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 ‘Drillers and Dealers’
Published by:

The Oil Council

“Engaging Upstream Oil & Gas Communities World-wide”

Foreword

‘Drillers and Dealers’ is our pioneering free monthly e-magazine for the upstream
industry. It is entirely focused on sharing insight, analysis, intelligence and thought
leadership across the E&P sector.

We hope you enjoy reading the articles our guest authors have so kindly contributed.

Yours,

Ross Stewart Campbell Iain Pitt

Chief Executive Officer, Chief Operating Officer,
The Oil Council The Oil Council
T: +44 (0) 20 8673 3327 T: +27 (0) 21 700 3551
ross.campbell@oilcouncil.com iain.pitt@oilcouncil.com

Contact The Oil Council

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***Any content within this publication cannot be reproduced without the express permission of The Oil Council and
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www.oilcouncil.com
 „Drillers and Dealers‟ – February 2010 Edition

 About The Oil Council and „Drillers and Dealers‟

o Contact Details

 Executive Q&A
o An interview with Dr Keith Myers, Partner, Richmond Energy Partners

 Executive Q&A
o An interview with William Le Sage, CEO, OFS Portal

 “Standard, Premium or AIM Sir?”

o By Scott Knight, Partner and Head, Natural Resources, BDO LLP

 “Is Shale Oil Next?”

o By Elaine Reynolds, Oil Analyst, Edison Investment Research

 „On the Spot‟ with our Question of the Month

o “How can we attract more young graduates and talented professionals to be
part of tomorrow’s oil and gas industry?”

 Future Oil Council Assemblies in New York City

 “Diary of a Commodity Trader” (Monthly Column)

o By Kevin Kerr, President and CEO, Kerr Trading International

 “The Oil Outlook” (Monthly Column)

o By Gianna Bern, President, Brookshire Advisory and Research

 “Golden Barrels” (Monthly Column)

o By Simon Hawkins, Managing Director, Omni Investment Research

 Our Partners

www.oilcouncil.com

Ross Stewart Campbell (RSC) from
The Oil Council: Keith, some of our
readers might not be familiar with
Richmond Energy Partners and the
REP30. Can you quickly introduce
your company and the REP30?
Dr Keith Myers (KM) from Richmond
Energy Partners: Richmond Energy
Partners are very experienced oil and
gas professionals who provide
independent expert research and
insights into smaller oil and gas
companies for buy-side investors. The
REP30 are 30 E&P companies in the
$500m to $12bn market cap range operating outside
of North America that we select every year to
research.
RSC: What exactly are investors looking for today in
E&P companies? Have their investment criteria
changed following the recent economic and financial
crises and what are you advising your clients to focus
on?
KM: The criteria haven’t changed that much since we
started back in 2006. If you are a long term bull on oil
price, as many are, then investing in companies that
can access the barrels efficiently makes sense. The
larger the company, the more difficult it is to grow it.
You don’t expect growth from investing in
Supermajors; that’s all about the dividends and the
risk reduction you gain by investing in an integrated
company.
Smaller E&Ps are especially
attractive as an asset class “We find the equity
as they can grow
organically. A year ago there markets misprice E&P
was a greater focus on assets quite frequently
financial risks following the
collapse of Oilexco. With oil and this is where the
prices up 80% last year it
was hard to lose betting on
opportunity for the
E&Ps. In fact all the REP30 informed investor lies.”
companies share values
www.oilcouncil.com
Executive Q&A
With
Dr Keith Myers,
Partner,
Richmond Energy Partners
Talking with
Ross Stewart Campbell, CEO,
The Oil Council
th
Date: 5 February 2010
increased. Over time we find share price performance
is most closely correlated to reserves growth so we
focus a lot on that. However, to understand growth
prospects you need geological insight which financial
investors struggle with.
That’s where we come in. We find the equity markets
misprice E&P assets quite frequently and this is where
the opportunity for the informed investor lies.
RSC: Who in your opinion were the major success
stories of 2009 and did these companies display any
common characteristics compared with poorer
performing companies?
KM: If you judge success by share price only then the
winners in the REP30 in 2009 were Pacific Rubiales,
OGX and Afren. The catalysts were different in each
case – heavy oil production ramp up onshore
Columbia for Pacific Rubiales, exploration success
offshore Brazil for OGX and a restructured balance
sheet and Nigerian reserves growth through appraisal
for Afren.
RSC: What companies do you believe are best
positioned for growth / success in 2010?
KM: We are not expecting oil price to be a particular
catalyst in 2010 and therefore the focus is back onto
finding companies that have good growth prospects
and/or undervalued assets. So the key is to find
companies exploring in a sweet spot or appraising
discoveries at low cost. Unconventionals, particularly
shale gas, are hot and investors are looking for
companies that are exporting the know-how from
North America to Europe and
beyond. They are hard to find.
To find out which companies
we favour you would need to
become a client unfortunately.
RSC: Some E&P companies
struggle with the growth and
transition from small to mid-
cap. Is there a magical
formula Keith that some of the
larger companies in the
REP30 have successfully used to achieve this growth
and sustain this transition?
KM: There is not really a magic formula. Typically, the
transition to mid-cap has involved a few acquisitions to
scale quickly - e.g. Tullow’s growth has been built on
foundations provided by the acquisitions of Energy
Africa and Hardman Resources in Africa and gas
assets in the Southern North Sea. Organic growth via
exploration for Tullow has been a phenomenon of the
last few years only.
“OGX is valued at over
$27bn, a lot of money for
a company with four
discoveries, and no
reserves or production.”
However, recently this formula has been challenged
through the emergence of the mega-explorers such as
OGX and Cobalt International. Here experienced
management teams have been backed with billions of
dollars to explore in the hottest exploration areas. This
funding has allowed them to buy up leases by out-
bidding the majors and super-majors.
The exploration budgets of OGX and Cobalt are the
envy of any exploration manager. Is this a new
paradigm – yes but it remains to be seen how much
value is created. OGX is valued at over $27bn, a lot of
money for a company with four discoveries, and no
reserves or production
RSC: Moving the discussion towards exploration, what
hotspots have the REP30 focused their recent
exploration activity on? Are these regions proving
successful in terms of finding commercial discoveries?
KM: For the REP30 there is a big difference between
where most wells are being drilled and where oil and
gas is being found. The drilling hotspots in terms of net
wells drilled for the past 2 years have been Australia,
Columbia and Egypt. The hotspots in terms of
discovered volumes have been Brazil and Uganda.
RSC: Following on, what exploration strategies are
proving to be most successful? Are „emerging plays‟
the key to future exploration success? And how
important is local knowledge becoming in exploration?
KM: It depends on the size of the company. If we think
of exploration as a tool for growth rather simply
replacing production, then the larger the producing
base of the company then the more needs to be found
to grow the resource base.
Small companies can transform themselves still by
exploring successfully in mature areas like the UK and
Norway where 10-50 mmbbl fields can still be found at
1 in 3 success rate.
Transformational exploration for larger E&Ps requires
exposure to ‘emerging’ plays, e.g. Tullow/Heritage in
www.oilcouncil.com
Uganda, Cairn in Rajastan. To access an emerging
area you either buy your way in at high cost or you do
frontier exploration.
New plays can emerge in mature areas too through
geological creativity or through technological
innovation – e.g. pre-salt imaging or HPHT drilling
techniques. The common ingredients for success are
local knowledge, an appetite for risk and an ability to
manage it.
RSC: On raising capital, we saw last year a large
number of E&P companies raise funds through equity
based financings. Do you see this trend continuing
throughout 2010 and do you believe this deleveraging
is beneficial to the long-term success of the sector?
KM: We saw a lot of money for placings by existing
companies last year but very few IPO’s. The placings
were required to deleverage balance sheets and/or to
allow the companies to execute their business plans.
Whilst reserves backed lending was still available last
year, pre-development debt funding all but dried up
leaving some companies high and dry without an
equity injection. Often, existing investors had no
choice but to put more money in or let the company
fold. New investors took advantage of lower asset
valuations.
There is a big appetite for exploration – witness the
$450m to fund Falkland’s exploration and the $850m
raised by Cobalt International at IPO. The returns
delivered by Kosmos in Ghana and Heritage in
Uganda from pure exploration have not gone un-
noticed. It is cheaper now for E&Ps to get funding from
equity investors than it is from industry (through farm-
outs) and pre-development bank lending is hard to
come by. Whilst this situation exists we will continue to
see more equity raisings.
It will be beneficial in the long run if the cost of capital
doesn’t increase. However, if the appetite from equity
investors dries up then there could be a capital
drought and trouble ahead.
RSC: Many were predicting (expecting) huge M&A
activity and increased sector consolidation in 2009. Of
course this turned out to be somewhat muted. What
are your thoughts on the “inevitable wave of industry
consolidation in 2010”? Will this year see significant
sector consolidation?
“There is a big appetite for
exploration... The returns
delivered by Kosmos in
Ghana & Heritage in Uganda
from pure exploration have
not gone un-noticed.”
KM: In short, no. We find that 3-4 of the REP30
companies are acquired every year usually for cash.
There is no reason to expect it to be any different this
year. Mergers are very hard to make happen – money
and egos get in the way.
“Mergers are very hard to
make happen – money
and egos get in the way.”
RSC: You‟ve been a long-term champion of corporate
governance Keith and the importance it plays in E&P
companies. Are there simple governance mistakes
that E&P companies are making that can be easily
corrected to strengthen this aspect of their business?
KM: There are five principles to follow –
1) Clarity of goals, roles and responsibilities,
2) Sustainability and risk management,
3) Accountability for performance,
4) Transparency of information and
5) Management teams enabled with resources and
capability.
Things we look for are separation of CEO and
Chairman roles, a majority of independent non-
executives, and non executives with E&P
management experience. We also rate companies on
transparency of goals, plans and operational
performance
RSC: Reflecting on your recent trip to Ghana, where
you met with the Parliament to discuss oil sector
governance, what key challenges does petroleum
present to developing countries? And what are your
thoughts about Ghana as a new oil and gas province?
KM: Oil and gas belongs to the nation and the
Government is the steward of the resource on behalf
of the people of the country. The challenge for an
emerging producer is to convert oil in the ground into
sustainable financial resources that benefit the nation
as a whole and not just the ruling elite.
When Governments get it wrong the impacts are well
documented – the ‘Dutch disease’, conflict and
instability. Good governance is the key to making oil a
blessing for a country like Ghana. Part of the
challenge is managing expectations – the first phase
of the Jubilee development may only deliver revenue
to the Government the equivalent of $50 per Ghanaian
per year. This will not transform anyone’s life.
The key is to have the right policies in place, an
effective system of regulation and efficient operations.
Ghana could be doing better on all three.
RSC: If I may Keith I‟ll wrap up by asking your one-
word opinion (bullish, bearish or uncertain) on the
future of the following.
Bull or Bear?
RSC: West Africa?
KM: Bull for geology – bear on politics
RSC: East Africa?
KM: Bear for oil outside of the rift valley
RSC: The AIM market?
KM: Needs better regulation
RSC: Micro-cap E&P companies?
KM: Bear generally but there are exceptions
RSC: As always Keith many thanks for your time and
your insight.
Dr Keith Myers is a Partner and Director of Richmond
Energy Partners, an independent research house of oil
industry professionals who provide independent
advice on small and mid-cap E&P companies to both
financial investors and oil companies. Their latest
industry report is available online at
www.richmondep.com

