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 ‘Drillers and Dealers’
Published by:

The Oil Council

“Engaging Upstream Oil & Gas Communities World-wide”

Foreword

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Chief Executive Officer, Chief Operating Officer,
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 „Drillers and Dealers‟ – April 2010 Edition

 About The Oil Council and „Drillers and Dealers‟

o Contact Details

 Executive Q&A
o An interview with Attila Holoda, Managing Director, Eurasian E&P, MOL Plc.
Exploration and Production

 Giving Birth to Shareholder Value

o By Alistair Stobie, Chief Financial Officer, Pan-Petroleum

 Our Partners

 2010 Global Oil & Gas Survey Results

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

o “What defining qualities and characteristics do oil and gas executives (CEOs,
CFOs and COOs) need to possess to lead their company to new growth in
today's marketplace?"

 The Oil Council‟s Assemblies in New York City and London

 Crude Enterprise in Iraq

o By Elaine Reynolds, Oil Analyst, Edison Investment Research

 “Diary of a Commodity Trader” (Column) – Ahead of the Curve: Getting in

Front of the Coming Energy Crisis!
o By Kevin Kerr, President and CEO, Kerr Trading International

 “The Oil Outlook” (Column) – Crude's Irrational Exuberance

o By Gianna Bern, President, Brookshire Advisory and Research

 “Golden Barrels” (Column) – Lifestyle Companies

o By Simon Hawkins, Managing Director, Omni Investment Research

www.oilcouncil.com

Ross Stewart Campbell (RSC) from
The Oil Council: Attila thanks for
joining us. There are a number of
topics that I wanted to discuss with
you today but if I may I’d like to start
with exploration. As we move into a
world where all the ‘easy oil’ has
been found, E&P companies are facing a raft of new
challenges when looking to find and extract oil and
gas in increasingly far flung locations and complex
environments.
In your opinion what are the biggest exploration
challenges facing oil and gas companies and how
are MOL planning on overcoming these?
Attila Holoda (AH) from MOL:
Ross, the oil industry in the first
decade of the 21st century faces a
range of new challenges in the
replacement of hydrocarbon
reserves. In competing for
exploration areas, companies have
witnessed that the sizes of conventional field
discoveries tend to be smaller and smaller, while
they are forced to execute work programs and to
perform operations in harder and tougher
environments.
“For the MOL Group, our
main task in the coming
few years is to maximise
the value of our existing
upstream portfolio.”
Two good examples of this phenomenon are the
activities carried out in deep or ultra-deep off-shore
and arctic conditions. But apart from the climatic and
geographical hardships, safety risks are also now
increasingly high on the agenda to a certain degree.
Despite intense conventional and unconventional
exploratory activities these days, currently 65% of
the global crude oil production still comes from fields
www.oilcouncil.com
Executive Q&A
With Attila Holoda,
Managing Director,
Eurasian E&P, MOL Plc.
Exploration and Production
Talking with
Ross Stewart Campbell, CEO, The Oil Council
th
Date: 11 April 2010
which have a production history of more than 30
years and are now in a ‟mature age‟.
As these fields still hide significant potential reserves
that can to be produced, the industry gives plenty of
room for the implementation of new techniques and
technologies, in order to intensify the fields and to
improve the efficiency of production from them
(Brownfield developments).
MOL‟s upstream portfolio (including INA‟s US
portfolio which has been fully controlled by MOL
since mid-2009) has a solid basis for future growth,
with sizeable production in seven countries, and
further exploration potential in 15 countries. All these
operations leverage off our 70+ year-old E&P
experiences gained in the Central-European region.
As one of the largest operators in the region we have
introduced and successfully implemented a wide
range of enhanced and improved techniques for
maturing oil fields in the last 40 years.
For the MOL Group, our main task in the coming few
years is to maximise the value of our existing
upstream portfolio. Our key focuses are;
 To progress high-return, early-cash generation
development projects in CEE, Syria, Pakistan,
Kurdistan and Russia;
 To increase our production levels;
 To contribute significantly to Group-level
EBITDA; and
 All while extending MOL‟s outstanding efficiency
to our whole upstream portfolio.
To help do this we‟ll carry out extensive conventional
and unconventional exploration to further increase
our reserve base.
RSC: We’ve recently witnessed a record amount of
M&A and A&D activity in the oil and gas sector as
companies ‘fight’ to acquire new assets needed to
fulfil their growth potential.
With this activity burns the age old question of
whether companies should focus on organic or
inorganic growth to build their reserves base.
Is exploration still the ultimate key to growth, or, has
M&A overtaken it as the leading factor in building
one’s reserves?
AH: In my opinion Ross exploration provides a
hugely important organic method of value generation
for all industry players. But today‟s best and quickest
opportunities for growth may come from the M&A
marketplace.
Companies who aligned themselves to ride out the
cyclicality of the oil and gas industry are much better
positioned to significantly benefit from arising M&A
opportunities.
For those who can apply rigorous strategies in
“contango” years and preserve significant financial
resources, there are currently multiple inorganic
growth opportunities available at very attractive and
hugely discounted prices.
“...we are continuously
analyzing further
opportunities within our
other core regions to
replace reserves at an
appropriate risk level.”
If we analyze the last “oil price crisis” at the end of
the 1990‟s, a significant consolidation process took
place based on accumulated and preserved
resources, which have been mainly spent right after
the bottom of the cycle, providing significant
inorganic value generation for those who could
survive the crisis.
RSC: Looking at your global exploration strategy
Attila where geographically is MOL focusing on to
find new reserves? What particular country
(countries) do you view as most opportunistic for
future growth? And how large ‘a play’ and part of this
strategy is the Eurasia region?
AH: MOL pursues exploration opportunities in the
CEE region, in the Middle East, in Central Asia and
in the Northern and Western parts of Africa –
altogether in 15 countries.
As our domicile region, Eastern Europe, is relatively
explored compared to [e.g.] Western Africa and as
such it therefore provides little room to further
increase our reserve base.
We are continuously analyzing further opportunities
within our other core regions (e.g. Western Africa,
Middle East, and Central Asia) to replace reserves at
an appropriate risk level.
We enter certain projects on a case-by-case basis,
where we see real potential for significant value
creation, either by utilizing our knowledge gained in
www.oilcouncil.com
the past 75 years in E&P activities, or, by applying
creative financing and structuring alternatives.
Let me draw you (and your readers) a few examples
Ross on our most recent exploration activities:
1. In Hungary, we implemented a new concept in
our exploration activities in 2006, which resulted
in an above 70% exploration success ratio
[since the initiation of this concept], proving that
a mature area can also be important part of an
exploration strategy
2. In Russia we had 100% success rate in our
exploration activities in 2008, where we utilized
the experiences we gained in Hungary
3. We had one of the world‟s top 10 discoveries in
2009 (according to Wood Mackenzie) in the
Kurdistan region of Iraq, which is one of the
most promising regions for growth
RSC: What are your main exploration objectives in
the Eurasia region in the short, medium and long-
term, and what news flow should the industry look
out for later this year and moving into 2011/2012?
AH: We would like to continue our domestic
conventional exploration in our most successful
areas but we are becoming more and more focused
on several existing unconventional targets (i.e. the
Pannonian Basin).
Beside our Hungarian exploration activity we would
like to enter other Central-European areas, like the
Romanian, Polish and Croatian exploration arenas.
 In the short-term we want to use our [similar]
geographic, geological and infrastructural
experiences in Central-Europe here.
 In the medium-term we would like to strengthen
our presence in these countries by building up a
new asset portfolio.
 Considering long-term objectives we would like
to enter in to exploration of the offshore Black
Sea, either on the Romanian part, or, on other
offshore sections of the sea. We believe that
this region of Eurasia is one of the most
promising areas to discover considerable
hydrocarbon reserves.
“Forming partnerships and
strategic alliances have
had a clearly visible effect
on the performance of the
oil and gas industry.”
RSC: On a similar note what production milestones
within the region have you set yourself this year? Are
you on track to reach these milestones?
AH: This year we would like to stabilize our domestic
production (in essence stop falling production rates).
However our medium-term objective is to slightly
increase domestic production by developing current,
and near-future, discoveries and start work on some
very promising IOR/EOR projects in our more
“mature” fields.
As is widely known [and recognized] about MOL we
have a strong background in field rejuvenation
methodologies; horizontal wells, infill drilling, 3D
