Drillers and Dealers

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Ross Stewart Campbell Iain Pitt

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 Drillers and Dealers June 2010 Edition
About The Oil Council and Drillers and Dealers

Executive Q&A
o Interview Andrew Austin, CEO, IGas Energy PLC

Executive Q&A
o Interview Janan Paskaran, Senior Associate, Blake, Cassels & Graydon LLP

AIM IPOS: plus a change

o By Charles Wilson (Partner) and Hina Webb (Solicitor), Trowers & Hamlins

A Capital Opportunity for Global Oil & Gas

o By the Global Energy Team, Toronto Stock Exchange & TSX Venture Exchange

Analyst Insights with Credit Suisse

On the Spot with our Question of the Month (Part One)

o Were experiencing another period of volatility and uncertainly in the financial
markets. Do you foresee this as a small market blip or the start of something
more significant, perhaps a new capital crunch, or a double dip recession?

On the Spot with our Question of the Month (Part Two)

o How significant an impact will BPs Gulf of Mexico disaster have on the future
landscape of the oil and gas industry?

Wall Street Investor (Column) Private Equity Deal Killers

o By Ziad Abdelnour, President & CEO, Blackhawk Partners, Inc.

Golden Barrels (Column) Hayward: Staring Down The Barrel

o By Simon Hawkins, Head, Oil & Gas Research, Ambrian

The Oil Outlook (Column) The Future of Deepwater Drilling

o By Gianna Bern, President, Brookshire Advisory and Research

Diary of a Commodity Trader (Column) A Paradox in the O&G Markets

o By Kevin Kerr, President and CEO, Kerr Trading International

Return to the Gulf

o By Elaine Reynolds, Oil Analyst, Edison Investment Research

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23 25 November 2010
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A plethora of investors, capital providers and financiers tackle the big issues
facing oil and gas executives: new investment strategies, capital expenditure, Tim Chapman
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M&A and A&D deal flow and exploration strategies International Energy,
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the future of oilfield services provision, the role of private equity and emerging
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Lead Partners:

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Ross Stewart Campbell (RSC) from
The Oil Council: Andrew, many
thanks for joining us to share your
thoughts on todays markets. To
cover off introductions can you
quickly introduce yourself and IGas
Energy?
Andrew Austin from IGas Energy
(AA): Hi Ross, IGas Energy is an
unconventional gas business
listed on AIM. All our assets are in
the UK, principally across the
North West of England. We have
drilled seven wells to date and are currently
producing from our pilot production site at Doe
Green, situated between Liverpool and
Manchester.
RSC: Looking first at the global picture of
unconventional gas Andrew were seeing a growing
number of new ventures shoot up across the globe
following the shale gale in the US and significant
finds in Australia. Once considered a new industry
fad unconventionals are now a new industry market
in their own right.
What are your thoughts on this increasing
globalisation (and appreciation) of unconventional
gas and Coal Bed Methane (CBM)? How large a
market can unconventional gas become? And how
large an impact are recent technological
advancements having on the growth and
development of the market?
AA: Weve already seen the effect that Shale has
had on the market for gas in North America
reflected in the reduced number of LNG imports
to the US. In Australia CBM has changed the
landscape for gas to Asia by the sheer size and
speed of its growth.
In Europe currently there is something of a land
grab occurring for unconventional gas and I am
sure that it will form a material part of the supply
mix here over the next decade.
RSC: Weve witnessed massive investment in the
development of unconventional and CBM supply
www.oilcouncil.com
Executive Q&A
With
Andrew Austin,
CEO
IGas Energy Plc.
Talking with
Ross Stewart Campbell, CEO, The Oil Council
th
Date: 10 June 2010
chains in the US. How do the supply chains for CBM
in other counties compare and how far advanced is
the UKs supply chain? What timeline are we looking
at for the UK to build a sufficiently effective CBM
supply chain?
AA: Clearly the supply chain is more developed
in other countries. However there are currently a
number of groups that are looking at
establishing themselves as suppliers to the
industry. Were now seeing rigs being ordered
for use in the UK with service companies looking
to now aggregate the drilling programs of the
different players.
Furthermore were also seeing interest from the
water drilling industry and construction firms
looking to move into the market. In short it is
early days but its growing.
RSC: One of the big advantages to CBM is the
ability for some countries to decrease their
dependency on foreign gas imports. How might CBM
influence the future dynamics of energy security and
geopolitics? And how important an ingredient will
CBM be in future UK energy mix?
AA: I think that energy security is a growing
theme Ross. If you add to this the reduced
carbon impact of utilising local gas rather than
imported gas, domestic unconventional gas is a
very interesting place to be.
I also believe that gas powered electricity
generation is going to have an increased roll in
the UK as the coal fired stations near the end of
their life and new nuclear struggles with
permitting issues. So a material amount of gas
that is close to customers is going to be a very
important ingredient in any future energy mix.
RSC: Moving to focus more on IGas now Andrew
many small-cap companies have endured a rocky
road in the past 12-18 months.
How resilient has IGas been in this period, both in
successfully navigating the choppy economic and
financial seas, and in positioning yourself for new
growth at the end of the testing storm?
AA: Over the last three years we have increased
our resources markedly. We now have a 2C
contingent resource of 807bcf.
We have tried to always be ready for the next
challenges in our business and have ensured we
have enough funding available to take us from
pilot production through to our first full
production site in 2011.
RSC: You have a strong institutional investor base
Andrew, how important to companies like IGas is
having patience and knowledgeable investors
onboard?
AA: We are seeing an increase in interest from
overseas investors, particularly those that have
had experience of the M&A activity around Shale
gas in the US and CBM in Australia.

Running a small-cap company always has
challenges but I am convinced that we have
positioned ourselves extremely well for delivery
over the next couple of years
RSC: Your focus has always been onshore and
offshore UK, do you see that changing at all
Andrew? Are you looking to expand internationally,
perhaps into Europe to look at new CBM plays
there? If not are you looking to increase your UK
portfolio in the near future either through new
exploration, acquisitions or farm-ins?
AA: We see ourselves as UK focused and so are
not looking to expand internationally.
RSC: For our investor readers why should they look
at IGas as their next investment and a new stock in
their portfolio?
AA: 807bcf of recoverable gas close to
customers, demonstrated by pilot production.
We have the gas; we now are about delivering it
to surface and onto the market.
RSC: If I may Andrew Ill wrap up by asking your
one-word opinion (bullish, bearish or uncertain) on
the future of the following. Bullish, Bearish or
Uncertain?
RSC: David Cameron

As to deals, we always look at opportunities as AA: Uncertain

they present themselves! However, our main
focus is on delivering on what we have. Getting RSC: New Nuclear Power Capacity in the UK by
that right is our number one priority. 2025

RSC: The UK of course has an important advantage AA: Bearish

of been very close to local and regional energy
markets. Do you foresee your gas been sold RSC: $100 oil before the end of 2010
regionally, nationally or within the wider European
markets? AA: Bearish

AA: We are looking at supplying directly to RSC: Recovered Gas Prices by the end of 2010
customers in our core areas and via the gas grid.
AA: Bullish
RSC: What company milestones in the coming 6-12
months should our readers look out for? RSC: North Sea Oil

AA: The next steps are pilot production at Keele AA: Bearish
in Staffordshire and we are on-site there now.
Next will be a pilot site on our Point of Ayr RSC: North Sea Gas
acreage in North Wales.
AA: Uncertain
In 2011 we are looking at establishing our first
full commercial production site. RSC: AIM

In the meantime we continue to evaluate the AA: Bullish

potential of our acreage for shale gas and will
update the market on this in due course. RSC: US Unconventional Gas Focussed
Independents
RSC: Many of the readers will be interested in the
financial position of IGas, can you shed some light AA: Uncertain
Andrew on your finances: debt/equity ratio and
available cash reserves. How healthy is your RSC: European Unconventional Gas Focussed
balance sheet in ensuring your can successfully Independents
finance your future developments?
AA: Bullish
AA: We currently have no debt and at the end of
2009 had 17.5M in cash on our balance sheet, RSC: Thanks Andrew, more info can of
enough for our programs for 2010 and 2011. course be found at: www.igasplc.com

