but the weather conditions are very harsh. 550-km offshore in open sea with no near-by developments.5 MT pa train will be operate in ice conditions.2 6.3 4. The plant would be operational 333 days pa. but the technical details have been mostly ironed out. Under the start-up phase.the Shtokman floating production platform would be the first – and the largest . They are asking for concessions similar to those granted to Novatek's Yamal LNG project. the scale of the Shtokman development is probably too large for such swaps. Stage 1 13.lucas@jpmorgan.9 2. equipped with assembly. drill 20 sub-sea wells. The LNG is to be constructed in 3 stages: start-up (phase 1). 3-month long polar night).0 Stage 2-3 7. Shtokman LNG cargoes were to be delivered to the US market. For the transportation of gas/gas condensate from the field. based on Propane pre-cooled Mixed Refrigeration Cycle (C3/MR). The Russian government is considering a 127 Low gas prices in the US made the economics questionable Lack of tax breaks might delay FID and potentially bury the project . icing. expansion phases 2 and 3.8 4. zero export duty on produced LNG and gas condensate. Ice drift and icebergs are one of the main concerns . which is cheaper to produce and deliver. two-phase flow undersea pipelines are to be constructed. All three phases could cost $43-44bn Large scale project faces numerous challenges The development of the offshore field and onshore facilities is a challenge.0 28. The Shtokman field is an ice free area (occurring only once every 3-5 years).5 MT pa (stage 1) to 14. TOTAL cites the large scale of the project as one of the key challenges: the floating production unit would be one of the largest in the world. The technical challenges might pale in comparison with the effect of the economic turbulence.0 Notes Full well stream to shore. 1.365km.

Table 35: Gazprom's re-gas exposure Terminal name Rabaska Terminal Costa Azul LNG terminal Location Beauport. UK Lake Charles. There also have been media reports that TOTAL might be exiting Shtokman in order to focus on the Yamal LNG project. but indicated that no specific tax breaks would be granted before the Final Investment Decision (FID) is taken by the Shtokman partners. Its first voyage with Sakhalin Energy LNG was to China. where it has 20% (Novatek 80%). but subsequently ended a short-term agreement with Petronas.000 M3 LNG tanker – the Stena Blue Sky (Dragon Ship) from Stena Global Equity Research 13 January 2012 special tax regime for offshore developments (which would cover Shtokman). The re-gas capacity was originally for Sakhalin -2 LNG volumes. it becomes a "Catch-22" situation: a positive FID is unlikely without the tax breaks. 128 . It has made attempts to acquire interests in US re-gasification facilities. Gazprom via Gazprom Global LNG (GGLNG) has long-term regasification capacity at Sempra’s Costa Azul in West Mexico. but has been delayed. but this has not been used.lucas@jpmorgan. Delivered 2 cargoes in 2009 under cooperation agreement signed in Oct 09.000 M3 LNG tankers were specially built for Sakhalin Energy in Japan in 2008.Fred Lucas (44-20) 7155 6131 fred. but ended it after delivering a couple of cargoes. Sakhalin Energy has dedicated chartered LNG carriers. but cargoes have been diverted away. Petronas. At the moment. Not currently used. Gazprom has a multi-year contract for Cameron LNG re-gas terminal in the US Gulf. The final investment decision was expected by end 2011. No cargoes arrived from Sakhalin so far. It is about 1 MT pa and was effectively sub-leased from RD Shell in April 2009. while tax breaks could only be granted if FID has been made. Quebec. Capacity owners Gaz Métro.P. USA Source: J. and Gaz de France Sempra LNG/RD Shell Dragon LNG (BG Group.000 mmcf/day (10 MT pa) split 50/50 between Sempra LNG and RD Shell 6 billion cubic metres of LNG a year (operational from Sep 2009) 1. The company owns no tankers directly. 50%) Sempra (100%) Capacity 500 mmcf/day (5 MT pa) 1. the exposure is via Sakhalin Energy (4 LNG tankers on long-term charter) and also via 100%-owned subsidiary Gazprom Global LNG (GG LNG) which has a couple of ships on charter and has just ordered two ice 2 class LNG tankers for delivery in 2013-2014. Enbridge Inc. Sakhalin Energy charted a 145. Company data LNG shipping assets Gazprom has a number of dedicated LNG tankers on long-term and short-term time charters. The French company denied sending a letter to Shtokman partners which informed them of TOTAL's lack of interest in the Shtokman (source: RBC). Multi-year contract to deliver 2 cargoes a month from Jun 2010 at pre-determined price formlula. So. Morgan estimates. GGLNG had a short-term agreement with Petronas at the Dragon terminal in Wales. 50%. Canada Baja California. but these have been put on ice. Three double-hulled 145. Re-gasification assets Gazprom does not own any re-gas assets outright. They are owned and operated by Russo-Japanese consortia (with Sovcomflot on the Russian side) and are on long-term time lease with the Sakhalin Energy. Mexico Status Suspended (approval obtained) Shell made a subleasing deal for a quarter of capacity with Gazprom Global LNG.5 billion cubic feet per day of initial send out capacity (operational from July 2009) Dragon LNG Cameron LNG terminal Wales. In September 2011.

P. Owned by the consortium of Sovcomflot (40%) and Nippon Yusen Kabushiki Kaisha (NYK) (60%) companies. On 20-year charter with Sakhalin Energy.S.000 m3. Morgan estimates. 1C iceclass vessels 147. Table 36: Gazprom LNG shipping assets Name of subsidiary/associates Sakhalin Energy Sakhalin Energy Sakhalin Energy Gazprom Global LNG Limited (GGLNG) Gazprom Global LNG Limited (GGLNG) Sakhalin Energy Gazprom Global LNG Limited (GGLNG) Gazprom Global LNG Limited (GGLNG) Source: J.K.000 m3 170. The tankers will be constructed in a South Korean shipyard and delivered in Q4 2013 and Q2 2014. Moss-type.Fred Lucas (44-20) 7155 6131 fred. On long-term Global Equity Research 13 January 2012 Gazprom Global LNG Limited (GGLNG). Moss-type. Mitsui O. We assume the tankers are charted to ship LNG produced at yet-to-be agreed on Train 3 of the Sakhalin-2 LNG complex. Gazprom's dedicated LNG marketing subsidiary. The subsidiary has also signed a contract with Sovcomflot (100% owned by the Russian state) to charter two 170. Ltd (K Line).lucas@jpmorgan.000 m3 170. Will be constructed by South Korean shipyard STX Offshore & Shipbuilding. Delivery in Q4 2013 To be on 15-year charter. owned by Sovcomflot. owned by Sovcomflot. Will be constructed by South Korean shipyard STX Offshore & Shipbuilding. has separate arrangements for LNG tankers. Contract Date Oct-07 Oct-07 Apr-08 Apr-09 Mar-10 Sep-11 Jul-11 Jul-11 LNG carrier Grand Elena Grand Aniva Grand Mereya Clean Power LNG ship "Neva River" (ex"Celestine River") Stena Blue Sky (Dragon Ship) Atlantic max type. 1C iceclass vessels 145. Ltd (MOL) and Kawasaki Kisen Kaisha. GGLNG is marketing at least 1 MT of Sakhalin-2 LNG and has time charters on at least 2 LNG tankers. Owned by the consortium of Prisco. Delivery in Q2 2014 Capacity 147. Owned by the consortium of Sovcomflot (40%) and Nippon Yusen Kabushiki Kaisha (NYK) (60%) companies.000 m3.000 m3.000 m3 129 . lines. Moss-type 145. Mid-term time charter On term time charter from "K" Line LNG Shipping (UK) Limited (KLNG) Charted on long-term basis from Stena Bulk. ice 2 class Status On 20-year charter with Sakhalin Energy. ice 2 class Atlantic max type.000 M3 vessels for 15 years. renamed Dragon ship To be on 15-year charter.

In March 2011.lucas@jpmorgan. Figure 82: Key facts         Summary: The LNG plant to be built at Sabetta.P. Novatek is in negotiations with the Qatari government on potential investments. the Kara sea is frozen 10 months a year Novatek owns 51% stake. Source: Novatek 130 .24 tcm (8bn boe) South Tambei field. Novatek stated that it would hold on to 51% of the project and 29% is to be sold to other Global Equity Research 13 January 2012 Nadia Kazakova. CFA (44-20) 7325-6373 nadia. The development will go ahead only if additional shareholders are found. Total (20%).6 bn boe) Timing: Novatek targets LNG plant commissioning in 4Q2016 Key markets: US Investments: $10-$20 bn by shareholders. TOTAL purchased 20% in the Yamal LNG Novatek Novatek is a Russian independent gas and liquids producer – it does not have any LNG assets at the moment.24 tcm South Tambeyskoye gas and gas condensate field from one of Novatek's major shareholders. 1 tcm (6. Morgan estimates. the company purchased a license for 1.kazakova@jpmorgan. yet-to-be found (29%) Capacity: Stage 1: 15 mn tons = 3 trains 5 mn tons each Source of gas: 1. natural gas come from Tambeyskoye group of fields Shareholders: Novatek (51%). In 2010-2011. TOTAL holds 20% interest and 29% is yet to be sold Figure 81: Yamal LNG development Source: J.Fred Lucas (44-20) 7155 6131 fred. $13 bn+ by the government Technological challenges: ice-class LNG carriers needed.

all condensate exported Source: J. The corporate income tax rate is then reduced from 20% to 15. there might be difficulties in shipping LNG all year around from the ice-bound Yamal. In addition to various technical challenges. Morgan estimates.3bn in capex with a launch planned for 2016. The field development is relatively inexpensive: Novatek forecasts RUB10 bn / $3. Novatek is looking at Europe. leaving only 90 days for ice-free navigation. The project will be effectively tax-free (no production tax. Project economics are heavily reliant on government support and tax holidays. liquefied at a later stage.lucas@jpmorgan. The government is also expected to finance development and construction of LNG fleet and ice breakers (if required). $20bn to be financed by shareholders and remainder by the Russian government The total cost of the project is estimated by the Russian government to exceed RUB 1 trillion ($33bn). The bigger challenge is transportation options for Yamal LNG cargoes. Ice breaker LNG tankers are required (3) 30km to be dredged in the mouth of Ob to allow for passage of LNG tankers (4) permafrost melting down 1-2 meters in summers. The project relies heavily on state support The Yamal LNG shareholders are relying on the Russian government to finance some of the facilities. Construction of the LNG plant and the port facilities could prove to be more difficult and expensive. condensate exported Stage 2: full field Global Equity Research 13 January 2012 Total cost of Yamal LNG development is approx.3-2. A number of key issues are yet to be resolved.round Arctic LNG route could prove to be prohibitive. Planned launch of the first LNG train is in Q4 2016.7% 12. WACC 12. all natural gas liquefied. Yamal LNG economics appear to rely heavily on tax concessions granted by the government. The Yamal LNG development plan envisages production of 25 bcm of gas and construction of a 15 MT LNG plant and export port facilities at Sabetta.525 26.4/mmbtu Total NPV 354 4.4 meters on even ice).Fred Lucas (44-20) 7155 6131 fred. Capex excl state financing 16.P. Yamal LNG shareholders plan to spend $18-20bn on the field development and LNG facility with the balance being financed by the Russian government (port.5%. $33bn. However. For either option. in our view. the risks and costs of a year.465 NPV ex tax breaks -585 1. 2016E) $9.301 LNG transportation through Arctic all year around could be a challenge Project economics rely heavily on tax breaks Table 37: NPV calculations for Yamal LNG ($m) Yamal LNG stages Stage 1: Full field development. requiring special construction technologies. approach channel. Asia and South America as potential target markets. ice protection construction and administrative facilities. According to TOTAL’s presentation. Even if the cost of transportation is effectively subsidized by the Russian state.7% LNG price (Asia. Novatek would most likely need a number of powerful and yet-to-be built ice-breakers in addition to ice class LNG tankers designed specifically for the project (they have maximum ice breaking abilities of over 2. seaway channel (including 30-km of dredging). natural gas sold domestically at initial stage. including the port harbor. export duty or property tax) for the first 12 years after the launch of LNG production (or until 250 bcm of natural gas and 12 MT of gas condensate is produced). LNG vessels and ice-breakers fleet).586 IRR (with tax breaks) 13% 22% 131 . The FID is expected by end 2012/early 2013. We estimate that the project is loss making excluding tax breaks at stage 1 of the development and over 60% of project's NPV is attributable to tax breaks for Stage 2 development.4/mmbtu $9.052 NPV of tax breaks 938 2. Novatek is looking at an option of trans-shipment of cargoes in Norway or direct routes to target markets. the challenges include (1) four months of polar night with average temperatures below -20C (2) sea frozen for 270 days a year. The complete FEED study should be ready by year end 2012.

2) supportive government with extensive experience in administering complex resources projects.summary of LNG assets (net capacity. The company’s LNG exposure is confined to a 29% non-operating interest in the ExxonMobil led PNG LNG project located in the Southern Highlands and Port Moresby regions of Papua New Guinea. Gulf LNG based on the Elk/Antelope gas discoveries. Oil Search has a long history of oil exploration and production in PNG and with it. MT pa shown) Source: J.P. These relationships are a core company attribute and are valued by project operator Exxon Mobil.wilson@jpmorgan. PNG has a number of attractions as an LNG province including: 1) proximity to North Asian and South East Asian customers. Morgan. LNG strategy assessment Niche exposure to global LNG industry thematic We have classified Oil Search as a “niche” type exposure to the global LNG industry thematic. US listed E&P Interoil is contemplating a second PNG sited project.6 MT pa integrated (gas supply and liquefaction) project was sanctioned in December 2009 and is scheduled for first LNG in 2014. highly entrenched community and government relations. 6.lucas@jpmorgan.Fred Lucas (44-20) 7155 6131 Oil Search Figure 83: Oil Search . 3) attractive fiscal 132 . PNG is an attractive new LNG province due to labor cost advantage and proximity to Asian customers PNG is a new LNG province with the PNG LNG project set to be the first LNG project based in the resources-rich nation.x. this project is significantly less mature than the in construction PNG LNG Global Equity Research 13 January 2012 Benjamin Wilson (61-2) 9220-1384 benjamin. The 2 train. However.

and 5) onshore location of gas resources (in PNG LNG case) which reduces capital intensity. We think the PNG LNG project is one of the leading green field LNG developments in the Australia/PNG region. We estimate the project will drive a 60-70% increase in 2010 level GDP when it reaches peak production in 2015. Liquefaction assets Project IRR modeled at 18% in US$ terms. introduce an added degree of complexity and is the biggest risk to project schedule and budget in our view. Project risks include land owner disputes. the additional on-site fabrication time associated with a stick build process is not nearly as burdensome in a cost sense as it would be in Australia for example (where modular developments tend to be favoured).9bn .Fred Lucas (44-20) 7155 6131 fred. In addition to the capital cost advantage. The decision made in the FEED process to opt for stick build was cost driven. 4) low cost local labor pool and unrestricted capacity to imported labor. Pakistan etc offshore workers.lucas@jpmorgan. It is truly a nation building project. the ample site area (for lay down and construction facilities) and temperate weather (as opposed to Sakhalin in Russia for example) make the PNG LNG site ideal for a stick build. We estimate an IRR of 18% in US$ terms 133 . These factors combine to produce strong modeled project returns. Land owner disputes and tribal rivalry are issues that are ever present and managed by both the project operators and the central PNG government.higher again than the recent revised guidance. The off-take contracts entered into by project operator Exxon Mobil are within 10% of oil parity meaning Oil Search also has a very strong linkage to JCC oil prices. The impact of the PNG LNG project on PNG is hard to overstate.5%). commercialization of the company’s sizeable gas resources takes on increasing importance. The stick build approach does. Malaysian. The PNG LNG project sponsors recently announced a 5% increase to the project budget (now US$15. we think the risk of nationalization of petroleum resources is extremely remote given the country's reliance on foreign aid and the importance of the PNG LNG project to the future of the PNG economy. However. stronger than current green field proposals at 10-15%. We model PNG LNG project capex of US$ Global Equity Research 13 January 2012 environment (~2% well head royalty. Given the comparatively low labour costs of PNG nationals and the Philippines. PNG LNG to comprise 85% of our group NAV As Oil Search’s legacy oil assets in PNG wind down. ‘Stick build’ as opposed to the increasingly popular modular developments The PNG LNG development is a ‘stick build’ process as opposed to the increasingly common modular approach. The foundation PNG LNG project and a risk weighted contribution from a third brown field train comprise ~85% of our company NAV currently making it the most leveraged LNG exposure in our Australian E&P coverage universe. The project’s onshore gas resource location and access to low cost labor combine to generate a cost base that is lower than new green field developments in Australia. The current political situation of two leaders claiming rights to the office of Prime Minister highlights the attendant sovereign risk. however. 30% corporate tax and an advanced profits tax which is levied when project returns exceed an IRR of 17. Additionally.7bn versus US$15bn original budget) primarily driven by the stronger A$. PNG has comparatively attractive fiscal terms and the PNG LNG project off-take contracts reflect near peak cycle slender discounts to oil parity. tribal rivalry and sovereign stability Developing and operating a mega project in PNG is not without its risks of course. Much of the early project civil works were denominated in A$.

2 MT pa Chiyoda/JGC (LNG plant).7bn (updated Dec 2011).74/shr.Fred Lucas (44-20) 7155 6131 fred.1 TCF Global Equity Research 13 January 2012 and 21% in A$ terms. CBI/Clough JV (hides gas plant). Scope additions would include an expansion of the Hides gas conditioning plant. ~225mmbbls liquids 982 mmscfpd Sinopec 2 MT pa.lucas@jpmorgan. Oil Search (29. our base case in US$90/bbl real long term with 0.298m or A$1. We estimate an IRR of 31% for a brown field third train expansion. Such returns are higher than forecast returns for other green field LNG projects that are due to commence construction in coming years which have normalized to the 10-15% IRR range. Table 38: PNG LNG project description Liquefaction trains LNG production capacity Project sanction date First LNG due Capex Operator Equity participants Total resources Gas supply Off-take contracts Primary EPC contractors 2 6.6 MT pa Dec 2009 2014 US$15. If it transpires that the Hides resource is sufficient to underpin a third train then the development case is relatively simple.5 MT pa. The most immediate prospect is an extension to the Hides gas and condensate field which currently contributes ~5 TCF of the second train PNG LNG project dry gas resources of ~9 TCF. There is significant gas resources located around the PNG LNG project area that could underpin a third train. PNG Government (16. The table below provides a summary description of the PNG LNG project.8 MT pa. McConnell Dowell/CCC JV (infrastructure). The PNG LNG project partners plan to drill the first Hides development well in 1H 2012 which will target the gas water contact point in the reservoir and determine how much additional gas resources may be contained in the field. TEPCO 1. The gas water contact has not previously been established by previous exploration wells. 134 . We have shown three long term oil prices (US$70. CPC Taiwan 1. a fourth train may require an additional jetty to facilitate more frequent tanker loadings when operating at peak capacity. Saipem (offshore pipeline).8%) ~9. Santos (13.91 per share and a third expansion train at A$2. Note the valuations presented in the table below are on a 100% un-risked basis. some compression and/or looping of the onshore pipeline and the liquefaction train itself. LNG portfolio valuation Around A$10bn or A$7.0%).65 per share Our Oil Search NAV is primarily comprised of its exposures to the PNG LNG foundation project and a potential third expansion train.80US$/A$. The table below displays our Oil Search NAV on a scenario build up basis. budget at sanction US$15bn Exxon Mobil Exxon Mobil (33. Nippon Oil (4. Jacobs (associated gas) Estimate 31% IRR for Train 3 PNG LNG Source: Company reports.5%). The foundation PNG LNG project LNG tanks and jetty are already sized for three trains. Spiecapag (onshore pipeline).7%).805m or A$5. Third train highly likely We think a third (and eventually fourth) train for the PNG LNG project is one of the most prospective brown field expansion opportunities in the region.8%).2%). PNG Landowners (2. Osaka Gas 1. However. Assuming our base case we value Oil Search’s exposure to the PNG LNG foundation project at A$7. Clough/Curtain JV (early works). US$90 and US$110/bbl Brent real prices).

30% OSH share + Mananda 5 Development Share price (A$) Global Equity Research 13 January 2012 Table 39: LNG contribution to Oil Search NAV LT Brent oil (US$/bbl) LT A$/US$ Company Oil Search Valuation Scenario (un-risked projects included) Base Case: Oil business (excluding PNG LNG) + PNG LNG project + Third Train PNG LNG.88 11.07 6.78 8. Morgan estimates.P.95 5.13 7.45 Upside to DCF value -85% -20% -1% 0% Upside to DCF value -82% 11% 38% 41% Upside to DCF value -79% 40% 76% 80% Source: J.80 DCF (A$/shr) 1. 135 .38 90 0.04 8.14 11.35 70 0.80 DCF (A$/shr) 1.80 DCF (A$/shr) 0.29 6.Fred Lucas (44-20) 7155 6131 fred.31 8. 3tcf.97 110 0.

com Global Equity Research 13 January 2012 Benjamin Wilson (61-2) 9220-1384 benjamin.P. 1) a non-operating 13.5% interest in the PNG LNG project and 2) a 30% operating interest in the Gladstone LNG project in Queensland. Gladstone LNG is a CBM-to-LNG project very similar to the QC LNG project being developed by BG Group. Santos has 11. only 30% of its 2011 production is currently oil linked. Santos is seeking to expand its LNG presence via two projects that are in Santos Figure 84: Santos .wilson@jpmorgan. both of whom are participants in the JV along with TOTAL. however its ambition is to drive a transition to oil linked pricing by accessing Asian LNG markets. We have discussed the PNG LNG project at length in the section on Oil Search. Santos aims to have 70% of its group production linked to oil pricing by 2015.4% in the ConocoPhillips operated Darwin LNG project which commenced LNG sales in 2006. Australia. Santos’s GLNG project commenced development ~3 months after BG Group's project and is virtually fully contracted to Petronas and Kogas. MT pa shown) Source: J.lucas@jpmorgan. Santos already has a strong presence in the East Coast Australian gas market by virtue of its long held Cooper Basin assets.Fred Lucas (44-20) 7155 6131 fred. Small interest in ConocoPhillips operated Darwin LNG 136 . Darwin LNG is situated in Australia’s Northern Territory and is fed by gas and condensate fields in jointly administered waters between Australia and East Timor. Morgan.summary of LNG assets (net capacity. LNG strategy assessment Corporate strategy to transition from domestic gas pricing to oil linked pricing Raising its equity LNG participation is central to Santos' corporate strategy of becoming a leading Australian and Asian energy player.

predominantly Japanese and Korean buyers with Petronas also taking half of the GLNG output. budget at sanction US$15bn Exxon Mobil Exxon Mobil (33. Exxon Mobil in the PNG LNG JV and TOTAL and Petronas in the GLNG JV.7bn (updated Dec 2011). Bonaparte LNG is a JV between GDF Suez (60% and operator) and Santos (40%). Jacobs (associated gas) Source: Company reports. The aim is to develop a 2 MT pa FLNG project with FID targeted for 2014 and first LNG by 2018. Clough/Curtain JV (early works). Santos (11. starting with ConocoPhillips in the Darwin LNG project.3%). 1 3. Tern and Frigate gas fields in the Timor Sea.6 TM pa of LNG capacity. Santos (13.0%).5%). which is a Floating LNG concept to commercialize the Petrel.5 MT pa 2006 Phase 1 gas recycling US$1. Santos has a strong set of offtake customers.6 MT pa Dec 2009 2014 US$15. McConnell Dowell/CCC JV (infrastructure). ~225mmbbls liquids 982 mmscfpd Sinopec 2 MT pa. Santos has a clear path to oil linked pricing through the GLNG and PNG LNG projects and is well positioned to supply the Asian basin Global Equity Research 13 January 2012 Santos has a third potential development project.2%) 541 mmscfpd Output sold to Tokyo Gas and TEPCO under a 17 year agreement Table 41: PNG LNG project description Trains LNG production capacity Project sanction date First LNG due Capex Operator Equity participants Total resources Gas supply Off-take contracts Primary EPC contractors 2 6.0%).5 MT pa. Saipem (offshore pipeline). ENI (11. PNG Government (16.2%).4%).2bn ConocoPhillips ConocoPhillips (57. Pre-FEED contracts with Granherne Ltd and DORIS Engineering were let in early 2011. Santos has sought to align itself with experienced operators.lucas@jpmorgan.1 TCF gas. As the FID target for Bonaparte LNG is quite distant we do not yet include a specific valuation for the project in our Santos group NAV calculation. Inpex (11. Upon completion of PNG LNG and GLNG. Nippon Oil (4.2%).8 MT pa. Santos has limited counterparty risk given its strong suite of offtake contracts We have identified Santos as an advantaged LNG project portfolio owner within the sphere of Australian listed LNG exposures.Fred Lucas (44-20) 7155 6131 fred. Liquefaction assets The three tables below display the key characteristics of the operating Darwin LNG project and the in development PNG LNG and GLNG projects.8%) ~9.8%). TEPCO 1. Bonaparte LNG.7%). Santos will have an equity interest of 3. Spiecapag (onshore pipeline). Phase 2 LNG development US$1.8bn. CBI/Clough JV (hides gas plant). Table 40: Darwin LNG project description Trains LNG production capacity Project commission date Capex Operator Equity participants Gas supply Off-take contracts Source: Company reports.2 MT pa Chiyoda/JGC (LNG plant). Tokyo Gas/TEPCO (9. CPC Taiwan 1. PNG Landowners (2. Oil Search (29. 137 . Osaka Gas 1.

The figure below highlights the number of LNG projects currently under construction in Australia – seven currently (excluding PNG LNG).9 TCF. Australia is effectively a closed labor pool with limited ability to import workers from abroad.75tcf gas supply contract from Santos conventional gas resources in Cooper Basin. Santos has sought to insulate itself from labor cost escalation by agreeing to fixed price contracts with EPC providers where possible.5 MT pa Fluor (upstream gas development).lucas@jpmorgan. Total (27.3bn versus the original budget of A$16bn. rather the contract contains a fixed per unit schedule of rates e.262 mmscfpd Petronas 3. The sheer number of LNG projects in development combined with the multitude of minerals projects in train has created an environment of rampant wage cost escalation. Despite these measures taken by Santos to limit cost escalation we carry 8% cost overrun which gives a total budget of A$17. On GLNG. The EPC contract with Fluor for delivery of the upstream gas project is not fully fixed. turnkey contract does not necessarily guarantee that a project will not experience cost overruns. The project's complexity is driven by two issues. Kogas (15%) Coal seam gas 2P reserves as at Jan 2011 ~5tcf plus 0. Bechtel (liquefaction plant) Gladstone LNG is a complex project which along with the three other Queensland CBM-to-LNG projects has assumed a high profile due to the community and landowner opposition to the development of the coal seam gas fields that will feed the project. 1) competition for skilled labor with other Australian LNG projects in development and 2) management of land owner and community opposition to large scale coal seam gas developments. Kogas 3. Petronas (27. with variability around the number of units required.Fred Lucas (44-20) 7155 6131 fred. fixed cost per km of infield pipeline. we believe Santos has taken every precaution possible to ensure a favorable outcome. the Bechtel and Saipem EPC contracts for delivery of the two train liquefaction plant on Curtis Island in Gladstone and the 42 inch main overland trunk-line are fixed price turnkey contracts. GLNG – competition for skilled labor One of the biggest challenges facing LNG developers in Australia is competition for skilled and semi-skilled labor to execute the projects. 1.5 MT pa.g.5%). Saipem (gas trunkline).8 MT pa Jan 2011 2015 US$16bn at sanction Santos Santos (30%). While a fixed price. 138 . 2 7. EUR from project coal seam gas acreage ~9.5%).com Global Equity Research 13 January 2012 Table 42: Gladstone LNG project description Trains LNG production capacity Project sanction date First LNG due Capex Operator Equity participants Total resources Gas supply Off-take contracts Primary EPC contractors Source: Company reports.

Landowners.Fred Lucas (44-20) 7155 6131 fred. environmental advocacy groups and ministers from state and federal governments have voiced concerns over the potential impact of large scale coal seam gas developments on local and regional aquifers. This creates a fundamental mismatch of incentives in that landowners generally have no specific incentive to support gas developments on their property as by definition the only compensation required to be paid is for loss of economic value and other amenities. therefore the freehold land owner has no specific rights to the resources underlying their properties. Historically most gas production for the East Coast has come from the offshore Gippsland Basin and the onshore Cooper Basin which is in a desert region. PNG. Timor Leste LNG projects GLNG – managing community and land owner opposition A large scale onshore gas development is new to populated regions of Eastern Global Equity Research 13 January 2012 Figure 85: Australia. 139 . The areas in which Santos. Origin/ConocoPhillips and RD Shell are proposing to develop their coal seam gas resources are in areas of Queensland that are used for irrigated cropping (in the case of BG Group and RD Shell) and low intensity grazing (Santos and Origin/ConocoPhillips).lucas@jpmorgan. Petroleum and mineral resources rights in Australia are held by the relevant states. Disposal of the large volumes of produced water is proving to be a major challenge for all CBM-to-LNG project sponsors. BG Group. and on the above ground farming activities.

lucas@jpmorgan.81 per share. particularly the interaction between water extraction and disposal and existing fresh water hydraulic systems. we value Santos’ exposure to the Darwin LNG project at A$1.35 20.490 or A$4.134 or A$4.23 16. LNG + PNG LNG project + 2 train GLNG + Third Train PNG LNG Share price (A$) 12.9bn or A$12.937m or A$2.65 70 Global Equity Research 13 January 2012 The issues associated with large scale CBM developments.68 15.54 25.P.5% interest in the PNG LNG foundation project at A$4. While there is broad political support at both state and federal level for the projects. US$90 and US$110/bbl Brent real prices).17 Upside to DCF value -37% -10% 8% 20% 90 0. A$23/t carbon tax.80US$/A$.08 per share. We have shown three long term oil prices (US$70.77 per share The table below displays our Santos NAV on a scenario build up basis. its 13.91 18.43 per share and its interest in a third expansion train for PNG LNG at A$1.340m or A$1.80 DCF (A$/shr) 10. excl. its 30% interest in GLNG at A$4.22 Upside to DCF value -19% 28% 78% 99% Source: J. capital raising. are complex and evolving.93 11.44 per share (included in the “Base Case” category in the table below).33 13.80 DCF (A$/shr) 9. the public opposition is difficult to ignore.20 22. Note the valuations presented in the table below are on a 100% un-risked basis. 140 . Table 43: LNG contribution to STO NAV LT Brent oil (US$/bbl) LT A$/US$ Company STO Valuation Scenario (un-risked projects included) Base Case: Existing projects incl. our base case in US$90/bbl real long term with 0. LNG portfolio valuation Around A$11. Assuming our base case. Morgan estimates. Broadly speaking we believe that the Santos operated GLNG project and the Origin/ConocoPhillips APLNG project are less exposed than either the BG QC LNG project or the RD Shell/PetroChina project due to location of acreage being in less intensively farmed regions and coal seams sitting deeper which means less water production.10 13.80 DCF (A$/shr) 7.42 Upside to DCF value -28% 10% 45% 61% 110 0.Fred Lucas (44-20) 7155 6131 fred. GLNG equity sell down.

At the time of project Woodside Figure 86: Woodside . The sanctioning of Pluto-1 in 2007 signaled a more aggressive LNG growth strategy Woodside is a high profile player in the Australian and broader Asian basin LNG industry. BHP and Mitsubishi/Mitsui) have added three further trains (the last in 2008) for a total operating capacity of 16.lucas@jpmorgan.x. Woodside's history of LNG production dates back to commissioning of the first two 2. LNG strategy assessment Clear strategy to maintain #1 position in Australian LNG Woodside has a clear LNG strategy to maintain and build on its position as the number one LNG producer in Australia.6 MT pa). at one point former Woodside management articulated an aspirational goal for up to five Pluto trains.3 MT pa making the NWSV one of the largest single site LNG projects globally.5 MT pa trains in 1989. at the time of project sanctioning in July 2007 Woodside commenced studies into a second and third Pluto expansion trains.Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 Benjamin Wilson (61-2) 9220-1384 benjamin.1 MT pa net Chevron) Gorgon project is due on line or BG Group’s 8. Indeed. 141 .summary of LNG assets (net capacity.5 MT pa QCLNG project (BG net equity 8 MT pa). As operator of the giant North West Shelf Venture (NWSV) in Western Australia. Its ambition was not limited to Pluto1. Woodside was aiming for the Pluto project to be the quickest development from gas discovery to LNG sales.P. Morgan. MT pa shown) Source: J. Its virtual sole risking of the Pluto green field LNG development in 2007 signaled Woodside's arrival as an aggressive. BP. RD Shell. Woodside’s position looks secure until 2015 at the earliest when Chevron's 15 MT pa (7. Since then. With the forthcoming addition of the Pluto-1 project in March 2012 (WPL’s total LNG net equity will increase to 6.wilson@jpmorgan. Woodside and its JV partners (Chevron. growth driven LNG player.

LNG operatorship is an important hallmark of a strategically advantaged LNG player. specifically their development status and off-take arrangements and the second displays the same chart from October 2010.the ~12 MT pa Browse LNG project in the Browse Basin in offshore northern Western Australia and the 4-5 MT pa Sunrise Floating LNG project in joint waters between Australia and East Timor. the prospect of Pluto expansion trains looks set to be reliant on third party gas as Woodside's efforts to discover equity gas to feed the brown field expansion have not been as successful as hoped. We also note that the Browse and Sunrise projects are struggling to make forward momentum towards FID while competing projects. Five competing LNG projects in Australia have moved into construction since Oct 2010 The charts below demonstrate the issues that Woodside has experienced over the past 12 months in maturing its projects. Korean and Chinese customers which is important when negotiating future LNG supply agreements.Fred Lucas (44-20) 7155 6131 fred. The Woodside LNG growth story has lost some of its luster in recent years. now due in March 2012. It is apparent that Woodside’s projects have moved little over the same time Global Equity Research 13 January 2012 Woodside has also been seeking to mature two further green field LNG projects .lucas@jpmorgan. 142 . Furthermore. Woodside has a strong history of LNG sales to Japanese. RD Shell. we have not identified Woodside as a strategically advantaged LNG project portfolio owner within the sphere of Australian listed LNG exposures. A total 15 months schedule deferral and 33% cost overrun for Pluto-1. Woodside LNG strategy characterized by project operatorship Woodside’s LNG strategy is characterized by a desire for operatorship. As we have discussed previously in this note. Some five projects have moved into construction and several more have secured off-take contracts. has highlighted the difficulties associated with executing a large scale resources project in Australia. Chevron. mainly from much larger operators (e. have secured customers and entered construction. Despite these two considerable strengths. The first chart displays the current state of Australian/PNG projects (against contract commitments). Exxon Mobil).g. The company operates the NWSV and Pluto as well as the proposed Browse and Sunrise projects.

8 0 0. with the midpoint of 0.5 4 3.6 MT pa in the chart above 5 Ichthys: The Kogas contract with Ichthys has not been signed but was reportedly announced by the Korean Ministry 17 Aug 2011.55 0 0 0.lucas@jpmorgan.4 MT pa and 0. We expect the first two trains to be 8.25 Tokyo Gas TEPCO PowerGas PetroChina Kyushu Electric Toho Kansai Electric PETRONAS Chubu Electric Petronet CPC Corp Total Osaka Gas CNOOC GSCaltex Sempra Import Terminal Nippon Oil Not Contracted Sinopec GNL Quintero Gujarat State Petroleum Corp KOGAS Inpex Source: Company reports. 143 .3 4.8 MT pa Osaka and 3. We estimate this could be between 0.3 5 0. LNG: We expect that PetroChina will sign an off-take agreement for at least its equity share of the first 2 trains of Curtis Island LNG.Fred Lucas (44-20) 7155 6131 fred. The Japanese contracts are also yet to be finalized.current mtpa In Construction Global Equity Research 13 January 2012 Figure 87: Australian/PNG LNG projects and off-take agreements .8 MT pa. 2 Curtis Is. The other Browse KTA has lapsed. 1 Browse: CPC Corp signed a preliminary key terms agreement with Woodside in 2007 for the Browse project.4 Pre FID Pre FEED 16 14 12 10 8 6 4 2 0 0.5 MT pa with the remainder to be supplied by BG's global portfolio 4 BG's contract with Chubu Electric is for 120 cargoes. ie 50% or 4. Some may be RD Shell portfolio capacity.64 MTpa Kogas) exceeds Prelude's capacity.2 4.08 9.2 5 2.0 MT pa 3 BG's QCLNG Project has signed off-take agreements for ~10 MT pa. 6 Prelude: it is unclear how much of the Osaka Gas contract and Kogas impending contract (announced by the Korean Ministry 17 Aug 2011) is firmly from Prelude as their combined size (0.1 5 0.

Kogas has been buying NWS LNG since 2003.5 MT pa). Kyushu Electric. The Pluto-1 LNG project is due on line by March 2012. The project is described in the table below. However. Chevron (16. Liquefaction assets Woodside has an operating interest in the five NWSV LNG trains for total net equity production capacity of 2.7%). T2 1989 (2. Woodside’s strategic LNG advantage beyond these two projects is challenged in our view. T4 2004 (4. T5 2008 (4.7%). Mitsubishi/Mitsui (16.3% equity interest in gas resources but no equity interest in LNG infrastructure.7%).3 MT pa T1 1989 (2. Tokyo Gas and Shizuoka Gas. BP (16.lucas@jpmorgan. The NWSV remains a world class project and the Pluto project is on the verge of delivering cash flows. Osaka Gas.4 MT pa).5 MT pa).4 MT pa) Woodside Woodside (16.7%). Table 44: North West Shelf Venture project description Trains LNG production capacity Project commission date Operator Equity participants* Off-take contracts 5 16. T3 1992 (2. A 25 year contract for 3. 144 . Toho Gas. * CNOOC has a ~5. BHP (16.5 MT pa).Fred Lucas (44-20) 7155 6131 fred. Chugoku Electric. Kansai Electric. RD Shell (16. Source: Company reports. Tohoku Electric. TEPCO.7 MT pa. The project description is displayed in the table below.7%).7%) Original 25 year contracts signed in 1985 were with Japanese buyers Chubu Global Equity Research 13 January 2012 Figure 88: Australian/PNG LNG projects and off-take agreements – October 2010 Source: Company reports.3 MT pa was agreed with CNOOC in 2002.

8 11.9 14. cost estimate at project sanction A$11.0 2.3 MT pa July 2007 March 2012 (updated July 2012). To a certain extent the project has been a victim of changes to industrial relations laws which contributed to three separate strikes. Morgan.9 A$m Cumulative increase capex 1.Fred Lucas (44-20) 7155 6131 fred.0 0. Kansai Electric (5%) 5. Pluto-1 suffered its third schedule & cost overrun (a further 6 months and A$900m).com Global Equity Research 13 January 2012 Table 45: Pluto LNG project description Trains LNG production capacity Project sanction date First LNG due Capex Operator Equity participants Total resources Gas supply Off-take contracts Primary EPC contractors Source: Company reports.9 14. Figure 89: LNG project EPC costs ($ per T) 4000 3500 3000 2500 2000 1500 1000 500 0 FID PENDING UNDER DEVELOPMENT PRODUCING Source: J.1 0.1 13. Tokyo Gas (5%).1 2.2 1.P. target at sanction end CY10 A$14. 1 4. The chart below highlights the impact of these cost overruns on Pluto-1 costs relative to peer projects.5 TCF gas.2bn Woodside Woodside (90%). On 17 June 2011. While this industrial action was not related to Woodside’s actions it is indicative of the challenges associated with executing large scale resources projects in Australia presently.lucas@jpmorgan. A$bn (100%) 0. Kansai Electric 1.9 MT pa.9 MT pa Foster Wheeler and WorleyParsons The Pluto project has been hit by significant deferrals and cost overruns. Table 46: Pluto-1 capex increases over time Pre-FID expenditure Post-FID capex estimate (27 July 2007) 1st revised cost over-run high estimate (20 Nov 2009) Total capex at Nov 2009 2nd revised cost over-run estimate (30 Nov 2010) Total capex at Nov 2010 3rd revised cost over-run estimate (17 June 2011) Total capex at June 2011 Source: Company reports. 83 mmbbls gas liquids 652 mmscfpd Tokyo Gas 1.9 % Cumulative increase capex 11% 18% 26% Mths Cumulative Increase time 7-8 mths ~14 mths % cumulative Increase time ~17% ~34% 145 .9bn (updated June 2011).

