Upstream Oil and Gas Equipment

2015 Top Markets Report Upstream Oil and Gas Equipment A Market Assessment Tool for U.S. Exporters July 2015 U.S. Department of Commerce International Trade Administration Industry & Analysis (I&A)

Industry & Analysis (I&A) staff of industry, trade and economic analysts devise and implement international trade, investment, and export promotion strategies that strengthen the global competitiveness of U.S. industries. These initiatives unlock export, and investment opportunities for U.S. businesses by combining in-depth quantitative and qualitative analysis with ITA s industry relationships. For more information, visit www.trade.gov/industry I&A is part of the International Trade Administration, whose mission is to create prosperity by strengthening the competitiveness of U.S. industry, promoting trade and investment, and ensuring fair trade and compliance with trade laws and agreements. Julius Svoboda served as the lead author of this report. A special note of thanks goes to Julie Al-Saadawi, Kevin Quinlan, Amy Kreps, Alex Mourant, Sarah Lawson, Devin Horne, and Jessica Cuy, whose thoughtful gathering of market intelligence and trade data facilitated the completion of the study. In addition, several insights were garnered from conversations with, and edits by Adam O Malley and Man Cho, as well as Business Monitor International.

Table of Contents Executive Summary and Key Findings... 3 Country Case Studies Australia... 11 Brazil... 13 Canada... 15 China... 17 Colombia... 19 Ghana... 21 Israel... 23 Mexico... 25 Norway... 27 United Arab Emirates... 29 Burma... 31 Mozambique... 33 Sector Snapshots Unconventional O&G... 37 Offshore Ultra-Deepwater O&G Development... 39 Appendices Appendix 1: Methodology... 41 Appendix 2: Full Country Rankings... 49 Appendix 3: Resources... 51

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Executive Summary and Key Findings Significant global energy demand growth and rising living standards in China, India, and the Middle East, coupled with technological breakthroughs continue to alter the fundamentals of oil and gas (O&G) production, creating unprecedented opportunities for U.S. O&G equipment exporters in the near-term. New technologies have allowed the development of O&G resources that were previously considered uneconomic. The dramatic changes in the sector offer new commercial opportunities for U.S. O&G equipment manufacturers to penetrate new markets, gain share in existing markets, and revisit previously declining or over-regulated markets despite declining global oil and gas prices. These fast-developing trends also present an important opportunity for U.S. O&G equipment sales through focused export promotion efforts. ITA s 2015 O&G Equipment Top Markets Report ranks 75 markets based on export potential for U.S. O&G technologies through 2018. The report is designed to help U.S. companies identify those O&G markets where export activities can make the biggest impact. Each market has different challenges and opportunities and thus business leaders will need to adapt commercial and development strategies within each market accordingly. ITA believes that by evaluating a country s market size, resource endowment, and investment climate, appropriate strategies become clear. In particular, we note that exporters should also consider the risk and potential reward associated with each market. The rankings in the study represent those countries with the greatest potential for U.S. exports (see Table 1: Top 30 Oil & Gas Export Markets). However, higher rankings do not necessarily indicate markets with the greatest commercial opportunities, but rather a country where there is commercial activity in the oil and gas sector. The ranking is meant as a descriptive ranking where exporters are likely to have a higher chance of finding commercials opportunities. The greatest market opportunities for O&G equipment exports include Australia, Brazil, Canada, China, Colombia, Ghana, Israel, Mexico, Norway, and the United Arab Emirates. Burma and Mozambique are also projected to become major sources of investment and export destinations for U.S. equipment manufacturers. The 2015 O&G Equipment Top Markets Report highlights the opportunities and challenges for U.S. businesses in these markets. Our methodology identified additional potential markets as well as countries to watch. The case studies in this report were selected based on commercial opportunity and interest from U.S. exporters. (see Appendix I: Country Rankings, for the full list of country rankings) Overview of the Upstream Oil & Gas Equipment Market For the purposes of this report, the upstream O&G equipment industry is defined as establishments primarily engaged in: 1) Manufacturing of O&G field machinery and equipment; 2) Manufacturing O&G field production machinery and equipment; 3) Manufacturing O&G field derricks; and, 4) Manufacturing pipe and tube. Table 1: Projected Top Markets for Upstream Oil and Gas Equipment Exports (2015-2018) 1. Canada 7. UAE 13. Saudi Arabia 19. Ghana 25. Trinidad & Tobago 2. Colombia 8 Nigeria 14. Angola 20. Russia 26. Turkey 3. Brazil 9. China 15. Bahrain 21. Equ. Guinea 27. Malaysia 4. Mexico 10. Venezuela 16. Israel 22. Singapore 28. Qatar 5. Australia 11. Oman 17. Ecuador 23. Peru 29. Algeria 6. Norway 12. United Kingdom 18. Iraq 24. India 30. Chile 2015 Oil and Gas Top Markets Report 3