seismic programs, state of the art geological
modeling, methane and CO2 injection, and improved
water flooding.
Considering the region I do hope that we can reach
the pre-mentioned exploration objectives and in
addition that we can start production from each of
the new discoveries we have made. I believe that we
are on track to reach these milestones.
RSC: I’d like to ask your opinion on four key issues
that are currently influencing the mindsets of E&P
executives: (i) partnerships, (ii) costs, (iii) technology
and (iv) people.
Starting with partnerships, how is MOL positioning
itself to work with other oil and gas companies? Are
you looking to work as JV Partners with other IOCs,
NOCs and perhaps even independents? What are
the opportunities of partnering MOL on new
ventures? And are you always looking to retain
operatorship and ownership of any new venture?
“If the NOC – IOC –
Service Sector is working
well together, the case-
by-case supply-demand
gaps in oil and gas
output can be filled in.”
AH: Forming partnerships and strategic alliances
have had a clearly visible effect on the performance
of the oil and gas industry. If the NOC–IOC–Service
Sector is working well together, the case-by-case oil
and gas supply-demand output gaps can be filled in.
It is important to note that in terms of NOC–IOC
relationships and partnerships, in MOL‟s operations
a dual role can be recognized:
 On one hand, MOL is the custodian of the
Hungarian E&P sector; owning more than 50%
of acreages in Hungary, and contributing
approx. 99% of the country‟s production –
which is typical to NOCs
 On the other hand MOL is building an
international asset portfolio, has a diversified
shareholder structure, and as a listed company
www.oilcouncil.com
focuses on shareholder return – of course
typical to IOCs
We utilize this dual role in our partnerships and
alliances as well. For example as an NOC, MOL has
taken an active role to unlock the potential in
unconventional hydrocarbon resources in Hungary
with the active participation of ExxonMobil.
While as an IOC, MOL is utilizing our ability to
develop certain [technically difficult] assets in
Pakistan, where the NOC here didn‟t have the
necessary expertise to develop their assets – our
partnership provided both parties significant results.
In order to exploit the opportunities arising in the
currently challenging market environment, we have
built up several strategic alliances recently – with
OOC, INA, CEZ and other MENA partners.
RSC: What qualities do MOL look for in a potential
partner? And for those companies perhaps looking
for new industry partners, what can MOL bring to the
table that the industry should be more aware of?
AH: MOL has been creating partnerships in the past
few years along two different models.
In unconventional plays, we seek experienced and
financially robust partners, while in our conventional
plays, where exploration was extended to smaller
prospects close to known accumulations, we teamed
up with other industry players contributing a different
approach with special regional know-how.
This approach has helped us decrease industry-
specific risks in our unconventional plays. Our
exceptional success rate in the CCE region in the
past couple of years is a clear sign that this was the
right approach to take.
As a Group we have a legacy of over 70 years in oil
and gas E&P and in developing partnerships since
the end of the 1990s. Our experts have proven their
skills in many projects around the globe.
The key to their success was the combination of high
quality performance with the understanding for our
partners‟ culture and needs.
RSC: For many companies last year was about
streamlining their businesses and reducing costs
wherever possible. How can E&P companies look to
reduce their costs without losing their competitive
“...money and energy
need to be (re)invested to
renew our most important
human resources”
edge and effectiveness? Are their some examples
from within MOL you could share with us?
AH: At times of crisis major oil companies used to
regard the closure of weaker fields almost as the
only solution.
In reality, writing off and liquidating human resources
are such steps whose reinstatement costs cannot, or
can fully, be assessed accurately (fundamentally for
the time required for reinstatement).
In our endeavour not only to sustain but to develop
the machines and devices that we use, we fight
against their depreciation and their replacement
through accurately planned accounting rules,
planned refurbishment and renewal.
Likewise, money and energy need to be (re)invested
to renew our most important human resources, since
such technical and technological challenges, such as
developing and adopting EOR/IOR techniques, or,
exploring and exploiting the reserves in operation,
are impossible to resolve without them!
Technically responsible and financially accountable
managers; experts who often possess specialised
knowledge; background workers; and technicians; all
play a similarly important role in (i) the efficient
operation of technological systems and (ii) helping to
breed the talents of a new generation who
themselves bring new, fresh ideas, as well as, new
paradigms.
Together with the maintenance personnel dedicated
to the given technological area, operators have a
joint responsibility to run the process systems, the
existing technical devices, machines and equipment
at a constant optimum.
One staff member complements the other. They
must not only intend to fulfil the responsibility they
have taken, or the joint necessity they have to
operate the field, but strive to sustain [and even
develop] their personal existential status.
Personnel, unified in this sense, who breathe
together with the technological systems they run, are
profoundly knowledgeable about each element of the
process. Practice from daily operations, gaining
experiences and developing skills will allow them to
filter out the inevitably inherent but superfluous
elements in our systems, and to discover the
optimisation potentials, to the smallest details, of all
technological processes.
Thus, a manager‟s responsibility is not only to track
the realisation of a business plan – prepared with the
help of a well-established planning method called
Zero Based Budgeting (or ZBB), i.e. an operation
case-map designed to the minute detail at asset and
service level, with a constant and continuous
engineering and cost-centre control – but also to
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involve to the highest possible degree the operators‟
staff into the continuous process optimisation.
RSC: Moving the discussion onto technology Attila,
in the past few years a wave of innovative
technology has emerged that is now allowing E&P
companies to operate successfully in previously
uneconomical and/or inaccessible oil and gas plays.
How large a factor will technology be for tomorrow’s
E&P companies?
AH: Generally technology can create a massive
competitive advantage over those companies that
are behind the cutting edge of technology.
Nevertheless this competitive advantage can be
perceived from at least two perspectives.
“Competition makes it
compulsory for every
economic performer to
enhance efficiency.
Change and innovation
are essential in improving
competitiveness.”
Firstly that companies who use less sophisticated
technology in areas that are accessible to most of
their competition are in a less favourable position
than companies who can apply state of the art of
technologies.
Here the competitive advantage seems to be very
straightforward, like the Olympic motto „Citius, Altius,
Fortius‟, which in this case means that a certain
exploration project can be accomplished faster,
cheaper and more efficiently than those that are run
on has-been kind of technologies.
Secondly that companies who work in areas that are
only accessible to high-level technology.
In this case new technology is instrumental in
achieving any success. If a company does not have
such technologies their efforts will be in vain, and it
can be concluded that technology is an essential
part of the game and its lack forms a barrier to
success. Suffice to think about the success ratio of
exploration ops focusing on unconventional plays.
State of the art technologies, especially a series of
technologies logically built along the line of
information acquisition and interpretation can provide
a considerable amount of competitive advantage in Join Matt Simmons, Ken Hersh,
decision making and profit realization with
companies that are in a position to apply them. Ed Morse, Tom Petrie and John
Professionals who have the privilege to be
Schiller in NYC and join Andy
responsible for developing or implementing state of Bartlett, Francisco Blanch and
the art technologies also bear the responsibility for
making their company‟s decision makers aware of Jeffrey Currie in London. Book
the advantages and the risks of the technology.
now at www.oilcouncil.com
This includes the risks that might come from the
inappropriate application of the technology and
losing control over its budget. Well-trained experts All companies should be aware at all times of the
and state of the art technology go hand in hand. If corporate capabilities and expert skills they need to
any of these two prerequisites for success are meet their own strategic goals.
missing then failure becomes inherent in the system.
For this aim we worked out and implemented a
Competition makes it compulsory for every economic transparent and controllable performance evaluation
performer to enhance efficiency. Change and system based around a continuous capability matrix
innovation are essential in improving which incorporated a career management system for
competitiveness. each member of our staff.