www.oilcouncil.com

Ross Campbell (RSC) from The Oil
Council: Janan, many thanks for
joining me to share your thoughts on
todays rather volatile markets. Ill let
you first introduce yourselves and a
say a few words about Blakes so our
readers can first of all gain an insight
into yourselves and your Firm.
Janan Paskaran (JN) from Blakes:
Thanks Ross, great to be here.
Blakes is a national Canadian law
firm with offices across Canada
and also with several international
offices including, London, Beijing
and Bahrain. We serve a diverse
national and international client
base and our integrated office network provides
clients with access to the Firms full spectrum of
capabilities in virtually every area of business
law. I am a Senior Associate with the Firm and
have particular focus on international financings
and M&A, and from 2006-2008 worked in the
Firm's London office.
RSC: We find ourselves in the midst of another
period of financial uncertainty and volatility with
shares, commodity prices and currency rates all
being affected. What are your thoughts on this
period? Do you perceive it to be a blip or something
more serious? How significantly is it currently
impacting the Canadian markets?
JP: It seems that only time will tell, though my
inclination is that this will be a blip in the screen
rather than something more serious. The
Canadian markets have been less impacted than
other jurisdictions (particularly the US and
certain parts of Europe), but the general lack of
investor confidence has certainly had a negative
impact on Canadian markets over the last month.
However, oil prices have still remained relatively
stable in the US $70-$80 range and that is
positive for most companies. Gas prices are still
struggling and storage levels are up from last
year, so that appears to be something that will
continue to lag, which is difficult, particularly for
the province of Alberta.
www.oilcouncil.com
Executive Q&A
With
Janan Paskaran,
Senior Associate,
Blake, Cassels & Graydon LLP
Talking with
Ross Stewart Campbell, CEO, The Oil Council
th
Date: 12 June 2010
RSC: The Canadian economy and capital markets
have certainly proved rather robust of late compared
to other Western economies Janan but what is the
current state of play regarding capital availability,
market liquidity and market appetite for oil and gas
financing? Is there enough capital to go around at
present?
JP: Theres been an abundance of financings
completed by junior and mid-cap issuers in the
Canadian markets over the past three months.
There certainly appears to be financing available
to companies and the bulk of those companies
have been able to take advantage of this capital
availability.
The recent downturn of the markets will have an
impact on the availability of financings, however
good companies will still be able to raise capital.
RSC: Are you seeing any recent trends emerging in
oil and gas deal flow (specifically capital raisings and
M&A deals)? And are public or private raisings
proving more successful for companies to get
away?
The recent downturn of
the markets will have an
impact on the availability
of financings, however
good companies will still
be able to raise capital.
JP: Certainly the bulk of the deals have been
completed by way of public "bought deals" in
Canada. This system allows companies to obtain
a firm commitment from underwriters and
complete a deal within a two week period. The
speed and ability to do these transactions is one
of the biggest positives for Canadian companies
listed on the TSX.
Were seeing a significant amount of foreign
investment (principally from China, but also
Korea and other countries) occurring in the
Canadian oilsands, which again is another
source of capital that certain companies have
been able to tap. Were also seeing an uptick in
private financings, and hedge funds are slowly
coming back to the table in terms of private
equity investments.
Given the availability of financing, M&A activity
has been relatively quiet as the number of
distressed/strategic M&A deals is less than a
year ago.
RSC: What common types of legal challenges are
your clients currently facing when looking to raise
capital, or close a transaction?
JP: Here in Canada, issuers who have tapped the
markets face few issues as the speed and
efficiency of the bought deal system makes life
easy. New issuers (whether IPO or first time
short form prospectus) face issues to ensure
their disclosure record is both up to date and
accurate, as well as, logistically managing the
speed of timing on a bought deal.
One of the benefits of having an experienced law
firm involved in the process is that they are able
to assist companies with this process and keep
them up to speed.
RSC: Many companies are finding current market
conditions tough to successfully launch an IPO.
Theres been a lot of pain here in Europe (not just
the LSE) with companies struggling to get their IPOs
www.oilcouncil.com
away and when they do they are often at heavily
discounted prices and at the mercy of damaging
trading strategies. How much IPO activity has there
been to date this year in Canada? Is there appetite
from your investment community in new IPOs on the
TSX/TSX-V?
Were certainly
optimistic that the 3rd
and 4th quarters of 2010
will bring several new
companies to market,
including several
international issuers.
JP: Weve certainly seen several IPOs over the
past 6-12 months in Canada, including a
significant IPO by Athabasca Oil Sands of $1.35
billion, which we was involved in. There were
relatively few IPOs in 2009 (Blakes being
involved in two of the largest ones involving
Genworth Financial and Capital Power Corp), but
this has been changing in 2010.
However, the recent downturn in the markets has
had an impact on some announced IPOs (such
as Lulu Ltd. which recently announced it was
pulling its previously announced IPO). Were
rd th
certainly optimistic that the 3 and 4 quarters
of 2010 will bring several new companies to
market, including several international issuers.
RSC: How much international interest are you now
seeing in companies looking at the TSX/TSX-V in
terms of both IPOs and secondary listings? Is this an
increase on last year?
JP: Were seeing significantly more interest Ross
from international issuers in the Canadian
markets compared to 2009. The unavailability of
capital over the past few years has forced
companies to look outside their traditional
sources and Canada has seen the benefit of this.
Companies are coming to appreciate the stability
and relatively ease of capital raising in the
Canadian markets. Theres certainly a learning
curve that companies will need to face when
looking at listing in Canada, but once that is
passed, the process and system are relatively
easy and (hopefully) painless.
RSC: In your own (non-biased) opinion Janan would
you say the Canadian markets are currently the best
place in the world to consider an IPO or a secondary
listing for an oil and gas company?
JP: We definitely think its an excellent place for
companies to consider when looking at IPO or
secondary listing.
The TSX and TSX-Venture have always been very
resource focussed and investors in the North
American market have always understood
resource companies. One of the difficulties
international issuers have faced in the past is the
perception that North American investors dont
understand issuers with foreign assets and
resultantly their valuations were not fully
reflective of the issuers assets.
A strong business plan and
solid assets are crucial to ride
out any financial volatility.
We think this has now changed and international
issuers with a good story will be able to find
willing investors and appropriate valuations.
From a cost perspective, we believe Canada is
incredibly cost-effective.
We always tell issuers that are looking at Canada
that they need to invest in the offering and
subsequent listing by meeting with investors and
staying connected. This is one of the keys to
maintaining a successful listing in Canada.
RSC: Some of our readers might not be aware of
recent developments in Canadian energy and
banking legislation and regulation.
Could you share with us any updates or
development to either regional/national energy
legislation or new banking regulation now being
www.oilcouncil.com
implemented by your government that could impact
the dynamics of the Canadian markets and dampen
possible new foreign investment?
Were seeing a
significant amount of
foreign investment
(principally from China,
but also Korea and other
countries) occurring in
the Canadian oilsands
JP: We don't think there is anything at this point
that would hamper foreign investment or
international issuers looking to list in Canada.
Weve seen recently announced changes to our
royalty regime to encourage the drilling of wells
relating to "unconventional resources" (i.e. shale
gas and CBM) or to those drilling horizontal
wells, which appears to be a positive.
Recently weve seen several significant foreign
investments (i.e. Sinopec's CAN$4.65 billion
investment in oilsands being an example that
Blakes was recently involved in) and we expect
this trend to continue in the future.
RSC: We've seen a swathe of Canadian companies
investing heavily into Latin America, many of them
enjoying huge success, particularly in Columbia.
What are your thoughts on the region and the legal
challenges it poses for companies?
JP: South America is an extremely interesting
area and is expanding at a rapid pace. Several
Canadian based companies have enjoyed great
success in South America, particularly Colombia
(Gran Tierra, Petrominerales and Petrolifera to
name a few).
The Colombian regulatory regime seems
relatively stable and encourages foreign
companies. Theres always some concern in
these regimes in terms of political stability, but
this appears to be a relatively small risk in
Colombia.
Companies of course will need to have
experienced people on the ground in order to
make these plays successful.
RSC: Thinking in terms of a legal checklist for
addressing the challenges todays markets present
what new practices would you encourage (and even
urge) companies to incorporate to ensure they are
optimally protected to ride out this current financial
storm?
JP: Clearly fiscal prudence is what companies
need to consider. Capital is available, but people
are looking for more defined uses of proceeds
and companies will have less flexibility than they
have had in the past in deploying their capital. A
strong business plan and solid assets are crucial
to ride out any financial volatility.
RSC: Of course its hard to escape the recent BP
disaster in todays news. What legal ramifications do
you think this disaster will have on oil and gas
companies in the short, medium and long term?
investment in Canada will increase and have
been committed to this for many years.
RSC: Ill wrap up now by asking your one-word
opinion (bullish, bearish or uncertain) on the future of
the following. Bullish, Bearish or Uncertain?
RSC: The Canadian Economy
JP: Bullish

RSC: Stephen Harper

Recently weve seen
JP: Bullish
several significant foreign
investments and we RSC: Offshore Drilling in North America
expect this trend to JP: Uncertain
continue in the future.
RSC: TSX-V

JP: A very difficult questions to answer Ross! I JP: Bullish

think the biggest ramification is the perception
on the environmental unfriendliness of oil and RSC: AIM
gas, and I think specifically here about oilsands.
JP: Bullish
The oil spill is extremely unfortunate and tragic
and no doubt steps need to be taken to address RSC: Oilsands
the concerns relating to offshore rigs, however
the negative impact it will have on people's JP: Bullish
perception of the oil and gas industry as a whole
will take a great deal of time and effort to RSC: Janan, thank you very much for your time, as
reverse. always good talking with you. If any of our readers
wish to contact Janan they can do so via the
RSC: Before we wrap up looking at your own firm in following email: janan.paskaran@blakes.com
todays financial climate, what are you own plans for
growth in 2010? Are their new corporate
developments the market should look out for?

JP: Weve a strong focus on international

activities. Weve been in Beijing for over 10 years
and London for over 20 years and have recently
opened offices in Bahrain and an affiliated office
in Saudi Arabia. We think international

About Janan: Janan Paskaran is a Senior Associate practising in the areas of corporate and securities law. He
spent two years in the Firm's London office from 2006 to 2008 before returning to the Calgary office. Janan has
extensive experience representing public and private issuers in a wide variety of financing, business combination
and acquisition transactions, including both private and publicly traded issuers. He has been involved in
numerous cross-border debt and equity financings and mergers and acquisitions. Janan also provides counsel
with respect to securities compliance matters, commercial transactions and corporate finance procedures and
governance.

About Blakes: For more than 150 years, Blakes has proudly served many of Canada's and the world's leading
businesses and organizations. The Firm has built a reputation during that time as both a leader in the business
community and in the legal profession leadership that continues to be recognized to this day. Thanks to our
clients and the challenging legal work they generate, Blakes is recognized as "Canada's Law Firm of the Year"
for 2009 by Who's Who Legal and, for the second year running, as "Law Firm of the Year: Canada" in the PLC
Which Lawyer? Awards. We also consistently rank as one of the top Canadian firms on the Bloomberg, Thomson
Reuters and mergermarket M&A league tables in terms of transactional value or number of deals for Canadian
announced transactions. We have more than 550 lawyers in offices in Montral, Ottawa, Toronto, Calgary,
Vancouver, New York, Chicago, London, Bahrain, Beijing and associated offices in Al-Khobar and Shanghai. For
more information on Blakes please visit: www.blakes.com

www.oilcouncil.com
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Featuring over 80 of the industrys

most influential speakers, including:

Oil Council Matt Simmons

Chairman,
ENERGY CAPITAL ASSEMBLY AMERICAS Simmons & Company International

Forging Global Partnerships Tom Petrie

to Capitalise on a New Era of Vice Chairman,
Bank of AmericaMerrill Lynch
Oil & Gas Investment

Ed Morse
Global Head, Commodity Research,
Credit Suisse

Jan Stuart
Global Oil Economist,
Macquarie Group

26-28 October, 2010

Eventi Hotel, John Schiller Jr
Chairman and CEO,

New York City, USA

Energy XXI

Luis Giusti
CEO,
The defining event for the global oil and gas, finance Alange Energy Corp

and investment communities

Industry leaders discuss the dynamics and driving factors of todays new
economic and financial landscapes Ken Hersh
CEO,
Oil and gas CEOs and CFOs talk on the challenges they now face in ensuring
NGP Energy Capital Management
new growth against a backdrop of market uncertainly and increased volatility
and regulation
Banking experts explore the future of energy banking and its implications on oil
and gas companies
A plethora of investors, capital providers and financiers tackle the big issues
facing oil and gas executives: new investment strategies, capital expenditure, John Moon
accessing the current public and private money markets, capital raising trends, Managing Director,
Morgan Stanley Private Equity
M&A and A&D deal flow and exploration strategies
Plus special sessions focussing on private equity, the independent oil and gas
markets, the future of unconventionals and Latin America

Lead Partners:

TAYLOR-DEJONGH

Partners:

www.oilcouncil.com/ecaa info@oilcouncil.com
 AIM IPOs: plus a change

Written by Charles Wilson (Partner) and Hina Webb (Solicitor), Trowers & Hamlins LLP

Equity markets, including AIM, continue to defy attempts by financial pundits to identify any meaningful patterns for
the future. The term that has recently been used in the financial media to describe the prospects for AIM for the rest of
the year is cautiously optimistic" this suggests the potential for increased fund-raising activity and stability but
anticipates that these may not materialise.

