Why Would An Investor Be Afraid Of Stranded Oil Assets?

Why Would An Investor Be Afraid Of Stranded Oil Assets? - Even if global oil demand peaks around 2030 why would you worry as an investor? - 85% of the valuation relates to the cash flow the oil producer achieves before 2035 DNB oil story in pictures & graphs November 2017 - Torbjørn Kjus

Index Index It Has Been Very Profitable To Bet On A Higher Oil Price - Both the oil price and particularly oil shares have massively outperformed the Oslo stock exchange the past 2 years 200 OSEBX vs Brent - E&P - Oil Service 180 160 140 120 100 80 60 Jan2016 May2016 Sep2016 Jan2017 May2017 Sep2017 Index Aker BP, Lundin, DNO, Statoil Index Oil Price Index Index Oil Price Oil Price Index Oil Price Index OSEBX Index OSEBX Index OSEBX Oil Service 2

IEA Reports Global Oil Supply Lower Than Oil Demand In 2017 - This is the first year since 2013 where supply will be lower than demand Million b/d 2.5 IEA World Oil Supply-Demand Balance (Implied global stock change) 1.5 0.5-0.5-1.5-2.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5 year range 5 year avg 2017 Source: IEA, DNB Markets 3

Global Onshore Stocks Are Drawing Down In 2017 - JODI stocks data shows that global trackable onshore stocks are now down at the 5-year average Days of demand coverage 64 63 62 61 60 59 58 Global Oil Stocks In Days Of Demand Coverage (Includes SPR but not for China, demand taken from IEA) 57 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: JODI, IEA 5 year min 5 year average 2016 2017 4

OPEC Waterborne Crude Exports Now Coming Down - OPEC exports from the participating countries is down 2.1 million b/d since October (base line for the agreement) last year Million b/d 27.0 OPEC Waterborne Crude Oil Exports (Algeria, Angola, Ecuador, Gabon, Iran, Iraq, Kuw ait, Qatar, Saudi, UAE, Venezuela, Libya, Nigeria) 26.0 25.0 24.0 23.0 22.0 21.0 20.0 19.0 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 OPEC 11 OPEC incl. Nigeria/Libya Source: Platts cflow, 3-month moving average 5

OPEC Has Until May Cut Production More Than Exports - Some exports has been drawn from inventory, this has not been taken easily by the market who wants to see lower exports Million b/d Diff YOY OPEC Crude Production vs Exports 2.0 1.5 Exports change larger than production change 1.0 0.5 0.0-0.5-1.0-1.5-2.0 Production change larger than than exports change -2.5 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Source: Platts cflow, IEA 6

Total Liquids Supply Cut By 1.9 Million b/d (excl. Libya/Nigeria) Liquids Supply Oct-16 Oct-17 Change Algeria 1,629 1,489-140 Angola/Cabinda 1,596 1,783 187 Ecuador 540 540 0 Gabon 220 200-20 Equatorial Guinea 228 216-12 Iran 4,680 4,683 3 Iraq 4,675 4,535-140 Kuwait 3,240 3,005-235 Qatar 1,983 2,003 20 Saudi Arabia 12,627 12,097-530 United Arab Emirates 3,988 3,763-225 Venezuela 2,340 2,090-250 OPEC 37,746 36,404-1,342 Russia 11,597 11,303-294 Oman 1,019 989-30 Kazakhstan 1,802 1,786-16 Mexico 2,399 2,179-220 Azerbaijan 815 802-13 Bahrain 223 219-4 Malaysia 685 679-6 Sudan 76 70-6 South Sudan 104 122 18 Brunei 135 119-16 Non-OPEC 18,855 18,268-587 Sum: 56,601 54,672-1,929 7