It is highly important to harmonize the personal

“Nowadays the war for futures of your staff (including benefits, packages,
talent has become trainings, professionals or managerial careers) with
your company‟s own fortune making them aligned to
really very aggressive.” common success as much as possible.

RSC: If I may Attila I’ll wrap up by asking your one-

RSC: Moving finally onto people – many large oil word opinion (bullish, bearish or uncertain) on the
and gas companies are struggling to secure skilled future of the following. Bullish, Bearish or Uncertain?
talent and we’re already seeing a [growing] shortfall
of skilled personal within the industry (particularly RSC: China?
engineers and geologists).
AH: Bullish
Are we, as an industry, heading towards a
‘skills/talent crunch’? How is MOL looking to capture RSC: Russia?
and retain skilled E&P staff (both in management
and in operations)? AH: Uncertain
AH: As I touched on earlier trained managers, skilled RSC: Oil at $100 before the end of 2010?
experts and technicians all play an important role in
the efficient operation of technological systems and AH: Bearish
continuous improvement. To retain them is crucial
and a critical factor of the future success of any E&P RSC: Attila, thank you very much for your time and
company. your thoughts. We wish you and the team all the
very best in reaching your goals.
Nowadays the war for talent has become really very
aggressive. In this situation our managerial
responsibility is to offer our staff a long-term
professional career opportunity with personal and
professional development.

About Attila Holoda: Attila graduated (M.Sc.) from Gubkin University of Moscow, Russia in petroleum engineering in 1989. He
has MBA (finance) graduation from Budapest University of Economic Sciences as well. He joined MOL as a production
engineer in 1989. He worked in different leading positions in production, operational maintenance and investment until 1999.
He headed a Hungarian-Kazakh joint venture, and represented at the same time MOL in Atyrau, Kazakhstan between 1994
and 1995. Since 1999 he held different mid and top level managerial positions in the domestic production and exploration. He is
responsible for Hungarian and Russian E&P activities of MOL, as managing director of Eurasian E&P.

About MOL: MOL Group is an integrated oil and gas group in Hungary. In addition to Hungary, the company is present in the
Europe, the Middle East and Africa region, as also in the CIS countries, with interests in exploration, production, refining,
marketing and petrochemicals. MOL Group’s upstream operations expands in Central Europe, the CIS countries, Middle East
and North Africa. www.molgroup.hu

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 Giving Birth to Shareholder Value
Written by Alistair Stobie, Chief Financial Officer, Pan-Petroleum
As I subjected my wife to the
vicissitudes of the latest transaction in
the Stobie household she remarked
that transactions seem not entirely
dissimilar to the latter stages of
pregnancy; you feel bloated,
immobile, exhausted and can’t wait for the whole
thing to be over. Which is exactly the point at which
the problems really start. I wasn’t quite sure though
how ice cream fitted into the analogy.
Pan-Petroleum’s recent announced merger with the
Brazilian arm of Norse Energy Corp and subsequent
listing to create a cross-Atlantic independent with
assets in Brazil, Nigeria, Gabon and the Republic of
Congo will, if I may continue to borrow from the
analogy above, mark the end of the pains of
childbirth and the beginning of a new corporate life.
Whilst some would suggest that the time to think
about how others created value was perhaps prior to
the transaction, it is of course the nature of life that
the process has caused a rethink on what made
others successful in the past. And success in this
case is breaking out of the crowded small-cap space
into the headier realms of the mid-cap space.
In search of the minnow’s nirvana, shareholder
returns (read personal enrichment), the small and
mid-cap E&P sector is somewhat wedded to deals;
farm-in’s, farm-out’s, farm-down’s, portfolio
rationalisation, the desire for scale and above all the
need for capital to feed the exploration and
development beast.
Deals in this case would seem to be a proxy for
value creation. And yet if you were to read the
management bios of a random selection of AIM-
listed companies it wouldn’t be entirely clear where
the art of creating shareholder returns was learnt.
Whilst, subsurface skill (and luck) and execution
excellence inevitably play a substantial role, there is
a theme that runs through successful companies that
would suggest that these are necessary but not
sufficient conditions.
Nor are they a great place to understand the investor
mind-set, or put another way, the mind-set that
www.oilcouncil.com
provides the capital that allows the wells to be drilled
and the fields developed.
The ex-private equity man inside me thinks that a
lifetime of investment banking is hardly ideal either.
And this is long before we get into the discussion of
who has the right to apply the portfolio approach to
managing risk; the investor or the oil and gas
company.
“I can think of a number
of companies who have
fed frequently at the
capital trough before
creating much by the way
of shareholder value.”
Access to capital, at more or less the right price
which is also aligned in its timing and expectations,
is the lifeblood of our sector. It was fashionable for a
brief moment in the dark days of early 2009 to talk
about the length of the funding runway. The shorter
the runway, the higher the cost of capital.
Those companies able to source capital relatively
easily, and it’s never easy, are able to focus on
adding value, growing their portfolio and taking out
their less successful brethren. Those who struggle
are reduced to farming down earlier than they would
like in order to keep going.
I can think of a number of companies who have fed
frequently at the capital trough before creating much
by the way of shareholder value. And I am not sure
that is a criticism.
A day or so of mine was recently spent trying to
merge decision making processes across two
companies. Sitting on the table was a weighty capital
values tome from an estimable multi-billion market-
cap independent with an enviable record of
executing complex North Sea developments on time
and on budget.
There was a lot of very good material on what has to
be included in the decision gates and how to ensure
that you are on track between them, but very little on
how to apply risk to the value and whether, as a
small company, the returns would still
commensurate with our own cost of capital.
But does it really matter? My personal list of small
companies that became bigger, and in some case
really quite big, over the past few years include
Burren Energy, Tullow, Addax and Imperial Energy.
I’ve selected these naturally through past personal
involvement or because they operate in geographies
in which I am interested. You will note there are no
North Sea, Asia, or North America focussed
companies – I’m sure plenty of wealth has been
created in these places; I just haven’t followed it.
“Strangely, these
companies also share
one other common
strand – their CEO did
not come from a big
oil background”
be than G&A, which keeps the institutional
shareholder-base happy, even when other
events are following a more normal oil and gas
emerging market path.
 There is no correlation between their success
and value created through exploration, with one
notable and honourable exception
 Similarly there is little evidence of a combined
focus on low-cost operations – probably
because growth was deemed to be more
important than counting the pennies.
One common strand was having a core shareholder
base who believed in the vision management was
promoting. It maybe a little farfetched to refer to
them as an ‘investor fan base’, but given the hurdles
that can impede progress in our sector having a core
group of shareholders who continue to believe in the
big picture is as important, if not more so than
technical skill.
The investor base won’t stick around if faced with too
many disappointments and it’s clear that they
became fans because targets were set and met.

