Drillers and Dealers March 2011

Selected Advisory Transactions
Defence against unsolicited Total has agreed to acquire Statoil has agreed to sell Tampnet to Afren has agreed to acquire Defence against unsolicited
proposal from KNOC UTS Energy Corp HitecVision Black Marlin Energy proposal from
Indian Oil Corporation and Oil India
US$2,780,000,000 C$1,500,000,000 Undisclosed C$112,000,000 C$580,000,000
Financial Adviser Financial Adviser Financial Adviser Financial Adviser Financial Adviser
December 2010 October 2010 July 2010 June 2010 March 2010
Selected Financing Transactions
A$55,000,000 C$89,800,000 US$1,200,000,000 US$120,000,000 US$53,000,000

Equity Placement Offering of Common Shares Bridge Facility & Equity Private Placement Initial Public Offering
Revolving Credit Facility of Units
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• Bankers and financial advisors discuss recent activity and trends in capital raising and M&A
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strategies and emerging investment opportunities
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Editor’s Remarks
The Forces That Move Nations

By Drake Lawhead, Editor, ‘Drillers and Dealers’
Ask five economists a question and We can confidently assert that China and India’s growing
you get six different answers, so the appetites are putting a strain on the planet’s limited
joke goes – of which there are many resources and will continue to do so. We know that one
variants. They all turn upon the day, even Saudi Arabia will run out of oil.
frustration those who solicit economic
advice are apt to feel about its inability to make useful And yet in the immediate term in which we live our day to
predictions. day lives – the forces that move nations – are often
idiosyncratic, hard to perceive, and as wildly unpredictable
Of course, the economist might protest that it isn’t his job as the single bullet that killed Archduke Franz Ferdinand,
to tell the future, merely to explain possible scenarios: ‘if which sucked Europe into the vortex of war.
XYZ then PQR’. And yet, our industry is not short of
pundits who do try to tell the future in our industry. It is, If the Great War was inevitable for more fundamental
strictly speaking, impossible for anyone to predict the price structural reasons, its timing and character were not.
of oil in anything longer than the very near-term with any Perhaps the most significant geopolitical shift in my
degree of accuracy. More stable factors, like global energy lifetime – the end of the Cold War – was something whose
demand and demographics only tell part of the story. sheer spontaneity and surprising peacefulness was not
predicted by a single person amongst the armies of
A significant part of the price of oil is based on variables academics on either side who had dedicated their lives to
knowable only to the truly omniscient analyst: whether studying it.
rebel fighters in Libya have enough ammunition and
resolve to topple their dictator; whether a blowout Small things cause big things, then. And it is the work of
preventer in one of the Gulf’s 4,000 oil rigs is working the analyst to try to know about these small things. The
properly. quest for alpha is the quest for asymmetrical information –
knowing something no one else yet knows – is the
It is fascinating to reflect that the fire in the Middle East lifeblood of the stock-picker and the consultant.
that has toppled two dictators (combined 52 years of rule),
started a civil war, incited popular uprisings in the majority Upon asymmetrical information, fortunes and reputations
of the region’s states, and forced nearly every are founded and destroyed.
Government in the region to scramble to make
concessions – was started by a market stall fruit seller in Oil exploration, like other enterprises, can seem like
Tunisia who set fire to himself after his wares were playing Roulette with asymmetrical information -
confiscated by the police. calculated risks based on no more than probabilistic
predictions.
On the wall behind my desk is a map of political and
security risk for 2011 (i.e., likelihood of commercial All of which provides a dubious segue into the theme for
interests being adversely affected by internal events). It this month’s edition, which focuses on the independent oil
puts Libya, Egypt, Tunisia, and Bahrain in the lowest companies – this multiplicity of (relatively) small players
security risk category along with the likes of Canada, are nevertheless important players in the global E&P
Belgium, and Austria. sector.
As for political risk, Libya and Egypt are both ‘Medium’, or, In our ‘On the Spot’ we ask our members to quantify their
on a par with Latvia and Brazil. importance. In ‘Analyst Notes’, we ask whether Junior
O&G stocks could deliver superior shareholder value.
It is by no means a criticism of economists or analysts, of
course, that their predictive power is limited. After all, they You’ll notice that Drillers and Dealers has undergone a bit
are not predicting the motions of gasses and pistons, of a change in the last two issues, we hope for the better,
which are subject to regular laws, but rather, the actions of we would welcome your comments, ideas, and
millions of people exercising their individual free wills. suggestions.
The point, rather, is that while we can make probabilistic

predictions about where the planet and civilisation is
headed based on a few glacial trends, the most important p.s. I hope you can join us in London between the 29-30th
features of this change – the timing, the nature, the scale of June as we host the world’s leading thought leadership
etc. – are always determined by the small things. forum for oilfield services and engineering companies.
Drillers and Dealers ::: ::: March 2011 Edition

Welcome to Drillers and Dealers – March 2011
Drillers & Dealers Contents
Official Publication of The Oil Council Exploration in 2010 – The Return of Big 6
3rd Floor Volumes
86 Hatton Gardens
London
Exploration Service Team, Wood Mackenzie
EC1V 8QQ, UK
Post-Macondo – Offshore EHS Regulation 11
Editor Energy Team, SNR Denton
Drake Lawhead
Vice President, Content and Member
Executive Q&A 15
Relations Alan Booth, CEO, EnCore Oil
drake.lawhead@oilcouncil.com
T: +44 (0) 20 7067 1873
The Independent E&P Universe, Deal Or No 17
Editor-at-Large and Media Enquires Deal, Who Will Take The Banker’s Offer?
Iain Pitt
Andrew Monk, CEO, VSA Capital
COO
iain.pitt@oilcouncil.com Can The Oil And Gas Industry Live Up To 20
T: +27 (0) 21 700 3551
Today’s Dynamics?
Publisher Dr. Abdul-Jaleel Al-Khalifa, CEO, Dragon Oil
Ross Stewart Campbell
CEO THE LEGAL CORNER – “What Issues Are Your 24
ross.campbell@oilcouncil.com
T: +44 (0) 20 7067 1877
Independent O&G Clients Most Concerned
With In 2011 And How Can They Overcome The
Partnership Enquires Challenges These Issues Present?”
Vikash Magdani Legal Perspectives from Across the Globe
Executive Vice President, Corporate
Development
vikash.magdani@oilcouncil.com ANALYSTS NOTES – “How Do You See 26
T: +44 (0) 20 7067 1872 Independent E&P Stocks Performing In 2011
Advertising Enquires
Relative To Blue-Chip O&G Stocks And Oilfield
Services Stocks?”
Guillaume Bouffard Analyst Perspectives from Across the Globe
Vice President, Business Development
guillaume.bouffard@oilcouncil.com
T: +44 (0) 20 7067 1876 ON THE SPOT – “In 2011 which O&G companies 29
Laurent Lafont
will be most influential in shaping the future
Vice President, Business Development O&G landscape - NOCs? IOCs? Independents?”
laurent.lafont@oilcouncil.com Partner/Member Perspectives from Across the Globe
T: +44 (0) 20 3287 3447
Ken Lovegrove OC Columnists – What’s New Online? 32