About Keith:

After completing a Ph. D. at Imperial College, Keith joined BP in 1987 as a geologist. Following a variety of technical roles , he
became a Senior Commercial Advisor in 1996 when he led several major negotiations for new business access as well as
Business Strategies for BP‟s business in West Africa and BP‟s Strategic Alliance with Statoil. Since 2000 Keith has been an
advisor to numerous energy companies on strategy and partnership issues.

Keith founded Richmond Energy Partners in 2006 to provide independent advice to investors in smaller oil and gas companies.
Richmond Energy advises some of the largest funds and institutions investing in the sector. Keith takes a keen interest in o il
sector governance and served on the organising committee of the Good Governance of the National Petroleum Sector Project
at the think tank Chatham House.

About Richmond Energy Partners:

Richmond Energy Partners provide detailed analysis of smaller oil and gas companies up to
$12Bn market capitalisation operating principally outside North America. We commit to our
clients to always be independent, objective, and free of conflicts of interest. We believe that to
understand smaller oil and gas companies you have to get down to the rocks. We help our
clients make informed investment decisions founded on a deep understanding of the geology,
the assets and the capabilities of the oil company in question. We tailor our research to the
needs and interests of our individual clients.

www.oilcouncil.com
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Photo courtesy Cairn India


Ross Stewart Campbell (RSC) from
The Oil Council: Bill thanks for joining
us today. The OFS Portal has been
around for nine years now
championing eCommerce and its
importance in upstream oil and gas.
For those readers not familiar with
your organisation can you please quickly introduce
yourself and perhaps with this the role of eCommerce
in upstream oil and gas?
William (Bill) Le Sage from OFS
Portal: Thanks, Ross. OFS Portal
represents a group of diverse
suppliers, our Members, and has a
non-profit objective to facilitate
eCommerce in the upstream oil and
gas industry.
We encourage development and use of standard
business processes and standard electronic
transactions. OFS Portal can also provide
standardized electronic information through its own
platform. All this is in an effort to respond to Operator
needs and create faster adoption of eCommerce for
the cost savings and functional benefits offered by
electronic commerce.
To assist with standards development, we work closely
with industry volunteer experts in PIDX (Petroleum
Industry Data Exchange) – the industry standards
body. By spend, about 90% of the integrated oil
companies and over 30% of the NOCs and
independent oil companies have adopted the use of
these standards. It’s satisfying to see the benefits
accrue to these companies as they migrate from paper
to electronic commerce.
Being global in nature we are fortunate that we can
meet with trading partners all over the world to share
best practices. Our Members are the best in the
upstream space and include Baker Hughes, BJ
Services, Cameron, Halliburton, M-I Swaco,
Schlumberger Oilfield Services, Smith International,
Trican Well Services, Vetco International and
Weatherford International. Our Members use OFS
Portal to promote and implement on a consistent
basis, cost effective eCommerce for themselves and
www.oilcouncil.com
Executive Q&A
With
William (Bill) Le Sage,
CEO,
OFS Portal
Talking with
Ross Stewart Campbell, CEO, The Oil Council
Date: 8th February 2010
their customers, and membership is open to all oilfield
suppliers with activities in the upstream oil and gas
sector.
RSC: eCommerce might be for many companies a
secondary priority on their „list of things to do”. What
dangers do companies (and indeed the industry as a
whole) face if we continue to delay in implementing
eCommerce or adopting the standards?
WLS: eCommerce is usually motivated by the benefits
derived from either procurement effectiveness (doing
the right things) or transactional efficiency (streamline
the process to reduce costs). Long term, procurement
effectiveness can provide the most significant benefit
by placing more spend under active management.
With these benefits in mind Ross, the industry is
moving forward. So the dangers of missing out of the
benefits of eCommerce are very much directed at
those companies that delay implementation of
eCommerce. And as more and more companies
demand that their trading partners adopt eCommerce,
it is only a matter of time.
“If the industry is moving
towards VHS, don’t buy a
fancy Betamax player your
consultant sells you.”
Not adopting the standards is a large risk for
companies. The value of adopting “one offs” (non-
standard solution) might look good at first, but this will
ultimately have to be abandoned with great pain to
implement the standards. Globally it is very difficult to
conduct eCommerce without the adoption of the PIDX
standards. If the industry is moving towards VHS,
don’t buy a fancy Betamax player your consultant sells
you.
Part of successful standard business practices is for
each trading partner to provide the other with
reasonable data protection. This would include each
partner’s service provider. Buyers are usually
concerned with their data but often don’t realize that
the suppliers’ data and buyer’s data is comingled in
the transaction. Adequate protection of data must be
afforded the supplier and the buyer. Our experience
shows that those buyers and/or their service providers
who do not provide suppliers and their data
reasonable protection face lots of friction in
onboarding suppliers.
RSC: Standardising global business practices and
frameworks is never easy Bill. What challenges are
you and your team currently encountering and how are
you overcoming these?
WLS: Like all good things Ross there is a cost, and it
comes in the form of honest organisational self
assessment and a willingness to be flexible. It takes
coordination between procurement, operations and
finance to produce a good internal solution. The
challenges we encounter deal with the maturity of the
company’s systems but mostly the maturity of their
business processes and their willingness to change to
meet the global market.
Rarely, is there a huge technical issue, but people
often underestimate the extent to which existing
business processes are tied to existing technologies –
and how deeply the changes in processes would
extend within an organisation to match new
technology.
As the challenges are mostly organisational issues, we
typically meet with the sponsor of such an effort in the
company to share best practices. Also, we organize
meetings with other industry trading partners and our
Members to put a real world face on the issues and
less of a consultant perspective. We encourage
companies to join PIDX to share challenges and
successes.
RSC: Have the recent economic and financial crises
altered the dynamics of eCommerce in anyway, for
example, the size of the buyer/seller universe, the
volume of trading or the demands of buyers?
“Given the cost and
availability of funds,
eCommerce has moved
to the forefront for the
Chief Financial Officer
(and Finance Director).”
WLS: We have seen accelerated growth in
eCommerce as companies want quick payback from
transactional efficiency. These companies can obtain
savings through the reduction in manual handling and
approval, resulting in fewer errors which must be
resolved and greater visibility of the payment process.
The buyers in this industry who have been the main
motivators and suppliers want to be responsive to
those needs. Suppliers also benefit from faster
www.oilcouncil.com
payments and visibility in the payment processes.
Given the cost and availability of funds, eCommerce
has moved to the forefront for the Chief Financial
Officer (and Finance Director).
RSC: Every company and executive, particularly in
today‟s marketplace, likes to hear the phrases
“increased efficiency” and “cost reduction”. What real
savings can companies make by adopting these
practices?
“eCommerce within NOCs
tends to be motivated less
by transactional efficiency
but more from transparency
and procurement
effectiveness.”
WLS: There are real dollar savings. For transactional
efficiency, we hear a wide range of savings depending
on what is counted in the economics. With some
upstream services, which require engineer input for
approval, the invoice process can cost well over
$200/per invoice. In an automated process, these
costs can be significantly reduced, though not
eliminated. The cost savings can be more than two-
thirds of that cost. For simple products and services
the cost saving is not as high.
For procurement effectiveness, eCommerce can
significantly increase competiveness of the market by
putting more spend under active management. Such
activities have been reported to reduce spend
between 2% and 10%. Given today’s tight margins,
this is a compelling case.
RSC: Is there a risk that technology and eCommerce
in the oil and gas sector is might evolve faster than
standardising practices and processes?
WLS: That has already been happening. In the early
days, the technology could not match the business
processes in the upstream as most of the purchases
were non-explicit purchases (Spend Limit POs, etc.)
But now you are quite right in your concern at the
company level, in that the internal practices and
processes need to be standardized to take advantage
of the benefits of eCommerce. PIDX by and large has
been able to work as a group well ahead of the curve
to develop industry standards.
RSC: You appear to be very much ahead of the curve
for what will be an inevitable industry-wide roll-out of
eCommerce. When you do foresee such a roll-out
occurring?
WLS: The roll-out is happening now. Different
segments are moving at different speeds and at
different times. The challenge for the supplier is to
match these different expectations. Global operators
have tended to roll-out their North American and/or
European operations first. Our community is defined
as those operators who embrace the tenants of
standardized eCommerce. We have over 70 operators
who have agreed to do business in this standardized
approach and are rolling out their eCommerce
capabilities with their trading partners.
RSC: Focussing now Bill on some of your recent work
with NOCs, and in particular emerging market NOCs,
how receptive have these companies been in adopting
PIDX Industry standards and frameworks? Are all
NOCs currently in a position to adopt these
standards? If not, how far off are some companies
from developing effective eCommerce capability?
“For the small and mid-
can adopt and integrate the same practices and
frameworks as NOCs and IOCs? Is there sufficient
benefit / value in small and mid-cap companies
adopting these standards?
WLS: Absolutely. There are networks, service
providers and market places that can help. For the
small and mid-cap companies, it really is a question of
desire. There are several low cost alternatives which
provide PIDX functionality and standards which can
more than adequately serve the small to mid-cap
company needs. Some of the fastest adopters have
been the smaller and more agile operators.
RSC: Looking first at this year and then over the
course of 2011-2013, what are the next big milestones
for OFS Portal?

