Sirine Tajer – March 2011

‘Investment
in Oil & Gas Industry
in the MENA region’

Sustainable Development is “development which meets the

needs of the present without compromising the ability of future
generations to meet their own needs”.

Brundtland Report, Our Common Future, United Nations, 1987

 CURRENT SNAPSHOT
DATED BRENT PRICE (USD / B)
ALL TIME HIGH : USD 144.22/b 24/02 - 30-MONTH HIGH : USD 119.79/b
 Economic boom  Fragile economic recovery
 Demand-led  Supply-led JASMINE REVOLUTION LEADING TO A …
 High liquidity  Apparent tight liquidity
MENA POLITICAL TSUNAMI
 Revolutions, consequential disruptions and
medium term recovery in Tunisia, Egypt and Libya
 Egypt - Resumed Gas and LNG exports
 Libya - 1.3 Mbpd oil exports & of Gas exports
stopped
 Domino Effect : Bahrain, Oman, Yemen, Iraq, Syria,
Algeria…
 Iraq - Baiji refinery explosion (not uncommon)
 Yemen – Damaged oil pipeline and potential for
disruption for Total, DNO & Calvalley…

Source: Platt’s

FUNDAMENTAL PARAMETERS JAPAN NATURAL TSUNAMI

DEMAND:  25 years after Chernobyl
 China Oil demand hits all time high at 10 Mbpd  Highlighted the danger of nuclear power (17% of world’s electricity)
 According to IEA, world crude Oil supply rose to an all time high of  Announced Review of Nuclear Plans, Policies and Security by:
89 Mbpd in Feb. 2011  Japan,
 Europe (Germany, UK…)
 China
SUPPLY:  GCC (UAE, Saudi Arabia…)
 OPEC crude oil output at c. 30 Mbdp with Gulf States mainly  EXPECTATIONS :
offsetting the Libyan effect  Difficulties for financing & public approval for any new plants
 OPEC “effective” space capacity, excluding Libya, is now near 4  Potential Impact on the energy mix (gas, renewables and coal…)
Mbpd, its lowest since end-2008 on the medium term
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 INTERESTING CORRELATIONS

INTERNATIONAL FINANCIAL LACK OF LIQUIDITY ?

Oil & Commodities as a Refuge asset Class
 International moderate rates environment with Fed
increased expansion in Money supply
• Correlation of 86% between the Fed balance sheet and
the S&P 500 since 2 years
Source: Datastream, Erste Group
• Strong correlation between S&P500 and the Oil Price
• General current increase in commodities prices
• According to Erste Group Research :
 Since 1991, correlation between the oil price and Food
Index of 0.91
 Currently, the speculative net exposure on the CBOT
has doubled on the Oil and Wheat, increased by 90% on
copper and 40% on soy

 Source: Platt’s

FOOD FOR THOUGHT…

In 2009, just after the financial crisis, when RasGas II / III and
Mubadala approached the Equity Capital Markets to raise their
respective USD 2.3 B and USD 1.25 B Project Bonds, they
received a total of USD 33 B orderbook…
Source: Datastream, Erste Group
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 HISTORICAL AND FUNDAMENTAL PERSPECTIVE
OIL PRODUCTION FORECAST BY TYPE IN MBPD OIL DISCOVERIES SINCE 1960S IN MBL

Source: EIA World Energy Outlook 2010 Source: EIA, Oil & Gas Journal, Erste Group, OPEC

Source: BP Statistical Review 2009 – including Canadian Oil Sands

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 HISTORICAL AND FUNDAMENTAL PERSPECTIVE

Conventional THE END OF CHEAP OIL ?