Figure 1: World Market for Oil & Gas Equipment in billions dollars $180 $168 $158 $160 $142 $132 $134 $139 $140 $120 $110 $100 $79 $80 $66 $55 $60 $44 $36 $40 $20 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: UN trade data, using exports to the world The United States is home to many upstream O&G equipment industry companies and U.S. companies are competitive internationally in this field. Over the past ten years, the global market for upstream O&G equipment has increased by a compounded annual growth rate of 12.2 percent, from $36 billion (bn) in 2002 to $138.9bn in 2013 (see Figure 1: World Market for Oil & Gas Equipment). World exports peaked at $168 bn in 2011 but remained substantial thereafter ($142 bn in 2012). We expect world exports to increase in the years ahead, consistent with intensifying demand in emerging markets and growing demand for innovative upstream technologies in which U.S. firms excel. The significant market growth over the previous decade demonstrates expanding energy needs worldwide and increased demand for equipment within this sector. Today the United States is the world s third largest exporter of equipment in the O&G sector, with close to $14bn in exports. In 2013, Korea represented 18 percent of global exports; China represented 15 percent while the United States represented 10 percent of these exports by value. However, the United States share of the global market for equipment is shrinking, while exports from the United States are projected to reach $19.1bn by 2018, the total of U.S. global market share is projected to decline to below 10 percent (see Figure 2: Top 5 Exporting Countries for Oil & Gas Equipment (Including Pipe)). The changes in the international O&G equipment market place are the result of increased competition from East Asian suppliers and greater demand for equipment within the United States. Increased manufacturing capabilities and low-cost production has allowed Chinese firms to displace U.S. market share particularly in low-tech parts and components. At the same time, the shale gas boom has increased demand for equipment, both foreign and domestic, in the United States, decreasing U.S. exports. It is important to consider the nuances of the O&G industry when evaluating international opportunities. The O&G industry includes a wide variety of products and thus the export profile of the United States varies considerably relative to other markets. Some markets that are long established O&G producers demand capital-intensive high-tech seismic and drilling equipment, while other markets that have just discovered O&G resources seek to import for more conventional drilling equipment and services for infrastructure development. Regardless of market, U.S. exports are often differentiated from those of other countries by type U.S. exports are particularly competitive in high end sinking and boring parts and parts for derricks, whereas those from Korea are concentrated in vessels with derricks with little sinking or boring parts and those from China are concentrated in vessels with drilling platforms and equipment and pipe. These trends will likely continue with U.S. exports weighted more toward specialized high tech exports especially relating to unconventional O&G production. The projected increase in demand for exports of O&G equipment products may be further driven by the fundamental changes in U.S. O&G production in the last several years. Having been among the first in the world to develop unconventional and ultra-deepwater 2015 Oil and Gas Top Markets Report 4

Figure 2: Top 5 Exporting Countries for Oil & Gas Equipment (Including Pipe) billion U.S. dollars South Korea China USA Brazil Japan $40 $30 $20 $10 $0 2008 2009 2010 2011 2012 2013 Source: UN export data resources, U.S. equipment manufacturers and service suppliers have the opportunity to seize the first-mover advantage in overseas markets that are seeking to emulate the United States rapid expansion in energy production. In addition to being a large exporter, the United States is also a large importer of O&G field equipment and pipe. With about $12 billion in imports in 2013, the United States was the largest importer of O&G equipment, purchasing about 9 percent of all global O&G equipment sold worldwide. Other large importers include Singapore with a 6 percent share of global imports, as well as the UAE, Mexico, Netherlands, Canada, Norway and China, which each capture three percent. Recently, the value of U.S. imports and exports began to converge, likely as a result of increased investment and production in unconventional resources such as shale gas and shale oil, as well as increased investment in the Outer Continental Shelf in the U.S. Gulf of Mexico. Although the equipment sector is having an increasingly negative impact on the U.S. balance of trade, the decline in exports represents an increase in O&G activities and foreign investments in the United States O&G sector overall. Rankings in a Risk/Reward Context The O&G sector can generate large profits, but has always been characterized by a high degree of risk. O&G companies are faced by a number of risks not only related to finding oil or gas under the ground, but also financial, political and security risks that exist above ground. The 2015 O&G Equipment Top Markets Report analyzes those countries with the most potential for equipment sales against the associated risks and rewards of that country s O&G sector. The top 20 countries from the 2015 O&G Equipment Top Markets Report are plotted below on a Risk-Reward Matrix, which illustrates each country s relative upstream risks and rewards. The rewards are heavily weighted toward below ground resources, while the risks are more weighted toward above ground government policy. In a case such as Norway, which has large O&G reserves, a company might encounter few unanticipated regulatory challenges (i.e. low risk), but would also have lower profits (i.e. lower reward) from investments. In contrast, a country such as Ghana may potentially yield significant profits in the O&G equipment sector, but there are a greater number of risks (i.e. import regulations, corruption, infrastructure constraints) that companies will have to consider when conducting business there. Export Strategy Considerations Analyzing markets against the risk/reward matrix provides a framework by which exporters can apply strategies for markets based on specific criteria. The 2015 O&G Equipment Top Markets Report uses the risk/reward matrix, expertise from our Commercial Service Officers in country and sector-specific analysis to provide a suite of policy options to support U.S. O&G equipment exports. The 2015 O&G Equipment Top Markets Report outlines a set of export strategies focused on O&G equipment exports that will have different options for specific markets. Segmenting those markets with large U.S. market share and small U.S. market share will impact 2015 Oil and Gas Top Markets Report 5

