Oil & Gas Solution Handbook Unified E&P Workflow and Key Processes

1. Oil & Gas Solution HandbookUnified E&P Workflow and Key Processes Section 8 Planning Considerations

2. Section Objectives In this section, participants will: • The business case affecting the future of thee segments: • Midstream & LNG • GTL & Downstream Refineries • Upstream - Unconventional Resources • A typical Oil & Gas company long range planning cycle • Roles & responsibilities • Relating to the E&P Management Workflow • Introducing a new project analysis model • For each segment, a separate section, to understand: • The definition • Important elements and business characteristics • Key economic drivers

3. A Word About Price – Drives New InvestmentsOil supply infinite; depending on price… • At: • $15/bbl, some light oil profitable • $20/bbl, heavy oil attractive • $30-40/bbl, oil from coal (SASOL) • $50+/bbl, renewable energy • At some price, gas from chemistry (C+H) • Heavy oil, tar sands, shale oil, coal liquids, unconventional gas – all depend on $$, facilities & technology Geo. Stosur SPE Distinguished Lecturer

4. …AND the Next Decade(s)Capital requirements could be exponential… 130 ? World Oil Supply vs. Demand: A.G. Edwards (MMBOPD) ? $4-6 Trillion 86 82 9 30 47 2030 2010 2004 CERA

5. GTL Downstream Refineries Increased Demand Midstream Assets Importance of LNG Decline in Production Capital Planning & Discipline Unconventional Resources Implications for E&P CompaniesCapital planning will take on new dimensions... 130 ? ? 2030

6. Making the Best Investment Decision Entering phase of “Super-Investment”…

7. Set Strategy and Vision Mandatory Current Decision Process Four key processes drive successful integrated oil companies… Capital Allocation Process Business Planning Process Asset Management Process Objective: “Help management figure out the right mix of projects and investments to help the company consistently meet its financial and performance goals, year after year.” Steve Martin - Anadarko

8. Global Upstream Region Business Unit Asset Team Field or Play Operations Upstream Planning Model CorporateStrategy • Scenario Planning & Testing • Portfolio Management & Optimization • Capital Allocation • Strategic Scorecards External Investment Opportunities • Primary Owner(s) • Upstream Leadership • Regional Leadership • Business Unit Leadership • Asset Team Leadership • Operations Management Capital and Scorecards Internal Investment Opportunities Asset / Operation Management

9. Long Range Planning Timetable 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Corporate Strategic Outlook ExCom Message Strategic Outlook Reviews Cross-Functional Business Reviews Financial Plan Annual Performance Review Annual Performance Commitments (Scorecards) Ongoing Review of Performance / Internal & External Reporting

10. Planning Process Steps

11. Planning Process Roles

12. Strategic Planning Group: Key Functions • Manage the strategic planning process • Long-Range Financial Model Roll-up. • Scenario Planning / Peer Reviews • Asset Characterization • Corporate Assumptions and Budget Bases • Business Assessments • Key issues champion advisor • Executive Committee Presentations • Strategic Business Intelligence / Competitive Analysis • Shareholder / Government Relations • Business Unit Contact • Performance Analysis • Knowledge Management: Capital Project Efficiency / Decision Management / EHS / Economic Consistency Network / Reserves and Resources • Asset enhancement • Portfolio Management • Global Acquisitions and Divestments Portfolio Evaluation

13. Upstream Value Chain & Asset Lifecycle Planning Process must focus on the Upstream asset lifecycle… Asset Acquisition Asset Life-cycle Value Vs.Time Exploration Drill & Complete Production Asset Divestment

14. Relating to the E&P Management Workflow 1 G&G 2 Engineering Reserves Reporting 4 Technical Volumes Volumes Technical Volumes Economics 3 Manage Financials 8 SEC / other Guidelines Performance Metrics Historic Data: Lifting Costs, etc Pro Forma Financials Plan Bases & Assumptions Business Drivers 5 6 Corporate Plan 7 Projects, Budgets, A&D Technical Commercial Reporting & Compliance

15. Model the System Identify “Pinch Points” Define Variability Introducing A Project Decision Model A system thinking perspective is important…… Integrated Planning: End-to-End Line of Sight The Reservoir The Well Bore The Facilities The Market SPE 49092

16. To Dig Deeper Future references to assist with client engagements…. Websites: A Project Financial Analysis Template as a discounted cash flow (DCF) worksheet… www.engineeringreference.com/ Practical%20Tools/project%20finance.htm References: Stermole, F.J., Economic Evaluation and Investment Decision Methods, Colorado School of Mines, 10th ed, 2000, ISBN 1-8787400-9-1 Optimize Magazine, Optimizemag.com, Representative article: Real Options: The IT Investment Risk-Buster by F. Peter Boer,July 2002, Issue 22

17. Reserves Production Consumption Risk and capital intensity Now to the Business Details Key concepts as we go through the day… Price drives current and future behavior Upstream Midstream Downstream