For various reasons. locking away customer demand. 146 . an inability to reach terms with Hess for WA-390-P gas. A further issue is the lack of gas sales contracts. we think FID is highly unlikely before the end of 2012. particularly as a number of rival projects with similar start-up dates have recently been sanctioned.Fred Lucas (44-20) 7155 6131 fred.lucas@jpmorgan. on the understanding that Woodside would adopt a less aggressive expansion timetable and reduce its equity interest in its projects. The most pressing factor is the delays to internal and external resource definition (including Woodside licence appraisal. as the credit rating agencies have made quite clear that Woodside’s BBB+/Baa1 rating band (it is on negative watch) would probably be downgraded if it took on another large funding requirement without 3+ months of successful operational history behind Pluto-1 (now due to start-up in Feb 2012). Moody’s re-affirmed the Baa1 (neg) rating. On 11 October 2011. Pluto expansion trains stalled by lack of resources Pluto expansion trains Woodside’s self imposed deadline for Pluto-2 FID of end CY 2011 under former management has been abandoned. A third issue is funding. and lack of news on the Scarborough/Thebe front).com Global Equity Research 13 January 2012 Figure 90: Pluto-1 timetable – key dates Source: Company reports.

high cost and high in CO2 all of which combine to produce a very challenging project. Chevron (17%). This is a clear indication that Woodside is not ready to move forward with the Browse project. ConocoPhillips (30%). but are not in Browse. The project concept is for a 12 MT pa onshore processing facility located on the Kimberley Coast at James Price Point. operator). situated north of the Greater Carnarvon basin in which NWSV gas resources are located. The Browse project is technically complex. New Woodside management is attempting to broach the impasse. for now the project remains a stalemate. This is likely to result in further delays as Woodside seeks to clarify the “notices of intention to acquire”. we believe the Browse project is suffering from a lack of joint venture party alignment.4% operator). The issue with Sunrise lies in the East Timorese government requirement that the liquefaction component of the project be based onshore in East Timor. However. particularly given the condensate rich composition of the Sunrise gas resource. RD Shell (10%. BHP (17%).Fred Lucas (44-20) 7155 6131 fred. The Browse project faces a series of significant challenges. Sunrise LNG The Sunrise project is a JV including Woodside (33. JV participant RD Shell is currently constructing the world’s first FLNG development on the Prelude resource in the Browse Basin. Browse proposed site location is culturally and environmentally sensitive. We believe the Browse JV partners (excluding Woodside) would prefer to delay the commercialization of a Browse green field project and instead pipe the gas back to the NWSV in 2022+ to fill capacity on the five trains in place. The Browse JV is the same as the NWSV with the exception of Mitsubishi/Mitsui who are in the NWSV. Sunrise project remains in stalemate 147 . Woodside announced in December 2011 that it is seeking an extension to the Browse retention licenses to allow an extension of the required FID date from mid CY 2012 into 1H CY Global Equity Research 13 January 2012 Browse large green field development Browse LNG The Browse LNG project is a proposed green field project to commercialize large gas discoveries in the Browse Basin.lucas@jpmorgan.6%) and Osaka Gas (10%). RD Shell (26. Both the Timor Leste government and the Australian government are required to approve the project concept in order for a development to proceed. commercial (+US$5bn cost) and sovereign risk issues. in December 2011 the Western Australia Supreme Court ruled that the State's move to compulsorily acquire land at James Price Point invalid. Woodside had reached an agreement with the traditional owners of James Price Point (as represented by the Kimberley Land Council) in May 2011. In any case. Aside from traditional owner opposition. The economics of a FLNG project are strong. BP (17%). Former Woodside management admitted it had reached an impasse on Sunrise. The project equity ownership is as follows: Woodside (46%. The proposed site location at James Price Point is an area of cultural and environmental significance. Sunrise is seeking to commercialize wet gas fields in joint waters between Australia and East Timor. An onshore East Timor based liquefaction has not been considered by the Sunrise JV partners due to technical (deep trench to cross). However. The JV's preferred development concept for Sunrise is a Floating LNG solution.

52 per share (included in the “Base Case” category in the table below) and its 90% interest in the Pluto-1 foundation project at A$16. 148 .40 61.75 per share.80 DCF (A$/shr) 38. Assuming our base case we value Woodside’s exposure to the NWSV LNG project (only) at A$5.lucas@jpmorgan.58 per share.95 55.76 49. The shipping arrangements for the Pluto project involve the foundation customers (Tokyo Gas and Kansai Electric) providing a vessel each and Woodside leasing a purpose built vessel (the Woodside Donaldson). We value a Sunrise FLNG development at A$2. Woodside is clearly a highly leveraged LNG play. Sandpiper.7% interest in the North West Shelf Shipping Service Company (NWSSSC) which own and operates a fleet of seven LNG carriers (Northwest Sanderling.23 Upside to DCF value 24% 60% 76% 107% 137% Source: J.962m or A$7. While Woodside's LNG related disclosure is strong relative to peers it is not so detailed at the cost line to derive a 100% accurate breakout of the LNG related assets of the NWSV. Shearwater.P. We value a Pluto-2 train.11 64.18 per share.500M3. We value a Browse green field development at James Price Point at A$10. Laverda oil 50%.05 per share. US$90 and US$110 per barrel Brent real prices). Note the NWSV also produces oil. Note the valuations presented in the table below are on a 100% un-risked basis.55 37. We also carry value for projects that are yet to be sanctioned. As Woodside’s shipping assets are dedicated to specific projects we believe that it has minimal merchant LNG shipping capacity.775m or A$13.80US$/A$.77 Upside to DCF value -2% 14% 21% 33% 46% 90 0.67 per share.72 45.90 Global Equity Research 13 January 2012 LNG shipping assets Woodside has a 1/6 interest in NWSSC which owns 7 vessels th Woodside’s LNG shipping fleet interests are aligned with its ownership interest in the North West Shelf JV.72 35. LPG. Stormpetrel and Swan) dedicated to transporting NWSV LNG to North Asian customers and other destinations as spot sales dictate. The 2004 addition of the Northwest Swan represents the first use within the Woodside fleet of the Membrane Containment System. assuming Woodside 90% equity interest. We value a Browse development tied back to NWSV (the brown field option) at A$4.30 70 0.98 47. incl A$23/t carbon tax + Pluto 2 assuming WPL 90% equity gas + Sunrise FLNG + either Browse tie-back to North West Shelf (Option 1) + or Browse greenfield at James Price Point (Option 2) Share price (A$) 31.73 41. including a Pluto-2 expansion train. Our base case is US$90/bbl real long term with 0. Table 47: LNG contribution to Woodside NAV LT Brent oil (US$/bbl) LT A$/US$ Company WPL Valuation Scenario (unrisked projects included) Base Case: Existing projects + Pluto 1.Fred Lucas (44-20) 7155 6131 fred. LNG portfolio valuation The table below displays our Woodside NAV on a scenario build up basis. Browse LNG and Sunrise LNG. Sea Eagle.80 DCF (A$/shr) 35.80 DCF (A$/shr) 30. For the purposes of this exercise we have pro-rated our NWSV NAV according to revenue contribution which is disclosed.488m or A$8.23 Upside to DCF value 14% 40% 52% 71% 96% 110 0. condensate and domestic gas. The Northwest Swan is the largest in the fleet with a capacity of 135. Morgan estimates. Woodside’s leverage to LNG developments is strong.914m or A$3. As these projects are yet to be sanctioned and are yet to secure customers they warrant a high degree of risk weighting. Six of the NWSSSC vessels feature the older Moss Rosenberg technology.80 43.697m or A$21. On this basis. at A$6.65 53. Woodside has a 16. We have shown three long term oil prices (US$70. Snipe.559m or A$5.

MT pa shown) 3. the following milestones were reached in 2011: 149 Origin sold 50% of its CSG assets to ConocoPhillips in 2008 .Summary of LNG assets (net capacity.0bn. Gas for the APLNG project will be sourced from Coal Seam Gas (CSG) fields located across a wide area of the Queensland interior. APLNG holds the largest reserves and is the largest producer of CSG in Australia.Fred Lucas (44-20) 7155 6131 fred. Morgan.8 (APLNG) Operational Liquef action capacity Liquef action capacity under development Operational Re-gasif ication capacity Source: J. Origin began exploring for CSG in the mid 1990s. the APLNG partners have made a number of significant steps towards realizing the value of the project.4 MT pa post recent agreement with Sinopec (12/12/11) going binding LNG strategy assessment Niche exposure to global LNG industry thematic We have classified Origin Energy (Origin) as a “niche” exposure to the global LNG industry thematic. Following the sell-down to ConocoPhillips. *Note: Liquefaction capacity under development will fall to 3.lucas@jpmorgan. In Origin Energy Figure 91: Origin Energy .5% stake in the APLNG projected located in Queensland. We expect this stake to fall to 37.5% once the recently announced agreement with Sinopec moves to binding – likely in Q1 2012.steed@jpmorgan. with additional payments due to the JV of A$1. The company acquired its first CSG interests in the Peat field in 1996 and entered into its first long term CSG supply agreement in 1999 with BP’s Bulwer Island Refinery. The company’s only LNG exposure is via its 42. In 2008.15bn to carry Origin’s share of budgeted development and operating costs up to FID for Train Global Equity Research 13 January 2012 Jason Steed (61-2) 9220-1551 jason. Origin continued to build its CSG interests by accumulating exploration interests and acquiring CSG interests from Transfield and Tri-Star Petroleum in 2002. Australia.P. It holds permits covering 17. Origin sold 50% of its CSG assets to ConocoPhillips for an upfront payment of US$5.000 km2 in the Bowen and Surat Basins in central southern Queensland.h.

 Nov-11: APLNG and Kansai Electric sign 20-year agreement for 1 MT pa.3 MT pa LNG supply over 20 years and 15% equity interest.lucas@jpmorgan. This estimate covers the period from FID until the commencement of gas deliveries from Train 2 expected in early 2016. A JV between McConnell Dowell Constructors and Consolidated Contractors Australia has entered a fixed price pipeline construction contract.0 MT pa July 2011 2015 US$20bn ConocoPhillips Origin (42.95 June 2012 Target Price for Origin is based on a sum-of-parts valuation. lower than forecast oil prices.95 per share assumes a two train project. ConocoPhillips (42. noting that AGK is currently trading at Global Equity Research 13 January 2012  Feb-11: APLNG and Sinopec sign non-binding HoA for 4. Bechtel (liquefaction plant) LNG portfolio valuation APLNG valued around A$5. Total capital expenditure for the two-train project is estimated to be US$20bn.6 MTpa). Origin will manage the upstream project. The recent HoA signed with Sinopec completed the marketing of APLNG's second train.5%). Capex expectations set at US$14bn for first phase and at US$20bn for full two-train development.0 MT pa) MCJV (gas trunkline).1% reflects a combination of the assumptions in the individual segments.3x EV/EBIDA and 8. The key figures that make up this discount rate are a post-tax cost of equity of 10. we value Origin at $21 per share. Our current valuation of $18. 150 . and lower than estimated wholesale electricity prices.0x. with FID now expected to be taken in Q1 2012. Our $18.000 PJ 2P Sinopec (7. Kansai (1. while ConocoPhillips will manage the overall downstream project. which includes a contingency of US$2. 2 9.1 within this calculation.5%). which is broadly in line with the current share price.7% and a post-tax cost of debt of 5. The key downside risks to our valuation are: failure of the APLNG second train to reach FID. On a two train fully de-risked basis. lower than forecast electricity and gas retail tariffs.2 per share We value Origin’s business ex APLNG at $13.Fred Lucas (44-20) 7155 6131 fred. Liquefaction assets – APLNG project description The table below sets out the key characteristics of the APLNG project. Our group post-tax WACC of 9.5bn.  Dec-11: APLNG and Sinopec sign a non-binding HoA for further LNG supply and additional equity taking Sinopec to 25% ownership in APLNG.1x EV/EBITDA on an Ex-Upstream basis. Table 48: APLNG project description Trains LNG production capacity Project sanction date First LNG due Capex Operator Current Equity participants Total resources Off-take contracts Primary EPC contractors Source: Company reports.3%. Our $13.77. We apply a Beta of 1. but includes a risk weighting on train two (T2) of 50%. Sinopec (15%) 11.  Jul-11: APLNG takes FID on first phase of two train project. We apply different costs of capital to each of the individual business units in an effort to appropriately reflect the risk profile of each segment. and implies that APLNG is valued by the market at nil.73 valuation of Origin's underlying business is based on an EV/EBITDA multiple of 8.

Osaka Gas. Figure 92: Suppliers of LNG to Japan 60 40 20 0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 USA Australia Nigeria Brunei Algeria Egypt UAE Qatar Norway Indonesia Oman Equatorial Guinea Malaysia FY Trinidad Source: Natural Resources and Energy. development or production or contract types – PSC. Kyushu Electric. In fact the two largest LNG export facilities in Indonesia. Indeed.Ichthys in Australia and Abadi in Indonesia. LNG strategy assessment Inpex’s upstream strategy may be broadly defined as achieving a balanced diversified portfolio by acquiring projects differentiated by stages. The two large gas fields were discovered in 2000.bustnes@jpmorgan. Japan has built up a diversified set of LNG suppliers – in 2008 it purchased LNG from 14 countries. Toho Gas. the responsibility for LNG imports largely rests with the utilities. 151 .com Inpex As seen in Figure 93. CA etc. As per Figure 93.scheduled for H1 2012. As of June.P. J. for the Offshore Mahakam PSC (which ironically supplies the Bontang LNG plant whose supplies to Japan have been declining in face of higher domestic consumption in Indonesia and higher asking prices for the contracted LNG). Ichthys is currently awaiting FID (expected by mid-January 2012) and Abadi is currently awaiting FEED . CFA (852) 2800-8578 brynjar.e.Kansai Electric Global Equity Research 13 January 2012 Brynjar Eirik Bustnes. Chubu Electric. it helped to develop a parallel Indonesian supply LNG industry in the 1970’s. Japan is the world’s largest LNG importer. Inpex is currently involved in 2 large scale LNG projects under development.exploration. comprising more than 30% of the global LNG trade. Tokyo Electric etc.Bontang in East Kalimantan and Arun in Aceh province were constructed in the 1970s under long term supply contracts with Japanese utilities. Morgan Although Inpex is the largest upstream company of Japan. Inpex operated 71 projects in 26 countries.Fred Lucas (44-20) 7155 6131 fred. However with Inpex building out two large scale LNG projects. As Japan reduced dependence on oil and coal and consciously increased the use of gas. Inpex was one of the first foreign firms to enter Indonesia in the early days of Suharto regime in 1966 and became instrumental in the hydrocarbon discoveries in Kalimantan. it is expected to play an increasingly important role in securing Japan’s gas supplies. 2011.

For this. The medium to long term domestic gas sales target through its own network is 2. Of the outstanding gas off-take contracts from Ichthys.0 bcm.5x compared to 15 years back in 1996 (0.400 kms of pipelines. The supplies to the Noetsu LNG terminal will feed the north side of the domestic network and supplies from the Sodeshi LNG terminal (of Shizuoka Gas with supplies from 2010 onwards) in the south. supplying gas to city gas companies and industries along the pipeline. Construction commenced in July 2009 and is expected to enter operation in 2014.5 bcm).2 MT pa from TOTAL.lucas@jpmorgan. including unconventional forms (recently acquired 40% interest in Nexen’s shale assets in Horn River in Canada). in May 2011. Inpex will be the only Japanese company to have a complete natural gas value chain in place.5-3. Domestic gas business Central to Inpex’s LNG strategy is building on an integrated domestic gas value supply chain which connects international gas assets to the domestic distribution network. with a re-gasification capacity of about 1. Inpex’s central strategy is to organically integrate overseas gas assets into its Japanese gas network Growth – build resources and acquire projects in various phases. Toyama Prefecture. 3. 2. along with Shizuoka Gas and Tokyo Gas feeds into the self-owned 1. had commissioned Japan's first long distance pipeline between Tokyo and Niigata Prefecture in 1962.6 MT pa.1 MT pa LNG through its Noetsu receiving terminal. This helps Inpex not to be overexposed to any particular low return part of the gas value chain (like liquefaction and shipping) but be integrated through the cycle along with retaining capabilities and capacity to grow the high return upstream business. Niigata Prefecture to Toyama City.Fred Lucas (44-20) 7155 6131 fred. Inpex plans to feed the gas from the Ichthys. Inpex’s Minami-Nagaoka gas field is the largest gas field in Japan and (about 20 years in production) makes up approximately 40% of the total gas production in Global Equity Research 13 January 2012 Inpex has a clearly defined upstream growth strategy with three central tenets: 1. supplying industrial and residential users around the Tokyo Metropolitan region comprising over 1. the company decided to construct Toyama line.7 bcm which is 3. The company’s annual sales volume in FY 2010 reached 1. Teikoku Oil.400km trunk pipeline network that stretches across the Kanto-Koshinetsu region surrounding the Tokyo metropolitan area. Diversification out of conventional oil and gas into other forms of energy. Abadi and Minami-Nagaoka gas fields into this LNG terminal. Gas supply chain . which was fully integrated into Inpex in October 2008. Inpex is currently building the Noetsu LNG receiving terminal in Joetsu City. Niigata Prefecture. Inpex. transport and re-gasification and supplying into pipelines. Inpex has a leading gas distribution network.9 MT pa each of which Inpex has further agreed to purchase overseas gas resources with domestic Japanese market.extending from Itoigawa city. 152 . Inpex and TOTAL have self-contracted 0. Indeed. from development and production through liquefaction. will result in largely improved capacity to supply the domestic market. to feed 1.

The Ichthys and Abadi projects combined at peak production will add between 275-300 kboepd gas and liquid condensate combined to the base Global Equity Research 13 January 2012 Figure 93: Inpex – domestic gas business region Figure 94: Inpex – domestic pipeline network Source: Company reports Source: Company reports Overall growth closely tied in with LNG business growth Inpex has a stated growth strategy of growing total production.Fred Lucas (44-20) 7155 6131 fred.Ichthys and Abadi (with the Kashagan oil project in Kazakhstan being the third one). up from about 400 kboped (about 45% gas) at present to 800-1. Figure 95: Inpex – production growth targets underpinned by 2 major LNG projects Source: Company reports 153 .lucas@jpmorgan.000 kboepd by 2020 (Figure 96). The growth is underpinned by 3 strategic long term projects which include the two LNG projects.

2 4. The first cargo was bound for POSCO’s LNG re-gasification terminal in South Korea. 154 .0 3.30% 30-35%* 30-35%* 30-35%* 30-35%* 30-35%* 30-35%* 30-35%* 30-35%* 6-9% 6-9% 74.35 per mmbtu.14 3.1 TBD Source: Company reports and J. Tangguh is Indonesia’s third largest LNG centre after Bontang and Arun.6 2.78 7.8% 31%# TBD Net capacity MT pa 0.0 3. #Inpex Masela (51. All current operable and planned liquefaction capacity in the AsiaPacific region The Tangguh LNG project has long term supply contracts in place to supply 2.7 2. Gas from the offshore platforms is fed into pipelines to the two onshore liquefaction trains.14 0.15 MT pa to K-Power and POSCO in South Korea and a flexible contract to supply up to 3.6 2.86% of which Inpex owns 44%. The BP led Tangguh LNG project involves the liquefaction of the gas from the Tangguh fields (estimated to be over 19 TCF).7 MT pa to Sempra’s LNG re-gasification terminal in Baja California.79% in the Tangguh LNG project through MI Berau.5 10 Inpex equity Global Equity Research 13 January 2012 Liquefaction assets Inpex has liquefaction plants under development which will increase its net operable capacity to almost 8x its present 1 MTpa capacity by 2017 Table 49: Inpex.30 0.lucas@jpmorgan.8 MT pa.30 1.7 2. owned) has a 60% equity stake in the project Tangguh LNG (7. and remaining through KG Berau Petroleum.Fred Lucas (44-20) 7155 6131 fred.8% 74.6 2.6 MT pa to CNOOC’s Fujian terminal in China (CNOOC also has a 13. which owns 22.30% 0% 0% 0% 0% 0% 0% 0% 0% 7.79% 74. *60-70% feed gas supply from 50-50 Inpex-TOTAL owned Offshore Mahakam fields.9% interest in the Tangguh project) at $3.37 0.2 2.8 3. capped at oil price equivalent of $38/bbl. 1.6 2.8% 31%# Gross capacity MT pa 3. The project was commissioned in 2009 with first cargo loaded in July of that year.8 4. Mexico.3 2.79% 7. each with a production capacity of 3. Morgan estimates.7 3.6 MT pa capacity) Inpex owns 7.summary of liquefaction assets Liquefaction plant Darwin LNG Bontang LNG Train 1 Train 2 Train 3 Train 4 Train 5 Train 6 Train 7 Train 8 Tangguh LNG Train 1 Train 2 Current capacity Ichthys LNG Train 1 Train 2 Abadi FLNG Train 1 Planned capacity Vladivostok LNG Under study Start date 2006 1978 1978 1978 1983 1984 1986 1986 1986 2009 2009 2016-2017(e) 2016-2017(e) 2016-2017(e) Inpex equity supply 11.8% 74.93% Inpex corp. Studies for a third train are underway.P.

Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

Offshore Mahakam Block - Bontang LNG (21.6 MT pa capacity) Though Inpex does not have a direct equity interest in the Bontang LNG plant (Indonesia) it is a major stakeholder as it supplies LNG from its 50% owned giant Offshore Mahakam block in East Kalimantan. The block accounts for about two thirds of the gas feed for the Bontang LNG plant, which has supply contracts with Japanese LNG utilities. The plant has 8 trains and the capacity to produce 21.64 MT pa (the capacity was increased to 24.59 MT pa by increasing efficiency but declined subsequently due to gas feed supply issues). So far, over 10 TCF gas has been supplied to Japan, Korea and Taiwan. The plant has faced supply issues due to under-production at the gas fields of the three major feed providers (TOTAL/Inpex, VICO and Unocal (now Chevron)). Also it is understood that there are no penalties for non-performance from the plant which has non-incentivized additional investment required into the maintenance of the plant and has rather led to diversion of feed gas to the domestic fertilizer plants through Pertamina. Inpex and TOTAL plan to spend about $16.5bn over 2011-17 to develop the block and stem the natural production decline (Chevron has also raised its investment plans to increase production from the Kutei Basin). However since the Mahakam PSC expires 2017, the proposed investment may be conditional on securing an extension. (Indonesia’s state owned company PT Pertamina is understood to target a majority stake in the block after contract expiration and 100% stake by 2027). Darwin LNG (3.3 MT pa capacity) Inpex has an 11.3% equity ownership in the Darwin LNG and the Bayu-Undan Unit, which supplies feed gas into the plant. This project involves the transport of natural gas from the Bayu-Undan gas-condensate field in the Timor Sea via a 500km subsea pipeline to the LNG Plant in Darwin. It has been supplying 3 MT pa LNG to Japan since 2006 under long term contracts with Tokyo Gas (1 MT pa) and Tokyo Electric (2 MT pa). Indeed, this was the first LNG project where Tokyo Gas and TEPCO were not just buyers, but also equity holders of the project.
Two major green field developments underway to add almost 7.7 MT pa net operable liquefaction capacity

Figure 96: Abadi & Ichthys LNG

Ichthys LNG (8.4 MT pa capacity) Ichthys is the biggest of the planned projects (LNG and otherwise) in Inpex’s development pipeline. The Ichthys project is a 74.8:24:1.2 JV between Inpex, TOTAL and Osaka Gas (recently acquired equity stakes with signing the gas off-take agreements) to produce gas, LNG and condensate from the Ichthys field in the Browse basin, offshore Western Australia. As per the project concept, the gas will undergo preliminary processing offshore to remove most of the condensate (to be stored in FPSO) and other raw liquids. The gas will then be sent to the onshore processing facility in Darwin (Northern Territory) by an 885 km pipeline. The Ichthys Project is expected to start up in late 2016 and will produce 8.4 MT pa of LNG (2 trains) and 1.6 MT pa of LPG, along with 100,000 bpd condensate at peak. All output gas has been contracted (with around 70% headed for Japan) and the project is currently awaiting FID.

Source: Company reports.


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

Table 50: Ichthys project overview
Ichthys Reserves Ownership Capacities Capex requirement Time line Natural Gas (TCF) 12.8 Inpex 74.8% LNG (MT pa) 8.4 Low end (US$B) 25 FEED 2010 Condensate (mn bbls) 527 TOTAL 24% Condensate (’000 BOPD) 100 High end (US$B) 35 FID 2011 Total (mn BOE) 2,663 Osaka Gas 1.2% LPG (MT pa) 1.6 First shipment 2015

Source: Company data, J.P. Morgan estimates.

Abadi LNG (2.5 MT pa capacity) Abadi is the second big LNG project in Inpex’s pipeline. The Masela Block is located approximately 800 km east of West Timor, Indonesia, and approximately 400 km north of Darwin, Northern Territory, Australia. According to the plan of development for the Abadi field approved by the Indonesian Government in December 2010, 2.5 MT pa of LNG will be produced from the Abadi field using Floating Liquefied Natural Gas (FLNG) technology and the production start up is currently expected in 2016-17. Inpex Masela is now preparing for the Front End Engineering and Design (FEED) in H1 2012. Inpex Masela, after recently farming out a 30% stake to RD Shell, has a 60% working interest in the field, with PT EMP Energi Mega holding the remaining working interest. Inpex owns a 51.93% working interest in Inpex Masela. Inpex Masela is further required to sell down another 10% of the project to an Indonesian nominated partner as part of the PSC terms. We believe RD Shell’s involvement in the project is a big positive due to its pioneering development of FLNG technology. Vladivostok LNG (10 MT pa capacity) A Japanese consortium comprising Inpex, Itochu, Japex, and Marubeni signed a preFEED joint study agreement with Gazprom for the natural gas utilization project in Vladivostok area in April 2011. The joint study consists of pre-FEED for construction of LNG plant (10 MT pa), feasibility study for CNG plant and a gaschemical complex. The joint study is scheduled for completion near end 2011. The study follows a preliminary feasibility study done by Japan's METI, Itochu, Japex and Gazprom from May 2009 to July 2010. For more details, please refer to the section on Gazprom.

LNG portfolio valuation
Ichthys and Abadi LNG projects are the major value drivers for the LNG business

Inpex does not explicitly breakout the performance of its LNG business. However, we expect the primary value drivers for the business to be the two major LNG projects- Ichthys and Abadi. Ichthys: Inpex recently fulfilled the last milestone towards the FID (target January 2012), when it announced signing of SPAs for all gas off-take. However the capex level is still the missing item, which remains the key variable for FID. We build in a $25-35bn capex range into our DCF value and using $30bn as our base case, we get a $17.6bn project NPV, which yields US$6.6/BOE based on a reserve base at 12.8 TCF for natural gas and 527 million bbls for condensate. We use a long-term oil price of US$85/bbl and a WACC of 8% for the project. The full value of the project is about 27% of our estimated full value for Inpex. However considering the stake of the project, we only include 20% of the Inpex's share of Ichthys value into our JPY 750k PT. This is equivalent to 8.5% of our current PT.


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

Abadi: Similar to Ichthys, we believe Abadi contains uncertainties, resulting in only a very small fraction of the project NPV currently being included in our PT (10%). We value Abadi based on a 20% discount to the EV/BOE valuation from Ichthys, which yields a full project value of $9.7 billion. The discount relative to Ichthys is due to some technical uncertainties and a later project start up. The 10% of project value we include is at a slight premium to the valuation obtained based on the 10% sale to Energi Mega Persada late 2009, when oil prices were below current levels. The sales price was $77.25m for the 10% stake, yielding an overall project value of $772.5m (compared with 100% of $9.7bn). We take a much simpler approach to the Abadi project due to less information regarding the project being available. By assuming similar capex levels (per unit reserve – $11 per boe), WACC, and oil price, we take the EV per boe from the Ichthys project and apply a 20% discount due to these uncertainties. We justify this as Abadi is holding natural gas and condensate in similar proportions, while a possible more expensive offshore FLNG solution is being offset due to lack of a need for a long distance pipeline to onshore facilities. We include only 10% (or JPY10,000 per share) of Inpex’s value in this project in our PT due to the many uncertainties around in the project being realized, which comprises around 1.3% of our PT. If include 100% of Inpex's value of this project, then it comprises around 9% the full value.
Table 51: Inpex value breakup: Ichthys + Abadi constitute 37% of the overall SOTP
(000 JPY) Base EV Net cash and equiv (Incl bonds/securities) Minority Interest Base equity value Ichthys Abadi Total Ichthys+Abadi as % of Total value
Source: Company data, J.P. Morgan estimates.

Total 1,813,000 968,374 117,494 2,663,880 1,163,544 379,129 4,206,552

JPY per share 496,000 265,000 32,000 729,000 318,000 104,000 1,151,000 37%

Percentage included 100% 80% 100% 100% 20% 10% 65%

PT JPY Per share 496,000 212,000 32,000 676,000 64,000 10,000 750,000 10%


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

Overview China LNG
First LNG imports in 2006

Politically driven Chinese natural gas supplies have grown rapidly over the last five years since the first LNG import cargo arrived at the first import terminal (Guangdong Dapeng) in 2006. Higher domestic production, LNG and piped gas imports have all played a much bigger role in meeting China’s growing energy needs. Natural gas demand comes from new residential and industrial demand, in addition to fuel oil for direct burning to produce power. LPG for residential use has also been partially replaced by natural gas, as gas prices have been kept lower than fuel oil and LPG prices to incentivize switching. Another source of future demand growth would be CNG in transportation to displace demand growth in gasoline. Anecdotally we've been hearing about shortages at CNG stations, especially in regions where CNG prices are less than half of gasoline-equivalent. The Chinese government adopted a number of laws and regulations that require provincial governments to increase the use of clean energy including natural gas to replace the use of coal in order to reduce air pollution. As such, local governments are politically motivated to increase their natural gas demand and related supply. A preferential value-added tax rate of 13% is also charged for natural gas, as compared to a 17% value-added tax rate for crude oil. The Ministry of Finance also granted a VAT rebate on losses (versus a reference price) from gas imports via pipeline and LNG terminals for 2010-20 as a form of subsidy. LNG versus piped gas imports LNG imports will complement additional volumes via the Central Asia pipeline from Turkmenistan into West-East pipeline 2 (WEP2). More LNG supply deals are being secured for the terminals currently under construction and expansion plans for existing terminals. Recently, there has been talk of the Chinese state importers trying to secure more Australian term contracts because they are more cost competitive. Spot LNG cargoes are also going to be a permanent feature to meet the swing in demand during winter. The total cost for PetroChina of obtaining additional piped gas supplies is likely to increase as the construction of a third West-East pipeline is necessary to deliver the gas to east China, where demand for gas is most concentrated and consumers are able to afford to pay higher gas prices than central and west China. Turkmen piped supplies are expected to be 15 BCM in 2011 and 30 BCM in 2012. The piped imports have been more expensive than the average cost of LNG imports, at an average cost of $9.9 per mmbtu compared to $8.4 per mmbtu in 10M 2011. Turkmenistan and China agreed in November to increase total supply to 65BCM pa by 2020.

Government policy is ‘gasifying’ China’s energy mix

More LNG supply deals to be signed….

…even though they are more expensive than piped gas

Table 52: Natural gas supply sources by company for Jan-Nov 2011 - BCM
PetroChina Sinopec CNOOC & Others Total y/y %
Source: OGP, J.P. Morgan estimates.

Domestic output 67.8 13.3 12.3 93.4 10%

Piped gas import 12.7 12.7 336%

LNG import 1.08 13.5 14.6 29%

Total supply 81.6 13.3 25.8 120.7

y/y % 19% 19% 35% 22%


BCM pa Domestic production LNG Cross-border pipelines Total gas available Source: J. while residential users have been encouraged to switch from LPG and coal-based gas. Imported gas is priced and sold within the same framework set by the NDRC for domestic gas production. The existing pricing policy says producers are given room to raise wellhead prices by up to 10% for gas produced onshore.9 3.6 12. Gas Global Equity Research 13 January 2012 Table 53: China's natural gas sources . The NDRC has the authority to set the wellhead prices and pipeline tariffs. will also add to natural gas demand. while city gate prices are decided at the provincial levels. Figure 97: Natural gas consumption by segment since 1995 – BCM pa 100 80 60 40 20 0 1995 2000 2005 2006 2007 2008 2009 Manufacture of Raw Chemical Materials and Chemical Products Extraction of Petroleum and Natural Gas Residential Consumption Processing of Petroleum. China wants to double the proportion of natural gas in its primary energy mix to exceed 8% and reduce carbon dioxide emissions by 17%. Coking.P. would grow 18% YoY to around 130 BCM in 2011 and possibly to 250 BCM by 2015.Fred Lucas (44-20) 7155 6131 fred. Processing of Nuclear Fuel Transport. The emerging trend of oil refineries switching to natural gas as fuel for furnaces and as petrochemical feedstock.5 110 2011E 102 15 15 132 2012E 110 19 30 159 2013E 120 25 36 181 2015E 158 50 65 273 12th 5-Year Plan sets out to reduce CO2 emissions by 17% In the proposal for the 12th Five Year Economic Plan. 2010A 93. 159 . to increase the oil-product yield. Morgan estimates. Storage and Post Production and Distribution of Electric Power and Heat Power Others Source: National Bureau of Statistics Pricing Natural gas wellhead prices and gas pipeline tariffs are regulated in China. including Hong Kong and Macau which are dependent on China for gas supplies. In contrast. Heavy industrial users have been encouraged to switch to natural gas from coal and fuel oil for power generation and transport fuel. We expect these two segments to grow faster than supplies to fertilizers. prices for gas produced offshore are market-driven (but selling into regulated onshore market). Company data.lucas@jpmorgan.

The maximum cap is calculated from 2010 prices of fuel oil and LPG. Gas in to power generation has also increased over the years. The cap in turn protects the consumers with a guaranteed price ceiling.75 ratio to 90-RON gasoline. It is not known how long the trial may take before being implemented nationwide. But prices are likely to be kept sufficiently low in the near term to encourage significant switching and hence grow demand (which we believe is currently the primary policy target). under which the NDRC sets the wellhead prices plus pipeline tariffs. gas-fired generators were under-utilized due to a lack of gas supply.lucas@jpmorgan. the NDRC launched a gas pricing trial reform for two south provinces Guangdong and Guangxi. and 2) city gate prices are already the highest in China and the caps imposed are similar to existing prices. and hence the trial won’t affect the consumers. Figure 98: Natural gas demand by segments since 1995 . Gas-fired capacity is about 3% of total installed capacity. CNG used in transportation is priced at less than a 0.Fred Lucas (44-20) 7155 6131 fred. These two provinces have been selected because of two reasons: (i) PetroChina's high-cost Turkmen imports via WEP2 will be supplied to Guangdong province this year. The long-term target is to displace LPG and coal-based gas by raising the proportion of residential demand. Storage and Post Residential Consumption Production and Distribution of Electric Power and Heat Powe r Source: National Bureau of Statistics 2007 2008 2009 Interest pricing reform underway Natural gas pricing trial reform– main impact is on Guangdong On 26 December. The trial abolishes the cost-plus system by allowing gas suppliers to set their own wellhead and pipeline tariffs within the price Global Equity Research 13 January 2012 To encourage higher domestic output and imports. with a 10% discount. The share of natural gas for making chemicals and fertilizers has declined since 1995 by policy design. The trial allows the gas suppliers to negotiate for better pricing with end-users within the maximum cap allowed.% share 40% 35% 30% 25% 20% 15% 10% 5% 0% 1995 2000 2005 2006 Extraction of Petroleum and Natural Gas Manufacture of Raw Chemical Materials and Chemical Products Transport. we expect the policy direction in the long term to link prices with competing fuels and narrow the gap between domestic and imported gas prices. The existing nationwide pricing mechanism sets natural gas prices on a cost-plus system. 2011. For example. Previously. 160 . Natural gas prices are currently kept lower than prices for LPG and gasoline.

Demand for the province is around 12 bcm.74/M³ is much higher compared to the previous wellhead price of Rmb1.6 17.15/M³.06 11M 2011 average cost (US$/mmbtu) 8. if taking into consideration the long-distance pipeline tariffs of delivering from west China to Guangdong in south China.6 4.0 7.7 2.5 6. Guangxi province has a price cap of Rmb2. Table 54: Existing terminals.62 0.2 bcm.6 3.5 Global Equity Research 13 January 2012 Guangdong’s gas supplies are mainly from CNOOC parent’s Guangdong Dapeng (8 bcn for Jan-Nov11) and offshore production (6-7 bcm). 161 .84/M³ to Shanghai.0 6.0 Target 7.1 6.8 5.P. The city gate price cap of Rmb2. shipping capacity and equity stakes if possible tied into long-term supply contracts.6 3. CNOOC parent does not see a threat to its LNG import volumes even with as much as 9 bcm of supply from WEP2 by 2013 (5BCM estimated for 2012).4 5. WEP2 pipeline tariffs to Guangdong are still being negotiated but industry sources say it will likely be closer to PetroChina’s WEP tariff of Rmb0.74/M³ maximum city gate price.84 2.03 1. Morgan estimates. and its average LNG import cost is likely to remain lower than PetroChina's Turkmen supplies. J.6 Source: J.73 0. import volumes and average costs Operator CNOOC CNOOC CNOOC PetroChina PetroChina Name Dapeng Putian Yangshan Rudong Dalian Province Guangdong Fujian Shanghai Jiangsu Liaoning Capacity MT pa 6.5 3.5 Operational date 2006 2008 2009 May 2011 Nov 2011 2010 imports 5.0 3. Guangdong Dapeng's average LNG import cost was Rmb2/M³ during 11M 2011.7 2.8 6. Morgan estimates. Table 55: Chinese equity participation in LNG liquefaction assets CNOOC listco CNOOC listco CNOOC parent PetroChina Sinopec parent Source Australia Indonesia Australia Australia Australia Project Australia NWS Tangguh LNG QC LNG Arrow LNG APLNG Operator Woodside-led BP-led BG Group Shell-PetroChina Origin.8 Source: General Administration of Customs. while PetroChina’s WEP2 import cost was Rmb2. Bloomberg.8 NIL NIL 11M 2011 imports 5. Company data.36 1. ConocoPhillips Year 2006 2007 2014 2017 2015 Ends 2031 2032 2034 2035 Contract volume 3. PetroChina will likely cover the cost of imports from Turkmenistan.P. Policymakers want to develop domestic capability for the construction of the receiving terminals.lucas@jpmorgan.48 NIL NIL 2010 average cost (US$/mmbtu) 6.1/M³. LNG LNG will play a key role LNG imports are an important piece of the strategic drive to raise natural gas consumption as part of the broader theme of energy security for China. but it may not be highly profitable at the Rmb2. This is because it expects the additional supply to be absorbed by demand growth and replacing some LPG demand.57/M³ and it consumes around 0.2 6.9 15.93 2.Fred Lucas (44-20) 7155 6131 fred.

Fred Lucas (44-20) 7155 6131 fred.MT pa 12 10 8 6 4 2 06A 07A Guangdong 08A Fujian 09A Shanghai Jiangsu 10A Dalian YTD11 Source: General Administration of Customs.RHS) 90% 75% 60% 45% 30% 15% 0% Source: General Administration of Customs. J.lucas@jpmorgan. Figure 100: LNG re-gasification terminal capacity versus actual imports and SPA/HOA volumes – MT pa 50 40 30 20 10 0 06A 07A 08A 09A 10A 11E 12E 13E 14E 15E 16E 17E LNG import volume (mn ton) Source: J.P. Morgan estimates. J.% 12 10 8 6 4 2 0 06A 07A 08A LNG import volume (mn ton) 09A 10A 11E Utilization rate (% .com Global Equity Research 13 January 2012 Figure 99: Utilization rates of re-gasification terminals .P. Morgan estimates. Morgan estimates 162 . Company data. Bloomberg Capacity (mn ton) SPA & HOA (mn ton) Figure 101: LNG imports by location since 2006 when first imports landed in China .P.

US$/mmbtu 20 16 12 8 4 0 Oct-08 Feb-09 May-09 Aug-09 Dec-09 Mar-10 Jun-10 Sep-10 Jan-11 Apr-11 Jul-11 Nov-11 Weighted average cost of spot cargoes (US$/mmBTU) Source: General Administration of Customs.1 4.0 Year 2015 2015 NA 2015 NA NA NA NA NA NA NA NA Source: J. Table 57: Re-gasification terminals proposed – MT pa Operator Sinopec PetroChina PetroChina CNOOC CNOOC CNOOC CNOOC CNOOC Sinopec Sinopec Sinopec Sinopec Name Tieshan Shenzhen Jinxi Shenzhen Qinhuangdao Binhai Floating terminal Yingkou Wenzhou Tanggu Lianyungang Macau Province Guangxi Guangdong Liaoning Shenzhen Hebei Jiangsu Tianjin Liaoning Zhejiang Tianjin Jiangsu Guangdong Capacity 3.0 6.0 6.0 2. Company data.0 3.0 3.0 4.P.0 Target 5.0 Year 2012 2013 2013 2013 2013 2014 Source: J.5 3. Caofeidian Yangpu Province Zhejiang Guangdong Guangdong Shandong Hebei Hainan Capacity Global Equity Research 13 January 2012 Figure 102: Average weighted LNG spot prices of Chinese imports for 2009-11.P.0 3.0 3. Morgan estimates. 163 .0 2.0 4.5 2.0 6.0 3. J. Morgan.0 3.5 2.0 Target 6. Company data. Table 56: Re-gasification terminals under construction – MT pa Operator CNOOC CNOOC CNOOC Sinopec PetroChina CNOOC Name Ningbo Zhuhai Yuedong.0 7.P.Fred Lucas (44-20) 7155 6131 fred.0 4.lucas@jpmorgan. Morgan. Jieyang Qingdao Tangshan.0 3.