Table 2: Differentiated Export Strategies by Market Size/Type Risk/ Reward Quadrant High Risk/High Reward Low Risk/High Reward Low Risk/Low Reward High Risk/Low Reward Large U.S. Market Share Export Strategy Engage with the U.S. Commercial Service to better understand specific risks of exporting. Research regulatory constraints impacting targeted portfolios of the oil and gas sector. Export strategy can be focused directly on business development. Identify major operators in country. Maintain perspective on the state of hydrocarbon development. Determine if product is appropriate for the state of development of a particular market s oil & gas sector. Research presence of foreign competitors. Engage with U.S. Commercial Service to understand specific risks of exporting. Work with established chambers of commerce in country to reduce risks. Examples Saudi Arabia Canada, Colombia, Australia Ghana, United Kingdom Mexico Risk/ Reward Quadrant High Risk/High Reward Low Risk/High Reward Low Risk/Low Reward High Risk/Low Reward Small U.S. Market Share Export Strategy Engage with the U.S. Commercial Service to better understand specific risks of exporting. Short-term delivery contracts to reduce market exposure. Understand import regulations and other potential import restrictions. Long-term business development strategy if no competitors present in market. Attend trade shows in country if appropriate. Establish business relationship with major operators in country. Limit business development activities if market does not appear to be appropriate for product or service. Work with U.S. Commercial Service to understand market restrictions (sanctions, import tariffs, etc.) Link with local companies or regional distributers. Limit exposure to market in the event of regulatory disruptions. Examples Iraq, China, Brazil Oman Norway, Bahrain Burma the types of commercial export strategies that could be deployed. We have added an additional layer to the risk/reward analysis: the market share captured by U.S. O&G equipment exporters already in the market. As U.S. companies have flexibility in terms of selecting target markets, the extent to which U.S. exports have penetrated a particular market is an indicator of the ability of supporting additional U.S. companies to export to that country. A large U.S. market share in a country indicates a more favorable commercial environment for private sector companies, while a small U.S. market share could indicate a more restrictive commercial environment. Given these macro differences, export strategies in the O&G sector should be adjusted and accommodate the difference respective to a country s commercial challenges and opportunities. Countries with little U.S. market share and low risk could indicate a number of challenges, both above ground and below ground. In Norway, for example, declining production may be impacting U.S. commercial interests, limiting U.S. market share. In markets with little U.S. market share and high risk, U.S. exporters should consider a different export strategy. Instead, business development may be less aggressive to limit exposure to potential institutional, regulatory, or market barriers. For instance, in China regulatory challenges often present intractable barriers that keep U.S. market share low. However, countries with large U.S. market share and are low risk should deserve more attention with a clear focus on sustained business development. Especially for companies that are new to export, exploring business development opportunities in countries with wellestablished O&G sectors with many foreign companies can reduce exposure to risk and profit loss. 2015 Oil and Gas Top Markets Report 6