cap companies, it really WLS: Geographic expansion is clearly a milestone.

is a question of desire... We have had some very successful meetings in South
East Asia and want to continue our presence in the
Some of the fastest Middle East. We are very much involved in those
adopters have been activities that focus on Africa as well. Continued
evolution of business in Latin America is important to
the smaller and more the industry. All this being said, we will be keeping an
agile operators.” open dialog with the all operators as the industry and
the influential players evolve. The needs will evolve
and we want to be there for them. I believe our
WLS: There is a wide variety of motivation and success proves the non-profit thought leader model.
capabilities, but in general, certainly among the larger We have an undying desire to support the operators in
NOCs, we have seen a strong willingness to a quest for a better industry.
standardize the processes to the extent possible by
local laws. ECommerce in particular gives a level of RSC: If there is one overriding message that you
transparency unavailable historically. Thus, would like our readers to take away with them having
eCommerce within NOCs tends to be motivated less read this interview Bill what would that message be?
by transactional efficiency but more from transparency Also if our readers want to learn more about
and procurement effectiveness. eCommerce where should they turn to?

Some processes are culturally driven within NOCs and
are well entrenched, so this is going to take time which
we recognise. Many of these processes can be
accommodated within the current standards.
Therefore, most NOCs are in a position to adopt these
standards. As an example, we are working with a large
Latin American NOC and PIDX, and have
accommodated the standards to work with the tax
requirements seen in most Latin American countries.
The larger NOCs with global reach, with which we
have worked, are highly motivated and are developing
very effective eCommerce capabilities.
WLS: The benefits of eCommerce are clear. Start
now. Certainly we or others we know with experience
can help your readers in their quest to develop these
capabilities. They can get back ground information
from us (www.ofs-portal.com) or PIDX (www.pidx.org).
RSC: Thanks for your time Bill; this certainly sheds
some much needed light on an important but
underexplored topic. We wish you and the OFS team
great success in engaging with the industry and in
developing eCommerce across the sector.

RSC: Moving from NOCs to small and mid-cap

companies, is it realistic to think that these companies

About OFS Portal: OFS Portal is an organisation with a non-profit objective made up of diverse supplier members with
activities in the upstream oil and gas sector, which is committed to promoting eCommerce and reducing costs.

About William Le Sage: William Le Sage joined OFS Portal at its inception as its CEO; Bill‟s unique industry experience
includes business development and marketing roles at Gulf Oil, Occidental Petroleum and NL Baroid. He has worked with
many upstream Oil and Gas buyers and suppliers implementing their e-commerce solutions since 2001, which allows him a
unique view of the evolving upstream e-commerce landscape as well as practical lessons learned and common challenges
facing the upstream industry.

www.oilcouncil.com
STANDARD, PREMIUM OR AIM SIR?

Within the last month the London Stock Exchange has
published its market statistics for both the Full list and the
AIM market. As to be expected the statistics show very
different trends to those which we saw during the boom
years for the sector in 2006 and 2007 and during 2008 as
the market fell away.
However, the big difference between the two markets is
the average value of each further issue. On average each
of the further issues on the Full List raised £94.5m each.
Over twenty times more than that raised on the AIM
market.

However, this statistic is skewed by a number of £50

There was only new issue for both the AIM list and Full list
in the last twelve months raising £42 million and £64
million respectively. In contrast the number of further
issues on AIM in the period was a respectable 245 between
them raising a total of £1,045m. An average of £4.3m
each. By contrast on the Full list there were only twelve
further issues. As the table below shows from April
onwards the market opened its doors again and allowing
for the traditional quieter summer remained strong.
Money raised through further issues on the AIM
January to December 2009
250
200
150
£M
million plus raisings during the year on AIM. In total eight
companies raised £50million or more from further issues
on AIM raising between them in excess of £560million.
Strip these companies out of the statistics for further
issues on AIM and the average funding raised by the
remainder of the companies becomes approximately
£2million each.
Surely the question for the eight companies raising in
excess of £50m is which listing should your company be
on? On the one hand the money raised by these companies
is more in line with the average raised by companies on
the full list. But on the other hand do these companies
really need to deal with the increased regulation of the
full list when AIM seems to be working perfectly well for
them?

