1
 The global Oil & Gas market trends


Oil Supply scenarios, Demand-Supply balances, Stock changes and Price
Gas market in general with focus on the LNG market
 Challenges and opportunities for Egypt
2
• Is USD 50 / bbl historically a low
price in inflated terms?
Yearly average oil price (Brent) 1970 to 2016, inflated (real 2015) prices and ‘money of the year’ - nominal
prices
• The world has become globalized
and market fundamentals more
important than political incidents?
120
New offshore oil
provinces came
on production –
Alaska & North
Sea
100
80
Iraq – Iran war
Globalization
emerging
economies
China
Saudi-Arabia stop
defending prices
unilaterally
60
US shale revolution
&
Saudi-Arabia (OPEC)
won’t defend prices
Financial crises
Iraq – Kuwait war
40
Yom Kippur war
Gulf countries
execute oil embargo
20
Asia crises
0
Inflated oil price (2015) (USD/bbl)
Money of the day (USD / bbl)
Source: Ucube, BP Statics Review 2015 & Rystad Energy research and analysis
3
Linear (Inflated oil price (2015) (USD/bbl))
Production cuts of additional 0.8 mmbbl/d for 1Q 17 vs. normal seasonality & declines
In our H1 Cuts, total OPEC-14 (incl.
Indonesia) production in 1Q 17 is
reduced by 1,05 mmbbl/d from 4Q
16.
Core OPEC (KSA,UAE, Kuwait &
Iraq) stand for 90% of the total cuts.
In H2 we expect supply to increase
again as the Cut deal is valid for H1
only. The black line is showing the
production if the Cut deal is
prolonged into H2 2017.
OPEC crude oil production in the base case
Million bbl/d
34,0
-1.05 mmbbl/d Total cuts
0,60
33,5
OPEC-14 Total
0,17
33,0
33,9
0,13
33,7
Cuts/declines
33,6
0,11
Expected increases
0,05
0,06
32,5
33,1
0,20
0,07
0,15 0,10
Q4 2017
Q3 2017
Q2 2017
Q1 2017
Libya
Iran
Nigeria
Others*
Venezuela
Algeria
Kuwait
UAE
Iraq
KSA
32,0
Q4 2016
32,7
Supply at 33 mbbl/d, if
Cuts are prolonged into
H2 2017
*Others = Qatar, Angola, Gabon, Ecuador and Indonesia. We include Indonesia, although the country **Algeria and Venezuela declines in Nov-16 OMT
caused by natural field decline, not seasonality. Source: Rystad Energy research and analysis
4
Nigeria struggles to recover, but upside risk to Libya if earlier restart of the Elephant field
Nigeria and Libya are not covered by
the ‘Cuts’ deal, due to difficult
political situations.
Our base case predicts an annual
averagely increase in oil production
by 120 kbbl/d in Nigeria. However,
this depends on a normalizing of the
tense political situation in the Niger
Delta .
Nigeria and Libyan crude production, monthly
Million bbl/d
2,0
H1 2017
1,8
1,6
1,4
The political situation in Libya
(Western part) seems to stabilize to
an improved situation for their oil &
gas sector. We expect Libya’s annual
average oil production to increase by
450 kbbl/d from 2016 to 2017. We
even operate with an upside potential
with another 150-200 kbbl/d.
1,2
Nigeria
1,0
Nigeria Ave 2016/2017
level
Libya
Libya Ave 2016/2017
level
Libya upside risk
0,8
0,6
0,4
0,2
5
Dec-17
Nov-17
Oct-17
Sep-17
Aug-17
Jul-17
Jun-17
May-17
Apr-17
Mar-17
Feb-17
Jan-17
Forecast
Dec-16
Nov-16
Oct-16
Aug-16
Jul-16
Jun-16
May-16
Apr-16
Mar-16
Feb-16
Jan-16
Source: Rystad Energy research and analysis
Sep-16
Historical
0,0
In base case, non-OPEC countries comply by 60% in 1Q 17 against target cuts of 558 kbbl/d
We expect Russia and Kazakhstan to
reduce actively production under the
agreement.
Mexico will “comply” through natural
field decline without implementing
additional cuts.
In total, we forecast the 11
countries to reduce crude
production by 330 kbbl/d vs. Oct16* to 17.9 mmbbl/d in 1Q 17.
