Global Petroleum Drivers IPAA Capital Markets Conference Denver, Colorado July 21, 2008

1. Global Petroleum DriversIPAA Capital Markets ConferenceDenver, ColoradoJuly 21, 2008 Thomas A. Petrie, CFA Vice Chairman Merrill Lynch & Co.

2. Topics • Oil Market Drivers • Middle East Observations • Realignment of Economic and Security Interests • Gas Market Dynamics • Concluding Observations (1)

3. Oil Market Drivers ? The ongoing search for the ever-illusive double-top continues! (2)

4. Oil Market DriversSaudi Light Spot Crude Prices (Quarterly Average) Overlay of Q1 ’99 – YTD ‘08 (right scale) $150 Q1 ’73 – Q3 ’86 (left scale) 140 130 ? 120 110 100 90 $50 Start of Iran-Iraq War; global oil demand drops for four years per bbl 80 40 70 Iranian oil workers’ strike emergency oil stockpiling in Germany, U.S. and Japan; oil demand “shock” 60 30 50 Arab oil embargo; nationalization of oil assets by OPEC countries Global oil demand “shock”; war to oust Saddam Hussein; Venezuelan oil workers’ strike 40 20 30 10 20 OPEC production accords; Saudi-Iran détente 0 10 ‘73 ‘74 ‘75 ‘76 ‘77 ‘78 ‘79 ‘80 ‘81 ‘82 ‘83 ‘84 ‘85 ‘86 Growing consumption in China, India and Russia makes all the difference! ____________________ Source: Barron’s; “Where is Oil Headed? A Contrarian Says $45.” September 17, 2007. (3)

5. Oil Market Drivers (4)

6. Oil Market Drivers Average Decline Rates2000 – 2007(1) UK US Offshore Australia Norway Non-OPEC Average Africa Middle East Other Asia Canada US Onshore China Latin America FSU 0 5 10 15 20 %/Year The reality of natural declines: almost 4-million Bbl/d needed to stay even ____________________ Source: Oil and Gas Journal; April 7, 2008. (1) Conventional crude and condensate production from mature fields in sustained decline (Source:IEA). (5)

7. Non - OECD OECD 14 30 12 25 10 20 %/Year %/Year 8 15 6 10 4 5 2 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2000 2001 2002 2003 2004 2005 2006 2007 US onshore US offshore ESU China Canada Norway Non-OECD Asia Latin America (incl. Mexico) UK Australia Middle East Africa Oil Market Drivers Observed Production Decline Rates2000 – 2007(1) Decline rates are stable to rising ____________________ Source: Oil and Gas Journal; April 7, 2008. (1) Conventional crude and condensate production from mature fields in sustained decline (Source:IEA). (6)

8. Oil Market Drivers E&P Capex vs. Global Oil Demand Development of new energy resources is becoming even more capital intensive ____________________ Source: Calyon Securities (USA) estimates; (presented at Enercom February 2007). (7)

9. Oil Market Drivers Russian Oil Production, in MMboepd2000 – 2007(1) Annual Quarterly The easy gains have been made; “practical peak oil” is imminent ____________________ (1) IEA Data from Wall Street Journal April 15, 2008. (8)

10. Middle East Observations Middle East Remains The Center of Gravity for Petroleum (9)

11. Middle East Observations Summary Comments • Unprecedented regional infrastructure growth • Saudi focus on growing exports with energy content (i.e. aluminum, petrochemicals, etc.) • Regional capital markets evolving • Cutting edge ventures in alternative energy • GCC common currency under consideration • Inflationary trends developing These trends are likely to continue and may even gain momentum (10)

12. Qatar Kuwait United Arab Emirates Saudi Arabia Oman Bahrain 15% 10 5 0 2003 04 05 06 07 Middle East ObservationsGCC Consumer Prices, % Increase on a Year Earlier Inflation rising! ____________________ Source: The Economist, April 26, 2008. (11)

13. Realignment of Economic and Security Interests Russia-China: Expanding both oil and gas linkages Iran-Russia: Nuclear cooperation for civilian reactor needs China-Iran: Large purchases of Iranian crude oil and products Iran-Pakistan-India: Considering a gas pipeline link New and evolving resource priorities are trumping historic relationships (12)

14. Gas Market Dynamics Domestic Dry Gas Production Gas Rigs Drilling Gas production response to much increased drilling activity has clearly materialized ____________________ Source: Baker Hughes and EIA Data. (13) 2005

15. Gas Market Dynamics LNG NW Pipeline Rockies Express LNG Kern River Fayetteville Shale El Paso El Paso Barnett Shale LNG Independence LNG Hub Big changes in the evolving U.S. Natural Gas Grid; new bottlenecks are emerging! (14)

16. Gas Market DynamicsComponents of U.S. Gas Supply This was the U.S. gas supply outlook as of 2005 ____________________ Source: EIA AEO 2007; (From Petro-Canada February 6, 2007 presentation). (15)

17. Gas Market DynamicsComponents of U.S. Gas Supply U.S. Gas supply will be increasingly a function of a combination of growing unconventional, LNG and ultimately Alaskan production ____________________ Source: Based on EIA AEO 2007; (From Petro-Canada February 6, 2007 presentation). (16)

18. Concluding Observations (17)

19. Concluding Observations (18)

20. Concluding Observations Notwithstanding the contrary views of many politicians, the petroleum sector will continue to play a critical role in mitigating the significant energy supply challenges we will be facing for the balance of this decade and beyond (19)

21. Concluding Observations • We may finally be entering a period of moderate to meaningful oil and gas price retracement • However the foregoing does NOT change the likelihood that we are now experiencing a historic inflection point in the global balance of energy powers due to: • Developing market appreciation of resource maturity • Rising resource nationalism • Realignment of economic and national security interests • Much heightened environmental sensitivities • Whatever the ultimate timing, Practical Peak Oil is becoming more broadly recognized as a looming issue • Thus the risk of a series of petroleum “Black Swan” events needs serious consideration in capital allocation decisions (20)