100
50 In the final quarter of 2009 the Financial Services
0 Authority (FSA) published amendments to the Listing Rules
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month which restructure the listing regime of the main market of
Money raised (£m) the London Stock Exchange into two segments – Premium
and Standard. Under the new regime, issuers with a
Premium Listing will be required to comply with the
‘super-equivalent’ standards while issuers with a Standard
Listing need only comply with the less onerous EU
Money raised through further issues on the Full minimum standards.
January - December 2009
500 Historically companies listed on the main market had to
400 comply with the premium standards to retain their
300
£M

listings. There was however an exception to this in respect

200
of overseas companies which had their principle listing
100
0
elsewhere. These were known as secondary listed
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec companies and needed only to comply with the less
Month stringent EU minimum standards to retain their secondary
Money raised (£m)
listing in London.
In 2005 the Exchange extended this exception to allow any
overseas company listed on the stock exchange to take
advantage of this less stringent regime. This caused two
issues;
It created uncertainty in the market as to when which set
of rules was applicable, and
It resulted in an approach which could be viewed as
prejudicial to UK companies who could not take advantage
of the less stringent EU minimum standards.
In making the changes to the listing rules the Stock
Exchange has sought to clarify its position as to which
listing standards apply to companies within each segment.
Whilst the new rules will be effective from 6 April 2010,
the current Secondary Listing (or renamed ‘Standard
Listing’) Regime will be retrospectively available for UK
companies from 6 October 2009. Companies historically
categorised as ‘Secondary Listed’ companies will now be
referred to as ‘Standard Listed’ companies under the
restructured regime.
For companies looking to IPO the new menu of
opportunities provides more choice. It is however worth
noting that while the requirements for a Standard Listing
are less onerous than those for a Premium Listing, they
will remain significantly more demanding than admission
to AIM, both in terms of the listing process and the
continuing obligations.

In summary, the principal changes to the Listing Rules are
as follows:
There will be two listing standards created - Premium
and Standard;
All Premium Listed companies (including overseas
companies) must comply with super-equivalent standards,
including a requirement to ‘comply or explain’ against the
UK’s Combined Code on Corporate Governance;
All Standard Listed companies must comply with EU
minimum listing standards including the requirement to
provide a corporate governance statement together with a
description of internal control and risk management
systems;
If AIM can recover its confidence and its position as one of
the world’s leading markets for emerging companies it
seems unlikely AIM will be threatened by a typical AIM
company looking to make the move to a Standard Listing.
What may be more likely is that if investors show
confidence in the Standard Listings, the typical Standard
Listing issuer may be one that might previously have
looked towards AIM rather than comply with the onerous
Premium List standards. Plus, of course, we may see the
likes of those companies already listed on AIM, but who
stand apart from the average entity on AIM through their
ability to complete significant fund raisings, making the
leap from AIM to the Standard list. It will be interesting to
watch what happens over the next six to twelve months.

Standard Listings will be available to UK companies and
not just to overseas companies; and
The establishment of a simplified procedure allowing
companies with an equity listing to transfer from one
segment to another without the need to cancel their
listings.
In its commentary on the changes, the FSA has stated that
the aim of this new approach is to ensure equality of
treatment between companies listed in the same segment
regardless of their country of origin or operation. The FSA
has also acknowledged that to be effective, the new
regime will need to be supported by an extensive
educational campaign, the principal purpose being to raise
awareness as to how the new structure will work.
This article was written by Scott Knight, Partner, Head of
Natural Resources at BDO LLP.
BDO’s Natural Resources team is ranked number one by
Hemscott in its quarterly rankings for auditors in the oil
and gas sector. With a dedicated team of professionals
working with clients – from those with early stage
exploration activities to those with full production
portfolios, from those who are looking to raise funds to
those already listed on the world’s major exchanges, our
team provide a wide range of services including audit and
accountancy services, corporate and personal taxation
services, corporate finance and transaction services and
forensic and advisory services.
BDO is the fifth largest accountancy network in the world
which ensures that we can provide our services to you
whenever and wherever your assets may be.

To contact Scott Knight please call +44 (0) 20 7893 3319 or

e-mail scott.knight@bdo.co.uk.

This publication has been carefully prepared, but should be seen as general guidance only. You should not act upon the information contained in this publication without obtaining
specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO accepts no responsibility for any loss incurred as a
result of acting on information in this publication.
BDO LLP operates across the UK with some 3,000 partners and staff. BDO LLP is a UK limited liability partnership and a UK Member Firm of BDO International. BDO Northern Ireland is a
separate partnership operating under a licence agreement. BDO International is a world-wide network of public accounting firms, called BDO Member Firms. Each BDO Member Firm is an
independent legal entity world-wide and no BDO Member Firm is responsible for the acts and omissions of another member. The network is coordinated by BDO Global Coordination B.V.,
incorporated in the Netherlands with its statutory seat in Eindhoven (trade register registration number 33205251) and with an office at Boulevard de la Woluwe 60, 1200 Brussels,
Belgium, where the International Executive Office is located.
BDO LLP and BDO Northern Ireland are both separately authorised and regulated by the Financial Services Authority to conduct investment business.
BDO is the brand name for the BDO International network and for each of the BDO Member Firms.
BDO LLP and BDO Northern Ireland are the Data Controllers for any personal data that they hold about you. We may disclose your information, under a confidentiality agreement, to a
Data Processor (Shamrock Marketing Ltd). To correct your personal details or if you do not wish us to provide you with information that we believe may be of interest to you, please
telephone (Great Britain - 0870 567 5678 or Belfast - 028 9043 9009).
Copyright © February 10 BDO LLP. All rights reserved.
Website: www.bdo.co.uk
BDO – NATURAL RESOURCES
BDO’s specialist Natural Resources team provide a wide range of
services to clients across the globe. Let us tell you more.
A TRULY INTERNATIONAL NETWORK
BDO is the fifth largest accountancy network in the world
with over 1,000 offices in over 100 countries world-wide
(including exclusive alliances of BDO Member Firms). We
believe passionately in our client’s businesses and the
people behind them. We therefore seek to provide a
distinctly different professional service to our clients.
OUR INTERNATIONAL OIL AND GAS TEAMS
Our international oil and gas teams are based on five
continents in Australia, Russia, Africa, the United Kingdom
and the United States. These five centres of excellence
allow us to service our international clients wherever their
operations take them. Each centre of excellence include
partner who are local experts in their jurisdictions and
provide points of reference for neighbouring countries
when working in the sector.
115
Present in over
115 countries
46,035
44,035 partners and
staff world-wide*
The BDO network is a living network and our oil and gas
team work together and meet regularly at BDO’s
international Oil and Gas conferences where there are real
relationships and real personalities – the network is not a
loose umbrella of firms where every firm is different. The
BDO network is one where the partners know each other
personally and work with each other on a regular basis to
service their client’s needs. These strong relationships
ensure the quality of our work internationally is also
consistent – you can be sure that the advice you receive
from our African team will be the same standard as that
you receive from our Australian team.
Our local oil and gas experts have the network of contacts
to provide you with the range of services you require.
Whatever service you need, wherever your oil and gas
operations are in the world they will know the person to
help you.
1,138
More than 1,000
offices
Fifth
BDO is the world’s fifth largest
accountancy network
 OUR INTERNATIONAL OIL AND GAS SERVICE
STREAMS
BDO can provide you with the wide range of services
you would expect from a major international firm
including:
• Assurance
• Taxation
• Corporate finance, and
• Forensic services.
All our services are tailored to the specific needs
and circumstances of our clients.
ASSURANCE
Our international assurance practice provides our clients
with a robust external audit reporting service which
utilises a consistent audit methodology throughout the
world. Our audit teams spend the majority of their time
working with clients in the sector therefore they
understand your business and the issues you face.
If it is more than a statutory audit you require we also
provide specialist audit services covering PSC contracts, JV
requirements or governmental fiscal regimes, on top of
International Financial Reporting Standard conversions,
technology risk reporting and internal audit services.
CORPORATE FINANCE
Our international Corporate Finance teams provide a wide
range of specialist services ranging from flotations (LSE,
TSX, NYSE, ASX, AIM), due diligence and professional
advice in relation to mergers and acquisitions. We are also
able to provide assistance to companies looking to raise
private equity finance and fund private finance initiatives.
FORENSIC SERVICES
BDO has a dedicated and highly experiences international
forensic accounting team who have the insight to help you
to solve the most challenging disputes and litigation. We
have a wealth of knowledge and technological expertise to
provide you with the right advice to meet your forensic
accounting needs.
We have a strong track record of working with clients in
the sector. Our teams forensic accounting services include
expert witness services, alternate dispute resolution,
fraud and financial crime, asset investigation and
recovery, anti-money laundering provisions, technology
forensics and valuations.
WHO TO CONTACT
If you are interested in discussing any of our services
further, require more information on BDO or you require
assistance in an overseas jurisdiction please contact:

TAXATION
Companies operating in the oil and gas sector often have
complex cross-border structures and employees who spend
long periods of time overseas. It is also becoming
increasingly important for companies to ensure they
minimise their exposure to costly tax regimes through
effective tax planning and for them to also look to
incentivise key employees in a tax efficient way.
Our tax teams provide a wide range of specialist services
covering international tax planning, compliance services
through to advising on the structure of share schemes,
remuneration and reward planning.