Oil  Expectations :
• Enhanced Oil Recovery (EOR)
• Multidirectional and horizontal wells
Heavy Oil • Moving down the Resources Triangle
• Offshore & Deeper horizons (Pre-Salt)
• Efficiency technologies
• Seismic R & D
Bitumen  Increasing technological requirement
 Increasing production costs

Oil Shales

CHART OF THE MONTH

REAL OIL PRICE: FROM 1861 TO PRESENT
 Table shows the oil price in real terms the past
150 years
 If Brent crude remains at its year to date average,
2011 would become the strongest year for oil
price since 1864
 Consequences :
• Relevant time for investments
• GDP burden and consumers’ impact
• Incentives for alternative energies

FOOD FOR THOUGHT…

“The Stone age came to an end not by a lack of
stones”
Source: BP Statistical Review 2010, Datastream, Bloomberg, JP Asset Management

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 MIDDLE EAST & NORTH AFRICA: OIL & GAS POSITION

STRATEGIC GEOGRAPHIC LOCATION

MENA OIL FLOWS

(in Mbpd)
Country Crude Products

Suez Canal Egypt 0.8 – 1 1.2

SUMED Pipeline Egypt 1.1 -
Bab El-Mandab Yemen 0.8 2.5
Strait of Hormuz GCC / Iran 15-17 2
Source: BP Statistical Review, Barclays Capital, Wells Fargo

RESOURCES STRATEGIC IMPORTANCE 2030 HORIZON : SAUDI ARABIA & IRAQ BRIDGING ROLES
 MENA Oil & Gas proven reserves :
• With c. 820 Bbl Oil reserves: 61% of world conventional
oil reserves and 56 % of world total oil reserves
• With c. 83 Tcm in Gas reserves: 44% of world gas reserves
• MENA Oil & Gas exports :
• More than 45% of world oil exports
• Around 20% of world gas exports

 Saudi Arabia: 1st oil reserves in the world & 2nd producer
 Qatar: 3rd gas reserves & world’s leading producer of LNG
producer with 77 MT pa celebrated in Dec 2010
 Iraq: 4th oil reserves with strong upside potential
 According to WEF, MENA expected to provide up to 80% in
world’s growth in energy demand by 2030 Source: BP Energy Outlook 2030

Source: OPEC, EIA, BP Statistical Review, World Economic Forum 6

 MENA CHALLENGES & INVESTMENT REQUIREMENTS
DISCREPANCIES & ENERGY GAPS
Combined population of 320 M & Combined GDP of USD 2 T
with strong GDP growth expectations
 GENERAL REGIONAL OIL & GAS DEPENDENCY : in 2009, oil alone :
• 21% of combined GDP
• 60% of total exports
 REGIONAL DISCREPANCIES :
• GDP p.c : from Qatar (USD 69754) to Yemen (USD 1118)
• Net Oil-importers (Bahrain, Egypt, Jordan, Lebanon,
Morocco and Tunisia)
• Oil-exporters (most of GCC, Algeria, Libya, Iraq, and Iran)
 Dependency on light refined products (Saudi Arabia
& UAE vis a vis)
 Gas regional shortage (Dolphin, first LNG imports by
Kuwait)
 OIL & GAS INVESTMENTS REQUIREMENTS IN THE FULL VALUE CHAIN :
• Oil new production, EOR & transportation
• Oil vertical integration (refineries with higher complexity
factor and petrochemicals)
• Gas new production (non associated & Sour, e.g. Shah
field in U.A.E ) & transportation,
• Gas-based vertical integration (petrochemicals &
fertilizers)
• Storage capabilities
KEY CHALLENGES: SUSTAINABLE DEVELOPMENT
 ECONOMIC & SOCIAL REFORMS :
• Young population (median age <30 years), high level of
unemployment & strong growth
• Private sector development & Economic diversification
 INFRASTRUCTURES UNDERINVESTMENT :
• World Bank: 20% shortfall in installed electricity capacity
• General gap : transportation, education, hospitals…
 CRITICAL INVESTMENTS IN ENERGY EFFICIENCY:
• Growth in Total primary energy demand at 3% p.a. and
Electricity demand doubling by 2020
• 60% more energy intensive than OECD Countries
• Study on 11 MENA Countries: 17.9 GW or 13.3% of total
capacity lost in transmission – a 10% reduction would
save USD 5.5 B for new infrastructure investments
 WATER SCARCITY: Water available p.c to be halved by 2050
FOOD FOR THOUGHT…
 Interdependent dynamics of Oil & Gas, Power, Infrastructures,
Water & Energy efficiencies
 Saudi Case :
 Capacity increased from 21 MW in 2000 to 41 MW in 2010
 Nearly 1 Mbpd for power generation
 Potential cost of 3 Mbl by 2028 with danger for international
energy balance
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 MENA STRATEGIC INVESTMENTS
GEOGRAPHICAL PATTERN OF ENERGY INVESTMENTS
ENERGY INVESTMENTS (APICORP Research Feb. 2011)
• USD 530 B potential but 20% projects shelved (vs 29% in 2010)
• USD 430 B of actual capital requirements