Strong Price Response To Demand In OECD Europe - For each $/b Brent price decline OECD Europe demand grows 9 kbd Oil demand growth in kbd European oil demand growth USD/b Million b/d OECD Europe oil demand growth vs Brent price 600 400 30 50 200 0-200 70 90-400 -600-800 110 130 2004 2006 2008 2010 2012 2014 2016 Europe oil demand growth Brent price real terms (RHS, reverse scale) Million b/d Year on Year OECD Europe Gasoline Demand 0.10 0.05 0.00-0.05-0.10-0.15-0.20-0.25-0.30 2006 2008 2010 2012 2014 2016 Source: IEA 500 400 300 200 100 0-100 -200-300 -400-500 -600 OECD Europe oil demand grows 9 kbd per 1 $/b price decline y = -8.9583x + 709.03 R² = 0.7919 20 40 60 80 100 120 140 Brent real USD/b Year on Year OECD Europe Diesel Demand 0.5 0.4 0.3 0.2 0.1 0-0.1-0.2-0.3-0.4 2006 2008 2010 2012 2014 2016 Source: IEA 8

Average Stock Draw Of 0.2 mbd Predicted On OPEC Discipline - The case below assumes OPEC average production for 2018 becomes 32.5 million b/d (same as October output) Million b/d 3.5 DNB Markets World Oil Supply-Demand Balance (Implied global stock change) 2.5 1.5 0.5-0.5-1.5-2.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: IEA, DNB Markets 5 year range 5 year avg 2018 9

$/barrel Longer Term Oil Price Forecast (The forecast is for the rolling 1 st month ICE Brent future contract) Historical Real $/b 2000 39.8 2001 33.7 2002 33.4 2003 37.1 2004 48.3 2005 67.9 2006 78.7 2007 84.1 2008 109.8 2009 70.1 2010 88.4 2011 118.3 2012 116.7 2013 112.0 2014 100.8 2015 54.3 2016 45.1 Price forecast Real $/b Q4-2017 60 Q1-2018 60 Q2-2018 60 Q3-2018 60 2017 54 2018 60 2019 65 2020 75 2021 70 2022 60 150 130 110 90 70 50 DNB Markets Brent Price Forecast In Real Terms Normalized range Historical Brent price real terms FWD curve real terms (2% inflation) Global bunker spec change coming at the same time as the effects of shelved projects from the 2015-16 CAPEX cuts becomes visible The Brent price is set to again overshoot Supply respons and demand elasticity to the price overshoot sends the price down again 30 OPEC "cheating" in combination with large US shale growth and OPEC cuts in combination with solid still some ramp up from old investment demand growth sends the price to 60 $/b decisions keeps prices from rising further 10 Jan-2000 Jan-2004 Jan-2008 Jan-2012 Jan-2016 Jan-2020 Normalized range (real terms) DNB Forecast real terms 10

The FID-slump From 2014-16 Will Soon Hit The Oil Market - The lack of FIDs are even more important than the lack of CAPEX, because we will soon run out of large startups 11

kbd Net Need For Shale Of 5.1 mbd From 2017-2020 - Average growth of 1.3 mbd per year required by 2020 - US shale must grow from 4.3 mbd to 9.4 mbd 95 Net Oil Need Of 11.5 Million b/d Before 2020? (Assuming 2% net decline rate and oil demand growth of 1.2 mbd p.a) 85 11.5 75 Million b/d 65 55 45 35 2006 2008 2010 2012 2014 2016 2018 2020 Source: DNB Markets, Rystad Energy Global output of crude, condensate and NGLs Observed historical 10 year decline rate 4% Global oil demand growth 1.2 mbd per year Forward decline rate 2% per year 2016 vs 2020 Global Oil Balance 104 102 100 98 96 94 92 90 88 86 84 82 80 97.0 Global crude, condensate and NGLs output in 2016 (IEA) 7.0 Net decline rate of 2% (half of last ten years) by 2020 4.4 Non-OPEC projects under development (414) (Rystad Energy) 101.4 1.9 OPEC projects under development (116) (Rystad Energy) 5.1 Required new shale oil to balance 2017-2020 World liquids demand by 2020 (1.2 mbd pr year-2016 was 96.6 mbd) 12

What Kind Of Brent Price Is Required For Economic Barrels? - Our call on US shale in 2020 is 9.4 million b/d. The Brent price must then be higher than the 50-60 range to be economical. Source for break even calculations: PIRA Energy - July 2017 (calculation using 10% cost of capital and is showing Brent equivalent prices, not wellhead prices) 13