As ever, the approach that junior exploration and production companies should adopt when evaluating options for
raising capital on AIM should be based on planning, personnel, projections, price and publicity each of these factors
to be considered against an uncertain economic and political backdrop and in the context of investors that are
increasingly cautious. Taking each of the factors in turn:

Planning: Upon identification of an additional funding need, a company should evaluate its precise requirements
and consider all sources of available finance, including the possibility of an IPO. It may be that given the volatility
in the equity markets and investor caprice, debt finance is a more certain route. Although traditionally debt finance
has been the more expensive and restrictive option, the initial outlay required for an AIM IPO coupled with the
uncertainty of success will in certain instances be considered prohibitive. It is at this stage that the company
should begin to consult with potential investors and financiers.

Personnel: Once a company has decided to embark on the route to IPO, it will need to put together a team to
undertake financial, commercial and legal due diligence and ultimately compile the admission document (which
will include the Competent Persons Report on the Company's material assets and liabilities) on which an investor
will base its decision whether or not to invest. The players in the team will vary depending on the particular
company, its assets, its projects and the jurisdictions in which it operates, but the team's success will rely upon its
having carried out thorough due diligence before any proposal is put to market.

Projections: Due diligence is key. Whilst it is evaluating financials and undertaking commercial and legal due
diligence, the team must consider whether its projects are at the stage that will attract investors. An investor will
want to assess the deliverability and revenue earning potential of the company's projects. Problems, issues,
obstacles will likely manifest at this stage and the team may find itself re-evaluating the viability of the IPO.

Price: Any company going to market will have of course satisfied itself that it meets the applicable legal, financial
and regulatory requirements to carry out an equity fundraising. The success of a fundraising will be dependent
upon the price and the projected returns. Investors will have a perception of the price sought and will form a
judgment on the reliability of the return. The perception and judgment formed may well be removed from the
actual price and returns promised. This is where a company will need to demonstrate that its pricing and
projections are in line with the investors that it is seeking to attract.

Publicity: Ultimately, investors remain cautious and are unlikely to rush to market. With increasingly selective
investors, the success of an IPO will depend upon company specific factors and whether an offer is perceived to
be a good deal with real prospects. Aspiring newcomers will need to present a solid case, backed up by a realistic
price, first rate management and technical teams and projections that add up.

Whilst a top notch team might minimise risks, certain factors cannot be controlled and jurisdictional constraints, pricing
issues or fickle investors may result in an IPO being pulled. Therefore, even having undertaken a thorough process in
preparation of an IPO on AIM, there are external factors which may defeat a well-planned IPO. However, such factors
are not new obstacles nor inherent to the current market conditions. For junior exploration companies seeking to raise
capital by way of IPO on AIM the stakes remain high and the reward is not guaranteed, plus a change

... Charles and Hina can be contacted at cwilson@trowers.com and hwebb@trowers.com

Trowers & Hamlins (Law Firm of the Year 2007 "The Lawyer Awards" and Legal Firm of the Year
The FDs' Excellence Awards 2010) provides the full range of corporate and commercial legal services and we are regularly
instructed on matters across all industry sectors. Our Energy, Projects & Infrastructure team has significant experience in advising
international energy companies, governments and government owned entities, EPC and O & M contractors and service companies.
Our expertise includes legal and regulatory, market entry and project bids, the development of projects, concessions, E&P
agreements, debt and equity finance on all UK markets (especially AIM) and pipelines. www.trowers.com

www.oilcouncil.com
BDO NATURAL RESOURCES
BDOs specialist Natural Resources team provide a wide range of
services to clients across the globe. Let us tell you more.
A TRULY INTERNATIONAL NETWORK
BDO is the fifth largest accountancy network in the world
with over 1,000 offices in over 100 countries world-wide
(including exclusive alliances of BDO Member Firms). We
believe passionately in our clients businesses and the
people behind them. We therefore seek to provide a
distinctly different professional service to our clients.
OUR INTERNATIONAL OIL AND GAS TEAMS
Our international oil and gas teams are based on five
continents in Australia, Russia, Africa, the United Kingdom
and the United States. These five centres of excellence
allow us to service our international clients wherever their
operations take them. Each centre of excellence include
partner who are local experts in their jurisdictions and
provide points of reference for neighbouring countries
when working in the sector.
115
Present in over
115 countries
46,035
44,035 partners and
staff world-wide*
The BDO network is a living network and our oil and gas
team work together and meet regularly at BDOs
international Oil and Gas conferences where there are real
relationships and real personalities the network is not a
loose umbrella of firms where every firm is different. The
BDO network is one where the partners know each other
personally and work with each other on a regular basis to
service their clients needs. These strong relationships
ensure the quality of our work internationally is also
consistent you can be sure that the advice you receive
from our African team will be the same standard as that
you receive from our Australian team.
Our local oil and gas experts have the network of contacts
to provide you with the range of services you require.
Whatever service you need, wherever your oil and gas
operations are in the world they will know the person to
help you.
1,138
More than 1,000
offices
Fifth
BDO is the worlds fifth largest
accountancy network
 OUR INTERNATIONAL OIL AND GAS SERVICE
STREAMS
BDO can provide you with the wide range of services
you would expect from a major international firm
including:
Assurance
Taxation
Corporate finance, and
Forensic services.
All our services are tailored to the specific needs
and circumstances of our clients.
ASSURANCE
Our international assurance practice provides our clients
with a robust external audit reporting service which
utilises a consistent audit methodology throughout the
world. Our audit teams spend the majority of their time
working with clients in the sector therefore they
understand your business and the issues you face.
If it is more than a statutory audit you require we also
provide specialist audit services covering PSC contracts, JV
requirements or governmental fiscal regimes, on top of
International Financial Reporting Standard conversions,
technology risk reporting and internal audit services.
CORPORATE FINANCE
Our international Corporate Finance teams provide a wide
range of specialist services ranging from flotations (LSE,
TSX, NYSE, ASX, AIM), due diligence and professional
advice in relation to mergers and acquisitions. We are also
able to provide assistance to companies looking to raise
private equity finance and fund private finance initiatives.
FORENSIC SERVICES
BDO has a dedicated and highly experiences international
forensic accounting team who have the insight to help you
to solve the most challenging disputes and litigation. We
have a wealth of knowledge and technological expertise to
provide you with the right advice to meet your forensic
accounting needs.
We have a strong track record of working with clients in
the sector. Our teams forensic accounting services include
expert witness services, alternate dispute resolution,
fraud and financial crime, asset investigation and
recovery, anti-money laundering provisions, technology
forensics and valuations.
WHO TO CONTACT
If you are interested in discussing any of our services
further, require more information on BDO or you require
assistance in an overseas jurisdiction please contact:

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Companies operating in the oil and gas sector often have
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increasingly important for companies to ensure they
minimise their exposure to costly tax regimes through
effective tax planning and for them to also look to
incentivise key employees in a tax efficient way.
Our tax teams provide a wide range of specialist services
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through to advising on the structure of share schemes,
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 A Capital Opportunity for Global Oil & Gas

Written by the Global Energy Team of Toronto Stock Exchange and TSX Venture Exchange

With dramatic changes occurring in global financial markets and fluctuations in commodity prices, many oil and
gas companies have been rethinking their financing strategies. Not long ago, there seemed an insatiable global
demand for energy which drove commodity prices to new highs, contributed to credit providers generosity, and
helped fill private equity pools with cash. In marked contrast, some of the more common sources of financing for
oil and gas companies became difficult to access over the past 24 months. Lenders pulled back on credit and
private equity generally shifted to making fewer, larger investments - with priority given to their existing portfolio
companies. Risk capital became scarce as investors favored companies with cash flow streams (particularly oil
weighted producers), leaving many higher risk exploration companies with great uncertainty around sources of
growth capital. Despite these difficult conditions, at Toronto Stock Exchange (TSX) and TSX Venture Exchange
(TSXV) (collectively, the Exchanges), we have seen an encouraging increase in financings and recapitalizations
in recent months, with 2009 actually being a record-breaking year for raising equity capital on our markets.

Toronto Stock Exchange and TSX Venture Exchange

Total Financings (C$Billions) 2004 - 2009

$65
$59
$52
$50 $60.0

$41
$46.2 $47.6
$33 $41.8
$35.3

$28.4
$11.1

$6.1 $7.9 $5.5 $4.8

2004 2005 2006 2007 2008 2009

Toronto Stock Exchange TSX Venture Exchange

For public and private oil and gas companies looking to finance future growth, there is a great opportunity to
access public capital on TSX and TSXV. With commodity prices strengthening and indications of improvement in
the global economy, the appetite for risk has started to come back and investors have greater confidence in the
public markets. When considering financing alternatives, global oil and gas companies should evaluate the
features and benefits of a listing in Canada on Toronto Stock Exchange or TSX Venture Exchange.

Global Leaders
Toronto Stock Exchange and TSX Venture
Exchange are the 6th largest exchange group in the
world based on equity capital raised and rank 8th
largest in the world by total market cap of our listed

#1
companies.

With a little over 3600 companies traded on our

exchanges, we are #1 in North America for number in North America
of listed issuers and #2 in the world. TSX and TSXV
operate within a world class financial services
environment, trade during North American business
hours, and have shared market participants with the
U.S. and Europe that help to attract global
investors. We have an active retail and institutional
#2 in the world
By number of issuers1
investor base that drive liquidity and an extensive
community of analysts with experience covering
small cap companies.

Source: WFE, Capital IQ December 2009

www.oilcouncil.com
Tailored Listing Standards
The listing standards on TSX and TSXV are tailored to companies of various stages of development and take into
account more than just market cap or profitability metrics.

o Canadas proportionate governance standards are right sized for the market and our rules and
regulations facilitate faster, often less costly capital raises.
o A listing on TSX or TSXV exposes the issuer not only to Canadian capital pools, but U.S. and
international pools as well.
o Global companies interested in listing on TSX or TSXV are not required to be incorporated or have
operations in Canada; nor are companies required to have Canadian officers or directors.
o Companies wanting to go public in Canada are afforded further flexibility because we offer several
options for listing in addition to a traditional IPO.

Companies that are ready to go public can select the method of listing that makes the most sense for their
company and current market conditions.

Methods for Going Public on Toronto Stock Exchange or TSX Venture Exchange

Access to Capital
Companies listed on TSX and TSXV have historically been able to access the capital needed to grow their
business -- even for financing international operations and projects in higher risk locations. Our Exchanges are
unique in that we offer listing criteria and transaction policies that are specific to oil & gas, and have Exchange
staff with relevant energy business experience. Canadas securities and regulatory environment facilitate
relatively fast equity raisings within a framework that affords investors transparency, integrity and high corporate
governance standards, without over-burdening the issuers.

