Oil Market Outlook The world has changed

Oil Market Outlook The world has changed The DNB oil story in pictures & graphs January 2015 - Torbjørn Kjus

Conventional vs Unconventional The World Has Changed - Moving to the kitchen instead of the living room (Source: USGS) 2

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Shale Crude Output Growth Has Been Offset By Outages - Shale crude production growth is starting to catch up What happens next three years with unplanned outages?? Growth In Unplanned With This Outages Enormous Have Growth More In Than Shale Offset Oil Production: Shale Crude Output - why is that are sustainable not oil prices also below gowing 100 forward? $/b already? 4000 3500 3000 2500 2000 kbd 1500 1000 500 0-500 -1000 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 US shale crude production Change unplanned US disruptions shale crude since production 2010 US FWD shale crude production Unplanned US FWD disruptions shale crude FWD production Source: PIRA Energy, DNB Markets 4

IEA s Forecasts For US Production Growth Far Too Low So Far - IEA s first take on 2012 US production growth was at 45 kbd - now 2012 growth is estimated to have been 1.04 million b/d - For 2013 the forecasted growth was 479 kbd, now the number is revised up to 1.14 million b/d - For 2014 the initial estimate was 700 kbd, now the estimate is revised up to 1.51 million b/d 1600 IEA Forecasted YoY Growth In US Liquids Production 1400 1200 1000 Kbd 800 600 400 200 0 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: IEA Monthly Oil Market Reports 2012 2013 2014 2015 5

Nobody Were More Bearish Than DNB In October - But we were not bearish enough 6

Long Term Oil Price Forecast Current (The forecast is for the average of the rolling 1 st month ICE Brent future contract) Historical Historical Nominal $/b Real (2015) $/b 2001 24.4 32.2 2002 25.0 32.4 2003 28.8 36.5 2004 38.3 47.2 2005 54.5 65.0 2006 65.1 75.3 2007 72.4 81.3 2008 97.3 105.2 2009 61.7 67.0 2010 79.5 84.9 2011 111.3 115.2 2012 111.7 113.3 2013 108.7 108.7 2014 99.5 99.5 Forecast Forecast Nominal $/b Real (2015) $/b Q1-15 55 55 Q2-15 63 63 Q3-15 69 69 Q4-15 74 74 2015 65 65 2016 80 79 2017 84 81 2018 88 84 2019 90 84 2020 90 82 $/b Spot Brent History & FWD looking 160 140 120 100 80 60 40 20 0 1995 1998 2001 2004 2007 2010 2013 2016 2019 FWD (nominal) Forecast nominal Source: Reuters, DNB Markets Historical Forecast real (2014 USD) 7

What Is Different From The 2012-Correction - Deeper and longer drop now and the key difference is the contango which suggest a much weaker physical market than in 2012 100 Brent 1st Month Future Days below 100 $/b 90 80 $/b 70 60 50 40 1 11 21 31 41 51 61 71 81 91 101 111 121 131 141 151 Days 2012 spring correction 2014 downturn Source: Reuters Daily QLCOc1, QLCOc3 Price USD Bbl 130 120 110 100 90 80 70 60 50 Spread, QLCOc1, Trade Price(Last), QLCOc3, Trade Price(Last), 1.0, 1.0 26/01/2015, -2.40 Line, QLCOc1, Trade Price(Last) 26/01/2015, 48.25 31/07/2007-23/06/2015 (LON) Value USD Bbl 3 2 1 0-1 -2-3 -4-5 40 Auto Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2007 2008 2009 2010 2011 2012 2013 2014 2015-6 Auto 8

The Market Has Been Over-supplied Through 2014 - The red line is our view on 2015 3.0 2.0 DNB Markets World Oil Supply-Demand Balance (time phased) Million b/d 1.0 0.0-1.0-2.0-3.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: IEA, DNB Markets 5 ye ar ran ge 5 ye ar avg 20 13 20 14 20 15 9