US Shale Wellhead Break Even Prices Below 50 $/b - But has not fallen any further the past 6 quarters 75 Average US Shale Break Even Costs - $/b (Weighed by volume in Bakken, Eagle Ford, Permian, Niobrara) 70 65 60 55 50 45 40 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 14

NPV USD Why Would You Be Afraid Of Stranded Assets As An Investor? - 85% of the value relates to the cash flow before 2035 only 15 % of the value relates to the 2035-2060 period 600 NPV of 55 $/b each year to 2035 vs 2060 (10 % discount rate) - Adding 25 years to the cash flow after 2035 (58%) only adds 15% (82 USD) to the valuation - 75 $/b to 2025 and then 55 $/b afterwards is worth more than the loss of the stranded assets after 2035 542 557 500 460 + 15% 400 300 200 100 0 NPV 2035 NPV 2060 NPV with 75 $/b from 2018-2025, then 55 $/b aftterwards to 2035 15

Energy unit demand growth vs GDP unit growth Growth In GDP & Energy Intensity Seen Lower Than Historicals Global GDP Growth Seen Lower Than Historicals 6.0% Historical average: 3.5% Forward looking: 3.0% 5.0% Global GDP growth 4.0% 3.0% 2.0% 1.0% 0.0% 1979 1989 1999 2009 2019 2029 2039 Source: IMF, DNB Markets Global GDP growth Forward GDP growth 1.5 1.0 Energy Intensity vs GDP Growth Seen Lower Historical average 1984-2008: 0.6 Historical averaged 2010-2016: 0.5 Forward looking: 0.4 0.5 0.0-0.5-1.0 1979 1989 1999 2009 2019 2029 2039 Source: IMF, BP stats, DNB Markets Historical Energy intensity vs GDP grpwth Forward energy intensity vs GDP growth 16

Million tonnes oil equivalents Primary Energy Demand Growth Much Lower Than Before - Due to lower trend line GDP growth and lower energy intensity the forward growth in total energy demand is weaker than history 20,000 18,000 Total Global Primary Energy Demand (Energy intensity vs GDP seen at 0.4 and average GDP growth assumed at 3%) 1.2% growth (last year was 1.3% growth) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2.5% growth Source: BP stats, DNB Markets 0 1965 1975 1985 1995 2005 2015 2025 2035 Total primary energy demand Forward looking primary energy demand growth 17

Oil Set To Loose Market Share But Will Still Grow Until 2025 - Oil growth in barrels and tonnes until 2025 despite global GDP growth at 3.0% and decreasing energy efficiency Million tonnes oil equivalents Oil Market Share In World Primary Energy Mix 49% 44% 39% 34% -0.3% -1.5% -2.0% 29% 24% 1965 1980 1995 2010 2025 2040 Source: BP stats, DNB Markets World Oil Demand 5,000 4,500 0.9 mbd growth 4,000 3,500 3,000 2,500 2,000 1,500 1965 1980 1995 2010 2025 2040 Source: BP stats, DNB Markets 18

Electric Vehicles Are Almost One Third Of Sales In Norway - But Norway car sales are less than 0.2% of the world 45% Norway Electric Vehicles Sales Market Share (Includes plug-in and Battery electric) 40% 35% 30% 25% 20% 15% 10% 5% 0% Jan2012 Jan2013 Jan2014 Jan2015 Jan2016 Jan2017 Source: Bloombertg Intelligence 0.3% Norway Global Car Sales Market Share 0.2% 0.1% 0.0% Jan2012 Jan2013 Jan2014 Jan2015 Jan2016 Jan2017 Source: Bloombertg Intelligence 19

Thousand units Sold per month Million units sold per year For The Motor Vehicle Fuel Market It Is Asia That Really Matters - It is not like the key motor vehicle market is in USA/Europe anymore What kind of fuel will be preferred in Asia? 4,500 Motor Vehicle Sales 100 Global Motor Vehicle Sales (Annualized) 4,000 3,500 90 3,000 80 2,500 2,000 70 1,500 1,000 500 60 50 0 Jan2005 Jan2007 Jan2009 Jan2011 Jan2013 Jan2015 Jan2017 Source: Bloomberg Intelligence USA Europe Asia China 40 Jan2007 Jan2009 Jan2011 Jan2013 Jan2015 Jan2017 Source: Bloomberg Intelligence 20