Oil & Gas Equity Capital Raised on Toronto Stock Exchange and TSX Venture Exchange (C$B)

$11.7B
$10.4B
$10.5B

$9.2B
$8.2B

$5.3B
$4.1B

$2.6B

2002 2003 2004 2005 2006 2007 2008 2009

Secondary Offerings Private Placements IPOs

www.oilcouncil.com
Deep, Liquid Markets
TSX and TSXV listed oil & gas companies typically experience a highly liquid trading market. This liquidity is
driven by the Exchanges vibrant retail and institutional investor base who understand energy. Further, Canada
boasts an equity culture, with an estimated 49% of Canadians participating in equity markets and thereby
contributing to liquidity.

TSX & TSX Venture - Highly Liquid Oil & Gas Market
$409

$347 $337

$283
$261

$155
$117
$94
$87
$95
$56
$12 $41
$23
$17 $20 $19 $15
$6 $13
$1

2003 2004 2005 2006 2007 2008 2009

AIM ASX TMX

Source: Captus Partners, Capital IQ, As at December 31, 2009. Amounts are in C$Billions

Global Visibility
Companies listed on TSX and TSXV are positioned within a high-profile peer group. With 35% of the worlds
publicly traded oil and gas companies listed on our Exchanges more than any other exchange group in the
world our listed oil and gas companies benefit from enhanced visibility and greater analyst coverage that comes
at earlier stages.

Number of Oil & Gas Issuers Number of New Oil & Gas Listings 2009*

365 24

216
183
165

6
78 5
46 3
2
19 17 1 1
0

TSX ASX NYSE LSE-AIM NASDAQ NYSE HKEx Oslo TSX ASX NYSE LSE-AIM HKEx NASDAQ NYSE Oslo
TSXV Amex Bors
TSXV Amex Bors

Source: Capital IQ and Exchange Websites as at December 31, 2009 - *Includes RTOs and QTs on TSXV

www.oilcouncil.com
Issuers with Global Assets

Africa: UK/Europe: Russia & CIS Countries: Canada:

TSXV: 21 Companies TSXV: 21 Companies TSXV: 2 Companies TSXV: 175 Companies USA:
TSX: 10 Companies TSX: 10 Companies TSX: 2 Companies TSX: 92 Companies TSXV: 61 Companies
TSX: 18 Companies

Mexico,
Central America
& Caribbean:
TSXV: 4 Companies
TSX: 0 Companies

Middle East:
TSXV: 8 Companies
TSX: 6 Companies
Australia/NZ/PNG:
TSXV: 8 Companies
TSX: 1 Company
India/Asia: South America:
TSXV: 9 Companies TSXV: 20 Companies
TSX: 5 Companies TSX: 9 Companies

Note - A single TMX Group company may have operations or assets in multiple countries/regions.
Source: TMX Group analysis of company websites as at December 31, 2009

A go-public or liquidity event should be carefully considered to ensure the company selects the best market for
accessing capital, growing liquidity and gaining global visibility. For many oil and gas companies, the benefits of
accessing the public equity markets in Canada are considerable, and provide flexible paths to listing.

TSX and TSXV represent an alternative capital source for global oil and gas companies, featuring tailored listing
standards, proportionate governance rules, alternative options for listing, strong access to capital, trading liquidity
and global visibility. Canadas unique capital market infrastructure, extensive analyst community and regulatory
regime offers oil and gas companies a world class environment that is open for business.

If you are considering a public market listing now or in the future, please contact Cindy Gray at the Toronto Stock
Exchange and TSX Venture Exchange.

Cindy Gray
Senior Manager, Global Energy
Toronto Stock Exchange and TSX Venture Exchange
Cindy.Gray@TSX.com
+1 403-218-2822

All statistics, unless otherwise noted, are based on TMX Group data as of Dec 31, 2009. This article is for informational purposes only, is not
intended to provide legal, investment, financial or other advice and should not be relied upon for such advice.

TMX Group is an integrated, multi-asset class exchange group, which owns and operates Canada's cornerstone
equity exchanges, Toronto Stock Exchange (serving the senior equity market) and TSX Venture Exchange
(serving the public venture equity market). These are the only regulated markets in the world that can finance
companies from under $1 million to over $1 billion and everything in between. Toronto Stock Exchange and TSX
Venture Exchange have more listed oil and gas companies than any other public marketplace, and have built a
strong practice listing, trading and financing global energy companies. When you think TMX Group exchanges,
think Global Properties, Global Investment, Global Visibility. For more information please visit: www.tmx.com

www.oilcouncil.com
 Analyst
Insights
European E&Ps Hope and Exploration

We think that exploration is being inconsistently valued across the mid-cap E&Ps. With the market in a
relatively bullish mood and seemingly willing to factor in a higher long-term oil price, the E&Ps as a
group have found themselves with more cash to drill due to both higher oil prices and an apparently
greater willingness among investors to fund drilling. 2010 exploration budgets amongst our coverage
universe are set to increase 20% on average YoY.

However, we believe that too much of the value has gone into high-risk, high-reward and
geographically-restricted exploration programmes. In general terms, 1 in 5 exploration wells are
successful. In frontier terms, this decreases to 1 in 10. We favour backing what we view as reasonably
priced exploration programmes that are either well diversified across numerous prospects or that do not
have success priced in yet.

European Unconventional Gas A Tough Nut to Frac

We considered whether it is possible to repeat the recent North American success with unconventional
gas resources in Europe and concluded that significant obstacles must first be overcome. We require
more technical data points from drilling activity, but identify the presence of multiple farmstead holders,
environmental management of scarce water resources and the lack of a developed services industry as
indicating higher exploitation costs in Europe.

As such, we opine that unconventional gas exploitation will require oil-indexed gas prices to be
sustained in Europe. In any event, it appears unlikely that unconventional gas exploitation will have the
same transformational affect in Europe as it has had in the North American market in the last decade and
we expect Europe to continue to increasingly rely on imported pipeline gas and LNG in the face of
declining domestic production.

Credit Suisse AG: As one of the world's leading banks, Credit Suisse provides its clients with private banking,
investment banking and asset management services worldwide. Credit Suisse offers advisory services,
comprehensive solutions and innovative products to companies, institutional clients and high-net-worth
private clients globally, as well as retail clients in Switzerland. Credit Suisse is active in over 50 countries and
employs approximately 46,700 people. Credit Suisse is comprised of a number of legal entities around the
world and is headquartered in Zurich. The registered shares (CSGN) of Credit Suisse's parent company, Credit
Suisse Group AG, are listed in Switzerland and, in the form of American Depositary Shares (CS), in New York.
Further information can be found at: www.credit-suisse.com

www.oilcouncil.com
 On the Spot with our Question of the Month (Part One)

Were experiencing another period of volatility

and uncertainly in the financial markets. Do you
foresee this as a small market blip or the start of
something more significant, perhaps a new
capital crunch, or a double dip recession?

I could possibly make a meaningful projection if someone could tell me; if the Greece
Rescue by the EU will be successful (highly unlikely): if Spain and Portugal will be sucked
into the same financial disaster (quite likely): if the President and Congress continue on the
path of ever larger budget deficits and stratospheric debt, moving the US in the direction of
the European problem countries (very likely): if the insane Dictator of North Korea will
expand the torpedoing of a South Korean Navy Vessel into a full-blown war (flip a coin), etc,
etc. In the absence of that information my SWAG is that it will get a lot worse before we can
experience a relatively stable and growth-supporting environment.

... Franz Ehrhardt, CEO, CASCA Consulting LLC (Oil Council Committee Member)

There are many financial and economic imbalances that need significant correction before we
can look forward to a period of stability, let alone predictability. For all the talk of the
government budget deficits, credit-starved businesses and poorly capitalised banks (with their
under-performing assets and continuing bad loan exposure), we can now add an
unprecedented layer of sovereign debt risk. There is much speculation about the default risk
and economic weakness of many countries in the Eurozone, which has served to deflect a lot
of attention away from what is arguably the more challenging economic problems of the US.

My feeling is that all these factors will lead to a prolonged period of volatility, perhaps lasting 5
to 10 years more, and it will take resolute and determined government action to restore the
economic fundamentals and investor confidence. We need to get used to the idea that we are
in for a roller-coaster ride for many years to come. Flexibility and adaptability will be key to
ride out the bumps ahead.

... Robert Lambert, CEO, GB Petroleum Ltd (Oil Council Member)

We are experiencing and will continue to experience significant volatility in capital markets for the coming
months. Markets are nervous and so respond extremely to news flows. We see this as a continuation of the credit
crunch rather than a new credit crunch as you describe it. It goes without saying that we have experienced a
severe correction and while we may be bouncing along the bottom it will be a long slow road to recovery
especially in the developed economies of Europe and USA where public and private debt are an important drag
and growth is slow to re-emerge. Commercial Banks in particular are forced to contract their balance sheets,
which removes what had been an easy source of liquidity to the industry. Overall debt gearing will continue to be
more challenging and large scale projects will need bilateral and multilateral agencies to fill the void left by banks

... Keith ODonnell, Head, Natural Resources (EMEA), KBC (Oil Council Member)

This current period of volatility and uncertainty is partly driven by concerns about European
debt. We see these concerns as much more than a market blip; however, we dont expect them
to lead to another credit crunch and double dip recession, at least not in North America. Europe
faces several years of painful fiscal retrenchment that at the very least will greatly hold back its
expansion and likely spur a recession in several Eurozone countries.

Its the contagion effect that is much more worrisome and is the unknown variable that may
ultimately cause a pan-European recession. The recent sharp selloff of North American oil and
gas equities is in response to the collapse of the WTI crude oil price over the last few weeks.
This drop in crude pricing is partly due to WTI-specific factors rather than a broad-based decline in global oil and
product markets. The less severe decline in Brent pricing reflects both the decline in the North American crude oil

www.oilcouncil.com
price and the current European uncertainty, amongst other complex factors. Global crude benchmarks and
petroleum product prices have recently suggested that end-use demand for crude oil (i.e., petroleum products) is
improving, especially in emerging markets. This should set the stage for higher world-wide crude oil prices with
North America leading the way.

... Adam Janikowski, Vice President, Investment Banking, BMO Capital Markets (Oil Council Member)

There is undoubtedly a fear of a double dip recession with increased country debt in Europe a
major contributory factor. Governments have borrowed on a massive scale to shore up fragile
economies. The measures to be undertaken to service and ultimately repay this debt will affect
every single individual and will lead to significant public sector cuts resulting in increased
unemployment and service cuts.

While the chance of a double dip recession was thought to be slight in early 2010 investors are
now giving greater credence to the possibility. Worryingly, as recently evident, investors have
bolted to the safe haven of short-dated US government bonds. This flight from risk was a
precursor to the collapse of Lehmans and it is clear that the markets are continuing to sense trouble for the
remainder of 2010 and maybe beyond.

... Alan Ross, Senior Manager, Oil & Gas, Lloyds Banking Group (Oil Council Partner)

It is certainly not a small market blip, but the market, and more importantly governments, are
now more agile in responding to the potential global crisis (part two) and mitigating contagion
coming from the sovereign debt crisis. Already we see a capital and credit crunch, which is
then followed by a lower oil price. I dont think the crisis and the recession will repeat itself with
the correct measures but this should be considered a potential threatening aftershock,
cracking the emergency foundations which have been put in place after the 2008 crash.