Vice President, Business Development
ken.lovegrove@oilcouncil.com
T: +1 604 566 4949 Meet The Member 34
North American Media Enquiries
Jay Morakis Copyright, Commentary and IP Disclaimer: *** Any content within this
publication cannot be reproduced without the express permission of The Oil
Partner Council and the respective contributing authors. Permission can be sought by
JMR Worldwide contacting the authors directly or by contacting Iain Pitt at the above contact
jmorakis@jmrworldwide.com details. All comments within this magazine are the views of the authors
T: +1 212 786 6037 themselves unless otherwise attributed to their company / organisation. They
are not associated with, or reflective of, any official capacity, or any other
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More Information At
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Special Feature Article
February 2011
Exploration in 2010 – The Return of Big Volumes
Written by the Exploration Service Team, Wood Mackenzie
Wood Mackenzie has estimated that 39 billion barrels of new conventional volumes were added in 2010, with oil accounting for
54% of this total. Driven by eleven giant discoveries, volumes have returned to levels not seen since 2000, when the supergiant
Kashagan find raised the annual total above 40 billion barrels.
This report draws on the Wood Mackenzie Exploration Service Tool – which includes data on conventional exploration activity
from 2000 to date across 446 basins worldwide. The well count and spend data for 2010 are based on currently available data,
and are expected to increase as more information is disclosed.
The resources discovered in 2010 continues the upward trend in annual conventional volumes which has been gathering
momentum since 2006. This has been driven by deepwater exploration and, in particular, the emergence of Brazil’s Santos
Basin pre-salt play. Mid-range reserve estimates for the 2010 Libra and Franco discoveries are a combined 14 billion barrels of
oil and gas, underlining the global significance of this play. In the same basin, disclosure of the results of Shell’s 1SHEL-0023-
RJS (Gato de Mat) well are still eagerly awaited.
However, the Santos Basin is not the only deepwater story. Giant gas discoveries were made in Australia’s North Carnarvon
Basin and Israel’s Sinai-Levant Basin. Overall, the global deepwater average discovery size for 2010 was 470 mmboe.
During the last ten years, onshore volumes have been mainly from discoveries in China and the Middle East. In 2010, onshore
volumes discovered were also up significantly on previous years, led by giant gas discoveries in Iran and in Central Asia, where
the Uzbek and Turkmen sectors of the Amudarya Basin provided over 7 tcf of gas. These large gas finds pushed the global
average onshore discovery size up sharply to around 50 mmboe – almost double that for the period from 2000 to 2009.
The giant discoveries of the deepwater and onshore areas were not matched in the shelf setting. Here, the increase in average
discovery size in 2010 is underpinned by a series of large oil discoveries in Brazil’s Campos Basin.
Currently available data suggest that success rates averaged 37% in 2010, which is in line with the average over the previous
five years. A fall off in drilling – particularly in the Gulf of Mexico – has meant that there have been fewer discoveries in 2010,
but the number of giant finds has ensured that discovered volumes are much larger than in 2009.
Drillers and Dealers

Drillers and Dealers ::: February
::: March 2011 Edition2011 Edition
It can be difficult to estimate the full commercial potential of new fields soon after their discovery. So far, Wood Mackenzie
estimates that development of 2010's currently known discoveries could be worth in the region of US$41 billion, compared to
an estimated US$48 billion for discoveries made in 2009. It is expected there will be large value upside in 2010 volumes as well
results are confirmed and the commercial status of discoveries is confirmed through appraisal drilling.
The total development value estimate for 2010 is higher than the exploration spend estimate. This implies that full cycle returns
for new discoveries could be higher than 10% at the Base price (US$75/bbl) for the first time since 2007.
Significant Discoveries in 2010
Much of the new oil volumes have been found in the pre-salt play of Brazil’s Santos Basin. Two giants, Libra and Franco,
constitute more than a third of the total resource in 2010. The neighbouring Campos Basin has contributed a further billion
barrels of oil. Australia’s North Carnarvon and Browse basins have once again provided material gas volumes, while Israel’s
Sinai-Levant Basin continues to emerge as a major gas province. The year was also notable for a number of giant onshore
conventional gas discoveries in Iran and the North Ustyurt and Amudarya basins to the east of the Caspian Sea.

Emerging Exploration Areas

Deepwater exploration in recent years has been characterised by a move to more deeply-buried, and otherwise more
challenging target reservoirs. A parallel theme has been an increasing appetite for deepwater exploration in frontier areas on
the part of a number of large international oil companies.
A key example is Mozambique's Rovuma Basin, which emerged as a major new deepwater gas province in 2010 and has
energised exploration in the Tanzanian sector of the basin. Interest has also risen in the West African Transform Margin, where
the Mercury oil discovery offshore Sierra Leone in 2010 followed the Venus find of the previous year.
Hopes are high that these discoveries confirm a continuation of the play fairway which delivered recent success in Ghana. High
profile drilling programmes have also been undertaken in the Philippines, where the scale of the discoveries made in 2010 has
not yet been disclosed.
The successes achieved in sparsely drilled areas of emerging plays during 2010, bode well for new discoveries in the years
ahead. The industry has confirmed that functioning petroleum systems exist in several basins and, as drilling density is still very
low, we expect that further discoveries will follow in these provinces.
 Extracted from Wood Mackenzie Exploration Service Insight published February 2010. For more information or to
request a copy of the report visit www.woodmac.com/oilcouncil0311
Wood Mackenzie is the most comprehensive source of knowledge about the world's energy and metals industries. We analyse
and advise on every stage along the value chain - from discovery to delivery, and beyond - to provide clients with the
commercial insight that makes them stronger.
With more than 600 professionals in over 20 offices worldwide, we analyse the assets, markets and companies operating
upstream and downstream; in oil, gas, coal, carbon, metals and power generation. We have been a respected adviser to the
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Introducing SNR Denton
all types of energy related work, ranking it among the largest

dedicated energy legal practices in the world. The team has
extensive experience advising energy businesses on all types
of oil & gas projects and facilities.
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Contact
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Partner, London
T + 44 (0)20 7246 7442
danielle.beggs@snrdenton.com
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D +1 214 259 1866
vince.murchison@snrdenton.com
Special Article
Post-Macondo – Offshore EHS Regulation

Briefing Note 1: Financial Provision and OPOL
Written by the Energy Team, SNR Denton
When it comes to Environmental, Health and Safety (EHS) regulation, the UK oil & gas sector is experiencing a perfect storm.
The Deepwater Horizon incident on 20 April 2010 has triggered regulatory reviews in the US, the EU and the UK. It has also
prompted a massive industry response. Not since Piper Alpha has the EHS regime in the North Sea come under such close
scrutiny at so many levels.
But Deepwater Horizon is not the only factor causing the storm. The world of environmental and safety liability has been
changing profoundly over recent years. The changes have significant implications for oil & gas companies. Significant because,
taken as a whole, they alter the liability exposure of these companies.
There are growing liability exposures (criminal liability, group actions); there are changing liability exposures (spilled oil as
waste, criminal liability for non ship owners); there are new liability exposures (Environmental Liability Directive and Civil
Sanctions); and there are important offshore regulatory reforms in the pipeline following Deepwater Horizon.
The Energy team at SNR Denton has been in the eye of this storm. We have advised or delivered training in this area to over
15 major oil & gas companies with interests in the North Sea in recent months. On the other side of the Atlantic we have been
monitoring regulatory developments in the USA in the aftermath of the Gulf of Mexico incident.
As a result of this work we have developed an understanding of the key issues of concern to the industry, and the legal and
policy areas where we are likely to see developments in the coming months and years. Key areas of interest include
• Financial provision and Offshore Pollution Liability Agreement (OPOL)

• Incoherence of the UK offshore environmental regime – possible reforms following Deepwater Horizon
• Environmental Liability Directive: offshore liability exposure
• Lessons from recent case law: adequacy of existing contractual indemnities to cover EHS liability
• Regulatory developments in the USA following Macondo
• Civil sanctions and criminal penalties for companies and individuals: the changing landscape
• Possible "goldplating" of offshore licensing regime (including decommissioning) by the EU
• Growing significance of the "group action" under the UK legal system
• Spilled oil as waste and the "polluter pays" principle
• Emergency preparedness – review of crisis management plans
In this series of briefing notes, we will focus on these areas – taking one at a time.
Financial Provision and OPOL
Financial provision for EHS liabilities arising from an equivalent incident to Macondo on the UKCS was an area of focus for the
House of Commons Energy and Climate Change Committee inquiry into UK Deepwater Drilling chaired by Tim Yeo MP. The
Committee's Report, published today, confirms that the current arrangements are an area of significant concern.
Are current arrangements for financial provision fit for purpose?
Some people in the oil and gas sector consider that current arrangements for financial provision for oil pollution from offshore
installations are perfectly adequate. After all, operators are required to sign up to OPOL under their JOAs, and through
membership of OPOL those operators are bound, by contract to other parties, to be liable for the costs of pollution from their
own facilities. They are also required to maintain insurance or other financial provision to cover these liabilities.
At the same time, DECC has powers under the Petroleum Licensing regime to give licence holders reasonable instructions with
a view to ensuring that funds are in place to discharge any liability for damage attributable to discharges or escapes.
DECC can also carry out financial viability assessments and financial capability assessments before granting petroleum
licences. In some cases, in addition to financial provision which companies are required to maintain under OPOL and / or the
licensing regime, companies will arrange their own additional financial provision as they deem appropriate according to their
own assessment of risk. And ultimately, environmental risks posed to the onshore environment by spillages in the North Sea -
with its rough open waters - are seen as lower than in calmer more enclosed environments such as the Gulf of Mexico.
However, there are others who are not so sure. Others regard current arrangements for financial provision as out of date.
First, financial provision is not a direct statutory requirement for offshore oil industry operators. OPOL is a voluntary industry
agreement which is enforced indirectly through contractual arrangements and through the petroleum licensing regime (in
practice DECC will ensure that operators are signed up to OPOL as a condition of granting a petroleum licence or approving an
assignment).

