Will rathvon's presentation slides from the 2010 World National Oil Companies Congress that took place in June in London.

1. Industry Themes and Capital Raising
Will Rathvon
Global Head, Resources & Energy Group
Global Banking and Markets
June 2010
London

2. 2
Themes
• Emerging markets aren’t as dependent on developed economies as they used to be
• Who depends on who is unclear today. Trade between emerging economies are
growing twice as fast as global world trade
• Growth is headed south; debt is headed north
• Who’s economic policies are most appropriate?
• How will the trillion dollars of capital needs of the oil sector be financed?
• How has capital raising and financing been impacted?

3. Capital Raising

4. 4
Sources of financing in Oil & Gas
Equity sources
• Equity capital markets
• Sovereign Wealth Funds
• Financial investors
Debt sources
• Banks (syndicated loans)
− Corporate finance
− Structured trade finance
− Reserve based lending
− Project finance
• Debt Capital Market (bonds)
• Export Credit Agencies

5. 5
Equity capital markets backdrop
Lehman’s
Chapter 11
insolvency and
banking sector
deterioration
HSBC rights issue and other
jumbo rights issues launched in
order to strengthen balance
sheets and banks’ capital ratios
Equity markets
recovery and
lowered volatility
tempered by the
sovereign debt crisis
50
60
70
80
90
100
110
Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10
S&P 500 FTSE 100 DJ Stoxx 50
Source: Bloomberg rebased to 100
Equity capital markets’
capacity has increased
significantly over the past
decade
Equity indices have
recovered to a large extent
from the lows seen in
March 2009
Early 2010 saw a
resurgence of confidence in
the market although this
has been dampened by the
recent European sovereign
debt crisis in May 2010

6. 6
Deal Value ($bn)
Oil & Gas IPO volumes
0
5
10
15
20
35
2005 2006 2007 2008 2009 2010
China Europe
North America Other Asian/Oceania
ME/Africa/Other Russia & FSU
• Oil & Gas IPO issues dominated by
emerging markets players
• Trend of BRICs players to capitalize on
surging interest in these economies
• Following peak in 2006, market collapsed
in 2009 for Oil & Gas issues
• Petrobras is preparing a US$25bn share
issue for July; analysts have estimated
that the share offering could reach
between US$50-60bn which would make
it the largest ever launched IPO
Source: Dealogic
(1) YTD from June 2010
1

7. 7
Source: Dealogic
(1) YTD from June 2010
Oil & Gas DCM volumes
Deal Value ($bn)
• Collapse in IPO volumes coincides with
increasing DCM issues
• Market dominated by Majors as investor
appetite for risk has reduced
• Recent activity includes Total (US$2.5bn)
and Shell (US$2.75bn)
• Record issuance in 2009 as corporates
sought to lengthen maturity profile and
diversity funding away from the bond
market
• 2010 volumes lower due to extent of pre-
financing in 2009
– Companies willing to incur cost at carry to
secure certainty of funding in volatile markets
0
50
100
150
200
250
2005 2006 2007 2008 2009 2010
China Europe
North America Other Asian/Oceania
ME/Africa/Other Russia & FSU
1

8. 8
0
200
400
600
800
1000
1200
Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10
0
20
40
60
80
100
iTraxx Main iTraxx Crossover VIX
Corporate debt capital markets backdrop
950bps
Significant spread
compression
New issue volumes down
significantly on 2009
(c. 50%)
But sovereign risk now
impacting corporate
spreads
Increasing risk appetite
from investors as they
search for yield
Banking Sector Collapse
Stability and strong corporate
performance
M&A refinancing progresses strongly
Downside risk
focus returns lead
by sovereign
distress
320bps
Spread (bps) Equity Volatility Pts