Production is not expected to increase
much after the deals run out in H2 due
to natural decline of exisiting
production.
Non-OPEC production of crude oil before and after cuts
Million bbl/d
18,3
Expected cut against October 2016
18,2
Expected cut against November 2016
Expected increase in Q1 2017
18,22
0,18
Total oil production in base case
18,1
0,08
18,0
0,06
17,9
0,02
0,02
0,02
0,02
0,01
0,01
0,00
17,89
0,04
17,8
17,81 17,80
17,7
17,84
4Q 2017
3Q 2017
2Q 2017
1Q 2017
Bahrain
Sudan
Brunei
South Sudan
Equatorial Guinea
Malaysia
Azerbaijan
Oman
Kazakhstan
Mexico
Russia
Total Non-OPEC *
17,6
*Decline is measured against the Nov-16 oil production in Azerbaijan as production was lower than normal in October due to maintenance activity.
Source: Rystad Energy research and analysis
6
US shale oil will add about 1 million barrels in 4Q 17 from 4Q 16 in our “Base Case”
US shale oil production scenarios
Thousand bbl/d
Base Case:
• Annual average Y/Y growth 2016 to
2017 = 470 kbbl/d
• 4Q 2016 to 4Q 2017 = 1050 kbbl/d
7 000
Base Production
New Production (Low Case)
Incremental New Production (Base Case)
Incremental New Production (Max Case)
6 000
Low Case (50 USD/bbl):
• Annual average Y/Y growth 2016 to
2017 = 300 kbbl/d
• 4Q 2016 to 4Q 2017 = 600 kbbl/d
Max Case (85 USD/bbl):
• Annual average Y/Y growth 2016 to
2017 = 680 kbbl/d
• 4Q 2016 to 4Q 2017 = 1500 kbbl/d
Max Case
Base Case
Low Case
5 000
4 000
3 000
2 000
1 000
0
01.01.2015
01.01.2016
Source: Rystad Energy research and analysis, Rystad Energy NASWellCube Premium
7
01.01.2017
After the extraordinary high demand
growth in 2015-2017, due to low
prices, we expect trend Y/Y growth to
ease down to 1.2 mbbl/d in 2018 to
2021.
The world will still demand more oil
despite increasing focus on lowered
GHG emissions, due to growing
population and increasing prosperity
in the emrging countries the next 5
years.
World liquids demand/supply growth y/y
Million bbl/d
3,0
2,5
2,0
Trend average 1,1 mbbld
1,5
1,5
1,0
1,2
Average 1,7 mbbld
2,1
Other Middle East
Brazil
1,6
1,4
1,2
Other Non-OECD
Trend average 1,2 mbbld
1,1
0,5
1,2
1,3
1,4
Saudi Arabia
India
0,5
China
0,0
OECD Europe
-0,5
OECD Americas
-1,0
OECD Asia and Oceania
-1,5
Total World
2011
After a temporary halt in supply
growth in 2016 shale will come back
as the dominant source of increased
supply the next 5 years. This is
needed to cover up for declining
supply from conventional production
all over the world. The growth in
OPEC supply is expected to diminish
towards the 20’ies due to increasing
decline in African and South
American member countries.
Russia
2012
2013
3
2014
2,6
2,5
2,1
2015
2016
2017
2018
2021
1,8
1,2
1,5
0,5
2020
2,3
2
1
2019
0,6
0,9
0,8
0,4
0,7
0,2
0
-0,5
-1
Historical
Forecast
-1,5
OPEC(35)
SHALE(5)
RoW(60)
Total World
OECD Asia: New Zealand, Australia, Japan, South Korea; Other Middle East includes Israel and Turkey among other countries; OECD Americas: Chile,
Mexico, Canada and United States Source: Rystad Energy research and analysis
8
Stocks draws in 2017 due to cuts, in medium term still tight market due to lack of sanctioning
The market rebalanced supply and
demand in 2016. Incorporating OPEC
and non-OPEC production cuts in 1H
17, we see 0.63 mmbbl/d stock draws
in 2017 at 62 USD/bbl Brent. 2018 &
2019 balances look less tight than in
2017, but we see slight stock draws
although additional growth in North
American shale supply at higher oil
prices do its best to balance the
market. Towards 2021, we see market
balances tightening as global supply
struggles to grow from the lack of
project sanctioning during 2014-2017.