Special Article
Second, it is arguably insufficient in terms of the types of liability which it covers. For example "Remedial Measures" as defined
under OPOL is restricted to "traditional" remediation only - containment and clean up. It does not extend to new areas of liability
such as complementary or compensatory remediation under the Environmental Liability Directive. And third, there does not
appear to be a great deal of scientific rigour to the way the liability limits under OPOL are arrived at.
That OPOL is inadequate is a view shared by the House of Commons Energy and Climate Change Committee. The Committee
issued its Second Report on 6 January ("Yeo Report") concluding, in respect of financial provision:
........
"Given the high costs of the incident in the Gulf of Mexico, we believe that the OPOL limit of $250 million is insufficient. We are
concerned that the OPOL provisions only cover direct damage and also that the precise definition of "direct damage" is unclear.
While membership of OPOL remains voluntary - despite it being a prerequisite for a licence - its voluntary nature weakens its
legality and the control and deployment of its funds.
We believe this lack of legal control will allow polluters to claim that damages to biodiversity and ecosystems are indirect, and
therefore do not qualify for compensation.
We conclude there needs to be clarity on the identity and hierarchy of liable parties to ensure that the Government, and hence
the taxpayer, do not have to pay for the consequences of offshore incidents. We conclude that any lack of clarity on liability will
inhibit the payment of compensation to those affected by an offshore incident. We recommend that it should be a requirement
of the licensing process that the licensee prove their ability to pay for the consequences of any incident that could occur.
We recognise that these measures could add to the cost of investing in new UK oil and gas production and urge the Treasury
to reflect this when considering incentives to such investments." (Paragraphs 90 and 91)
........
How does OPOL compare to other types of financial provision required under environmental law?
If we compare the OPOL regime to other environmental regimes under which financial provision is required, it is clear that the
OPOL regime is something of a misfit. Consider the following regimes:
 Decommissioning of offshore facilities – the Petroleum Act regime establishes a statutory regime for joint and several
liability for all licence holders specifically for decommissioning costs. DECC's powers to ensure that adequate
financial provision is in place to meet those liabilities has recently been strengthened by the Energy Act 2008. By
contrast the OPOL regime is non-statutory. And DECC's powers under the petroleum licence in terms of ensuring
and protecting financial provision for oil spillages are much less extensive than those relating to decommissioning
under the Petroleum Act.
 Oil pollution from ships – under the International Convention on Civil Liability for Oil Pollution Damage (CLC), ship
owners are as a matter of international law liable for and are required to maintain insurance in respect of pollution
caused by spillages from their ships. To the extent that the limits set under the CLC are insufficient, there is a Civil
Liability Fund in place to cover additional liabilities. By contrast, OPOL is a voluntary arrangement – not imposed by
international law – and there is no "back up" fund sitting behind the OPOL financial provision arrangements.
 Onshore landfill and mining operations – it has for many years been a requirement under environmental law in the
UK that certain waste and mining operators demonstrate financial provision to the regulator. Landfill operators and
certain mine operators are required to have in place financial provision to address the environmental management
costs of their sites. This is enforced through the environmental permitting regime. In such cases, the maintenance of
funds is a licence condition, and the licence will not be granted unless the operator can show adequate financial
provision. In terms of the scope of financial provision, the concept is linked to operator competence, and the amount
of financial provision that is required is linked to the operational requirements of the site in question. By contrast the
level of financial provision set under OPOL appears arbitrary, and not based on any methodical assessment of
specific or generic risks.
 Nuclear liability – the UK is party to the Paris Convention and the Brussels Supplementary Convention under the
auspices of the OECD. These conventions require signatory states to ensure that an operator of a nuclear installation
is the sole point of third party liability for nuclear incidents and put in place financial security equivalent to this liability
which covers, on a strict liability basis, injury, loss of life and damage to or loss of property (excluding the installation
itself and property on the site of the installation). This mandatory financial provision in connection with the liabilities
flowing from the operation of nuclear installations is therefore enshrined in international law and enforced through the
nuclear site licensing regime. Not so for liability flowing from the operation of offshore oil & gas platforms in the UK
Continental Shelf.
So how likely is it that we will see changes in this area?
The current regime for financial provision in the UKCS is under intense scrutiny at Government level following Deepwater
Horizon. Given the various ways in which the current regime differs from other financial provision regimes under environmental
law, it is not at all unlikely that changes will be introduced in the years to come.
This is particularly so given the recommendations of the Yeo Report, and as the EU Commission has made it clear that it has
financial provision in its sights. This is from the EU Commission's Communication on Offshore O&G activities in October 2010:

Special Article
........
"[The offshore licensing regime] needs to be backed up by an unequivocal liability regime which must include adequate
financial security instruments to cover major incidents. The existing financial security instruments need to be assessed with
regard to financial ceilings and may be usefully complemented by other risk coverage instruments, such as funds, insurance,
guarantees etc."
........
Consider further that mandatory financial provision has already been specifically considered and was almost imposed in
respect of the new Environmental Liability Directive. In light of the Deepwater Horizon incident the EU Commission has now
stated that it will "reconsider the option of introducing a requirement for mandatory financial security and will in this regard
examine the sufficiency of actual financial ceilings for established financial security instruments".
Note also that that the EU Commission's attitude to such matters will have been hardened by the aluminium sludge incident in
Ajka, Hungary in October 2010.
This was a known high risk activity in relation to which the level of financial provision in place was woefully inadequate to cover
the scale of losses incurred. If the regime for financial provision is to be changed – what will change?
There are a range of changes that could be forthcoming, and areas where clarification could be required, including:
 the financial liability limits;

 the way financial provision is calculated;
 the way financial provision is imposed on operators;
 the range of liabilities covered.
What's next?
There are a number of drivers for change in this area.
On 3 December 2010 the Council of the European Union invited the Commission to present concrete initiatives, including
proposals to amend EU legislation on environmental liability issues, "as early as possible in 2011". We can therefore expect to
see actual legislative proposals at EU level by Easter 2011.
Meanwhile, the UK Government will now need to respond to the Yeo Report. In parallel, DECC has indicated that, in addition to
the work it has done already, it will be reviewing offshore environmental regimes during 2011.
In so doing, it will be keeping an eye on – and taking account of – the industry's own initiatives in this area (in particular the
work of the Oil Spill Prevention and Response Advisory Group (OSPRAG)) and regulatory developments in the USA following
the US Government's own review. Developments can therefore be anticipated at UK level over the coming months.
Contact
Danielle Beggs - Partner Stephen Shergold – Partner Sam Boileau - Senior Associate
London London London
+44 (0)20 7246 7442 +44 (0)20 7320 6770 +44 (0)20 7320 6803
danielle.beggs@snrdenton.com stephen.shergold@snrdenton.com sam.boileau@snrdenton.com
SNR Denton UK LLP, One Fleet Place, London EC4M 7WS, United Kingdom, T +44 (0)20 7242 1212

Heritage Oil Plc is an independent oil and gas exploration and
production company with a Premium Listing on the London
Stock Exchange (“LSE”) (symbol HOIL). The Company
is a member of the FTSE 250 Index. The Company has
Exchangeable Shares listed on the Toronto Stock Exchange
(symbol HOC) and the LSE (symbol HOX). The Company
has core activity areas focused on Africa, the Middle East and
Russia.
Heritage was one of the first companies to be awarded a

Production Sharing Contract in Kurdistan in October 2007
and was appointed operator of the Miran Block, which covers
approximately 1,015 square kilometres, in the southern part of
Kurdistan.
In January 2011, Heritage announced the discovery of the

largest gas field to be discovered in Iraq for the last 30 years.
Management estimates that the Miran field could have up to 12.3
trillion cubic feet of gas in-place. Heritage has now accelerated
the work programme on this field and is considering various
development options including a tie-in to planned infrastructure
that will achieve first production for both oil and gas in 2015.
This discovery has the potential to generate substantial further
value for Heritage shareholders and benefit the people of
Kurdistan and Iraq.
www. heritageoilplc.com
Independent Oil & Gas Focus
Executive Q&A with Alan Booth, CEO, EnCore Oil