SECTOR DISTRIBUTION :

22% Oil & related

42%
Gas
Power generation
36%

• USD 180 B in Oil & related

• USD 154 B in Gas & related
• USD 155 B in USD 95 B in Power generation

COUNTRIES DISTRIBUTION :
• 70% in 5 countries (KSA, U.A.E, Qatar, Algeria & Egypt)
• USD 130 B in Saudi Arabia
• USD 74 B in UAE
• USD 70 B in Qatar (maintained North Field moratorium)
• USD 57 B in Algeria and USD 42 B in Egypt
Source: Apicorp Rsearch Feb-March 2011

SELECTED OFFICIAL FIGURES

 MENA Energy Investments according to OPEC :
• USD 167 B in natural gas investments (expanded capacity, production & transportation) up to 2015
• Expected 39 Tcm of gas reserves to be discovered

 Qatar MOF: USD 170 B in Oil & Gas and Infrastructures in the next 10 years

 WEF 2010:
• MENA Minimal required Energy & Infrastructure investments : USD 100 B p.a. (5% of annual GDP)
• Half assessed to be currently mobilized
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A SIMPLE FINANCIAL CALCULATION

ENERGY REVENUES

Oil & Gas Investments

•Capex
•Opex
•Financing Costs

Social & Economic Reforms

Infrastructure Investments & Energy efficiency

Renewables

REQUIRED DISCIPLINED & SUSTAINABLE INVESTMENTS

Equity & Debt Optimization – Cost Minimization
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 FINANCIAL FOOD FOR THOUGHT

INTERNATIONAL INVESTORS / LENDERS REGIONAL INVESTORS / LENDERS

 Risk of shrinkage of traditional foreign financers with risk  Potential for Co-investment between Government &
premium & D/E ratio reduction private players: e.g. Mostorod refinery in Egypt..

 Geographical diversification of contractual relationships &
associated ECAs financing
 Rediscovering the Silk Route : PetroChina / Fujairah Oil
Storage projects ; Saudi Aramco in Fujian and potentially
Qingdao refineries in China while Sinopec to take a stake in
the RSRC in Yanbu ; KPC interest in Zhanjiang Refinery…
 Relatively solid regional banks (e.g. SATORP / Jubail)
 Strengthening (Credit bureaus in UAE & Qatar)
 Higher degree of pioneering & selective regional
diversification
 Deeper contribution of Islamic financiers required (e.g.
Sukuk market vis a vis SATORP / Jubail)

 Financing diversification : Structured Financing, Asset

Securitizations, Project Bonds

 PPP Development for Infrastructure investments

TRANSVERSAL ACTIONS
 Marshall Plan

 Governmental global sustainable investment (IFC Study)

 Rigorous projects’ profiling & management – Hedging & Barter potentials

 Regulatory & Legal framework maturity

 Geographical diversification, Technology, R&D Investments

 National employment development & know-how transfer

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