I don’t have personal knowledge of all these
companies; one I do and two others I have followed
directly or indirectly quite closely. Those I am most
familiar with shared a common theme of being
process light, and rapid executive-decision heavy.
These qualities maybe necessary for success but
definitely not sufficient. There are plenty of small
E&P companies which also had rapid executive-
decision making as a key quality, which are no
longer with us or reside in AIM’s living dead
category.
I have tried to identify a common theme between
companies that have either broken out into the sunlit
uplands of the FTSE250, or been acquired by a
NOC or IOC.
Beyond that each of these companies is relatively
easy to understand. There was a relative geographic
focus – extreme in Imperial’s case – and an ability to
control one’s own destiny [that is, if you believe that
you can control your destiny in Nigeria and Russia].
Value could be easily identified in relatively few
assets and a story could be easily constructed which
spoke to value catalysts.
Cause and effect; but were they rewarded by the
market for geographic and asset focus, or, was their
geographic and asset focus the key to their wealth
creation? Strangely, these companies also share
one other common strand – their CEO did not come
from a big oil background and serendipity has
worked in their favour.

 There is some, but imperfect, correlation Written by Alistair Stobie,

between sufficient early production to fund more Chief Financial Officer, Pan-Petroleum

About Alistair Stobie: Alistair is the EVP, New Ventures and Commercial-designate at the merged Pan-Petroleum - Norse do
Brasil company and is CFO at Pan-Petroleum. Prior to Pan-Petroleum Alistair was CFO at Volga Gas, an AIM listed oil and gas
producer with assets in the European part of Russia. At Volga Gas, Alistair was responsible for all aspects of the company’ IPO
which raised $135 million in April 2007. Before Volga he worked for Baring Vostok Capital Partners, the manager of the First
NIS Regional Fund, a leading FSU-focused private equity firm. Whilst at Baring Vostok, he was responsible for the fund’s
investment in Burren Energy and represented the fund on the board of directors from 1994 – 1998. After Baring Vostok, Alistair
worked for Urals Trading and a Burren Energy subsidiary establishing new business ventures in Russia.

Contributing an Article
Oil Council Partners have first option on writing articles and papers for inclusion in ‘Drillers and Dealers’. We do
welcome other recognised executives, organisations and companies to contribute articles on topical oil and gas
matters. Articles must be content-led rather than sales-led. If you would like to contribute an article for a future
edition of ‘Drillers and Dealers’ please express your interest by contacting either:

Ross Stewart Campbell, CEO, ross.campbell@oilcouncil.com, or Iain Pitt, COO, iain.pitt@oilcouncil.com

www.oilcouncil.com
*** Oil Council Partners ***
 2010 Global Oil & Gas Survey Results
1. What type of company/organisation do you represent?

Independent Oil & Gas Company

Oil & Gas Consultancy
Financial Service Provider (Bank/Advisor/Stockbroker/Investment Dealer)
Major Oil & Gas Company
Investor (SWF/Institutional/Asset Management/Private Equity/HNWI)
Law/Accountancy Firm
Oil &/or Gas Service Company
National Oil & Gas Company
Equipment or Technology Provider
Government Official / Regulator
Other
Insurance Broker or Risk Management Firm

80
2. Are you bullish, bearish or uncertain, about the future of:

70
80

70
60
60
50 Bullish
50
Bearish
40
40 Uncertain

30
30
20

10
20
0 10
Iraq as a major international oil province
National Oil & Gas Companies

Major Oil & Gas Companies

US Natural Gas Markets

Mid-cap Oil & Gas Companies

Small-cap Oil & Gas Companies

Oil & Gas Service Companies

Banks

The US Dollar

Oil Sands

60 35

50 30

25
40
20
30
15
20
10
10 5
www.oilcouncil.com info@oilcouncil.com Oil Council
0 0
 20
10
3. What do you expect to see happen to the oil and gas markets in 2010?

60 35

50 30

25
40
20
30
15
20
10
10 5

0 0
A slow, steady and
continued recovery

Increased volatility
and uncertainty

A progressive
weakening/
deterioration

Other

4. Which of the following holds the greatest investment potential in 2010?

35 60

30 50
25
40
20
30
15
20
10

5 10

0 0
Major (blue-chip) Oil &
Gas Companies

Mid-cap Oil & Gas

Companies

Small-cap Oil & Gas

Companies

Oil & Gas Service

Companies

www.oilcouncil.com info@oilcouncil.com Oil Council

5. Are we likely to see another oil price spike in 2010?

60

50

40

30

20

10

Yes No Uncertain

6. What in your opinion will be the peak oil price in 2010?

$80
$95
$110
$125
$140+

7. What in your opinion will be the average oil price in 2010?

<$50
$50-60
$60-70
$70-80
$80-90
$90+

www.oilcouncil.com info@oilcouncil.com Oil Council

8. What are the three biggest challenges facing oil and gas companies in 2010?

Access to capital and finance for new investment

Access to new reserves
Manpower crunch / lack of leadership and talent

9. Which of the following will be most important in determining the success of an oil and gas company in
2010?

Exploration / drill-bit success

Strong cash flow and access to capital / investment
Acquisition of new reserves
A strong leadership / management team
Industry partnerships with governments, advisors and other
partners
Investor relations and corporate communications
Capital and cost management
Asset quality and increasing the efficiency and development of
existing producing assets

10. Who will be most influential in determining the landscape of the oil and gas industry in 2010?

Governments and Regulators

Investors 0 5 10 15 20 25
Traders and Speculators

Banks and Financiers

Major Oil & Gas Companies

National Oil & Gas Companies

China

The USA

The Middle East

OPEC

0 5 10 15 20 25 30

www.oilcouncil.com info@oilcouncil.com Oil Council

 11. Which geographic region now offers the best exploration opportunities to oil and gas companies?

West Africa
East Africa
North Africa and the Middle East
North America
Central and South America
Russia and the CIS
Southern Asia
South-eastern Asia
The North Sea and Norwegian Continental Shelf
Other (please specify)

12. In comparison to 2009 will the industry in 2010 see more, less, or the same volume, of:
0
80
70
60
More
50
Less
40 The same