Methodology Ample data exist to analyze upstream O&G exploration equipment, allowing detailed export and import projections and trends through 2018. The analysis in this report relies primarily on export data to support the policy recommendations. To determine its rankings, the 2015 O&G Equipment Top Markets Report employed a modified score card analysis that grouped countries with greater or lesser amounts of opportunities for increased exports from the United States. The score card methodology used in this study employed qualitative and quantitative indicators to measure future opportunity for exports from the United States. Indicators included are: (i) proximity of a country to the United States; (ii) U.S. export trends for O&G field equipment; (iii) the U.S. share and the market size of a country s O&G equipment imports; (iv) a country s future natural gas and oil production and reserves; (v) total upstream project investments in the country; (vi) an institutional risk assessment variable; (vii) and a qualitative ranking of the country as an export destination (see Appendix I: Methodology, for greater detail of the O&G top markets methodology). For each of the major export opportunity indicators, the quantitative information was ranked and then regrouped into quartiles for each of the 75 key countries involved in upstream activities. The score for each indicator was an average of the quartile ranking across the sub categories, which are then summed for a final score. Using quartiles allows for relative rankings rather than absolute rankings; that is, the rank is an indicator showing whether the export opportunity indicator is a high (quartile rank 4), medium high (quartile rank 3), medium/low (quartile rank 2), or small/low range (quartile rank 1). Analyzed as a whole, this approach allows the top prospective markets across multiple best categories to rise to the top. Caveats The 2015 O&G Equipment Top Markets Report focuses on upstream U.S. O&G equipment exports to draw larger conclusions about the nature of the global O&G sector as a whole. As export data on services is neither readily available nor consistent across markets, trade statistics for O&G equipment are used as a proxy indicator for services exports. If a country imports O&G equipment, it will likely have associated trade in services related to O&G exploration and production as well. Figure 3: Import Markets* for Equipment & Pipe for the Top 20 Markets Source: UN Trade Data and BMI Research Risk/Reward Model for Oil & Gas, 2014 *bubble size represents projected U.S. market share in 2018 Australia, 16% ($3.8B) Norway, 8% ($1.7B) low risk, high reward Canada, 50% ($5.2B) UK, 11% ($2.4B) low risk, low reward UAE, 0% ($4.0B) Israel, 40% ($1.3B) China, 11% ($1.6B) Oman, 10% ($1.0B) Colombia, 26% ($1.3B) Bahrain, 38% ($0.2B) Ghana, 19% ($0.9B) high risk, high reward Brazil, 21% ($2.1B) Iraq, 9% ($2.7B) Venezuela, 17% ($2.3B) Saudi, 20% ($7.3B) Angola, 91% ($1.2B) Nigeria, 7% ($0.9B) Russia, 6% ($3.0B) Mexico, 65% ($1.6B) high risk, low reward Ecuador, 18% ($0.9B) 90 80 70 60 50 40 30 More Reward Upstream Reward Less Reward 100 90 Less Risky 80 70 60 50 Upstream Risk 40 30 More Risky 20 20 10 2015 Oil and Gas Top Markets Report 7

The report uses country data on O&G resource endowments as an indicator of demand for O&G equipment, but does not evaluate international trade in crude oil or natural gas. The U.S. government promotes the export of equipment for O&G exploration, production, transportation, refining and storage. However, the International Trade Administration does not promote the export of U.S. produced crude oil or U.S. produced natural gas. This analysis also does not take into consideration the recent fluctuations in the international price of oil and its impacts on the O&G sector. While the price of crude oil will impact a company s investment decisions, this report employs historical data to analyze global exports of equipment and current O&G resource endowments. Case Studies Ten countries were identified from the top 20 for greater analysis: Australia, Brazil, Canada, Colombia, China, Ghana, Israel, Mexico, Norway, and the United Arab Emirates. Mozambique and Burma were also added as countries to watch, as they are both emerging with significant resource endowments, but those resources have only been developed in a limited manner to date. The markets in the 2015 O&G Equipment Top Markets Report represent a range of opportunities to demonstrate the typography of commercially focused opportunities in the O&G sector. The full list of rankings is located in Appendix II: Full Country Rankings. In addition, a discussion on U.S. equipment exports focused on the unconventional O&G development and ultra-deepwater sub-sectors is also included as well as address the individual country analyses. 2015 Oil and Gas Top Markets Report 8

Country Case Studies The following pages include country case studies that summarize U.S. oil and gas equipment export opportunities in selected markets. The overviews outline ITA s analysis of the U.S. export potential in each market. The markets represent a range of countries to illustrate a variety of points not the top markets overall. 2015 Oil and Gas Top Markets Report 9