Drake Lawhead (DL) interviews Alan Booth (AB)
DL: In our 2011 global oil and gas survey, management strength was cited as the number one determinant of a company’s
success. What leadership qualities do you think are most important?
AB: A clear and simple strategy that everyone understands and the part they need to play in helping deliver it.
DL: In the independent sector there are recognised thought leaders, held in high regard because of their reputation, track
record, innovation, and leadership skills. Whom of your fellow peers do you admire most?
AB: Tullow and Agora.
DL: The number of independents operating in the North Sea has dropped dramatically in recent times, although 2010 saw
something of a renaissance. Why is EnCore sticking around when others have left? And how much life is left in the North Sea,
in your opinion?
AB: Exploring with Equity Capital is not always easy, being listed is less so. You really only get one, perhaps two
chances to deliver, hence many smaller companies have not made it. EnCore continue to believe that there are
significant discoveries still to be made in the UKCS if you stick to a strategy, be honest and upfront about the risks
and drill enough wells.
The only danger to continued investment by small and mid caps in the UKCS is infrastructure access and, post
Macondo, a regulatory environment that discourages or prejudices smaller players from participation in exploration
and appraisal in the non deep water, non HPHT areas.
DL: The Catcher field was two to three times larger than you were expecting. How important, if at all, is Lady Luck in any
company’s current exploration strategy?
AB: Luck plays a part. However if you don’t drill enough wells you just won’t get lucky.
DL: Can you tell us more about your play in Western Sahara, and what are you planning there currently? What about the
greater potential of offshore oil in Western Sahara?
AB: This is a long term investment and until we can see that there may be political change on the horizon we don’t
really speak about it. We do our best to try and support the Sahrawi’s in their plight.
DL: You describe EnCore as an opportunistic company. Would you consider venturing into any other regions if the opportunity
struck? Which regions would attract you?
AB: We are opportunistic within the UK North Sea and are happy staying the UK North Sea as that is an area in which
the EnCore team has the most experience.
DL: In one sentence, how would you describe the investment potential of EnCore to an investor?
AB: What you see is what you get.

DL: In your opinion what is an independent’s advantage over a blue-chip oil and gas company in terms of delivering value to
shareholders?
AB: The ability to move quickly, lack of historical “baggage” and entrenched attitudes or behaviours driven by annual
bonuses/targets, or a desire to climb the corporate ladder.
DL: What was the wisest advice you ever received from a mentor?
AB: Don’t let the staff sandbag the budgets and then claim they delivered excellent performance by coming in way
under budget. That is tantamount to stealing the shareholders money.
DL: How do you prefer to spend your spare time?
AB: I like to buy gadgets, network the house, and I collect cameras from the 1960’s and 1970’s.
DL: What three things would you take to a desert island?
AB: I don’t need three, just one: A ticket on the next ferry off the island.
About EnCore Oil:
EnCore Oil plc (LSE:EO.) is a UK based oil and gas exploration and production (E&P) company quoted
on AIM. We hold a balanced portfolio of licences, primarily focused on offshore UKCS. We also
own just under 30 per cent equity in AIM listed Egdon Resources plc (LSE: EDR), a focused onshore
UK E&P company
About Alan Booth, Chief Executive Officer:
Prior to co-founding EnCore, Alan Booth was Chairman and Managing Director of EnCana (U.K.)
Limited (now Nexen Petroleum U.K. Limited), and a member of EnCana Corporation's executive
management team. He was instrumental in building EnCana UK from a new UK entrant in late 1996
with a $55 million exploration funding obligation into a significant UK production operator and the
discoverer and development operator for the Buzzard field. In late 2004 Alan lead the UK team which
sold EnCana (U.K.) Limited to Nexen Corporation for $2.1 billion. Prior to EnCana, Alan worked in a
number of positions of increasing seniority for Amerada Hess and Oryx Energy both in the UK and
overseas. He has particular experience in new ventures acquisitions and exploration in the UK,
Scandinavia, Australasia as well as the Middle East and Africa.
For more information on EnCore Oil please visit: http://www.encoreoil.co.uk
Or Contact:
EnCore Oil, 4 Baker Street, London, W1U 7BU, United Kingdom, T: +44 (0) 20 7224 4546, E: info@encoreoil.co.uk

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The Independent E&P Universe, Deal Or No Deal,

Who Will Take The Banker’s Offer?
Written by Andrew Monk, Chief Executive Officer, VSA Capital
Everywhere you look there seems to be a new E&P company floating on the market or looking for Private Equity. I don’t think
we ever have had so many Junior E&P companies before, certainly not quoted ones! And they are exploring everywhere from
Africa to the FSU, Asia to North and South America and Europe and even Greenland. There is nowhere in the world that isn’t
being explored and no stone unturned (almost literally now with all the oil shale plays).
Now, we know why of course. The oil price is so high that it is now probably commercially viable to look everywhere and, of
course, investors are currently throwing money at people in the hope of that “big strike”. Some E&P companies have had such
amazing performance and been “10 baggers” that your average investor wants a bit of that action too, but when everyone piles
in, should the astute investor be piling out? Are we in a bubble or is it just frothy? When a software salesman is telling you that
you must buy an oil company in the Falklands, isn’t it time to sell?
If we look back through history, the normal pattern was that there were a few E&P’s and they would grow over time and then
get gobbled up by a major and that kept the Oil sector reasonably small and also fairly predictable as they nearly always did get
taken over, as with the great names like Enterprise, Ultramar, Lasmo, Tricentrol, GOAL and Clyde. In fact the only one which
seems to have just kept going is Premier Oil.
So, have things changed or will we revert back to the old ways? The answer is probably half and half. We will always have
more Junior E&P’S now (so all those highly paid analysts are safe!) because it is more commercially viable, the majors are not
going to look in the smaller areas and stock markets globally are now able to list these companies more easily. Also, the
Geographic spread provides investors with more options.
But at the same time there probably are too many companies and ultimately they won’t all be successful; and when you get to a
certain size how do you keep rewarding shareholders? The eventual takeover in the old days was actually very well received.
Now it may be that new majors are created -or mini majors, particularly with the changing geo-political situation with the BRIC
countries coming onto the scene - and these will be the swallowers. Or it may be that we see combinations of the giant Miners
or Trading operations building up their E&P portfolio.
We have seen BHP acquiring part of Chesapeake Energy for $5bn to expand their oil and gas division so perhaps they will go
further (they seem to have more success with oil and gas acquisitions than mining ones!) and acquire our largest E&P, Tullow
Oil, because that would be a serious move or they could even buy BG.
So what about the slightly smaller players? Well, really, to be in the takeover range you need to be a decent size, so the mid
cap players probably need to merge or acquire some smaller players, maybe Premier Oil, who are on the cusp of being
FTSE100 size should acquire a few smaller players like Salamander or maybe the Catcher Development where EnCore,
Nautical and Agora own 45% between them and that might make more sense especially for tax reasons. This would make
them pretty exciting.
And then there are all the small and micro cap plays, just hoping for that lucky strike. The trouble is the majority won’t be
successful (and to be honest, most are overvalued). Should they merge and try and create and diversify the risk? Well whilst
the punters are happy funding them they don’t need to but it won’t carry on forever.
Now this will feel fairly unpalatable to most Chief Executives as they all believe they have the best well and the best prospects,
but actually if they do a deal that makes shareholders money, the investors will remember you and will back you again in the
future. There’s always another horse round the corner. We all know that egos tend to get in the way here but sometimes we
have to leave them behind at the Golf Club. So my advice would be to think long term and don’t think you are rich until you
have taken the profit and always best to leave a bit for someone else.
So what makes it happen? Actually, this is the difficult bit. There’s always a lot of talk, but talk is cheap. One of the first things to
know is what your shareholders really want you to do. How many Chief Executives really have a close relationship with their
shareholders? Then, if the company has a very clear and well defined strategic plan of how it is going to acquire and grow, it
can get the backing of its shareholders and that way it can raise additional funding as it goes along.
So companies should decide if they want to be African focused, FSU focused or some other region, mandate its advisers and
find who it wants to acquire and then have a strategy where everyone is a winner. It is always best to be amicable and make
everyone comfortable.
Of course sometimes an event happens that supersedes all this but still shows the dangers. Nautical Petroleum last year had
significant commitments in Q2 2010, and the market simply dried up. They had spent too much time farming out, did not pay
much attention to their key shareholder (until their key shareholder got squeezed) and they looked very stretched, luckily for
them it was pretty much the Catcher discovery that saved them…at the last minute
Being quoted has it’s downsides but it does give you access to finance. Oil companies have become masters at Farm-ins to
raise finance, but ultimately you need to be your own master so you can never have too much cash.
Drillers and Dealers ::: Drillers and Dealers February 2011 Edition ::: March 2011 Edition
However, at the moment, any deal really has to be for paper because all E&P stocks look pretty expensive so you need
expensive paper to make acquisitions.
Maybe finally we should remember that stock market appetite and rallies don’t last forever. Who knows when this current one
will fall over, but one day it will and so if you want to deal remember to feed the ducks when they are quacking.
About VSA Capital:
VSA Capital, based in the City of London and regulated by the FSA, provides a Corporate Finance
and Broking service to companies involved in the global Natural Resources and Environmental
sectors. Specialising in Mining, Oil & Gas, Timber, Agricultural, Environmental and Clean Technology
sectors, they have extensive experience in capital raising, flotations, M&A activity, and the provision
of corporate advice on a wide range of business problems. Their experienced Research analysts
provide in-depth reports on the business prospects of Corporate clients based on a detailed due
diligence process, allowing them to provide a fully informed opinion to Institutional Investors globally.
About Andrew Monk, Chief Executive Officer, VSA Capital:
Andrew has had a successful stock broking career spanning over 25 years and during that time
has built up strong relationships with many major UK institutions and Companies in the Natural
Resources sector. He was employed by Hoare Govett for 11 years before founding Oriel Securities
with the backing of Vitol.
As Joint CEO he grew the business to over 100 employees from scratch and built a highly
profitable and reputable firm. Later he became CEO of Blue Oar Plc, where he successfully turned
around its UK securities operations and its private client division as well as starting an asset
management division. During his period as CEO, Blue Oar Plc made three successful acquisitions.
Since August 2010 Andrew has been the CEO of VSA capital Group Plc and is building a focussed
natural resources broker and corporate finance firm