30
20
10
0
IPOs

Secondary capital raisings

De-listings

Asset-level M&A/A&D deals

Corporate-level M&A/A&D deals

Insolvencies

Redundancies

World-class exploration successes

Oil price volatility

Share price volatility

www.oilcouncil.com info@oilcouncil.com Oil Council

 13. Are banks providing enough capital to ensure the continued recovery of the oil and gas industry?

80
70
60 Yes
50 Yes but more is needed as are better terms and conditions
No
40
30
20
10
0

14. What source of capital / finance will be most utilised in 2010 by oil & gas companies?

Equity Capital Markets

50
Debt Markets

Mezzanine Finance 0 5 10
40 15 20 2
M&A / A&D deals 30

Private Equity 20

IPOs 10

JVs, Farm-ins, Concessions. PSAs 0

Large Strategic Investors

Other

0 5 10 15 20 25 30 35

15. Value for money in service provision? Are current service costs:

50

40

30

20

10

0
Significantly
over-priced

Correct
Slightly
overpriced

for today’s
marketplace

Slightly
underpriced

Significantly
underpriced

10 15 20 25 30 35

www.oilcouncil.com info@oilcouncil.com Oil Council

 ‘On the Spot’ with our Question of the Month

““What defining qualities and characteristics do

oil and gas executives (CEOs, CFOs and COOs)
need to possess to lead their company to new
growth in today's marketplace?”

“The defining characteristic for leaders in the energy business to have is the ability to
manage effectively amidst heightened uncertainty. Simply put, there is a greater list of
unknowns than ever before, so leaders must be those who are able to be decisive and
provide organisational direction when not all the answers are readily apparent.”

... Ken Hersh, CEO, NGP Energy Capital Management and Managing Partner,
Natural Gas Partners (Oil Council Committee Member)

“The single most essential quality and characteristic is really mindset based and not
complicated at all. The CEO that possesses, or acquires, the unwavering mindset to
continuously and exclusively focus on establishing a sustainable competitive advantage in
every action or initiative, no matter how large or how small, will unquestionably achieve
performance superiority. Such a composite, sustainable competitive advantage will
produce superior financial results as a natural by-product.”

... Franz Ehrhardt, CEO and Principle Consultant, CASCA Consulting LLC
(Oil Council Committee Member)

“In the oil and gas world „what‟ questions normally require an „it depends‟ answer. In the
posed question the phrase „new growth‟ may need to be defined and then any likely
answer will tend to „it depends‟! It may depend on the stage of the company (explorer,
pre-production, producer, domestic, international, multi-location, etc), or on the size of the
company (market capitalisation, number of employees, balance sheet, etc). However in
very broad terms oil and gas executives need to have vim, vigour, dash and
determination. It also helps to sport a Stetson, bootlace tie and cowboy boots!”

... Jonathan Morley-Kirk, Director, Petrokamchatka

“Senior management at all oil and gas companies in today's environment needs to be both
innovative and flexible in order to steer their organisations toward successful growth,
whether it be organic or through strategic asset or corporate acquisition. The true test today
for the CEO of a junior or independent E&P company, particularly one with a portfolio in
need of geographic diversification, will be in his ability to convince the Board to maintain a
nimble attitude towards capital allocation in order to position the company to take advantage
of the increasingly active marketplace for assets in certain "hot" areas like the US shale
plays, West Africa and several spots in Southeast Asia (Vietnam and Indonesia in
particular). If that CEO can approach asset acquisition and/or partnership decisions
efficiently and marshal the cash and managerial resources to execute and integrate, the
current environment is ripe for deals which could provide for solid growth, enhanced
corporate visibility and risk diversification – all potentially very good for the shareholders.”

... Ian Fay, Founding Partner, Odin Advisors (Oil Council Partner)

www.oilcouncil.com
 “Growth is many faceted, from reserves growth, to production in BOE/day growth, to prime license acreage held,
to profitability, or more accurately, lowering finding and development costs / bbl produced. Our perspective is
identified by the following points below, all of which can be attributed back to the adoption of sound principles of
eCommerce:

 A CFO needs to have the vision to recognise the latent and un-tapped value in his supply chain, not
(just) through driving down vendor costs using his Procurement department as a battering ram, but
understanding his supply chain‟s pain points, collaborating with them to ease the pain (if not remove it
entirely), and liberate value, which just like cream, will rise to the top when encouraged.

 A CEO needs to recognise one of their roles is being the ultimate long-term executive sponsor of driving
business process efficiency into their organisation. Challenging the way business is done today, not just
electrifying paper business processes, but looking to streamline efficiencies through their supply chain,
and even enforcing change management, against the natural human resistance.

 All three, the CEO, COO and CFO have a responsibility for shareholder value
growth. To do this they need to be able to demonstrate a very high level of
transparency in all aspects of the organisation‟s business. This would start
perhaps with full SOX compliance, and extend to contract compliance,
tendering processes, and the accounting for all cash flow out of the company
being simple and clearly identifiable. Having as high a proportion of the
business run as eCommerce facilitates this significantly.”

... William Le Sage, CEO, OFS Portal, LLC (Oil Council Partner)

"In a timeless way, today's successful oil and gas executives will either posses those
characteristics attributed to a Renaissance person, or, have built a team that
accomplishes this by sufficiently complimenting one another. They need to be diplomats
by nature, whilst being highly calculating, with the ability to intimately integrate their skills
by communicating effectively. They need to be both individually and collectively capable in
a multidisciplinary sense, thereby bringing together specific industry expertise and
experience, technical and otherwise, as well as, a thorough understanding of the financial
and commodities markets – past, present and projected."

... Chris Valenti, Energy Investment Banker, Starlight Investments, LLC (Oil Council Member)

“Integrity, drive and effective motivational skills are common among top executives, regardless of sector.
Leading oil and gas executives, however, are characterized by additional qualities and skills:

 Vision – to articulate (and stick to) clear strategies

 Boldness – to identify and seize opportunities as yet unexploited by others, but tempered by…
 Risk awareness – to take calculated risks, and know when to walk away from a deal
 Network – to bring together the right team of experts, financers and advisers both inside and outside
the company
 Experience – the most successful executives have been in the industry for a long
time, and understand the business from the ground up (in fact, from the sub-
surface up)
 Socio-political awareness – local, regional and global political, environmental
and security issues impact oil and gas companies to a far greater degree than
many other sectors. Understanding the wider context in which E&P companies
operate can mean the difference between success and failure.”

... Afonso Reis e Sousa, Director, Taylor-DeJongh (Oil Council Partner)

“Courage and honesty. With the exception of downstream sales, the oil and gas industry produces commodity
products – oil and gas. The principal area of differentiation lies in a company‟s reputation for responsible
excellence with resource holders. Yet it is often hard to see this differentiation in practice, and the industry as a

www.oilcouncil.com
whole has at best a tarnished reputation. If a „customer‟ is someone who allows you to make a profit, then, by
definition, a „customer‟ is anyone who has the ability to stop you making a profit. I would argue that having the
courage to truly engage with these „customers‟ is essential to earn and maintain the license-to-operate. To do so
requires honesty, the willingness to listen and, once promises are made, the relentless drive to always live up to
those promises. Amongst the myriad of challenges senior executives face, this is one that leverages the most
skills – and experience has shown that earning the trust of the public at large is not through
technical or commercial „logic‟, but by recognising that people form views based on
emotions. If oil and gas executives are unable to engage constructively in this way, and
ensure that all employees live up to promised actions and values, reputation can be
destroyed overnight, severely compromising one‟s licence-to-operate. The only source of
true future value is sustainable profits – sustainable companies are therefore sustainable
businesses.”