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Australia Type: Large U.S. Market Share Overall Rank: 5 Australia was the third largest liquefied natural gas (LNG) exporter in 2013 and has large natural gas reserves (much in shale). Australia is poised to become a substantially larger producer by 2018. The Australian government estimates that natural gas will account for 24 percent of Australia s energy consumption by 2020 and will grow twice as fast as other energy sources. Resources are located primarily in the western part of the country, but most consumption takes place in the east, requiring substantial infrastructure to connect the two regions. Despite U.S. competitiveness in the O&G equipment sector, we project U.S. market share in Australia to decrease relative to other countries. Australia represents a mid-sized global import market for O&G field equipment. The United States currently represents a significant share of Australian imports of O&G field equipment. For example, Australia imports $800 million of parts for derricks and the United States represents about 27 percent of the market. For parts for boring and sinking machines, Australia s import market is $715 million and the U.S. market share is about 20 percent. There is room to expand U.S. exports of parts (the greatest proportion of U.S. O&G equipment exports) into this market. In 2013, Australia was the tenth largest destination for U.S. exports of O&G field equipment, with almost $400 million exports (less than 3 percent of U.S. exports). U.S. exports to Australia of O&G equipment had been $625 million in 2008 and peaked in 2012 at over $720 million. Parts and attachments for boring and sinking equipment and derricks continually represent about 70 percent of the U.S. exports in this category. Australia is the thirteenth largest importer of O&G equipment globally, representing less than 3 percent of global imports in 2013. Its largest imports were parts for sinking and boring machinery and derricks and some large diameter oil line pipe, representing 29, 24 and 16 percent of its imports respectively. Japan, China and the United States are its largest import sources of pipe in 2013, capturing 27, 19, and 15 percent of Australia s import market respectively. It should be noted that approximately 50 percent of the U.S. market share is in high tech U.S. parts. Policy Context: Challenges and Opportunities The Australian O&G industry s revenue reached $40 billion in 2012-2013 timeframe, with an annual growth rate of around 10 percent. The industry is expected to grow strongly over the next five years, largely due to the development of LNG facilities and the development of indigenous coal-seam gas. Approximately 40 percent of the machinery for the country s LNG projects is imported. This reflects Australians preference for high quality and reliable machinery to help offset the high capital and depreciation costs for the industry and to enhance worker safety. These are the equipment categories where U.S. exporters will likely see the most commercial potential. Gas production is forecasted to grow tremendously to 145.2 billion cubic meters (bcm) by 2023, from 49.8 bcm in 2013 and 133.7bcm in 2018. Many of Australia s new gas field developments are tied to liquefaction projects that have several export contracts in place. Several major new LNG projects are under construction or in advance planning stages to support Asia s increased demand for natural gas. 2015 Oil and Gas Top Markets Report 11

The Australian North West Shelf in the Carnarvon Basin has some of Australia s most mature fields and is the prime source for the North West Shelf LNG terminal. There are several other projects in the West and North West that are projected to come on line in 2016 or soon thereafter. Most of Australia s big reserves of shale are in the Cooper Basin in its interior. Australia will need substantial equipment to develop the area as well as to build infrastructure to connect the production to the consumption areas in the East. This represents an opportunity for U.S. mid-stream equipment and service supplier for pipeline infrastructure development, gas processing and storage, and delivery to local utilities and retail customers. Australia s management of oil exploration and production is divided between the states and the federal government. Australia s states manage the application for the onshore exploration and production project and the federal government handles the offshore portion. The natural gas industry is regulated at the federal level by the Department of Resources, Energy and Tourism (RET) and the Ministerial Council of Energy (MCE), which coordinates between the federal and states governments. Because Australia has a stable political environment, relatively transparent regulatory structure, substantial reserves, and close proximity to the Asian markets, it is an attractive place for investment both domestic and international. Almost 2,200 companies were operating in O&G extraction in Australia in 2012, including large international companies-- Apache, BP, Chevron, Conoco-Phillips, ExxonMobil and Shell as well as service companies such as Halliburton, Schlumberger, and Technip. Large Australian companies include BHP- Billiton, Woodside and Santos. The large companies generated most of the output. Australia imports significant oil today and even though new oil production is not likely to make up for current declining oil productions until about 2018, the government is trying to attract investment from international oil companies to develop offshore blocks by holding regular licensing rounds to release acreage for exploration each year. The 2011 round was the largest release in a decade. The 2014 release offered 33 offshore blocks, including a second release of three blocks from the 2013 round spanning four basins mostly in Western Australia and the Northern Territory. Western Australia held a separate licensing round in 2014 for five onshore blocks including those in the Canning Basin and the Perth Basin and the state of Queensland called for cash tenders for another six onshore areas. The 2013 offshore petroleum exploration release included 31 blocks in 6 basins, mostly off Western Australia, the Northern Territory and Victoria. As of June 2014, nine of the blocks were awarded. Recommendations for Export Strategies Australia is a country with significant amounts of hydrocarbon resources, a well-developed O&G sector, but declining U.S. export market share. It is a low risk/high reward country, and export strategies should focus on partnerships with established operators in country. Companies can expect to establish long-term business relationships considering the regulatory and commercial stability of the Australian market. All the major U.S. O&G companies work in Australia and Australian O&G companies hold production blocks in the United States, so commercial exchange between both countries is both positive and reciprocal. A subsector focus would be infrastructure development and expansion, and regions of focus would be west Australia s energy resources. U.S. mid-stream companies may find new business in projects that support the effort to link Australia s western resources to population centers in the eastern portion of the country. 2015 Oil and Gas Top Markets Report 12

