Trading, Investments & Optimization Strategy...Source: Accenture Analysis Despite the increasing use of alternative energy sources, fossil fuels including Oil, Coal and Gas still represent

© Accenture 2015. All rights reserved. Accenture Confidential. 1

For Internal Use Only

Session on International financing models for modern infrastructure delivery

By Trading, Investment & Optimization Strategy [TIOS]

May 2015

Trading, Investments & Optimization Strategy



Contents

Accenture Trading Investment & Optimization Group Introduction

Energy Markets Overview

TIOS Approach to Capital Projects & Asset Investment Valuation

Contact Us and Questions



Investment Portfolio Setup and Execution

Portfolio strategy and Commercial Due Diligence

Asset / Investment Valuation

Contract / Transaction Financial structuring and valuation

Portfolio Strategy & Investments

Execution

Market Sizing & Outlook: supply/demand, benchmarking, forecasting

Growth and Expansion Strategy

Industry Value Chain Optimisation

Pricing optimisation and Analytics

Growth Strategy and Commercial

Optimisation

Trading and Risk Management

Market liberalization & transformation

Trading Strategy & book valuation

Investment and Transaction Risk Analytics and @ Risk

Trading, Origination and Marketing Solution design / implementation

New York | Houston

[North America Focus]

London

[Global Focus]

Abu Dhabi | Dubai

[Middle East Focus]

Singapore

[ASEAN and Asia Pacific Focus]

Trading, Investments & Optimization Strategy [TIOS] Group

Our TIOS Group is based in primary energy & financial centres globally to serve clients on their portfolio & investments strategy to enhance value captured from changing global energy markets

Our clients include oil & gas majors, national oil companies, independent traders, utilities and private equity players who require advisory services on energy asset investments valuation, capital project execution, balance sheet restructuring and joint venture transfer pricing

TIOS Scope of Advisory Services

Our Trading, Investments and Optimization Strategy Group supports global Oil & Gas Players managing their assets portfolio strategy, investments and divestments execution

Portfolio Strategy Focus

Key



Our focus on portfolio management covers all core activities including divestures, acquisitions, green-field investments, joint-venture, mergers, capital restructuring, IPOs and Secondaries

Energy Corporation, Fund or Conglomerate Energy Corporation, Fund or Conglomerate

Upstream

Asset

Existing Energy Assets Portfolio

Midstream

Asset

Downstream

Asset

Upstream

Asset

Midstream

Asset

Downstream

Asset

Downstream

Asset

Assets

Existing Energy Assets Portfolio

Midstream

Asset

Upstream

Asset

Upstream

Asset

Midstream

Asset

Downstream

Asset

Upstream

Asset

Divesture1 Acquisition2

Joint-Venture

3

4 Greenfield Investment

5 Corporate

Merger or

Spin-off

Venture Capital

[Seed, Early]

Private Equity

[GC, Buy-out]

Mezzanine Debt

[Junior & Bridge]Public Equity

Private Debt

[Syndicate]Public Debt

7 IPO, Secondaries6 Capital restructuring

Sou

rce

s o

f ca

pit

al

Accenture TIOS Scope of Portfolio Transaction Advisory Services



Contents







Source: Accenture Analysis

Despite the increasing use of alternative energy sources, fossil fuels including Oil, Coal and Gas still represent over 85% of total energy consumption and will be supported by falling prices

0

5

10

15

20

25

30

Jan-12 Jan-13 Jan-14 Jan-15

Brent FOB NWE

WTI Crude Oil Cushing

Fuel Oil FOB ASEAN

Current LNG FOB ASEAN [14.5% Brent]

API2 Coal CIF NWE

0

4

8

12

16

20

1990 1995 2000 2005 2010 2011 2015 2020 2025 2030

Tho

usa

nd

s

Fuel Composition to 2030 (billion TOE)