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Can The Oil And Gas Industry Live Up To Today’s Dynamics?

Written by Dr. Abdul-Jaleel Al-Khalifa, CEO, Dragon Oil
The continual change in Middle Eastern dynamics will have a profound impact on the Oil and Gas industry. Brent crude traded
just below $120/bbl last week when events escalated in Libya. The panic is about security of supply rather than spare capacity,
considering its abundance in the current oil markets. In other words, the market doubts that the current pro-customer oil policy
in terms of pricing and production can be maintained going forward. Changes in the 1960s brought OPEC into existence and
changes in the 1970s delivered a higher level of oil pricing. Most importantly, these changes shifted leadership from
International Oil Companies (IOCs) to National Oil Companies (NOCs). So, how does the Oil and Gas Industry quickly adjust
and reshape under today’s dynamics?
Historically, the oil and gas industry has had a narrow focus on the bottom line of creating value for shareholders. The
shareholder is the government for NOCs while it is public investors for IOC’s. Almost all strive to maximize financial earnings
while delivering cost effective performance applying state-of-the art technologies. While considering governments responsible
to meet community needs such as job creation and sustainable growth, companies had focused on corporate social
responsibility aiming at improving their public image. This ‘profit-only’ business model, however, started to fail – especially in
the Middle East.
One can argue that one of the catalysts of recent Middle Eastern changes is the poor standard of living of large local
communities, while billions of dollars accumulated in the hands of business dealers. This small business group was supplying
materials and services to industry and securing more corporate agencies over time. There was the false belief that such
business pockets could ensure stability and secure supply of energy even at the expense of the community at large. It was
further exacerbated by companies focusing on core business while outsourcing utilities, food catering, medical, IT services and
others. As such, companies laid off or retired thousand of national employees, leaving room for big business to employ non-
local employees at cheaper rates. This had severely shrunk the value of the oil and gas industry in the eyes of local
communities.
The industry had also failed, most of the time, to build a complete chain of industrial and services support which provide job
opportunities and circulate liquidity into the local economy. It is very devastating in some cases when operations have to be
halted to wait for a service hand to fly overseas to service tools and facilities. Billions of dollars worth of EPC contracts to build
new oil and gas facilities are also awarded to international contractors. Both detailed engineering and procurement are sourced
abroad. Furthermore, at the construction stage, the EPC contractors normally fly in thousands of cheap non-local labour. While
Houston is the oil capital in the Western Hemisphere, the Middle East, home to two-thirds of Global reserves, does not have an
energy capital yet. This only speaks for industry’s narrow focus and failure to stimulate local industrial support.
In order to secure supply of energy and live up to today’s dynamics in the Middle East, the oil & gas industry has to adopt a
‘People First’ business model. Communities are no longer external, inferior or a burden to the business. It is indeed central to
the shared value model proposed by Michael E. Porter and Mark R. Kramer in the January-February, 2011 issue of Harvard
Business Review. Industry has to abandon outsourcing and start hiring from local communities on their permanent payroll. The
region deserves a full and efficient cluster of industrial services to support its local operations, while generating jobs and
circulating cash into the local economy. The industry has to invent new means of developing local economy through an
integrated development package that include power generation, technology transfers and industry creation. An offset program
could be customized for the oil and gas industry. This offset program requests the contractor to invest 10 % of the value of EPC
projects back in the community to yield a stand-alone profitable business within five years.
Community expectations are high, and the oil and gas industry is scrambling to catch up. It is time that communities work hand-
in-hand with the industry to ensure local growth and global prosperity. This can only happen if industry leaders adapt ‘people
first’ policies and abandon the current failing ‘profit only’ business model.
Dr. Abdul-Jaleel Al-Khalifa is currently Chief Executive

Officer of Dragon Oil. He served as the 2007 President of
the International Society of Petroleum Engineers. He
served for twelve years as Manager of Reservoir and
Exploration Departments in Saudi Aramco. He is a PhD
graduate at Stanford University in Petroleum Engineering.
Dragon Oil is an independent international oil and gas

exploration, development and production company. Our
principal asset is the Cheleken Contract Area, in the
eastern section of the Caspian Sea, offshore
Turkmenistan. The Group’s headquarters are located in
Dubai, UAE. Dragon Oil had proved and probable oil
reserves as at 31 December 2010 of 639 million barrels
of oil and condensate, 1.6 trillion cubic feet of gas
reserves (corresponding to 260 million barrels of oil
equivalent) and 1.4 trillion cubic feet of gas resources .

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The Legal Corner
*** The Legal Corner ***