Global liquids supply and demand
Million bbl/d
104
102
UCube’s Brent base case
(nominal)
54
45
100
98
96
The oil glut period
Total Demand
Total Supply
94
92
90
88
86
84
Historical
Forecast
82
2012
2013
2014
Source: Rystad Energy research and analysis
9
2015
2016
2017
2018
2019
2020
2021
Rystad Energy’s base case oil price based on UCube database cost of supply curve
Given the Base case (H1 Cuts)
scenario we expect H1 2017 to face
higher prices than H2 2017. Ease in
supply constraints in H2 will lower the
prices compare to H1. However, if cuts
are prolonged is it likely to expect a
steady increasing price through out the
entire 2017.
The annual average prices from 2018
to 2021 are based on cost of supply
curve to meet future demand.
Difficulties for supply to meet increased
demand will result in raising prices.
ICE Brent crude historical front month price, latest five year futures curve and UCube base case
USD per bbl
140
120
95
100
97
88
75
80
60
60
54
65
60
63
45
40
20
UCube base case
Futures curve
Brent front month
0
Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 Oct-20 Oct-21
IEA: WEO 2016
Source: Bloomberg, Rystad Energy research and analysis and IEA WEO 2016
10
 The global Oil & Gas market trends


Oil Supply scenarios, Demand-Supply balances, Stock changes and Price
Gas market in general with focus on the LNG market
 Challenges and opportunities for Egypt
11
Global gas demand has grown at a
rate of 2.3% between 1990 and
2013, with the Power sector growing
at 3% per year, while Non-power use
has been growing at 2% per year.
World natural gas demand, by use
Bcm natural gas per year
4500
History
Forecast
4000
Going forward, the non-power sector
is expected to continue growing at
2%, while the power sector is
expected to grow at 1% per year. The
underlying driver of this change is
primarily the power mix, which is
expected to move strongly towards
renewables.
3500
3000
Power sector
2500
2000
1500
1000
Non-power
500
0
2000
2005
2010
Non-power
Source: Rystad Energy research and analysis
12
2015
2020
Power & heat
2025
2030
Supply and demand of natural gas, 2014-2040
Bcm per year
Australia
Asia
Middle East
Africa
South America
North America
Europe
Russia
More LNG exports
More LNG imports,
mostly from
Australia, and
pipeline from
Russia
More LNG exports
(but limited by
increasing
demand), some
countries become
importers
New East African
LNG exports going
mostly to Asia
Switching from LNG
exports to imports
Switching from LNG
imports to exports,
then back to
imports as gas
production won’t
keep pace with
demand growth
Likely still rely on
piped gas and LNG
imports
Key exporter to
Europe, in future increasingly to Asia
1400
800
-400
Source: Rystad Energy UCube; IEA World Energy Outlook New Policies Scenario for gas demand
13
Net Export
Net import
Production
Demand
2040
2014
2040
2014
2040
2014
2040
2014
200
The graph shows the global LNG
supply, by country, from 2010 to
2025.
In 2015, the available LNG supply
stood at 345 bcm per year. With large
developments in both Australia and
the United States, this is expected to
increase to 520 bcm by 2022.
Post-2022 LNG production declines,
as old projects see lower production
rates.
Demand growth is driven by Asia.
Demand in Middle East and Africa is
also expected to rise.
In Latin America, the outlook is
mixed: some decreases in Brazilian
LNG imports before rising again,
while there is growth in imports in
other countries.
For Europe, natural gas consumption
is expected to remain stable whereas
domestic production is declining. We
expect European base LNG demand
to be approximately 50-70% of their
long-term contracts.
Any further LNG demand required
will be driven by supply availability
and prices.