This publication has been carefully prepared, but should be seen as general guidance only. You should not act upon the information contained in this publication without obtaining
specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO accepts no responsibility for any loss incurred as a
result of acting on information in this publication.
BDO LLP operates across the UK with some 3,000 partners and staff. BDO LLP is a UK limited liability partnership and a UK Member Firm of BDO International. BDO Northern Ireland is a
separate partnership operating under a licence agreement. BDO International is a world-wide network of public accounting firms, called BDO Member Firms. Each BDO Member Firm is an
independent legal entity world-wide and no BDO Member Firm is responsible for the acts and omissions of another member. The network is coordinated by BDO Global Coordination B.V.,
incorporated in the Netherlands with its statutory seat in Eindhoven (trade register registration number 33205251) and with an office at Boulevard de la Woluwe 60, 1200 Brussels,
Belgium, where the International Executive Office is located.
BDO LLP and BDO Northern Ireland are both separately authorised and regulated by the Financial Services Authority to conduct investment business.
BDO is the brand name for the BDO International network and for each of the BDO Member Firms.
BDO LLP and BDO Northern Ireland are the Data Controllers for any personal data that they hold about you. We may disclose your information, under a confidentiality agreement, to a
Data Processor (Shamrock Marketing Ltd). To correct your personal details or if you do not wish us to provide you with information that we believe may be of interest to you, please
telephone (Great Britain - 0870 567 5678 or Belfast - 028 9043 9009).
Copyright © January 2010 BDO LLP. All rights reserved.
Website: www.bdo.co.uk
 Is Shale Oil Next?

Written by Elaine Reynolds, Oil Analyst, Edison Investment Research

At the World Trade Economic Forum in Davos this
January, oil executives hit the headlines when they
heralded the development of unconventional gas
plays as a ‘game changer’.
BP CEO Tony Hayward stated that the ability to
extract gas from shale rock has transformed the US
energy outlook for the next 100 years. Now the
recent technologies used to access these vast
quantities of gas are also being applied to shale oil,
and starting to create a buzz all of their own.
Not to be confused with the kerogen-rich shale oils
that require intensive processing to extract, oil-prone
shales have the ability to produce in commercial
quantities now. The predominant tight shale oil play
to date is the Bakken formation in Montana and
North Dakota in the US and Saskatchewan in
Canada.
While it has been known for many years that the
Bakken contains large quantities of oil, the
technology to extract it economically did not exist
until recently, with production rising from 14,000bopd
in the early 1990s to almost 200,000bopd in 2009.
“But interest in these
plays is no longer
This has all been made possible with the application
of horizontal drilling and multistage fracturing
technology.
Modern fraccing technology has certainly moved on
since I last worked on a frac job in The Netherlands
in the 1990s, and today it is possible to successfully
carry out multiple fraccing and diversion, with
operations that previously took up to four weeks to
complete now being carried out in a single day. And
as the technology improves and operators gain
experience, the cost of these wells is estimated to
have reduced by up to 40%.
The success in the Bakken has led to a surge in
interest in low permeability shale reservoirs, with
companies now taking another look all across the
Rockies and Great Plains.
But interest in these plays is no longer confined to
the US, with prospects now emerging in France,
Poland, Argentina and China.
For example, in 2009, the small independent E & P
company Toreador Resources Corp announced that
it was planning to utilise horizontal drilling and frac
technology on its shale oil assets in the Paris Basin
to the south and east of Paris, believing that this play
is geologically similar to the Bakken and could hold
30 billion barrels of oil in place.

confined to the US, with And now it looks as if the majors are taking notice,
prospects now emerging with Shell, BP and Statoil reportedly in initial
discussions to buy or partner with Toreador.
in France, Poland,
Argentina and China” So, as you hear all the enthusiastic comments
championing shale gas, remember that shale oil
could be next, and coming to a play near you.

About Elaine:

Elaine is an oil analyst at Edison Investment Research. Prior to joining Edison she had fourteen years
experience as a petroleum engineer with Texaco in the North Sea and Shell in Oman and The Netherlands.
Elaine works alongside Farid Abasov and Peter Dupont in covering the oil sector at Edison.

About Edison Investment Research:

Edison is Europe’s leading independent investment research company. It has won industry recognition, with awards in both the
UK and internationally. The team of more than 50 includes over 30 analysts supported by a department of supervisory analysts,
editors and assistants. Edison writes on more than 250 companies across every sector and works directly with corporates,
investment banks, brokers and fund managers. Edison’s research is read by every major institutional investor in the UK, as we ll
as by the private client broker and international investor communities. Edison was founded in 2003 and is authorised and
regulated by the Financial Services Authority. www.edisoninvestmentresearch.co.uk

www.oilcouncil.com
 ‘On the Spot’ with our Question of the Month

“How can we attract more young graduates

and talented professionals to be part of
tomorrow’s oil and gas industry?”

“Young professionals today often seek "a higher purpose" in defining their careers, and are thus
attracted more by those industries and firms demonstrating a clear commitment to corporate
social responsibility. The oil and gas industry has made progress on environmental and social
issues in recent years, and we are learning a great deal about how to work with local
communities to make sure they also benefit from our projects. If we want to continue recruiting
top talent, we have to push ourselves even further and make sure the next generation
recognizes that the oil and gas industry is not just about extracting value from the ground but
also giving value back to the community.”

...Lance Crist, Global Head, IFC Oil and Gas (Oil Council Committee Member)

“For me it was a simple decision; I wanted to travel and see the world and I was fortunate to
be in a profession and an industry that allowed me to pursue my passion and get paid for it! In
a career spanning over 40 years, I have worked and explored new oil and gas ventures
in more than 30 countries on six continents. Be a Geologist and See the World".

Abby Badwi, President & CEO, Bankers Petroleum (Oil Council Committee Member)...

“The industry has had its ups and downs and demand for geo scientists and petroleum
engineers has fluxuated with changes in the market place. The oil services industry, the real
innovators in our business, has tried (I should say rather successfully since the late 2008
downturn) to hold on to their technical staff. If the petroleum industry can be convinced to
follow this practice of holding on to their technical staff during periods of economic downturn,
young graduates may become more interested in careers in the industry. For technical people,
the most interesting phase in oil and gas development has only just started. As an industry we
must succeed in communicating this to graduate students and convince them of the
challenging careers in the petroleum sector.”

...Herman Franssen, President, International Energy Associates

“I am reminded of an initiative I found very valuable years ago. In Australia, the midstream and
downstream gas sectors annually invite around 30 rising stars under 30 years old to take part
in "Gas Speak". We were given two days of professional presentation skills training and each
had to give a presentation on the third day. These were judged by a panel of top industry
executives and we were then advised personally by each. It was an opportunity to get to know
our peers from across the country and form, sometimes, lifelong networks. We felt like we were
being recognised and encouraged. Many of us also found mentors. This concept could be
expanded to many areas of business leadership, to complement the many technical skills
courses available. It may not attract people to the industry in the first place (unless it becomes
famous and prestigious), but it does help retain them.”

Emilie Sydney-Smith, Senior Vice President, Investment Banking, Rodman & Renshaw...

“The Oil and Gas industry has, like many other industries, fallen foul of passive management
and a lack of human investment for over two decades now, compounded with the emergence
of competitive industries. A sweeping statement, maybe, maybe not.

However in order to try and create a strategy to redress what has been a continuing downward
spiral of interest in the industry and attract new talent we surely must look at lessons from our
past as part of any future strategy.