How Can Anyone Doubt That The Market Is Over Supplied? - Global oil stocks (excl. Chinese strategic stocks) are building massively. This is a function of supply being larger than demand. 5700 Global Crude & Product Stocks - JODI-data JODI-data are adjusted for countries w ith irregular reporting - and China is added w ith Xinhua New s Agency Data 5650 5600 Million barrels 5550 5500 5450 5400 5350 5300 Source: JODI, DNB Markets Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011 2012 2013 2014 10

The Saudi Royal Family (Source Wikipedia) Abdul Aziz (Ibn Saud) King: 1902-1953 Founded Saudi Arabia in 1932 22 wives (4 at a time) 45 sons of which 6 have been kings King Saud King: 1953-1964 Forced out Crown Price Sultan Died 23.10.2011 King Faisal King: 1964-1975 Killed King Khalid King: 1975-1982 Heart Attack Crown Price Nayef Ultra conservative 23 rd son of Ibn Saud Full brother of King Fahad Died 16.06.2012 King Fahad King: 1982-2005 Stroke King Abdullah King: 2005-2015 Regent since 1995 Unifying and popular 6 sons New Crown Price Muqrin 70 years old, 35 th and youngest surviving son of Ibn Saud Mother from Yemen (18 th spouse of Ibn Saud) Was an air force pilot educated at Britain RAF College in Cranwell In favour of sanctions instead of military action vs Iran Appreciated by the Saudi public, no corruption or negative activities Believed by many to be a liberal within the family New Deputy Crown Price bin Nayef 58 years old, son of late Crown Prince Nayef Educated in the US - Political Science The most pro-american Saudi minister First successor from the third generation Has 6 sons King Salman 80 years old Full brother of King Fahad 25 th son of Ibn Saud Well regarded Trusted mediator Had a stroke in 2010 Pro economic reforms, but slow for social reasons Has 11 sons 11

We Are Not Set To Return To The Trend Line - All the changes to oil demand in recent years are not all cyclical, there are also structural elements to them like efficiency improvements and substitution 100 95 1.7% annual growth Global Oil Demand (12-m onth mavg) Million b/d 90 85 80 75 70 65 60 1.1% annual growth 55 1Q1986 1Q1990 1Q1994 1Q1998 1Q2002 1Q2006 1Q2010 1Q2014 1Q2018 12

Better Oil Demand Growth At Prices Below 100 Dollars Oil Above 100 Dollars Negatively Affects Demand Growth 140 3.0% 120 2.5% Oil Price Real Terms 100 80 60 40 2.0% 1.5% 1.0% Oil Demand Growth % 20 0.5% 0 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 0.0% Source: BP stats, IEA, DNB Markets Real oil price (LHS) Demand growth 5-year mavg (RHS) 13

Reduced Oil Burden May Support Oil Demand Growth - The lower oil burden may increase the oil intensity back to 0.4 from 0.2 in 2014 (oil demand as a factor of GDP-growth) 0.8 0.7 Oil Demand Change Per Unit Real GDP Change (oil intensity) vs Oil Burden (Average: last 20 years is 0.4, last 10 years is 0.3 - both excluding 2008-09) 1.0% 1.5% Oil Intensity 0.6 0.5 0.4 0.3 0.2 0.1 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Global Oil Burden 0.0 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 5.5% Source: BP stats, IEA, IMF, DNB Markets Oil Intensity 5-year mavg - LHS Oil Burden - RHS 14

US Oil Demand Improving On Lower Oil Prices - Gasoline demand very strong since the autumn People driving more coupled with lower fuel efficiency US Gasoline Demand 4 week mavg (Product Supplied) 22.0 US Total Demand (Product Supplied) 9.5 21.0 Million b/d 9.0 8.5 Million b/d 20.0 19.0 18.0 8.0 Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 17.0 Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: US DOE Range 5 year avg 2014 2015 Source: US DOE Range 5 year avg 2014 2015 Million b/d US Distillate Demand 4 week mavg (Product Supplied) 4.8 4.6 4.4 4.2 4.0 3.8 3.6 3.4 3.2 3.0 Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million b/d 15.8 15.4 15.0 14.6 14.2 13.8 13.4 US Demand 4 Main Products (4 week mavg) (Product Supplied: Gasoline, Distillates, Jet, Residual Fuel) 13.0 Jan Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: US DOE Range 5 year avg 2014 2015 Source: US DOE Range 5 year avg 2014 2015 15