9. 9
PIGS and BRIC CDS
Even OECD countries under pressure
0
100
200
300
400
500
600
700
800
900
1,000
01/01/2009
01/02/2009
01/03/2009
01/04/2009
01/05/2009
01/06/2009
01/07/2009
01/08/2009
01/09/2009
01/10/2009
01/11/2009
01/12/2009
01/01/2010
01/02/2010
01/03/2010
01/04/2010
01/05/2010
01/06/2010
Portugal Italy Greece Spain Brazil Russia China
Source: Bloomberg

10. 10
Upstream financing
• Pre-export finance (including Contract Pre-payment)
Downstream financing
• Warehouse finance (for inventories of exchange traded
commodities)
• Tolling and processing
• Receivables finance (for trade and other receivables)
• Funding investment in capital equipment or production
assets
• Borrowing Base finance (funding a revolving asset
base)
• Development or refurbishment or production facilities
(with or without project risk)
• Provision of payment guarantees for sellers of crude oil
and refined products
Structured Trade Finance
Structured Trade Finance
1. Structured Trade Finance Facilities involve monetization of commercial long term
agreements, thereby shifting focus from the “strength” of the borrower to the
underlying cash flow and structures to enhance safety of financing
Examples of Structured Trade Financing Products in Oil & Gas

11. 11
Strategies for Success in Raising Financing
Reserve Based Lending
Products available at different stages of a field’s life
EquityDebtinstruments
$[50-100] million cash to fund long lead items
Tenor: 12-18 months
Warrants instead of some upfront fees
Based on discounted NPV of cashflow
Additional value given to remaining portfolio
Potential to fund 100% of development cost
Terminate at completion/ continue corporate facility
Based on discounted NPV of project cashflows
Tenor: 7 years
Freedom to bring in and remove assets every 6 months
(at redeterminations)
Letter of Credit backed by NPV / Cash Collateral
Commercial Threshold passed
FDP Approval
Bridge Facility
(based on market value multiple of P90 reserves or
Contingent Resources)
Conversion to Project Finance/Borrowing Base
(based on P90 reserves)
Potential to increase Borrowing Base (P50 reserves)
Provisioning for Abandonment
Discovery
Appraisal
Development
Production
Abandonment

12. 12
Export Credit Agencies
A key source of Term Debt
• A reliable source of long term financing,
reaffirmed during the peak of the financial
crisis
• Significant risk capacity
• A deep understanding of the oil and gas
sector increasing flexibility of the product
offering for major corporates, including
framework agreements and ECA wrapped
bonds
• Halo effect of ECA involvement in financing
• Highly competitive in pricing versus other
sources of finance, and a relatively stable
debt source throughout market fluctuations
• Value as a diversification play
BBB- Rated 5 Year CDS vs. estimate of ECA all in
Spread
56.0
44.8
23.827.0
0
20
40
60
2006
2007
2008
2009
Source: Dealogic
All ECA Backed Loans
US$ billions
Source: Bloomberg (18/06/10), ECA website premium calculators, HSBC estimate of all in
spread
0
100
200
300
400
500
600
700
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10

13. 13
0
100
200
300
2006 2007 2008 2009 2010E 2011E
Equity Bonds Loans Government/Multilateral suppor
The Project Finance market has been a historical
provider of funds
• A source of structured long term financing
tailored to cash flows of a project (LNG,
refining, expansions) for sponsors
• Industry understanding is a key to tailor the
financing package to sponsors needs
• Increasing links with ECA and Islamic
Financing. Project Bonds are increasing
Largest Project Finance transactions
Source: Infrastructure Journal – Global Infrastructure Finance Review 2009, estimates from HSBC
Global Project Finance Volumes
US$ billions
Source: Factiva, HSBC analysis
Dec 2009
US$14bn
Financing of the US$16.5bn-plus liquefied
natural gas project in Papua New Guinea
June 2010
US$14bn
Financing of the 400,000bpd Jubail Refinery
in Jubail Industrial City, Saudi Arabia
Ongoing / Oct 2009
>US$1.0bn / US$1.7
Odebrecht Oil & Gas and Delba
Financing the construction and operation of
two dynamically positioned drillships