... Lew Watts, Chairman, Regester Larkin North America (Oil Council Partner)

“The defining qualities and characteristics that we look for and that we think executives
need to posses starts with their ability to recruit and lead their team, potential joint venture
partners and the service companies that will be a part of any project‟s success. An
executive with that level of leadership and people skills stacks the odds in their favour.
This needs to be followed up with self-discipline and attention to detail to mitigate risk; like
pursuing low-cost production options and following through on accountability systems they
set up for the teams they work with.

The greatest results are delivered by an executive with a relentless tenacity to reach a well
defined destination [that they themselves have chosen] and who has the friendly people
skills that cause others to want to do business with them.”

... Jess Larsen, President and Senior Managing Director, Katana Oil & Gas Fund (Oil Council Partner)

“So you want to start up an oil and gas company? Did you get your team altogether? Did you get a list of
everything you needed? Great! Did you remember the soapbox, the slide ruler and the steak sandwich?

Running a junior oil and gas company in today's marketplace is no different than it has been in the past. Yes the
regulations have been increased, yes the costs are higher, and yes the basins are harder to find but one thing
remains...it's about effectively working with different kinds of people towards a common goal.

The three best tools an executive team can use for managing people in an oil and gas company are (i) the
soapbox, (ii) the slide ruler and (iii) the steak sandwich.

i. A soapbox is required to raise oneself up to make an impromptu speech. Every company needs an
executive that has the passion to tell the corporate story to investors, analysts, board members, and
staff. The vision of success is orated at every opportunity keeping corporate objectives in the forefront at
all times.

ii. A slide ruler is required to ensure that the facts are correct. This executive has a passion for the
empirical facts and calculations. They are an irreplaceable addition to the finance department, the
technical team and the board of directors. They keep the dreams in check with reality.

iii. A steak sandwich is a Friday lunch tradition in the oil patch. It‟s about actively listening to, and
observing, those you are with and those in the room around you. This executive is the one that is asked
the hard questions first and is first approached with the new ideas to bring up at management meetings.

The interesting thing about these three items is that they cannot be placed specifically into
the CEO, CFO or COO roles. The qualities that each item brings to the effective leadership
of an oil and gas company has been indispensible for growth in the past and remains so in
the future.

So my questions are, which one are you and what is your team missing?”

... Chris McLean, President, Stonechair Capital Corp. (Oil Council Member)

www.oilcouncil.com
“Leadership roles in oil and gas companies need multi-dimensional skills and experiences. Oil and gas is a long-
term business. To ensure enduring success, leaders must develop longer term strategic perspectives, which will
assist the organisation to navigate during short-term cyclical swings, typical of the industry. More importantly,
leaders must have the ability to execute and deliver the strategy in an increasingly complex global business.

Given that growth will come from emerging economies like China, India and Africa, leaders must have multi-
cultural insights and global work experiences in these geographies – to build organisations aligned to local
priorities while maximising shareholder/local government value. Given also the concentration of resources within
national companies – who increasingly demand more “value” for their resources and have to serve domestic
development agendas – leaders must also have the strategic priority to be aligned with host nations and NOCs.

The majority of oil and gas businesses are developed in joint ventures and partnerships. Local partners often
assist in developing the business on the ground. Leaders must have the experience and ability to forge win-win
partnerships with unity of vision and mutually beneficial objectives, and have the diplomatic expertise to manage
any conflicts and differences. Leaders should also be able to strongly articulate and implement standards of
corporate governance, ethical values, business principles and HSE without compromise.

Leaders must develop local talent to fill senior positions (rather than expatriates) and to also ensure appropriate
social responsibility/community development efforts, which are often crucial for projects round the world. Leaders
must lead their organisations to “globalise with localisation”, i.e., ensure multi-prong sharing of ideas, best
practices and benchmarking. Emerging technologies will hold the key for many of today‟s strategic issues facing
the industry, including climate and environmental impact. Leaders must lead their organisations to leverage on
these developments and carry out business with minimum damage to environment.

Other key areas of expertise required to be successful include: (i) commercial and market access (ii) robust
project investment decisions based on sound judgement, economics, screening, risk management and financing,
and (iii) execution capabilities, whether in-house or outsourced.”

... Soumo Bose, Former CEO, Gasol

“As someone who raises capital for oil and gas management teams from private equity funds, my views mirror
those of private equity. The track record of the management team is paramount to private equity investment
decisions. Past achievements such as sizable discoveries, raising production and reducing costs are valued.
Management teams that have previously built and sold companies for high ROIs and IRRs are also prized, as are
ones that have demonstrated capital allocation acumen, making good choices where [and where not] to deploy
similar scales of capital as they will steward in the new company.

Management teams that have worked for many years together are preferable in order to avoid personality
conflicts and allow them to really hit the ground running together. Equally, they should be highly experienced in
the region or play type to avoid nasty surprises. A North Sea team now deciding to focus of shale does not fly,
and vice versa. Management teams that have invested 30-50 % of their liquid net worth in the company are also
more likely to attract private equity, as their interests are aligned with the funds when their financial futures are
dependent on the success of the company. Equally, managers of successful private equity backed companies
stand to build considerable personal wealth.

Drive, vision and passion for building their company is vital, along with intelligence, expertise and interpersonal
abilities. After the trials of the last couple of years, funds are definitely also looking for teams that will be
adaptable and responsive, but also steady hands and pleasant to work with to overcome challenges together.”

... Emilie Sydney-Smith, Partner, MZ Finance

“For publicly listed companies (any exchange), I would venture that an ability to communicate the company's
message to the investor base is critical for the executive members. In addition, for all companies (public and
private) two key attributes are: (i) a the ability to attract and motivate the right talent (very critical in today's oil and
gas world), and (ii) negotiation skills (be it with host governments or partners on concessions).”

... Rafi Khouri, Oil & Gas Equity Analyst, Raymond James

“I would add that an ability to adapt to change is vital. The oil and gas industry is sometimes criticised as
traditional and unbending, and not open to using new methods of communication, in particular Web 2.0. In times
of economic constraint it is a willingness to be open to new ideas that may give a competitive edge.”