“What Issues Are Your Independent O&G Clients Most Concerned With In
2011 And How Can They Overcome The Challenges These Issues Present?”
―As we know, Governments everywhere are looking to increase revenue and one popular place to
access revenue is increased regulation over extractive industries. Our independent clients are
focused on the spectre of increased regulation and potential new government involvement in their
activities. Each additional layer of regulation increases their cost structure which in turn affects their
ability to compete, especially against the IOCs and NOCs. Increased regulation could come in the
guise of additional safety regulations, further environmental concerns, or in the worst case,
increased taxes, support for which could be spurred by the higher product prices that we are
seeing—we all remember the US ‗windfall profits tax‘.‖
- Doug Glass, Partner, Akin Gump Strauss Hauer & Feld
―Canadian Domestic Independent O&G Companies: With higher oil prices producers are concerned
with increased input costs and scarcity of manpower and services.
Canada and Global Independents: Valuations for producing oil properties are trending too high to
make economic acquisitions. One way to help minimize the challenges of increased costs and
higher valuations is to acquire properties at an earlier stage with exploration and development
potential and to acquire properties suitable to exploit with new technology. Juniors and
Independents should consider accessing capital while there is a strong market and high corporate
valuations.‖
- Richard Grant, Partner, Gowling Lafleur Henderson
―Core concerns for independent oil and gas clients in 2011 include bitumen differentials, regulatory
approvals, M&A activity, steam to oil ratio and royalties. Heavy oil differentials are likely to be tight in
the near-term as bitumen production catches up with the current build-out of new heavy oil refinery
capacity. In the Canadian market, regulatory approval is a potential bottleneck because time to
approval will take longer as application backlog grows. Clients are optimistic about a healthy M&A
market with an increasing number of deals currently on the table, and JVs being a source of funding.
Further, in 2011 steam-oil ratio (SOR) will be a critical metric when evaluating a project. For
royalties, we expect companies that have projects that haven‘t yet reached payout (payout when
cumulative after-tax cash flow = capital invested) will try to ring fence the phases of their projects in
order to defer higher royalties under the current sliding scale regime. As always, in 2011 financing
will be the core contingency and top priority for clients.‖‖
- Alan Ross, Partner, Borden Ladner Gervais
-
―For our independents still trying to make it to market, it is maintaining sufficient cash to keep them
in business while the equity market windows open and close. For many, emerging market risk has
heightened investor nervousness about venturing new monies (but equally the instability in the
Middle East means the rewards are higher [as the oil price escalates]). A number of our larger
independent clients also have concerns with the new Bribery Act and how that will affect their
operations in developing countries. In terms of solutions, the answer is actually the same – sit tight -
but for different reasons. On the ECM side, there is little option but to await calmer waters (though
be ready when they arrive) and on the legislative side, the government may be having a rethink so
it's a case of watching this space.‖
- David Lewis, Partner, Clifford Chance
"In the Middle East, Government relationships. These have always been important in the region,
both in facilitating existing activity and in terms of identifying new E&P opportunities. However, as
2011 dawns and several Middle East regimes face their twilight, oil and gas companies operating
across the region must be nimble if they are to stay ahead of the fast-changing political and legal
environment. Those with obligations under current concessions / PSAs should be evaluating their
rights in the event of force majeure or change in law, and can expect a tightening of provisions
relating to the employment of nationals and the use of local content. They'll need strategies to
protect their income and assets. Those looking to make investment decisions will be faced with
uncertainty, as regional upheavals threaten to affect personnel within oil and gas ministries, national
energy legislation and sources of finance. They'll need extra caution in conducting due diligence
and negotiating terms and conditions, with an eye to securing their investments."
- Charles Wilson, Partner, and
Edward Rose, Partner, Trowers & Hamelin

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Analyst Notes
***Analyst Notes ***
“How Do You See Independent E&P Stocks Performing In 2011 Relative

To Blue-Chip O&G Stocks And Oilfield Services Stocks?”
“We see positive E&P sector sentiment, supported by high oil prices (>US$100/bbl), continuing to encourage the acceleration
of investment decisions both within the industry and by the investment community. On a company-specific basis, we see small
cap E&Ps continuing to outperform relative to their larger peers through 2011.
One of the main reasons is the almost binary outcome of oil and gas exploration drilling, which will continue to have a more
significant impact on the shares prices of the smaller independents, and it is the reward profile this produces, that we believe
will continue to attract risk-seeking investors.
There is, of course, a broad spectrum of quality within the sector, and so to help us differentiate we take a pragmatic approach
to stock selection and it is this fact-based approach that helps us generate positive risk-adjusted returns for our clients.”
- Werner Riding, Analyst, Ambrian Partners
“We would expect that the share price performance of smaller independent E&P companies should outperform their larger
brethren. The frequency of catalysts and the magnitude necessary for them to materially propel a company’s share price higher
is much more prevalent in the independents then in their larger peers.
Moreover we would say this is more likely the case with those independents that have sufficient capital to execute on their
respective work programs. A good example of this can be seen when a work program becomes fully funded or gets expanded
following a large capital raise as in the case of Gulf Keystone or San Leon. In the current environment with fairly stable and
high oil prices, more often we find that larger O&G companies tend to be production related plays or other single-catalyst
stories like a large disposal or leak.
This is a similar dynamic experienced by service companies in that there are fewer price catalysts when oil prices are fairly
consistent. The only difference is capacity constraints are typically long lead time, say for example in certain rig classes which
can experience periods of heightened pricing. In essence we prefer the independents over the larger oil and gas companies
and both of those to the service companies in general.”
- Richard Nolan, Analyst, Daniel Stewart & Co
“2010 was a generally a good year for the E&P sector buoyed by stable (and rising) oil prices, active drilling programmes,
stronger balance sheets and improving investor sentiment towards exploration. Drilling success was rewarded (Nautical,
Rockhopper, Cove, EnCore etc.) and increasing risk appetite helped other stocks perform (Chariot, Bahamas Petroleum).
In 2011, one of the key ingredients, an active drilling programme across the sector, remains. Exploration drilling will be at
similar levels to last year with high profile campaigns planned across the globe stretching from Greenland to the Falklands
and encompassing the industry's latest hot province, East Africa.

Analyst Notes
However, a few recent disappointing wells results (Heritage with Miran West and Rockhopper with Sea Lion appraisal) has hit
sentiment and resulted in a general pullback in AIM exploration stocks. We believe this reflects a view that a number of shares
had run ahead of events and risk tolerance had deteriorated, an overdue acknowledgement by the market that exploration is
not a one-way bet.
We generally have a neutral view on the larger more established E&P companies reflecting full valuations (based on lower oil
prices than spot), and see more leverage to the upside amongst the smaller names, especially those drilling on proven plays
opened up by drilling success last year with the recent pullback seen as a buying opportunity.
The wildcard remains oil prices. If they remain at current levels, possible given that the simmering tensions in the Middle East
are unlikely to disappear overnight, then the Large/Mid-Cap E&P producers may be due a re-rating outperforming other sub-
sectors such as the Majors and Oil Services"
- Richard Rose, Analyst, Oriel Securities
“The European E&P sector has risen by 13% in constant currency terms YTD 2011, slightly outperforming the integrateds
(12%) with the oil services lagging with a 5% gain. However, given the stellar performance of the oil services in 2010 (+41%),
the lag YTD in 2011 is perhaps understandable.
We would expect a year-on-year increase in oil prices (which is currently the case) to normally be a reason for E&Ps to
outperform, given their greater exposure, although this can be a double edged sword due to a potentially negative impact on
the market. If longer-term expectations of oil prices begin to rise, this would probably be a reason for the E&Ps to underperform
the services sector.”
- Phil Corbett, Analyst, RBS
“The E&P stocks had an excellent 12 month performance during 2010 with our coverage list up on average 126%. However,
the sector currently trades at an average premium of over 200% to our core net asset values which encapsulates only
producing reserves (versus c.70% this time last year) and an average Price/Risked NAV of 0.9x.
This reflects exploration being back in focus with sustained higher oil prices. In our view, whilst the E&Ps should continue to
outperform the larger integrated O&G producers in 2011, stock selection is key and likely to revolve around success with the
drill bit, trading around drilling programmes. Successful small & mid cap E&Ps will always have the potential to generate
significantly more alpha than IOCs, therefore there is strong motivation to identify a sensible range of smaller E&P’s from which
the future winners are likely to emerge.
Oilfield Services also had a strong year in 2010, with average (unweighted) prices improving c.60%, however share prices have
largely failed to gain further ground to date in 2011. We expect that the high oil price will lead to increasing activity levels and
therefore tightening capacities and widening margins, which should support earnings growth. With the cycle expected to
continue into the midterm, we expect earnings surprises will be largely on the upside and share prices should naturally
appreciate as valuations roll onto 2012 forecasts.
However the market is already pricing in a strong sectoral performance and therefore Oilfield Services again will likely display
less alpha than successful small and mid-cap E&Ps.”
- Tracy MacKenzie, Analyst, Brewin Dolphin

UnLOCKing AFRICA’S
OIL & GAS potential
Chariot Oil & Gas Limited (AIM: CHAR) is an

independent oil & gas exploration company with
interests in Namibia. Enigma Oil and Gas Exploration
(Pty) Limited is a wholly owned subsidiary of Chariot
and is the operator of the licence areas.
Chariot’s blocks of interest are located off the coast of

