Global oil and gas pricing outlook, Q1 2018

1. Price Point:
Global oil and gas
market outlook
Q1 | January 2018

2. Page 2 Q1 | January 2018 Global oil and gas market outlookPage 2
Oil and gas markets are in a state of steady transition to a new norm.
OPEC production discipline and strong growth have brought demand in line
with (or slightly below) supply. Crude oil stocks are being drawn but remain
at historically high levels. A breakdown of the recent extension to OPEC’s
production agreement or a levelling off of North American shale production
could tip the balance in either direction.
Gary Donald Andy Brogan
Global Oil & Gas Global Oil & Gas
EY Global Assurance Leader EY Global Transaction Advisory Services Leader
gdonald@uk.ey.com abrogan@uk.ey.com
Q1 overview

3. Page 3 Q1 | January 2018 Global oil and gas market outlookPage 3
The theme for this quarter is balance.
Market conditions reflect an increased confidence in OPEC production discipline.
Questions remain about sustainability.
?
► Will the OPEC agreement hold in the face of fiscal pressures?
► Can North American operators continue to generate or attract
capital and grow production?
Q1 Theme

4. Page 4 Q1 | January 2018 Global oil and gas market outlookPage 4
Futures
trading at
9%
discount
Futures contracts for delivery two years forward are
trading at a 9% discount to the current month,
creating a powerful dynamic in terms of capital
investment, production and the decision to sell oil
now rather than put it into storage.
Most market forecasts assume continued growth
(about 1 million barrels a day) in North American
shale oil production. Returns continue to lag, and
internal EY analysis of production increases and
capital spending over the most recent cycle
indicates that current capital spending plans may
not be adequate to support that rate.
1 million
new
barrels per
day from
shale oil
production
Trends
The extension of OPEC production cuts to the end
of 2018 has been encouraging to the market and, in
the aggregate, supplies are broadly in line with
targets. Two-thirds of the quarter-to-quarter output
reduction can be accounted for by turmoil in Iraq
and Venezuela. Fiscal pressures will put increasing
short-term pressure on compliance.
OPEC
production
agreement
holding
There is some indication that sustained low oil
prices are beginning to impact demand, particularly
in the developed world. OECD demand has grown
at an annual rate of 1.0% per year since the fourth
quarter of 2014, compared with -1.3% in the 23
quarters prior to that.
Lower
prices
impact
demand

5. Page 5 Q1 | January 2018 Global oil and gas market outlookPage 5
$4
$5
$6
$7
$8
$45
$50
$55
$60
$65
$70
Market fundamentals
► Brent and WTI spot prices increased steadily throughout Q4 2017
as market confidence in the ability of OPEC to reach and adhere to
an agreement limiting crude oil production increased.
► Brent-WTI spreads have crept upward in waves because of
production balance between the Western and Eastern
hemispheres.
0
5
10
15
20
25
30
35
OVX
Volatility decreasing
► Market volatility, an indicator of
divergence between bearish and bullish
market sentiment, fell during Q4 2017.
A consensus seems to be emerging
regarding demand growth,
unconventional economics and the
willingness of OPEC members to
adhere to the recent extension its
production agreement.
US$/bbl.
10/1/2017 11/1/2017 12/1/2017
Source: CBOE10/1/2017 11/1/2017 12/1/2017
Both prices and spreads increasing
Spread Brent WTI
0
20
40
60
80
100
120
2007 2009 2011 2013 2015 2017
Source: US EIA

6. Page 6 Q1 | January 2018 Global oil and gas market outlookPage 6
Market fundamentals
► Stable inventories at levels consistent with historical averages are the key
to returning the market to a sustainable equilibrium. Stocks have fallen
significantly over the last three quarters but are still about 200
million barrels above the five-year average.
► The speed at which that happens is extremely sensitive to how the
supply-demand balance will unfold in the near future. A wide range of
scenarios is plausible, based on recent history.
► In the aggregate, OPEC producers have held production steady.
Pockets of turmoil (Venezuela and Iraq) have eased the pressure on
other OPEC members.
► Capital continues to flow into North American shale assets.
Technology has improved, break-even prices have fallen and operators
earn a small return, albeit below the cost of capital. Notwithstanding,
production continues to grow.
► Predictably, in geographies dominated by deep water plays, production
has fallen as exploration budgets have been cut. Development has
stalled, and well decline has taken over.
4,520
4,540
4,560
4,580
4,600
4,620
4,640
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
Q1 Q2 Q3 Q4
Millionbarrels
MillionBarrelsofOilperDay
(MMBOD)
OPEC and demand growth lead market to balance
Supply-demand balance Beginning of period stocks
Inventories returning to normal
-
0.5
1.0
1.5
2.0
2.5
Demand OPEC North America Other Net change
MMBODincrement
Production cut
Production growth