Fred Lucas (44-20) 7155 6131 fred. Guangdong Yuedean 6%. Guangdong Hong Kong Energy.P. Hainan Provincial Development 35% CNOOC Gas & Power 25%. Ningbo Power Development 20% CNOOC Gas & Power 65%. Guangzhou Gas 6%. Company data. Qingdao Port 1% Source: J. Table 60: Ownership structure of Sinopec's terminals Terminal Qingdao Shareholders Sinopec 99%. Table 59: Ownership structure of PetroChina's terminals Terminal Jiangsu Rudong Dalian Shareholders Kunlun Energy (PetroChina's subsidiary) 55%. Morgan estimates. Zhongshan Zhonghui. Company data. Zhuhai Economic Zone Power Development CNOOC Gas & Power CNOOC Gas & Power Source: J. Shenzhen Gas 10%. Morgan estimates. BP 15%. Fujian Investment and Development 40% Shenergy 55%.lucas@jpmorgan. 45% split among Guangzhou Development City Gas. Zhejiang Province Energy Global Equity Research 13 January 2012 Figure 103: Locations of China's LNG terminals in operation. Hong Kong and China Gas 3%. CNOOC Gas & Power 45% CNOOC Gas & Power 51%. 164 . Jiangsu Guoxin 10% Kunlun Energy 75. Dalian City 5% Source: J.5% and Foshan Gas 2. Shenzhen Energy 4%. Hong Kong Electric 3%. Pacific Oil and Gas 35%. Dongguan Fuel Industrial 2. Company data. Foshan City Gas Pipe. Table 58: Ownership structure of CNOOC Group's terminals Terminal Guangdong Dapeng Fujian Shanghai Zhejiang Ningbo Hainan Guangdong Zhuhai Guangdong Yuedong Shenzhen Shareholders CNOOC Gas & Power 33%. under construction and planned Source: Bloomberg. Jiangmen City Construction. Dalian Port 20%.P. Guangdong Yuedean 30%.5% CNOOC Gas & Power 60%. Morgan estimates.

com Global Equity Research 13 January 2012 Brynjar Eirik Bustnes.P. Morgan estimates.bustnes@jpmorgan.7 MT pa capacity.7 3. Guangdong Yuedong.0 3.7 3. Table Scheduled start date 2012 2013 2013 2014 Gross capacity MT pa 3.5 7. 165 .e.0 2.lucas@jpmorgan.9 Supply NWS. and small volumes for CNG in transportation and industrial users. Table 61: CNOOC's existing terminals and import costs Re-gasification terminals Dapeng. Morgan estimates.P. Company data. Guangdong Putian.0 2.84 2.0 Equity stake Y Y Source: J.8 6. Zhejiang Zhuhai.P. Company data. Qatar Tangguh MLNG Source: J. Liaoning Source: J. Company data. Gas sales contracts are mainly to its power plants located next to its re-gas terminals. Hainan Source: J. Company data.0 Table 63: CNOOC's planned terminals Re-gasification terminals Shenzhen. city gas distributors. Hebei Jiangsu Floating terminal.5 2.03 1.36 1. Guangdong Yangpu.Fred Lucas (44-20) 7155 6131 fred.0 3. Table 65: CNOOC's future LNG supply contracts Source Australia Qatar Unspecified Project Curtis LNG Qatargas 2 GDF Suez Operator BG Group Qatargas GDF Year 2014 2013 2013 Ends 2034 2038 2016 Volume 3.93 2.4 5. Morgan estimates.P.8 11M2011 imports 5.0 3.0 2.6 1.48 2010 average cost 6.62 11M2011 average cost 8.P.6 Equity stake Y (parent) Source: J.0 2. Morgan estimates. There are plans for a pipeline to link all of its re-gasification terminals to improve the distribution of its LNG imports to its customers. CFA (852) 2800-8578 brynjar. Morgan estimates. Fujian Yangshan. Guangdong Qinhuangdao. CNOOC listco has equity stakes in the Northwest Shelf and Tangguh liquefaction projects.6 5.1 6. Table 62: CNOOC's terminals under construction Re-gasification terminals Ningbo. Tianjin Yingkou. Shanghai Start date 2006 2008 2009 Gross capacity MT pa 6.0 2010 imports 5. Company data. Scheduled start date 2015 NA NA NA NA Gross capacity MT pa 4.0 CNOOC CNOOC and its parent company are the biggest Chinese owners of LNG assets because they had first mover advantage. CNOOC parent is the operator and holds the majority stakes in all three regasification terminals with a combined 12.0 NA NA Table 64: CNOOC's existing LNG contracts Source Australia Malaysia Qatar Indonesia Flexible Project Australia NWS MLNG Tiga Qatargas 3 Tangguh LNG Portfolio Operator Woodside-led MLNG Qatargas BP-led Total Year 2006 2009 2009 2007 2010 Ends 2031 2034 2034 2032 2030 Volume 3.

com Global Equity Research 13 January 2012 Table 66: CNOOC's stakes in liquefaction assets Liquefaction plant Australia NWS Tangguh LNG Curtis LNG Source: J.Fred Lucas (44-20) 7155 6131 fred.6 8.3% 13. Start date 2004 2009 2014 Gross capacity MT pa 16.lucas@jpmorgan.3 7. Although two upstream equity stakes are held by listco their contribution to CNOOC’s overall NPV is small. 166 .9% 10.P. Import terminals are held at parent level.0% We do not ascribe any specific value to CNOOC’s LNG assets.5 Equity 5. Company data. Morgan estimates.

Company data. Table 71: PetroChina's liquefaction asset Liquefaction plant Australia Arrow LNG Source: J. Start date 2017 Gross capacity MT pa 8 (first stage) Equity 50% Net capacity MT pa 4 We do not ascribe any specific value to PetroChina’s LNG assets. Morgan estimates. Table 67: PetroChina's re-gasification terminals in operation Re-gasification terminals Rudong. Scheduled start date 2015 NIL Gross capacity MT pa 3.0 2. For LNG. Shell Year 2012 2013 2014 2014 Ends 2037 2038 2034 2034 Volume 3.e.P. Company data. Liaoning Source: J. Shell Chevron.P. Morgan estimates.73 0.P. Exxon.06 11M2011 average cost 15.Fred Lucas (44-20) 7155 6131 fred. Start date May 2011 Nov 2011 Gross capacity MT pa 3. Scheduled start date 2013 Gross capacity MT pa 3. Each year.bustnes@jpmorgan. Morgan estimates. gas sales agreements are similar to its onshore gas PetroChina PetroChina is the largest Chinese natural gas supplier in terms of domestic production and imports. held by PetroChina. CFA (852) 2800-8578 brynjar. Company data.5 3. LNG supply contracts are however.lucas@jpmorgan.P. Liaoning Source: J. Jiangsu Dalian.5 Table 69: PetroChina's planned re-gasification terminals Re-gasification terminals Shenzhen. according to management. Company data.5 MT pa capacity. PetroChina signs gas sales agreements with customers subject to the plans specified by the government. Exxon.0 2. Morgan estimates. while PetroChina's first contract with Qatar may only supply full volumes by 2013. The Jiangsu and Dalian terminals started operating in 2011 with a combined 6. 167 . Morgan estimates.8 Supply Qatar Qatar Table 68: PetroChina's re-gasification terminals under construction Re-gasification terminals Caofeidian.0 NIL Table 70: PetroChina's gas supply contracts Source Qatar Qatar Australia Australia Project Qatargas 4 Qatargas 4 Gorgon LNG Gorgon LNG Operator Qatargas Qatargas Chevron.5% owned listed subsidiary Kunlun Energy (135 HK) with overall NPV accruing to PetroChina relatively small. as far as we understand.P. Guangdong Jinxi. Hebei Source: J.0 2.6 17. PetroChina has been importing LNG spot cargoes so Global Equity Research 13 January 2012 Brynjar Eirik Bustnes. Import terminals are actually held through a 50.3 Equity stake Source: J.5 11M2011 imports 0. Company data. because its term supply contracts are commencing after its first two re-gasification terminals are ready.

Sinopec will buy another 3. Company data.0 NIL NIL 2.P. Morgan estimates. but the terminal is scheduled for 2013 completion. contribution to Sinopec’s overall NPV is relatively small. Project APLNG PNG LNG Operator Origin. Zhejiang Macau Source: J. to reduce consumption of oil products for power and heat generation and in turn to increase its refinery product yield. Sinopec Group signed an agreement in December 2011 with ConocoPhillips and Origin Energy for another 10% in the 9 MT pa APLNG project in Queensland. Australia raising its total stake to 25%. Morgan estimates.0 (first two trains) Equity 25% (parent) We do not ascribe any specific value to Sinopec’s LNG assets. CFA (852) 2800-8578 brynjar. Tianjin Lianyun. Start date 2015 Gross capacity MT pa Global Equity Research 13 January 2012 Brynjar Eirik Bustnes.3 MT pa of LNG from 2015 for 20 years. Company data.6 MT pa. Table 72: Sinopec's re-gasification terminal under construction Re-gasification terminals Qingdao. Morgan estimates. Company data.0 Supply PNG LNG Table 73: Sinopec's planned re-gasification terminals Re-gasification terminals Tieshan.lucas@jpmorgan.0 Equity stake Y (parent 25%) Table 75: Sinopec's liquefaction asset Liquefaction plant APLNG Source: J. Jiangsu Wenzhou. In the same agreement.P.Fred Lucas (44-20) 7155 6131 fred. Sinopec’s only stake in liquefaction capacity is in APLNG – this is held by its state parent Sinopec Group (initially 15%). Conoco Exxon. while upstream equity stakes are held by its parent. Sinopec’s first LNG terminal Shandong will receive cargoes from PNG Sinopec Sinopec's domestic natural gas production is mainly used to meet demand from its refining and chemical operations. Scheduled start date 2015 NIL NIL NIL NIL Gross capacity MT pa 3.P. Morgan estimates.P.0 3 Table 74: Sinopec's LNG supply contracts Source Australia Papua New Guinea Source: J. In any event. Scheduled start date 2013 Gross capacity MT pa 3. Company data.bustnes@jpmorgan.6 2. Guangxi Tanggu. Import terminals are held at listco level. while Exxon Mobil and its partners are expected to start first deliveries from the project in 2014. bringing the total contracted volumes to 7. 168 . Shandong Source: J. It is likely that Sinopec’s LNG imports will be used to serve its internal demand.e. Oil Search Year 2015 2015 Ends 2035 2035 Volume 7.

1 FY14E 269.8 100.3 66. where the reservoir has proved to be more complex than expected. limited by domestic gas constraints.0 62.9 47. particularly to supply key sectors such as refining/steel/CGD. GAIL expects to commission its west coast Dabhol 169 LNG import capacity increases only in the next 12-18 months .4 49.3 233. where we believe the RIL-BP JV will be able to work through the difficulties faced to reach a production rate of 90 mmcmpd.7 FY11 211.5 76.9 258.Fred Lucas (44-20) 7155 6131 fred. and it will raise capacity at its existing Dahej terminal with the completion of a second jetty in late 2013. we expect imports of LNG to remain robust.1 61.2 FY15E 278.0 74.5 33.8 173. while a much larger quantity of gas based power capacity is being constructed/planned in the country. With demand exceeding supply and domestic gas sources unable to ramp up production to previously expected levels.9 Incremental sources of domestic supply are concentrated in the medium term on the east coast of the country (mainly KG-D6). a significant build out of gas pipeline infrastructure has taken place.7 FY13E 253. domestic supplies stagnant Domestic gas supplies are not ramping up as was earlier anticipated – primarily due to a fall in production from the KG-D6 development. and has spurred gas demand growth.3 54.lucas@jpmorgan.2 150.8 46.9 67.3 59. our power/utilities team assumes a lower effective demand number from these. Table 76: India gas demand-supply Demand (mmscmd) Demand (bcm) Domestic supply (mmscmd) Domestic supply (bcm) LNG (mmscmd) LNG (bcm) Total Supply (mmscmd) Total Supply (bcm) Source: J.7 64.3 FY12E 222.0 137. While demand for LNG has been robust.2 146.6 12.5 91. and the company is fighting hard to simply maintain output levels. The growth of the city gas distribution (CGD) business will also stimulate demand growth. The bulk of state-owned ONGC’s gas fields are mature. This has connected new demand centers to supply sources.8 179. However.4 183.7 112.2 96. further studies are being carried out. Demand growth is driven by new gas based power projects. Fertilizer plants will continue to move from liquid to gaseous fuels.2 76.8 12.6 69.8 84. with increased gas availability with the discovery of gas off the east coast of the country (KG-D6 primarily).5 35.3 52.0 79. However. Morgan estimates.P.9 166. PLNG will commission its Kochi terminal at the end of 2012. Availability of gas at reasonable price points will also spur conversions from liquid to gaseous fuels.9 132. which are accorded a low priority for allocation of domestic gas.0 211.2 22.7 26. FY10 193.5 24. We also build in commencement of supplies from other GSPC / ONGC field developments. However. and post the on-boarding of BP as a JV partner. import capacity increases will only occur in the next 12-18 months. RIL has submitted plans to develop other parts of the field to boost output.5 40.8 Global Equity Research 13 January 2012 Overview India LNG Supply / demand outlook Indian gas demand remains supply constrained Infrastructure and domestic gas supply constraints have historically limited gas usage in India.0 92.

LNG volume growth is likely to be muted over the near-term.0 Naphtha Source: Bloomberg.Fred Lucas (44-20) 7155 6131 fred.0 10.expansion GAIL Dabhol Source: J.0 14. Figure 104: R-LNG vs.P. Timeline Sep 2012 Sep-Dec 2013 End 2016 Mar 2012 LNG prices are elevated Spot LNG prices have continued to rise over the past few months – these are now close to liquid fuel levels. which could also impact demand from industrial Global Equity Research 13 January 2012 terminal in by end Q1 2012. 170 . In particular.P. This could begin to have an impact on demand from industrial users. Morgan estimates Fuel Oil R-LNG Rupee depreciation Exacerbating the rise in LNG prices has been the recent depreciation in the INR (18% since August 2011) – necessitating price hikes. Figure 105: INR exchange rate 55 52 49 46 43 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Source: Bloomberg. we expect spot LNG prices to be firm in the winter. J.0 12. This is reflected in our LNG import forecasts (Table 74). As a result. as a breakwater is yet to be constructed. Morgan estimates.jetty PLNG Dahej . liquid fuels (US$/mmbtu) 18.lucas@jpmorgan.0 8. Table 77: LNG import terminal projects in the pipeline Project PLNG Kochi PLNG Dahej .0 16. which could affect near-term industrial consumption growth. However this will initially operate only at 50-60% capacity on an annual basis.

a. LNG re-gasification capacity At present. It does not possess any liquefaction assets. LNG strategy assessment Petronet is leading India's build out of LNG import capacity PLNG is engaged in the business of sourcing LNG and providing re-gasification services. and a 1. This facility is expected to be completed in Q4 2012. While various LNG terminals are being planned across India (GAIL's 5 MT pa Dabhol terminal will start up in Q1 2012). with capacity expansion at the existing Dahej 12. It is expected to be completed by the end of 2012. This facility's capacity is to be ramped up in 2 steps .5 MT pa.5 MT pa is under construction and expected to be completed in late 2013. Given the large mismatch between gas demand and supply in India. A jetty that will raise capacity to 12. CFA (91-22) 6157-3591 pradeep.mirchandani@jpmorgan. Given the projected rise in domestic gas demand. we believe that the build out of pipeline infrastructure and additional LNG import capacity are required. this leaves un-booked import capacity that so far has been partly filled by sourcing spot/medium -term LNG supplies. We note that there have been news reports of possible tie-ups with Russian suppliers and potential new agreements with Qatar. with a capacity of 5 MT pa. with additional re-gasification facilities to be added later.5 MT pa supply contract from Gorgon LNG. However. A new LNG terminal is being constructed at Kochi. and is continuing to focus on this segment of the value chain.5 MT pa with the completion of a second jetty (expected in late 2013). 171 .lucas@jpmorgan. We note that construction would likely take around 42 months.5 MT pa). PLNG would need to begin tying in additional long-term supplies. Australia to be delivered to its Kochi terminal. PLNG plays a key role bridging that gap by providing the necessary import capacity. and the construction of a new terminal at Kochi. PLNG is also constructing a new terminal at Kochi (5 MT pa) on the south-western coast.Fred Lucas (44-20) 7155 6131 fred. PLNG has a long-term contract with RasGas of Qatar for 7. The company is soon to decide whether additional regasification capacity of 5 MT should be added at this terminal. The nameplate capacity for this terminal is 10 MT pa (currently operating at a rate of ~10. A key question is the sourcing of long-term gas supplies. With the capacity expansion at Dahej and start-up of Kochi. PLNG has one operational LNG terminal at Dahej. At Dahej.5 MT Global Equity Research 13 January 2012 Pradeep Mirchandani. PLNG remains the largest player. raising capacity to Petronet LNG Summary of key LNG assets Petronet LNG (PLNG) currently operates a 10 MT pa LNG terminal at Dahej on the western coast of India. Liquefaction assets PLNG currently operates a single re-gasification terminal.

231 Terminal cash flow (Mar-21) Table 78: PLNG valuation EBITDA Cash Tax Payable Working Capital changes Capex Adjusted free cash flow Terminal growth rate WACC DCF Valuation Net Present Value of explicit cash flows NPV of Terminal Value (Mar-21) Enterprise Value Less: Net Debt (Mar11) Equity Value No.0% 11.056) 3.Fred Lucas (44-20) 7155 6131 fred.470) (6.P.394) (2.131 (5.402) (3.000) 29.120 172 . LNG portfolio valuation PLNG is exclusively an LNG company.881 161.500) 1.995 FY14 26.500) Global Equity Research 13 January 2012 LNG shipping assets PLNG has a time charter arrangement with a consortium led by the Shipping Corporation of India for three LNG tankers. to arrive at our price target of Rs190 of which the Kochi terminal accounts for ~Rs32 per share.338 (4.946 20. Morgan estimates. These are responsible for transporting the long-term quantity of gas contracted from RasGas (7.441) (11.041) 28 3. FY12 17. Shares (millions) Per Share Equity Value Source: J.241 (3.936 141.lucas@jpmorgan.010 750 188 FY13 21.767 FY15 32.7% 94.227 (4. Key upside risks are a moderation in LNG prices and key downside risks are a road map to ramp up of domestic gas supplies.194) 7.5 MT pa) to the Dahej terminal.898 (17.065 67. We value PLNG using a DCF valuation.184 (7. 12.

Specific to Mozambique. ENI believes that it has discovered up to 22.industry historians may recall that in 1960 the British Gas Council proposed importing LNG from Venezuela to Canvey Island.this allows the President to impose sanctions on any company that invests $20m or more in Iran's oil & gas sector.5 173 .Fred Lucas (44-20) 7155 6131 fred. At end 2011. By the end of 2018. and Divestment Act (CISADA) . the US Congress passed the Comprehensive Iran Sanctions. this number will have increased by only two to twenty (given first exports from Angola and Papua New Guinea).lucas@jpmorgan. Specific to Iran. Morgan. Table 79: LNG exporting countries Producing 2009 (16) OECD LNG exporters Australia Norway USA (Alaska) Non-OECD LNG exporters Abu Dhabi Algeria Brunei Egypt Equatorial Guinea Indonesia Libya Nigeria Malaysia Oman Russia Trinidad & Tobago Qatar Peru Yemen Angola Papua New Guinea Iraq Brazil Cameroon East Timor Iran Mozambique Tanzania Iran may fall off the list of potential supply points 2010 (18) 2011 (18) 2012E (19) 2013E (19) 2014E (20) 2015E (20) 2016E (21) 2017E (22) 2018E (28) Canada - Source: J. or are expected to be able. By 2015. we expect the number of countries exporting LNG to reach twenty-eight although we have reservations about the ability of two countries – Iran and Iraq – to attract the necessary capital and expertise and deliver the Global Equity Research 13 January 2012 Appendix I: LNG exporting countries Only 18 countries exported LNG in 2011 The following table lists the countries that can. we note that in 2010. The threat of sanction has persuaded most major oil companies to sever all ties with Iran although many national oil companies still procure crude from Iran. there were only eighteen countries in the world with LNG export facilities – no new countries joined this fairly elite group during 2011. to export LNG.P. More confident about East African LNG hub We are more confident that both Mozambique and Tanzania will become a new East African LNG export hub – this is ideally located to supply the west coast of India and Asia Pacific. We have pushed Venezuela out to 2020 . Accountability. The US Treasury Department has also designated Iran and its central banks as a ‘territory of primary money laundering concern’ – a move designed to pressure all banks and companies not to deal with Iran's financial system.

e. Supply points will remain heavily biased to non-OECD As a reminder of the non-OECD bias of LNG supplies. Morgan.0 8. Morgan.6 33. potentially located in Cyprus.4 5. Mitsui 20%.0 1.5 2. to process gas from its giant (> 10 TC) Leviathan gas discovery.5 10.the US Geological Survey estimates 120 TCF of recoverable gas in the Levant Basin which straddles Lebanon and Palestine. The governments of both Mozambique and Tanzania are actively encouraging LNG developments in their country.Anadarko 36.5 7.0 8.5%.5%) now estimates recoverable resources to range from 15 to 30+ TCF with estimated 30 to 50+ TCF of gas in place in the Oligocene and Eocene reservoirs. ENH 15%.0 1. KOGAS 10% and GALP 10%). Barquentine and Camarao discoveries (the WLBC gas complex – Offshore Area 1).3 2.0 1.Fred Lucas (44-20) 7155 6131 fred. Videocon 10% and Cove Energy 8.0 6.8 On stream 2019 2020 2018 6.3 9. MT pa 10. the separate consortium led by Anadarko (Area 1.0 4. This is the sixth successful penetration in the complex that includes Windjammer. Figure 106: LNG exporting countries 30 25 Non-OECD countries will continue to dominate global supply picture 20 15 10 5 0 2009 2010 2011E 2012E 2013E OECD 2014E Non-OECD 2015E 2016E 2017E 2018E 2019E Source: J.0 On stream 2018 2017 2017 2016 2017 2015 2016 2015 2019 2013 Abadi FLNG Cash Maple FLNG Curtis Island LNG Kribi LNG Mozambique LNG Newcastle LNG Tanzania LNG MT pa 2. twenty-four of the twentyeight countries that may export LNG by 2018 are not members of the OECD (Figure 109). ENH 10%. Bharat PetroResources 10%. Anadarko now refers to a large scale LNG development to consist of at least 2 trains and with the flexibility to expand to 6 trains. North America and Australia.0 12. Indeed. Rovuma Basin (ENI 70%. Lagosta. 174 .P.6 On stream 2019 2017 2018 2018 2018 2017 2018 2014 Bonaparte LNG Colombia LNG Tangguh LNG T3 MT pa 2. Following the successful Barquentine-3 appraisal well (encountered more than 202m of natural gas pay). Noble Energy has talked about a 15 MT pa plant.lucas@jpmorgan.5 60.g.8 Israel could also join the club of LNG exporters . We believe that this will continue to place a price and value premium on LNG that is sourced from countries within the OECD.0 3. Table 80: Schedule for LNG project Final Investment Decision (FID) 2012 Brass LNG Browse LNG Ichthys LNG Kitimat LNG PNG FLNG Pluto LNG T2 Sabine Pass LNG Sengkang LNG Shtokman LNG Source: J.0 Global Equity Research 13 January 2012 TCF at its Mamba South-1 discovery in the Offshore Area.

We then expect an acceleration in new capacity in 2015 through to 2018. we therefore expect the market to continue to tighten. following the substantial capacity additions in 2009 and 2010. As per Figure 110. Morgan. we have already witnessed a dramatic slow down in capacity additions in 2011 which we expect will continue through to 2014.P. Figure 107: Liquefaction capacity .Fred Lucas (44-20) 7155 6131 fred. The impact on global liquefaction capacity is shown in Figure 111.sanctioned. Between 2011 and 2015. material plant outages (ii) there is no lost capacity due to upstream resource depletion (iii) all new projects are efficiently commissioned on schedule. Furthermore. 175 . pending sanction and those in concept stage (Table 78). Global Equity Research 13 January 2012 Appendix II: LNG export projects We maintain a global database on all liquefaction projects . we forecast a capacity CAGR of 5%. this assumes that (i) there are no unexpected. it suggests that capacity growth could fall behind demand growth 2010-2016. On balance.lucas@jpmorgan. This shows that capacity growth (2000-10 CAGR 7%) broadly matched demand growth in the last decade (2000-10 8%).annual growth (MT pa) 120 100 Projects commencing 2016 -18 must be securing offtake201214 to ensure FID 2013-14 +23% +13% 80 This could create more of a buyers' market in 2012-14 given LNG-on-LNG competition +17% +15% 60 +8% 40 +17% +13% +9% 20 +7% +6% +2% +6% +3% +3% +3% +4% 0 2005 2006 2007 2008 2009 2010 2011E Atlantic Basin 2012E 2013E 2014E Asia Pacific 2015E 2016E 2017E 2018E 2019E 2020E Middle East Source: J.

Morgan. Figure 109: Number of LNG trains and global average capacity (MT pa. From a starting level of just over 1 MT pa. As per Figure 112.5 120 100 2 80 1. RHA) 200 4 180 3.5 160 3 140 2.5 60 1 40 0. This mirrors an equivalent trend in refining for ever larger refineries. the world’s average liquefaction train size will continue to rise.P. RHA) 0 Source: J. we estimate an average train size of 3.7 MT pa by 2020 based on a forecast total of 193 trains. 176 . Morgan.P.5 20 0 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Cumulative liquefaction trains Average Train Size (MT pa.Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 Figure 108: Global liquefaction capacity (MT pa) 750 700 650 600 550 500 450 400 350 300 250 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Base VERY LIKELY POSSIBLE Capacity CAGR +15% Capacity CAGR +6% Capacity CAGR +7% Demand CAGR +8% 2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E New Capacity Source: J.lucas@jpmorgan.

3 1.lucas@jpmorgan.9 471.0 10.6 10.0 5.7 3.0 3.5 1.5 300.5 3.2 9.2 23% 3.0 5.2 58.0 5.7 9.8 4.7 177 .5 4.5 5.Charles T2-3 144 23 167 28 322.9 3% 3.0 3.5 2. Australia LNG Wheatstone T2 Prince Rupert T1-2 Khawr al-Amaya Progress FLNG PNG LNG T3 Gulf LNG Train 1 Gulf FLNG Lake Charles T1 125 19 144 22 Project Colombia LNG Persian LNG NLNG T8 OK LNG Pechora LNG Yamal LNG T2-3 Cove Point T1-2 Cameron LNG T1-3 Jordan LNG T1-2 GM de Ayacucho MT pa 1.1 2013E Country Algeria Capacity b/f Trains / Additions Capacity c/f YoY growth Average train size Exporting countries 2016E Country Abu Dhabi Australia Project GL3Z Arzew Skikda LNG 97 2 99 19 Project ADGAS T4 AP LNG T2 Fishermans Island Gladstone LNG T2 Gorgon LNG T3 Wheatstone LNG T1 Kitimat LNG T1 Senoro-Donggi LNG Marsa El Brega Sarawak FLNG Sakhalin LNG T3 Freeport LNG T1-2 Sabine Pass T1-2 MT pa 4.8 106. 102 8 110 20 Project Browse T2-3 Curtis Isl.0 4.0 84.0 1.Fred Lucas (44-20) 7155 6131 fred. Morgan.0 8.0 9.3 3.3 5.2 4.3 4.3 MT pa 2.0 5.4 1.5 300.0 5.8 408.4 4% 3.P.2 9% 3.7 3% 3.0 6.0 3.0 8.3 309.3 5.3 2.8 350.8 15% 3.2 8.2 MT pa 8.0 5.6 1.9 12.0 4.0 2.9 17% 3.0 Capacity b/f Trains / Additions Capacity c/f YoY growth Average train size Exporting countries 167 11 178 28 578.5 Capacity b/f Trains / Additions Capacity c/f YoY growth Average train size Exporting countries 178 15 193 30 626.3 2.9 62.5 Capacity b/f Trains / Additions Capacity c/f YoY growth Average train size Exporting countries 2019E Country Australia Indonesia Iran Malaysia Mozambique Nigeria Russia 110 15 125 21 Project Bonaparte FLNG Abadi FLNG Pars LNG T2 Iran LNG T1-2 SK 205 FLNG Mozambique T2 Brass LNG T2 NLNG T7 Shtokman LNG T2 Yamal LNG T1 350.5 8.0 2.4 578.0 4.0 471.8 5.5 12.2 309.7 MT pa 3.0 5.0 5.0 1.2 Indonesia PNG Canada Indonesia Libya Malaysia Russia USA Canada Iraq Malaysia PNG USA Capacity b/f Trains / Additions Capacity c/f YoY growth Average train size Exporting countries 2020E Country Colombia Iran Nigeria Russia USA Venezuela Capacity b/f Trains / Additions Capacity c/f YoY growth Average train size Exporting countries 2018E Country Australia Brazil Cameroon Canada Egypt Equatorial Guinea Indonesia Iran Mozambique Nigeria Norway Russia Tanzania Trinidad USA Capacity b/f Trains / Additions Capacity c/f YoY growth Average train size Exporting countries Source: J.5 1.3 MT pa 5.0 4.8 12.1 2014E Country Australia PNG Capacity b/f Trains / Additions Capacity c/f YoY growth Average train size Exporting countries 2017E Country Australia Project Gorgon LNG T1 QC LNG T1 PNG LNG T1 99 3 102 20 Project Prelude LNG Browse LNG T1 Cash Maple LNG Gorgon LNG T4 Ichthys LNG T1-2 Newcastle LNG QC LNG T3 Scarborough LNG S.0 9.4 710.7 4.5 3.0 408.3 291.2 47. T1-2 Sunrise FLNG Santos FLNG Kribi LNG BC LNG Progress LNG Damietta T2 Punta Eur T2 Tangguh T3 Pars LNG T1 Mozambique T1 Brass LNG T1 Snohvit LNG T2 Shtokman T1 Vladivostok T1-2 Tanzania T1 ALNG Train X L.0 4.4 3.0 10.0 2.8 7.3 MT pa 5.0 9.5 5.4 27.5 10.0 2.0 Global Equity Research 13 January 2012 Table 81: LNG capacity additions 2012-2020E 2012E Country Angola Australia Capacity b/f Trains / Additions Capacity c/f YoY growth Average train size Exporting countries 2015E Country Australia Project Angola LNG Pluto LNG T1 95 2 97 19 Project AP LNG T1 Darwin LNG T2 Gladstone T1 Gorgon LNG T2 Pluto LNG T2 QC LNG T1 Sengkang LNG PNG LNG T2 MT pa 4.0 4.9 5.0 4.6 5.0 4.0 MT pa 4.6 2.6 2.0 8% 3.3 7.4 13% 3.4 4.6 322.8 626.0 7.0 3.9 5.5 3.0 5.

the number of countries with LNG import terminals will have almost doubled to 47 (Figure 113). the ability to import LNG. Figure 110: Number of countries with re-gasification terminals 50 45 40 120 35 30 25 20 15 40 10 5 0 2008 2009 Europe Figure 111: Number of re-gasification terminals 160 140 100 80 60 20 0 2010 2011 2012E N America 2013E M East + Africa 2014E Asia 2015E 2009 2010 Europe 2011 S & C America 2012E N America 2013E M East + Africa 2014E Asia 2015E S & C America Source: J. Figure 112: Re-gasification capacity (MT pa) 90 80 900 850 2011-2015 CAGR +8% 800 750 700 650 600 550 500 450 2010 Europe Annual additions MT pa 70 60 50 40 30 20 10 0 2011 S & C America 2012 N America 2013 M East + Africa 2014 Asia 2015 Cumulative Source: J. we expect that the number of re-gasification terminals will increase from 90 at year end 2011 to as many as 159 terminals. This is an unprecedented pace of growth. we estimate that 25 countries will have operational re-gasification capacity. During 2011. Morgan.P. Source: Global Equity Research 13 January 2012 Appendix III: LNG importing countries We also maintain a database on all LNG re-gasification terminals worldwide. This represents a re-gasification capacity CAGR of 8%.e. three countries commissioned their first LNG import terminals – Dubai (FSRU).lucas@jpmorgan. 178 Cumulative MT pa . Netherlands (GATE LNG) and Thailand (Rayong LNG). Our database on re-gasification projects suggests that by end 2015. i. As per Figure 114. By the end of 2011. We estimate that global aggregate re-gasification capacity will rise from 565 MT pa at end 2011 to 777 MT pa by end 2015.Fred Lucas (44-20) 7155 6131 fred. Morgan. This helps us to anticipate new sources of demand. Morgan.

600 at end 2015 (160 multiplied by 35). Table 82: New LNG re-gasification terminals Country Albania Argentina Bahamas Bahrain Bangladesh Brazil Canada Chile China Colombia Croatia Cyprus Dominican Republic Dubai Estonia France Germany Greece India Indonesia Ireland Israel Italy Jamaica Japan Kuwait Lithuania Malaysia Mexico Netherlands Pakistan Panama Philippines Poland Portugal Puerto Rico Singapore Slovenia South Africa South Korea Spain Sri Lanka Sweden Taiwan Thailand Turkey UK Uruguay Ukraine US Vietnam Total number of LNG import terminals Source: J. the market's deeper liquidity ought to provide some protection from potential demand or supply shocks.430 at end 2011 (90 multiplied by 27) to 5. A higher number of supply and import points ought to make it harder for any single supplier to control Global Equity Research 13 January 2012 Of note. Morgan.Fred Lucas (44-20) 7155 6131 fred. The embedded ‘optionality’ of the global LNG system will thus rise very materially – buyers will have more choice as indeed will sellers. 179 2010 1 1 1 1 4 2011 1 2 1 1 1 1 1 1 8 2012E 2 3 1 1 1 1 1 1 1 13 2013E 3 2 1 1 1 1 2 1 1 1 1 1 1 1 18 2014E 1 1 1 1 2 1 1 1 3 1 1 1 1 1 1 1 1 21 2015E 1 1 2 1 4 3 2 1 1 1 1 1 1 21 . an increase of 130%. Furthermore.P.lucas@jpmorgan. the number of theoretical supply point to import point connections will rise from 2.

we list other venues for FSRUs. Morgan. Easier permitting . Cheaper . Excelerate Energy. this compares to an onshore facility which (depending on its size and location) may cost $0.g. Floating storage and re-gasification units So called FSRUs are becoming more popular as very practical alternatives to conventional onshore re-gasification terminals.since they do not require land requisition and site conversion. Local opposition to onshore sites can often slow down projects e.since a vessel may cost $100m and the conversion may be done for only $50m. Golar LNG and Hoegh LNG are the world’s leading providers of FSRUs. Italy (1) and Kuwait (1). in Global Equity Research 13 January 2012 Figure 113: LNG re-gasification terminals . Brazil (2). an FSRU may be operational within 12-18 months whereas a conventional onshore terminal may take 3-4 years to build and commission. They can offer three specific advantages: 1.P. Exmar.2011 to 2015E 6 5 31 (’10) 2 2010 terminals 2011 addition 2012E addition 2013E addition 2014E addition 2015E addition Source: J. Chile (1).Fred Lucas (44-20) 7155 6131 fred. In Table 80. 3. Dubai (1).0bn. Eight FSRUs are already operational in Argentina (2).5bn to $1. They are purpose built LNG tankers with vaporization equipment.given the aforementioned features. Quicker to install . 2.lucas@jpmorgan. 180 .

Gruppo Falcione Excelerate Energy.0 1.5 1. Nord-West Oelleitung TBC OLT Offshore GDF Suez.lucas@jpmorgan.0 1. Location Fiere Wilhelmshaven Ashkelon / Ashdod Livorno Senigallia Ancona Falconara Marittima Red Sea Klaipeda Port. PGN Petronas Dana Gas Global Edison. Baltic Sea Mossel Bay Port Meridian Maiskhali Island West Java North Sumatra Malacca Straits Port Qasim Khalifa Point Vietnam TBC Lazaro Cardenas Port Esquivel or Kingston Harbour Rio De La Plata Port Dolphin Project developers ASG Power.3 TBC TBC Start date 2015 2017 2014 2012 2015 2015 TBC 2014 2012 2013 2014 2013 2013 2012 2013 2013 2013 2014 2014 2014 2013 2013 181 .0 5.5 5.5 4.Fred Lucas (44-20) 7155 6131 fred. Morgan. DNV Utility consortium KMX de GNL Exmar. Hoegh LNG Api (Nova Energia) Ministry of Energy & Mineral Resources Klaipedos Nafat PetroSA Hoegh LNG PetroBangla Pertamina.0 1.5 1.0 8.1 Global Equity Research 13 January 2012 Table 83: Potential FSRU projects Country EMEA Albania Germany Israel Italy Jordan Lithuania South Africa UK Asia Bangladesh Indonesia Malaysia Pakistan Vietnam Americas Brazil Mexico Jamaica Uruguay USA Source: J.0 TBC 2.5 5.0 1.0 5.1 2.0 1.P. ENARSA. Cavalier Energy PV Gas. RWE. PGN Pertamina. UTE Hoegh LNG Capacity (GM3 pa) 8.5 5.0 1. Petroleum Corp of Jamaica ANCAP.

the Methane Pioneer. Listed utilities that import LNG also have shipping fleets. typically via dedicated fleets.lucas@jpmorgan. this basic role of LNG ships has evolved to enable LNG suppliers to capture regional price arbitrage and to help optimize overall LNG portfolio returns. Morgan. public and private. the population of LNG shippers has remained relatively small and is dominated by liquefaction players that want to have control over the shipping process to their customers. Population of players LNG shipping set for a couple of good years ahead The first LNG carrier. there are also a number of pure shipping companies. LNG ships have become more valuable and strategically important Global Equity Research 13 January 2012 Appendix IV: LNG shipping LNG ships obviously enable LNG delivery from exporter to importer. Morgan. some state-owned (Table 81). Skaugen (Norgas Carriers) STX Pan Ocean Private shippers Bluesky LNG (Taiwan Maritime Transport) Dynagas Knutsen OAS Shipping SK Shipping Stena Bulk Source: J.Fred Lucas (44-20) 7155 6131 fred. by unlocking ships from such fixed routes.P. transported a cargo of LNG from Lake Charles to Canvey Island in the UK in 1959. many of which are listed. As such. Table 84: Owners and operators of LNG vessels State entities ADNOC (National Gas Shipping) Gazprom Global LNG Petronas (MISC Bhd) Qatar (Nakilat) Sonatrach (BW Gas. 182 . * Also provide FSRU units. EGL Group. Another factor inhibiting population growth is the relatively high new build costs ($220m to $300m) . this has been a Supply Point A to Demand Centre B fixed 'milk run’. Morgan Stanley and J. Relatively small population of shippers Most participants in liquefaction. However. Vitol. However. Hyproc Shipping) Sovcomflo Utilities GDF SUEZ (Maran Gas Maritime) Gas Natural Kansai Electric Power Petronet LNG TEPCO (LNG Marine Transport) IOCs BG Group (Methane Services) BP (Shipping) Chevron (Shipping) ConocoPhillips ENI Exxon Mobil RD Shell (STASCO) Repsol YPF Statoil Conglomerates Hanjin Group Hyundai * Mitsui OSK Lines Listed shippers Awilco LNG Exmar * Golar LNG Hoegh LNG ** I.LNG shipping is a niche market which is dominated by a number of very large companies. Gunvor. In the 54 years since then. Historically. also own LNG ships either directly or through joint ventures. A number of commodity traders also lease vessels e.M.P.g..

P. Supply / demand dynamics More long haul LNG expected as Atlantic Basin feeds Asia Pacific Notwithstanding a relatively small and disciplined population of ship owners. Their size precludes them from berthing at most LNG re-gasification terminals.000 cubic meters of gas. Two factors have triggered a quadrupling of rates . have surged from the lows of mid-2010 of c. sometimes referred to as floating gas pipelines.500 DWT 80000 60000 40000 20000 0 1 31 61 91 121 151 181 211 241 271 301 331 361 Source: J.a recovery in Asian LNG demand and the Fukushima disaster – both have raised demand for long haul LNG. This occurred in mid-2010 which pushed short term charter rates down to $30. In just two years. 28.size distribution 160000 Global fleet 361 vessels. Morgan.$30. the level of idle capacity has fallen from 30% of the global fleet to less than 10%.lucas@jpmorgan. Q-Max vessels first entered the market in 2009. the market is prone to imbalances and this leads to volatile freight rates.000 per day – a level that is close to break-even for most tankers – to over $125. We count over 360 LNG vessels in operation and another 63 are currently on order. Charter rates for LNG vessels.4 MT DWT capacity Q-Max 140000 120000 Q-Flex 100000 Average 78.000 per day.000 per day for long term charter on Atlantic routes. Charter rates have quadrupled from 2010 lows 183 .com Global Equity Research 13 January 2012 Figure 114: Global LNG shipping fleet . but the liquefaction facility that they are to serve is late to commission.Fred Lucas (44-20) 7155 6131 fred. One cause of over-supply is when new ships that are dedicated to an export project are delivered on schedule. These vessels are 360m long and can carry 266.

$1.5 knots through ice that is 1. Figure 118 shows the current costs expressed in $ per mmbtu. $1.3/MMBtu Middle east to Hazira. For example. Clearly. a journey from Atlantic LNG (Trinidad) to Japan via the Suez Canal would take 11 days less via the Panama Canal. $1.5m thick. Given a cost of LNG of around $6 per mmbtu. it will reduce the journey time for cargoes from the Atlantic Basin in to Asia Pacific. this route is still a viable one given recent clearing prices in Tokyo harbor over $17 per mmbtu. Morgan. $0. Aker Arctic has completed the design and model testing of tankers that may be able to travel to Asia via Russia’s North Sea Route (NSR). The longest.2/MMBtu Middle east to Huelva. the NSR was open for a record of five months.3/MMBtu Nigeria to Montoir . LNG ice-breakers may also open up a shorter route to Asia 184 .25bn expansion of the Panama Canal will enable LNG carriers to pass through it by Q4 2014.5/MMBtu Australia to Tokyo. $4. As a result of relatively high temperatures in 2011. $2.0/MMBtu Australia to Hazira. These Arctic 7 vessels can travel at speeds up to 19. $0.3/MMBtu Middle east to Tokyo. Only Q-size vessels will be unable to fit through the expanded canal.1/MMBtu Trinidad to Quintero .3/MMBtu Nigeria to Cove Point.1/MMBtu Trinidad to Tokyo .3/MMBtu Source: J.3 per mmbtu. We see three important changes in the LNG shipping market that will impact charter rates in the medium term: (i) the expansion of the Panama Canal (ii) the development of ice-breaking LNG vessels (iii) efforts to raise fleet efficiency via cargo swaps and back haul cargoes. $1.7/MMBtu North Africa to Sines. The toll for LNG vessels has yet to be agreed.P. $2. most expensive route – from Atlantic LNG to Tokyo – is around $ Global Equity Research 13 January 2012 Figure 115: LNG shipping routes and current freight rates ($/mmbtu) Trinidad to Zeebrugge. $2. $1.lucas@jpmorgan.5 knots in clear water and 5.Fred Lucas (44-20) 7155 6131 fred. Panama Canal expansion will reduce journey times to Asia The $5. The design of new ice-breaking LNG vessels will also enable supplies of Russian Arctic LNG to reach Asian markets without sailing via the Suez Canal.