Namibia – in one of the last West African frontier areas
for oil and gas exploration.
Frontier area – high impact exploration
About Chariot:
ÎÎ Four licences covering eight offshore blocks in Namibia
ÎÎ Significant acreage position – one of largest holdings in Namibia –
30,504 km2
ÎÎ Over 13 billion barrels of gross unrisked mean prospective
resources – 10.4 bbbls net to Chariot
ÎÎ Mega Structure identified worth 3.1 billion barrels
ÎÎ 3 geologically distinctive basins – well-positioned across
Namibian South Atlantic margin
ÎÎ Frontier exploration with a proven working petroleum system
ÎÎ Highly experienced management, complete skill set in-house:
G&G, Engineering & Commercial
ÎÎ Farm-out process underway looking to maximise shareholder
value and manage risk, strong interest received from majors
ÎÎ Aim to drill Q4 2011 – drill ready inventory
www.chariotoilandgas.com
On The Spot
*** On the Spot ***

“In 2011 which O&G companies will be most influential in shaping the
future O&G landscape – NOCs? IOCs? Independents?”
“With oil prices trending higher on the back of growth from industrializing and emerging economies,
we believe that NOCs will play the most influential role in re-shaping the oil sector this year. The
most important NOCs are supported by a vibrant and growing domestic economy and, in most
cases, by a command political structure where government plays an influential role in the national
efforts to secure future supplies of energy. In short, money is no object and energy is such a vital
input in the industrialization effort that places its acquisition on top of the agenda.
Even if there is a significant correction in oil prices and the markets sometime in the future because
of market sentiment, NOCs will use it as a buying opportunity. We expect that the high profile
transactions will continue to focus on regions such as Africa, Latin America and Asia as these
present the lowest regulatory barriers to an NOC acquisition of large resources. We also believe that
reserve-rich, producing companies will be preferred to earlier-stage, development plays. The hunt
continues to go on; who are the prey?”
- Angelos Damaskos, CEO, Sector Investment Managers
“It is not often the Independents in the Industry have an advantage over the super majors, the free-
cash generational ability of these mega companies alone is something to behold.
That being said, I believe it is easier for a smaller Independent to deliver greater value for
shareholders and in a shorter time than the super majors – delivery of free cash is not actually
everything. As we have recently seen with BP, if free cash return to shareholders in the shape of
dividends dries up, value is easily eroded.
Not only do Independents have the ability to react quicker and in more esoteric frontiers than Super
Majors, they quite often think smarter and quicker and adopt emerging industry trends quicker.
Exclusive access by NOCs to 75% of proven conventional oil is all very well and good and shouldn’t
be ignored, but we should not ignore the unconventional reserve/resource potential.
Shale Gas and increasingly now Oil is transforming the North American market and is now
encroaching into Europe. This wasn’t started by an Exxon or Chevron but a small US independent in
the early 90’s. Recent entries by super majors has enabled the smaller, early entrant independents
to realize significant value. The future for independents remains bright.”
- Tim Heeley, Chief Executive Officer, Nighthawk Energy
“Rising oil prices in 2010 meant there was naturally a significant focus throughout the year on the
macroeconomic factors driving the demand for hydrocarbons. However, with Brent now returning to
over $100/bbl we expect to see increasing attention paid to the supply side of the oil price
equilibrium in 2011:
When and by how much will OPEC increase production? What opportunities does this strong and
seemingly robust price environment bring with regards to exploration? Where are the reserves of the
future to be found?
In such an environment, attention naturally falls on the National Oil Companies with their potentially
vast resource bases. However, access to such riches alone is not enough to make the NOCs
singularly influential. As we have seen in the recent BP-Rosneft deal the International Oil
Companies still have a crucial rule to play in helping to exploit these potential reserves given their
superior technical and frontier exploration skills.
The challenge for the IOCs, if they wish to remain highly influential, is to transform the opportunities
that their technical expertise provides them with into a slice of this future reserves growth, whilst
managing the not inconsiderable political and technical risks associated with such transactions.
Needless to say, if any class of company are best able to successfully handle this balancing act it is
the super majors with their unrivalled exploration and development skills, political nous, and
conservative, well managed, balance sheets.”
- Andrew Moorfield, Global Head, Oil & Gas, Lloyds Banking

Group

On The Spot
“In order to make the requested determination, the division as laid out of NOCs, IOCs and
Independents is somewhat irrelevant. The categorization should more properly be based on issues
such as production capacity, market access and control, geographical areas of influence, financial
muscle, capacity to execute and deliver, political leverage, prospective exploration acreage and
reserves, among others.
IOCs like Exxon, Shell, Conoco and Chevron, will no doubt be at the top of the list, but NOCs like
Saudi Aramco, Petrobras and Gazprom will also be in top positions on that list. On the other hand,
NOCs like PDVSA, Pemex and Pertamina will continue to struggle to keep up with national needs
and domestic political pressures and will thus have little influence in shaping the future global
landscape. Meanwhile some mid-size efficient and well managed international companies, such as
Hess, Talisman, Husky Energy, ONGC and OGX, will have growing influence in selected regions of
the globe.”
- Luis Giusti, Senior Advisor, CSIS
“All of them; the E&P industry requires each part of the sector to be alive and well for the industry to
prosper. Independents have opened up new frontiers in East Africa and along the West Africa
Transform Margin. In North America, Independents have led the way in developing the frac’ing
technologies required to produce from shale. The Brazilian sub-salt play has been largely opened
up by Petrobras, a NOC. And whilst the excitement may reside elsewhere, the IOC’s have continued
to deliver highly complex engineering projects often on time and on budget. Each of these
achievements are worthy in their own right but they have significant knock-on effects across the
E&P ecosystem.
Asian NOCs, in particular, have helped to underwrite valuations through their desire to acquire
reserves. Capital providers need to know that a well run company will have competition to acquire it
once it reaches a certain size and maturity. Competitive exits provide a spur to entrepreneurs to
take the risks required to move out from under the security blanket provided by large companies.
The arrival of the Asian NOCs as bidders, and even as hostile bidders, for global assets is relatively
recent. So much so that it is not always viewed as the new normal.
Portfolio rationalization by the IOCs to focus on core areas of expertise both technically and
geographically has provided another source of reserves to those companies with brown field and
end-of-life field experience. This has been going on for some time in the North Sea, but BP’s recent
sell offs around the globe and Shell’s much publicized divestments in Nigeria are the first
concentrated divestments for some time and provide the impetus to build relatively large producing
companies from scratch.”
- Alistair Stobie, Corporate Finance Manager, Oando
“Looking into the crystal ball, my view is that in the short to medium term power will continue to shift
in favour of the NOCs at the expense the IOCs. Generally speaking, the NOCs (especially in the
less developed world) are sitting on the vast bulk of the remaining reserves.
As they gain confidence and influence, they will increasingly seek to develop and receive a bigger
share of their own natural resources at the expense of the incoming IOC investors (as witnessed in
Uganda and Kazakhstan etc). In addition, certain NOCs are now developing huge independent
wealth (eg Petrobras) which means that their dependence on IOCs is effectively being reduced to
the area of technology. We are also repeatedly seeing alliances developing among NOCs (for
example, in the broader Islamic world). NOCs now appear to hold the upper hand and to be intent
on breaking the stranglehold which the IOCs have enjoyed over the last 50 years or so.
Having said that, IOCs will clearly still have a role, especially where conditions are so difficult that
the latest cutting-edge technologies will be required (eg deepwater drilling, the Arctic etc). In
addition, it will be interesting to see to what extent (i) the “shale revolution” becomes exportable to
other jurisdictions outside of the US; and (ii) IOCs can keep the technology to themselves and
dominate the development of the shale industry outside the US.
There will still be a place for independents – whose role historically has been to explore and develop
in the remotest or most risky regions in the most cost-effective way (eg Kurdistan, Russia, East and
West Africa, Kazakhstan, Turkmenistan). But as those territories continue to make bigger
discoveries (eg Kosmos in West Africa, Heritage/Tullow in Uganda and Cove Energy in Tanzania),
we can expect the larger companies to prey on them. However, the big question now is whether
those predators will be IOCs (such as ExxonMobil, Shell, BP) or NOCs (such as CNPC, CNOOC,
Sinopec, ONGC).
My strong suspicion is that for political reasons we will see the balance of power shifting in this area
also to the NOCs at the expense of the IOCs – both because (i) they will be the preferred choice for
political reasons; and (ii) they will continue to offer the highest prices (given that hydrocarbons will
have a greater value to them as a feedstock for their domestic manufacturing industries compared
to the “onward sale to consumers” model practised by the IOCs.”
- Greg Hammond, Partner, Akin Gump