... Ennio Senese di Sisto, Executive Partner, Energy, Accenture (Oil Council Member)

US prospects for economic growth in 2010 look good and a V-shaped recovery is still the
base case among most economists. However, the impact of the Euro crisis, if not
contained, will have a major impact on the global economy and could lead to another
recession in 2011. The pendulum can swing either way, i.e. a continued but modest recovery,
or, a 2011 recession caused by worsening developments in the Eurozone.

... Dr Herman Franssen, President, International Energy Associates (Oil Council

Committee Member)

Volatility and uncertainty are essentially becoming a trend, with increased lower and middle
market activity, M&A, and debt financing efforts ultimately heralding consolidation in the
wake of a disjointed economy. While these are harbingers for continued uncertainty in the
markets, they are also indicators of anticipated recovery. However, international default will
no doubt continue to run its course well into 2011, only to be met by the rise of emerging
markets, triggering a shift of wealth and exploitation.

... Chris Valenti, Energy Investment Banker, Starlight Investments, LLC (Oil Council
Member)

The market volatility seen in May was an overdue correction in the markets expectations for
economic recovery. The problems that can constrain growth remain largely unsolved. The huge
public debt levels, record unemployment and rising inflation cannot be controlled and contained
easily especially as the developed world has become accustomed to a high standard of living.

The Greek near-default situation and the warnings from other countries such as Portugal,
Ireland and Spain, have served as reminders of the grave dangers still present in the financial
system. Despite governmental plans for budget cut-backs and austerity measures, it will be
difficult to convince the public that their belts need tightening; it will take time and pain, political
and economic, even to start such programmes. Capital will be constrained as many of the leading banks have to
make provisions for losses on government paper, in addition to tighter regulation and operational constraint
imposed by the authorities.

www.oilcouncil.com
After the general euphoria in the markets for the past 15 months, markets are now discounting prolonged,
anaemic economic growth. We believe that market volatility will persist with periods of extreme overshooting a
generally sideways move for the year.

Commodities, which have enjoyed the strongest recovery among all sectors, are the first to suffer in this
environment and we continue to expect oil prices to trade between $65-85/barrel in the next 12 months. In such
an environment, the better capitalised, cash-flow generative E&P companies with strong management are likely
to perform better even in extremely poor market conditions.

... Angelos Damaskos, CEO, Sector Investment Managers (Oil Council Committee Member)

A May 24th article in The Washington

Post had a scary thesis: 'One false move
in Europe could set off a global chain
reaction.' It echoed similar worries
documented by Bloomberg and Financial
Times, noting wider CDS spreads,
difficulty selling high-yield corporate bonds
and M&A deals cancelled.

And since the US is already at ZIRP, there's no ammo left

except quantitative easing. If US consumption falls, China has
no engine to pull the world out of its debt trap. Risk is off and
deflation is likely, no matter how many dollars or Euros are
created by fiat on central bank balance sheets. I think highly
geared minnows will fail, most independents to hunker down
and Brazil to scale back pre-salt development.

Demand determines oil profits. We have yet to test elasticity in

a global depression, and Rembrandt Koppelar's latest chart of
OECD demand suggests that exporters could see another 15%
decline in oil consumption. Even the majors would be in trouble
if WTI crude fell below $40 a barrel again.

... Alan von Altendorf, President, CWSX LLC (Oil Council

Member)

In summary lets say it is more a long-term deep fiscal crunch that has inevitably arrived in Europe, however this
combined with interest rates being held lower for longer in the US should ironically provide more capital more
cheaply for the private sector to resume growth i.e., the crowding out effect is diminished more than before the
EU/UK austerity packages were announced which will assist key exporters in Germany to more easily grow along
with a cheaper Euro. On this basis there should be no double-dip hitting global growth on the scale of 2007/8, in
particular Asia and the US should provide enough of an engine to keep global growth on track along with the
Germans and hopefully the UK medium term! In addition, the deflationary forces unleashed by the EU/UK
austerity packages will put downward pressure to counteract inflation from a falling Euro.

... Ashley King-Christopher, Partner, Tax, Akin Gump Strauss Hauer & Feld

www.oilcouncil.com
 On the Spot with our Question of the Month (Part Two)

How significant an impact will BPs

Gulf of Mexico disaster have on the future
landscape of the oil and gas industry?

There are two components to consider, political and technical. Based on past experience,
only very few politicians will let the opportunity (feeding frenzy) pass to create enormous
spectacles, to arrange theatrical show cases and hearings, and to call loudly for a full range
of legislative and regulatory actions from punishment with extra taxes all the way to totally
banning any offshore drilling and production in US territorial waters. Therefore, we can
expect a considerable and burdening legislative, regulatory and fiscal impact resulting from
this political Schlachtfest.

On the technical side every catastrophic failure, especially those in technological frontiers,
has always led to tremendous efforts to find the causes of such failures and to expeditiously develop new
processes, procedures, superior materials and products to safeguard against repetition (e.g. Spaceships
Challenger and Columbia and the Piper Alpha Platform events).

Therefore, tremendous progress can be expected in the much better understanding of the peculiarities of the
highly challenging frontier environment of deep sea drilling and production, especially in the area of
temperatures, pressures, the total absence of or highly restricted visibility, and extraordinary difficulty in
performing mechanical tasks, and the subsequent development of new technologies, materials, approaches,
processes, as well as, internal and external guidelines.

Then there is the Industry Impact. Almost every company will undertake all reasonable and feasible efforts to
review and update their processes, policies, procedures, guidelines and applied technologies to effectively reflect
protection against catastrophic failures like the one that happened to BP. The experience of this spill and its
enormity also could (and should!) lead to an industry-wide task force to coordinate the progress in effective
technologies and applications in operations in highly volatile and hostile environments, as well as, the
establishment of an industry-wide emergency response task force. Industry in this regards would include the Oil
& Gas Industry and the Oil & Gas Service and Equipment companies, all enhanced by the inclusion of the
respective Federal and State organizations.

... Franz Ehrhardt, CEO, CASCA Consulting LLC (Oil Council Committee Member)

The Macondo blowout in the Gulf of Mexico is a tragedy for those who lost their lives and
their relatives, as well as, an ongoing disaster for the offshore drilling industry. It is of course
too early to tell with certainty what will be the long-term implications of the spill for BP and
the wider industry. However some themes are emerging. From the industry's perspective in
the US it could not have happened at a worse time, just one month after Washington had
signalled an expansion of offshore drilling to balance its new legislative proposals on climate
change and clean energy. The key question is whether there will be significant long-term
effects, or whether business will eventually return to its previous trend and modus operandi.
It is noteworthy that previous major incidents have slowed but not ultimately blocked the
pace of expansion. One obvious change will be the push for stricter, and inevitably more costly regulation to
reduce risk and improve safety and damage to fragile environments. In the UK, Chris Huhne, the new Energy
Secretary, recently announced plans to double inspections of rigs in UK waters and may require an increase in
insurance cover. Tighter regulation will clearly delay and slow down drilling programmes. This pressure will not
only come from the regulators.

Directors of operating companies, particularly the juniors without the deepest pockets, will also be very
concerned as to their own responsibilities and potential liability.

There will be a boost for the developers of alternative sources of energy and the clean tech industry. But in the
near-term this will not provide the solution to security of energy supply in a time of increasing world demand. The
current offshore model of outsourcing the work, particularly to independent contractors, will come under scrutiny,

www.oilcouncil.com
perhaps resulting in the majors taking more work in house, though abandoning the current model cannot happen
quickly and almost certainly will be less efficient. This will prove to be bad news for the contractors, but to what
extent? New exploration areas will be left untouched, at least for a time. In the US this includes the recently
licensed blocks off Virginia, Alaska and California, and further afield potentially in the waters around Greenland
and elsewhere in the Arctic.

Finally, under pressure from environmentalists, the offshore drillers' fiscal regime may well become less
attractive, with the recent tax breaks implemented in the US already under considerable threat. Overall though,
the outlook for the industry generally remains positive and one suspects that the Deepwater Horizon disaster,
serious as it is, will not alter its long-term trend.

... Neil Vickers, Partner, Corporate, Denton Wilde Sapte LLP (Oil Council Member)

Whilst the disaster will impact on many aspects of the industry the impact on the structuring
of JOAs will be interesting to see. Can we continue with the concept of no gain/no loss for the
Operator, with the Operator and Non-Operators sharing any loss in proportion to their
respective participating interest, other than where the Operators gross negligence or wilful
misconduct is the cause of the loss and then the gross negligence or wilful misconduct of a
senior manager of the Operator at that? Will the Non-Operators accept such a submissive role
in the future when it comes to how the Operator conducts petroleum operations? Will they
want to be more intrusive? Will the role of the Operating Committee change from supervisory
and advisory to include monitoring and enforcement? Will the mechanisms for dealing with
default need to change? How can we be sure the Operator and Non-Operators will have the financial capability to
meet a call to cover such loss? What about sole risk? Will the rules of sole risk be changed? Will the non-sole
risk parties rely on a contractual indemnity by the sole risk parties? So many questions time will give us some
answers.

... Dr Kenneth Mildwaters, Senior Partner, Mildwaters Consulting LLP (Oil Council Member)

I am actually quite worried about the BP GOM situation. It is bad enough that such a
catastrophe has occurred (with the devastating impact on peoples lives and the environment)
but I am equally dismayed and disappointed with the immediate politicisation of the disaster by
the White House. Wild accusations, xenophobic threats and over-aggressive pontification have
done no credit to the Obama Administration. Obviously, there had to be a degree of table
thumping and corporate bashing in order to appease a nervous electorate but, on a wider
context, fresh lines may have been drawn between the US government on one side and Big
Business on the other. I see a much more difficult operating environment (and not just in the
US) for the whole industry.

The US domestic offshore petroleum industry could be about to get a whole lot more expensive and tougher. If
we also add in the rising environmental objections in North America to onshore shale gas and oilsands
operations, there are serious supply concerns ahead for the US. The Obama Administrations reaction to this
event could also be a worrying presage of a more interventionist attitude in general, perhaps with wildly
unpredictable consequences. Over-reaction to such stresses tells us a lot about the capability of this
Administration and gives serious cause for concern when even larger issues of an economic, political or military
nature present themselves in the future.

... Robert Lambert, CEO, GB Petroleum Ltd (Oil Council Member)

Longer term this could have a severe impact and may be viewed in the future as the watershed
moment when a significant move towards a post-oil economy gathered pace. A shift of focus in
the near-term towards identifying fail safe solutions over identifying reserves may become the
priority for CEOs worldwide. From a laymans point of view it has also highlighted the unedifying
behaviour endemic following any disaster where avoiding responsibility is the priority.