I can remember 1990 when E&P companies were conducting their graduate intake or „milk
rounds‟ as it was often referred. Majors such as Shell, BP and Exxon were competing with
each other and Schlumberger for the absolute top graduates, and they got them.

www.oilcouncil.com
Fast forward to 2005, and one of these same super majors were over the moon because they were now in the
top forty potential employers! In real terms this means that, from the modern day graduates‟ perspective, there
are thirty nine preferred employers to them. We‟re in 2010 now, and it‟s much the same.

Our industry is full of contrasts. In recent years we have seen considerable leaps in certain technologies, and
some may well rival what we see in other industries. At the other end of the scale we have what can best be
described as basic mechanical engineering in a hostile environment, either politically or geographically. How we
survived in this state for so long is entirely down to the dependency we all have for the commodities that are Oil
and Gas. When we look at other industries such as automotive, aerospace, etc, in fact any industrial
manufacturing or services business that employs fully integrated supply chain management, we are, by and
large, decades behind them in our business thinking. Yet despite this we were an industry that graduates fought
to be in. So how do we get them and other skilled people back?

As the years progressed we saw the world move forward, we

saw industries in leisure, commerce, finance and the dot-com “The responsibility for
era boom. We didn‟t move on quite so well. We also saw a
different approach to our teaching and career guidance
change, and therefore
creeping in. Basically our educated and ambitious youth now change of mindset, must
had other options. The responsibility for change, and therefore
change of mindset, must be led by our education systems first be led by our education
and foremost. If that means mass investment and education by systems first and
our great industry into universities and colleges, so be it. The
initial spark of interested students will come from seeds sown foremost.”
here.

As for other skilled personnel, it beggars belief that we are still reluctant to import from other industries. The Oil
and Gas industry has a huge variety of disciplines and sub-disciplines, yet only a tiny portion is actually
proprietary to Oil and Gas. The rest can be transferred, and transferred relatively easily. The initiative here must
surely come from the major players, whether E&P companies or large service companies. The E&P companies in
particular have the ability to train, develop and, as duty holders, can self-regulate in manner that most service
companies simply cannot.

Food for thought.”

...Brian Martin, Managing Partner, Opus Executive Partners

“The oil and gas industry is not what it used to be in terms of attractiveness, resourcefulness,
youthfulness and mobility. The industry used to attract the most revered and talented
professionals of the hydrocarbon era; the designers and builders of magnificent deep-water
drilling and production structures; the builders of mighty onshore and offshore pipelines and
facilities. Today, the industry comprises an increasingly greying and less mobile population
and the youth of today sees the industry as oily rag merchants. Meanwhile, universities
struggle to attract “the brightest and the best” away from the world of “Financial and
PowerPoint Engineering”. Therefore, the success of tomorrow‟s oil and gas industry depends
on recruiting, educating and retaining the most able, motivated and diverse young people,
today. This suggests that there is an urgent need to bring together the industry‟s most
eminent professionals from all disciplines to promote awareness and excellence in the science, black art and
practices of the oil gas industry. The industry‟s prerogative must be to enhance the world‟s oil and gas industry‟s
capabilities, to celebrate excellence and inspire the younger generation of today to follow where we have trod.

Thousands of engineers will be required to make our

“Thousands of engineers will
be required to make our
sustainable future a reality.”
sustainable future a reality. That growing demand sets
us a series of challenges – in education, recruitment
and the way we use and promote science and
engineering for our collective economic benefit. There is
a particular window of opportunity for engineering to
raise its profile.

Whilst some professionals blow their own trumpet about how wonderful they are, most engineers will take a
trumpet apart to find out how it works rather than blow it to attract attention or to celebrate the profession. The
current focus on climate change and the need to complement, upgrade or replace ageing oil and gas
infrastructure, all require the practical solutions that only the wonder of engineering can provide.

While many young people of today remain unsure of the benefits of oil and gas engineering, there have clearly
been recent positive shifts in the perception of engineering amongst the general public and amongst educational

www.oilcouncil.com
professionals. There must be a real drive towards ensuring that this increasingly positive perception and
recognition of engineering today is passed on to those who will be the oil and gas professionals of tomorrow.

In order to build upon these shifts in perception and keep the oil and gas industry at the forefront of
attractiveness, resourcefulness, youthfulness and mobility, a number of measures could be considered viz.:

 Greater involvement of parents and all educational establishments in oil and gas industry enhancement
and awareness activities;
 Creation of targeted activities and promotional materials communicating the range of benefits and
opportunities of international oil and gas industry careers in schools and universities;
 Oil and gas industry awareness and enhancement activities could be increasingly introduced in schools
and universities as an integral part of the many wider science, technology, engineering and mathematics
initiatives taking place.
 Enrichment activities could also be aimed at making the link between those elements of their studies
that young people enjoy much more explicit such as IT, design and technology and careers in oil and
gas. Oil and gas companies could be encouraged to play a significant role in this, providing site visits
and work experience opportunities in return for tax incentives and the opportunity to promote their
particular business and sector. In addition, by increasing the overall availability of such activities, it
would be likely that more young people will have had the opportunity to visit, see or hear of something
which will present the oil and gas industry in a positive light.
 Restoring Personnel Departments to deal with people‟s needs and abandoning internet based Human
Resource Systems, all in an effort to recognise young people‟s diverse needs, improve employment
terms and conditions and thus find ways to help businesses place and reward people where the
business best needs them.

Our oil and gas forefathers and heroes were very enterprising and the enterprise of the oil and gas industry will
continue to be essential to our future prosperity and sustainability. As an industry, we should always strive to help
society and youth, in particular, to develop in such a way that people can live their lives to the full, whatever their
background or identity. We are living through rapidly changing times, both economically and socially. The more
inclusive and enterprising we are, the more benefits our industry and society will reap. There is thus a clear
linkage between the human resource needs of the international oil and gas industry and the wider sustainability
objectives of our ever increasing global society at large.

We owe it to our children, to ensure that they inherit a better and more sustainable world than the world that we
were born into. There can be no more greater and powerful facilitator, than encouraging them into the great,
international oil and gas industry.”

...David Greer OBE, Chief Executive, Regal Petroleum (Oil Council Committee Member)

Partnership / Advertising Opportunities with The Oil Council

We have a range of innovative sales, marketing and business development solutions if you are interested
in partnering The Oil Council, advertising in Drillers and Dealers, and/or speaking, exhibiting and
sponsoring one of our upcoming Assemblies.

For more information please contact:

Laurent Lafont
Vice President,
Business Development,
T: +44 (0) 20 3287 3447
laurent.lafont@oilcouncil.com

Michael Knowles
Vice President,
Business Development,
T: +44 (0) 79 2516 0724
michael.knowles@oilcouncil.com

www.oilcouncil.com
 The Oil Council’s
Energy Capital Assembly – Americas
26-28 October, 2010
The Westin (Times Square), New York, USA
In October we are hosting the ‘2010 Energy Capital Assembly – Americas’. At this
important gathering 300 executives from across The Americas will discuss the
challenges and opportunities that lie ahead for oil and gas focussed CFOs, Finance
Directors, Commercial Directors, Treasurers, Bankers, Brokers, Accountants,
Economists, Venture Capitalists, Investors and Advisors.

Areas of focus include: macroeconomic environment; commodity price forecasts; transaction

trends; capital/equity/debt markets; Reserve Based Lending and Mezzanine Capital; M&A and
A&D; taxation and financial reporting; CFO leadership; project finance; small-cap financing; cost
management and capital restructuring; private equity; credit ratings and risk; asset valuations;
and new financial instruments/IT.

Confirmed speakers include:

 Matthew Simmons, Founder and Chairman, Simmons & Company (tentative)

 Ken Hersh, CEO, NGP Energy Capital Management
 Terry Newendorp, Chairman and CEO, Taylor-DeJongh
 Lance Crist, Global Head, Oil & Gas, IFC / World Bank
 Kelly Plato, Managing Director, NGP Capital Resources Company
 Brian Spector, Managing Director, Financial Products Origination, BP Americas
 Laurent Lavigne du Cadet, Deputy CEO, Taylor-DeJongh
 James "JW" Vitalone, SVP, Investment Banking, Oberon Securities
 John Graves, Founder, Graves & Co.

www.oilcouncil.com

www.oilcouncil.com
 The Oil Council’s
Independents Assembly – Americas
26-28 October, 2010
The Westin (Times Square), New York, USA

In October we are hosting the ‘2010 Independents Assembly – Americas’ where over
300 senior-level executives from across The Americas will discuss the challenges and
opportunities that lie ahead for independent oil and gas companies, their partners,
bankers, brokers, advisors, service providers and investors.