Chinese Oil Demand Growth Improving - Gasoline demand growth still strong and diesel on the mend after infrastructure projects 1.5 Year on Year Calculated Chinese Demand (Demand is refinery runs plus net product imports. Figures are adjusted for inventory changes since Feb 2009) Million b/d 1.0 0.5 0.0-0.5-1.0-1.5 Jan-01 Feb-03 Mar-05 Apr-07 May-09 Jun-11 Jul-13 Aug-15 Source: China OGP, Xinhua News, The Chinese General Administration & Customs, National Bureau of Statistics 16

CAPEX Guided Down 28% - Rig Count Guided Down 42% - Production guided to rise 10%, but we think CAPEX guiding and rig count will drop even more than guided below Source: US Capital Advisors 17

Prices Have Reached Unsustainable Levels For Shale - Will the shale players be able to service their debt and continue to invest at 50 $/b WTI prices? Lifting costs in $/b (including some G&A costs) 12 Interest rate: 5% WTI price ($/b) 50 NGL's price as percentage of crude price: 50% Company name: EOG Chesapeake Pioneer Whiting Continental Concho Noble Cimarex Crescent Oasis Average Crude production kbd 320 125 100 100 140 80 110 47 135 45 120 Crude diff average to WTI in Q2/Q3 ($/b) -0.3-9.0-7.6-10.2-11.2-10.7-1.0-10.1-6.1-9.3-7.6 Achieved crude price at assumed WTI price $/b 49.7 41.0 42.4 39.8 38.8 39.3 49.0 39.9 43.9 40.7 42.5 Revenue from crude sales million USD 5,802 1,872 1,547 1,452 1,981 1,148 1,966 685 2,164 669 1,929 NGL's production kbd 90 100 45 11 0 0 35 40 0 0 32 NGL price $/b 24.8 20.5 21.2 19.9 19.4 19.7 24.5 20.0 22.0 20.4 21.2 Revenue from NGL's sales million USD 1,248 3,139 164 10 0 0 409 219 0 0 519 Natural gas production (million cubic meters/day) 38.0 86.0 10.0 2.5 11.0 7.5 32.0 15.0 2.3 0.9 21 Natural gas price $/cm 0.10 0.07 0.10 0.10 0.13 0.15 0.08 0.10 0.12 0.17 0.11 Revenue from natgas sales million USD 1,387 2,197 365 91 522 411 934 548 101 56 661 Revenue pr year million USD 8,437 7,208 2,076 1,553 2,503 1,559 3,310 1,451 2,265 725 3,109 Total production in oil equivalents 650 830 200 125 200 120 315 180 150 48 282 Lifting costs 2,847 3,635 876 548 876 526 1,380 788 657 210 1,234 Long Term debt by Q3-2014 (million USD) 5,910 11,592 2,662 2,753 5,834 3,378 5,621 1,500 2,583 2,550 4,438 Interest rate costs 2015 (million USD) 296 580 133 138 292 169 281 75 129 128 222 Total Debt Ratio (Q3-2014) 49% 60% 46% 56% 67% 53% 53% 49% 36% 69% 54% Calculated free cash flow 2015: 5,295 2,993 1,067 868 1,336 864 1,649 588 1,479 387 1,653 CAPEX 2014 8,350 5,104 3,494 2,920 4,593 2,483 4,849 2,122 2,023 1,380 3,732 Calculated change in CAPEX for 2015-3,055-2,111-2,427-2,052-3,257-1,619-3,200-1,534-544 -993-2,079 Debt/Free cash flow 1.1 3.9 2.5 3.2 4.4 3.9 3.4 2.6 1.7 6.6 3.3 Calculated decrease in CAPEX if no new debt 37% 41% 69% 70% 71% 65% 66% 72% 27% 72% 59% 18