14. Industry Themes Impacting Financing

15. 15
Global Oil & Gas trends
Oil prices
Source: Brokers’ (details in Appendices), Bloomberg, Wood Mackenzie, CERA
Brent oil price futures/forwards and forecasts
(US$/bbl)
Source: Bloomberg
20
40
60
80
100
120
140
2004 2006 2008 2010 2012
Broker high/ low range Historical Brent ICE Brent futures (Jun-10)
Wood Mackenzie (Mar-10) CERA Asian Phoenix (Jun-10) Broker average (Jun-10)
OPEC ‘acceptable’ range

16. 16
Oil & Gas Supply & demand balances
Eurasia
Africa
North America
Europe
Asia Pacific
Net supply region
Net demand region
(15.7)(15.4) (15.6)
3.74.55.0
(10.4) (11.1) (12.0)
2010 2015 2020
(4.4)(3.9) (4.1)
19.219.218.4
14.5 15.1 14.8
2010 2015 2020
(9.4)(7.3) (8.3)
37.634.230.8
23.5 25.9 28.2
2010 2015 2020
Middle East
Latin America
(4.1)(3.3) (3.6)
13.113.211.8
8.5 9.6 9.0
2010 2015 2020
(19.5)(17.5) (18.4)
9.19.78.7
(8.8) (8.7) (10.4)
2010 2015 2020
Net position (mmbpd)
Demand (mmbpd)
Production (mmbpd)
(22.0)(21.4) (21.9)
12.111.810.9
(10.5) (10.1) (9.9)
2010 2015 2020
(9.6)(8.2) (8.8)
11.611.110.8
2.6 2.3 2.0
2010 2015 2020
Rebased to 100
97
99
101
103
105
107
2010 2012 2014 2016
China OECD
The China Factor

17. 17
Offshore development: drilling deeper and deeper
Higher cost of development will require capital raising
Source: IFP
Depth (m)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1,852
1,650
1,027
752
540
312
1.709
1997
Marlim Sul
1997
Mensa
1978
Cognac
1989
Jolliet
1991
Marlim
1994
Marlim 4
1999
Roncador
Shallow Water:
<200-500m of
Water Depth (WD)
Deep Offshore:
WD = 500m – 1,500
Ultra Deep Offshore:
WD = 1,500m – 3,000m
Very Deep Offshore:
Next target depth =
3,000m

18. 18
0
100,000
200,000
300,000
400,000
500,000
600,000
Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
Above 7,500ft Between 5,001-7,500ft Below 3,000ft
Evolution of drilling costs
Average cost of drilling (US$)

19. 19
Development
58%
Santos Pre-Salt
17%
Exploration
13%
International
12%
Brazil requires significant capex over next few years
Worldwide Oil & Gas Reserves (bboe) Robust investments from Petrobras
Breakdown of Petrobras’ Business
Plan Investments
Total investments of ~US$126bn in
E&P through 2014
• Petrobras aims to become one of the five largest
integrated energy companies in the world in the
short run
• Petrobras’ Strategic Plan for 2010-2014 envisages
total investments of US$220 billion
• In the Santos Basin pre-salt layer alone, Petrobras
estimates recoverable Oil & Gas reserves between
9.5 billion and 14 billion boe
100
13
264
138
115
102
99
98
79
44
40
36
30
29
27
15
14
12
12
8
Saudi
Iran
Iraq
Kuwait
Brazil
Venezu
United
Russian
Libya
Kazakh
Nigeria
US
Canada
Qatar
China
Angola
Brazil
Algeria
Mexico
Norway
E&P
60%
RTC
25%
G&E
7%
Others
8%
After pre-salt discoveries
~8.0x
Note:
(1) Brazil Post Pre-Salt
1