Market survival / growth, increasing shareholder value, managing market volatility,

accessing capital and investment, leveraging innovative and strategic leadership, asset
and production development, and finding new reserves remain major challenges to
independent executives, as well as their investors, financiers, partners and service
providers. Our Assembly will discuss what challenges and opportunities tomorrow’s
markets now hold for these executives, as well as highlighting those companies who
are demonstrating great business practice.

Areas of focus include: independent growth strategies; cost management; capital raising; M&A
and IPOs; organic vs. inorganic growth; corporate governance; CEO leadership; PSAs, JVs and
farm-ins; changing investment strategies; sustainable growth; creating shareholder value;
frontier exploration; oil service costs and provision; unconventional oil and natural gas; and
regional forums on Canada, Brazil, Latin America & the Gulf of Mexico.

Speaking Opportunities:

We are currently selecting our executive speaking faculty for this important meeting. If there is
interest from your company in being involved please contact ross.campbell@oilcouncil.com

www.oilcouncil.com

www.oilcouncil.com
 Diary of a
Commodity Trader
February: Energy Future –
Half-Empty, Half-Full or Just Murky?
By Kevin Kerr, President and CEO, Kerr Trading International
Some say the future for energy is bright,
others say bleak, the typical half-empty,
half-full approach. In the case of energy I
believe the water maybe a bit murkier.
Murky Outlook
The world keeps turning and the resources get used
up. It’s really quite simple, cheap easy oil is running
out. Despite that fact, the debates rage over Peak Oil,
Peak Food and peak everything else. It’s about as
sensible as rearranging deck chairs on the Titanic. So
the “experts” continue to debate whether or not
resources are running low. But the evidence is pretty
clear, at least to this trader.
In recent years, we have seen the oil and agriculture
markets explode. And this could be just the beginning
of the rally, not the end, as some would have you
believe, especially in oil. Personally, I think we are
about halfway to the new top for many commodities.
That means $200 oil (easily) and gold at $3000. The
agriculture markets have even further to go, in my
opinion. Ironically all of these commodities are tied
closely together.
Key commodities are becoming scarcer. So we can
expect to see more suffering in the poorest countries
first. The facts are fairly grim if we look at them closely.
There is going to be less of everything. Yet there will
be more people who want those things. Let’s face it –
wars have been fought over far less.
Wake Up World
In my opinion the World needs a serious wake up call,
especially the American public, which is going through
the classic stages of grief right now. Rising prices are
just a market-based signal that we are losing our
economic and resource abundance. As the American
dream fades away, it’s like a death in the family.
Right now, I think we are between the stages of denial
and anger. Ask yourself these questions (depending
on where you are in the World):
 What emotions do you think when you pull up
to the fuel pump and have to pay $4+ or more
for a gallon of regular gas, or nearly $5+ for a
gallon of diesel?
 Or how about when you go to the
supermarket and have to pay $4 for a gallon
of “store brand” milk, or the same price for a
loaf of “store brand” bread?
 Are your emotions between disbelief and
anger?
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It’s a wakeup call because I think it shocks folks who
mistakenly thought prosperity would go on forever.
What’s the old saying?
“Dinner is always fun until the waiter brings the check.
It’s easy to look rich as long as you don’t ever pay the
bills.”
No sector has recently hit Americans in the wallet
harder in the last 15 years than energy. But even with
those dramatic price increases, major changes in
energy policy are still not happening.
We have seen a very small decrease in gasoline
usage – only about 1% or so. But while some travel
may be down as costs have gone up, the numbers are
not really dramatic.
Now I am not pointing fingers. We still like to drive our
big SUVs. We still drive alone to work. Most people
rarely take public transportation (if there is any). And
we love to run our air conditioners full blast while
watching the documentaries on global warming and
dying polar bears on our 62-inch plasma TVs.
Yes, we like to grumble when we fill up those big
SUVs, mostly because it’s easier to complain than
make the tough changes that are needed. We feel
entitled to keep living as we do. Hey, after all, we’ve
earned it. Right? Rather than make difficult choices,
we are in that denial stage and buy the line from the
government and media that all is well.
The facts and the fiction often get mixed up when
discussing the issue of “Peak Everything.” Take the
surging price of crude oil. Some people (including a lot
of politicians) want to blame the traders and
speculators. Other people blame farmers and corn-
based ethanol. A lot of people blame OPEC. The list of
culprits goes on ad infinitum.
The fact remains that it’s not just one reason or
another that we are in this energy disaster; it’s actually
all of these reasons and others. It’s a culmination of
many years of poor energy policy, short-sighted
planning (if you can even call it planning) and an
overdose of arrogance that only superpowers can
have.
This time around, the demand growth isn’t limited to
the U.S. or even the Western world. There are 10
million new cars and trucks hitting the road this year in
China alone, and millions more joining traffic jams in
India and other emerging markets. OPEC is starting to
realize that because of this new demand they need us
a lot less than we need them.
Everyone in the Third World wants to live and drive
like big, fat Americans. The global recession may have
slowed them down, but both India and China, to name
two examples are still adding drivers at a furious pace.
In 2008, emerging markets combined (China, India,
Russia and their other "life in the fast lane" buddies)
passed the U.S. in oil use.
Much of the world saw its oil demand fall sharply in the
first part of 2009. But in China, oil demand bottomed
quickly and started right back up again. According to
industry analysts at Platts, China consumed 33.23
million metric tons of oil in May, up a strong 6% from
the same month in 2008.
At the same time that China is using more oil, it is
producing less. China’s own crude oil production
slipped by more than 1% in May.
Why is demand so resilient in China? Well, it heavily
subsidizes the gasoline and diesel that its citizens buy.
They are buying more all the time – Chinese car sales
are soaring. And China’s aggressive stimulus
spending is helping their economy recover quickly.
“The facts are fairly grim if
we look at them closely.
There is going to be less of
everything. Yet there will
be more people who want
those things. Let’s face it –
wars have been fought
over far less.”
In their quest for oil, the Chinese oil majors have
acquired a variety of holdings in Angola, Azerbaijan,
Canada, Chad, Indonesia, Iraq, Iran, Kazakhstan,
Myanmar (Burma), Nigeria, Peru, Russia, Singapore
(pending), Saudi Arabia, Sudan, Turkmenistan,
Uzbekistan, and Venezuela.
You know what that means – the more oil that China
uses, the less there is for us.
Peak Oil doesn't mean 'running out of oil', but rather oil
production hitting a peak. That’s because we are
rapidly running out of cheap and plentiful oil, and the
oil we have left is harder to get and therefore much
more expensive. Inexpensive oil supports our very
way of life, as we know it. But in the long run, it’s going
to get a lot more expensive – probably so expensive
that we will have to seriously change our way of live,
or have change forced on us.
All in all, it’s a recipe for much higher prices. As long
as the world’s civilization runs on oil, we’ll pay
whatever it costs. There are alternatives to oil, but they
aren’t ready yet. Oil prices went down in 2008 – great!
But when prices go lower, oil companies (a) stop their
high-cost production and (b) stop looking for more oil.
So, cheaper oil prices just lay the groundwork for the
next oil shock.
There are alternative energy sources, including
Canadian oil sands and shale natural gas. But all of
these have the same problem – none are as cheap or
easy to use as good ol’ petroleum. While we may use
different energy sources in the future, for now, we
haven’t found a good replacement. Barring a
breakthrough technology, fossil fuels will remain a
major energy source for at least the next thirty to fifty
years.

The Watchword for the Next Five Years: Volatility

To feed the thirsty tiger, China is aggressively looking
worldwide for oil. The major Chinese state oil
companies China National Petroleum Corp., the China
Petrochemical Corp. (Sinopec) and China National
Offshore Oil Corp., which itself accounts for more than
10% of China’s domestic crude oil production, are all
searching for new supplies furiously.
Crude oil and natural gas seem to have put in major
bottoms recently. But that doesn’t mean they’ll go
straight up. Indeed, we should see enough zigs and
zags to make a roller coaster ride seem tame. These
zigs and zags can be very profitable for traders,
especially traders in futures and futures options.