The sector doesnt help itself when the multinational big boys outsource everything (BP contract,
Transocean operated rig and Halliburton as a service provider for other critical tasks) to service
companies and everyone looks to everyone else to take the blame. Perhaps Big Oil will no longer be seen to
be untouchable. Lastly, is it really state of the art technology in the industry to deploy a hastily prepared funnel in
response to the disaster? In this day and age it all seems a bit inadequate to the general public.

... Alan Ross, Senior Manager, Oil & Gas, Lloyds Banking Group (Oil Council Member)

www.oilcouncil.com
 Its important to remember that the number one issue that drives this industry is the global
demand for oil. The unfortunate accident in the Gulf will not have an impact on demand for
mergers and acquisitions. In fact, it might give another boost to the already robust pipeline of
deals we can expect this year because of companies needing to adjust their practices and
operations to any potential technical changes that we expect will be mandated to improve
overall environmental safety.

PwC works with energy companies to help them better understand new opportunities in the
market, especially when there are unforeseen events like this. Based on our experience,
there will be more companies looking for additional insights and perspectives into how potential changes will
impact their current businesses and strategies. And, since todays energy deals are not just focused on acquiring
reserves, but technology, talent, and inherent 'know-how', there will be an appetite for a new wave of
transactions that can add proven capabilities to a portfolio of services. We are actively helping energy companies
navigate the complicated road of M&A, and with any unique event that takes the spotlight, there is a heightened
sense of being prepared for a variety of scenarios and making sure they uncover every potential risk and
opportunity for reward.

... Michael Collier, Partner, PwC (Oil Council Member)

The BP disaster is likely to be a game changer for the GOM and many other deep offshore locations. It has
focussed media attention on the technical challenges as never before and it is likely that there will be a significant
increase in regulation and supervision that will add time and complexity for players wishing to explore such
regions. In the longer term the need to recover reserves from these locations will be paramount and so a way will
be found to continue to have economic exploration in the most challenging locations. In terms of players there
will be no change it remains the preserve of super majors and it is very unlikely that national governments
would want to be more than regulators one step away from ultimate responsibility.

... Keith ODonnell, Head, Natural Resources (EMEA), KBC (Oil Council Member)

The traditional hydrocarbon model is really a dying one. Even with the oil reserves in Iraq,
Iran and the Kingdom of Saudi Arabia, easy oil will be running out in less than 12 years.
Difficult oil, strictly seen from the economics, would require an oil price of at least US$75 to
make it break even. The market will not accept a US$150+ price and alternative energy will
mushroom again because their break-even prices will be graciously surpassed.

Companies and experts claim that technology will improve to a level that will make difficult oil
cheaper to access. Indeed technology has improved back in the early days 1,000 feet of
water was astonishingly cutting edge, now theyre drilling at 12,000+ feet of water but the
costs have not decreased. The opposite is true. The environmental impact was big anyway, but with accidents
such as the BP one in the Gulf, the stopwatch will be put on hold for at least another two years. Companies
should really re-think their models in that perspective. The gas sector will get more attention as a consequence
and already were seeing a number of new sites coming on-stream with gas substituting oil as chemical feedstock
increasingly more so.

... Ennio Senese di Sisto, Executive Partner, Energy, Accenture (Oil Council Member)

If BP are able to cap the well (Wednesday 26 May is first top kill attempt) then this will enable any worst case
scenario to be avoided, and BP's efforts to correct the situation and clean up the impact of the spill can become
(even) more focused. Their visibility and proactive response has been exemplary in my view, and the industry
should take note of such commitment for future incidents - which is a read across in itself. There is of course a
significant environmental impact already.

However the US Gulf and other sensitive offshore environments have recovered from spills and other disasters
before and while there will be lessons learnt in response and application of clean up techniques this may not be
the main ramification for the industry. Indeed, the key change for the industry has to be in avoiding such
catastrophe again. This implies a need to focus on the failure of a number of processes, systems and equipment
with multiple control-mechanisms, procedures and tools that obviously did not work in either a) preventing the
accident or b) reducing the impact of the accident.

In years to come, BP may be measured on its clean up commitment and the rectification of the spill. However, it
will also be measured on the very steep learning curve it has had to climb to kill the well at such depths and
improvise in such a frontier territory. The industry will likely be measured on its ability to improve safety
procedures and avoid such damaging disasters in the first place, and this will involve inclusion of the lessons

www.oilcouncil.com
learnt from this whole episode. Any repeat catastrophes of such magnitude cannot be allowed to happen and
BP's experience will be core to ensuring this going forward.

... Jason Kenney, Head, Oil & Gas Research, ING Bank; and President, Scottish Oil Club

What lessons have we learned already? In summary...

A woeful lack of preparation on the part of BP to cope with these types of oil spill disasters. Its an eye
opener for the industry as a whole to add additional redundant safety measures.
The multi-level, devastating damage that such an oil spill disaster can cause worldwide.
Government agencies in charge of regulating the industry are staffed with personnel having neither the
technical knowledge associated with offshore drilling, nor the sufficient power to enforce regulations.

What does the future now hold for the industry? In summary...
Deep water drilling is a necessity, and it will continue. At the present, there are not enough viable oil
substitutes to produce energy at the massive scale needed globally.
New rigorous safety / maintenance regulations applied on a global basis.
Sky rocketing insurance coverage, which adds to the cost of drilling, particularly subsea.
Additional taxes levied on the industry.
Revitalized efforts to develop energy renewables.

... Philippe Mitterrand, Chair, International Study Group, SPE-Gulf Coast Section (Oil Council Member)

The impact of the Gulf disaster will be significant on the future regulatory climate for offshore
and in particular deepwater drilling. At the very least, it will add regulations in an effort to
prevent future blowouts. These expected regulations will add to the cost of exploring for and
developing deepwater oil and gas resources. If liability for major spills rises from US$75 million
to billions of dollars, it could mean that only the IOCs can continue to explore and develop
deepwater projects. One would also expect that the review process prior to approval of future
offshore projects will take more time and that leasing of offshore acreage on Federal lands will
be slowed.

While the Obama Administration had already excluded the Pacific OCS from future oil and gas development, this
potentially oil and gas rich region will not be opened for development for a very long time. Outside of the US, it
may become more difficult for Brazil to raise the funds necessary to develop the pre-salt blocs where major oil
and gas files have been discovered. Delays in developing the pre-salt can be expected. It is possible that the
technology to find, develop and produce oil and gas from ultra deepwater oil and gas accumulations, is way
ahead of the technology to deal with serious potential problems. Perhaps some time is needed for those
technologies to be developed.

... Dr Herman Franssen, President, International Energy Associates (Oil Council Member)

The BP Gulf of Mexico disaster has raised public awareness of the risks associated with
offshore drilling for oil. Given the size of the industry and the fact that virtually all recent
significant discoveries are offshore, it is unlikely that a regulatory response will have a lasting
impact on operations. It is possible that there will be delays in projects as companies and
government officials try to introduce new controls and practices, but given the demand for
hydrocarbons as the worlds main energy source, the adaptation period should be relatively
short. After all, it is becoming clear that the BP disaster comes down to human error rather that
poor practice and regardless of what any manual says, human error is very difficult to control.
BP might have failed in instilling its policies and (high) standards, as stated in its manuals, to its
employees, but such management quality is very hard to regulate. Drilling offshore should continue especially
given the decline in reserves in onshore fields around the world.

... Angelos Damaskos, CEO, Sector Investment Managers Ltd (Oil Council Committee Member)

Gulf of Mexico produces ca. 1.6 mln bpd of oil ca. 24% of all US oil production and ca. 25% of global deepwater
oil production. Gulf of Mexico and other deepwater areas remain crucial for the global oil supply. Following a
review of the accident, new safety, operational and environmental regulation are likely for offshore drilling in Gulf
of Mexico and other regions are likely to follow suit and to include them in their operating guidelines. The
regulation, liabilities and insurance cost for deepwater operations are likely to increase cost and also delay to
future deepwater production (Deepwater is likely to remain the marginal barrel for conventional oil production).
Governments and consumers should remain pragmatic and realise that production from deepwater areas is

www.oilcouncil.com
essential in order to meet global demand. Currently only a few select operators have the expertise and financial
muscle to manage full cycle deepwater operations. Lessons learnt from BPs Macondo will be shared by industry
players to build better awareness and standards on deepwater operations.

Collaboration between service companies and upstream players has built a vibrant deepwater industry in a safe
way over the past two decades. A tragic accident like Macondo should encourage the industry, policy makers and
consumers to strive even harder to achieve new levels in safety and environmental standards while addressing
the global energy challenge.

... Unnamed Industry Advisory Perspective

It depends in part on BP's success in executing remediation strategies, but will in time be
reduced by the mere tendency to forget. Litigations will drag on and influence public
perception, which is the objective of such efforts, aimed at invoking legislative reforms to
further restrict and regulate oil and gas companies and command environmental
accountability and stewardship. All things considered, the impact could be damaging for
those companies that cannot adapt, or at least appear to.

... Chris Valenti, Energy Investment Banker, Starlight Investments, LLC (Oil Council
Member)

BPs newly released Statistical Review of World Energy shows the US making major progress in oil and gas
production in 2009. It overtook Russia last year as the largest natural gas producer in the world after US output
increased 5.3% in 2008 and another 3.5% in 2009 on the back of rising unconventional gas production. Last year
the US showed the best growth rate in oil output (+7%) for over forty years largely due to a 34% increase in
GOM oil output, which was in turn to a large extent driven by a 58% jump in BPs oil production in deepwater
GOM. Both unconventional gas and deepwater oil carry environmental and technological risks as indeed any new
technologies would do.

Without Americas ability to encourage technological innovation and take investment risks last years
breakthrough would not be possible. Would Obamas administration now want to reverse this? I dont think so.
However, the industry will likely face more stringent regulation in GOM with a commensurate rise in production
costs and insurance premiums. Taxes and royalties may also rise but probably not to the level where new
investments would be discouraged.

The EU may follow with a review of their offshore regulations but other major new deepwater areas such as
Brazil or Angola are unlikely to respond with any material changes.