This will raise the fleet’s average ton per mile. LNG carriers were typically dedicated to a specific export project and tied to a specific route – the so called ‘milk run’. we are also seeing ships being used more tactically and commercially. it has a sales value between $90m and $130m. Back haul cargoes – rather than a ship returning empty to its liquefaction plant after unloading its cargo. if the cargo sells for $10 (15) per mmbtu. Cargo swaps – rather than two tankers crossing each other.000 M3 from a Q-Max vessel (the world’s largest with a 7. if a seller has agreed to supply a cargo to Tokyo from West Africa and another seller has agreed to supply a European buyer from Peru.000 homes for one year – these are high density energy parcels. for example.Fred Lucas (44-20) 7155 6131 fred. the global fleet may be used more efficiently and certain key routes (US and Russia to Asia) shortened. This compares to the world's largest Ultra Large Crude Carriers (ULCC) which carry cargoes of 0.55 MT . So.5% heel). it is possible for it to reload on route from another LNG facility and to empty that cargo at another re-gasification terminal. At the same time. Two initiatives that are leading to higher vessel utilization are: 1. 2. more ships are expected to be delivered in 2013 and the start-up of several new sources of LNG supply in Australia in 2014-15 will also target Asia Pacific with a shorter haul thereto. On balance. such a large cargo has a market value of over $400m. buyers and sellers are coordinating more via cargo $100 per barrel. One Q-Max carrier brings enough energy for 70. four times the value of the largest LNG cargo. just as we have seen innovation in LNG contracting (with a shift to greater destination flexibility). We expect LNG day rates to remain high through 2012 However. 185 . it may be possible for the two sellers to swap their obligations. although we would expect the LNG shipping market to remain tight throughout 2012 and in to early 2013. the advent of North American non-conventional gas as a source of LNG exports post-2015 means that there will be increased demand for long haul LNG shipping. if this source gas is to reach both the key demand centers in Asia Pacific and Europe. However. these factors may mitigate further day rate inflation. So.lucas@jpmorgan. Assuming an LNG discharge volume of around 260. the average size of LNG vessels is slowly increasing. This is leading to enhanced fleet efficiency which is necessary given average vessel utilization in 2011 was just 75% versus a peak of over 90% in 2004. Vessel specification LNG cargoes worth $90m to $130m+ The largest LNG carrier is the Q-Max vessel (Figure 119).com Global Equity Research 13 January 2012 Fleet utilization can rise as vessels are used more efficiently Historically. at roughly the same time.

500 m3 DWT – 40586 tons Built in – 1969 Current owner – SCF Group Increasing size Al Samriya Specifications: Size – 261.P.P.g.Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 Figure 116: LNG vessels . Frontline (Figure 120).700 m3 DWT– 154940 tons Built in – 2009 Current owner – Qatar Gas (Nakilat) Source: J. Figure 117: Share price of Golar LNG versus Frontline (NOK) 400 350 300 250 200 150 100 50 0 Golar LNG Frontline Source: J. Morgan.88) markedly from an oil tanker owner.g.lucas@jpmorgan. 186 . This has caused the share price of an LNG vessel owner e. e. The rise in LNG freight rates has been in stark contrast to the decline in oil tanker freight rates which have declined due to surplus vessel capacity.evolution since inception SCF Arctic Specifications: Size – 71. Golar LNG to diverge (2011 correlation coefficient -0. Morgan.

stranded gas resources may total 1. 1.250 per ton (including upstream) this implied unit development costs of $23 per boe (assuming $11. comprising 3.4 MT pa of liquefied petroleum gas.pros and cons Pros Construction occurs in a controlled environment (shipyard) – this benefits safety. RD Shell took the final investment decision on the Prelude Floating Liquefied Natural Gas (FLNG) Project in Global Equity Research 13 January 2012 Appendix V: Floating LNG There are three key drivers to deploy liquefaction offshore: 1. Globally. Controversial for some countries if a nation’s gas resources are developed and exported with minimal local content and no inward fixed asset investment e. 187 . lay down areas and accommodation facilities. Given untested model.Fred Lucas (44-20) 7155 6131 fred. discovered by RD Shell in 2007. it will recover c. costs and schedule control risks. An alternative to the conventional onshore solution where costs have increased and delays are very common.3 MT pa of condensate and 0.275 TCF which is approximately 15% of global gas resources (Figure 121). process topsides and offloading systems.6 MT pa of LNG. The project is 100% RD Shell and is the world's first FLNG facility.5 MT pa and 8. Cons Development model is not cheap – RD Shell has indicated around $3. Morgan. Given resources of 9 TCF and 330 mmb condensate. dredging close to shore and jetty construction.g.g. The key challenges were sloshing-resistant containment systems.3 MT pa of liquids. some 200km offshore Australia. A means to reduce / avoid gas flaring and sub-optimal gas re-injection. When on station in 2017. Unclear whether extreme weather conditions (e. We note that it has recently agreed to purchase a 30% stake in the Abadi field. Prelude FLNG ‘marinised’ proven onshore technology for the first time On 20 May 2011.lucas@jpmorgan. Reduced onshore impact – avoids potentially lengthy and controversial land requisition. Via a 15 year strategic partnership with Samsung and Technip. Source: J. offshore Indonesia from Inpex. the vessel will be built in a South Korean shipyard.4 kbpd condensate.5bn and 3 TCF). 3. cyclones and typhoons in Asia) might require the vessel to be tugged away (we understand that Shell’s design is meant to stay on station during extreme weather). Shell Global Solutions (the group’s in house R&D center) had spent over 12 years developing the technology for FLNG. Prelude should produce at least 5. TimorLeste. onshore construction of roads.3 TCF of gas from the Prelude field. A means to monetize fields that are very remote and which otherwise are a stranded resource. but it is not cheap Table 85: Floating LNG . this is tagged as a FLNG project. 2. Higher operating and maintenance costs than onshore plants with limited expansion / de-bottlenecking options. Removes need for offshore compression. with capacity of 2.P. over a 25 year period. Pros of FLNG outweigh the cons. LNG buyers may enforce a price discount and it may be more expensive (if not impossible) to secure project finance. Less CO2 intensive than conventional onshore liquefaction – RD Shell’s environmental impact statement for Prelude LNG estimates 15-20% lower. Global stranded gas opportunity set is very big RD Shell plans to deploy other FLNG vessels elsewhere around the world to develop otherwise stranded gas resources (a report by the Commonwealth Scientific and Industrial Research Organization estimated 140 TCF of stranded gas in Australia alone).

0. these projects carry a total capacity of 30. PTT (50%) ** Woodside 33. Petrovietnam 50% * Mitsubishi. 12 potential FLNG projects including Prelude LNG There are two main FLNG concepts – small scale vessel based projects designed to handle gas from small fields and the large scale barge based concept designed for fields with gas reserves in excess of 3 TCF.0 3. PT Energi Mega Persada 10% (PT EMP) RD Shell 50%. * Part of the Greater Sunrise and Troubador fields lies in the Timor Sea’s Joint Development Area.0 Global Equity Research 13 January 2012 Figure 118: Distribution of gas resources by field size – the potential addressable market for FLNG 4000 3500 3000 3922 Number of fields 2500 2000 1500 1000 500 0 < 0.6 3. RD Shell 26.0. Santos 40% PTTEP (50%).1%. As per Table 83.5 TCF 5 .1 .0 3.25 .3%. Interestingly.0 3.1. DSME. GALP 16.3%. RD Shell 30%.6 2.0 TCF 1 .7 2.5 2. Table 86: Potential FLNG projects Country Australia Project Prelude LNG Bonaparte LNG Cash Maple FLNG Sunrise FLNG * Santos FLNG Abadi FLNG Khawr al-Amaya FLNG Sarawak FLNG SK 205 FLNG Progress FLNG Gulf FLNG TBC Project sponsors RD Shell 100% GDF Suez 60%. Morgan. Peak Petroleum * Liquid Niguini Gas (InterOil 52. 188 .P.0 30. we count twelve potential FLNG projects. Osaka Gas 10.25 TCF0.5% + Pacific LNG Operations 47.0% Petrobras 51. Indonesia (1) and Iraq (1).4 MT pa.lucas@jpmorgan. Repsol 16.5 2.0 1. ** Precise ownership rights yet to be confirmed. of which RD Shell is currently involved in four: in Australia (2).P. RD Shell may not actually be the first company to produce LNG from the offshore if Petronas progresses its project offshore Sarawak as it has scheduled – the FEED contract was awarded in February 2011 to Technip and DSME.4 On stream 2017 2019 2017 2018 2018 2019 2017 2016 2019 2017 2017 2019 Australia / East Timor Brazil Indonesia Iraq Malaysia Nigeria Papua New Guinea Source: J.0%.5%). ConocoPhillips 30.1 TCF 0. Morgan.44%.Fred Lucas (44-20) 7155 6131 fred. Including Prelude FLNG.3% Inpex Masela 60%.50 TCF 1043 719 347 337 73 4 50 .5 .100 TCF Onshore liquefaction Floating liquefaction potential Recoverable gas reserves Source: J. Petromin ** Project status Under development Under review – FID 2014 Under review – FID 2012 Under review Under review – FID 2013 Under review – FID 201314 Under review – FID 201314 Under review – FID 2012 Under review Under review Under review – FID 2012 Under review Total potential capacity Capacity (MT pa) 3. Mitsubishi 50% Petronas 100% Petronas 50%.5 2.5 TCF 0. BG 16.56%. Flex LNG ** Hoegh LNG.

1999…. UK. Prelude LNG. 1964….LNG plant in the Atlantic Basin was commissioned in Trinidad (Atlantic LNG).com Global Equity Research 13 January 2012 Appendix VI: A brief history of LNG Below.when the US did not import a single LNG cargo (recurs in 1986).large scale liquefaction plant (Arzew GL4Z or Camel plant) began operations in Algeria.owned by Excelerate Energy) began operations in the Gulf of Mexico. 1941….lucas@jpmorgan. USA. 189 .offshore re-gasification facility (Port Pelican .floating liquefaction project.LNG tanker (Methane Pioneer) brings a cargo of LNG from Lake Charles. Ohio. an explosion at the Cove Point terminal (USA) kills one person. 1969…. 2010….German engineer Karl von Linde built the first compressor refrigeration machine. LNG spills in to a sewer and an explosion kills 128 people. 1944…. sanctioned by RD Shell for Prelude field.commercial liquefaction plant was built in Cleveland. explosions and fire destroy part of the liquefaction plant in Skikda. In 2004. we list some key dates in the history of the LNG industry…. 1917 …. Algeria. 2004….an LNG storage tank at a peak-shaving plant in Cleveland fails.coal bed methane to LNG project was sanctioned by BG Group in Queensland. offshore Australia. 1959…. 2011….Fred Lucas (44-20) 7155 6131 fred. Louisiana to Canvey Island. sourcing gas from the Hassi R’Mel field – its first cargo was imported by the UK. 1974…. Australia. In 1979. killing 27 people.the world’s first…… 1873 ….LNG plant began operations in West Virginia.major LNG incident .LNG exports from the US to Asia when Kenai Peninsula LNG (Alaska) delivered its first cargo to Japan.

or mercaptans that can form an acid in solution with water. Prior to deregulation. Aggregators do not take title to the gas but simply find markets and negotiate prices for pools of producers. LNG is produced for the purpose of efficient storage and transportation of natural Global Equity Research 13 January 2012 Appendix VII: Glossary of terms in LNG Liquefaction & re-gasification Neither liquefaction nor re-gasification are complicated chemical processes – they simply induce a phase change for methane (CH4) – from gas to liquid and vice versa whilst also involving some purification of the source gas to meet the shipper’s / customer’s requirements. In a physical comparison. By converting natural gas to liquid by liquefaction process reduces its volume nearly 600 times (a 600:1 ratio). Acid gas: a gas that contains compounds. a limited number of aggregators operated. An aggregator is also called core transport agent. 2) also a firm that bargains on behalf of a large group of consumers to achieve the lowest possible price for utilities such as electricity and gas. Figure 119: Liquefaction process Gas specifications Related to upstream and transport facilities H2 S < 4 ppm Co2 < 50 ppm H2 O < 1 ppm Hg < 10 ng/m3 Higher Heating Value (Wobbe number) Feed Gas Fuel Gas distribution Plant fuel Ship vapors Gas Conditioning  Sweetening  Dehydration  Mercaptan removal  Mercury removal Propane refrigerating system Ethylene refrigerating system Methane compressor Vapour recovery Liquefaction LNG storage and loading NGL stabilization Marine facilities NGL storage LNG to ship Source: J. Aggregator: 1) acts on behalf of groups of producers to collect producer supplies and sell the gas in commingled blocks to end-users. Morgan. 190 . This compression makes the shipping of LNG economic. the same amount of natural gas held in a beach ball can be stored and transported in a table-tennis ball. Figure 122 shows the key steps in liquefaction and Table x the key steps for re-gasification. The firm “aggregates” or combines many smaller customers into one large customer for purposes of negotiation and then purchases the utility commodity on behalf of the group. such as CO2. Annual contract quantity: the annual delivery quantity contracted for during each contract year as specified in a gas sales or LNG contract.Fred Lucas (44-20) 7155 6131 fred. H2S.lucas@jpmorgan.P.

The following conversions would apply to gas that contains exactly 1. the quantity of heat necessary to raise the temperature of one pound-mass of water one degree Fahrenheit from 58. in which water is converted to steam that is used in a single steam turbine to power another generator (the Rankine thermodynamic cycle). the ADP provides a basis for decisions on how buyers and sellers will operate their facilities during the contract year covered. the ADP deals with the dates on which the sellers’ LNG ships will deliver LNG to the buyers’ terminals. with the expanded gas turning the blades of the gas turbines to power an electricity generator (the Brayton thermodynamic cycle). 191 . British thermal unit (Btu): an energy unit. the ADP covers the dates of arrival of the buyers’ ships at the LNG plant. For an ex-ship Global Equity Research 13 January 2012 Annual delivery program (ADP): a key document for both the buyer and seller in determining how they will work together over the life of an LNG project to achieve the efficient delivery and receipt of LNG cargoes. City gas: treated and conditioned gas for consumer use.000 Btu mcf = 1 mmBtu 1 BCF = 1 trillion Btu. The hot exhaust gases are passed to the HRSG.000 Btu/cf – approximately true for most gas delivered in the US: 1 cubic foot (cf) = 1. 1 therm = 100 cf = 100. Beach price: price applying to natural gas at landfall. The general convention is dry and gross. normally agreed between the parties before the beginning of each contract year.000 Btu. There is not necessarily a change of ownership at a city-gate station. 1 TCF = 1 quad = 1 quadrillion Btu Bubble point: the temperature and pressure at which a liquid first begins to vaporize to gas. Usually. Gas is combined with air and burned. This can be measured dry or saturated with water vapor. Beach gas: natural gas transported through offshore pipelines to a number of gas gathering and processing terminals at or near a coastal region. Whether the sale is ex-ship or FOB. the procedures to be adopted to develop the ADP are agreed upon in the Sales and Purchase Agreement (SPA). City-gate rate: the rate charged a distribution utility by its suppliers. refers to the cost of the natural gas at the point at which the distribution utility historically takes title to the natural gas (also called gate rate). Combined-cycle gas turbine (CCGT): this is the combination of simple gas turbines with a heat-recovery steam generator (HRSG) and a steam turbine in a power generation plant. Also called combined cycle generation.lucas@jpmorgan. Black start: the initial operation of a facility that begins with no utilities in service.5°F under a standard pressure of 30 inches of mercury at 32°F.Fred Lucas (44-20) 7155 6131 fred. For a Free on board (FOB) sale. net or gross.5°F to 59. City-gate station (city gate): the point or measuring station at which a gasdistribution utility physically receives gas from a pipeline or transmission company. the point at which the backbone transmission system connects to the distribution system. Calorific value: the quantity of heat produced by the complete combustion of a fuel.

192 . with services to be prorated among users in the event capacity is not sufficient to meet all requests. interstate oil pipelines are common carriers. procurement. but interstate natural gas pipelines are not (they are open-access contract carriers). construction and commissioning of the facilities will be conducted. Electrical energy is produced through gas turbines and heat energy (steam) is produced through a heat-recovery steam generator. Compressed natural gas (CNG): natural gas that has been compressed under high pressures (typically between 3. See Combined-cycle gas turbine. the temperature at which molecular motion essentially ceases. If the gas is to be sent to a cryogenic expander plant or LNG Global Equity Research 13 January 2012 Combined heat and power (CHP): the simultaneous generation of two forms of energy from a single fuel source. conducted before work on that activity has commenced. at which a vapor will form a first drop of liquid on the subtraction of heat. Further cooling of the liquid at its dew point results in the condensation of part or all of the vapor as a liquid. procurement and construction (EPC) contract: 1) a legal agreement setting out the terms for all activities required to build a facility to the point that it is ready to undergo preparations for operations as designed. fuel for compressor stations. Dehydration: the removal of water from a fluid. for the offshore production facilities and for the pipeline from the offshore location to the plant site. Company-used gas: natural gas consumed by a gas distribution or gas transmission company or the gas department of a combination utility. engineering. The cryogenic temperature range is usually from –150°C (–238°F) to absolute zero (– 273°C. In the US. or –460°F). Common carrier: a facility obligated by law to provide service to all potential users without discrimination. for example. Environmental-impact assessment (EIA): an assessment of the impact of an industrial installation or activity on the surrounding environment. expands when released for use as a fuel. and re-gasification of LNG.600 psi) and held in a container. Greenfield LNG project development entails a wide variety of design. fabrication and construction work far beyond the capabilities of a single contractor. separate EPC contracts are executed for construction of onshore LNG plant and related infrastructure.Fred Lucas (44-20) 7155 6131 fred. Engineering. Dehydrator: natural gas processing equipment that removes water vapor. a key part of this process. glycol dehydration units are used to dry gas before it is sent to a gas transmission line. Therefore. an LNG project developer divides the work into a number of segments. The original baseline study. describes the original conditions. A most important commercial application of cryogenic gas liquefaction techniques is the storage. Cryogenics: the production and application of low-temperature phenomena. each one being the subject of an EPC contract. then the gas is typically dehydrated using molecular sieves. Dew-point: the temperature. Typically. at a given pressure. transportation. 2) the final contracting phase in the development of the export portion of the LNG chain that defines the terms under which the detailed design.lucas@jpmorgan. For example.000 and 3.

Fred Lucas (44-20) 7155 6131 fred. petrochemicals and gas-to-liquids (GTL) plants. and cost overruns will have to be covered by the borrower’s equity investment. Flash vapors: gas vapors released from a stream of natural gas liquids as a result of an increase in temperature. In an LNG project. or a decrease in pressure. 2) generally. the ratio of gas to condensate is reported in cubic feet per barrel. Gas processing: the separation of oil and gas. Front-end engineering and design (FEED) contract: 1) a legal agreement setting out the terms for all activities required to define the design of a facility to a level of definition necessary for the starting point of an engineering. carbon dioxide and water vapor from natural gas. CGR) is also used. the second contracting phase for the development of the export facilities in the LNG chain which provides greater definition than the prior Conceptual design phase. FERC is responsible for regulating LNG facilities in the US. GTL produces products that can be easily traded as commodities on world Global Equity Research 13 January 2012 Federal Energy Regulatory Commission (FERC): the chief energy regulatory body of the US government. and is reported in barrels per mmcf. Gas to liquids (GTL): a processing technology that converts natural gas into highvalue commodity liquid fuels and blending agents. It is related to the volatility of the liquid.lucas@jpmorgan. Fuel gas: a process stream internal to a facility that is used to provide energy for operating the facility. but is housed in the US Department of Energy. This enables potential EPC contractors to submit bids on a lump-sum basis. Fuel loss: a proportion of natural gas received by a pipeline or local distribution company that is retained to compensate for lost and unaccounted for natural gas. but also for purposes of project financing – LNG project lenders will normally limit their lending commitment to a specific percentage of forecast project costs. The inverse ratio (condensate-gas ratio. Clear definition of contract costs is important not only for cost control purposes. and the removal of impurities and NGLs from natural gas. Feedstock gas (feedgas): dry gas used as raw material for LNG. Gas/condensate ratio: for a gas condensate reservoir. and construction (EPC) contract. Flash point: the temperature under very specific conditions at which a combustible liquid will give off sufficient vapor to form a flammable mixture with air in a standardized vessel. petrochemicals feedstocks and chemicals by changing its chemical structure. procurement. FERC is considered an independent regulatory agency responsible primarily to Congress. the most important function of the FEED contract is to provide the maximum possible definition for the work to be performed by the EPC contractor. with the least possibility that the contract cost will change through undefined work or through claims for unanticipated changes in the work. Gas treatment: removal of impurities. such as sulphur compounds. 193 .

development of receiving terminals for regasification and pipeline transportation to market. Green field LNG facility: a new LNG facility constructed on a new site. Roughly. liquefaction and transport of the LNG to endmarkets (typically 10-15%). The refrigerant may be part of the natural gas feed (an open-cycle process). Physical hubs include the Henry Hub in the US and the Zeebrugge Terminal (ZBT) in Belgium. colorless non-corrosive and non-toxic product of natural gas consisting primarily of methane (CH4) that is in liquid form at near atmospheric pressure. or a separate fluid continuously re-circulated through the liquefier (a closed-cycle process). ethylene (or ethane) and finally methane in three discrete stages. trans-regional (one or more transmission system operators (TSOs)) or within-country (one TSO). Hub: a contractual point where buyers and sellers execute transactions for gas. Gigajoule (GJ): a joule is an international unit of energy defined as the energy produced from one watt flowing for one second. natural gas supply for feed-gas to an LNG plant. The three refrigerant circuits generally have multistage 194 . Three general types of refrigeration cycle are used: Cascade refrigerant cycle: feedstock natural gas is cooled. In some parts of the Global Equity Research 13 January 2012 Gas-to-oil ratio (GOR): the number of standard cubic feet of gas produced per barrel of crude oil or other hydrocarbon liquid.lucas@jpmorgan. Examples of notional hubs are the National Balancing Point (NBP) in the UK and the Title Transfer Facility (TTF) in the Netherlands. LNG project characteristics: primary LNG project components are: 1) upstream development of long-term. one exajoule (Ej) = 1 TCF.Fred Lucas (44-20) 7155 6131 fred. Hubs generally consist of a Hub Services Agreement (operator) and Standard Trading Contract (trader). where a number of interstate and intrastate pipelines interconnect through a header system. one terajoule (Tj) = 1 mmcf. US. It is the standard delivery point for the Nymex natural gas futures contract in the US. Hubs can be notional or physical. one petajoule (Pj) = 1 BCF. there are 3. 2) downstream development of liquefaction. See Market centre. Henry Hub: pipeline interchange near Erath. LNG refrigerant (for liquefaction) cycles: natural gas liquefaction requires removal of sensible and latent heat over a wide temperature range using a refrigerant. condensed and subcooled in heat exchange with propane. Liquefaction plant: facility which converts natural gas at ambient temperature and pressure to liquefied natural gas. 1 gigajoule (Gj) = mcf. For gas. LNG feed gas requirements to LNG plant: The amount of gas reserves required to economically support the development of an LNG liquefaction plant. the benchmark gas price in the US Gulf. Liquefied natural gas (LNG): an odorless. storage and loading facilities. allowing for gas lost in the process of production. A very small unit of energy. one gigajoule is equal to 960 cf under standard temperature and pressure conditions.6m joules in a kilowatt-hour. the units are cubic metres of gas per cubic metre of liquid produced. 3) marine transportation. and 4) further downstream. Louisiana.

195 . it is also known as C1 in the carbon complexity chain. Natural gas liquids (NGLs): liquid hydrocarbons. receiving terminal (including re-gasification). mmBtu: one million British thermal units. Expander cycle: in its simplest form. MCF. The main links are natural gas production. Mcf: a measurement of volume denoting one thousand cubic feet of natural gas. Some of the stored LNG boils off and the resulting vapor is used as fuel gas for the plant. LNG value chain: in planning. LNG storage tanks: vessels that are specially constructed to contain LNG. ethylene is condensed with evaporating propane and methane is condensed with evaporating ethylene. The tanks are generally constructed of nickel steel (steel containing 9% nickel) to withstand cryogenic temperatures and are insulated to maintain the LNG at –161°C. Highpressure cycle gas is cooled in counter-current heat exchange with returning coldcycle gas. double containment and full containment. liquid will be contained and for full containment.000 cf of gas = 1. Mtpa: million tonnes a year/per annum. for double containment. butane. funding and executing an LNG project. The mixture composition is specified so the liquid refrigerant evaporates over a temperature range similar to that of the natural gas being liquefied. 1. There are three main designs of LNG storage tanks: single containment. liquid and vapor will be contained. each element of the complex chain that links the natural gas in the ground to the ultimate consumer (from the wellhead to the burner tip) is considered. liquefaction. shipping. distribution of the re-gasified LNG and. lastly. process refrigeration in an expander cycle is provided by compression and expansion of a single-component gas stream.412 Btu). mcf.03 mmBtu (also. each typically operating at three evaporationtemperature levels. A mixture of nitrogen and hydrocarbons (usually in the C1 to C5 range) is normally used to provide optimal refrigeration characteristics. propane. mmt/y.lucas@jpmorgan. propane is condensed with cooling water or air. 1 kWh = 3. when the primary containment is Global Equity Research 13 January 2012 refrigerant expansion and compression. For single containment. lower power requirement and use of smaller machinery. reducing its temperature to a lower temperature than would be given by expansion through a Joule-Thomson valve. such as ethane.Fred Lucas (44-20) 7155 6131 fred. The difference in these systems lies in the functionality of the secondary containment. Mixed-refrigerant cycle (MRC): uses a mixed refrigerant(s) instead of the multiple pure refrigerants in the cascade cycle. The cycle gas is expanded through an expansion turbine. pentane and natural gasoline. neither liquid nor vapor will be held by the secondary containment. After compression. Methane (CH4): the simplest hydrocarbon and the main constituent of natural gas. extracted from field gas. MRC provides greater thermodynamic efficiency. consumption of the gas.

hydrogen sulphide. Figure 120: Re-gasification process GAS LIQUID Re-condenser Boil – off Compressor LNG ship Pipeline Compressor Condenser Drum LNG storage tanks Source: J. the developer pledges the value of the plant and part or all of its expected revenues as collateral to secure financing from private lenders. absorbing impurities and odorizing. Sea water is often used as a source of heat to vaporize the gas. Gas processing includes removing liquids. oil. Separator: a vessel used to separate a multiphase mixture of fluids into its separate phases. solids. the debt holders have recourse only to the project assets in place at that time. solids. because of the nonrecourse (to project sponsors) nature of the debt financing supporting the project. In the event of financial distress. adsorption. water vapor and other impurities from the gas 196 .P. and vapors. Send-out capacity: the volume of natural gas that can be converted by a liquefaction facility and subsequently shipped over a specified period of time. Floating Storage & Re-gasification Unit (FSRU) – This is an offshore based regasification unit which accepts LNG from an LNG carrier and offloads it via pipeline to shore. carbon dioxide. Typically.Fred Lucas (44-20) 7155 6131 fred. or the fractionation of mixed natural gas liquids (NGLs) to natural gas products to meet specifications for use as pipeline quality gas. 2) the process of separating NGLs by absorption. Morgan. Vaporizers Pipeline Re-gasification plant: a plant that accepts deliveries of liquefied natural gas and vaporizes it back to its gaseous form by applying heat so that the gas can be delivered into a pipeline system. for example. water. refrigeration or cryogenics from a stream of natural gas. Shrinkage: the reduction in volume of wet natural gas caused by the removal of natural gas Global Equity Research 13 January 2012 Natural-gas processing: 1) the purification of field gas at gas-processing plants (or gas plants). Project financing: most commonly used method to finance construction of industrial infrastructure. vapor.lucas@jpmorgan.

Shipping & Marketing Natural gas liquefied as LNG is transported in an LNG Carrier (LNGC) .100 M3 (500 tons).Fred Lucas (44-20) 7155 6131 fred. or portions of them. Wet gas: a gas containing condensable hydrocarbons or other liquids. Also called acid gas. Sweet gas: natural gas that contains such small amounts of hydrogen sulphide (and other sulphur compounds) and carbon dioxide that it can be transported or used without purifying.000 M3 (cargo deadweight about Global Equity Research 13 January 2012 Sour gas: natural gas that contains significant amounts of hydrogen sulphide (usually greater than 16 ppm) and possibly other sulphur compounds (mercaptans.000 m3 (cargo deadweight about 122. Natural gasoline. Utilization factor: a ratio of the maximum demand of a system or part of a system to its rated capacity. LNGC cryogenic cargo tanks are functionally big thermos containers where the LNG remains boiling at a constant pressure for the duration of the voyage.a ship specially designed to transport LNG. are shut down either for scheduled maintenance or for the installation of new equipment and systems. hydrogen sulphide and water vapor. Usually maximum allowable is 7 pounds/mmcf for water content and 0. medium or long sea shipping.ATS) 197 . butane. Treating plant: a facility that treats raw natural gas to remove undesirable impurities such as carbon dioxide. A smaller size LNGC may have a capacity as little as 1. Large LNG Carriers (L-LNGCs) can now carry a cargo volume of 266. However. a shipper who acquires firm capacity rights from a releasing shipper (also known as a replacement shipper). Admeasurement: the confirmed or official dimensions of an LNG ship. Some gas is removed to prevent a build-up in pressure – this is known as boil-off-gas or BOG and can be used as fuel for ship propulsion or re-liquefied and returned to the cargo. Spot gas: natural gas that is available and purchased on a short-term basis and is furnished to customers on an as-available basis. The term is subject to varying legal definitions as specified by applicable statutes. The LNG is stored in a special containment system and maintained at around –160C or -270F at around atmospheric pressure. carbonyl sulphide).02 gallons/mmcf for natural gasoline (also known as associated gas).000 tons LNG). with no deleterious effect on piping and equipment. pentane and other light hydrocarbons can be removed by chilling and pressure or extraction. Acquiring shipper: in the context of capacity release. LNG can be transported by sea for any project market distance – short. Turnaround: a period of brisk activity at a plant or receiving terminal when processing units. it is the most economic for transporting gas to market over long distances. Unconventional gas: natural gas that cannot be produced using existing technologies.000 tonnes LNG – Q-Max class) to reduce delivery costs.lucas@jpmorgan. Currently a common size LNGC has an average cargo space storage volume of around 140.

the consignee. for a stipulated sum takes over the vessel for a stated period of time with a minimum of restrictions. Articles of agreement: the document containing all particulars relating to the terms of agreement between the Master of the LNG vessel and the crew. In a typical 20-day voyage. Beam: the width of a ship. Where appropriate infrastructure Global Equity Research 13 January 2012 Arbitrage: the simultaneous purchase and sale of an asset in order to profit from a difference in the price. to the consignees of the shippers at the point of destination on their paying him the stipulated freight.1% . usually on different exchanges or marketplaces. Normally an LNG tanker is powered by steam turbines with boilers. Bill of lading (B/L): a document by which the Master of a ship acknowledges having received in good order and condition (or the reverse) certain specified goods consigned to him by some particular shipper.lucas@jpmorgan. A bill of lading specifies the name of the master. Average daily quantity (ADQ): the monthly contracted quantity of gas divided by the number of customers’ operating days in that month. directly supervises maintenance operations. Bulk cargo: any liquid or solid cargo loaded on to a vessel without packaging (for example. which requires special materials. Boatswain (Bosun): on an LNG vessel. On a typical voyage an estimated 0. Break bulk: to commence discharge of cargo. anywhere from 2% .25% of the cargo converts to gas each day. Burner tip: the point at which natural gas is used as a fuel. oil or LNG). LNG boils at slightly above –163°C at atmospheric pressure and is loaded. also called breadth. 198 . The gas is either fed into the boiler by tank pressure or it is increased in pressure by the LD compressors. tantamount to a foreman. and the rate of freight. the charterer appoints the master and the crew and pays all running expenses. The gas produced in boil off is traditionally diverted to the boilers and used as a fuel for the vessel. the goods.Fred Lucas (44-20) 7155 6131 fred. The bill of lading is signed by the Master of the ship and the contract supplier.0. fire or enemies prevent him. documentation legally demonstrating a cargo has been loaded. insulation and handling equipment to deal with the lowtemperature and the boil-off vapor (heat leakage keeps the cargo surface constantly boiling). the charterer. such as LNG. Boil-off vapor: usually refers to the gases generated during the storage of volatile liquefied gases. LNG offers the opportunity for price arbitrage between different gas markets.6% of the total volume of LNG originally loaded may therefore be lost. transported and discharged at this temperature. and binds himself to deliver them in similar condition. Bare-boat charter: a charter in which the bare ship is chartered without crew. the port and destination of the ship. These boilers are dual fuel and can run on either methane or oil or a combination of both. Before this gas is used in the boilers it must be warmed up to roughly 20C by using the gas heaters. depending on the efficiency of the insulation and the roughness of the voyage. unless the perils of the sea.

in contrast to making up imbalances with gas volumes in-kind. 2. after the loading is completed. Cargo loading: a typical cargo cycle starts with the tanks in a "gas free" condition (full of fresh air). This continues until all the CO2 is removed from the tanks. which vaporizes and starts to cool the tank. Bulk loading starts and liquid LNG is pumped from the storage tanks ashore into the vessel tanks. which burns diesel in air to remove the oxygen and replace it with carbon dioxide (CO2). Certificate of registry: a document specifying the nation registry of the vessel. whereby a ship is chartered (hired) either for one voyage or a period of time. which allows maintenance on the tank and pumps. Charter rates: tariff applied for chartering tonnage in a particular trade.5% full is reached.0532 million tons of LNG. Loading continues until typically 98. This is then warmed up to roughly 20°C in the gas heaters and then blown into the tanks to displace the "inert gas". The inert gas is blown ashore via a pipe by large fans called "HD compressors".com Global Equity Research 13 January 2012 Cargo: one standard cargo is 2. The vessel goes into port to "gas-up" and "cool-down". 3. 4. The vessel is then gassed up and warm. This is blown into the tanks until it reaches below 4% oxygen and a dry atmosphere. as the presence of oxygen means would create explosive atmospheric conditions within the tank. usually arranged by a broker. Once the tanks reach about 140°C the tanks are ready to load bulk. The next stage is cool-down. Cargo handling: the act of loading and discharging a cargo ship. 1. Cash-out: a procedure in which shippers are allowed to resolve imbalances by cash payments. Cargo plan: a plan giving the quantities and description of the various grades carried in the ship’s cargo tanks. Liquid LNG is sprayed into the tanks via spray heads. the temperature difference could cause damage to the tanks.644 bcf or 0. Charter party: contractual agreement between a ship owner and a cargo owner. See Time charter party 199 . The vessel can now proceed to the discharge port. Liquid LNG is brought onto the vessel and taken along the spray line to the main vaporizer which boils off the liquid into gas. The excess gas is blown ashore to be re-liquified or burned at a flare stack. as one still cannot load directly into the tank: The CO2 will freeze and damage the pumps and the cold shock could damage the tanks. Cargo cannot be loaded directly into the tank.Fred Lucas (44-20) 7155 6131 fred. Displaced gas is blown ashore by the HD compressors. Charterer: the entity to whom is given the use of the whole of the carrying capacity of a ship for the transportation of cargo to a stated port for a specified time. The tank must be ‘inerted’ by using the inert gas plant.lucas@jpmorgan. The tanks are still at ambient temperature and are full of methane. Also. This removes the risk of an explosive atmosphere in the tanks.

Generally expressed as mcf/d = thousand cubic feet a day. in respect to their seaworthiness. Older contracts generally have a cap and a floor price (creating a so-called S-curve price profile). There is a time lag between the movement of crude oil and LNG prices. Committed gas contract: a source specific natural gas sales contract that commits the seller to deliver natural gas.0%). the higher the LNG price. or tcf/d = trillion cubic feet a day. Cubic feet a day (cf/d): at standard conditions. the higher A.lucas@jpmorgan.2% ( Global Equity Research 13 January 2012 Classification society: private organizations that arrange inspections and advise on the hull and machinery of a ship. Cubic foot (cf): The amount of gas required to fill a volume of 1 cubic foot under stated conditions of temperature. Cost. The major classification societies – American Bureau of Shipping. mmcf/d = million cubic feet a day. Crude price parity: This relates to LNG contract pricing wherein parity is a crude indexed slop of 0.8:1 gas:oil). depending on the supply/demand environment at the time of signing the contracts. With respect to LNG shipping. It is not compulsory by law that a ship owner has his vessel built according to the rules of any classification society. while more recent pricing schemes are more likely top drop this and instead offer a discount to crude parity. Japanese LNG contract prices are based on individual pricing formulae. Lloyds Register of Shipping. At the peak of the market in mid-2008. bcf/d = billion cubic feet a day. there was no discount.Fred Lucas (44-20) 7155 6131 fred. A slope of 0. 200 . pressure and water vapor.15) thus corresponds to a crude price discount of 7. and places vessels in grades or classes according to the society’s rules for each particular type. from specific described reserves or sources. So. this means that the buyer purchases the gas at the point of vessel loading or during its transit to the receiving terminal. Bureau Veritas and Germanischer Lloyd – have included the International Maritime Organization (IMO) LNG Gas Codes in their rules.16 (0. Cubic capacity: the volumetric measurement of the ship’s cargo compartments.24 per mmbtu would represent parity with a crude price of $100 per barrel. normally an average figure from a longer period of time. B – the residual constant which also takes in to account shipping and transportation costs.1724 (given a ratio of 5. while the agreed price includes shipping charge and insurance for the load. insurance and freight (CIF): used in international trade statistics and sales contracts. an LNG price of $17. The generic pricing formula is: Price (LNG) = A (slope) * Index (ex JCC) + B (constant) A – this determines the leverage to oil prices. Indonesian LNG prices are linked to ICP (Indonesian crude price) and other Asian LNG prices are linked to JCC (see later definition). the difficulty in securing satisfactory insurance rates for an unclassed vessel makes it a commercial obligation. Supervise vessels during their construction and afterwards. transactions on CIF basis mean the purchase price includes all costs of moving the goods from the point of embarkation to their destination. In practice. Det Norske Veritas. Generally. the number of cubic feet of natural gas produced from a well over a 24-hour period.

050 0. taking into account the time necessary for each function in the chain of events within a typical round voyage of an LNG carrier. The heating value is then multiplied by the volume loaded or discharged from the ship to obtain the British thermal unit (Btu) content of the delivered cargo.000 19 21. Deliverability (LNG ships): one major aspect of LNG project planning consists of estimating the transportation capacity required. Custody transfer measuring system (CTMS): LNG ships are fitted with highaccuracy liquid-level.9 26.516 5. Samples of the LNG cargo are taken ashore and analyzed to determine the cargo’s chemical composition from which the heating value can be calculated. stores and bunkers that a vessel can transport. A vessel’s cargo is less than its DWT.173 66. A typical delivery calculation for a 137. capable of 60-75 knots service speed. The amount of gas required to fill the volume of one cubic meter. temperature and vapor-pressure measuring equipment.4 A new technology next generation LNG carrier is about to be developed. The CTMS is accepted by the buyer and the seller of the cargo as the basis for the quantity purchased or sold.813 Global Equity Research 13 January 2012 Cubic meter (cm): unit of measurement for gas volume. This is a shallow draft High Speed LNG Carrier (HS-LNGC). Dead freight: space booked by shipper or charterer on a vessel.lucas@jpmorgan. the net) measured by the water it displaces when submerged to the deep-load line.Fred Lucas (44-20) 7155 6131 fred. Morgan. Deadweight tonnage (DWT): a measure of ship carrying capacity: 1) the number of metric tonnes (2.500-cm LNG carrier might be as per Table 84.days Source: J.152 4.P. which is used as the basis for cargo invoices.6 pounds) of cargo. import duties and fiscal accounting.45 822. but not used.204. Table 87: LNG vessel capacity calculation One way distance (nautical miles) Ship service speed (knots) Ship service speed (mph) Sea days (round trip) Port days (round trip) Total voyage days Ship operating days per annum Ship capacity (cm) Less 7. Dead freight factor: percentage of a ship’s carrying capacity that is not utilized. 6.313 147.3 2 28. The cargo tanks are calibrated by an independent measurer so that the volume of cargo can be determined accurately.3 350 137. 2) the difference in weight between a vessel when it is fully loaded and when it is empty (in general transportation terms. three times the speed of a conventional LNGC of 19 knots.0 330 15.500 -10.5% heel (cm) Discharge quantity (cm) Annual deliverable quantity (cm) LNG specific gravity Annual vessel deliverability (ton) Per vessel per trip (ton) LNG export train operating capacity (million tons pa) Operating days per annum Daily output (tons) Requires 1 ship every .827. Given the same 201 .

the gas is water dry. usually three or four liquid arms and a single vapor arm. industrial. 2) natural gas from the well containing no water vapor that will liquefy at ambient temperature and pressure. i. depending on the correlation of such demand and price variations between regional markets. pipeline gas and electricity. also Draught.Fred Lucas (44-20) 7155 6131 fred. beyond the lay-time allowed in the charter party. Enriching: the process of increasing the heat content of natural gas by mixing it with a gas of higher Btu content. Cargo transfer is automatically stopped. but does not list specific contract details. or the ship’s pumps shutting down during unloading. cogeneration and utility electricity-generation customers. End-users: the ultimate consumers of natural gas.e. per day or per hour. Diversion rights for sellers and buyers in LNG supply contracts create opportunities for physical arbitrage. at ship-shore Global Equity Research 13 January 2012 LNG cargo capacity with combination of speed and the same fuel consumption to that of a conventional LNGC of service speed 19 knots. If this allowable motion is exceeded. 3) a gas whose water content has been reduced by dehydration or. For example. expressed in feet in the US. elsewhere in meters. Escalator clause: a clause in a gas purchase or sale contract that permits adjustment of the contract price under specified conditions. alarms sound on the ship and shore. Dry (or lean) gas: 1) gas that has been treated to remove liquids and inert gases making it suitable for shipping in a pipeline. 4) a gas containing little or no hydrocarbons that could be recovered as a liquid condensate. sale. either by the shore pumps shutting down during loading. usually independent of the main control system that is designed to safely shut down an operating system. 202 . or exchange of LNG. effectively the HS-LNGC could reduce the number of ships in an LNG delivery system by two-thirds. For example. Ensign: flag carried by a ship to show her nationality. for the detention of a vessel. The configuration is similar at both the loading and discharge terminals. Draft: the depth of a ship in the water. including residential. agreed to be paid by the charterer or receiver of the cargo. These arms have flexibility in three directions to allow for relative motion between ship and shore. loading or unloading. Enabling agreement: provides the general terms and conditions for the purchase. a three ship LNGC service could be reduced to one HS-LNGC thus giving both capital investment and overall cost savings in the shipping delivery component of the supply chain in an LNG contract. LNG cargo transfer between ship and shore is accomplished by a series of shore-based articulated loading arms. Gas is usually priced on a dry basis. Diversion: the flexible routing of LNG cargoes where gas suppliers will seek to move cargoes to markets. Emergency-shutdown systems (ESD): a system. wholesale. See Pipeline quality gas. Demurrage: a fee. commercial. vertical distance between the waterline and the keel.