7. Page 7 Q1 | January 2018 Global oil and gas market outlookPage 7
Market fundamentals
► The spread between Henry Hub and both Asian LNG and UK NBP prices
widened to two-year highs. LNG imports to China surged amid the
Government’s coal to gas switching policy to improve air quality. Higher
demand for power generation and unplanned supply outages supported
gas prices in Europe.
► North American gas markets continue to be quite stable in the historical
context. Shale resources provide a supply source that can respond to
market conditions on fairly short notice. LNG exports will be an important
balancing factor for US gas markets in 2018.
► Continued market stability requires stable capital investment. Capital
investment requires adequate returns. IOCs, North American
Independents, Multinational Independents and service companies have
earned returns below the cost of capital for some time now.
► Growth in North American shale production has consistently required
capital spending well in excess of operating cash, even in recent years
with depressed service pricing and below-par service company returns.
In fact, our analysis suggests that capital investment of about 120% of
operating cash might be required to hold production steady.
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
IOC NA Independents Multi-national Independents Service companies
2012 2013 2014 2015 2016 2017
Gas market convergence interrupted Industry returns below par
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
6/1/2017 7/1/2017 8/1/2017 9/1/2017 10/1/2017 11/1/2017
US$/MMBTU
Henry Hub UK NBP-HH Spread Japan-HH Spread

8. Page 8 Q1 | January 2018 Global oil and gas market outlookPage 8
Brent and WTI oil price outlook: brokers vs. consultants
Brent:
Brokers’ and consultants’ price
estimates ranges and averages
WTI:
Brokers’ and consultants’ price
estimates ranges and averages
Oil and gas industry consultants
provide on average a more
optimistic view of future oil prices.
• The divergence in price forecasts
increases with time; by 2021,
consultants’ forecasts will result in
averages of US$72.7/bbl. and
US$69.1/bbl. vs. brokers’ averages
of US$63.0/bbl. and US$60.0/bbl.
for Brent and WTI, respectively.
• Oil and gas industry consultants
focus primarily on the analysis of a
long-term sustainable oil price, while
the banks/brokers tend to provide a
more cautious view in the midterm
(rarely beyond 2021).
30
40
50
60
70
80
90
2017 2018 2019 2020 2021
US$perbarrel
30
40
50
60
70
80
90
2017 2018 2019 2020 2021
US$perbarrel
US$63.0 US$72.7 US$60.0 US$69.1Brent:
Average price
forecast by 2021
WTI:
Average price
forecast by 2021
Banks/brokers Consultants Banks/brokers Consultants
Bank/broker range
Bank/broker average
Consultants range
Consultants average
Bank/broker range
Bank/broker average
Consultants range
Consultants average

9. Page 9 Q1 | January 2018 Global oil and gas market outlookPage 9
Brent and WTI oil price outlook
Brent oil price — current futures curve
20
40
60
80
100
120
140
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
US$perbarrel
Historical Brent Futures Curve Nov 2017 Futures Curve Nov 2016
US$63.0 US$60.0
Futures 2018 Futures 2019
Increasing near-term futures prices
reflect the current supply-demand
balance. Demand growth is strong,
OPEC production is restrained and
capital scarcity has kept production
outside of North America down.
Prices for long dated delivery have
barely moved, as the market’s view of
production economics is stable.

10. Page 10 Q1 | January 2018 Global oil and gas market outlookPage 10
Gas price outlook
25
30
35
40
45
50
55
60
2017 2018 2019 2020 2021
GBPpertherm
Bank/Broker range Consultants range
Bank/Broker average Consultants average
Henry Hub:
Brokers’ and consultants’ price
estimates ranges and averages
UK NBP:
Brokers’ and consultants’ price
estimates ranges and averages
Oil and gas industry consultants’
and investment brokers’ views on
HH gas price in the short term are
largely aligned. NBP gas price
estimates vary and are scarce.
• For Henry Hub, the range of
consultants’ forecasts is
considerably wider when compared
with that of banks/brokers.
Consultants‘ average price estimate
is higher, compared with
banks’/brokers’ view.
• For UK NBP, the consultants’
forecasts range is considerably
wider as the outlook of key
consultants differs from 2018
onward. Banks’/brokers‘ average
price estimate is higher than the
view of consultants. However, we
note that both banks’/brokers’
estimates are scarce (only 2 to 4
data points available for HH and
NBP, respectively).
US$3.8 GBP50.5 GBP45.2UK NBP:
Average price
forecast by 2021
Banks/brokers Consultants
2.0
3.0
4.0
5.0
2017 2018 2019 2020 2021
US$permmbtu
Bank/Broker range Consultants range
Bank/Broker average Consultants average
Source: Bloomberg, banks’/brokers’ reports, consensus economics, consultants’ website
Banks/brokers Consultants
US$3.3Henry Hub:
Average price
forecast by 2021