LNG production by country, potential from sanctioned capacity
Bcm per year
600
History
Qatar
14
CAGR
2015 to 2022:
6%
Australia
500
Other
United States
United States
Base Case LNG Demand
400
Other
300
200
Australia
100
Qatar
0
2010
Source: Rystad Energy research and analysis, UCube
Forecast
2015
2020
2025
13
Volumes and breakeven price* for unsanctioned LNG projects, 2025
Egypt
Zohr LNG
Resources: 50 Bcm
Start-up year: 2030
Production: 3,3 Bcm/y
Breakeven: 6,5 $/MMbtu
Iran
12
UAE
11
Mozambique
Zohr 1, Egypt
10
Nigeria
Australia
9
Papua New Guinea
USD/MmBtu
8
Zohr 2, Egypt
Russia
7
Avg. breakeven
7,3
6,9
5,9
6
5
6,5
6,4
6,4
6,3
5,4
4,6
4
3
Breakeven prices for Zohr ph1 & 2 compared with
breakeven prices on other possible sources of
import
2
1
*) Breakeven when NPV is positive given 10% annual discount rate, excl. transportation to market
0
0
5
10
15
20
25
30
35
40
45
50
Bcm
Source: Rystad Energy UCube
15
55
60
65
70
75
80
85
90
95
100
16
100
14
80
12
9,3
60
8
6
8,1
40
6,4
5,9
4,7
4
20
2
Henry Hub
East Asian spot LNG
Brent crude history
Brent crude forward
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
0
2012
0
NBP
JCC-indexed
Brent crude - Rystad Energy's base case
*Prices are nominal, annual average, assuming normal weather without seasonal variations. East Asian Spot LNG excludes regasification cost. Brent crude
price forecast is Rystad Energy’s base case scenario. JCC-indexed is linked to Brent crude with a lag – History is based on historical Brent crude and
Forecast is based on Rystad Energy’s Brent base case forecast. Brent crude forward as of 26 Jan 2017.
Source: Rystad Energy research and analysis
16
USD/bbl
10,5
10
2011
Given anticipated rising oil prices,
long-term oil-linked (LNG) contract
prices would climb substantially
above spot prices. This will lead to
strong
pressure
for
contract
renegotiation and spot trading.
Forecast
Historical
18
2010
Asian spot LNG and NBP prices are
expected to remain low until the early
2020s as the market is oversupplied.
Rystad Energy sees the LNG market
rebalancing in the early 2020s. By
then new projects will need to be
sanctioned in order to meet demand
as existing supplies begin to decline.
This will result in a predicted price
raise for both NBP and East Asia
spot LNG.
Global gas prices (USD/MMBtu) and Brent crude price (USD/bbl)
USD/MMBtu
We expect Henry Hub prices to be
the floor and move from 3 to 5
USD/MMBtu towards 2025. Mainly
based on the breakeven level
required to balance US domestic gas
production with consumption and
export.
 The global Oil & Gas market trends


Oil Supply scenarios, Demand-Supply balances, Stock changes and Price
Gas market in general with focus on the LNG market
 Challenges and opportunities for Egypt
17
Gas prone
Blend of
Oil & Gas prone
6
5
Bboe
4
Mediterranean Sea, EG
HC-resources – Discovery decade
Nile Delta, EG
Western Desert, EG
Gulf of Suez, EG
Oil prone
3
2
1
0
1930
1940
1950
1960
1970
1980
1990
2000
2010
Produced (by the end of 2016), and remaining hydrocarbon resources split by Hydrocarbon Type
[Bboe]
Mocambique
16 Bbbl
Produced
43 Bboe
Equivalent to 43 %
of total commercial
resources
Algerie
30 Bbbl
Produced
40 Bboe
Equivalent to 45 %
of total commercial
resources
Nigeria
32 Bbbl
Tanzania
12 Bbbl
Produced
18 Bboe
Equivalent to 38 %
of total commercial
resources
Egypt
46 Bboe
10 Bbbl
26 Bboe
16 Bboe
22 Bboe
Produced
19 Bboe
Liquids
Gas
- 60
- 40
Source: Rystad Energy research and analysis and UCube
19
- 20
0
20
40
60
80
Remaining hydrocarbon resources split by Life Cycle [Bboe]
Undiscovered potential
45 Bboe
Mozambique
Algeria
28 Bboe
Nigeria
22 Bboe
Tanzania
28 Bboe
Producing
Under development
Discovery
Egypt
15 Bboe
0
10
Source: Rystad Energy research and analysis and UCube
20
20
Undiscovered
30
40
50
60
70
Production profile for Egypt towards 2035, split by hydrocarbon type
[kboe/d]
2 000
Gas
Liquids
1 800
1 600
1 400
1 200
1 000
800
600
400
200
0
.
Source: Ucube & Rystad Energy research and analysis
HISTORY
FORECAST
Increased exploration focus could
very well arrest current falling
production forecast
Egypt is the largest gas consumer in
Africa accounting for about 40% of
the natural gas consumption.