ECAs of the US. Freight: charge made for the transportation of a cargo. payment is due at that time. France’s Coface and Italy’s Sace. There are three fuel modes available:  Minimum boil off/max oil . In this mode no fuel oil is used.  Max boiloff / Minimum oil . but still there is a large amount of fuel oil used. The buyer is responsible for the shipping.lucas@jpmorgan. Free-on-board (FOB) contract: in an LNG FOB contract. desire to carry a heel for cool down. the UK’s Export Credit Guarantee Department (ECGD). This term essentially frees one or both parties from liability of obligation when an extraordinary event or circumstance prevents one or both parties from fulfilling their contractual obligations. To force increased supplies. either owning the LNG ships or chartering them from a ship-owner.In this mode tank pressures are kept high to reduce boil off to a minimum and the majority of energy comes from the fuel oil. Fuel: The fuel that an LNG vessel runs on is dependent on many factors which include the length of the voyage.this tanks liquid LNG and turns it into a gas that is useable in the boilers. price of oil versus price of LNG. Germany’s Hermes.  100% Gas . Ex-ship contract: in an LNG ex-ship contract. allowing the boil off to be re-liquefied and returned to the tanks. This maximizes the amount of LNG delivered.In this mode the tank pressures are kept low and there is a greater boil-off. This decreases the amount of LNG delivered but the cargo will be delivered cold which many ports prefer. includes Export-Import Banks of the US (USEXIM) and Japan Bank for International Cooperation (JBIC). the seller requires assurance that the shipping protocols provide a safe and reliable off-take for the LNG to prevent disruption to the sales and purchase agreement (SPA). Because of this. insurance and freight contract and Free on board contract Force Majeure: a term commonly used in contracts to describe an event or effect that cannot be reasonably controlled. ownership of the LNG transfers to the buyer as the LNG is unloaded at the receiving terminal. Europe and Japan have been consistent financing sources for LNG projects. See Cost. but does allow tank temperatures to rise due to lack of evaporation.Tank pressures are kept at a similar level to maximum boil off but this is not enough to supply all the boilers.Fred Lucas (44-20) 7155 6131 fred. Recent advances in technology have allowed re-liquefaction plants to be fitted to vessels. the buyer lifts the LNG from the liquefaction plant and is responsible for transporting the LNG to the receiving terminal. In a FOB contract. The high cargo temperatures can cause storage problems and offloading problems. the vessels' operators and builders have been able to contemplate the use of 203 .com Global Equity Research 13 January 2012 Export-credit agencies (ECAs): government agencies whose mission is to facilitate the export sale of goods and services by providing credits that are more attractive than those available commercially and by providing security for credit and political risk that may not be available at an economic cost from private-sector finance sources. a spray pump is started in one tank to supply liquid LNG to the forcing vaporizer .

Heat rate: the measure of efficiency in converting input fuel to electricity. LNG cargo-containment systems: the method of storing LNG during marine transport. natural gas) per kilowatt hour (Btu/kWh). Heat rate is expressed as the number of Btu of fuel (for example. which is the rate of one nautical mile (6. It is expressed as a number of days or hours. The lower the heat rate the more efficient the plant is. Heating value: the amount of heat produced from the complete combustion of a unit quantity of fuel. Harbor dues: various local charges against all seagoing vessels entering a harbour. Grounding: contact by a ship with the bottom while she is moored or anchored or under way. Indexing: tying the commodity price of natural gas in a contract to published prices of other commodities or price indices – see Crude price parity. and the latent heat of the water vapor formed is reclaimed. not all harbours assess this charge. The gross value is that which is obtained when all of the products of combustion are cooled to standard conditions. Dual Membrane (Gaz Transport). Knot: unit of speed in navigation. Heel: it is normal practice to keep onboard 5% to 10% of the cargo after discharge in one tank.852 metres) per hour. It is usually quoted on a monthly basis. There are two heating values: the gross (high) and the net (low) heating value. The net value is the gross value minus the latent heat of vaporization of the water. This must be done gradually otherwise one can ‘cold shock’ the tanks if you load directly into warm tanks. to cover maintenance of channel depths. and Self-Supporting Spherical Type ‘B’ (Kværner Moss). Single Membrane (Technigaz).com Global Equity Research 13 January 2012 more efficient slow speed d (previously most LNG carriers have been steam turbine powered). it is designed to represent the average CIF price of all imported crude oil and raw oil in a specified trading period.Fred Lucas (44-20) 7155 6131 fred. lights. buoys. Japan Crude-Oil Cocktail (JCC): The Japanese Customs-cleared Crude or Crude Cocktail price is quoted by the Japanese finance ministry. Heat rate for power plants depends on the individual plant design. its operating conditions and its level of electricity output.080 feet or 1. One of four methods is normally employed: Self-Supporting Prismatic Type ‘B’ (Conch/IHI). This is referred to as the heel and this is used to cool down the remaining tanks that have no heel before loading. Lay-time: time allowed by the ship owner to the voyage charterer or bill of lading holder in which to load and/or discharge the cargo. Heads of agreement (HOA): a preliminary agreement covering the outline terms for the sale and purchase of LNG or natural gas. Cool down can take roughly 36 hours on a Moss vessel so carrying a heel allows cool down to be done before the vessel reaches port giving a significant time saving.lucas@jpmorgan. 204 .

Price indexation: a practice whereby a contract price is linked to another. Global Equity Research 13 January 2012 LNG markets: there are two primary LNG markets: (1) the Atlantic basin includes Belgium. These two regions are often referred to as East and West of the Suez Canal. Greece. cargo deadweight and useful deadweight). Sales and purchase agreement (SPA): a definitive contract between a seller and buyer for the sale and purchase of a quantity of natural gas or LNG for delivery during a specified period at a specified price. less frequently. Taiwan. generally more liquid or less complex product price or economic indicator. Tariffs for reloading vary by country and terminal. or. This allows the resulting price to vary in accordance with another factor. about 56 therms are derived by setting fire to a barrel of crude oil.000 Btu.Fred Lucas (44-20) 7155 6131 fred. China and the west coast of the US. 205 . It is typically done to take advantage of arbitrage opportunities under contracts that do not allow this. Sales gas: natural gas treated and conditioned to meet gas purchaser specifications. France. Therm: a unit of heating value equal to 100. in common use in the UK. Take-or-pay (TOP) clause: contract clause in a sales and purchase agreement (SPA) requiring a minimum quantity of natural gas to be paid for. whether or not delivery is accepted by the purchaser. Net capacity (shipping): the number of tons of cargo that a vessel can carry when loaded in salt water to her summer freeboard marks (also called cargo-carrying capacity. South Korea. Italy. Turkey and the east coast of the US.lucas@jpmorgan. Japan (world’s largest). derivative prices. Tail gas: the exhaust gas from any processing unit that is at a low pressure and is usually vented. Offload (shipping): discharge of cargo from a ship. Swing gas: natural gas bought on short notice to meet unexpected daily demands not covered under long-term contracts. energy or economic growth indicators. This has to be done with the permission of the original cargo vendor and can take up to 5 days for a conventional cargo (so requires two back-to-back loading slots). Gas contract prices are often linked to major crude oil indices. one therm has around the same heat content as 100 cf of natural gas. such as certain fuel oil prices. enabling a cargo to be diverted to another higher priced market. TCF (trillion cubic feet): volume measurement of natural gas approximately equivalent to one Quad. (2) the Pacific basin includes India. treated for contaminant removal or combusted. Spain. Spot voyage: a charter for a particular vessel to move a single cargo between specified loading port(s) and discharge port(s) in the immediate future. Reloads – Some re-gasification terminals are able and have regulatory permission to reverse the flow of LNG from a discharging vessel back on to the vessel. such as a country’s GDP.

useful to the shipper because it includes the distance to move a commodity in the calculation. Working gas: volume of natural gas expected to be cycled from a gas-storage facility. equitable.Fred Lucas (44-20) 7155 6131 fred. Ultimate customer: customer that purchases energy for consumption and not for resale.lucas@jpmorgan. as well as the rights to a portion of the process capacity (the tollee). World-scale rates: a schedule of nominal freight rates against which tanker rates for all voyages. Tonne mile: a measurement used in the economics of transportation to designate 1 tonne being moved 1 mile. Transfer pricing: a transfer price is the amount of money that one unit of an organization charges for goods and services to another unit of an organization. Another party agrees to operate the process or facility and charges a tolling fee per unit of input that is transformed. one company sends a volume of feed gas to a liquefaction facility. and is defined as the gross calorific value divided by the square root of the density of the gas relative to the density of air.000 kilograms or 2. Useful LNG related websites We list the websites of companies with a material exposure to the LNG value chain.6 pounds. metric: a metric tonne equals 1. The charterer pays the owner for the hire of the vessel at an agreed rate. Tolling agreement: an agreement whereby one party owns (and bears the risks on) the inputs to and outputs from a process. a common principle in International Accounting Standards to see that a transfer price has been calculated and agreed according to normal. See End-user Wobbe Index: it represents a measure of the heat released when a gas is burned at a constant pressure. 206 . business principles. Train (liquefaction): an independent unit for gas liquefaction. A time charter party is the contract between owner and charterer. at all market levels. Under an LNG liquefaction tolling agreement. or per unit of capacity to which rights are granted (the toller). wherein the gas is liquefied in return for a pre-established tolling charge.204. Tonnage: a shipping term referring to the total number of tonnes registered or carried or the ship’s carrying capacity. specifically the ship owner provides a ship capable of the specified performance and operates the ship according to that performance standard set by the charterer. An LNG plant may comprise one or more trains. Global Equity Research 13 January 2012 Time charter: a form of charter party issued when an LNG vessel is chartered for an agreed period of time. and identifies the salient characteristics of the ship and the obligations of the ship owner. can be compared and readily judged. Tonne. The capacity of an LNG baseload plant is typically expressed in tonnes and the unit capital costs for producing LNG are expressed as $/tonne. Perhaps the most important aspect in this area is the Arm’s Length Principle regularly challenged by fiscal authorities.

com. Lucas (44-20) 7155 6131 www. www.fluor. www. www.inpex.stxons. www.exmar.cheniere.kbr.shi. Global Equity Research 13 January 2012 www. www.medcoenergi. www. www.technip.worleyparsons.ogj. www. www. www. www.htm. www. eng. www. www. www. www. www.fmctechnologies. 207 www.

02 12.57 9.8% 22. BP Overweight Company Data Price (p) Date Of Price Price Target (p) Price Target End Date 52-week Range (p) Mkt Cap (£ bn) Shares O/S (mn) 475 11 Jan 12 575 30 Jun 12 515 .13 31.1 18.L.415 13.3 6.226 5.1% 6.79 12. Morgan estimates.3 2013E 1.3 4. J.4% 70.0 1.18 30.lucas@jpmorgan.P. J.073 ($ mn) Source: Company data.8 4.6 Dividend (Net) FY (p) 106.3% Source: Company data.2 8.560 19.996 15.47 14.744 15.915 10.193 51.375 50.6 2012E 1.900 31 Dec 12 1.8% 29.4% EBITDA FY ($ mn) 57. NB: unit for EPS figures is £.3% 102.287 4.84 4.9 105.10 1.118 EBITDA margin FY 9.9 7.5 0.925 5.097 18.621 14.2 1.1.703 20.400 30 Jun 12 2. J.227 52.138 19.976 16.466 18.7 0.050 16.8 Net Yield FY 4.20 32.879 17.855 22.768 152.0% 26.088 24.3 6.08 Adj P/E FY 12.384 Adj. Bloomberg.0% 23. EPS FY (p) 2.7% 4.82 9.1% 97.251 11.7 111.683 20.9% 29.2% 5.105 49.P.3 2014E 1.8 5.308 Royal Dutch Shell B (RDSb.354 57.36 8.09 15.14 33.05 1.0% 4.09 1.9 8.1% 33.739 4.595 .615 53.0 3.8% 4.3% 5.84 4.1.874 20.8% 71.7 115.089 208 .0% 79.19 4.5 1.922 18.L.737 14.742 2013E Global Equity Research 13 January 2012 Appendix VIII: Company financials BG Group Overweight Company Data Price (p) Date Of Price Price Target (p) Price Target End Date 52-week Range (p) Mkt Cap (£ bn) Shares O/S (mn) BG Group (BG.414 11 Jan 12 2.2 1.2 6.RDSB LN) FYE Dec 2010A Adj.17 14.903 19.260 16.83 12.361 90. Bloomberg.1% 4.5 1.0 1.1% 80.Fred Lucas (44-20) 7155 6131 fred.3 Source: Company data.L.4 4.14 35.94 Bloomberg EPS FY (p) 3.802 52.9 6.382 4. Morgan estimates.3% 37.9% 2011E (Prev) 2011E (Curr) 2012E (Prev) 2012E (Curr) 2013E (Prev) 2013E (Curr) 74.9 3.P. EPS FY (p) Bloomberg EPS FY (p) EBIT FY ($ mn) Net Attributable Income FY ($ mn) Dividend (Net) FY (p) Net Yield FY Debt adjusted Cashflow FY ($ mn) EV/DACF FY 2010A 1.376 22.958 BP (BP.BG/ LN) FYE Dec 1.6% 69.3 4.7% 33.233 18. Bloomberg.375 17.498 .8% Net Attributable Income FY 18.4 2011E 1.230 11.448 11 Jan 12 1.521 4. Morgan estimates. Royal Dutch Shell B Neutral Company Data Price (p) Date Of Price Price Target (p) Price Target End Date 52-week Range (p) Mkt Cap (£ bn) Shares O/S (mn) 2.9 4. EPS FY (p) Revenue FY (£ mn) Adj P/E FY EBITDA FY (£ mn) EBITDA margin FY Pretax Profit Adjusted FY (£ mn) Dividend (Net) FY (p) Net Yield FY 2010A 76. 2011E 4.0 5.925 49.BP/ LN) FYE Dec Adj.060 2012E 3.01 1.18 1.0% 85.95 12.

185 Statoil (STL.07 2.384 19.869 8.33 2.331 179. EPS FY (Nkr) Bloomberg EPS FY (Nkr) Adj.3 5.83 59.8% 2011E 1.304 17.3 5.5 6.4 3.82 4.844 9.23 19.197 8.62 182.OL.847 21.MI.1 4.8 6. Bloomberg.345 2.5% 2011E 15. Bloomberg.714 3.74 4.7 4.232 11. EBIT FY (Nkr mn) Pretax Profit Adjusted FY (Nkr mn) Net Attributable Income FY (Nkr mn) Adj P/E FY EV/DACF FY Div Yield FY 2010A 13.3 4.1 1. Morgan estimates.630 42.8 6. EBIT FY (€ mn) Pretax Profit Adjusted FY (€ mn) Net Attributable Income FY (€ mn) Adj P/E FY EV/DACF FY Div Yield FY 2010A 1. Bloomberg.03 2.66 1.1 5.032 13.0% Source: Company data.9 6.8% 2012E 16.8 Global Equity Research 13 January 2012 ENI Overweight Company Data Price (€) Date Of Price Price Target (€) Price Target End Date 52-week Range (€) Mkt Cap (€ bn) Shares O/S (mn) 16.357 8.3% 2012E 2.157 2.791 181. Morgan estimates. J.451 7.0 4. EPS FY (€) Bloomberg EPS FY (€) Adj.495 18.393 6.STL NO) FYE Dec Adj.730 141.224 12.REP SM) FYE Dec Adj.06 18.11. EBIT FY (€ mn) Pretax Profit Adjusted FY (€ mn) Net Attributable Income FY (€ mn) Adj P/E FY EV/DACF FY Div Yield FY 2010A 1. EPS FY (€) Bloomberg EPS FY (€) Adj.66 .44 20.221 Repsol YPF (REP.26 5.2% 2011E 2.14 13.995 7.546 52.6 6.622 ENI (ENI.7 5.128 9.922 4.3 5.90 . J.70 108.2 5. Morgan estimates. Statoil Underweight Company Data Price (Nkr) Date Of Price Price Target (Nkr) Price Target End Date 52-week Range (Nkr) Mkt Cap (Nkr bn) Shares O/S (mn) 152.5% 2012E 2. J.20 11 Jan 12 25.25 2.82 1.lucas@jpmorgan.856 2.MC.40 11 Jan 12 145.4 4.17.8% 2013E 2.00 30 Jun 12 161.331 49.9% Source: Company data. Repsol YPF Neutral Company Data Price (€) Date Of Price Price Target (€) Price Target End Date 52-week Range (€) Mkt Cap (€ bn) Shares O/S (mn) 22.88 17.00 30 Jun 12 24.1 4.1% Source: Company data.734 7.00 30 Jun 12 18.514 8.Fred Lucas (44-20) 7155 6131 fred.90 1.66 17.745 9.7 5.40 142.P.31 27.68 15.10 485.ENI IM) FYE Dec Adj.2 7.P.P.50 11 Jan 12 21. 209 .917 5.5 5.77 179.

37 2013E 10.23 .93 2013E 15. Morgan estimates.55 .14 5.00 Dec 1.29.87 13.FP FP) FYE Dec 39.64 4. J.PA. Chevron Corp Underweight Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date 107.68 215. Morgan estimates.40 13.8% 5.28 2011E (Prev) 2011E (Curr) 2012E (Prev) 2012E (Curr) 5.843 92.51 3.0 6.791 23.06 2.15 14.53 2012E 2.8 6.39 Source: Company data.30 2.53 8.999 120.6 5.56 5. J.34 8.lucas@jpmorgan.094 23.397.79 Source: Company data.P.99 4.08 2.742 25.3 2. J.2 2.48 13.8 2.44 Q4 (Dec) 1.28 25.7% 5.98 2011E 2. 210 .65 21.8% 5.28 4. 'Bloomberg' above denotes Bloomberg consensus estimates.53 9.77 11 Jan 12 110.309 25.21 25.17A 2.84 FY 6.22 Bloomberg EPS FY ($) 5.40 Dec 4.49 9.1 2.245 Adj.44A 2. Bloomberg.XOM US) FYE Dec 2010A EPS Reported ($) Q1 (Mar) 1.CVX US) FYE Dec EPS Reported ($) Q1 (Mar) Q2 (Jun) Q3 (Sep) Q4 (Dec) FY Bloomberg EPS FY ($) 2010A 2. Exxon Mobil Corp Underweight Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn) Price Target ($) Price Target End Date 85. EPS FY (€) Bloomberg EPS FY (€) Adj.703 7.40 89.90 9.46 2.58 2.00 31 Dec 12 Exxon Mobil Corp (XOM.67.32 2011E 3.33 24.5 2.6 5.97 23.1% 4.00 31 Dec 12 44.08 11 Jan 12 88.4 2.354 7.277 8.24 5.13A 1.036 7.33 Q2 (Jun) 1.84 12.00 31 Dec 12 Chevron Corp (CVX.P.89 8.12 Source: Company data.6 6. EBIT FY (€ mn) Pretax Profit Adjusted FY (€ mn) Adj P/E FY Div Yield FY EV/DACF FY Dividend (Net) FY (€) 2010A 4.08 2.17A 3.19 3.503 21.14A 2.85 2012E 3.03 412. Bloomberg.88 11 Jan 12 49.89A 3.99 8.4% 5.042.99 86.P.534 8.60 Q3 (Sep) 1.44 Global Equity Research 13 January 2012 TOTAL Overweight Company Data Price (€) Date Of Price Price Target (€) Price Target End Date 52-week Range (€) Mkt Cap (€ bn) Shares O/S (mn) TOTAL (TOTF. Bloomberg.Fred Lucas (44-20) 7155 6131 fred. Morgan estimates. 'Bloomberg' above denotes Bloomberg consensus estimates.

809 22.3 3.5. Reuters. Morgan estimates.150 Normalised* EPS chg (%) -54.3 43.6 47.7% Normalised* P/E (x) 69.6 12.90 11 Jan 12 82.96 5.8 EV/EBITDA FY 4.GAZP RU) FYE Dec 2009A Adj.650 ($ mn) Adj P/E FY 4.305 0. J.9% 39.805 56.249 0.2 211 .5% Dividend (Gross) FY ($) 0.AX.57 12 Jan 12 1.8 61.515 3.27 0. Reuters.107 0.886 36. FY12E 716.60 153.4 191.5 2.853 1.145 45.9 0.2 583.872 1.13 2011E 5.272 36.814 1.Fred Lucas (44-20) 7155 6131 fred. EPS FY ($) 1.8% 0.8 Net profit after tax ($ mn) 133.9 2.08 Source: Company data.8 Source: Company data.09 Source: Company data.915 OAO Gazprom (GAZP.1 474.140 46.4 EPS (A$) 0.416. Morgan estimates.3 11.4.552 3.245 0.00 101.6% 0.138 0. 2010A 1.7% Dividend (Gross) FY ($) 0.20 Oil Search Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Res NTA/Sh^ ($) Net Debt^ ($ bn) 7.6 EBITDA margin FY Global Equity Research 13 January 2012 Gazprom Neutral Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn) 5.94 31 Dec 12 8. J.RTS. EPS FY ($) 2.7 185.5 2.6% Normalised* EPS (A$) 0.6% 0.6% 0.L.5% 46.529 30.85 Oil Search Limited (Reuters: OSH.354 0.2 0.449 44. 2010A 4.2 48.40 129. Morgan estimates.040 Net Yield (%) 0.6 0.6% 0.NVTK LI) FYE Dec 2009A Adj.6 691.7 343.P.040 0.050 0.09 2011E 1.0 0.63 11 Jan 12 6.112 0.43 8.17 2012E 6.59 153.073 2.lucas@jpmorgan.P.0 22.145 3.335 30. J.15 2012E 1.040 0.2 EBITDA ($ mn) 333.8% 0.140 -6.2 3.3 200.6% 0.6 4.16 Novatek Underweight Company Data Price ($) Date Of Price Price Target ($) Price Target End Date 52-week Range ($) Mkt Cap ($ bn) Shares O/S (mn) 134.094 0.284 4.2 37.2% 0.631 Net Attributable Income FY 26.9 FY13E 716.90 Dec 6.0 304 OAO Novatek (NVTKq.1 50.8 Cash flow per share ($) 0.7 18.64 .7 490.233 Net Attributable Income FY 821 ($ mn) Adj P/E FY 49.7% 13.634.00 41.6 43.9 EV/EBITDA FY 27.7% 45.40 3.71 8.6% 0.7 203.500 EBITDA FY ($ mn) 35.150 P/E (x) 58.16 Revenue FY ($ mn) 94.1 47.539 2.040 0.77 .97 6.5 36.117 19.834 EBITDA FY ($ mn) 1.32 118.200 53.279 Dividend ($) 0.P.0 EBITDA margin FY 37.90 31 Dec 12 164. Bloomberg: OSH AU) Year-end Dec (US$) FY09A FY10A FY11E Total Revenue ($ mn) 512.549 3.2% 0.7 480.7 35.70 Revenue FY ($ mn) 2.325. Bloomberg.

28 Woodside Petroleum Limited (Reuters: WPL.04 12.9 1.4 943.0% Normalised* P/E (x) 39.5 -4.420 0.1 5.244.2 1.90 .P.7 3.4% Normalised* EPS (A$) 0.1 15.0 3.000 12 Jan 12 24.2 212 .619 7.2% Normalised* P/E (x) 20.2% 14.337.6 1.360 44.11 12.2% 21.1 Operating Profit growth (%) -30.759. J.6 FY13E 3.895 14. FY13E 1.53 0.AX.1 Net profit after tax (A$ mn) 432.564.AX.0% Global Equity Research 13 January 2012 Santos Limited Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Res NTA/Sh^ (A$) Net Debt^ (A$ bn) 16.6% 20.4 2. Bloomberg: 1605 JT) ¥ in mn.5 11.9% 3.588 1.66 674.2 21.9 28.619 20. Morgan estimates.6 11.443 12.157 P/E (x) 15.8% 127 -6.1 Cash flow per share (A$) 1.5 3.500 727 6.7 -14.6% 21.1 2.6 4.4 Recurring Profit growth (%) -28.2% 3.703.6 0.462.262 1.4% 0.1% 31.159.0 1.2% Inpex Corporation (Reuters: 1605.2 Source: Company data.Fred Lucas (44-20) 7155 6131 fred.10.949.677 24.0% 569.416. J.1% EPS (¥) 53.982 2.597.628.330 4.3 5.593 1.895 44.615.157 Normalised* EPS chg (%) -29.3% 15. J.7 666.2% -2.375 0.0 1.3 FY14E 1.447 3.4 15.1% 40.0 2.P. Morgan estimates.29.050 1.370 0.3% 2.3 1.9% 2. Bloomberg.2 4.210.37 12 Jan 12 805.907.760.2% 39.T.2% 136 -11.526 44.9 Revenue growth (%) -21.709.4% Net Profit (¥ bn) 107 129 153 Net Profit growth (%) -26.4 Source: Company data.4 1.67 Dec 32.2 15.5 EPS (A$) 0.9 9.449.1% 12.4 Cash flow per share ($) 1.lucas@jpmorgan.027.0 15.1% 20.85 .575 Normalised* EPS chg (%) -63.5% 573.36 Santos Limited (Reuters: STO.1 2.063.300 2.9 -3.319 0.6 4.008 13. Bloomberg.6% 29.000 1.722 3.9 18.3 500.8 Net profit after tax ($ mn) 1.P.2 0.0 Source: Company data. Bloomberg: WPL AU) Year-end Dec (US$) FY09A FY10A FY11E FY12E Total Revenue ($ mn) 3.6% 14.084.535 Dividend ($) 0.176 2.1% 2.215.097 P/E (x) 9.3 EPS ($) 2.9 17. year-end Mar FY10A FY11A FY12E Revenue (¥ bn) 840.246.023 2.634.502 1.6 4.446 0. Morgan estimates. Bloomberg.153 P/E (x) 23.420 1.7% Recurring Profit (¥ bn) 442.820 2.1% Operating Profit (¥ bn) 461.6 2.3 2. Bloomberg: STO AU) Year-end Dec (A$) FY09A FY10A FY11E Total Revenue (A$ mn) 2.416.3% Normalised* EPS ($) 1.0 508.4 4.4 Inpex Corporation Company Data Price (¥) Date Of Price GPS_AUTO_153_4 Market Cap ($ mn) Shares O/S (mn) 52-week Range (¥) TOPIX DPS (¥) Div Yield GPS_AUTO_1076052_ 510.5 EBITDA (A$ mn) 1.2 Woodside Petroleum Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Res NTA/Sh^ ($) Net Debt^ ($ bn) 50.5% 38.1 1.1% 551.0 2.206 2.2 16.000 425.8% 25.3 -10.46 5.0 1.141.634.080 Net Yield (%) 2.120 1.300 2.5% 3.530. FY12E 2. FY13E 6.300 Net Yield (%) 3.6 668.613 Dividend (A$) 0.566 0.2% 546.5 11.0 804.5 2.900.677 12.6 22.75 12 Jan 12 944.4% 0.1 0.9% 12.150.4% 14.7 EBITDA ($ mn) 2.7 529.7 -14.0 2.32 Dec 12.1 552.76 26.08 26.0 4.198 2.249.4 2.6 1.6 EV/EBITDA (x) 3.950 1.743.549 0.

5 2.447 135.275 1. Bloomberg.415 1.844.29 0.053 Net Profit (Rmb mn) 29. FY12E 2.9 P/BV 1.5% 2.P.7 1.387 0.6 4.2% Source: Company data.2 4.6 EV/EBITDA 7.71 0.921 1.773 64.702 686.75 0.833 8.65 1.5 EV/EBITDA 9. Morgan estimates.8 4.411 182 10.669 86.052 1.130 EPS (Rmb) 0. Morgan estimates.23 Revenue Growth (%) (10%) 42% 37% EPS Growth (%) 117% 16% 9% ROCE 16% 19% 19% ROE 18% 18% 17% P/E 10.8 1.H (Reuters: 0386.342.341 136.7 Global Equity Research 13 January 2012 CNOOC Company Data Shares Outstanding (mn) GPS_AUTO_153_4 Market Cap ($ mn) Price (HK$) Date Of Price Free float (%) Avg Daily Volume (mn) Avg Daily Value (HK$ mn) Avg Daily Value ($ mn) HSCEI GPS_AUTO_1252_4 Fiscal Year End 44.1 8.56 0.3% PetroChina Company Data Shares Outstanding (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free float (%) Avg Daily Volume (mn) Avg Daily Value (HK$ mn) Avg Daily Value ($ mn) HSCEI GPS_AUTO_1252_4 Fiscal Year End 183.465.383.195 183.4 Dividend Yield 2.1 5.8 1.782 47.02 12 Jan 12 33.517 Dec CNOOC (Reuters: 0883.0 3.244 54.1 3.037 EPS (Rmb) 0.35 0.843 80.22 DPS (Rmb) 0.58 27% 19% 33% 29% 8.HK. Bloomberg: 386 HK) Rmb in mn.329 51.3 EV/EBITDA 5.913.852 292.92 0.74 0.24 (0%) 0% 16% 14% 7.6 4.lucas@jpmorgan.441 80.5 1.83 0. FY11E 231.2 5.5 5. Bloomberg: 857 HK) Rmb in mn.23 (9%) 2% 18% 16% 7.0 P/BV 3.45 0.HK.384.0 5.182 2.0 5.8 3.371 15. year-end Dec FY09A FY10A Revenue (Rmb mn) 105.016 0.941 Net Profit (Rmb mn) 103.517 Dec PetroChina (Reuters: 0857.34 (6%) 1% 13% 13% 11. J. Bloomberg.760 71. year-end Dec FY09A FY10A FY11E Revenue (Rmb mn) 1.0 P/BV 1.410 EPS (Rmb) 0.4 3.46 (15%) (21%) 24% 21% 10.098 141 10. FY12E 1.8 3.829 Net Profit (Rmb mn) 61.33 Revenue Growth (%) (5%) 44% (3%) EPS Growth (%) (10%) 35% (4%) ROCE 14% 17% 15% ROE 13% 16% 14% P/E 15.78 12 Jan 12 13.3% 126 1.4 4.517 Dec Sinopec Corp .76 0.019. J.021 1.6 3. Morgan estimates. year-end Dec FY09A FY10A FY11E Revenue (Rmb mn) 1.992 135.P.HK.33 0% (1%) 12% 12% 11.5 11.9% 3. J.8% FY13E 1.1% 3.93 0.2% FY13E 2.617. Bloomberg.336.418.8% Source: Company data.7 1.8% FY12E 196.1 2.8 1.4 2.53 (4%) (7%) 21% 18% 11.90 DPS (Rmb) 0.345.7 4.507 1.21 0.15 0.Fred Lucas (44-20) 7155 6131 fred.422 0.800 78.2% Source: Company data.8 1.18 0.7 8.4% Sinopec Corp .9% 3.4 6.387 139.1 Dividend Yield 2.149 1.9 1. Bloomberg: 883 HK) Rmb in mn.27 0.8% FY13E 188.88 12 Jan 12 19.7 2.06 0.8% 213 .H Company Data Shares Outstanding (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free float (%) Avg Daily Volume (mn) Avg Daily Value (HK$ mn) Avg Daily Value ($ mn) HSCEI GPS_AUTO_1252_4 Fiscal Year End 86.6% 84 1.4 5.P.39 Revenue Growth (%) (17%) 74% EPS Growth (%) (34%) 86% ROCE 22% 32% ROE 18% 28% P/E 18.6% 205 1.9 Dividend Yield 3.143 10.74 DPS (Rmb) 0.3% 3.033 133 10.683 108.5 11.360 0.

49 12 Jan 12 1.4% 12.2% 19.788.8 EBITDA (A$ mn) 1.7 214 .8% 23.50 0.0 886.2% Origin Energy Company Data 52-week range (A$) Market capitalisation (A$ bn) Market capitalisation ($ bn) Fiscal Year End Price (A$) Date Of Price Shares outstanding (mn) ASX100 ASX200-Ind NTA/Sh^ (A$) Net Debt^ (A$ bn) Inst.3 68. FY13E 16.782.50 59.581 4.515 Net Yield (%) 3.506.2 0.6 673.lucas@jpmorgan.5 1.196 0.500 0.7 0.0% 53.7% 22.920 14.Fred Lucas (44-20) 7155 6131 fred.1 8. Morgan estimates. Bloomberg.0 886.6 10.8% 0.6 6.1% 1. Holdings 17.888 10. Bloomberg.1% 10.99 Jun 13.5 2.8 Dividend (A$) 0.0 186.1% Global Equity Research 13 January 2012 Petronet LNG Ltd.06 Origin Energy Limited (Reuters: ORG.35 3.736.0 1.165 Mar Petronet LNG Ltd. Bloomberg: ORG AU) Year-end Jun (A$) FY10A FY11A FY12E Total Revenue (A$ mn) 8.767.6% 25. Morgan estimates.712.7% 3.75 2.6 8.439 13.8% Normalised* NPAT (A$ mn) 584.5% 28.960. FY12E 209.6% EPS growth (%) 9.416.920 3.009.057 Net Profit (Rs mn) 5.045.4 2.2% 25.4 30.865.AX.92 3.029 131.059.00 14.0 0.0 2.304.2% P/E 23.2% -22.5 Dividend Yield 1.196 Asia EPS (Rs) 6.39 8.2 Net profit after tax (A$ mn) 612.6 EV/EBITDA 14.5 Normalised* EPS (A$) 0.0 19.22 .2% Source: Company data.264 12.0 1.666 0.50 30.2 11.6% 14.804 P/E (x) 19.4 16.5% 23.4% 11.8 Source: Company data.554 4.9 2.4 1.009.2 3.26 DPS (Rs) 1.8 1.00 Revenue growth (%) 28.1% 1.4 1.7 0.635.184 4.BO. (Reuters: PLNG.9 16.8% 19.045.3% 1.65 14. Company Data Shares O/S (mn) GPS_AUTO_153_4 Market Cap ($ mn) Price (Rs) Date Of Price Free float (%) 3-mth trading value (Rs bn) 3-mth trading value ($ mn) 3-mth trading volume (mn) BSE30 GPS_AUTO_1252_4 Fiscal Year End 750 2.2% ROCE 21.08 1.045 6.0 14.P. Bloomberg: PLNG IN) Rs in mn.31 16.8% Normalised* P/E (x) 20.75 1.7 0.12.5 EPS (A$) 0.0 0.0% 13. J.5 EBIT (A$ mn) 895.089 10.6 5.91 5.2 FY14E 17.086.0% 9.4% 15.733 0.P.500 0.804 Normalised* EPS chg (%) 10.299 161.9 16.4% 15.399.60 11 Jan 12 34.955.1 2.410 9.8 2.7% 3.287 106.2% FY13E 273.698 0.2 18.888 15. J.958.8% 31.8% 49. year-end Mar FY09A FY10A FY11A Revenue (Rs mn) 84.194.4% ROE 28.67 4.

Project execution risk – material delays to major projects e.$30bn divestment target (iv) further evidence that BP's abilities to access new high potential exploration acreage (as per BP's alliance with RIL in the Krishna Godavari Basin. It still implies a 4% discount to our core NAV.Fred Lucas (44-20) 7155 6131 fred. BP (Overweight Price Target: 575p) Valuation methodology: Our 575p Dec-11 price target for BP captures (i) the reinstatement of BP's dividend with its Q4 2011 results (ii) a positive resolution to the risk of gross negligence versus negligence.900p) Valuation methodology: Our target price remains strongly connected to our core NAV. This is below BG Group's long run average premium of 3% to reflect practical multiple constraints on BG Group’s share price. off the East Coast of India) is intact. either as a result of sluggish economic growth or warmer than normal weather (during winter heating periods) could reduce BG Group gas field Global Equity Research 13 January 2012 Valuation Methodology and Risks BG Group (Overweight Price Target: 1. as per our Central Case Macondo Liability analysis (iii) further progress towards its $25bn . Risks to Our View: LNG contract pricing risk – earnings power would be weakened if the contracting market moved away from oil price parity pricing (6:1 oil:gas ratio) since this could reduce the scope for LNG price arbitrage. QC LNG or the various phases in the pre-salt Brazil would damage confidence in management and project value. 215 . adverse fiscal changes e. This could result in a 'production miss' or reduced volume growth expectations. Asset performance – weaker than expected natural gas demand.lucas@jpmorgan. Political risk – unexpected.g.g. Exploration risk – persistent exploration failure would threaten BG Group's ability to replace its reserves efficiently and this could undermine its valuation relative to its larger peers. Our price target still assumes a discount of around 30% to our sum-of-the-parts value of around 800 pence that is consistent with our Central Case and compares to BP's long run average discount of 26%. We roll forward our price target from 30 June to 31 December 2012 and base it on our revised core NAV of 1960p. in Kazakhstan could damage growth prospects and asset value therein.

delays to projects and capital budget over-runs can damage perceptions of management quality and. Industrial accidents – Unexpected industrial accidents involving RD Shell assets could expose the company to loss of earnings. Royal Dutch Shell B (Neutral Price Target: 2. we roll forward our target date from 31 December 2011 to 30 June 2012. However. Asset integrity / project execution – Unexpected asset integrity issues eg field or refinery downtime. a prolonged period of LNG market over-capacity could dilute the returns from RD Shell’s LNG projects. BP carries a significant production.There is risk that BP will be found grossly negligent and thus face much higher overall Macondo related liabilities than our Central Case. A large acquisition could dilute returns and perceptions of capital controls. The perceived value of this asset is vulnerable to an escalation in Russian country risk and any signs of company-specific corporate governance problems. Gross Negligence .400p) Valuation Methodology : We leave our SOTP at 2.400p. This damage could prove more permanent if LNG's pricing relationship with the oil price is weakened.lucas@jpmorgan. RD Shell’s earnings and cash flow are naturally sensitive to oil and natural gas prices and refining margins. there is a risk that this changes and BP fails to complete its $25bn to $30bn divestment program. downstream assets and off balance sheet liabilities.Although it is a seller's market for upstream assets. 216 . BP does not hedge any of these top line macro exposures. We still believe that a 10% discount to our SOTP is appropriate and therefore keep our price target at 2. Fiscal regimes – Unexpected or adverse changes to the upstream fiscal regimes that apply to any of RD Shell’s key operating areas could reduce its value. asset confiscation and potential litigation risk. Russian risk – Via its 50% stake in TNK-BP. Divestment program fails . Industrial accidents – Unexpected industrial accidents involving BP assets could expose the company to loss of earnings. BP’s earnings and cash flow are naturally sensitive to oil and natural gas prices and refining margins. ergo. US dollar – BP is US dollar long and has a US dollar-based dividend policy. Risks to Our View : Macro factors – As an integrated oil & gas company which does not hedge prices or Global Equity Research 13 January 2012 Risks to Our View : Macro factors – As an integrated oil & gas company.650p: we apply our long-term oil price of $85/bbl (US natural gas price of $5. asset confiscation and potential litigation risk. LNG pricing risk – As one of the largest IOC producers of LNG.RD Shell's balance sheet is strengthening fast as larger than expected divestments and a higher than expected oil price raise cash flow. Dollar weakness could erode BP’s sterling dividend which is important given the dividend yield sensitivity of the UK market. BP’s stock market valuation. Acquisition risk .Fred Lucas (44-20) 7155 6131 fred. cash flow and earnings exposure to assets in Russia. reserve.90/mmbtu) and RD Shell’s 2010 Form 20-F disclosures relating to upstream reserves.

downside risks include a further decline in the natural gas demand in Italy which is likely to put pressure on the operating margin of the company.00) Valuation Methodology : We roll forward our price target of €25 from 31 December 2011 to 30 June 2012 which is derived from our SOTP valuation. Risks to Our View : The main generic risks to our rating and price target come from crude oil or natural gas prices or refining margins significantly below our projections. exploration results from Brazil.offshore Brazil. Statoil (Underweight Price Target: Nkr145. negative risks include any slippage to production targets resulting from higher core decline rates in Norwegian production or if lower crude prices prevent Statoil from sanctioning new projects. 217 .00) Valuation Methodology : Our price target is derived from our SOTP valuation and is set at a 20% discount to our SOTP– very close to average long term discount on this Global Equity Research 13 January 2012 ENI (Overweight Price Target: €21. For Statoil specifically. We still believe that a discount will prevail until Statoil shows a clearer. Our price target is set at a c. Changes in crude prices affect Statoil’s shares more than its peers given its greater upstream leverage. Our price target of Nkr145 is derived from our SOTP valuation . Repsol YPF (Neutral Price Target: €25. sustainable improvement in its upstream performance. GoM and Venezuela.Fred Lucas (44-20) 7155 6131 fred.12% discount to our SOTP. Positive risks include further success in the international portfolio. downside risks include a further weakness in the refining margins and possible disappointments in the company's ongoing exploration campaign .lucas@jpmorgan. Specifically for ENI. this is lower than the long-term average discount for Repsol YPF. notably in the deepwater US Gulf and offshore Brazil.24% discount to our SOTP of NKr190 – this is in-line with the 12 month average discount suffered by the stock. Our price target for the stock is set at a c.00) Valuation Methodology : We roll forward our price target from 31 December 2011 to 30 June 2012. We believe that near-term catalysts like YPF divestment. Risks to Our View : The main generic risks to our rating and price target come from crude oil or natural gas prices or refining margins significantly below/above our projections. West Africa etc will help the stock's performance. Risks to Our View : The main generic risks come from crude oil or natural gas prices or refining margins significantly below our change to our key assumptions or our SOTP valuation. We expect this discount to narrow as ENI’s asset structure becomes simpler. Specifically for Repsol.