About Kevin Kerr:

Kevin Kerr is a TV and radio investment advisor, his unparalleled expertise in futures and commodities has made him a regular
contributor to news outlets like CNBC, CNN, FOX News, CBS Evening News, Nightly Business Report and many others.
Recently, he was even featured on Jon Stewart's The Daily Show. What's more, Kevin has traded commodities professionally
for the last 19+ years. Kevin began his career on Wall Street in 1989 acting as a currency arbitrage clerk on the former New
York Cotton Exchange and has worked on and owned seats on several of the Commodities Exchanges in N orth America. In
1993, Mr. Kerr joined Intercapital Brokers, in New York and London, trading OTC commodity swaps and options predominantly
in the energy and metals sectors.

About Kerr Trading International:

Kerr Trading International is a diversified commodities firm providing

education, trading and consulting services worldwide. In the fast paced
commodities markets it can be difficult to find someone who wants to take the
time to help you understand the potential profit opportunities as well as the
risks involved in today's markets. KTI is a full service commodity research
company and advisor that always puts its customers first. www.kerrtrade.com

www.oilcouncil.com
 The Oil Outlook
February 2010: Refining Doldrums

By Gianna Bern, President, Brookshire Advisory and Research

The close of fourth quarter 2009 earnings so aptly
illustrated the challenges associated in refining
today. Virtually every integrated oil major and
independent refiner posted losses in refining
earnings driven by lacklustre global demand for
refined products. Even as improved economic
conditions emerge, the oil industry is still reeling
from the adverse effects of global weakness in
refining.
American refiners have been hit the hardest. Asia
is the only glimmer of light in the global refining
sector where crack spreads have risen and refining
margins improved albeit modestly. The impact is
both pervasive and global.
Total, Valero, Shell, El Paso, and several other
integrated majors have all announced refinery
closures and we anticipate more to come.

Anaemic Crack Spreads and Refining Margins Inventories Above Five-year Highs

With the exception of Asia, global refined margins
and crack spreads have declined, in some cases,
more than US$2.00 to $4.00 per barrel in the past
two months. We expect both gasoline and heating
oil crack spreads to remain anaemic throughout the
remainder of 2010. The most profound weakness
appears in North American and European crack
spreads based on WTI or Brent crudes. At the
moment, Asian gasoline crack spreads are north of
US$11.00 per barrel having increased almost
US$6.00 per barrel since January driven by tighter
supplies and growing gasoline demand.
“I expect continued
closures among
independents and
integrated majors”
Refinery Closures Mount
Refinery closures are quickly becoming common
place as the industry adjusts to the new normal of
prolonged decline in distillates and gasoline
demand. While a late January northern hemisphere
cold weather spell provided a much needed boost
to heating and gasoil prices, the underlying
fundamentals remain the same in the industry.
Integrated oil majors are focusing efforts on the
more profitable exploration and production side of
the business and beginning to shed or restructure
refining assets.
I expect continued closures among independents
and integrated majors as the industry seeks to
minimize losses. Both European and North
As of February 3, 2010, U.S. crude oil inventory
levels reported by the U.S. Department of Energy
were 328.9 million barrels reflecting healthy levels
of crude stocks. Crude oil inventories have been
consistently above five-year levels and we believe
that we will continue to have an abundance of crude
supplies until sustained economy recovery takes
place. Equally concerning, is the global supply of
crude stocks among many other OECD countries.
Asian crude supplies have begun to whittle down in
recent weeks. However, certain Asian economies
such as Japan, Australia, and New Zealand
continue to exhibit the same lacklustre crude
demand as their North American and European
counterparts.
Utilization Rates Decrease
As refiners adjust to the weakness in refined
product demand, global utilization rates are
declining. Both European and U.S. refiners are
operating at levels considerably below nameplate
capacities. Last week, U.S. refining utilization rates
plummeted to 77.7% as reported by the U.S.
Department of Energy. Middle Eastern and Asian
refineries, most notably those in India, are not-so-
quietly increasing refining capacity to meet growing
domestic demand.
Throughout the remainder of 2010, we anticipate
prolonged difficulty throughout the global refining
sector. Abundant crude supplies on both sides of
the Atlantic coupled with pervasive weakness in
commercial and industrial demand for refined
products will place the refining sector under
tremendous pressure. With the exception of the
Middle East and Asia, we will continue to witness
the downsizing of the global refining industry.

About Gianna: Gianna is an investment advisor and energy analyst with over 20 years of experience in the energy sector (risk
management trading, corporate finance, credit portfolio management, and corporate banking). Gianna is frequently quoted
concerning the energy markets in Bloomberg News, Dow Jones Newswires, Reuters, and Business News Americas.

About Brookshire: Brookshire is an investment advisory firm focused on energy investment research, risk management, and
credit portfolio management with clients in Europe, Latin America & the US. www.brookshireadvisoryandresearch.com

www.oilcouncil.com
 Golden Barrels
February: Cold Wind
By Simon Hawkins, Managing Director,
Omni Investment Research

It's 4pm on Friday and I’m one of 100 or so analysts
spilling out into Moorgate from the warmth of BG
Group’s strategy presentation. The chilly Moorgate air
reminds me of the cold wind that has blown through
the sector this week: BP, Shell and BG reported
Q4/FY09 numbers and the market responded by
wiping off £10.5bn from their market value.
least Shell’s relative performance with BP last year
and the fact that the company de-risked its dividend by
announcing it with the results. But when you look what
has happened to banking shares over the last 18
months, it’s pretty impressive to be able to sustain
such losses alongside such minimal damage to its
share price.

Putting that into context, £10.5bn is equivalent to the But something bothers me. For a long time I’ve heard
combined value of over 100 smaller companies in our people say that the integrateds should be broken up
sector, everything from Sovereign Oil to Afren. I’m because they are too big. And it’s true that analyzing
sure I wasn’t the only analyst Shell is a very different game to
listening to Frank Chapman in
that room to have shivered “Could it be, after all analyzing, say, Tullow because
whatever any broker might try to
just a little when earlier this this time, that there tell you it’s impossible to do a
week we heard how risked NAV of Shell due to its
challenging the 2010 outlook could be an element of scale and complexity.
looks for BP and Shell. Dot-Com bubble sitting
What bothers me is that after
However, after 2 hours with inside the tummy of an many years of relative valuation
BG, I think some of us may be
feeling a little perkier. Not
old economy mollusc?” the integrateds could be
cruising so high that they could
because it’s Friday – though, have become detached from the
after a week like we’ve just had, that does help - but value of their parts, even having taken into account of
because a) the outlook for gas is clearly a lot rosier a “value of integration”. Could it be, after all this time,
than it looks for oil, b) BG Group’s promise to deliver that there could be an element of Dot-Com bubble
6-8% average growth each year for the next 10 years sitting inside the tummy of an old economy mollusc?
from existing assets is, well, pretty stellar and c) Frank
Chapman has an almost Steve Jobs-like passion for Now that would indeed be a cold wind.
his company, which is refreshing and maybe just a
little infectious. Let me know your views at:

The fact that Shell can lose $900 million in its refining goldenbarrels@omniir.co.uk
business in one quarter and the shares dip just 2-3%
is testament to just how stratospheric the integrateds
*** Look out for Simon’s regular column, which is
cruise at. Sure, there were some mitigating factors, not released at the middle of every month. ***

About Simon:

Simon is Managing Director of Omni Investment Research. Previously, Simon held senior
positions at UBS and Dresdner Kleinwort, having been ranked number one by Thomson
Extel for his coverage of the European Gas sector, number two in European Oils and three
in European Utilities. Prior to joining the City, Simon had eight years international
experience with the Royal Dutch Shell Group of companies, working in economics and
finance in Nigeria, The Netherlands, the Far East and the US. During his time with Shell he
was recipient of the UK's 'Young Accountant of the Year' award.

About Omni Investment Research:

With over 70% of the UK E&P sector now under coverage Omni Investment Research is
the only independent research house that focuses exclusively on the global Oil and Gas
sector, providing stock, company and asset research to investors, corporates and other
asset holders. Omni’s coverage extends from large cap stocks like Tullow Oil and Cairn
Energy to quality smaller cap juniors. Omni’s staff are oil and gas specialists, with senior
management experience at top-tier companies together with access to a large network of
technical and other professionals to support their research. Omni’s corporate research
service is tailored to guarantee the highest return on investment for clients. Omni is located
in the heart of the City, at New Broad Street House, EC2.

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 *** Current Lead Partners ***

*** Current Partners ***

*** Current Associate Partners ***

** Current Lead Media Partners ***

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 ‘Drillers and Dealers’
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