Horizontal Rig Count Must Drop Going Forward - The process has just started 1200 1100 1000 900 800 700 600 500 400 US horizontal oil rigs 300 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: Baker Hughes, PIRA Energy 19

A Drop In The Rig Count Could Lead To Lower Output - Unlike the 2012/13-period we now look to need more rigs to grow output as output per rig is growing more slowly in 2014 4000 Shale oil production vs horizontal oil rigs (since 2011) 3800 Shale oil production vs horizontal oil rigs (latest year) 3500 3000 3600 3400 y = 3.8408x - 717.83 R² = 0.9917 Thousand b/d 2500 2000 1500 1000 Thousand b/d 3200 3000 2800 500 2600 0 300 400 500 600 700 800 900 1000 1100 1200 Total US horizontal oil rigs Source: US DOE, Baker Hughes rig count, DNB Markets 2400 850 900 950 1000 1050 1100 1150 Total US horizontal oil rigs Source: US DOE, Baker Hughes rig count, DNB Markets US shale crude oil production per horizontal oil rig 3500 3000 Thousand of b/d 2500 2000 1500 1000 500 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: US DOE, Baker Hughes, DNB Marklets 20

The Adjustment Will Not Be Without Pain For Many Players - The tone is set - CAPEX in the oil industry will be lowered A lot!!! 21

Prices Can Recover Before The Supply-Demand Balance - 2009 is a good example Oversupplied through the first half but prices rising from 40 $/b to 70 $/b from January to July 1.5 2009 DNB Markets World Oil Supply-Demand Balance (time phased) 1.0 Million b/d 0.5 0.0-0.5-1.0-1.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: IEA, DNB Markets OECD Total Oil Industry Stocks (IEA-data) Brent Price $/b 105 95 85 75 65 55 45 2850 2800 2750 2700 2650 2600 OECD Oil Stocks Million Barrels 35 2550 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Source: IEA, Reuters Brent Price OECD Oil Stocks 22

Not Only Spot Prices Recovered Before The S/D-Balance - We think the same thing will happen during 2015 The oil price will start to recover before the S/D-balance is fixed $/b Historical Brent Forward Curves (The whole strip moved upwards in 2009) 150 140 130 120 110 100 90 80 Strip up almost 70 20 $/b 60 50 40 30 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Reuters, DNB Markets Historical spot price 24-Dec-08 30-Jul-09 23

Spare Capacity Still Much Lower Than In The 1980 s - An equally long period with low prices as in the 1980-90 s should not be the most plausible scenario 12 Global Spare Capacity Spare Capacity - Million b/d 10 8 6 4 2 0 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 Source: BP stats, IEA, PIRA Global Spare Capacity 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 Source: BP stats, IEA, PIRA 24

CONTACTS & DISCLAIMER Oslo, Sales & Trading London, Sales Oslo, Research Nils Fredrik Hvatum +47 24 16 91 59 Ane Tobiassen +44(0) 20 7621 6082 Torbjørn Kjus +47 24 16 91 66 Fredrik Sagen Andersen +47 24 16 91 48 Singapore, Sales Karl Magnus Maribu +47 24 16 91 57 Jesper Meyer Hatletveit +47 24 16 91 53 Seng Leong Ong +65 622 480 22 Nils Wierli Nilsen +47 24 16 91 61 New York, Sales Andre Rørheim +47 24 16 91 64 Kenneth Tveter +1 212 681 3888 Erik Warren +47 24 16 91 46 This note (the Note ) must be seen as marketing material and not as an investment recommendation within the meaning of the Norwegian Securities Trading Act of 2007 paragraph 3-10 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876. The Note has been prepared by DNB Markets, a division of DNB Bank ASA, a Norwegian bank organized under the laws of the Kingdom of Norway (the Bank ), for information purposes only. The Note shall not be used for any unlawful or unauthorized purposes. 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