Still More Than 95% Of Cars Sold In China Runs On Gasoline - This just means that it will take some time to make an impact on the oil market 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% China Automobile Sales Market Share By Fuel Type 0% Jan2006 Jan2008 Jan2010 Jan2012 Jan2014 Jan2016 Gasoline Diesel CNG Battery and Plug in Electric Source: China Automotive Information 21

Miles Per Gallon Driving Distance On The Rise As Gasoline Prices Drop - Lower oil prices are incentivizing more driving, and at the same time the fuel efficiency of new car sales are dropping Total US Vehicle Miles Travelled - Billion Miles, 12 month mavg 6.0% Year on Year Change In US Driving Distance 3230 3180 3130 3080 3030 2980 4.0% 2.0% 0.0% -2.0% -4.0% 2930 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17-6.0% Jan-07 Jul-08 Jan-10 Jul-11 Jan-13 Jul-14 Jan-16 Jul-17 Source: US Federal Highway Administration - Traffic volumes collected from 4000 roadside monitoring stations across the US, published with a two-month delay Source: US Federal Highway Administration - Traffic volumes collected from 4000 roadside monitoring stations across the US, published with a two-month delay 3400 3200 Total US Vehicle Miles Travelled - Billion Miles, 12 month mavg 27.0 26.0 US Car Efficiency In MPG For New Car Sales (Average fuel economy for a new light-duty vehicle in the US) 3000 2800 25.0 24.0 2600 2400 2200 2000 1800 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Jan-18 Source: US Federal Highway Administration - Traffic volumes collected from 4000 roadside monitoring stations across the US, published with a two-month delay 23.0 22.0 21.0 20.0 19.0 Oct-07 Oct-09 Oct-11 Oct-13 Oct-15 Oct-17 Source: University of Michigan - Transportation Research Institute 22

Million b/d Fuel Demand From LDVs Will Increase For Another 10 Years - This is despite an expected immense growth in sales of electric vehicles 29 Global Fuel Demand From LDV's (average global driving length) 28 27 26 25 24 23 2015 2018 2021 2024 2027 2030 2033 2036 2039 Rule of thumb: If average MPG = 40 and average driving length = 12,000 km, Replacement per 1 million EVs will be 20 kbd You would then need 50 million electric vehicles on the road to kill of 1 million b/d of oil demand from this sector Source: Bloomberg New Energy Finance, DNB Markets, PIRA Energy 23

DNB Markets Commodities DNB Markets Commodities in brief Oil & Gas - Research and reports DNB Markets Commodities serves corporate clients of DNB Bank ASA globally with advisory, market analysis, hedging, and origination within commodities. Cost-efficient and flexible trading in risk management instruments with tailormade collateral solutions. Transacting derivatives on credit lines thereby reducing capital constraints. Experienced dealers, traders and analysts with industry background offering 24/7 markets coverage with wide market access. Daily market reports and in-depth commodity market analysis. Global reach with dedicated Commodity teams in Oslo, Stockholm, London, New York, Singapore and Shanghai. Sector commodity offering Global presence Oslo, Sales & Trading London, Sales New York, Sales Oslo, Research Nils Fredrik Hvatum +47 22 01 76 89 Nils Wierli Nilsen +47 22 01 76 71 Ane Tobiassen +44(0) 20 7621 6082 Fredrik s. Andersen +1 212 681 3888 Torbjørn Kjus +47 22 01 78 23 Kenneth Tveter +47 22 01 78 38 André Rørheim +47 22 01 76 69 Singapore, Sales Salvatore Vaccaro +1 212 681 3984 Karl Magnus Maribu +47 22 01 76 68 Sebastian Malmstein +47 22 01 77 91 Erik Warren +47 22 01 76 58 Seng Leong Ong +65 622 480 22