Brazil Type: Large Market; Large Market Share Overall Rank: 3 The development of Brazil s offshore pre-salt resources will sustain production increases if operators can successfully navigate the burdensome regulatory environment. While Brazil is currently the fourth largest destination of U.S. O&G equipment exports, amounting to $550 million in 2013, local content requirements (LCRs) hinder the sector s expansion and increased production. With the reelection of President Rousseff, sweeping regulatory change is not anticipated, but we believe companies can expect progress, albeit slow, in the coming years toward a more market-based commercial environment for its O&G sector. Brazil is the world s tenth largest oil producer, 90 percent of which comes from its offshore deposits. The development of deep-water and especially pre-salt resources have driven dramatic increases in Brazil s production as well as accounting for some of the world s largest finds over the past decade. Pre-salt production has tripled since 2012 and now accounts for a quarter of the country s overall output. By 2020 Brazil aims to produce four million barrels a day and rank among the world s top five producers. By that time, some $400 billion may be invested in Brazil s exploration and production sector. Brazil is currently the fourth largest destination of U.S. O&G equipment exports, amounting to $550 million in 2013. Although these exports have declined from a peak of over $1.03 billion in 2011, we anticipate U.S. exports will reach similar levels again by 2018 when Brazil will represent about 5.5 percent of U.S. exports of O&G equipment. In 2013, more than 80 percent of the U.S. exports to Brazil were parts for derricks, and sinking and boring equipment. Of Brazil s approximately $2.9 billion in O&G field equipment imports in 2013, the United States was the largest source for Brazil s imports with 20 percent, followed by China, Japan, and the United Kingdom with 16, 14, and 11 percent market share, respectively. Beyond the parts it imports, Brazil also imports stainless casing and tubing for O&G drilling, much of which originates in Japan, Spain, and Germany. We anticipate the U.S. market share of the Brazilian market for equipment may increase slightly by 2018. Challenges and Opportunities Along with other successful deep-water license offerings, Brazil held its first and only pre-salt bid round in 2013 amid great anticipation. However, only one consortium led by state-controlled Petrobras in partnership with the Anglo-Dutch company Shell, France s Total, and China s CNPC and CNOOC submitted an application for the auction. The Brazilian government requires Petrobras to maintain operatorship and a 30 percent stake in all pre-salt projects licensed after 2010, when a production sharing agreement regulation came into effect. The regulatory change has deterred many larger O&G producers from greater involvement in Brazil. Politics continues to dog Petrobras performance in the country. Brazil s generous subsidy scheme, for example, requires the company to sell imported oil domestically at a loss in order to temper consumer inflation. Petrobras development of pre-salt resources is also costly, requiring well over $100 billion, and the company is now the most indebted oil major in the world. According to press reports, Brazil also enforces among the most stringent LCRs in the world, extending to materials, equipment, systems and subsystems, and services. The intent of the law is to support local 2015 Oil and Gas Top Markets Report 13

employment, develop technology, and enhance competitiveness. Exploration phase activities require between 37 and 85 percent local goods and services, and development phase activities must use between 55 and 80 percent Brazilian content. In light of the LCRs, Petrobras has been vigorously pursuing foreign suppliers to either open plants in Brazil or partner with local manufacturers to source equipment for the O&G sector out of Brazil. Despite these constraints, there are now more deep water oil rigs, supply vessels, and floating production and storage units operating in Brazil than anywhere else in the world, according to research firm IHS. Brazil is also expected to need more than double the supply of existing shipping rigs, drilling platforms, and oil tankers, according to PWC research. As such, U.S. exporters will also find commercial opportunities in equipment supporting such machinery, including production pipelines alloy coatings, turbo compressors, polyester mooring cables, mooring systems, drilling pipelines, fiberglass pipelines, electrical cables, control systems, gravel packing, drilling bits, steam generators, and submarine valves, as well as support services. Recommendations for Export Strategies Brazil is in the high risk/high reward quadrant of the risk reward matrix and is a country with large U.S. market share. However, the strict local content requirements, specific labor requirements, and difficult customs process for imported O&G equipment remains a challenge to increased commercial exchange in the sector. U.S. export strategies should work within the existing import regulations established by the Brazilian government but anticipate that these regulations could change to encourage greater commercial exchange. The U.S. government had a number of pre-existing bilateral mechanisms in which to engage the Brazilian government, specifically, the Strategic Energy Dialogue, the Commercial Dialogue, and CEO Forum. These bilateral mechanisms are designed to address policy issues and integrate private sector policy positions on U.S.-Brazil commercial relations. U.S. companies already working in Brazil may consider working with the U.S. commercial service to get up-to-date information on these important bilateral dialogues that can impact import regulations. 2015 Oil and Gas Top Markets Report 14