1/share to $82. The main generic risks come from crude oil or natural gas prices or refining margins significantly below our projections. We calculate DCF fair value based on explicit financial forecasts until 2015 and discounted terminal value. Risks to Our View : The following risks could prevent the stock from achieving our price target and rating.94) Valuation Methodology : Our PT (Dec-12E) for Gazprom is $6. For Total specifically.5% as the terminal value growth rate and a WACC of 12%. Risks to Our View : We believe the key risks that could keep our rating and target price from being achieved include the following: Long-term risks include increasing competition and falling gas prices in both domestic and international markets.9/share on the back of higher output forecast and addition of NPV of purchased upstream assets into our valuations.94/share.90) Valuation Methodology : We revise our PT (Dec-12) for Novatek from $91.00) Valuation Methodology : We increase our price target from €47 to December 2011 to €49 to December 2012 no change to our key assumptions or our SOTP valuation.Fred Lucas (44-20) 7155 6131 fred. We use a similar valuation approach for all oil and gas companies. Our new target PER 15E is 8. negative risks could come from project slippage relative to the last guidance.6x vs our previous target PER 13E of 11. Our price target for the stock is set at a 13% discount to our SOTP – this is below the 12 month average discount suffered by this name as we expect the stock to re-rate helped by a much stronger production outlook and improvement in its exploration business. Novatek (Underweight Price Target: $82. We keep our valuation approach for all oil and gas companies. (Effectively we assume that there is a 50% chance of next year's oil prices being normalized rather than the bottom of the cycle). which is based on a 50% weight of DCFbased fair value and 50% weight of value based on target (normalized) PER (‘15E). which is based on a 50% weight of DCF-based fair value and 50% weight of value based on target (normalized) PER (‘15E). We also believe that the higher discount suffered by this name in 2011 was partly a reflection of the weaker equity markets. We calculate our target PER multiple by dividing the DCF-based (target) Market Cap by our estimated (normalized) earnings in 2012E.lucas@jpmorgan. Gazprom (Neutral Price Target: $6. but positive risks could come from better-than expected volume growth in 11-12. We calculate the target PER multiple by dividing our DCF-based (target) Market Cap by our estimated (normalized) earnings in 2012E. We use 2. 218 .com Global Equity Research 13 January 2012 TOTAL (Overweight Price Target: €49.4x. Click here to enter text. Upside risk could come from faster than anticipated liberalization of the domestic gas prices and a sharp and sustainable increase in oil and gas prices internationally.

higher than expected capex. Sinopec currently trades at 7x 2012E P/E. Risks to Our View Risks to rating and PT include higher oil prices. but may be offset by increased resource taxes (from 5% to 10%). Ichthys (JPY318k) at 20% (reflecting the stage of the project) and Abadi (JPY104k) at 10% (to show its potential and existence). inability to re-finance debt. successful development of Yamal LNG. which we see as too low considering where peers are trading at.7% WACC and US$85/bbl LT oil price) with a 20% premium due to current oil price higher than DCF LT oil input. Risks to Our View Risks to our rating and PT are higher production. gas prices and NDRC following up with product prices.lucas@jpmorgan. Upside risks include access to export markets before 2016.000 Dec-2012 PT is based on SOTP of DCF for base operation using US$85/bbl LT oil price and WACC of 8% at 100% (JPY476k). lower than expected increase in domestic gas prices. Although we see a slight discount to peers as justified due to current high oil prices resulting in refining losses. oil price and cost control relative to our expectations.Fred Lucas (44-20) 7155 6131 fred.50) Valuation Methodology Our PT is based on DCF (10. cash (JPY265k) at 80% (lots of cash rich undervalued companies in Japan). Higher WFT threshold is also a risk to the upside. similar to PetroChina’s valuation at our PetroChina Global Equity Research 13 January 2012 Risks to Our View : We believe the key risks that could keep our rating and target price from being achieved include the following: Lower than expected output growth if demand fails to recover. and exposure to fluctuations in oil prices. CNOOC (Underweight Price Target HK$12. Sinopec Corp – H (Overweight Price Target HK$9. operational delays or cost overruns. M&A activity. PT yields 17x FY11E EPS and 17x FY12E EPS.000) Valuation Methodology Our JPY750. 219 . Inpex (Overweight Price Target: JPY750. Risks to Our View Risks to our rating and PT are lower-than-expected oil price. Our PT implies an 8.50) Valuation Methodology PT is based on 10% premium to DCF value (US$85/bbl LT oil and 10.6% WACC) due to market’s focus on PE and current oil prices higher than our LT oil price assumption. Risks to Our View Risks to our rating and PT for Sinopec include lower oil and/or NDRC cutting product prices below profitability levels and China relaxing credit earlier than expected.6x 2012E P/E.40) Valuation Methodology Our PT is based on 5x 2011E EV/EBITDA. PetroChina (Underweight Price Target HK$8.

We determine upstream free cash flows based on the operating cash flows generated by the production outlook of the current commercial resource base. Should CVX's divestiture plan prove successful or result in offer prices that are above market expectations. we believe that CVX could use acquisitions as a mechanism for growth. Industry consolidation activities As CVX is one of the larger global integrated oil companies. which is particularly active in global deepwater. then calculate a terminal value based on an inflation-adjusted growth in free cash flows thereafter. Risks to Rating and Price Target North American natural gas exposure Following the mid-2011 acquisition of XTO. we believe XOM could benefit from its exposure. maintaining a healthy balance sheet and ample access to capital. We base our target price primarily on DCF. less the annual capital required to replace the produced resources. We determine upstream free cash flows based on the operating cash flows generated by the production outlook of the current commercial resource base. causing CVX to outperform its peers. 220 . causing it to outperform its peers. implying 10% potential upside from current price levels. especially in the Gulf of Mexico and West Africa. less the annual capital required to replace the produced resources.Fred Lucas (44-20) 7155 6131 fred. based on our estimate of XOM’s segment-level free cash flows discounted at a WACC of 7. if North American natural gas prices were to increase above current market expectations.00) Valuation Methodology We maintain our December 2012 price target of $120/share for CVX. Should CVX’s exploration activities experience a prolonged successful streak.8%. resulting in the stock's outperforming the peers. We base our target price primarily on DCF. Downstream restructuring CVX has indicated that it is undertaking restructuring activities in its downstream segment. XOM is now the largest producer of natural gas in North Global Equity Research 13 January 2012 Chevron (Underweight Price Target $120. including the expected divestiture of refining assets. For other segments. we believe that could increment investors’ appetite for CVX shares. we believe that CVX could outperform the peers.9%. we believe investor sentiment could increase. Exxon (Underweight Price Target $92. Accordingly.00) Valuation Methodology We maintain our December 2012 price target of $92/share for XOM. we forecast ten years of free cash flows. implying 7% potential upside from current price levels. Should CVX use its balance sheet to embark on large-scale acquisitions that are accretive.lucas@jpmorgan. then calculate a terminal value based on an inflation-adjusted growth in free cash flows thereafter. For other segments. based on our estimate of CVX’s segment-level free cash flows discounted at a WACC of 7. Risks to Rating and Price Target Active exploration portfolio Exploration activities are an important source of growth for CVX. we forecast ten years of free cash flows.

Santos(Overweight Price Target A$18.59/share.64/share. potentially causing XOM to outperform the peers. Woodside Petroleum (Underweight Price Target A$44.64) Valuation Methodology Our Jun-12 price target for WPL is A$44. We employ a WACC of 10% for OSH. This reflects our DCF valuation inclusive of full value for PNG LNG T1&2. and 50% of estimated value of PNG LNG Global Equity Research 13 January 2012 High level of global downstream exposure With 6. causing XOM to outperform the peers. Should XOM use its balance sheet to embark on largescale acquisitions that were accretive or deemed to take place at a highly favorable price. a 70% risk weighting for a Browse tie-back to NWS option (comparable to a 35% risk weighting on a standalone Browse at James Price 221 . We apply a 50% risk weighting to a theoretical Laverda oil development. we believe that XOM could outperform the peers.59) Valuation Methodology Our Jun-12 price target for STO is A$18. execution risk for GLNG build. and exploration success for PNG LNG Train 3. Should refining margins strengthen. and exploration success to find gas for Train 3 and beyond.lucas@jpmorgan. and 50% of Train 3. This is based upon our sum of the parts DCF valuation.3 mmbpd of refining capacity. We include full value for PNG LNG T1 & T2. we believe investor sentiment on exploration as a growth mechanism for XOM could be boosted.01) Valuation Methodology Our Jun-12 price target for OSH is A$8. 80% of estimated value for GLNG T1&2. Risks to Rating and Price Target The main downside risks are the oil price and domestic gas prices. XOM is the world’s largest refiner. progress towards the company’s highly material PNG LNG project. Active exploration portfolio XOM maintains a global portfolio of exploration activities in diverse regions such as Madagascar. We employ a WACC of 9% for STO. we believe XOM’s downstream segment could exceed expectations. we believe that one way in which XOM could grow is via large-scale acquisition. 50% risk weighting to Pluto-2 assuming 90% WPL equity gas and future Hess milestone payments. Brazil. Should XOM’s exploration pipeline result in a string of successful prospects. Risks to Rating and Price Target The main upside and downside risks to our price target are favourable/unfavourable spot oil price movements.01/share. with a healthy balance sheet and ~3 billion shares held in treasury stock. Industry consolidation activities As the largest of the US integrated oils. Oil Search (Neutral Price Target A$8. and the Arctic.Fred Lucas (44-20) 7155 6131 fred. especially in frontier plays. especially on unexpectedly high increases in global refined product demand.

lower than forecast electricity and gas retail tariffs. and progress toward key milestones for its LNG projects. and a 20% risk weighting to Sunrise. We apply a Beta of 1. Our group post tax WACC of 9.95) Valuation Methodology Our $18.3%.95 June 2012 Target Price for ORG is based on a sum-of-parts valuation. one of the most relevant upside risks is further exploration/appraisal success for WPL’s planned Pluto-2 project. Origin Energy (Overweight Price Target A$18. lower than forecast oil prices. The key figures that make up this discount rate are a post-tax cost of equity of 10.0% for WPL.Fred Lucas (44-20) 7155 6131 fred.2% reflects a combination of the assumptions in the individual segments.lucas@jpmorgan. We apply different costs of capital to each of the individual business units in an effort to appropriately reflect the risk profile of each Global Equity Research 13 January 2012 Point development).7% and a post-tax cost of debt of 5. We employ a WACC of 9. and lower than estimated wholesale electricity prices 222 . or to a lesser extent an agreement for third party gas supply into the project. In the near term.1 within this calculation Risks to Rating and Price Target The key downside risks to our valuation are: failure of the APLNG second train to reach FID. Risks to Rating and Price Target The main upside risks are the oil price.

Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

BG Group: Summary of Financials
Profit and Loss Statement £ in millions, year end Dec Exploration & production LNG Transmission & Distribution Power Corporate & other Total Segmental EBIT Finance Costs Pre-Tax Income Less: Tax Tax Rate Minorities Adjusted Net Income Growth Avg. shares in issue (m) Adjusted EPS (pence) EPS growth(%) DPS (pence) DPS growth(%) FY09 2,087 1,551 426 158 -11 4,211 (144) 3,941 (1,708) 43.3% 96 FY10 2,431 1,583 460 63 -7 4,531 (116) 4,415 (1,722) 39.0% 96 FY11E 3,277 1,521 374 0 -5 5,168 (172) 4,996 (2,248) 45.0% 70 FY12E 3,066 1,735 408 0 -20 5,189 (213) 4,976 (2,165) 43.5% 66 Valuation, performance and production FY13E £ in millions, year end Dec FY09 3,902 Brent crude, $/bbl 62.67 2,171 US Gas, $/MMBtu 4.16 429 0 Valuation -30 Mkt Cap (� bn) 6,472 P/E adjusted P/CF (239) P/FCF 6,233 EV/DACF (2,680) CF Yield 43.0% FCF Yield 70 FCF yield ex-w/c Dividend Yield 3,483 Buyback Yield 26.8% Combined Yield 3,409.00 Ratios Net debt to equity 102.17 Net Debt to Capital Employed 26.5% ROE 18.2 ROCE 10.0% Production Group oil, kbopd Group gas, mmcfpd Group Total, kboepd Y/Y growth Cash flow statement FY13E £ in millions, year end Dec 35,612 Consolidated Net Income 9,411 DD&A 45,023 Cash Tax Payable Other items 1,004 Cash Earnings 5,410 Increase in working capital 6,415 Cash flow from Operations 51,437 Capex 10,366 Other investing cash flow 7,439 Cash Flow from Investing 17,805 Share Buybacks 5,456 Dividends (s/h & minorities) 3,777 Other cash flow from financing 9,232 Cash flow from Financing 27,037 Change in Net debt 70 Debt adjusted Cash Flow 24,400 Free cash flow 51,437 FCF ex-W/C Changes CFPS 14,026 38,427 FY10 80.34 4.38 FY11E 110.91 4.03 FY12E 95.00 4.10 FY13E 90.00 4.95

2,263 2,598 2,678 2,746 (26.2%) 14.8% 3.1% 2.5% 3,363.00 3,381.00 3,389.00 3,399.00 67.29 NM 12.3 9.9% 76.83 14.2% 13.7 10.7% 79.02 2.9% 15.0 10.0% 80.79 2.2% 16.5 9.9%

21.5 18.8 18.3 17.9 14.2 1.2 1.1 1.0 1.0 0.8 1029.8% 483.6% -355.1% -122.5% -153.0% 1419.0% 1272.9% 1289.5% 1302.0% 1112.6% 0.1% 0.1% 0.1% 0.1% 0.1% 1.7% 2.8% -1.6% -6.3% -4.7% 0.9% 1.9% -1.4% -4.8% -3.7% 0.9% 0.9% 1.0% 1.1% 1.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.9% 0.9% 1.0% 1.1% 1.3% 20.4% 17.1% 15.8% 23.5% 26.0% 20.7% 15.2% 19.1% 38.7% 28.0% 13.9% 15.0% 51.6% 34.1% 12.8% 11.9% 57.3% 36.5% 14.3% 12.1%

182 2,768 644 3.6% FY09 2,263 1,131 1,263 -17 4,640 (206) 4,846 (4,328) -798 -5,126 0 (407) 2,051 1,644 -306 3,640 426 632 1.4

174 2,831 646 0.3% FY10 2,598 1,394 1,234 -321 4,904 (450) 5,354 (5,451) 610 -4,841 0 (447) 2,526 2,079 912 4,197 912 1,362 1.5

165 2,890 647 0.2% FY11E 2,678 1,447 1,723 -72 5,776 (249) 6,024 (6,788) -18 -6,806 0 (477) 2,214 1,737 -3,034 4,387 (1,245) -996 1.7

184 3,098 700 8.2% FY12E 2,746 1,613 1,727 -131 5,954 (249) 6,204 (7,819) 257 -7,562 0 (534) 534 0 -3,619 4,634 (3,619) -3,370 1.8

237 3,344 794 13.4% FY13E 3,483 1,882 2,133 -154 7,343 (314) 7,657 (7,844) 0 -7,844 0 (588) 588 0 -2,907 5,697 (2,907) -2,593 2.2

Balance sheet £ in millions, year end Dec Tangible fixed assets Other non current assets Total non current assets Cash and cash equivalent Other current assets Total current assets Total assets Short term debt Other current liabilities Total current liabilities Long term debt Other non current liabilities Total non current liabilities Total liabilities Shareholders' equity Minorities Total Equity Total Liabilities and Shareholders Equity

FY09 13,460 7,610 21,070 693 4,519 5,212 26,282 717 4,431 5,148 3,111 3,638 6,749 11,897 96 14,385 26,282

FY10 18,103 7,732 25,835 1,622 4,760 6,383 32,218 806 4,886 5,692 5,410 4,024 9,434 15,126 96 17,092 32,218 4,466 21,558

FY11E 23,444 8,466 31,909 1,004 5,410 6,415 38,324 3,840 5,641 9,480 5,456 4,096 9,551 19,032 70 19,293 38,324 7,500 26,793

FY12E 29,650 8,976 38,625 1,004 5,410 6,415 45,040 7,459 6,844 14,303 5,456 3,777 9,232 23,535 66 21,505 45,040 11,119 32,624

Net debt/ (cash) 2,956 Capital Employed 17,341 Source: Company reports and J.P. Morgan estimates.


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

BP: Summary of Financials
Profit and Loss Statement $ in millions, year end Dec E&P R&M Other & Corporate Total Segmental EBIT Finance Costs Pre-Tax Income Less: Tax Tax Rate Minorities Adjusted Net Income Growth Avg. shares in issue (m) Adjusted EPS (cents) EPS growth(%) Adjusted EPS (pence) EPS growth(%) DPS (cents) DPS growth(%) DPS (pence) DPS growth(%) FY10 27,689 4,883 -869 31,703 (1,046) 30,657 (9,741) 31.8% 395 FY11E 29,885 7,169 -1,678 35,376 (907) 34,469 (11,711) 34.0% 383 FY12E 28,389 6,894 -1,600 33,683 FY13E 27,330 6,407 -1,600 32,138 FY14E 26,151 6,352 -1,600 30,903 (825) 30,078 (10,663) 34.5% 327 Valuation, performance and production $ in millions, year end Dec FY10 FY11E FY12E FY13E FY14E Brent crude, $/bbl 80.34 110.00 95.00 90.00 85.00 US Gas, $/MMBtu 4.38 4.43 5.40 5.90 5.90 Valuation Mkt Cap ($ bn) P/E adjusted P/CF P/FCF EV/DACF CF Yield FCF Yield FCF yield ex-w/c Dividend Yield Buyback Yield Combined Yield Ratios Net debt to equity Net Debt to Capital Employed ROE ROCE Production Group oil, kbopd Group gas, mmcfpd Group Total, kboepd Y/Y growth Cash flow statement $ in millions, year end Dec Consolidated Net Income DD&A Cash tax payable Other items Cash Earnings Change in working capital Cash flow from Operations

(920) (850) 32,763 31,288 (11,531) (11,093) 34.2% 34.5% 357 340

20,521 22,375 20,874 19,855 19,088 40.8% 9.0% (6.7%) (4.9%) (3.9%) 18,792.91 18,967.63 18,953.93 18,879.19 18,808.18 1.09 40.4% 70.5 41.9% 7.0 (87.5%) 4.5 (87.3%) 1.18 8.3% 73.5 4.3% 29.0 314.3% 17.9 299.5% 1.10 NM 68.8 -6.4% 32.8 12.9% 20.4 14.1% 1.05 NM 65.7 -4.5% 35.8 9.2% 22.3 9.2% 1.01 NM 63.4 -3.5% 38.5 7.7% 24.0 7.7%

6.5 4.5 13.0 5.4 22.0% 21.6% 5.8% 1.0% -0.1% 0.9%

6.2 4.6 -13.9 5.6 21.6% 0.8% 4.1% 4.0% -0.0% 3.9%

6.6 3.7 22.7 4.3 27.0% 12.8% 2.4% 4.5% 0.7% 5.2%

7.0 7.2 4.1 4.1 8.2 -1160.0 4.3 4.3 24.4% 24.2% 17.9% 5.9% 11.9% -0.2% 4.9% 5.3% 0.9% 0.9% 5.9% 6.3%

27.0% 21.2% 21.6% 16.9%

27.6% 21.6% 19.6% 15.3%

19.0% 16.0% 16.3% 13.6%

5.5% 5.2% 14.2% 13.3%

5.2% 4.9% 12.6% 11.8%

2,374 8,401 3,774 -4.4%

2,088 8,328 3,476 -7.9%

2,101 9,035 3,607 3.7%

2,034 9,101 3,551 -1.6%

1,993 9,481 3,573 0.6%

Balance sheet $ in millions, year end Dec Cash and cash equivalent Other current assets Current assets Tangible fixed assets Other non current assets Total non current assets Total assets Short term debt Other current liabilities Total current liabilities Long term debt Other non current liabilities Total non current liabilities Total liabilities Shareholders' equity Minorities Total Equity Total Liabilities and Shareholders Equity

FY10 18,556 15,530 96,853 110,163 15,538 175,409 272,262 14,626 22,924 83,879 30,710 61,782 92,492 176,371 904 95,891 272,262

FY11E 8,586 7,833 82,108 128,345 15,590 204,705 286,813 7,986 22,235 78,607 33,767 59,444 93,211 171,818 1,094 114,994 286,812 31,713 146,708

FY12E 14,680 8,803 92,419 136,335 15,590 214,470 306,889 7,016 26,384 84,286 33,767 59,444 93,211 177,497 1,451 129,392 306,889 24,649 154,041

FY13E 31,527 8,803 109,888 133,909 15,590 213,469 323,357 7,016 30,376 88,278 33,767 59,444 93,211 181,489 1,791 141,868 323,357 7,802 149,670

Net debt/ (cash) 25,864 Capital Employed 121,755 Source: Company reports and J.P. Morgan estimates.

FY14E FY10 FY11E FY12E FY13E FY14E 31,408 20,521 22,375 20,874 19,855 19,088 8,803 11,539 11,876 11,180 11,126 11,397 110,679 (6,610) (7,497) (7,382) (7,101) (6,826) 147,212 -3,240 -11,953 18,022 17,161 16,655 15,590 22,210 14,801 42,694 41,041 40,313 228,197 2,123 (15,636) 2,700 200 200 338,876 20,087 30,437 39,994 40,841 40,113 7,016 34,213 Capex (18,947) (19,146) (22,550) (24,050) (25,050) 92,115 Other investing cash flow 14,987 -10,236 3,030 15,000 0 Cash Flow from Investing -3,960 -29,382 -19,520 -9,050 -25,050 33,767 59,444 Share Buybacks 169 59 -977 -1,303 -1,303 93,211 Dividends (s/h & minorities) (2,627) (4,089) (5,770) (6,290) (6,802) 185,326 Other cash flow from financing 3,298 802 (250) (250) (250) Cash flow from Financing 840 -3,228 -6,998 -7,843 -8,356 2,118 Change in Net debt -297 5,849 -7,065 -16,847 119 153,550 338,876 Debt adjusted cash flow 29,226 29,925 37,382 33,739 33,287 Free cash flow 10,217 (9,970) 6,095 16,847 (119) 7,921 FCF ex-W/Capital Changes 8,094 5,666 3,395 16,647 -319 161,471 CFPS 1.2 0.8 2.3 2.2 2.1


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

Royal Dutch Shell B: Summary of Financials
Profit and Loss Statement $ in millions, year end Dec Exploration & Production Gas & Power Oil Products Chemicals OIS & Corporate Total Segmental EBIT Finance Costs Pre-Tax Income Less: Tax Tax Rate Minorities Adjusted Net Income Growth Avg. shares in issue (m) Adjusted EPS (cents) EPS growth(%) Adjusted EPS (pence) EPS growth(%) DPS (cents) DPS growth(%) DPS (pence) DPS growth(%) FY09 18,333 2,423 2,290 410 408 23,865 FY10 33,230 4,060 2,969 1,983 -719 41,523 FY11E 39,463 7,733 4,063 2,385 -649 52,995 FY12E 37,606 7,811 4,749 1,503 -643 51,026 Valuation, performance and production FY13E $ in millions, year end Dec FY09 36,979 Brent crude, $/bbl 62.67 7,811 US Gas, $/MMBtu 4.16 5,432 2,059 Valuation -636 Mkt Cap ($ bn) 51,644 P/E adjusted 19.8 P/CF 0.6 1,039 P/FCF -221.7% 52,683 EV/DACF 1023.6% (28,194) CF Yield 0.2% 53.5% FCF Yield 2.7% 361 FCF yield ex-w/c -1.6% Dividend Yield 5.5% 23,089 Buyback Yield 0.0% 1.5% Combined Yield 5.5% 6,290.33 Ratios 3.84 Net debt to equity 18.6% NM Net Debt to Capital Employed 15.7% 248.0 ROE 8.5% -0.1% ROCE 7.3% 181.7 0.0% Production 115.3 Group oil, kbopd 1,680 3.0% Group gas, mmcfpd 8,483 Group Total, kboepd 3,094 Y/Y growth -3.3% Cash flow statement FY13E $ in millions, year end Dec FY09 31,481 Consolidated Net Income 11,553 99,450 DD&A 14,458 130,931 Cash tax payable (9,243) 164,705 Other items 2,389 66,065 Cash Earnings 19,157 230,769 Change in working capital (2,331) 361,701 Cash flow from operations 21,488 (9,951) 107,769 Capex (27,838) 97,818 Other investing cash flow 1,604 Cash Flow from Investing Acitivites -26,234 (34,381) 116,864 Share Buybacks 0 72,532 Dividends (s/h & minorities) (10,526) 170,350 Other cash flow from financing 9,803 Cash flow from Financing -723 2,840 Change in Net debt 17,233 188,510 361,701 Debt adjusted cash flow 20,610 Free cash flow (5,469) 12,851 FCF ex-W/Capital Changes -3,138 201,361 CFPS 3.1 FY10 FY11E FY12E FY13E 80.34 110.00 95.00 90.00 4.38 4.43 5.40 5.90

1,664 (140) 84 1,185 25,529 41,383 53,079 52,211 (12,194) (23,117) (26,570) (27,938) 47.8% 55.9% 50.1% 53.5% 118 333 365 347 11,553 18,073 26,060 22,742 (59.3%) 56.4% 44.2% (12.7%) 6,128.90 6,139.28 6,245.33 6,230.33 1.89 NM 120.3 -50.0% 168.0 5.0% 106.3 14.5% 2.94 56.2% 190.4 58.3% 168.0 0.0% 106.8 0.5% 4.19 42.2% 259.3 36.2% 174.7 0.0% 105.8 (0.9%) 3.84 NM 248.3 -4.2% 181.7 3.0% 111.9 5.8%

12.6 8.9 9.7 9.7 0.4 0.3 0.3 0.3 326.1% 177.1% 226.6% 196.1% 792.6% 560.9% 482.3% 438.0% 0.2% 0.3% 0.3% 0.4% 7.3% 8.8% 8.5% 9.1% 5.0% 8.8% 3.8% 3.3% 5.5% 5.5% 5.8% 6.0% 0.0% 0.0% 0.0% 0.0% 5.5% 5.5% 5.8% 6.0%

20.9% 17.3% 12.2% 10.7%

15.0% 13.1% 15.9% 14.4%

10.9% 9.8% 12.9% 12.2%

6.8% 6.4% 12.2% 11.9%

1,709 9,305 3,259 5.4% FY10 18,073 15,595 (15,362) 3,115 21,421 (5,929) 27,350

1,701 1,700 1,738 9,391 10,867 11,111 3,266 3,511 3,590 0.2% 7.5% 2.3% FY11E 26,060 17,235 (18,959) 4,807 29,144 (10,191) 39,335 FY12E 22,742 18,889 (18,889) 18,881 41,623 (2,000) 43,623 FY13E 23,089 19,607 (19,607) 23,303 46,392 0 46,392

Balance sheet $ in millions, year end Dec Cash and cash equivalent Other current assets Total current assets Tangible fixed assets Other non current assets Total non current assets Total assets Short term debt Other current liabilities Total current liabilities Long term debt Other non current liabilities Total non current liabilities Total liabilities Shareholders' equity Minorities Total Equity Total Liabilities and Shareholders Equity

FY09 9,719 86,738 96,457 131,619 64,105 195,724 292,181 (4,171) 88,960 84,789

FY10 13,444 99,450 112,894 142,705 66,961 209,666 322,560 (9,951) 110,503 100,552

FY11E 19,693 99,450 119,143 145,809 65,152 210,961 330,104 (9,951) 101,470 91,519

FY12E 25,134 99,450 124,584 155,571 66,307 221,877 346,461 (9,951) 105,202 95,251

(25,399) (27,651) (27,241) (28,741) 3,427 5,770 0 0 -21,972 -21,881 -27,241 -28,741 0 0 0 0 (9,584) (10,151) (10,464) (10,778) 7,931 (325) (478) (526) -1,653 -10,476 -10,942 -11,304 5,574 -6,249 -5,440 -6,347 27,042 39,133 42,594 45,866 3,725 6,978 5,440 6,347 9,654 17,169 7,440 6,347 3.5 4.7 6.7 7.4

(30,862) (34,381) (34,381) (34,381) 104,290 116,560 116,864 116,864 69,257 72,228 72,532 72,532 154,046 172,780 164,051 167,783 1,704 1,767 2,132 2,479 136,431 148,013 163,922 176,199 292,181 322,560 330,105 346,461

Net debt/ (cash) 25,314 30,888 24,639 19,198 Capital Employed 161,745 178,901 188,560 195,398 Source: Company reports and J.P. Morgan estimates.


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

ENI: Summary of Financials
Profit and Loss Statement € in millions, year end Dec Exploration & Production Gas & Power Refining & Marketing Chemicals Corporate & other Total Segmental EBIT Finance Costs Pre-Tax Income Less: Tax Tax Rate Minorities Adjusted Net Income Growth Avg. shares in issue (m) Adjusted EPS EPS growth(%) DPS DPS growth(%) FY09 9,484 3,683 -357 -426 528 12,912 149 13,061 7,049 54.0% 950 FY10 13,884 3,119 -171 -113 585 17,304 89 17,393 9,459 54.4% 1,065 FY11E 15,566 2,679 -342 -81 672 18,495 500 18,995 10,424 54.9% 1,214 FY12E 15,616 3,005 -239 -61 1,063 19,384 350 19,734 10,792 54.7% 1,427 FY13E 16,574 3,165 -152 20 1,239 20,847 350 21,197 11,201 52.8% 1,545 Valuation, performance and production € in millions, year end Dec FY09 Brent crude, $/bbl 62.67 US Gas, $/MMBtu 4.16 Valuation Mkt Cap (bn) P/E adjusted P/CF P/FCF EV/DACF CF Yield FCF Yield FCF yield ex-w/c Dividend Yield Buyback Yield Combined Yield Ratios Net debt to equity Net Debt to Capital Employed ROE ROCE Production Group oil, kbopd Group gas, mmcfpd Group total, kboepd Y/Y growth Cash flow statement € in millions, year end Dec Consolidated Net Income DD&A Cash tax payable Other items Cash Earnings Change in working capital Cash flow from Operations FY10 80.34 4.38 FY11E 110.00 4.43 FY12E 95.00 5.40 FY13E 90.00 5.90

5,062 6,869 7,357 7,514 8,451 (50.2%) 35.7% 7.1% 2.1% 12.5% 3,622.10 3,622.10 3,622.10 3,622.10 3,621.60 1.40 NM 1.00 (23.1%) 1.90 35.7% 1.00 0.0% 2.03 7.1% 1.04 4.0% 2.07 2.1% 1.09 5.0% 2.33 12.5% 1.15 5.0%

11.8 8.7 8.1 8.0 7.1 5.2 4.0 3.3 3.2 3.0 -18502.7% -98472.0% 4632.0% 10758.1% 3667.7% 7.3 5.8 4.8 4.5 4.2 19.1% 25.1% 30.0% 31.3% 33.4% 4.5% 6.9% 8.5% 7.6% 9.7% 2.7% 2.9% 2.2% 0.9% 2.7% 6.2% 6.2% 6.5% 6.8% 7.1% 0.0% 0.0% 0.0% 0.0% 0.0% 6.2% 6.2% 6.5% 6.8% 7.1% 45.8% 31.4% 10.1% 7.2% 46.9% 31.9% 12.3% 8.9% 41.0% 29.1% 12.1% 8.8% 37.0% 27.0% 11.4% 8.6% 31.7% 24.1% 11.8% 9.2%

1,007 4,374 1,796 0.4% FY09 5,062 9,811 7,049 -4,099 17,823 (1,901) 19,724 (13,695) 847 -12,848 0 (2,956) 4,224 1,268 4,662 11,117 (314) 1,587 -0.1

997 4,540 1,816 1.1% FY10 6,869 9,392 9,459 -3,949 21,771 (1,726) 23,497

896 3,900 1,600 -11.9% FY11E 7,357 9,340 10,424 714 27,834 0 27,834

969 4,094 1,708 6.7% FY12E 7,514 9,572 10,792 1,077 28,955 0 28,955

1,026 4,328 1,807 5.8% FY13E 8,451 9,754 22,402 -10,005 30,602 0 30,602

Balance sheet € in millions, year end Dec Tangible fixed assets Other non current assets Total non current assets Cash and cash equivalent Total assets Short term debt Long term debt Total liabilities Shareholders' equity Minorities Total Equity Total Liabilities and Equity Net debt Capital Employed

FY09 63,287 16,676 79,963 1,625 73,339 137 24,800 23,038 3,978 50,301 73,339 23,038 73,339

FY10 67,133 20,058 87,191 1,549 81,847 115 27,783 26,119 4,522 55,728 81,847 26,119 81,847

FY11E 70,755 20,058 90,813 2,820 85,469 98 27,783 24,865 5,736 60,605 85,469 24,865 85,469

FY12E 75,296 20,058 95,354 3,360 90,010 98 27,783 24,325 7,164 65,685 90,010 24,325 90,010

FY13E 79,657 20,058 99,715 4,944 94,369

98 27,783 22,741 Capex Other investing cash flow 8,709 Cash Flow from Investing 71,628 Share Buybacks 94,369 Dividends (s/h & minorities) Other cash flow from financing 22,741 Cash flow from Financing 94,369 Change in Net debt Debt adjusted Cash Flow Free cash flow Free cash flow (ex-w/c) CFPS

(13,870) (14,462) 931 1,500 -12,939 -12,962 0 0 (4,099) (3,695) 2,285 0 -1,814 -3,695 3,081 14,605 (59) 1,667 -0.0 -1,254 17,411 1,254 1,254 0.3

(14,112) (14,115) 0 0 -14,112 -14,115 0 0 (3,861) (4,053) 0 1 -3,861 -4,052 -540 18,163 540 540 0.1 -1,584 19,401 1,584 1,584 0.4

Source: Company reports and J.P. Morgan estimates.


Fred Lucas (44-20) 7155 6131

Global Equity Research 13 January 2012

Repsol YPF: Summary of Financials
Profit and Loss Statement € in millions, year end Dec Exploration & Production Refining & Marketing YPF Gas Natural LNG Corporate Total Segmental EBIT Finance Costs Pre-Tax Income Less: Tax Tax Rate Minorities Adjusted Net Income Growth Avg. shares in issue (m) Adjusted EPS EPS growth(%) DPS DPS growth(%) FY09 884 647 789 745 50 -354 2,761 (468) 2,293 832 36.3% 166 FY10 FY11E FY12E FY13E 1,473 1,661 2,007 1,922 977 808 1,230 1,752 1,625 1,578 1,834 1,927 849 933 939 961 127 259 253 279 -336 -316 -345 -349 4,714 4,922 5,917 6,491 (858) 3,856 1,561 40.5% 263 (765) 4,157 1,686 40.6% 247 2,224 9.5% (572) 5,345 2,296 42.9% 305 2,745 23.4% (571) 5,919 2,440 41.2% 348 3,132 14.1% Valuation, performance and production € in millions, year end Dec FY09 Brent Crude, $/bbl 62.67 US Gas, $/MMBtu 3.66 Valuation Mkt Cap (bn) P/E adjusted P/CF P/FCF EV/DACF CF Yield FCF Yield FCF yield ex-w/c Dividend Yield Buyback Yield Combined Yield FY10 80.34 4.38 FY11E 110.00 4.43 FY12E 95.00 5.40 FY13E 90.00 5.90

1,295 2,032 (50.6%) 57.0%

20.9 4.9 -4225.8% 7.4 20.5% 4.9% -0.2% 3.9% 0.0% 3.9%

13.3 12.2 9.9 8.7 4.1 4.0 4.5 3.4 653.7% 6174.0% -1572.9% -91826.8% 5.7 5.5 6.3 4.9 24.4% 24.9% 22.5% 29.2% 18.7% 6.5% -1.2% 5.7% 17.5% 7.9% -3.6% 7.4% 4.8% 5.3% 5.9% 6.4% 0.0% 0.0% 0.0% -0.0% 4.8% 5.3% 5.9% 6.4%

Balance sheet € in millions, year end Dec Tangible fixed assets Other non current assets Total non current assets Total Current assets Total assets

Short term debt Other current liabilities Total Current Liabilities Long term debt Other non current liabilities Total non current liabilities Total liabilities Shareholders' equity Minorities Total Equity Total Liabilities and Shareholders Equity

Ratios 1,221.00 1,221.00 1,221.00 1,221.00 1,221.00 Net debt to equity Net Debt to Capital Employed 1.06 1.66 1.82 2.25 2.57 ROE NM 57.0% 9.5% 23.4% 14.1% ROCE 0.85 1.05 1.16 1.27 1.40 Production (19.1%) 23.5% 10.0% 10.0% 10.0% Group oil, kbopd Group gas, mmcfpd Group Total, kboepd Y/Y growth Cash flow statement FY09 FY10 FY11E FY12E FY13E € in millions, year end Dec 31,900 33,585 33,587 34,916 36,882 Consolidated Net Income 11,410 12,168 12,172 12,181 12,177 DD&A 43,310 45,753 45,759 47,097 49,059 Cash tax payable 14,773 21,878 23,049 21,329 21,299 Other items 58,083 67,631 68,821 68,429 70,358 Cash Earnings Change in working capital Cash flow from Operations 3,499 4,362 4,362 4,362 4,362 8,494 11,411 11,411 9,380 9,381 Capex 11,993 15,773 15,773 13,742 13,743 Other investing cash flow Cash Flow from Investing 15,411 14,940 14,940 14,940 14,941 9,288 10,932 10,932 10,932 10,932 Dividends (s/h & minorities) 24,699 25,872 25,872 25,872 25,873 Other cash flow from financing 36,692 41,645 41,645 39,614 39,616 Cash flow from Financing 1,440 21,391 58,083 1,846 25,986 67,631 10,958 35,098 2,093 27,176 68,821 10,194 35,276 2,398 28,815 68,429 11,913 38,330 2,746 30,742 70,358 11,945 39,941 Change in Net debt Debt adjusted Cash Flow Free cash flow FCF ex-W/Capital Changes CFPS

73.4% 45.4% 42.4% 31.2% 6.1% 7.8% 4.2% 5.8% 438 2,808 906 -4.8% 437 2,700 887 -2.1%

40.6% 28.9% 8.2% 6.3% 401 2,491 816 -8.0% FY11E 2,224 4,131 (1,602) -1,322 6,635 (1,693) 8,328 (6,500) 0 -3,476 (1,282) (765) -2,047 -764 6,726 438 2,131 0.4

45.1% 31.1% 9.5% 7.5% 422 2,367 817 0.1% FY12E 2,745 3,538 (2,181) -940 7,523 (733) 8,256 (5,240) 0 -5,240 (1,410) (572) -1,982 1,719 6,075 (1,719) -987 -1.4

42.7% 29.9% 10.2% 8.0% 427 2,298 809 -0.9% FY13E 3,132 3,516 (2,318) -774 8,191 (2,031) 10,222 (5,240) 0 -5,240 (1,552) (572) -2,123 31 7,904 (29) 2,002 -0.0

FY09 FY10 1,295 2,032 2,886 3,876 (1,168) (1,627) 770 106 6,119 7,641 (590) (590) 6,709 8,231 (9,003) (5,106) 56 -27 -7,854 -73 (1,935) (806) 4,440 (653) 2,505 -1,459 7,796 -3,696 5,541 (640) -50 -0.5 6,604 4,137 4,727 3.4

Net debt 14,654 Capital Employed 34,605 Source: Company reports and J.P. Morgan estimates.