Oil Natural Gas Coal Nuclear Energy Renewables

Ene

rgy

Equ

ival

en

t P

rice

, $/m

mB

tu

33%

24%

30%

4%9%

2013 Fuel Composition – [MTOE share]

Oil Natural Gas

Coal Nuclear Energy

Renewables

Fossil fuels account for 87%

Forecast

Global Energy Markets Overview – Energy Mix and Main Reference Prices [$/mmBtu]



Source: Accenture Analysis, Bloomberg, Reuters, UNESCAP

The significant drop in crude oil prices is expected to further support oil demand whilst pressuring high-cost suppliers who will need to cut investments and production

40

100

10030

80

4010

20

80 90

0

110500 60

60

20 70

48.1

91.995.5

Onshore

Middle East

Onshore

ROW

Total 2020 Liquid Production, million boe/d

Offshore

Shelf

Extra

Heavy Oil

DeepwaterUltra

Deepwater

NAM

Shale

Oil

Sands

Arctic

74

81

Onshore

Russia

29

43

49

53 54 5557

62

XXAverage Breakeven Cost

WTI as of

01-Jan-2014

Average WTI

between

2010-2014

WTI as of

06-Jan-2015

USD

/bb

l

Global Oil Supply Cost Curve



Source: Accenture Analysis, Bloomberg, Company Annual Reports

Oil & Gas companies have directed an increasing proportion of their earnings towards capital expenditure, driven by the need to replenish reserves through E&P activities

0%

25%

50%

75%

100%

$0

$100

$200

$300

$400

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E

Rat

io [

%]

An

nu

al C

apit

al E

xpen

dit

ure

[U

S$b

n]

Exploration & Production (E&P) [$bn] Refining & Marketing (R&M) [$bn]

Other Segments/Other Expenditure [$bn] CAPEX/EBITDA Ratio [%]

R&M Segment/E&P Segment Ratio [%]

8% CAGR

Total CAPEX and CAPEX/EBITDA Ratio for Top 20 Oil & Gas Companies by Market Capitalization

Other Segments & Other Expenditure [$bn]



Source: Accenture Analysis

Our recent analysis highlights the significant difficulty for Oil & Gas Majors to generate positive RoIC growth in expanding their portfolios, even prior to the oil price drop of Nov-Dec 2014

0

50

100

150

200

250

0 50 100 150 200 250

Op

erat

ing

Cas

h F

low

[R

ebas

ed

–2

00

8 =

10

0]

Total Invested Capital [Rebased – 2008 = 100]

MSCI World Large Cap

NOC

IOC

1. Corporate Profile

Legend

2. Timeline

2008

2011

2014E

15%

5%

10%

3. RoIC

NOC

RoIC CAGR: -5%

IOC

RoIC CAGR: -10%

Growing Value Creation

RecedingValue Creation

MSCI World Large Cap

RoIC CAGR: +2%

• Before the fall in oil prices, valuations were already discounted by c. 30%+ (PEx/ PCFx / EV/ EBITDAx) compared to alternative sectors

• ROIC performance had been degrading (c. -15-10%) largely due to significant expansion of Balance Sheets for reserve replacement at a much higher capital & operating cost intensity

• Oil price falls have magnified all of these structural issues. We believe that we are at the beginning of a significant M&A cycle for the industry with consolidation, asset-sales and new entrants acquisitions through funds

Overview of Oil & Gas Industry Financial Performance



We see the central issue faced by O&G Majors summarized by the extreme challenges of increasing RoIC whilst at the same time managing Cost of Capital expectations from equity investors

Value Creation

O&G Expected

Cost of Capital

[Proxy by CAPM]

Alpha anticipated by

investors

Beta anticipated by investors

Valuations lag alternative industries benchmarks

RoIC Oil & Gas vs. RoIC benchmark

σ Oil & Gas vs.σ benchmark

• Oil & gas industry has lagged valuation of global peers on EV/EBITDA and P/CF basis by over c.40% and c.35%, respectively, for the last 10 years