11. Page 11 Q1 | January 2018 Global oil and gas market outlookPage 11
Brent oil price – banks’/brokers’ estimates and consultants’ estimates
Appendix
Bank/Broker 2018 (US$/bbl) 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl)
High 65.0 70.0 75.0 72.0
Average 54.9 57.7 60.8 63.0
Median 55.0 59.0 63.0 63.5
Low 41.0 41.0 47.0 47.0
Source: Bloomberg, Banks’/Brokers’ reports, consensus economics
Consultant 2018 (US$/bbl) 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl)
High 65.7 74.9 81.3 86.8
Average 57.2 61.8 65.8 72.7
Median 57.0 60.1 63.2 70.2
Low 52.0 53.0 53.0 66.0
Source: Consultants’ websites, Oxford Economics, Wood Mackenzie

12. Page 12 Q1 | January 2018 Global oil and gas market outlookPage 12
WTI oil price – banks’/brokers’ estimates (continued) and consultants’ estimates
Appendix
Bank/broker 2018 (US$/bbl) 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl)
High 63.0 68.0 68.0 70.0
Average 51.9 54.6 57.0 60.0
Median 51.6 54.0 57.5 61.0
Low 44.0 43.0 45.8 45.8
Source: Bloomberg, banks’/brokers’ reports, consensus economics
Consultant 2018 (US$/bbl) 2019 (US$/bbl) 2020 (US$/bbl) 2021 (US$/bbl)
High 59.8 68.5 74.9 79.8
Average 53.7 58.3 62.4 69.1
Median 54.0 57.9 61.2 67.9
Low 49.0 49.0 50.0 62.6
Source: Consultants’ websites, Oxford Economics, Wood Mackenzie

13. Page 13 Q1 | January 2018 Global oil and gas market outlookPage 13
HH gas price – banks’/brokers’ and consultants’ estimates
Appendix
Bank/broker 2018 (US$/mmbtu) 2019 (US$/mmbtu) 2020 (US$/mmbtu) 2021 (US$/mmbtu)
High 3.5 3.6 3.7 3.8
Average 3.2 3.1 3.1 3.3
Median 3.1 3.0 3.1 3.3
Low 3.0 2.8 2.8 2.9
Source: Bloomberg, banks’/brokers’ reports, consensus economics
Consultant 2018 (US$/mmbtu) 2019 (US$/mmbtu) 2020 (US$/mmbtu) 2021 (US$/mmbtu)
High 3.5 4.2 4.9 4.9
Average 3.2 3.3 3.6 3.8
Median 3.1 3.2 3.3 3.6
Low 3.0 2.8 2.8 3.4
Source: Consultants’ websites, Oxford Economics, Wood Mackenzie
* Wood Mackenzie has reported figures in US$/mcf. We have used conversion ratio of 1.037 for mcf conversion to mmbtu

14. Page 14 Q1 | January 2018 Global oil and gas market outlookPage 14
NBP gas price – banks’/brokers’ and consultants’ estimates
Appendix
Bank/Broker 2018 (GBP/therm) 2019 (GBP/therm) 2020 (GBP/therm) 2021 (GBP/therm)
High 49.5 52.0 52.0 55.0
Average 45.5 46.9 48.5 50.5
Median 44.8 44.6 48.5 50.5
Low 43.0 44.0 45.0 46.0
Consultant 2018 (GBP/therm) 2019 (GBP/therm) 2020 (GBP/therm) 2021 (GBP/therm)
High 50.0 50.0 51.9 53.8
Average 42.8 41.5 43.0 45.2
Median 41.6 42.0 45.0 46.1
Low 37.9 31.9 29.8 34.9
Source: Consultants’ websites, Oxford Economics, Wood Mackenzie
*Oxford Economics has reported figures in US$/mmbtu. We have used exchange rate forecast by Oxford Economics from USD to GBP.
** Wood Mackenzie has reported figures in US$/mcf. We have used exchange rate forecast by Wood Mackenzie from USD to GBP and mcf to mmbtu conversion ratio of 1.037
*** GLJ has reported figures in US$/mmbtu. We have used exchange rate forecast by GLJ from USD to GBP.
Source: Bloomberg, banks’/brokers’ reports, consensus economics

15. Page 15 Q1 | January 2018 Global oil and gas market outlookPage 15
Key Contacts
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Important notice
Price outlook data incorporated within this publication is effective as of 1 December 2017. Given the rapidly evolving nature of the market and views of market
participants, analysis can become quickly outdated. As part of our analysis, it should be noted that we are not providing an independent view of the oil and
gas price forecasts. Instead, we are collating the views of market participants.
Price outlook data should not be applied mechanistically. Instead, careful consideration ought to be given to the purpose of any value assessment with price
forecasts assessed in the context of the other key assumptions, such as, inter alia, resources/reserves classification, production rates, discount rates, cost
escalation rates. together with an appreciation of the key sensitivities in any such analysis.
Adi Karev
EY Global Oil & Gas Leader
+852 2629 1738
Alexey Kondrashov
EY Global Oil & Gas Tax
Leader
+9 715 6416 2251
Andy Brogan
Global Oil & Gas
EY Transactions Advisory
Services Leader
+44 20 7951 7009
Jeff Williams
EY Global Oil & Gas
Advisory Leader
+1 713 750 5916
• Gary Donald
EY Global Oil & Gas
Assurance Leader
+44 20 7951 7518
•