3% 23.348 1.4 5.24 6.8% FY09 37.3% 6234.Fred Lucas (44-20) 7155 6131 fred.423 (34.384 148.68 16.482 Change in working capital Total assets 562.6 7380. mmcfpd Group Total.331 -94.681 62.00 3.255 271.170 CFPS Source: Company reports and J.8% 5.5 228 .697 42.951 381.044 68.127 1.092 158.171 2.3% 26.425 DD&A Current assets 116.7% 27.8% (767) (1.0% 8.177 403.946 FCF ex-W/Capital Changes Capital Employed 275.440 1.593 98.331) (94.086 -1. $/MMBtu 4.2% 0.8% (861) Valuation.0% 5.797 99.673 168.458 171.5% 21.652 (15.182.55 6.730 179.464 128.2%) 4.0% 4.4 -4.163 (6.166 Other investing cash flow Cash Flow from Investing Acitivites Long term debt 95.07 13.0% 5.428 117.66 17.111 213.8% 19.458 171.304 -5.0% -2.197 (17.6% 6.200 1.331 -343 -294 0 0 0 (23.618 -5.061 4.428 1. kbopd Group gas.5% 18. year end Dec Exploration & production* Natural Gas* Manufacturing & Marketing Fuel and Retail Marketing.500 13.9% 2.613 70.00 3.872 8.274 73.423 41.4% 4.4% 978 4.483 79.1% 0.lucas@jpmorgan.255 Dividends (s/h & minorities) Total liabilities 362.720 71.431) (6.385 296.190) (14.186 -5.198 17.973 -22.190 14.081 92.667 1.794 468.673 93.757 15.0% Global Equity Research 13 January 2012 Statoil: Summary of Financials Profit and Loss Statement Nkr in millions.974 -20. year end Dec FY09 FY10 FY11E FY12E FY13E Nkr in millions.114 102.266 -22. performance and production Nkr in millions.723 30.128 54.2% 8688.6% 27.4% 4.1 6.973) (22.646 705.436) (6.8% 1.245) 176.16 Valuation Mkt Cap (Nkr bn) P/E adjusted P/CF P/FCF EV/DACF CF Yield FCF Yield FCF yield ex-w/c Dividend Yield Buyback Yield Combined Yield FY10 80.14 15.150 11.185.2 5.840 643.150) (74.840 643.257 122.0% 5.751 1.100 -400 -1.853 Change in Net debt Total Equity 200.7% 30.8% (598) 0 178.595 128. $/bbl 62.946 569.345 6.456 449.9% 15.286 70.774 968 4.268 117.00 90. year end Dec FY09 Brent crude.799 6.3% FY10 42.274) 13.232 45.661 118.4 5.458 171.88 7.90 37.102) 214.714 16.008 673.280 215.844 52.4% 4.331) -206 -2.3% 6.429) 174.730 11.128 54.0 6.1% 7.699 123.974) (20.43 FY12E FY13E 95.001 6.118 226.853 6.00 3.008 673.531 435.8% 5.3% 13.383 162.337 47.1% 981 4.182.087 (5.432 98.8 4.706 -5.853 6.8% 13.0% FY11E FY12E FY13E 49. kboepd Y/Y growth Balance sheet Cash flow statement Nkr in millions.00 Ratios Net debt to equity Adjusted EPS (Nkr) 12.395 263.232 49.076 325.6% 15.0% 4.6% 4.3 -5.646 705.797 99.586 -7.739 2.3% 4.606 738.700 1.8% -1.881 142.6% 21.762 155.194 14.6 9.719 19.3 16.621 101.182.255 271.917 271.697 46.152 101.859 341.00 5.542 219.164 20.573 (300) 129.8% 5.605 0 0 -75.246 93.960 138.865) (94.290 100. Morgan estimates.8% (805) (1.962 99.844 52.100 130.3 5.P.095) (19.2 22.781 -6.0% 18.3% 37.9% 6.5% 1.797 99.606 738.772 1.468 301.022 29.3% 0.956 0 0 0 11.4% 20.562 1.500 12.063 23.079 7.34 4.7%) 12.797 Other non current liabilities 154.955 171.705 5.869 Debt adjusted cash flow Free cash flow Net debt 75.7% 14.9% 12.969 111.7 9.5% 4.356 -76.356 472.3% 18.246) 180.335 14.796 521.3% ROE DPS (Nkr) 6.730 11.100 1.291 567 -19.085) (19.754 46.9 4.6 11.38 Net Debt to Capital Employed EPS growth(%) NM 8.331 182.497 Cash tax payable Net fixed assets 340.835 348.6% 4.570 167.113 2.00 4.800 69.38 FY11E 110.1% -2610.770 124.0% 0.135 129.425 118.730 Other current liabilities 103.869 Cash flow from operations Short term debt 8.00 6.1% 0.593 1.613 410.100 -1.9% 17.853 6.6% 3.500 2.791 178.6 4.152 101.152 101.0% 0.224 Total Liabilities and Shareholders Equity 562.100) 139.080 14. year end Dec Cash and cash equivalent 24.3% 18.022) 34.805 136.182.425 118.255 271.2% 18.644 420.284 123.716 221.8% 23.815 5.6% 4.330 Other items Other non current assets 105.155) (88.655 124.7% (598) (1.4% 3.425 118.535 20.8% 5. 12.881 125.759 -8.00 3.687) 173.40 5.267 69.260 -94.072 Consolidated Net Income Other current assets 91.0% 5.204 371.773 -16.801 2.337 37.6 92.405 117.0% Production Group oil.100 -1.22 ROCE DPS growth(%) (17.9 80.218 -65.538 105.7% 19.67 US Gas.644 Other cash flow from financing Shareholders' equity Cash flow from Financing Minorities 1.602 -6.722 416.085 11.396 208.746 397. shares in issue (m) FY09 FY10 FY11E FY12E FY13E 111.633 -10.950 122. Processing & Renewable energy Other Operations Total Segmental EBIT Finance Costs Pre-Tax Income Less: Tax Tax Rate Minorities Adjusted Net Income Growth Avg.265 (75.436 Capex Total current liabilities 111.152 Cash Earnings Total non current assets 446.081 931 4.730 170.730 11.458 Share Buybacks Total non current liabilities 250.

1% 6.lucas@jpmorgan.996 14.437 20.657 3.1% Buyback Yield -0.P.029) Short term debt 6.40 FY13E 90.0 Net debt 13.490 Dividend Yield 5.405 40.288 11.00 2.0% 14.6 4.0% 6.64 5.2% 53.426 25.24 5.095 42.7% 5.5% 14.999) EV/DACF 8.323 304 -144 -85 Total Liabilities and Shareholders Equity 127.447 36.999 41. year end Dec FY09 Brent crude.899 28.7% 5.277 25.744 28.0% NM 14.742 24.337 7.296 502 1.291 6.3% 50.013 CFPS -0.8% 6.217.453 22.573) Other non current liabilities 20.2% 10.278) (14.772 12.978 Total assets 127. mmcfpd 4.147 6.316) (496) 1 299 100 Total Current assets 49.891 1.891 69.14 5.00 4.1% 28949.860 37.342 151.0 5.0% 17.660 34.352 2.609 49.301 11.785 10.7% 17.557 Free cash flow (659) 2.00 5.121 12.399 21.217.1% 6.996 85.0% 0.783 Dividends (s/h & minorities) (5.203 70.783 20.955 22.411 30.972 33.6%) 15.086) (5. shares in issue (m) 2.113 1. year end Dec FY09 FY10 FY11E FY12E FY13E € in millions.5 8.662 14.518 1.3% -0.999 Change in Net debt 2.4% Balance sheet Cash flow statement € in millions.605 78.489 14.8% 5.250 40.863 Source: Company reports and J.216 21.3% 21.0% 0.4% EPS growth(%) NM 33.5% DPS growth(%) Global Equity Research 13 January 2012 TOTAL: Summary of Financials Profit and Loss Statement € in millions.88 Net debt to equity 25.1% Adjusted Net Income 7.354 314 1.590 54.597 30.361 Other items -5.414 66.663 21.753 143.627 9.00 2.3% DPS 2.342 151.674 6.2% 16.216 Cash flow from Financing -2.980 73.39 2.130 1.5% (4.250 76.7% 3127.512 93.427 2.0% 597721.573 Total non current liabilities 39.936 57.566 13.8 Finance Costs (264) (226) (389) (391) (362) P/CF 7.186 157.8% 5.029 Total Current Liabilities 34.288 11.251 34.757 56.0 4.1 0.1% 0.8% 6.00 5.098 83.973 28.490 -15.102 -17.357 6.252 24.0% Combined Yield 5.518 FCF ex-W/C Changes 2.035 Cash Flow from Investing -10.806 41.0% 5.895 -535 741 -1.933 Share Buybacks 22 49 0 0 0 Long term debt 19.216 21.3 0.1% 14.7% 0. year end Dec Exploration & production Refining & marketing Chemicals Corporate & other Total Segmental EBIT FY09 FY10 FY11E FY12E FY13E 13.5% 3.964 62.548 30.974 DD&A 6.5% 54.8 6.885 19.4% 13.898 Other investing cash flow -922 -735 0 0 0 Other current liabilities 27.794 14.2% 6.307) (5.624 18.307 -5. kbopd 1.339 1.078 Other current assets 38.4% Growth (44.38 FY11E 110.0% 3. kboepd 2.868 -3.848 12.00 Ratios Adjusted EPS 3.1% Production Group oil.061 80.1 0.029) (17.055 -5.473 32.3 1.783 20.406 30.552 60.7 4.782 77.0% Minorities (178) (234) (250) (250) (200) FCF Yield 5.4% 14.260 2.8 Pre-Tax Income 15.340 2. $/bbl 62.1% 6.973 33.1% -0.28 2.733) (12.4% Avg.16 FY10 80.241 51.032 1.0% 9.371 10.324 1.4% FCF yield ex-w/c 3.979 Minorities 987 857 1.653 8.703 26.2% 52.9% 14. 229 .3% 21.268 -11.242 1.031 13.003 23.447 42.369 21.6% 4.711) (12.848 12.763 32.718 150.847 Capital Employed 62.67 US Gas.28 2.1%) 32.560 36.503 25.8% 23.107 1.949 14.994 9. year end Dec FY09 FY10 FY11E FY12E FY13E Tangible fixed assets 51.999 41.0% ROCE 12.7% 14.371 10.381 1.321 Cash Tax Payable 7.0% 0.239 20.098) (5.6 7.292 1.217) (17.8% 15.413 6.348 Consolidated Net Income 7.753 143.217.216 21. Morgan estimates.3 4.2% 21.7% 13.Fred Lucas (44-20) 7155 6131 fred.102 99.0% -0.90 Valuation Mkt Cap (bn) P/E adjusted 11.694 Cash flow from Operations 20.6 7.5% CF Yield 14.719 19.7% 26.964 Cash Earnings 16. performance and production € in millions.827 305 155 15 Total Equity 52.2% -0.8% 13.173 1.060 29.055) (5.51 ROE 14.051 Valuation.3 Tax Rate 48.977 32.5% Less: Tax (7.598 26.510 Y/Y growth -2.605) (13.8% 17.490 Other non current assets 26.287 Total non current assets 77.212 Group Total.700 10.6% 18.354 23.999 41.249 82.124 1.783 20.2 3.186 157.0% 0.401 Group gas.7% 3.4% Net Debt to Capital Employed 21.161 1. $/MMBtu 4.957 -13.0% 5.785 10.348 -5.28 2.7% 57047.206 290 -143 -195 -400 -400 4.436) (10.718 150.471 -454 Total liabilities 74.8 4.689 P/FCF -13414.43 FY12E 95.48 4.014 Capex (11.389 940 Cash and cash equivalent 11.057 88.932 Shareholders' equity Debt adjusted Cash Flow 12.00 2.923 5.755) (13.211 82.4 5.730 Change in working capital (3.980 14.653 9.762 74.578 107.00 2.094 27.357 1.978 8.3% 20.

84 10.811 123.82 3.Annual Revenues Cost of products sold Gross profit SG&A DD&A Other operating expenses Operating Income Net interest income / (expense) Other Pretax income Taxes Tax rate (%) Reported net income Non-recurring items.065 22.3 4.0% 21.991 2.9% 21.1%)A WTI crude price ($/bbl) Henry Hub natural gas price ($/mcf) 94.2%A - (170)A 7.352 2.006 40.53 80.986 0 26.475) 638 739 44.799 2.40 3.063 12.761 79.Fiscal year ends Dec 230 .P.919 4. Morgan estimates.1%) (14.125 107.3% 19.973 14.612) (26.771 51.279) (6.394 (138) 0 55.190 Segment-level earnings .000) (29.880A 7.250) (2.776 31.344 2.607 31.20A 4.1 11.813A 7.2% 3.0% 29.6% 2.990 150.lucas@jpmorgan.5% 5.2%) (8.841 104.055 12.546 32.6 4.343 10.8% 3.274 0 29.391 1.359 40.6 7.9 4.89A 3.700) (29.006 13.257 24.59A 4.4% 1.2%) (16.9%)A (1.070 31.986 2.537 5.002 13.007 9.093A 660A 0A 0A 6.40 17.865 45.219 31.303 559 662 719 746 (1.658 2.391 0 30.338A 0A 0A 7.1 4.468) (306) (3.0%A 67.378 119.7 2.009A 3.753A 6.06A 93.402 4.75 34.085 (30) 0 32.504 31.49 Balance Sheet and Cash Flow Data Cash and cash equivalents Other current assets Total current assets Net PP&E Other assets Total assets Total debt Total liabilities Minority interests Preferred stock Shareholders' equity Net Income DD&A Deferred taxes Other Cash earnings Change in working capital Cash flow from operations Capex Dividends Share buybacks (net) Change in debt Change in preferred stock Other uses of cash Change in cash Free cash flow FY10A FY11E FY12E FY13E Ratio Analysis Valuation P/E (adjusted) P/CF Enterprise value/EBITDA EV/DACF Ratios Net debt/equity Net debt/capital Net coverage ratio ROE ROCE Yield and cash returns CFPS CF yield FCF yield Dividend yield Dividend payout ratio Buyback yield Total cash returns (%) FY10A FY11E FY12E FY13E 11.6%) 4.476 10.9% 22.737 45.302 78.543 43.48 41.0% 26.0 5.4% 24.544 49.375A 6.38 4.037 15.409 2.138A 0A 0A 7.136 337 18.407 (182) 0 53.17A 29.Quarterly E&P R&M Chemicals Other Segment-level earnings 1Q11A 2Q11A 3Q11A 4Q11E 6.461 4.472 55.3% 20.136 26.6%) 2.84 46.9 4.731 (2.863 13.257 13.9 2.983A 5.714 5.535 479 0 0 6.009A (355)A 6.1% Mkt Cap (current) () Enterprise Value (current) Source: Company reports and J.4% 3.3 2.435 114.424 248.014 Corporate & other Taxes Operating earnings Reported Earning Average diluted shares outstanding Operating EPS EPS growth rate (%) Dividend per share Production (kboepd) production growth (y/y) (378)A 6.391 13.5 19.9% 1.928 116.1% 3.832 31.100) (33) (41) (1.063 38.2 7. disc ops Adjusted net income Average diluted shares outstanding EPS EPS growth rate (%) Dividend per share EBITDA Production (kboepd) WTI crude price ($/bbl) Henry Hub natural gas price ($/mcf) FY10A FY11E FY12E FY13E 204.00 4.0 4.770 118.305) (1.2% 4.769 213.186) (6.079 31.845A 1.1% 3.6% 29.303 40.62 16.1% 4.366 13.079 45.986 29.081 4.732A 2.395 (5.44A 51.3%) (5.179 (19.0% 19.919 40.543 43.1% (7.315 2.387 10.771 48.3 6.829A 1.361 143.0% 30.8% 3.211A 2.433 31.0 4.06 4.467 88.24A 102.737 45.127 53.8% 0.376 10.179 76 0 0 0 31.6% 2.767 13.0 5.09 63.283 40.999A (300) 5.225 9.9% 19.7% 15.771 65.714 1.206 105.0%) 3.17 23.771 56.424 184.4% 2.9 8.911 13.784) (5.4% 3.674) (6.696 95.279 19.599A (0.5%) (10.7 4.815 12.235A 5. Note: $ in millions (except per-share data).061 230.6% 22.2% 22.274 1.4% 4.603 135.90 24.6% 21.855 168.5% Global Equity Research 13 January 2012 Chevron Corp: Summary of Financials Income Statement .5% 2.516 116.958 78.650 110.951 45.87 15.10 24.50 4.9%)A (5.57A 4.257 39.520 79.03 19.470) (0) (0) 5.034 31.206 79.274 30.4% 2.38A 89.973 15.304 (239) 0 49.225 23.1% 2.18 68.Fred Lucas (44-20) 7155 6131 fred.073 14.500) 500 882 (1.881 221.0% 22.2 23.897A 1.28 70.729 107.424 201.911 0 0 0 0 105.25 21.424 223.694A 2.3% 0.1%A - 2.759A 2.248 111.1%) (11.

5% 51.221 197.510 466.574 42.900) (4.8%)A WTI crude price ($/bbl) Henry Hub natural gas price ($/mcf) 94.984 199.667 4.6 3.184 283.529 58.85 17.091 (26.537 13.718 42.687 221.894 547.7% 30.06A 93.680A 10.74 67.97 16.6 15.943 43.321A 1.675A 8.97 107.3 22.5% 42.000) 0 (6.3 25.394A 1.218A 10.529 71.167 (1.500 (261) (193) 90.9 5.541A 8.046 38.262 14.460 40.683 17.760 102.801 109.167 118.356A 1.5% 2.840 146. disc ops Adjusted net income Average diluted shares outstanding EPS EPS growth rate (%) Dividend per share EBITDA Production (kboepd) WTI crude price ($/bbl) Henry Hub natural gas price ($/mcf) FY10A FY11E FY12E FY13E 383.40 8.90 1.650A 10.6% 23.13A 47.210) 2.772 30.718 4.671 158.188 37.7% 17.978 344.99 1.Fiscal year ends Dec 231 .776 4.344 114.5% 14.P.694 42.694 4.940 58.88 92.776 14.4 7.538 107.3% 18.118 254.Fred Lucas (44-20) 7155 6131 fred.561 40.650) (2.14A 61.5 6.250 0 9.3 22.9% 11.959 185.034 1.7% 30.38 4.9% (1.76 12.498) (9.1% 28.978 317.4% 12.616 244.491 5.8% 0.4% 5.38A 89.978 4.7 8.529 58.959 21.7% 21.276 306.47 4.840 5.17A 36.254 505.694 40.9% 2.034 9.2 7.874 43.1 4.683 16.270 42.5% 24.89 2.683 14.9% 2.976 (275) (275) (9.50 4.890 26.397 61.85 88.9% 9.1%A 0.3% 2.0% 2.601 53.840 5.110 71.516A 1.1%) 5.840 5.3% 1.75 48.718 51.344 (2.218 (154) (105) 52.749 8.306 75.0%A 0.282A 10.978 302.098 14.47A 2.547) (8.734 Corporate & other Taxes Operating earnings Reported Earning Average diluted shares outstanding Operating EPS EPS growth rate (%) Dividend per share Production (kboepd) production growth (y/y) (640)A (538)A (646)A 10.82 3.47A (700) 9.845 0 0 0 47.897 6.468 Segment-level earnings .543 118.447 79.776 51.135) 902 947 1.8% 22.508 4.22 55.529 98.292 31.375) (12.091 3.760 16.lucas@jpmorgan.087 50.455 50.Annual Revenues Cost of products sold Gross profit SG&A DD&A Other operating expenses Operating Income Net interest income / (expense) Other Pretax income Taxes Tax rate (%) Reported net income Non-recurring items.564 95.014 17.305 4.009 70.5%A 2.918 157.0%) 3.839 158.065 241.546) (32.0%) 8.358 14.460 30.978 387.4% 2.009 70.7%A 0.00 4.148 (145) 0 0 68.10 20.929) (9.455 50.871) (31.396A 4.099A 1.6% 4.2%) 4.44A 4.078 42.545) (32.0% 7.6% 2.050) (19.977 30.547 (63) 1.494 43.861 90.423 229.577 28.6 10.2% 22.821) (701) 2.3 9.0% 3.984 214.24A 102. Morgan estimates.330A 10.1% 0.2% 20.269 31.8% 4.579A 1.7 5.044 157.57A 4.6 20.330A 2.439 27.460 4.397 61.20A 4.504 (421) (311) 70.022) (8.1% 17.6% Mkt Cap (current) () Enterprise Value (current) Source: Company reports and J.03 8.850 229.650A 10.0% 5.680A 10.5% Global Equity Research 13 January 2012 Exxon Mobil Corp: Summary of Financials Income Statement .290A 11.2% (5.8 5.292 43.020 212.0%A (3.193 23.548 43.1% 4.801 17.164 (502) (371) 74.76 20.976A 8.34 1.749 10.344 17.336 187.877 8.8 3.497 14.210 14.894 50.Quarterly E&P R&M Chemicals Other Segment-level earnings 1Q11A 2Q11A 3Q11A 4Q11E 8.785 58.0% (3.1 6.759 (4.2% 4. Note: $ in millions (except per-share data).4 4.836 155.683 17.868) 0 12.7% 21.49 Balance Sheet and Cash Flow Data Cash and cash equivalents Other current assets Total current assets Net PP&E Other assets Total assets Total debt Total liabilities Minority interests Preferred stock Shareholders' equity Net Income DD&A Deferred taxes Other Cash earnings Change in working capital Cash flow from operations Capex Dividends Share buybacks (net) Change in debt Change in preferred stock Other uses of cash Change in cash Free cash flow FY10A FY11E FY12E FY13E Ratio Analysis Valuation P/E (adjusted) P/CF Enterprise value/EBITDA EV/DACF Ratios Net debt/equity Net debt/capital Net coverage ratio ROE ROCE Yield and cash returns CFPS CF yield FCF yield Dividend yield Dividend payout ratio Buyback yield Total cash returns (%) FY10A FY11E FY12E FY13E 13.59A 4.7 7.06 4.003A 0A 0A 0A 11.8% 13.820A 10.

7% 3.873) (8.860 35.688) (33.915.449 153.306 8.3% 17.821 38.103 79.101) 8.120 389.552 36.830 0.425 (7.767 35.283 Refining throughput (mbpd) Long term debt 36.3% 0.7% 25.502 227.7% -0.835 60.2% 15.31 Ending cash EPS (reported) 1.452 28.312 Sales per share growth LT investments 36.200 153.063 6.269 13.31 22.298) Other liabilities 18.6% 20.6% 31.8% 9.821 4.890 72.686 78.453 356.099 -9.290 302.382 20.3% 10. Morgan estimates.988 4.11 FY10 FY11E FY12E FY13E FY14E 37.503 8.3% 27.0% 15.0% 20.6% 20.954 12.139 ROE ROCE Liabilities ST loans 6.P.463 (1.744) (3.4% -20.171 839 8.815) (762) (1.887 11.081 FY11E 43.333 (7.010 (8.665 200.554 Capex % change Y/Y 27.936 47.083 Net debt to equity Shareholders' equity 204.645 EPS growth Net fixed assets 179.333) (41.Fred Lucas (44-20) 7155 6131 fred.4% 9.272 44.3 0.278 FY13E FY14E 28.9% -3.783) (2.188 48.116 48.9%) 7.493 1.139 16.7% 15.915.554 16.4% 13.013 Dividends paid % change Y/Y 13.8% 28.5% 19.622 18.182 14.1% Disposal/(Purchase)/Other EBIT Margin 30.9% (0.988 0.7% 29.8% 14.585 2.457) 18.741 277.915.260 8.9% EBIT 36.6% -4.6% 35.32 1.4% Other Net Income (Reported) 30.263 23.8% 28.643 31.529 53.252 23.672 Net profit margin Others 11.9% 11.835 382.4% 12.13 0.762) (3.710) (32.899 (164) 12.284 36.273 144.467 1. FY10 36.16 0 0 -15.301 10.4% -10.003) 16.09 0.515 18.256 8.459 1.8% 45.662 240.10 1.1% 9.790 4.0%) (30.435) (6.079 (1. year end Dec Revenues 118.59 1.304 8.4% -8.989) (9.366 Total assets 302.654 8.296 92.256 11.953 % change Y/Y 18.669 47.309 Production gas (mboe/day) Total current liabilities 33.3% 29.099 (9.227 758 12.469 18.31 22.745 SG&A/Sales Current assets 61.988 4.2% 36.440 (9.910) (5.5 0.0% 21.6% 9.3% 11.837 74.099 4.431 1.131 0.301 41.128 46.434 18.156 Taxes % change Y/Y 25.711 13.0%) (30.987 42.405 105.9% Beginning cash Shares Outstanding 22.375 Production oil (mbpd) Others 0 1.268 1.lucas@jpmorgan.0% 24.3% 10.9%) 13.9% 30.886 56.0% -30.7% 29.761 14.5% 43.9%) (8.134 59.224 14.6% 9.31 22.418 25.9% (8.7% Net Interest Net Interest (596) (473) (225) (103) (265) Free cash flow Earnings before tax 39.2% 15.9% -8.975 6.650 1.907 FY12E 41.0% 20.8% 46.494 48.465 398.1 96.777 (15) 0 -4.5% 18.31 22.819 32.264 51.025 11.5% 9.553 325.139 0.258 13.6% 9.725 Operating margin Inventories 10.989) 46.6% 23.3 13.518 208.599 Production (mboe/day) Payables 26.3% 17.279 781 61.393 EBIT % change Y/Y 25.6% Global Equity Research 13 January 2012 Gazprom: Summary of Financials Profit and Loss Statement Cash flow statement $ in millions.612 53.889) (252) (4.881 29.421 50.60 1.805 140.211 32. year end Dec FY10 FY11E FY12E FY13E FY14E $ in millions.549 25.7% (0.9% Equity raised/repaid Tax (7.1% Cash flow from operations EBITDA Margin 37.3% -31.989) (34.9% 11.00 DPS % change Y/Y 13.0% 4.582 1.099 17.2% 4.452 14.568 1.603 10.8% 18.6 184.515 14.503 43.352 (2.941 14.879 242.6% 31.801 30.873) 48.9%) Balance sheet Ratio Analysis $ in millions.971 (34.5% 7.2 276.915.418 25.014 37.040) (596) (473) (225) (103) (265) 12.048 (6.3% 27.3% Change in working capital/Other EBITDA 44.566 Net debt BVPS 9 11 12 13 14 Net debt/EBITDA (ny) Source: Company reports and J.5 0.3% 1.1% 41.3% -8.8% 22.384) (5.2 232 .9% 23.435) 51.3% 28.336 13.462 14.025 7.323 32.2 91.667 14.196 -14.915.139 16.222 50.187 781 13.280 6.7% 20.2% 36.479) (3.099 Interest coverage (x) Total liabilities 88.8% 24.865 19.903) (1.518 43.674 18.232 8.6% 35. year end Dec Cash and cash equivalents 14.394 830 12. year end Dec FY10 FY11E FY12E FY13E FY14E $ in millions.8% 2.811) (6.570 29.584 34.233) Debt Raised/repaid as a % of EBT 21.565 13.830) EBITDA margin Accounts receivable 24.811) (6.9% Depreciation & amortisation Gross Margin (%) 48.233) 47.2% -30.15 0 -7.6 0.4% 13.6% 14.038) (5.9% 13.

2% 21.6% 35.5% 20.36 9.6% 24.6% 50.9% 49.7% 32.7% 17.0% 20.1% 27. year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets LT investments Net fixed assets Total assets Cash flow statement FY10 FY11E FY12E FY13E FY14E $ in millions. 26.8% 993 94 805 95 17.200 2.0% 751 84 667 (42.22 (791) 0 40 2.402 Other liabilities 422 422 Total liabilities 3.9% 45.246 8.377 2.534 0.17 0 -985 0 (573) 976 493 0.0% 5.3% Ratio Analysis FY10 FY11E FY12E FY13E FY14E $ in millions.4 0.503 Net debt to equity 9.6% 17.335 1.P.3% 24.200 2.077 6.264 4.057 1.13 0 431 0 (463) 337 976 0.623 0 0 0 (742) 1.2) (251.703 2.2% Equity raised/repaid (356) (484) (547) (577) (731) Debt Raised/repaid 21.821 1.565 223 2.127 107 922 98 17.0) (89.63 303.872 2.066 Taxes 51.199 114 987 98 Liabilities ST loans 824 395 Payables 933 1.6% 5.534 EBITDA margin 284 408 480 534 625 Operating margin 61 88 103 115 135 Net profit margin 288 414 486 541 634 SG&A/Sales 968 1.2% 1.2% -14.3% 24.874 Refining throughput (mbpd) 1.97 7.6% 52.818 6.7% Disposal/(Purchase)/Other 42.63 303.339 10.315 ROE ROCE 932 1.539 6.852 9.lucas@jpmorgan.589 0.542 2.0% 16.6% 27.6% 17.7% 17.2% 6.4% 5.8% 47.9% 2.885 1.3% Other 1.6% 15.6% 29.3% 37.267) (1.27 FY10 FY11E FY12E FY13E FY14E 48.738 8.7% 1.823 11.723 0.073 3.851) (1.0% 27.Fred Lucas (44-20) 7155 6131 fred.779 4.515 2.020 4.9% 50.4% 1.613 218 300 343 394 453 (139) 124 177 125 39 (356) (484) (547) (577) (731) 1.1% Change in working capital/Other 1. year end Dec Revenues % change Y/Y Gross Margin (%) EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as a % of EBT Net Income (Reported) % change Y/Y Shares Outstanding EPS (reported) % change Y/Y Balance sheet $ in millions.7% 35.8% 4.6% 17.927 Sales per share growth 2.5% 52.827 3.63 303.3% 25.9% 20.3% Beginning cash 303.63 Ending cash 4.236 2.4% 20.848 Long term debt 1.8% 52.305 2.6% 50.589 3.874 3.678 2.2% 45.9% 1.672 Shareholders' equity 4.7% 2.0) 36.515 7.015 Production oil (mbpd) 224 256 Production gas (mboe/day) 2.374 (2.7% 42.1% 47.847 Dividends paid 62.807 2.308 11.116 (10) (323) 347 337 0.654 2.874 3.9% 45.0% 43.20 0 0 0 (636) 493 1.7% 42.6% 34.809 2.2% 45.250 Others 125 203 Total current liabilities 1.061 100 862 99 11.2% 36.9% 1.9% 33.089 8.1 (0.0% 56.596 64.654 2.814 3.4% Cash flow from operations 48.5% 30.6% 35.2% 5.6% 27.207 422 422 Interest coverage (x) 4.0% 62.117 2.6% 11.188 9.515 2.708 28 604 604 Production (mboe/day) 1.4% 9.164 BVPS 18 23 Source: Company reports and J.4% 18.030 0.293 2.730 2.589 3.7) 26. year end Dec 3.4% 41.200 EPS growth 6.7 43.413 Net debt 33 40 Net debt/EBITDA (ny) FY10 FY11E FY12E FY13E FY14E 1.63 303.318 222 -1.668 0 1.38 DPS 62.021 7.4% 41.40 5.9% 39.0% 8.159) 39 (94) 0 0 39 (94) 6 11 (811) 416 1.853 5.2% 17.682 2.635 2.207 1.7% 4.6% 32.7% 5.816 3.851 13.613 Capex 56.200 2.454 2.0% 18.2% 5.9% 39.4) 233 .96 6.730 2.1% 47.9% 42.831 Global Equity Research 13 January 2012 Novatek: Summary of Financials Profit and Loss Statement $ in millions. year end Dec 335 976 493 1.5% 6.697) (1.563 2.6% Net Interest 39 (94) 6 11 40 Free cash flow 1.1% Depreciation & amortisation 55. Morgan estimates.012 1.487 EBIT 36.4% 20.0% 5.8 (458.6% 27.720 879 422 4.6 0.6% 27.8% 47.268 4.

2% 234 .9%) (27.441 4.31 5.0% 54.1% 2.545 FY14E 398.5% 1.280 589.080 12.094 379.247 398.750 119.2% 0.373 274.323 Long-term debt 235.4% 0.091.8% FY11 73.195 0 0 0 -17.923 162.9% 12.1% 4 44.7% 58.379.180.0% 530 14.92 617.845 216.526 (16.31 6.207 Liabilities Short-term loans 4.562 59.1% 12.558.322 19.025 271.7% 547 NM 53.175 582.401 121.51 646.567 1.355 73.658.3% -260 668.2% 21.474 1.235. & amortization Change in working capital Taxes Cash flow from operations Capex Disposal/(purchase) Net Interest Other Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS Ratio Analysis ¥ in millions.100 649.079 -561 -260 1.270 -21.696 72.171 25.3% 666 25.516 74.360 (25.1% (10.029.855 FY11 182.67 7.184 504.129.621 FY13E 324.624 1.221 143.188 -546.828 -274.3% 53.363.1% 2 53.036 2.6% 107 -26.750 -232.9%) 554.3% -325.7%) FY11 943.1% (25.5% 21.1% -368.093 335.012 261.816 142.415 301.759 59.753 -2.511 268.371.413 328.562 59.000 6.3% 55.126 73.534 9.841.161 184.0%) -26.012.866 19.379 269.000 6.2% 13.923 -21.161 324.60 Source: Company reports and J.137 9.5% (6.258.395 131.008 (6.1% 826.647 597.407 13.706 Other liabilities 59.041 2.2% 23.932 FY12E 271.2% -561 508.0%) (21.563 25.658 2.423 12.1% 0.600 0.4% 127 -6.9% 3.8% 56.3% 0.537 143.0% -2.952 492.035 12.441 Payables 97.510.1% -6.000 6.2% 693.5% 129 20.027.3% 0.562 Total Liabilities 523.587 15.3%) .025 152.379 2.6% 27.6%) (1.2% 692.179 146.636.6%) 21.750 3. year end Mar EBITDA margin Operating margin Net margin FY10 FY11 FY12E FY13E FY14E 462 530 666 570 547 92.427 (21.253 -325126 -368696 -498072 -423355 -410516 241.706 268.0%) -11.4% Balance sheet ¥ in millions.9% 462 NM 54.373 573.34 1.0%) FY13E 1.808 307.41 8.4% 28.5% 153 19.405.44 1.P. Sales per share growth Sales growth Net profit growth EPS growth Interest coverage (x) Net debt to equity Sales/assets Assets/equity ROE ROCE (21.834 551.750 -202.1% 20.9% 570 NM 55.562 59.8% 136 -11.834 22.284 271.434 1.758 298.081 33.40 1.591 Shareholders' equity 1.1% (10.000 -285.3%) FY14E 1.557 13.963.2% -423.141.796 9.161 324.5% Global Equity Research 13 January 2012 Inpex Corporation: Summary of Financials Income Statement ¥ in millions.535.905 254.728 267.0% 0.0%) Cash flow statement ¥ in millions.35 1.434 0 0 0 -12.706 268.1.429 160.500 5.373 2.300 (10.900 21.975 2.879 -13.446 Net fixed assets 358.281 2.39 550.589.7% FY12E 72.247 221.706 268.1% 4 40.9%) 12.3% 13.097 (1.100 724.893 9.000 FY10 66.7%) (16.434 -26.402 5.960 -18.54 -6.50 7.680.975 LT investments 923.4% 58.41 1. year end Mar Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y FY10 840.0%) (8.812 106.441 4.2% -6.537 Total current liabilities 227.3% FY14E 67.3% -8.247 166.395 182.077 492.923 -21. Morgan estimates.8% -410.1% -11.3% 0.345 Others 125.5% 13.916 -3.525 12.443 (8.072 74.766 163.034 113.Fred Lucas (44-20) 7155 6131 fred.000 -249.100 615.4% -498.872 4.000 0 0 99.013.655 -14.079 442.0% 30.027 -28.785 3.537 143.09 586. year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets FY10 216.143.778 2.914 Total Assets 2.5% 4 38.402 166.537 143.6%) FY12E 1.996 595.513 BVPS 585.863 357.441 4. year end Mar EBIT Depr.0% 4 44.lucas@jpmorgan.0% 19.372 31.343 178.38 3.4% FY13E 69.0%) 711.

53 (14%) 0.669 Other 0.89 4.304 -4.608 18.076 5.17 5.28 28% 32% 27% 27% 19% 19% 216.696 Cash flow from operations (26%) 78% 19% (22%) (7%) 38% 39% 37% 34% 33% Capex 104 -518 -518 -583 -565 Disposal/(purchase) 40.149 29.235 25.075 264.417 -31. year end Dec 105.847 10.092 112.149 29.620 Global Equity Research 13 January 2012 CNOOC: Summary of Financials Income Statement Rmb in millions.815 36.947 104 -518 7.779 64.46 0.149 47.046 65. FY09 40.868 Operating margin Inventories 3.23 (17%) 0.716 11.507 Equity raised/(repaid) (34%) 86% 19% (21%) (7%) Debt raised/(repaid) 44.1% 25.900 EPS growth Liabilities Interest coverage (x) Short-term loans 122 21.067 70.650 86.780 11.147 -15.855 5.083 15.722 367 -15926 75.631 21.669 44.65 1.943 1.485 10.105 27.131 22.58 0.Fred Lucas (44-20) 7155 6131 fred.68 1.190 Sales/assets Total current liabilities 31.321 119.098 -33 10.702 20.410 85.306 Net debt to equity Others 30.244 54. Morgan estimates. & amortization 56.981 28.161 4.631 21.765 BVPS 3.294 286.873 23.730 67.570 11.550 26.825 57. year end Dec Cash and cash equivalents 52.P.146 4.1% 29.706 -8761 49.580 72.693 28.812 13.405 85.39 0.361 -50.926 Free cash flow 27.154 EBITDA margin Accounts receivable 13.275 126.696 28.936 215.834 90.663 Sales growth Net fixed assets 166.372 4.026 99.920 47.15 1.240 -21.718 -17147 76.204 Net margin Others 2.64 1.748 -47.353 245.156 Net profit growth Total Assets 242.194 FY13E 61.631 21. year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY09 FY10 FY11E FY12E FY13E Rmb in millions.063 49.746 120.480 FY10 FY11E 71.419 Change in working capital (11%) 77% 13% (15%) (5%) Taxes 40.456 78.109 100.214 -22.336 -18.820 Assets/equity Long-term debt 18.631 Payables 15.250 57.333 110.716 ROE Other liabilities 18.304 -15.35 0.764 -17.433 Net Interest (30%) 79% 19% (21%) (7%) Other -11.676 41.737 -23.164 11.571 34.762 22.042 69.550 215.238 0.716 11.687 27.131 34.685 68.490 358.027 253.195 183.06 Dividends paid (34%) 86% 19% (21%) (7%) Beginning cash Ending cash DPS Balance sheet Ratio Analysis Rmb in millions.518 0 0 0 0 0 4.83 5.053 231.024 34.1% 25.304 -4.081 Sales per share growth LT investments 4.48 21% 24% (4%) (4%) (7%) (7%) 159.222 374.575 -4.782 EBIT (17%) 74% 27% (15%) (4%) Depr.99 (12%) 0.390 -21.855 5.53 FY09 53% 38% 28% FY10 54% 39% 30% FY11E 48% 37% 28% FY12E 48% 34% 26% FY13E 48% 33% 25% (17%) (17%) (34%) (34%) (19%) 0.669 44.149 ROCE Total Liabilities 68.68 6.329 188.lucas@jpmorgan.685 Shareholders' equity 173.27 29% 33% (15%) (15%) (21%) (21%) 162.9% 25.367 98.815 36.47 1.54 1. year end Dec FY09 FY10 FY11E FY12E FY13E Rmb in millions.871 100.855 5.45 1.405 85.855 Current assets 70.669 44.203 94.975 96.44 18% 21% 235 .162 -49.13 Source: Company reports and J.766 231.584 -518 -583 -565 50.773 196.834 24.669 44.921 51.296 63.268 326.433 393.1% 25.22 1.663 273.721 29.083 71.615 39.627 23.63 (13%) 0.49 1.716 11.487 65.542 5.25 18% 22% 74% 74% 86% 86% 191.000 -18240 -21764 81.410 64.653 102.881 79.116 20.729 FY12E 66.149 29.107 19.693 61.693 -14.102 -42.142 -1.105 66.

849 Change in working capital 86% 22% 7% 5% 0% Taxes 84.016 80.614 -8.781 Cash flow from operations 221% 24% 9% 5% (1%) 3% 3% 2% 3% 2% Capex -7.498 376.019 17.46 32% 4.243 25.088 597.786 619.689 -25.51 6.107 195.92 0. & amortization 134.875 -97.075 FY10 FY11E FY12E FY13E 105.004 9.312 -10.528 165.130 80.968 630.843 EBIT (10%) 42% 37% (9%) (0%) Depr.004 113.750 17.069 -1.915 71.227 175.750 17.771 599.781 59.559 -16.936 119.007 151.443 113.19 6.019 Payables 97.07 14% 16% 236 .23 FY09 5% 3% 2% FY10 4% 3% 2% FY11E 3% 2% 1% 5.368 152.047 477.292 -20.24 FY12E 4% 3% 2% FY13E 4% 2% 2% (10%) (10%) 117% 117% 18.774 Net debt to equity Others 156. Morgan estimates.161 Free cash flow 20.072 -574 -533 -25689 -25627 -28017 -28161 170.316 207.345.058 Net margin Others 23.80 31% 4.913.487 15.772 186.280 260.661 419.936 119.702 Other 0.93 Dividends paid 117% 16% 9% 2% 0% Beginning cash Ending cash DPS Balance sheet Ratio Analysis Rmb in millions.154 1.126 0 0 0 -7.171 94.702 86.90 0.229 341.466 -10.22 18% 16% 42% 42% 16% 16% 22.048 31.728 17.472 208.000 5.052 1.963 594 16. year end Dec Cash and cash equivalents 8.568 103.8% 24.162 Shareholders' equity 375.019 17.23 18% 19% 37% 37% 9% 9% 16.23 0.760 71.248 1.673 Net Interest 264% 29% (0%) 9% 1% Other -16.592 43.128.243 0.167.782 Disposal/(purchase) 80.546 214.89 Source: Company reports and J.829 2.15 2.116 11.915 71.000 -20.105 -7.8% 24.465 146.379 9.Fred Lucas (44-20) 7155 6131 fred.391 -19.99 42% 3.466 -10.171 25.P.923 155.089 117.lucas@jpmorgan.657 0.813 7.089 117.989 Sales/assets Total current liabilities 313.965 53.091 42.223 61.893 Current assets 201.8% 24.391 375.000 -13.36 17% 19% (9%) (9%) 2% 2% 17.83 0.204 195.800 78.924 1.687 5.008 9.091 113.09 2.71 0.686 726.864 -4.441 2.05 12% 3.708 53.989 544.406 406.105 -7.243 25.915 71.617.8% 61.465 ROE Other liabilities 56.83 5.21 0.008 Global Equity Research 13 January 2012 Sinopec Corp .021 730.749 132.070 BVPS 4.312 -10.898 17.782 39.25 2.859 224.419 336.299 682.320 -121.17 16% 18% (0%) (0%) 0% 0% 21.360 Equity raised/(repaid) 117% 16% 9% 2% 0% Debt raised/(repaid) 86.703 -70.657 EBITDA margin Accounts receivable 26.929 64.828 136.628 328.33 4.93 2.Sales growth Net fixed assets 584.571 -4027 152.056 150.008 8.18 0.431 50.987 67.200 72.694 Operating margin Inventories 141.024 397.364 537.220 84.34 26% 4. year end Dec FY09 FY10 FY11E FY12E FY13E Rmb in millions.448 EPS growth Liabilities Interest coverage (x) Short-term loans 58.918 164.093 58.96 2.384.182 2.637 -121. year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY09 FY10 FY11E FY12E FY13E Rmb in millions.383.004 113.465 151.915 ROCE Total Liabilities 478.084 -25. FY09 84. year end Dec 1.450 58.H: Summary of Financials Income Statement Rmb in millions.782 Assets/equity Long-term debt 108.431 105.702 86.434 Sales per share growth LT investments .878 594.085 52.864 184.627 -28.827 -112.842 995.702 86.125 Net profit growth Total Assets 877.237.333 128.465 141.906 52.702 86.017 -28.171 94.019 17.742 71.0% 24.076 184.693 103.109 -19.611 156.696 7.614 -8.