20. 20
Potential impact of unconventional gas
Already affected
Five to 10 years
Not to be ruled out
< five years
> 10 years
Source: Wood Mackenzie’s Unconventional Gas Service; National Petroleum
Council; BP Statistical Review of World Energy
37%
47%
17%
8,228 trillion cf
North America
1%
61% 37%
3,448 trillion cf
South America
83%
17%
39,094 trillion cf
Conventional / Unconventional
gas split
CBM Tight sandsShale gas
63%
17%
20%
6,739 trillion cf
Europe
18%
64%
19%
9,678 trillion cf
Asia
1%
63% 36%
4,467 trillion cf
Middle East and
Africa
Independents with
unconventional gas
assets…
…Majors with access to
capital buying into
upside
Unconventional
Conventional

21. 21
Macondo Effect – winners / losers
Winners
Anyone who needs DW rig capacity – NOCs with deepwater ambitions, Brazil
Players in onshore, unconventional or shallow water plays – good for OFS companies with
NOC exposure
Players in offshore inspection or maintenance services
Established equipment suppliers (when the dust settles) – Possibility renewal or replacement
of hardware
Oil prices – risk of higher decline rates and delayed or lost new production
Losers
In the near term players in seismic, well services to be impacted as demand falls or shifts
Deepwater drilling in 2011/2012 – lower rates / delayed recovery
Smaller E&P with deepwater ambitions – can they afford it?
Frontier offshore areas – host governments will likely want larger clean-up funds, local
“safety” infrastructure
New entrants in drilling or offshore equipment – who will trust them?

22. 22
Impact of six-month moratorium in deepwater drilling
Top 10 deepwater GoM producers in 20111
Source: Wood Mackenzie, FitchRatings report
(1) BP figures do not include recently acquired Devon
0
50
100
150
200
250
300
350
400
450
500
BP
Shell
Anadarko
BHP
Chevron
ExxonMobil
Eni
Hess
Statoil
Marathon
Workinginterestproduction(000'boe/d)
0
5
10
15
20
25
30
35
40
GoMas%ofTotalProductionin2009(%)
2011 Production Delayed Production (%)

23. 23
Opportunity for other deepwater players?
• Three areas (Brazil, West
Africa and Gulf of Mexico)
formed the Golden Triangle
of deepwater drilling
Deepwater “Golden Triangle”
Newbuild rigs with contracts in deepwater GoM
Selected rigs and companies affected by drilling moratorium
SubseaDrillship1
• GSF Development Driller I• GSF CR Luigs
• GSF Development Driller II,
Development Driller III, West Sirius
• Discoverer Enterprise
• Discoverer Deep Seas, Discoverer
Inspiration, Discoverer clear Leader
• Noble Paul Romano
• Ocean Confidence
• ENSCO 8501, Noble Clyde Boudreaux
• Frontier Driller, Noble Danny Adkins,
Noble Jim Thompson, Deepwater
Nautilus
• Maersk Developer• Discoverer Americas
• Ocean Saratoga
• Ocean Voyager
• Noble Lorris Bouzigard
• ENSCO 8500, Noble Amos Runner,
Ocean Monarch
• Discoverer Spirit
Subsea
• ENSCO 8502
• ENSCO 8503
• Noble Jim Day
• Scarabeo 9
Drillship1
• Bully 1
• Deep Ocean Ascension
• Deep Ocean Clarion
• Deepwater Pathfinder
Source: Wood Mackenzie
Note:
(1) Rigs are semi-submersibles unless otherwise noted

24. Will Rathvon
Global Head, Resources & Energy Group
Global Banking and Markets
+44 20 7991 6284
will.rathvon@hsbcib.com
Americas
John Robinson
john.m.robinson@us.hsbc.com
+1 212 525 4157
Evan Hazell
evan_hazell@hsbc.ca
+1 403 693 3700
Middle East
Darren Davis
darren.davis@hsbc.com
+971 44235744
Jerome Fileni
jerome.fileni@hsbc.com
+971 45093531
Asia
Jonathan Drew
jonathandrew@hsbc.com.hk
+852 2841 8162
David Gardner
davidgardner@hsbc.com.hk
+852 2841 8133