... Evgeny Solovyov, Director, Oil and Gas, Global Equity Research, Societe Generale Corporate &
Investment Banking (Oil Council Member)

www.oilcouncil.com
 Regester
Larkin

Regester Larkin helps IOCs, NOCs, Independents Some of our clients include:
and utilities both upstream and downstream - to
Air Products
protect and capitalise on their reputation.
BG Group
For 15 years, we have been pioneering reputation management in the oil Conoco Phillips
industry. Our expertise has been honed by helping energy companies maintain Dolphin Energy
their license to operate in the aftermath of many of the UKs most high-profile
oil industry incidents (eg: Sea Empress, Braer, Buncefield). We have also Dubai Petroleum
helped many of the worlds largest energy companies proactively to manage Eni
both short and long-term threats to their hard-won global reputations. ExxonMobil
Hess
Our specialists work with energy companies on a local, national and
international basis, providing in-depth analysis, independent advice and Karachaganak Petroleum
tailored coaching and training. Operating,
National Grid
Whether you want to protect your reputation in the face of local concerns,
global issues or full-blown crises, or capitalise on your reputation to achieve Nexen
your business goals, we have a comprehensive range of services to assist you, Oil & Gas UK
including: Oman LNG
OMV
Reputation risk audits
Petro-Canada
Evaluating emerging issues
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Industry benchmark studies
Premier Oil
Special advisers to top management
Qatargas
Deploying reputation for business growth
Shell
Crisis leadership coaching TAQA
Crisis spokesperson training Total
Media and family response training
Crisis exercises and simulations

Examples of our recent work in the energy sector

Crisis management:
Advising a supermajor on its external communications when an oil tanker
ran aground in ecologically sensitive waters. Contact us
Designing and facilitating crisis exercises at country, divisional and group
level for worldscale energy companies. Regester Larkin Limited
Conducting a two-year programme to enhance crisis preparedness at one 21 College Hill, London,
of the worlds largest gas companies. EC4R 2RP, United Kingdom
T: +44 (0)20 7029 3980
Issues management:
Helping an IOC consider its external engagement and media strategy enquiries@regesterlarkin.com
related to a major potential project in Iraq.
Advising an oil and gas transportation company on its position during Regester Larkin Middle East
industry discussions on proposed new shipping emissions regulations PO Box 77768
Helping an IOC develop and implementits issues management strategy twofour54, Al Salam Street
around a product legacy land contamination issue.
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T: +971 2 401 2585
mena_enquiries@regesterlarkin.com

Reputation Strategy and Management www.regesterlarkin.com

 Wall Street Investor Private Equity Deal Killers
Written by Ziad Abdelnour, President and CEO, Blackhawk Partners Inc

As part of Blackhawks close group of family and friends; and to set the record straight, we thought wed
share with you the Classic deal killers that we encounter when reviewing the more than 2,000 business
plans submitted to us on the average a year. By deal killers we really mean the generic statements for
you to avoid when submitting your Elevator Pitch.

We hope this short list will better assist you fine tune your Value Proposition when approaching us, or
similar investors, for funding. The solution seems to be to have a set list of deal killers and to stick to that
list regardless. The problem of course is that you could miss great deals and theres merit in looking at
deals on a case-by-case basis. But were sticking in here to when in doubt, kill it, because you simply
dont need to take undue risk.

The following list is not exhaustive, but outlines a few scenarios in which wed kill a deal in an instant.

1. There is no competition.

Perhaps no other company sells a product substantially similar to yours, but this does not imply a lack of
competition. Any substitute product, process or service that satisfies the same need as your business is a
competitive solution. Stating that no competition exists reveals either a lack of research or imagination
on your part. We interpret the lack of competition as evidence that the market is undesirable or having
need of consumer education. Such a statement is an instant deal killer for us.

2. The existing competition is (lazy/stupid/pick an adjective).

Denigrating your competition will detract from your business plan more than it adds. The statement
offers us no insight into why your company will succeed against an entrenched company. If the
competition has failed to seize the initiative due to its organizational structure:

a) Speak to the lack of incentives implied by this type of organization.

b) Identify weaknesses in the competition that are difficult to change, as opposed to poor leadership,
which is relatively easy to change.
c) Offer us information about the competitive landscape rather than invectives against existing
companies.

3. Company founders have invested $X worth of their time in the company.

www.oilcouncil.com
We like to see that the founders of an entrepreneurial company seeking funding believe in their business
enough to make investment and personal sacrifice to sustain its survival, but do not confuse the two.
While foregone salary represents an economic cost of the venture to an entrepreneur, it is not an
investment into the business. Investment translates to cash spent for costs related to starting and
developing the business. If you have spent a significant amount to do this, please make sure to include
the figure somewhere in the financial section of your business plan. If not, you are asking for trouble.

4. Our channel partners will sell our product.

Making the sale of your product somebody else's problem is not the solution to the marketing section of
your plan in 9 out of 10 cases. Your product is competing with alternatives in your industry and others for
your channel partners' time, so the incentives in terms of volume, margin and strategic benefit (ability to
sell corollary services) must justify their commitment. If your marketing plan is dependent on this
strategy, provide compelling evidence that it is viable. If not, you havent done your homework and will
most probably not get our attention.

5. Our projections are very conservative and we will break even or be profitable 1, 2, 3
years from today:

If you havent already generated profits and havent attracted enough clients to show us youre actually
running a business v/s just tinkering with ideas, you are most probably not fit for us. Track record for us
is indeed key and wed go on a limb and back an entrepreneur who made it big time and lost it all than
funding someone who never generated profits and is still conceptualizing his/her thoughts. Ideas are a
dime a dozen. Execution is all.

6. We will sell into the $X Trillion global (name any) market.

Incorrectly sizing the market gives us the perception that management lacks either the knowledge to
assess who would buy the product or the integrity to delimit this statistic accurately. Business for us is
War and the only way to winning is to be armed with the right intel. Short of that, you are asking for
more trouble.

7. Absence of information regarding how funding will be used.

We like to know WHY you are raising capital. Most entrepreneurs seeking funding provide us with a
dollar amount they are seeking to raise without any explanation of the use of proceeds. Make sure to
provide a breakdown of where the dollars go. The devil is indeed all in the detail.

As the clich says: lemons ripen early, plums ripen late. That is, if the deal looks like a lemon early, it
probably is a lemon.

Looking forward to doing business with you and to continue being your resource for deals, capital,
relationships and advice..The ball is in your court.

Ziad K. Abdelnour,
President and CEO, Blackhawk Partners, Inc
ziad@blackhawkpartners.com

About Ziad K. Abdelnour: Once referred to by the New York Times as one of the 100 most creative and
fiercest investment bankers on Wall Street, Ziad K. Abdelnour is a dealmaker, trader and financier
with over 20 year experience in merchant banking, private equity, alternative investments and
physical commodities trading. Since 1985, Mr. Abdelnour has been involved in over 125 transactions
totaling over $30 billion in the investment banking, high yield bond and distressed debt markets and
has been widely recognized for playing an integral role in those three key market sectors. He founded
Blackhawk Partners, Inc., in 2004; a New York based private equity family office that focuses on
originating, structuring and acting as equity investor in management-led buyouts, strategic minority
equity investments, equity private placements, consolidations, buildups, and growth capital
financing. For more information please visit: http://blackhawkpartners.com

www.oilcouncil.com
Golden Barrels: Hayward Staring Down The Barrel
By Simon Hawkins, Head, Oil & Gas Research, Ambrian

It's difficult to imagine a worse day at the office than
being held responsible for a fatal accident, the
associated devastating environmental and economic
fallout, the President of the United States of America
saying you shouldn't be in your job and your shares
falling by nearly 40% in just over a month.
This week the market started to realise that there is
indeed a potential threat to BP's dividend for Q2 and
beyond. A mainly political rather than a financial
threat, but this nonetheless was always said to be the
trigger for heads to roll.
BP's crisis is not going to
be solved by the world
seeing a CEO weeping on
prime time American TV.
When my elderly mother asks me if the 'top kill' has
worked and the first ten minutes of Have I Got News
For You are spent talking about a company in my
sector, it's clear that the oil spill has turned into a
media spill and the crisis has turned into a circus.
Whatever I might think about the appropriateness of
someone in charge saying they want to get their life
back, there have certainly been times over the last
month when I've wanted to switch off the streaming
images of oil billowing into the Gulf and to stop reading
every single piece of news flow about it. And I've been
grateful to be able to do that.
But Tony Hayward doesn't have that luxury. Despite
the understandable backlash against the company and
comments about his posh British accent I still think
he's one of the good guys. I've met him a few times
and while I don't feel I know him personally, everyone I
know who does, tends to agree.
But whether he's a good guy or not isn't the point. BP's
crisis is not going to be solved by the world seeing a
CEO weeping on prime time American TV.
It needs someone able to apply the massive resources
of a leading technically competent organisation and do
everything in their power to stop the leak, clean it up
and dig deep to compensate everyone who has a
legitimate claim.
The Kbler-Ross model of dealing with grief, disaster
or tragedy would tell us to expect some or all of 5
stages:
1. Denial is this really happening?
2. Anger who is to blame?
3. Bargaining what can we do to make it better?
4. Depression whats the point?
5. Acceptance how can we prepare to move on?
Some of these certainly resonate with the psychology
of this oil spill. Everyone involved with the Deepwater
Horizon is on their own journey, including everyone
within BP.
But the faster the media is less focused on blame and
more on facts, the more BP will be able help Obama.
And the more likely Tony Hayward will be able to
dodge the bullets.
Let me know your views at:
info@goldenbarrels.co.uk

About Simon: Simon is

a specialist energy and
resources investment
bank. Previously, Simon
was founder of Omni
Investment Research,
and held senior
positions at UBS and
Dresdner Kleinwort,
having been ranked number one by Thomson Extel for his
coverage of the European Gas sector, number two in
European Oils and three in European Utilities. Prior to joining
the City, Simon had eight years international experience with
the Shell, working in economics and finance in Nigeria, The
Netherlands, the Far East and the US.

Ambrian provides full service investment banking to a broad range of institutional and corporate clients, including Corporate
Finance, Corporate Broking and Equities. Ambrian is focused on three key sectors, Oil and Gas, Mining and
Cleantech/Alternative Energy, where it has developed in-depth expertise and relationships. www.ambrian.com

www.oilcouncil.com
 The Oil Outlook
June 2010:
The Future of Deepwater Drilling
By Gianna Bern, President,
Brookshire Advisory and Research

As the world watches the continuing oil spill in the
Gulf of Mexico, what becomes clear is the
magnitude of possible downside consequences
stemming from risks inherent with deepwater
drilling.
Friendly Waters
Among industry insiders, there is increasing
concern that other nations will look upon deepwater
drilling with increased hesitance and regulation.

All told, the global oil industry has had a very good National Oil Companies (NOCs) will be, by virtue of
safety record for offshore drilling in both shallow ownership structures, in a competitive advantage.
and deeper waters. NOCs will not have to contend with drilling
moratoriums in home waters.

From both geopolitical From both geopolitical and regulatory standpoints,

and regulatory standpoints, independent oil companies will be challenged to find
friendly waters.
independent oil companies
Meanwhile, U.S. Gulf of Mexico producers are
will be challenged to find seeking friendlier waters to drill and produce.
friendly waters. According to Baker Hughes data, 23 of 46 offshore
drill rigs have already had left those waters.