... Tracey Dancy, Marketing Executive, RPS Energy

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 Oil & Gas Company
Executives, register now

Oil Council
online for only $1000

ENERGY CAPITAL ASSEMBLY AMERICAS

Matthew Simmons Ken Hersh Tom Petrie

Founder and Chairman, Simmons Founder and CEO, NGP Energy Vice Chairman,
& Company International Capital Management Bank of America – Merrill Lynch

Attendee registration information: Laurent Lafont laurent.lafont@oilcouncil.com +44 (0) 20 3287 3447
For sponsorship or exhibition information: Ross Campbell ross.campbell@oilcouncil.com +44 (0) 20 8673 3327
For media information: Iain Pitt iain.pitt@oilcouncil.com +27 (0) 71 858 1025

26 – 28 October 2010
New York, USA
Oil & Gas Company
Executives, register now
online for only £995

Oil Council WORLD ENERGY CAPITAL ASSEMBLY

Jonathan Waghorn Jeffrey Currie Pierre Sigonney

Portfolio Manager and Sector Global Head, Commodities Chief Economist, Total
Specialist (Energy), Investec Asset Research, Goldman Sachs
Management

Attendee registration information: Laurent Lafont laurent.lafont@oilcouncil.com +44 (0) 20 3287 3447
For sponsorship or exhibition information: Ross Campbell ross.campbell@oilcouncil.com +44 (0) 20 8673 3327
For media information: Iain Pitt iain.pitt@oilcouncil.com +27 (0) 71 858 1025

23 – 25 November 2010
London, UK
 Crude Enterprise in Iraq

Written by Elaine Reynolds, Oil Analyst, Edison Investment Research

With the Iraqi elections of March 7th now over, oil
companies will be watching the outcome with
interest and hoping for a government that can
provide stability and continuity. Since the secular
party of Ayad Allawi has won by a margin of just two
seats over incumbent Prime Minister Nuri al Maliki, it
seems likely that months of post-results wrangling lie
ahead in order to achieve a new coalition.
“... as Donald Rumsfeld
would say, is the
„known unknown‟ for
the oil companies.”
The effects of war and sanctions will quite probably
have also taken their toll on the oil and gas
reservoirs themselves. Years of Soviet-style
engineering and poor reservoir management will
have resulted in damaged reservoirs and
permanently lowered recovery factors. Hardware can
be replaced, damaged reservoirs cannot.
This, as Donald Rumsfeld would say, is the ‘known
unknown’ for the oil companies.
Meanwhile, Mr Sharistani wants OPEC to accept 12
million bbl/day as Iraq’s quota, arguing that his
nation’s need for reconstruction, and loss of income
over years of sanctions should be taken into account
when determining quotas.

If accepted, this rate would seriously challenge

For the oil companies, this will be just one more
Saudi Arabia’s long-held position as swing producer
issue to live within the world of oil and gas in Iraq.
and force other OPEC members to cut back
The lack of a national oil law to guarantee that
production or face lower oil prices. However, OPEC
contracts will be met by future governments is of
Secretary General Abdalla El-Badri has suggested
major concern, as are doubts regarding the ability to
4-5 million bbl/day as a more meaningful quota.
work in the semi-autonomous region of Kurdistan.
Expect trouble at future OPEC meetings.
In addition, Iraq’s tough oil minister, Hussein al-
But it’s Iraq’s old rival Iran that seems to be most put
Sharistani, has driven a hard bargain with the oil
out by this potential shifting of power in the Middle
companies, insisting that they can take no more than
East. How else to explain the brief incursion of
$2/bbl.
Iranian troops into Iraq last December to occupy the
These brutal terms will ensure thin profit margins, al-Fakkah oil field?
playing well with Iraqis who are touchy about giving
away their oil wealth to foreign companies. Iran relies on high oil prices to prop up support at
home, but has also historically received backing from
China in the UN to avoid sanctions over its nuclear
But he has also set an ambitious production target of
programme. China’s motivation has been to secure
12 million bbl/day by 2015, up from current
much-needed energy supplies from Iran, but with
production rates of around 2.4 million bbl/day. It will
new supplies becoming available from Iraq, this may
be a huge task to upgrade and replace Iraq’s
decrepit and decaying infrastructure, not to mention no longer seem so critical. And so, given the variety
of issues at play here, it looks like interesting times
resource the manpower required for such a job.
ahead for the industry in Iraq.

About Elaine Reynolds:

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.

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 well as by the pr ivate 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
 Diary of a
Commodity Trader (April)
Ahead of the Curve: Getting in
Front of the Coming Energy Crisis!

By Kevin Kerr, President and CEO, Kerr Trading International

As the World begins to show signs of a
slow awakening from the economic
implosion of 2007-2009, the window of
opportunities for getting a handle on
energy prices is rapidly slipping away.
When crude oil hit $147, most of us who have been
trading it for a number of years felt that the price was
not sustainable. Clearly we were correct.
There is an old saying that traders use and it was
drilled into my head back when I was on the trading
floor at the ripe age of 19. The cure for high prices is
high prices. The same saying holds true for extremely
low prices as well.
First Blame All the Speculators
wasted blaming speculators on running amok has
simply taken away from any time spent on meaningful
conversations about real solutions, or why the price
spike happened in the first place.
At $140 we began to hear earnest conversations
about drilling offshore and in Alaska. We saw
consumers begin to look seriously at hybrid vehicles,
and most importantly we saw significant investment in
alternatives.
Everything from ethanol to solar and nuclear to shale
was gaining momentum and investor interest.
Suddenly as oil prices fell, all of that progress
evaporated. The consequences of this will be grave,
especially for Western economies that are completely
dependent on foreign oil.

When we saw oil prices fall from $147, the unwinding
was dramatic and quick. Prices for crude actually got
back down to $36 briefly and the hand wringing and
blaming of speculators commenced.
We saw government and regulatory investigations
commenced immediately and the result was they
uncovered little if anything, except maybe a free
market doing what it does, trade free.
“The consequences of this
will be grave, especially
for Western economies
that are completely
Boom to Bust: Denial is not just a river in Egypt
Like any addiction, the oil addiction in much of the
World, especially America, is insidious and one key
element that keeps that addiction going is denial.
Denial is powerful and unfortunately it is leading us
right back down the path for even higher oil prices this
time around. Pain has always been a great motivator
and clearly oil at $147 caused pain to consumers and
the government, now I think it will take oil at $200
before we see real angst again.
The reality of Chinese demand is the fact that the
countries thirst for oil products is growing by at least
5% a year and likely much more.

dependent on foreign oil.” As the populations of both India and China grow their
middle classes and continue to purchase cars, better
food, and other items, demand for energy will only
Prices quickly ramped back up to the $80 level and grow.
have been there ever since, regardless of the global
economic condition and weak demand and Leadership and a true energy policy for the United
oversupply. So what will happen as we start to see
demand pick up? It’s a safe bet that oil prices will not
go lower.

Speculators and all of the new trading products

certainly contributed to the volatility in the energy
sector but quickly supply and demand brought the
markets in line again – that is the entire purpose of
price discovery and it worked perfectly.

