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I N D I A U P S T R E A M O I L & G A S S E C T O R

J A N U A R Y 2 0 0 5. I N D I A U P S T R E A M O I L & G A S S E C T O R. Foreign direct investment opportunity assessment. Vedika Bhandarkar Managing Director Head of Investment Banking Group, India. India: An attractive investment destination. The India story.

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I N D I A U P S T R E A M O I L & G A S S E C T O R

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  1. JANUARY2005 INDIAUPSTREAMOIL&GASSECTOR Foreign direct investment opportunity assessment Vedika BhandarkarManaging DirectorHead of Investment Banking Group, India

  2. India: An attractive investment destination The India story FDI inflows (in US$ billion) • Third fastest growing economy in the world with 2004 GDP growth of 6.5% • 5th largest foreign currency reserves (US$131bn) amongst emerging markets • Lower headline inflation, improving liquidity and surprising fiscal prudence have improved market estimates • Significant steps have been taken to deregulate and reform core sectors • Equity markets have outperformed their Asian peers in light of healthy economic backdrop and structural changes complementing the cyclical growth drivers Weekly net foreign investment into Indian equities—US$ million (net) Weekly net flows (US$ million) MSCI India Index 1

  3. Benchmarking the India opportunity 2004E Key economic parameters—benchmarked Source: Economist Intelligence Unit estimates, S&P 2

  4. Successful growth of Indian economy is largely dependent on stable supply of hydrocarbons Indian consumption of oil World oil demand ’000 bpd U.S. 25.7% Other 39.2% Italy 2.5% China 7.7% France 2.6% Japan 7.0% Germany 3.4% Canada 2.8% Russian Federation 3.2% South Korea 3.0% India 3.1% Total = 78.11 mmbpd Source: BP Statistical Review of World Energy 2004 World crude oil imports Other 31.7% U.S. 25.6% U.K. 2.4% Japan 10.3% Spain 2.8% South Korea 5.3% Germany 5.3% India 3.9% Italy 4.2% China 4.4% France 4.2% Total = 40.49 mmbpd Source: European Intelligence Unit, Global Insight Source: OPEC Annual Statistical Bulletin 2003 Investment in Upstream in India is an attractive business opportunity given the demand-supply dynamics 3

  5. By 2010, India is expected to be the 4th largest petroleum market in the world 2010E petroleum product market (million barrels per day) (2010E) (2003) Source: Energy Information Assistance 2004, BP Statistical Review of World Energy, 2004 4

  6. Upstream opportunity: Large and relatively unexplored hydrocarbon play • 26 sedimentary basins • Total area of 3.2mm sq. km • Only 18% moderate-to-well explored • Current proved reserves • 5.6bn1 bbl of oil (R/P ratio: 19.3x) • 30.11 tcf of gas (R/P ratio: 28.3) • Concerns of limited discoveries in the past, offset by • Limited drilling in offshore areas, believed to be more prolific • Reliance gas discovery, estimated up to 7 tcf • Cairn’s discovery in Rajasthan with oil reserves in excess of 150mmboe 12003 Proved reserves as per BP Statistical Review, 2004 5

  7. Industry currently dominated by ONGC, Reliance and mid-sized international E&Ps Key players in the Indian oil & gas sector Oil India Source: Woodmac ¹ Reserves represents 2P (Proved + Probable) values ² Reserves, production, acreage figures have been pro-rated for the working interests of the companies in the fields in India 6

  8. Oil & gas finds by Cairn and Niko have unlocked significant value for these companies… Cairn Energy—share price (GBp) • Market capUS$744mm • Current market capUS$3,275mm 2 year gain—US$2,531mm • Oil discoveries Cairn’s Rajasthan oil discoveries Niko Energy—share price (C$) Reliance/Niko gas discoveries 3 year gain—US$1,384mm • Current market capUS$1,535mm Reliance/Niko Gas Discoveries • Market capUS$151mm • Gas discoveries 7

  9. … and drawn significant international interest in the Indian E&P market Analyst comments “These new finds and geophysical data collected by Directorate General of Hydrocarbons (DGH) have firmly established India as the world's latest deepwater and ultradeepwater destination… the number of discoveries made in the last 2 years is already twice that of the previous 10 years. The unique success of India's east coast is likely to be repeated in several other areas… along the deepwater areas of the southern tip, west coast, & Andaman Sea regions.” June 9, 2003Oil & Gas Journal “[The discovery] has the potential to be one of the most significant discoveries in Cairn's (and India's) history. Cairn's majority stake & strong relationships with its Indian partners indicate there should be few commercial or political obstacles to the development of the block” January 19, 2004Merrill Lynch “The discovery (by Cairn Energy), one of the most significant in India's history, could also prove to be one of largest in the world this year. But it is the prospect of further discoveries that has jump-started the imaginations of investors.” January 20, 2004Financial Times “It is true that the Indian exploration sector has become a lot more attractive after discoveries by Reliance and Cairn… Cairn & Niko have certainly proved that India and Bangladesh may not be as frightening a prospect for smaller players as some may believe. On top of that, Cairn is no longer as small as it once was and has now established its place in the FTSE-100 list on the London Stock Exchange. Perhaps this really speaks for itself.” 2004WoodMacenzie 8

  10. Refineries Deep water—6 blocks Shallow off—6 blocks Onland—12 blocks Blocks offered under NELP V are in proximity to the recent prolific discoveries and key refining installations… China Pakistan Nepal Bhutan Cairn’s Rajasthan discoveries Jamnagar Kolkata Myanmar Mumbai Reliance/Niko gas discoveries ONGC Bombay High Reliance/Niko Gas Discoveries Mangalore Chennai 9

  11. …and offers favourable environment for investment • Attractive terms and conditions • No state participation or interest • No signature, discovery or production bonus • 7 year tax holiday with assured fiscal stability • Special concessions for deep water areas • Low to moderate royalty rates—between 5% to 12.5% • Up-to 100% cost recovery (biddable) • Rapid award of exploration contracts • 11 commercial discoveries and US$800mm of investment already made in the last 4 years • Full repatriation of profits abroad 10

  12. Investors have an opportunity to participate in the exciting India story • Opportunity to acquire acreage in proximity to the Reliance Gas find on the East Coast and Cairn’s onshore discoveries in Rajasthan • Provides an entry point into an attractive energy market • Amongst fastest growing oil markets (>4% p.a. long-term growth) • Country is gas deficient • Attractive fiscal and operating terms and conditions including freedom to market oil & gas in domestic market • Track record of expeditious completion of free and fair bidding process and award of blocks • Quantitative bid evaluation criterion • Due weightage to operatorship expertise for deep water blocks and significant emphasis on work programme and fiscal package • Net worth threshold for provision of bank guarantee reduced to US$500 million for onshore blocks (against US$1bn under previous NELP’s) 11

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