That track record has become irrelevant among
increasing numbers of regulators and politicians. Of
critical importance is ensuring the public and
regulators that the oil industry can prevent the
unthinkable from happening again.
The Path Forward
It is paramount for the industry to quickly gather
best practices, advance research, and obtain new
learnings of oil extraction at deep water depths.
These drill rigs likely have left for Asia or the West
Coast of Africa. Once drill rigs leave the Gulf of
Mexico, they will not return simply because the U.S.
moratorium has been lifted.
Contango Continues
The market is continuing to price oil futures in
contango. The market expects increasing crude
demand concurrent with decreasing crude supplies,
in future years, amid a fragile economic recovery.

Producers are highly motivated to assemble best-in- Crude prices have stabilized with Brent and WTI at
class policies and procedures aimed at ensuring $74 and $73 per barrel, respectively. Over the next
safety and meeting expected new and increasingly several years, futures prices for crude oil contracts
stringent regulations. are in the $90 per barrel range.

Global oil producers have urgently mobilized
researchers, engineers, and drilling experts to
develop, review, and implement new drilling safety
procedures. Undoubtedly, deep water exploration
and production cost structures will be impacted as
drilling technology and regulation are brought to a
whole new level.
For the near-term, the market expects cutbacks on
U.S. deepwater drilling will not have an immediate
impact on pricing.
Over the longer term, continued policy short-
sightedness will have an adverse affect on crude
supplies.

About Gianna: Gianna Bern is a registered investment advisor and President of Brookshire Advisory and Research, Inc.

About Brookshire: Brookshire is an investment advisory firm focused on energy investment research, risk management, and
credit portfolio management with clients in Europe, Latin America & the U.S: www.brookshireadvisoryandresearch.com

www.oilcouncil.com
 Diary of a
Commodity Trader (June)
A Paradox in the
Oil & Gas Markets

By Kevin Kerr, President and CEO, Kerr Trading International

Worries of a slowdown in demand have

finally cracked energy stocks. It was as if
someone yelled fire in a crowded
theatre.
The sector has taken a beating over the last month,
falling hard and fast from recent highs. But is that it
then? Are the good times over, the gains all booked?
Dont put energy down for the count just yet. While the
surge of downside volatility has been disconcerting,
its useful to put the move in context. This could prove
a good time to load up while prices last.
Energy has been a key generator of total market
returns over the past year, both in London and New
York. Without the heady percentage gains of energy
stocks to prop things up, the homely S&P performance
of 2005 would have been downright ugly instead.
Energy became a must-have area for exposure, as
both a pure performer and a hedge against the pain of
rising crude oil prices. Thanks to this gotta-have-it
status, every portfolio manager and his dog piled in.
But when a space gets that crowded, it is natural to
witness a periodic stampede for the exits.
Once the noncommittal investors and the hot money
have been shaken out, thats where things start to look
interesting again from a longer-term perspective.
Its tough adding to an existing position at nosebleed
levels. It becomes easier - and smarter - when the gift
of a temporary correction is offered.
Ah, but what does temporary mean? How long might
the correction last?
Once the noncommittal
investors and the hot
money have been shaken
out, thats where things
Bulls can no longer hope
for the positive
combination of falling
energy prices and a revived
business climate.
We are starting to see a change in consumer
behaviour, notes Michael Fitzpatrick of Fimat USA in
New York. Consumers are cutting back because of
high prices, rising interest rates and signs that the
housing bubble is ending. Prices have probably begun
the long steady process of grinding lower.
If the American consumer pulls in his spending
dramatically and Asian growth patterns tail off as well,
slack would return to the system. Capacity would no
longer be drum tight, allowing energy prices to fall
back to more favourable levels.
But there are many twists and turns before we get
back to reasonably priced energy markets. For one,
the scenario that best suits a prolonged energy decline
also happens to be bearish for the rest of the world.
Bulls can no longer hope for the positive combination
of falling energy prices and a revived business climate.
Hurricanes and ongoing instability concerns have
destroyed that possibility. The reality of America's
badly damaged, inadequate energy infrastructure
means we get to choose global growth and expensive
energy bundled together or recessionary decline
tugging energy down with it.
The heavy involvement of crude-exporting countries in
the vendor financing game has also come to light.
Some economists now estimate these cash-rich
players have as much sway over long-term global
interest rates as China and Japan, thanks to hordes of
windfall petrodollars stashed in US Treasury bonds.

start to look interesting This creates something of a Catch-22. For while the
again from a longer-term US consumer was able to spend freely in the face of
rising oil prices, his energy dollars were indirectly
perspective. subsidising the low long-term rates that made further
spending possible.

The market seldom makes things easy, preferring to But now, with that same consumer near strapped, a
reward conviction and patience instead. At this falling oil price could paradoxically lead to higher long-
juncture, the bearish case is not hard to make.

www.oilcouncil.com
term rates as the petrodollar debt subsidies are
withdrawn.
The Federal Reserve has lately rediscovered its
inflation-fighter convictions, pummelling the equity
markets with harsh words in the name of fiscal
discipline, and raising US rates 12 times in a row.
But if the consumer tires too deeply and looks to be in
danger, Chairman Greenspan knows he will have little
choice but to eat those words. So too his successor,
Ben Bernanke.
The Federal Reserve can zealously declare that
monetising debt is an unpardonable sin, but monetise
the debt they will if the choice comes down to that or
deflation.
In this sense, the Greenspan put is still in effect. It's
comparable to an inflatable raft perhaps...one that
tends to inflate too much.
And in addition to the monetary corner America has
painted itself into, there are continued infrastructure
and supply concerns. Gulf Coast facilities are
struggling to get back up to speed, slowed by a lack of
workers and equipment.
Oil majors such as Chevron and BP are expecting
profit declines in the hundreds of millions of dollars,
due to hampered production and long-run
infrastructure damage.
Energy delivery mechanisms remain vulnerable to
supply disruption and terrorist attacks. And refineries
have been running flat-out in recent months, foregoing
normal maintenance schedules at the risk of facing
more serious plant problems later.
What's more, the powerful argument remains that
energy doesnt have to keep rising to make energy
stocks a compelling buy at today's beaten-down
correction levels.

The debt-laden US consumer can be exposed to
harsh conditions, but not too harsh, lest the system
collapse into a deadly deflationary cycle.
In short, the Hobsons
choice of an unsustainable
debt load comes down
to this: inflation now or
inflation later.
If things begin looking too ominous, inflationary
stimulus measures will kick in, and energy costs -
measured in depreciating dollars - will rise anew, even
if consumer demand is at deaths door.
In short, the Hobsons choice of an unsustainable debt
load comes down to this: inflation now or inflation later.
Energy merely needs to keep from heading too far
down, holding the line in the current neighbourhood.
Project feasibility for some of the oil majors is still
assessed with an underlying crude oil projection of
$20-35 a barrel.
And energy firms with P/E ratios barely out of single
digits are still expected to see a substantial drop-off in
earnings when energy goes back to being semi-cheap.
That return to semi-cheapness may not happen - a
retreat to outrageously expensive from insanely
expensive may be the scope of what we get.
If enough investors become convinced that current
levels represent a new long-term equilibrium level for
energy prices, there could be a mad dash back into
energy stocks once again.
*** Look out for Kevins regular monthly column. ***

About Kevin Kerr:

Kevin Kerr is a TV and radio investment advisor, his unparalleled expertise in futures and commodities has made him a regular
contributor to news outlets like CNBC, CNN, FOX News, CBS Evening News, Nightly Business Report and many others.
Recently, he was even featured on Jon Stewart's The Daily Show. What's more, Kevin has traded commodities professionally
for the last 19+ years. Kevin began his career on Wall Street in 1989 acting as a currency arbitrage clerk on the former New
York Cotton Exchange and has worked on and owned seats on several of the Commodities Exchanges in North America.

About Kerr Trading International:

Kerr Trading International is a diversified commodities firm providing education,

trading and consulting services worldwide. In the fast paced commodities markets it
can be difficult to find someone who wants to take the time to help you understand
the potential profit opportunities as well as the risks involved in today's markets. KTI
is a full service commodity research company and advisor that always puts its
customers first. www.kerrtrade.com

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By improving capital valuation, liquidity and investor
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 Return to the Gulf

Written by Elaine Reynolds, Oil Analyst, Edison Investment Research

Last month, I wrote an upbeat piece about the
importance of the GOM to the oil majors. Given the
events of the last six weeks, I feel it is an area to
which I should return, albeit in more sobering tones.
The April 21st explosion on the Deepwater Horizon
is a wake-up call to the industry, and the
ramifications are likely to be deep and lasting. In
these early days following the accident, the most
common media comparison has been to the 1989
Exxon Valdez spill, and in environmental terms it is
not hard to see why.
But from an industry viewpoint, the comparison is
much closer to the 1988 Piper Alpha disaster, not
least because of the tragic loss of life. But there are
other similarities, the first of which has already been
highlighted by the US government.
As a result of the Cullen inquiry into the Piper Alpha
disaster, safety enforcement in the North Sea was
shifted from the Department of Energy to the Health
and Safety Executive, thereby separating the
responsibility for overseeing resource extraction from
ensuring safety, and President Obama has already
stated that a similar split should occur at the US
Minerals and Management Service (MMS).
The recommendations of the Cullen inquiry also
transformed the UK regulatory regime from one of
prescription and compliance to one based around a
Safety Case approach, putting the onus on the
operator to demonstrate that an effective safety
management system is in place for an installation.
Whether the Americans will make a similar change
remains to be seen, but at the moment it seems
unlikely given the politicians need to be seen to be
cracking down on big oil.
And Walter Cruickshank, current Deputy Director of
the MMS, was recently quoted as saying, We have
inspectors going offshore every day that the weather
allows. The enforcement is quite strict. This
suggests the regulatory mindset is still going strong.
Whether the Americans
will make a similar
change remains to be
seen, but at the moment
it seems unlikely given
the politicians need to
be seen to be cracking
down on big oil.
Meanwhile, the temporary halt on the issuing of new
drilling permits is estimated to be affecting at least
50 wells and will result in deferred production,
especially now that the moratorium has been
extended to six months.
Also of concern is the potential impact on future
activity resulting from changes to operational
procedures. Tighter drilling regulations and possible
redesign of subsea equipment will slow down activity
and delay new developments, and increased costs
may make some marginal projects uneconomic.
This, together with the proposal to increase oil
companies liability for oil spill damages to $10 billion
could even squeeze the smaller independents out of
the region entirely. Testing times indeed for the
industry in the Gulf.

About Elaine Reynolds: Elaine is an oil analyst at Edison Investment Research. Prior to joining
Edison she had fourteen years experience as a petroleum engineer with Texaco in the North
Sea and Shell in Oman and The Netherlands.

Edison is Europes leading independent investment research company. It has won industry
recognition, with awards in both the UK and internationally. The team of more than 50 includes
over 30 analysts supported by a department of supervisory analysts, editors and assistants.
Edison writes on more than 250 companies across every sector and works directly with
corporates, investment banks, brokers and fund managers. Edisons research is read by every
major institutional investor in the UK, as well as by the private client broker and international
investor communities: www.edisoninvestmentresearch.co.uk

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