Canada Type: Large Market; Large Market Share Overall Rank: 1 Canada has the third largest oil reserves in the world, and is the largest supplier of crude oil and petroleum products to the United States. Ranked 5th in its O&G production globally, Canada is projected to have an 11 percent growth in its oil production by 2018. Canada also is the top recipient of U.S. O&G field equipment exports. This market is expected to grow for U.S. exporters as the Canadian government plans for more oil extraction from the Alberta tar sands and natural gas exploration in British Columbia. In 2013, the United States exported $2.2 billion of O&G field equipment to Canada. This represented 16 percent of U.S. O&G equipment exports, an increase of 6 percent from 2012. Much of that trade was in derrick parts and parts for boring and sinking machinery as well as casing. U.S. exports of related pipe were among the products with the highest export growth rates. Canada is a good export market for such products given its proximity and stable operating environment. Environmental control and efficiency products as well as high quality pipe similar to those used in the United States are likely to be particularly in demand in the coming years. Of Canada s top sources for O&G field equipment, the United States was consistently the largest source for more than 10 years, with market shares ranging from a low of 42 percent in 2009 to 52 percent in 2013. Other import sources for Canada were China, Japan, and Mexico, representing 10, 6 and 5 percent respectively in 2013. Canada imports a large share of its capital intensive O&G from the United States, for example, Canada imports 63 percent of its boring and sinking equipment parts from the United States. Between 2011 and 2035, the increase in demand for U.S. goods and services in Canada s oil sands is predicted to add an estimated $5.8 billion to U.S. GDP in 2015, $12.9 billion in 2020, $26.6 billion in 2025 and $42.6 billion in 2035. Over 1000 American companies are already involved in the supply chain to the oil sands projects. Canada has huge O&G field equipment needs to support its very large energy development plans. Canada wants to become an energy superpower in the next decade. Some estimates include over $600 billion in natural resource project investments in the next decade. Policy Context: Challenges and Opportunities Canada has the third largest oil reserves after Venezuela and Saudi Arabia, and it is the third largest natural gas producer. Canada s market is very transparent and stable, and the country s O&G sector will need much of the same equipment required in O&G fields as in the United States. Like the United States, Canada has both conventional and unconventional resource potential, but its oil sands, representing more than 85 percent of Canada s total oil reserves, are the focus of new oil development activities. The majority of Canada s oil sands are recoverable through in situ methods, although mining is also used. While oil sands are the focus, the Canadian parliament is evaluating new regulation limiting carbon emissions, which could place restrictions oil sands development. Although Canada is itself a leader in technology, equipment, procedures and personnel for the O&G industry, we assess that Canada will need a lot of new equipment in coming years. We foresee Canadian facilities needing new environmental control and energy efficient technologies as well as site reclamation products. Some existing equipment needs upgrading and the cost is estimated to be approximately $700 million per upgrade. U.S. manufacturers of drilling tools have done exceptionally well in Canada, as well as steel fabrication companies. Major O&G shows are very 2015 Oil and Gas Top Markets Report 15