• High volatility in oil & gas commodities market prices with additional market risks reflected in high implied volatility

• Growing technological & operational complexity of large scale capital projects leading to project commissioning delays, cost overruns, sub-optimal production output and increasing exposure to operational hazards

Resilient market volatility on prices and spreads

Increasing operational risks from unconventional E&P

O&G Actual Industry Return

[Proxy by RoIC]

• Increase in supply output of tight oil and shale gas depreciated cash margins whilst volatility in prices and spreads have impacted margin stability

• E&P CAPEX outpacing upstream production by 15% per annum since 2004 alongside rising OPEX

ActualNOPAT

Complexity in managing margins with volatility

Increasing operating cost base intensity

Invested Capital

High capital costs of reserves and capacity replacement

On-going balance sheet restructuring to raise capital

• Required investments to replace reserves and for research of new E&P technologies

• Significant 8% CAGR growth of CAPEX/EBITDA ratio since 2004 and a productive asset replacement ratio of greater than 2X for both NOCs and IOCs

General Trend

Key

Oil & Gas Value Creation Drivers Overview of Oil & Gas Industry Challenges



Contents







We support Oil & Gas companies in their execution of M&A/Divestures or investment activities to ensure transaction execution excellence throughout the deal cycle

Investment Approach

M&A Approach

Pre-Deal [Assessment | Valuation | Structuring] Post-Deal [Execution | Ongoing Operations]

Project due diligence & partner engagements

Detailed project requirements

Detailed financial valuation model

Business plan, due diligence & risk analysis

Targets screening & initial valuation

Portfolio Strategy

Deal and commercial structuring

Project mobilization & execution

M&A / divestment execution & transition

1 3

Deal Launch JVA / SPA / FID ClosureLOI / MoU Signature

Project detailed design & economics

2

Asset integration & commercial optimization

• Targeted investment project

financial valuation & return

analysis

• Complete risk analysis

[operational, market, others]

• Joint-venture & SPA/ GSAs and

infrastructure structures full

modelling and impact on

financials & return

• Joint-venture partner specific

investment analysis

• Integration of economic

modelling with project data

[engineering, PMO, finance,

others]

• Value-based Capex investments

prioritization & selection

Selected Differentiated Offerings

General Accenture TIOS Approach for Deal Execution



Developing the economic analysis of an asset sums to combining all financing, commercial, capital and tolling transactions at the asset-level to derive its financials

Financial & Risk Modelling – Review of Capital Project Financial Modelling

Energy Asset

Capital Financing TransactionsC

om

mo

dit

ies

Sup

ply

Tr

ansa

ctio

ns

Operational & SG&A Costs

Capacity Tolling

Tax & Royalties

Capital Costs

Equity Majority Owner

Equity Joint-VenturePartners

Junior Debt Providers

Senior Debt Providers

Earnings Statement

Cash Flow Statement

Balance-Sheet

Statement

IRR & NPV return

Analysis

Co

mm

od

itie

s Sa

les

Tran

sact

ion

sFixed volume Contracts

Option-based Contracts

Open Market

Fixed volume Contracts

Option-based Contracts

Open Market

Capital/Operational Costs & Revenues Transactions Tolling Transactions

Throughput Tolling

Production / Processing / Storage / TransportationCapacity

Production / Processing / Storage / TransportationThroughput

Capital Project Financial Modelling Methodology



Contents





Copyright © 2015 Accenture. All rights reserved.

Contact Us

Ogan Kose

Managing Director

London, UK

Phone: + 44 779 5566788

[email protected]

Richard Myerscough

Manager

London

Phone: +44 7917 587074

[email protected]



© 2015 Accenture. All rights reserved.

Documents

Trading, Investments & Optimization Strategy...Source: Accenture Analysis Despite the increasing use of alternative energy sources, fossil fuels including Oil, Coal and Gas still represent