Egypt has been diverting natural gas
supply away from exports to the
domestic market to meet demand
from a growing industry.
Egypt can export gas through the
Arab Gas Pipeline (AGP) or through
the existing LNG plants at Damietta
and Idku.
Net export possible from 2020, just in
time before the LNG-market tightens.
Egypt gas production and consumption
[Bcm]
80
70
Net export?
Production
60
Net export
50
Consumption
40
30
20
10
0
2005
* Assuming 5% annual gas consumption growth based on IEA forecast June 2016
Source: Rystad Energy UCube; BP Statistical Review; EIA, IEA
22
2007
2009
2011
2013
2015
2017
2019
2021
Average discovery costs (USD/boe) for the period 2006 – 2016 [USD/boe]
Discovered
amount , ranked
Capitalized
1
6
7
5
2
16 Bboe
Discovered
OFFSHORE
Mozambique
3,4 Bboe
Discovered
ONSHORE
Algeria
3,3 Bboe
Discovered > 90%
OFFSHORE
4,8 Bboe
Discovered > 95%
OFFSHORE
9,5 Bboe
Discovered
OFFSHORE
Expensed
Nigeria
Tanzania
Norway
3
8,3 Bboe
Discovered > 70%
OFFSHORE
Egypt
4
5,5 Bboe
Discovered > 99%
OFFSHORE
Angola
0,0
Source: Rystad Energy research and analysis and ECube
23
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
Average operating costs (USD/bbl) production costs for the period 2006 to 2020
[USD/boe]
History
20
Egypt
Price downturn
period
Algeria (onshore)
18
Forecast
Nigeria
Angola
16
Brazil
Norway
14
12
10
8
Egypt
6
4
2
0
2006
2007
2008
Source: Rystad Energy research and analysis and UCube
24
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
100 %
96%
95%
92%
88%
90 %
85%
82%
80 %
70 %
60 %
Above USD/boe 80
USD/boe 60-80
50 %
USD/boe 40-60
USD/boe 20-40
40 %
Below USD/boe 20
30 %
20 %
USD 60
10 %
0%
Egypt
Algeria
Source: UCube & Rystad Energy research and analysis.
*Breakeven price when NPV is positive given 10% annual discount rate
25
Nigeria
Angola
Brazil
Norway
100 %
97%
95%
94%
90 %
80%
80 %
70 %
60 %
Above USD/kcf 8
USD/kcf 6-8
50 %
USD/kcf 4-6
Below USD/kcf 4
40 %
30 %
20 %
USD/kcf 6
10 %
0%
Egypt
Algeria
* Breakeven price before conversion to LNG, which normally adds on ~15%
Source: UCube & Rystad Energy research and analysis
26
Nigeria
Norway
NPV* of Government take and Free Cash Flow available for the companies (green) in BUSD
Algeria
88 %
79 %
Nigeria
64 %
Angola
Eni
Apache
114 BUSD
80 %
Egypt 29 BUSD
BP
Gulf of Suez, EG
Sinopec (parent)
Western Desert, EG
Nile Delta, EG
Rosneft
Mediterranean Sea, EG
Edison
Mozambique
6 BUSD
Shell
36 %
64 %
Pico Petroleum
Free Cash Flow
NPC (Egypt)
Tanzania
Government Profit Oil
Dana Gas
2 BUSD
15 %
71 %
Royalty effects
0
0
50
* Calculated by using an annual discount rate at 10%
Source: Rystad Energy research and analysis and UCube
27
100
150
200
2
4
250
6
8
300
10
12
350
14
Income Tax
400
450
500
 Keep a long term E&P mindset, which encompasses a balance between exploration, development and
production. Egypt has produced about 40% of its potential only.
 Encourage exploration by opening new acreage, offer regular licensing rounds and maybe also consider tax
revisions in order to arrest falling production from the mid 20’ies.
 Scrutinize cost improvements through out the entire development chain (exploration to production), even
though break even prices for most projects seem quite robust to low prices.
 Don’t flare unsellable gas – re-inject it to maintain reservoir pressure, which increases recovery and lowers
emissions.
 Continue the process on removing consumer subsidies.
 Tax level maybe in the high end, even though the national participation is low. This may prevent industrial
investments and E&P development .
28