The problem with focusing solely on speculators is that

it simply fostered the denial that got us to $147 in the
first place. Crude at $90 was, and is, sustainable just
with demand and pent up demand as well as growth,
even in a slow economy. The reality is that the time we

www.oilcouncil.com
States is sorely lacking if not non-existent. Policy While more oil maybe in the region it won’t be easy or
makers seem to simply be adrift in a sea of problems. cheap to get to. Major drillers like Exxon and BP can’t,
and won’t, get involved in projects in Mexico because
of government restrictions and costs.
“Leadership and a true
Other exploration projects from the Arctic to the Gulf
energy policy for the United hold promise but also come with a big price tag and
States is sorely lacking if even worse they will take years to develop.

not non-existent.”
As regulators try to appease the public and find the
smoking gun that caused high oil prices, precious little
is being done to find real solutions.
The only good news is [if you want to call it that] a
"price limit" of about $100 a barrel that likely will only
stall things temporarily. When crude reaches $100
again economies would likely rapidly switch to
alternative fuel sources.
However that demand is unlikely to fall fast enough to
match dwindling supplies and as a result, unrest could
still occur as people are forced to rapidly reduce their
oil consumption.
Getting Serious About Alternatives
The truth is that oil supplies are dwindling and while
new oil field discoveries are being made, the costs of
extracting that oil will be significant, those costs will
get passed on to consumers at the pump.
On hand supplies cannot last forever and key
suppliers such as the Cantarell field in Mexico are
facing peak oil and dying. Cantarell is down to around
1 million BPD and dropping, for Mexico the impact will
be devastating. The Mexican government gets around
40% of its revenue from PEMEX and the oil exported
from Cantarell.
The first symptoms of a genuine oil crisis became
more and more apparent in 2007 as PEMEX was
forced to cut back on exports to the United States.
The prognosis for consumers is not good for the next
decade and if we don’t get serious about getting
ahead of the curve on this issue it will surely be the
demise of the Western economy.
I recently spoke to CNBC and Larry Kudlow, as well
as, Addison Armstrong of Tradition Energy; all are
deep in denial about the coming high prices for oil, in
my opinion.
“As regulators try to
appease the public and find
the smoking gun that
caused high oil prices,
precious little is being done
to find real solutions.”
Two weeks after this interview, crude oil was $5 higher
and gasoline prices spike up 20 cents or more at the
pump nationwide.
You can decide for yourself by watching the interview:
http://kerrtrade.com/blog/?p=1034
The days of cheap and easy to find energy are gone.
Those of us traders who know that are already ahead
of the curve, and as traders, that’s always a good
place to be.
*** Look out for Kevin’s regular column, which is
released at the middle of every month. ***

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 North America.

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
April 2010: Crude's Irrational Exuberance
By Gianna Bern, President,
Brookshire Advisory and Research

While the oil industry value chain is generally quite
happy with $86 per barrel crude prices, one must
ask whether this recent rally is sustainable. On April
6th crude reached an 18-month intraday high of
$87.09 per barrel. In just the past 10 to 15 days,
crude has increased $4 to $5 per barrel depending
on how you view the situation.
Place this within the context of relatively high U.S.
crude oil inventories and it begs the question, is
there the fundamental strength in the market?
Crude Inventories
For those who follow U.S. crude oil inventories,
inventory levels have posted 10 weeks in-a-row of
inventory growth.
Greek Drama
The Euro has been somewhat volatile in recent
weeks as the market sorts out reaction to Greek debt
plans. As a result, the dollar has had some recent
strength. On April 7th, the U.S. dollar was at $1.3327
to the Euro. I don't think the market is in the clear on
the Greek situation.
Finally, there has been some recent strong
economic data that has been released regarding
manufacturing and job creation that has buoyed the
market. The market is looking for any positive
economic data even though the jury is still out on
sustainability.
Crude Outlook

The bright spot in the market has been a fairly
healthy RBOB / gasoline complex. Gasoline
inventories have begun to come into line with the
seasonal draw downs as we approach northern
hemisphere summer drive season.
I do think the crude market will experience a
retrenchment in the very near-term. I define this time
horizon as the next several weeks. Certainly, over
the remainder of the year, crude oil prices will still
have a very good story.

As a result, gasoline spot prices on both sides of the
Atlantic have had healthy upticks in pricing.
“The market is looking
for any positive
economic data even
though the jury is still
out on sustainability.”
However, U.S. crude inventories are still above the
five-year average of 337 mm barrels. The U.S.
Energy Information Administration just reported yet
another week of inventory builds of 1.98 mm barrels
to bring the most recent report to 356.2 mm barrels.
All things considered, it may be fair to say the crude
market is getting ahead of itself.
As long as economic recovery proceeds, I believe
that we will see crude prices in the $90 to $95 dollar
per barrel range. Therein remains the wild card. To
date, I would characterize global economic recovery
at fragile at best.
Without a doubt, Asian economies are leading the
way in terms of growth. The U.S. and European
economies are slowly trailing behind. Most
economists are placing average OECD GDP growth
numbers in the 2% to 3% range. These conservative
estimates are far below that of emerging market
economies such as India, or China that are posting
GDP numbers in the 5% to 6% range. All told, crude
oil is enjoying a rally that will generally support the
market into the remainder of the year.
While we may experience some near-term
retrenchment, l anticipate healthy crude oil prices
north of $90 per barrel into the third and fourth
quarter of 2010.

About Gianna: Gianna Bern is a registered investment advisor and President of Brookshire Advisory and Research, Inc.

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 U.S: www.brookshireadvisoryandresearch.com

www.oilcouncil.com
 Golden Barrels
April: Lifestyle Companies
By Simon Hawkins, Managing Director,
Omni Investment Research

A cynical institutional investor once said to me that the
E&P sector is full of lifestyle companies. That typically
management have come from Big Oil [and gas]
companies because they were frustrated and wanted
to run their own operation.
They pointed to the lack of M&A in the sector when
assets were cheap during the credit crunch as being
the ultimate proof that management were too ‘baronial’
to achieve the kind of consolidation that many
commentators have been predicting for some time,
limiting value opportunities for shareholders.
the economics of exploration, how they balance
portfolio risk and, importantly, how a smaller
independent can generate attractive farm-in
opportunities.
The lack of M&A over the last two years is a complex
story. I’d argue that an element of corporate resistance
to an unsolicited bid is good business in terms of
maximizing shareholder value. It’s true that assets
were cheap during the credit crunch as oil plummeted
from $147 to $30/bbl and those with low liquidity were
particularly vulnerable.

But in talking to companies throughout the crisis many

“I’ve often said that for a
global industry we live in
a very small village.”
As an analyst it’s sometimes difficult to get inside the
heads of management but I would say this has
generally not been my experience at all.
At Omni we talk to a large number of companies in the
sector. Companies that we consider for corporate
clients go through an invisible vetting process and as
part of that we make our own assessment of how
shareholder friendly their management is.
were too focused on their own survival to want to take
on additional financial, operational and exploration
risks by acquiring another business.
I’d therefore reject the idea that the credit crunch was
an ideal time for consolidation.
I think in any industry there are bound to be networks
and alliances (as we have here in The Oil Council),
which foster a level of cooperation and even
friendships. I’ve often said that for a global industry we
live in a very small village. And this is compounded by
the technical nature of our sector. We have our own
‘Six Degrees of Kevin Bacon’. But it’s not six. Maybe
it’s the ‘Three Degrees of Aidan Heavey’?

That’s how we know that our research adds genuine I can see how the demands of the industry invade
value. After all, we help no one by putting lipstick on a personal lives and that has to be a lifestyle choice. But
pig. I can honestly say that none of our corporate this does not mean the sector is full of lifestyle
clients are lifestyle companies. companies.

The charge that management come out of bigger oil
companies is difficult to refute. But I would argue that
in most cases experience in Big Oil is a good thing,
providing a solid grounding in how these companies
approach the industry, the technology they employ,
Let me know your views at:
goldenbarrels@omniir.co.uk
*** Look out for Simon’s regular column, which is
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.

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.

www.oilcouncil.com
 Regester
Larkin

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