162.341 1.486 Current assets 294.191 261.129 Cash flow from operations (10%) 31% 1% (1%) (3%) 14% 13% 13% 14% 13% Capex -3.96 29% 0. FY09 FY10 FY11E FY12E FY13E 143.56 0.288 1.777 189.789 747.277 Sales/assets Total current liabilities 388.205 1.465.599 1.415 1.196 1.66 16% 17% (3%) (3%) (4%) (4%) 36.467 1.Fred Lucas (44-20) 7155 6131 fred.569 Net margin Others 59.926 1.587 646.007 123.277 57.986 318.709 28.450.031 -1.270 85.800 Free cash flow 23.150 86.259 113.471 46.833 Global Equity Research 13 January 2012 PetroChina: Summary of Financials Income Statement Rmb in millions.703 -6.238.72 14% 15% (6%) (6%) 1% 1% 34.513 -39.741 0.429.021 Other 0.P.82 1.851 102.032 189.34 0.709 28. year end Dec Cash and cash equivalents 86.480 Sales per share growth LT investments .737 37.46 32% 0.394 12.234 186.352 216.621 -9.276 1.088.473 -38.000 -50.268 Payables 204.440 306.834 -277.56 13% 14% 44% 44% 35% 35% 69.383 286.338 -8.430 147.29 0.74 Dividends paid (10%) 35% (4%) 1% (1%) Beginning cash Ending cash DPS Balance sheet Ratio Analysis Rmb in millions.518 Net debt to equity Others 34.270 ROCE Total Liabilities 542.401 52.234 186.444 187.835 53.684 Operating margin Inventories 114.622 246.741 EBITDA margin Accounts receivable 33.418.352 256.209 1.160 24.192 50.48 27% 0.392 247.394 12.992 135.963 57.822.320 0 0 -20.358 722.075.209 129.348 278.63 5.767 -61.930 184.487 1.063 Assets/equity Long-term debt 85.lucas@jpmorgan.000 0 49.68 1.342.571 -320.255 -38.021 183.761 Net Interest (14%) 35% 0% (2%) (1%) Other -33.160 86.394 12.0% 103.277 57.781 134.9% 20.378 341.387 139.691 BVPS 4.021 183.71 1.352 256.871 1.160 24.392 261.888 130.941 186.780 181.559 728.352 ROE Other liabilities 68.444 187. Morgan estimates.624 54.703 300.359 40.813 -4.313 -3.38 20% 0.866 Change in working capital (7%) 28% 6% 5% 2% Taxes 143.037 136. year end Dec 1.703 -6.471 131.092 -53.159 306.198 -60.422 Equity raised/(repaid) (10%) 35% (4%) 1% (1%) Debt raised/(repaid) 183.925 45.937 387.3% 21.656. year end Dec Revenues % change Y/Y EBITDA % change Y/Y EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Cash flow statement FY09 FY10 FY11E FY12E FY13E Rmb in millions.709 28.563 85.223 938.940 33.27 0.925 45.75 0.35 Source: Company reports and J.037 -35.74 0.569.941 1.77 1.72 12% 12% 237 .548 5.813 -4.772 Disposal/(purchase) 140.933. year end Dec FY09 FY10 FY11E FY12E FY13E Rmb in millions.021 183.909 245.13 5.270 85.344 46.336.960 49.78 13% 13% 0% 0% (1%) (1%) 50.780 181.772 -19.268 102.300 -213.270 50.518 -265.610 123.275 1.521 0 0 0 0 0 77.423 EPS growth Liabilities Interest coverage (x) Short-term loans 148.000 -288.Sales growth Net fixed assets 1.129 92.167 405.598 160.000 40.76 0.777 189.777 -41.270 85.622.888 -39.33 0.664 334.169 1.999.82 17% 0.140 93.447 EBIT (5%) 44% (3%) (6%) 0% Depr.540 231.736 421.94 1.741 -1.685 Shareholders' equity 847.833 136 -16412 -26169 -39888 -39255 -38800 258.021 183.268 82.338 -8.013.452 293.374 -60.277 57.268 102.33 FY09 23% 14% 10% FY10 21% 13% 10% FY11E 22% 13% 10% FY12E 25% 14% 10% FY13E 25% 13% 10% (5%) (5%) (10%) (10%) 61.387 135. & amortization 235.553 429.305 189.739 270.0% 21.656 85.95 6.019.621 -9.0% 21.448 Net profit growth Total Assets 1.925 45.54 5.053 50.

540 1.609 Net profit growth Total Assets 50.524 98.554 1.379 17.489 24.4% 12.134 20.8% 23.391 -2.500 ROE Other liabilities 3.: Summary of Financials Income Statement Rs in millions.9% 7.8% 42.8% 3.255 4.19 33.316 15.227 21.01 53.5% 49.4% 22.000 42.142 6.7% 22.195 29.35 13.057 209.848 3. Morgan estimates.21 2.410 273.749 -3.858 -1.4% 6.761 50.405 1.439 12.84 65.2% 53.98 36.045 6.64 23.613 Operating margin 2.24 28.25 FY10 8.609 1.00 5.875 18.6% 23.006 12.849 3.713 3. year end Mar 3.2% 53.6% Other 4.39 8.0% 72.5% 7.718 -0 -0 2.94 Source: Company reports and J.4% 23.041 -11.713 -3.8% Cash flow from operations 6.0% 9.022 2.163 17.50 4.2% 71.260 35.098 37.720 Shareholders' equity 22.612 -1.8% 7.089 336.064 13.606 -1.0% 6.500 -3.2% 19.8% 49.142 48. year end Mar 106.609 62.262 3.2% 7.467 16.2% 7.8% 30.220 ROCE Total Liabilities 28.3% 8.6% 23.053 64.8% 3.985 7.8% 25.8% 2.791 -395 3. year end Mar Revenues % change Y/Y Gross Margin EBITDA % change Y/Y EBITDA Margin EBIT % change Y/Y EBIT Margin Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rs in millions.32 2.938 1.0% 53.5% 23.858 3.72 25.4% 23.035 8. & amortization 8.461 -8.7% 70.456 BVPS 29.263 -22.282 -6.7% 4.Net debt to equity Others .160 -2.476 -1.837 Assets/equity Long-term debt 24.9% 7.649 -2.181 7.264 10. year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets Cash flow statement FY10 FY11 FY12E FY13E FY14E Rs in millions.3% 6.313 NM 50.8% -22.255 4.012 49.758 4.472 10.596 29.163 -2.4% 3.379 17.519 22.0% 9.7% 22.9% 27.998 32.218 -10.6% 33.0% 23.352 13.4% Change in working capital 8.605 -3.5% 3.8% 59.9% 22.Sales/assets Total current liabilities 9.483 1.2% 7.Fred Lucas (44-20) 7155 6131 fred.383 1.520 1.465 12.483 3.6% 8.49 19.500 -2.819 2.5% 12.223 2.38 35.2% 238 .4% 59.878 EBIT 25.470 -1410 -2650 -3907 -4402 -5394 2.844 Net margin 1.0%) 53.338 26.887 -17.lucas@jpmorgan.57 1.30 2.540 1.578 3.939 6.5% 49.9% 10.6% 53.856 10.8% 25.0%) 5. FY10 FY11 FY12E FY13E FY14E 6.5% 7.085 346 8.6% 4.868 -4.405 1.7% 22.856 10.8% 30.500 -6.480 5.196 9.6% 51.2% 15.80 35.928 74.292 -2.5% Others 8.766 90.8% FY11 FY12E FY13E FY14E 9.5% 12.92 17.383 49.6% Disposal/(purchase) -1.7% 12.938 8.938 Free cash flow 5.7% 41.5% Beginning cash 750 750 750 750 750 Ending cash 5.164 9.126 11.900 Sales per share growth LT investments .519 22.255 3.802 33.819 3.405 3.443 74.316 15.7% 8.05 2.500 -1.1% 8.6% 33.005 40.5% 2.177 EPS growth Liabilities Interest coverage (x) Short-term loans .029 131.313 1.0% (22.721 19.P.995 9.846 15.849 EBITDA margin 5.0% 3.1% 43.349 26.05 DPS (22.246 71.4% Depr.26 12.641 41.339 -3.216 13.5% 6.3% 8.25 36.50 7.8% 7.4% Global Equity Research 13 January 2012 Petronet LNG Ltd.131 Taxes -6.6% 64.1% 13.Sales growth Net fixed assets 42.953 15.5% 22.261 5.8% 3.500 45.2% 49.472 Debt raised/(repaid) 32.Net debt to total capital Payables .3% 6.688 -5.540 1.950 -2.4% Capex 6.2% 23.5% 25.327 13.5% Ratio Analysis FY10 FY11 FY12E FY13E FY14E Rs in millions.758 5.4% 30.74 44.2% 49.4% 6.8% 7.75 2.6% 59.27 31.866 19.847 1.450 1.161 37.5% 31.9% 12.99 28.593 12.5% Equity raised/(repaid) -1.791 Dividends paid -22.480 4.391 2.6% 33.758 5.

159.8 Current Assets 882.6 673.8 3.0 0.0 9.0 5.0 7.0 Deferred Income Tax Liability Investing Cash Flow -3.3% FY12E 16.9% FY10 19.3 FY11 728.385.0 3.6 -660.421.0 0.0 -727.3 1.9 7.0 901.0 4.888 0.0 275.0 -345.0 901.931.138.699.788.435.124.015.649.0 -54.0 0.8 -143.051.5 17.8 457.4 1.0 197.193.0 PP&E 584.0 405.7 Other Intangibles 584.1 -412.0 711.0 0.919.8 -2.0 1.0 Inventories 0.364.0 0.888 0.7 4.9 1.7 0.038.7 533.029.4 2.0 2.6 673.615.168.0 -91.6% 35.8 FY13E 728.0 360.180.0 Non Current Liabilities Dividends Paid -409.0 1. Morgan estimates.0 177.7% 3.4 3.805.0 16.736.0 13.3 Current Lease Liabilities Inc/(Dec) in Provisions .2% FY11 68.0 2.lucas@jpmorgan.435.288.0 21.0 0.0 5.0 3.0 13.958.0 -80.0 901.7% 1.0 632.0 0.0 3.0 5.373.2 -359.470.6 -274.9 1.0 1.0 533.5 2.805.0 2.74 7.0 1.767.6 -1.045.0 546.0 -308.0 0.2 -359.920.698 0.4 12.58 Net Yield NTA 9.488.1 -677.730.194.396.8 1.0 15.7 15.563.0 10.877.401.0 595.0 5.205.512.7% 1.0 5.0 275.805.677.7 Goodwill 612.621.09 Price to Book EV/EBITDA Source: Company reports and J.989.0 0.5 Total Equity Net Debt / (Net Debt + Equity) Per Share Data A$ FY10 FY11 FY12E FY13E FY14E Valuation Metrics Reported EPS 0.0 1.0 1.539.640.189.0 1.195.6 22.66 10.5 -382.2 15.804 0.0 -15.55 0.0 0.0 0.399.0 -408.67 9.989.1 5.2 Future Income Tax Benefits Other Non Current Assets Cash Flow Statement FY10 FY11 FY12E FY13E FY14E Non Current Assets EBIT 895.7 -2.3 Investments -66.0 1.0 1.0 0.0 16.433.0 18.2 13.1 28.0 -152.0 412.009.600.779.0 1.6 -103.0 263.920 Reported P/E Normalised EPS 0.0 5.6 1.313.0 5.0 -632.4 1.2 1.0 9.0 1.2 0.9 1.8 Total Assets Depreciation & Amortisation 408.55 8.5 -382.758.0 1.109.666 0.3 -1.0 Current Liabilities Operating Cash Flow 909.3 1.441.6 -588.50 0.468.5 1.4 1.195.0 0.419.0 886.440.0 0.0 -4.0 .5 Total Liabilities Inc/(Dec) in Borrowings -143.0 657.Other Current Liabilities Other Operating Items 561.0 0.9 7.0 Non Current Borrowings Sale of Fixed Assets 0.0 275.920 Normalised P/E DPS 0.539.7 412.468.0 23.0 2.7 -2.2 533.059.0 -308.2 1.0 24.52 2.0 0.0 -504.433.5 284.892.0 1.3 314.0 Inventories 895.470.1 533.955.0 -455.9 18.365.282.8 8.865.0 10.0 -385.0 0.3 595.0 6.796.50 0.0 1.3 7.0 26.219.196 0.3 Other Equity Net Cash Flow -3.0 0.5 2.6% FY13E 15.202.9 289.7 21.0 3.3 412.6 FY12E 728.807.0 3.0 14.0 2.8% 1.0 26.4 -87.6 10.3 20.438.0 5.0 Creditors Net Interest (Paid)/Recd -165.249.0 -4.0 -345.Pension Fund Liabilities Other Investing Items 7.1 30.241.983.0 0.8 Investments -408.0 .733 0.0 12.0 2.635.304.758.5 -382.162.0 1.0 5.0 -2.960.284.431.0 .4 FY14E 728.0 113.8 Current Borrowings Tax (Paid) -791.0 855.555.381.433.665.2 3.0 65.0 Other Non Current Liabilities Equity Issued 13.6 588.0 2.0 2.8 16.470.3 -528.0 8.0 208.5 -479.7 23.979.1 273.0 901.0 1.045.470.516.0 2.6 201.0 12.2 -359.9 0.8 Non Current Creditors Gross Capex -3.4 711.1 358.0 1.0 -2.020.445.0 -316.P.0 161.219.0 0.3% 0.976.6 14.Fred Lucas (44-20) 7155 6131 fred.0 1.7 595.0 2.960.468.7 14.0 3.0 -516.5% FY14E 14.0 275.0% 14.5 1.804 0.8 595.078.046.0 3.3 239 .1 5.2% Debtors 1.782.332.3 0.0 3.8 16.266.7 Pension Fund Assets 878.0 0.0 1.4 2.440.599.349.0 -2.Non Current Lease Liabilities Net Capex -3.0 886.1 Cash & Bills 6.009.3 -675.0 Total Ordinary Equity Other Financing Items 0.7 1.0 886.918.Current Provisions (Inc)/Dec in Working Capital 0.0 5.0 5.6% 23.8 -2.0 88.4 1.0 18.0 -62.0 14.071.694.219.078.767.2 4.5 2.8 -2.6 27.0 186.136.3 675.364.0 Non Current Provisions Net Acquisitions -1.0 -4. year end Jun Income Statement Total Revenue Revenue Growth Y/Y EBITDA Depreciation & Amortisation EBIT Net Interest Pre-Tax Profit Tax Minority Interests Preference Dividends NPAT before Abnormals NPAT after Abnormals Normalised NPAT # Shares Outstanding FY10 FY11 FY12E FY13E FY14E Balance Sheet 8.0 0.834.0 1.0 22.045.395.8 Outside Equity Interests Financing Cash Flow -539.813.1 711.0 295.0 10.0 201.7 -2.0 -15.5 1.4 13.9 12.0 13.4 Global Equity Research 13 January 2012 Origin Energy: Summary of Financials A$ in millions.0 2.861.758.009.8 Other Current Assets -12.0 2.0 4.435. FY10 823.0 -345.4 15.523.2 1.0 Receivables -232.1 677.0 11.0 1.5 1.219.597.8 412.8 7.506.1% 0.0 901.0 8.

040 118.1 121.3 14.6 CY10A 0.559) (0) (0) 848 6 (0) (337) 27.6 0.2 0.778 926 851 (147) 1.0 1.7 CY12E 1.5 114.8 0.033 95.0 21.798 Total debt 930 Cash 1.0 118.159 1.5 12.7% 5.0 (757.9% 3.90 20.2 (1.8% 15.6 2.0 85% Key Commodity Price Assumptions Aust dollar (US$) WTI Oil price US$/bbl WTI Oil price A$/bbl CY09A 0.6% -50.484 3.4 83.077 4.5 126.330 CY13E 713 6.2 0.218 3.354 3.9 4 36% 0% CY11E 689 (92) (12) (28) (132) 557 (78) 479 (49) 430 2 432 (230) 202 202 80.80 (0.1 117.5) CY11E 368 (1.2% 14.4 1.525 3.6% 5.Fred Lucas (44-20) 7155 6131 fred.2 0.3 0.9 2.6% 6.792 61.8 78.5 86.3 Cashflow Statement (US$ millions) Net op cash flow Capex & Exploration Asset Sales Other investing cash flows Dividends Debt Repayment Debt Proceeds Equity funding Other financing cash flows Net cashflow GCFPS (cps) Free cashflow FCF/share (cps) CY09A 284 (470) 88 (50) 900 1 753 30.9% 50.6 5.8 0.678 3.416 PP&E 714 2.8) CY13E 46.9 2.1 6.3% 8.0 65.7% (180.6 1.607 531 3.8% -33.3% -52.3 Global Equity Research 13 January 2012 Oil Search Limited Neutral Profit & Loss Statement (US$ millions) Total revenue Production costs Royalties Corporate & other costs Total Costs EBITDAX Exploration write-off EBITDA Depreciation & amortisation EBIT Net Interest Expense Pre-Tax Profit Tax Significant items (after tax) Reported NPAT NPAT (pre-sig items) EBITDAX margin (%) Effective tax rate (%) EPS reported (Acps) EPS pre-sig items (Acps) DPS (UScps) Payout ratio (%) Franking (%) CY09A 512 (86) (8) (8) (103) 409 (76) 334 (105) 228 (3) 225 (113) 21 134 112 79.8 14.1% -13.8 55.2% -98.231) 870 113 34.6 19.0 118.05 0.3 11.8 13.741 374 202 5.0 19.0 (1.1 92.3 5 34% 0% Y/E Dec Production (million BOE) Kutubu Moran SE Gobe Gobe Main SE Mananda Hides GTE PNG LNG 6.1 8.003 107.0 15.00 0.383 Exploration & Evaluation 808 282 Other non current assets 94 207 Total assets 3.432 A$ 0.7) (73.7% 5. LT US$90/bb l & 0.8 4 29% 0% CY13E 717 (94) (14) (23) (131) 586 (95) 490 (47) 443 (2) 441 (241) 200 200 81.4 27.8) (110.6% (86.2 1.7% 13.307 Source: J. 10tcf Corporate Exploration PNG LNG Train 3 (risked @50%) Mananda-5 development (risked @ 50%) Net (Debt)/Cash Group NPV Valuation prem/(disc) to share price A$m 779 19 3 480 66 0 7.320 CY12E 731 5.4 54.6) (90.790) 959 (509) 24.7 6.5 16.8 47.307 437 202 6.5% 226.358) (0) (34) 931 38 (0) (24) 33.59 0.2) CY12E 322 (1.1 0.663 (18) 253 1.921 79.0 85% CY13E 2.01 0.9 89% CY10A 3.00 5.9 88% Price: A$6.461 1.9 2.3 24.393 3.193 2.8 CY13E 1.1 6.8 91.0 1.87 0. Morgan Estimates and Company data CY11E 1.0 CY11E 1.534 2.5) NPV Valuation at 10% WACC at Jun-11.8US$/A$ Kutubu SE Gobe Gobe Main Moran Hides GTE SE Mananda LNG 6.8% 53.1 17.0) (56.8% 3.7% 14.4% 55.076 (256) 1.146 130 (89) 10.5 5.288 1.36 0.P.319 (125) 1.8 2.07) 7.3 0.4% 50.2 0.8% 4.0 7.10 (0.5 44.0 113.0% 14.490 Shareholder funds 2.6 1.289 Total liabilities 484 1.8 CY11E 44.5% 355.2% 5.737 418 2.1 7.2 0.593 2.5% 68.1 0.0 1.6mtpa.4 0.01) 0.2 81.264 Net debt (1.19 0.8 4 26% 0% CY12E 701 (94) (13) (23) (130) 571 (111) 460 (49) 411 5 416 (232) 184 184 81.lucas@jpmorgan. %) Interest cover CY09A 45.1 (959.467.2 0.6) (16.1 6.339 240 .0) CY10A 398 (1.0 85% CY12E 2.4) CY13E 474 (1.288) (334) Operational working capital (36) (72) Ave diluted shares (m) 1.1 0.0 17.2% % 9% 0% 0% 5% 1% 0% 85% Balance Sheet (US$ millions) CY09A CY10A Current assets 1.190.0 0.8) CY12E 47.340 492 202 7.5 0.1 1.009 1.7% 54.7% 5.748 4.3 0.9 (185.6 CY10A 42.2 4 42% 0% CY10A 584 (87) (10) (11) (109) 475 (131) 344 (50) 294 (1) 293 (149) 41 186 144 81.0 46.3 107.8 15.3 Tapis Oil Price US$/bbl Tapis Oil Price A$/bbl Financial Ratios PE reported (x) PE normalised (x) EV/EBITDAX (x) P/GCFPS (x) Dividend yield (%) ROE (%) ROIC (%) Gearing (ND/(ND+E).3 0.4 0.57 CY11E 2.6mtpa Nabrajah entitlement Egypt Area A East Ras Qatara Total Liquids production Gas production % liquids M'cap: A$7439m CY09A 3.

Morgan Estimates and Company Data DCF Valuation at 9% cashflows from Jul-11.6% -6.2 48.7% 90.6 8.597 (139) 1.45 44.6 (496.1 2.285) 12 (660) (297) (1.209 (99) 2.9 60.2 0.8% -18.45 (0.070 (557) (330) (77) (54) (101) (1.76 0.80 West Coast gas (A$/Gj) 4.003 1.1 4.166 7.8 Tapis Oil (US$/bbl) 65.7 3.7 48.951 (129) 1.34 0.575 9.5% 4.7% 241 .5 2.62 459 893 CY12E 1.3 7.1 8.193 (391) (184) 618 618 618 63.9 0.0 14.8 2.2 0.0 CY10A 0.0) (51.2 (433.2 7.527 83 2.7) (55.0 (2.30 1.3 Barrow 0.03 0.75 Profit & Loss Statement (A$ millions) Sales revenue Other revenue Total revenue Production costs Gas purchase costs Pipeline tariffs Royalties.1 22.7 4.1 5. LT US$90/bbl & 0.2 3.3 4.P.655 2.2% 31.5 7.2 0.02 0.1% n/c CY12E 18.8 54.6 0.2 3.4 60.7 6.5 1.74 3.42 18.8 52.8 SE Gobe (PNG) 0.68) 1.3) CY11E 1.1 0.5 4.181 68 2.37 0.228 109 2.6% 7.0) CY11E 11. excise Movt in stock SG&A operating expense Other Total Operating Costs EBITDAX Exploration write-off EBITDA Depreciation & amortisation EBIT Net Interest Expense Pre-Tax Profit Corporate Tax PRRT post tax Significant items (after tax) Reported NPAT NPAT (pre-sig items) NPAT (pre-sig.902 3.7% 34.3 1.432) 139.5 1.2 0.7 1.435) (187) 174 (2.663 499 16.5 1.237 1.5 1.9) (29.8 1.109 (639) 1.9 30 33% 100% Production Volumes CY09A (million BOE) Cooper 19.792 WTI Oil (US$/bbl) 61.843) (189) 181 (505) 163.0% (92.0 126.7 31.968 711 881 CY13E 1.3 3. post prefs) EBITDAX margin (%) Effective tax rate (%) EPS reported post prefs (cps) EPS pre-sig post prefs (cps) DPS (cps) Payout ratio (%) Franking (%) Cashflow Statement (A$ millions) Net op cash flow Acquisitions Exploration & Evaluation Capex Asset Sales Other investing cash flows Dividends Debt Proceeds/(Repayment) Equity funding Other financing cash flows Net cashflow GCFPS (cps) Free cashflow FCF/share (cps) Balance Sheet (A$ millions) Current assets Exploration & Development Propert.2) CY10A 21.5m M'cap: A$11889m Price: A$12.lucas@jpmorgan.033 95.3% 31.217 (80) (634) 1.9 CY11E 16.2 Key Commodity Price Assumptions CY09A Aust dollar (US$) 0.63 4.03 0.6 Stag 1.135) 424 163 (79) 246 4 (1.28 0.0 2.9 90.0 0.81 491 935 CY09A 1.8 4.0 6.9% 11.3 0.42 4.760 499 14.394 6.6 0.119) 1.603 3.17 0.30 0.07 1.0 Reindeer Greater East Spar Kipper PNG LNG Total 54.1 0.72 0.5 3.003 107.8 2.814 390 17.2% 25.594 1.4 37 83% 100% CY11E 2.6 Bayu-Undan (DLNG) 5.821 (628) 1.921 79.3 118.157 4.462 6.4 8.0 30 53% 100% Y/E Dec Shares: 932.72 4.5 CY12E 15.27 0.3 6.408 3.Fred Lucas (44-20) 7155 6131 fred.1 0.09) (0.421 (43) (249) (3.046 362 577 881 CY12E 2.8) CY12E 1.72 460 909 CY13E 1.5 8.5 6.2 40.6 49.6 0.29 LNG price (Bayu.0 8.967 1.4 Mutineer/Exeter 1.470 1.533 3. US$/t fob) 234 LPG price (A$/kt) 676 Financial Ratios PE reported (x) PE normalised (x) EV/EBITDAX (x) P/GCFPS (x) Dividend yield (%) ROE (%) ROIC (%) Gearing (ND/(ND+E).116 698 150.9 2.0 Thevenard 0.2 East Coast gas (A$/Gj) 3.4% 59.2 CY10A 36.4 0.1 0.418 3.9% 6.244 (600) 644 7 651 (224) (51) 124 500 376 376 58.062 8.1 (227.5 CY12E 37.470 (466) (184) 820 820 820 69.914 622 13.150 (619) 531 (13) 518 (185) (78) 177 432 255 246 60.7 1.9 0.3 0.53 18.337 (540) (162) (95) (51) (22) (94) (964) 1.0 Indonesia (Oyong/Wortel/Maleo) 5.5 83.51 0.162) 166 843 CY11E 4.5 CY13E 45.4 7.1 118.271 962 6.155 (380) (98) (1.6% 114.5 2.3% 6.267 (4) (156) (1.7 5.8 42 132% 100% CY10A 2.4 3.45 0.9 CY11E 34.2% 6.769 6.10 0. Other non current assets Total assets Total liabilities Shareholder funds Total debt Cash Net debt Operational working capital Ave diluted shares (m) Production by Product (million BOE) Gas Oil Condensate LPG LNG Total CY12E 3.0 9.1% 35.7 0.8US$/A$ Cooper Basin (excl shale gas) Surat/Denison excl GLNG Amadeus Otway John Brookes Jabiru/Challis/Legendre Mutineer/Exeter Thevenard Barrow Stag Bayu-Undan Kipper SE Gobe (PNG) Oyong / Wortel (Indonesia) Maleo (Indonesia) Reindeer Greater East Spar Vietnam PNG LNG GLNG (risked) Other Corp & Unallocated Pre-FID projects incl PNGLNG T3 (risked) Exploration Gunnedah CSG (80% of PEL238 etc) Bonaparte LNG (40% interest) Asset sale proceeds (net) Asset EV Net Debt Equity value Equity valuation prem/(disc) to share price A$m 1.4 18.6 Amadeus 2.351 347 17 150 66 949 313 607 4.36 277 820 CY11E 1.119 66 3.964 10.1 44.9) CY13E 1.193 1. %) Interest cover CY09A 23.052 360 708 163 491 16.0% n/c CY13E 14.2 0.4% 11.1 Vietnam Bangladesh 1.8 2.3 0.185 (540) (196) (83) (54) (104) (976) 2.5 CY13E 16.5 4.5 John Brookes/East Spar 7.319 (1.582 614 2.3 5.5 Surat/Denison (incl GLNG) 5.519 923 6.6 Global Equity Research 13 January 2012 Overweight Santos Limited CY09A 2.3 8.2% 27.4 0.3 0.373 (129) 1.5 28.560 8.517 402 11.472 (125) (1.06 0.7% n/c CY09A 3.02 0.6 52.6 57.1 4.915 6.0 2.240 (427) 481 769 CY10A 5.596 490 60 2.6 0.4% 8.4 6.6% 6.16 0.0 3.39 0.7 49.0 5.108 6.3 2.544) 693 (316) 1.7 2.352 (202) 1.4% 6.6 6.2 0.763 109 3.249 (530) (117) (91) (61) (10) (87) (897) 1.6 8. Plant & Eqp.292 11.458 (598) 859 34 893 (282) (108) 509 1.9 Jabiru/Challis and Legendre 0.5% 32.406 261 55 248 670 90 32 278 278 1.813 2.654 798 881 CY09A 38.241 (225) (3.9 2.086 150.5 8.9% 5.0 Source: J.4 0.65 4.5 2.3 7.040 118.2 2.2 3.0 30 43% 100% CY13E 3.6 1.014) 1.8 0.6) (222.012 504 504 61.48 4.204 A$ 1.0 0.005 65 3.471 3.361 4.9 CY10A 16.9 0.5 4.761 499 15.13 0.443 8.0 Otway 3.3 (1.1 1.4 4.7 8.2) (270.7% 54.248) 161.8% 69.419.4 3.868) 3.5% 40.962.611 (556) (250) (98) (52) 42 (100) (1.6 5.0 69.6) CY10A 1.

744 1.722 37 3.6 16.9 3.6 CY12E 15.713 74.3 5.2 0.879 70.395 69.4 1.6 9.471 589 150 10 673 18 116 (10) 438 1.7% 7.118) 43 (1) (291) 1.209) 35.6 6.027 (478) (845) 1.279 309 25.9% 207.5% 27.6% 8.1 72.3 1.6 15.921 80.0 80.801 299 20.436 (570) 2.907 (749) 2.2% 10.207 3.0 113.485 9.246 (459) (419) (132) 3.4 5.0 212.4% 28.9 3.419 13.6 12.88 0.3 107.74 0.732 (574) 703 CY10A 1.93 20.3% (118.341 (273) 5.2 95.215 346 1.8 198.512 2.3 0.2% 31.069 (963) 4.7 0.649) 742 (547) (42) 1.15 (0.2 0.729 (4.3 Global Equity Research 13 January 2012 Woodside Petroleum Limited Underweight Profit & Loss Statement (US$ millions) Sales revenue Other revenue Total revenue Production costs Royalties & Excise Other Costs EBITDAX Exploration write-off EBITDA Depreciation & amortisation EBIT Net Interest Expense Pre-Tax Profit PRRT pre-tax (post08) Corporate Tax Significant items (after tax) Minority interests Reported NPAT NPAT (pre-sig items) EBITDA margin (%) Effective tax rate (%) EPS reported (Acps) EPS pre-sig items (Acps) DPS (UScps) Payout ratio (%) Franking (%) Cashflow Statement (US$ millions) Net op cash flow Acquisitions Capex & Exploration Asset Sales Other investing cash flows Dividends Debt Repayment Debt Proceeds Equity funding Other financing cash flows Net cashflow GCFPS (cps) Free cashflow FCF/share (cps) Balance Sheet (US$ millions) Current assets Oil & Gas Properties Exploration & Evaluation Other non current assets Total assets Total liabilities Shareholder funds Total debt Cash Net debt Operational working capital Ave diluted shares (m) Y/E Dec Shares: 793.1) CY12E 2.703 1.686 4.4% 18.517 3.857 1.8 2.190 9.P.268 4.7 4.015 124.0% 11.451 62 5.915 963 3.57 -27% % 36% 2% 0% 0% 2% 0% 0% 0% 1% 5% 53% Source: J.745 (12) 1.2m Production Volumes (million BOE) NWSJV Laminaria Legendre Ohanet Mutineer/Exeter US GoM Chinguetti entitlement Otway Enfield Neptune Stybarrow Vincent Pluto-1 Total M'cap: A$25253m Price: A$32.24 597 CY12E 1.7 CY11E 46.545) (199. Morgan Estimates and Company data 242 .2 0.3 4.Fred Lucas (44-20) 7155 6131 fred.431) (782) (721) (276) 442 1.3 63.158 319 17.8 3.236 8 (394) 344 (1.406 20.389) (175.71 515 CY11E 1.7) CY11E 15.353 291 953 218 (3.4% 9.0 76.3% 13.517 1.5 0.6% 28.9 2.4 3.8 9.6 4.040 121.773 (195) (835) (6) 1.9 4.6 118.227 148.759 (477) (275) (156) 2.6 5.6 2.582 9.737 1.645 63 6.7% 221.792 Brent Oil price US$/bbl 62.531 16.832 74 827 NPV Valuation at 9% cashflows from Jul-11.806) 200 1.4 104 50% 100% CY13E 6.392 (273) 4.104 (3.753 8.2% 26.804 (528) (1.8US$/A$ NWSJV ex-oil Cossack oil Laminaria Ohanet Enfield Mut/Exeter Neptune US GoM Stybarrow Vincent Pluto-1 Group & Unallocated Other Fields / Projects (risked) Exploration Asset sale proceeds Other Value & Investments Net Debt Group NPV Share price prem/(disc) to NPV A$m 11.513 (547) (441) (133) 4.885 (467) (488) (141) 3.7 4.2 79.824 60 4.1 Brent Oil price A$/bbl 78.564 1.391 15.8% 9.55 1.5 112.4 199.3% 9.0 10.2 105 58% 100% CY11E 4.0 Domestic gas price (A$/Gj) 4.8 1.658 (2.708 (718) (509) (139) 5.703 1.01) 0.6 CY10A 0.176 (165) (602) 157 (2) 1.8 108.8 CY13E 12.579 16.85 0.3 CY10A 14.01 0.95 553 CY13E 1.7% 13.1 3.353 A$ 14.5 CY13E 48.218 2.031 75.8 4.487 5.28 LNG price (US$/t) 325 Financial Ratios PE reported (x) PE normalised (x) EV/EBITDAX (x) P/GCFPS (x) Dividend yield (%) ROE (%) ROIC (%) Gearing (ND/(ND+E).277 372 816 CY13E 2.37 CY09A 3.0% 25.272 19.119 (748) 3.8% 257.821 (1.188 309 24.78 (5.9 CY09A 2.407 1.531 (4.02 0.703 13.lucas@jpmorgan.6% 27.650 (295) 6.539 68.920 9.952 (677) 773 CY11E 1.3 0.2 87.3 94 55% 100% CY10A 4.510 11.479 2.3 CY13E 3.9 Key Commodity Price Assumptions CY09A Aust dollar (US$) 0.293 16.99 (0. LT US$90/bbl & 0.2 107.926 2.905 700 617 (4.7% 27.349 1.71 0.4 34.8 16.033 111.6 1.2 11.3 116.37) 8.9 CY12E 45.1 4.7 0.870 579 5.2 0.236 (329) 2.3 2.6 2.31) 44.8 WTI Oil price A$/bbl 78.058) 2.9) CY11E 2.5% 22.6 6.9 5.1 5.03 557 CY09A 1.7% 135.3% 30.117 1.5) CY10A 2.789 (353) 3.2 7.5 86.46 0.601 (856) 1.193 53 4.4 7.1% 212.939 1.0 4.158 18 2.070 1.3 10.7 3.4 207.9 93.733 (79) (537) 414 1.4 3.5 4.865 (92) 2.810 1.106 (302) 3.4 WTI Oil price US$/bbl 61. %) Interest cover CY09A 11.3 15.196 8.0% 7.4 2.606 19.0 3.097 309 23.8 257.8 0.5% 12.190 6.1% 9.2 1.626 5.755) 1 14 (291) 2.225) (458.218 2.793 4.3 13.1 92.531 1.7 112 51% 100% CY12E 5.8 134 50% 100% CY09A 50.9 CY10A 51.003 112.1 17.291 (449) 793 CY12E 2.850 (252) 2.371 (344) 3.0% 274.078 119 (195) 272 (1.19 0.1 1.7 3.

Fred Lucas (44-20) 7155 6131 Global Equity Research 13 January 2012 243 .

com Global Equity Research 13 January 2012 244 .Fred Lucas (44-20) 7155 6131 fred.lucas@jpmorgan.

P. Woodside Petroleum.P. Chevron Corp. Gazprom.P. each stock’s expected total return is compared to the expected total return of a benchmark country market index. Gazprom. Origin Energy. Santos Limited. Novatek. Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.H. Important Disclosures     Lead or Co-manager: J. Repsol YPF (REP. Chevron Corp.      Client/Non-Securities-Related: J. Chevron Corp. TOTAL (TOTF. TOTAL. Non-Investment Banking Compensation: J. are available for compendium reports and all J. CNOOC. or intends to seek. Santos Limited. Novatek. we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe. Royal Dutch Shell B. the certifying analyst’s coverage universe can be found on J. Santos Limited. and the services provided were non-securities-related: BG Group. acts as Corporate Broker to BG Group.] In our Asia (ex-Australia) and UK small. Client/Non-Investment Banking. Exxon Mobil Corp. Gazprom.and mid-cap equity research. Chevron Corp. where multiple research analysts are primarily responsible for this report. Royal Dutch Shell B (RDSb. Frederick G: BG Group (BG. Origin Energy. Royal Dutch Shell Galp Energia (GALP.H. Morgan expects to receive.. compensation for investment banking services in the next three months from BG Group. Repsol YPF. Sinopec Corp .inquiries@jpmorgan. Morgan Securities Ltd. Investment Banking (past 12 months): J.H. PetroChina. Securities-Related: J. Gazprom. Statoil (STL. BP. Santos Limited.VI). Origin Energy. the following company(ies) as clients. Gazprom. the research analyst denoted by an “AC” on the cover or within the document individually certifies. Exxon Mobil Corp. Sinopec Corp .P. or had within the past 12 months. Sinopec Corp . BP (BP. Statoil.P. CNOOC. the following company(ies) as clients: BG Group. Origin Energy. BP. not to those analysts’ coverage universe.morganmarkets. Nitin: ENI (ENI.] Underweight [Over the next six to twelve months. Petronet LNG Ltd. Morgan received in the past 12 months compensation for investment banking BG Group. or emailing research. Morgan currently has. Morgan currently has.MI). Coverage Universe: Global Equity Research 13 January 2012 Disclosures Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or. TOTAL. ENI. or had within the past 12 months.L).OL). Statoil. Sinopec Corp . Chevron Corp. TOTAL. Royal Dutch Shell B. OMV (OMVV. securities-related: BG Group.lucas@jpmorgan. BP. Repsol YPF. TOTAL. Novatek.PA) 245 .P. Repsol YPF. Novatek. Inpex Corporation. Broker: J. TOTAL. Morgan currently has. the following company(ies) as investment banking clients: BG Group. Exxon Mobil Corp. Statoil.P. Exxon Mobil Corp. ENI.LS). If it does not appear in the Important Disclosures section of this report. is.P. Morgan– covered companies by visiting https://mm. or had within the past 12 months. Gazprom.H. Sinopec Corp . Chevron Corp. Essar Energy (ESSR. Repsol YPF.L). Oil Search. calling 1-800-477-0406.H. Morgan uses the following rating system: Overweight [Over the next six to twelve months. TOTAL. with your request. CNOOC.P. and the services provided were non-investment-banking. Repsol YPF. Client: J. or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Sinopec Corp . the following company(ies) as clients. Repsol YPF. Inpex Corporation. CNOOC. Morgan currently has. BP. Inpex Client/Investment Banking: J. Gazprom. Repsol YPF.P. CNOOC. Morgan’s research website. Chevron Corp. Woodside Petroleum. Company-Specific Disclosures: Important disclosures. www. Woodside Petroleum. Sinopec Corp .Fred Lucas (44-20) 7155 6131 fred. Origin Energy. Inpex Corporation. with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers.L). TOTAL. Statoil.P.H. ENI. Royal Dutch Shell B. Exxon Mobil Corp.L) Sharma. BP.H. CNOOC. BP. Statoil. Statoil. Royal Dutch Shell B. Statoil. ENI. Royal Dutch Shell B. Santos Limited. and (2) no part of any of the research analyst's compensation was.] Neutral [Over the next six to twelve months. or had within the past 12 months. Origin Energy within the past 12 months. ENI.H. TOTAL. PetroChina. Investment Banking (next 3 months): J. Chevron Corp.L). Origin Energy. we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe. Repsol YPF. Woodside Petroleum. Santos Limited.P. including price charts.MC).disclosure. Exxon Mobil Corp. Royal Dutch Shell A (RDSa. Royal Dutch Shell B. Morgan has received compensation in the past 12 months for products or services other than investment banking from BG Group. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for BP. Santos Limited. we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe. Statoil. CNOOC. Sinopec Corp . Origin Energy.

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Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients* Overweight (buy) 47% 52% 45% 72% Neutral (hold) 42% 45% 47% 62% Underweight (sell) 12% 36% 8% 58% *Percentage of investment banking clients in each rating category.Fred Lucas (44-20) 7155 6131 fred.inquiries@jpmorgan. Morgan Securities (Far East) Ltd. Morgan Equity Research Ratings Distribution. client feedback. Registered in England & Wales No.P.P. Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies. Talisman Energy (TLM. Inpex Corporation (1605. U. Penn West Exploration (PWT. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options.BO). Lone Pine Resources (LPR).RTS).BO). Other Disclosures J.TO). Eurasia Drilling Company (EDCLq. MEG Energy (MEG. Woodside Petroleum (WPL. Canadian Natural Resources (CNQ. (ESRO.BO).TO).RTS).P. 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