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N e w Yo r k | Wa s h i n g t o n D . C . | L o nd o n
Online Columnists This Month Include...
“Clearly, investing in independent oil and gas companies like Mantra is for
investors who have much more of an appetite for risk tolerance. Even so, as we
watch the unravelling in the Middle East and elsewhere, Russia somehow seems
suddenly more appealing.”
Read the rest of Kevin’s column here...
“The current market shock is indeed one we have not seen since the 1990’s.
Currently, we don’t see any retrenchment in the market. We do have significant
concerns about the potential of $120 per barrel on fragile OECD economies.”
Read the rest of Gianna’s column here...
“But, with events taking a much more sinister turn in Libya, a positive outcome
hangs in the balance and markets have taken fright that the unrest will spread to
other oil exporting countries, notably neighbouring Algeria or even Saudi Arabia.”
Read the rest of Elaine’s column here...
Drillers and Dealers ::: ::: February 2011 Edition

Corporate and Financial Public Relations
Independently
ranked No.1 in the
Oil and Gas sector
www.pelhambellpottinger.co.uk
Meet The Members
Committee Member Member

Lance Crist, Christyan
Head, Malek,
Oil & Gas, Global Oil &
IFC / World Gas Research,
Bank Global Markets,
Deutsche
Bank
How did you come to be in the oil industry? How did you come to be in the oil industry?
I joined the oil industry at the age of 13, After completing an MEng degree in
pumping gasoline at an Exxon station in Chemical Engineering with very high honors
Massachussetts. I spent five years after at Imperial College and working for BP
school "in the business", before heading to across my degree, I decided I wanted to
university, Wall Street, grad school, work in oil but from a financial and top down
eventually working for IFC in Eastern Europe, perspective. My family has a background in
returning to DC to manage our downstream oil and many of our connections are in oil so
refining & petrochemicals group, and moving it seemed like the natural transition. The oil
over in 2007 to run our global oil & gas team. industry is fascinating and it pulls together
so many variables such as socio-economic,
geo-political issues not least financial and
environmental ones.
What is your proudest work-related What is your proudest work-related

achievement? achievement?
Working for a development institution, I'm Taking the oil field services department,
most proud of the impact we strive to achieve which did not exist at Deutsche Bank three
in emerging economies; helping to set global or four years ago, and making it into one of
transparency, governance and environmental the top three rated franchises worldwide
standards; and helping sustain and grow without the help of additional headcount.
junior and independent companies. Our deal-
of-the-year awards for working with the likes
of Cairn, Tullow, Kosmos and Peru LNG all
point to the successful track record we've
had.
Where do you see the greatest opportunity in Where do you see the greatest opportunity
today’s oil and gas markets? in today’s oil and gas markets?
The African gas market – the recent Taking a parallel to the spike of the 1970s,
discoveries in East Africa in particular have high oil prices are making E&P capex
the potential to transform the energy and structurally more attractive in complex
industrial landscape in that region in the areas of the world e.g. oil sands, deepwater,
medium term. frontier development. Higher commodity
prices coupled with increasingly limited
access to ‘easy oil’ (in part, a function of
their higher risk premium e.g. Middle East)
are driving a completely different set of
investment criteria now.
Are you an Oil Council Member? If not apply now:
http://www.oilcouncil.com/index.php?page=becomeamember
Meet The Members
Where do you see the greatest challenge? Where do you see the greatest challenge?
The African gas market -- to commercialize Securing access to reserves for the Western
the discoveries and build downstream Oil Companies, especially with increased
linkages will require significant reform to the competition from Emerging NOCs and
regulatory and investment frameworks, in contractors to secure assets/market share
order to mobilize the investment needed at inflated prices and with readily available
throughout the value chain. capital.
What was the wisest advice you ever What was the wisest advice you ever
received from a mentor? received from a mentor?
Make sure to have fun. If you're not enjoying What doesn’t kill you makes you stronger
what you're doing, others won't either and the
whole enterprise crumbles.
What advice would you pass on to a recent What advice would you pass on to a recent
graduate wishing to work in your line of graduate wishing to work in your line of
business? business?
Listen well and get as much constructive

Spend time living or traveling in the criticism as you can – in this industry you
developing world; you can't relate to the will work with some amazing people so
world's challenges sitting insulated in never lose an opportunity to learn and grow.
London, New York etc.
What’s the one interesting fact about you that What’s the one interesting fact about you
no one would suspect? that no one would suspect?
I have finished 14 marathons (personal best I write music and poetry. In another life I
in 3:00), as well as a 50-mile ultramarathon. might have been a poet.
How do you prefer to spend your spare time? How do you prefer to spend your spare
time?
Running, coaching my son's soccer team, Sleeping, sun and eating good food.
watching my kids' ice hockey games.
Favourite holiday destination? Favourite holiday destination?
Sun Valley, Idaho Sharm El Sheikh (place never changes

which in a fast past environment like
London is perfect)
All time favourite book? All time favourite book?
Undaunted Courage, by Steven Ambrose, The Godfather, Mario Puzo

about the1804-06 Lewis & Clark expedition.
All time favourite film? All time favourite film?
A Fistful of Dollars (Clint Eastwood) The Godfather Trilogy
What three things would you take to a desert What three things would you take to a
island? desert island?
A raft, a fishing line, and the Rolling Stones' My wife, a yacht, a chef
Exile on Main Street
Are you an Oil Council Member? If not apply now:
http://www.oilcouncil.com/index.php?page=becomeamember
WEST AFRICAN ENERGY FOCUS
ASSETS
CI – 202 Cote d’Ivoire
 Rialto are 63.75% shareholders in the CI-202 field located in the shallow water, offshore Cote d’Ivoire.
 A highly prospective exploration licence that contains four pre-existing un-appraised oil and gas discoveries.
 CI-202 is located just 80km west of and in the same geological province (basin) as the giant Jubilee Field and
Tweneboa/Owo and Odum oil and gas discoveries in Ghana.
WA-399-P Australia
 Rialto holds a 12% stake in the WA-399-P exploration permit, located offshore in the prospective Exmouth Sub-Basin on
the North West Shelf, of Western Australia.
 Rialto are in joint venture with majority stakeholders Apache Energy and planning is now underway for the acquisition of
new seismic data to comprehensively study the existing prospect portfolio.
NEW VENTURES
Ghana – Offshore Accra

 Rialto through its International Joint Venture Agreement with Challenger Minerals Inc (CMI) has the right to seek 18%
equity interest in the Accra Block subject to the approval of the Accra Block Joint Venture, GNPC and the Ministry of
Energy of the Republic of Ghana.
 The Offshore Accra block is located in the underexplored and emerging oil province on the West Africa Transform Margin,
Offshore West Africa.
 To date, almost 2 Billion barrels of oil have been discovered by a consortium led by Tullow, Kosmos and Anadarko in
Western Offshore Ghana.
Rialto Energy Ltd – Level 1, 34 Colin Street, West Perth 6005, Western Australia. Tel: +61 (8) 9211 5000 Fax: +61 (8) 9486 9362
th
Rialto Energy UK[Type
Ltd – 8text]
Floor, 1 Southampton Street, London WC2R 0LR United Kingdom. Tel: +44 (0) 20 7042 8500 Fax: +44 (0) 20 7042 8501
e-mail: info@rialtoenergy.com www.rialtoenergy.com

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Ken Lovegrove OC Columnists – What’s New Online? 32

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Post-Macondo – Offshore EHS Regulation

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Financial Provision and OPOL

Are current arrangements for financial provision fit for purpose?

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So how likely is it that we will see changes in this area?

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There are a number of drivers for change in this area.

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Heritage was one of the first companies to be awarded a

In January 2011, Heritage announced the discovery of the

Executive Q&A with Alan Booth, CEO, EnCore Oil

AB: Tullow and Agora.

AB: What you see is what you get.

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DL: How do you prefer to spend your spare time?

DL: What three things would you take to a desert island?

About EnCore Oil:

About Alan Booth, Chief Executive Officer:

For more information on EnCore Oil please visit: http://www.encoreoil.co.uk

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The Independent E&P Universe, Deal Or No Deal,

About VSA Capital:

About Andrew Monk, Chief Executive Officer, VSA Capital:

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Advisory | Strategy | Execution | Portfolio Management | Reporting

Can The Oil And Gas Industry Live Up To Today’s Dynamics?

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