well attended and have large delegations from the United States. U.S. firms that have attended Canadian O&G events report several millions of dollars in sales annually. In many areas, supply cannot meet demand in the industry in Canada; therefore there is a large market for U.S. manufacturers. There is also a need for building materials, coking and recovery units, instrumentation and control systems, safety and security equipment; pressure vessels, heat exchangers, and transportation equipment. There is a need for mobile mining equipment, including trucks and support gear (dozers, tires, excavators, shovels). In addition, ITA estimates that $1.1 billion per year will be spent on steel pipe tubing alone. Like the United States, Canada s O&G industry is completely privatized allowing company stakeholders interests drive investment. Only 19 percent of total world oil reserves are accessible for private sector investment 53 percent of which are found in Canada s oil sands. Licensing and regulatory rules differ by provinces and by energy source. With regard to oil exports, most Canadian oil is exported from western provinces, from which approximately 70 percent of the country's total exports are sent to refineries in the U.S. Midwest. Canada had originally planned to follow historical energy patterns wanting to build an extension of the Keystone pipeline to the United States through which it could export the majority of its heavy oil to existing refineries. That plan met with still unresolved resistance over economic, environmental and safety issues. The potential Canadian oil exports are large but are constrained by limited pipeline capacity especially outside of the North America. Once the export bottlenecks decrease and pipelines and LNG facilities are built, we believe Canada s production and exports of natural gas will grow quickly. directions. Canada is the only country to import U.S. crude oil, because of the restrictions on U.S. exports of crude; however, the United States exports more meaningful volumes of petroleum products to Canada. With the evolution and growth of U.S. oil and gas production, it lessens the likelihood that the United States will remain as heavily reliant on Canada for energy resources as it had in the past. Companies in Canada are looking to build pipelines west to export product to Asian markets with greater need for such imports and, in the long term, are seen as markets with more demand growth than the United States. The challenge will be coordinating both the support of the community and local governments. With the development of Canada s unconventional O&G resources, Canada will continue to rely on U.S. equipment and services. U.S. equipment and services suppliers have pioneered innovative tools for unconventional O&G development beyond shale, and oil sand production will rely on U.S. suppliers for the capital intensive equipment needed to develop these technically challenging resources. In particular, equipment for oil sands development will be needed to ensure a high degree of protection for local water resources, land reclamation, and reducing associated greenhouse gas emissions to ensure compliance with environmental regulations and protect local communities. Recommendations for Export Strategies Canada is characterized as a low risk/high reward market with significant U.S. market share. U.S. companies enjoy a number of advantages over other foreign competitors in Canada, such as the North American Free Trade Agreement, close proximity to the United States, and the many cultural and historical ties that exist between the United States and Canada. Export strategies should leverage the existing free trade agreement, cultural and business ties. Although the United States is a large net oil importer from Canada, the cross-border oil trade flows in both 2015 Oil and Gas Top Markets Report 16

China Type: Large Market; Small Market Share Overall Rank: 9 In 2013, global O&G equipment imports into China were valued at roughly $3.6 billion. Major new development areas in China s O&G sector are offshore and unconventional gas. China is seeking to increase the use of natural gas for power production and industrial usage, focusing gas development policies on unconventional resources such as coal-bed methane and shale gas. Despite the government s political directives, regulatory uncertainty and uncompetitive policies limit foreign participation. In 2013, the United States exported $670 million of O&G field equipment to China, our third largest trading partner and representing about 5 percent of our Chinabound U.S. exports that year. Currently, top U.S. O&G equipment exports are parts for derricks and for sinking and boring machinery, which represent 28 and 53 percent of O&G exports to China, respectively. Of O&G field equipment it imports, China ranked as the tenth largest market in 2013, valued at roughly $3.6 billion. Chinese imports of these products grew about 10 percent from 2012 but totals remain lower in absolute terms than the $5 billion imported in 2008. Over 70 percent of the 2013 imports were parts for derricks and sinking and boring equipment. China s top three trading partners in this segment were Korea, Japan, and the United States. Policy Context: Challenges and Opportunities China is the largest energy consumer and producer in the world, and its fast-growing economy places energy issues among Chinese policymakers top concerns. As China pushes to meet its energy demand, the environmental costs of energy consumption such as pollution from coal-power generation and transportation have also accelerated China s search for new and cleaner forms of energy, particularly natural gas. In this respect, Beijing has announced ambitious targets for natural gas, stating this energy source must supply 8 percent of all energy demand by 2015 and 10 percent of demand by 2020. In 2012, natural gas supplied 3 percent of China s power production. In addition to building LNG import and pipeline infrastructure, Beijing is pushing to increase domestic natural gas production. Shale resource development is targeted for development because of its abundance and its success in the United States. According to US Energy Information Administration, China's technically recoverable shale gas reserves are 1,115 Tcf, the largest shale gas reserves in the world. China lags, however, in expertise and technology to develop these resources, and the government is incentivizing producers to increase investment and production. China s complex geology, however, means drilling is expensive, often over twice as expensive as in the United States. The business environment for oil and gas development in China is challenging, particularly for foreign companies. Foreign participation in the China s shale initiative has been limited and state dominance, lack of competition, and uncertain regulations continue to frustrate international companies efforts. Many winners of past bid rounds were domestic firms with little experience developing shale resources, which possibly opens avenues of cooperation for foreign oilfield service providers. However, regulations restrict competition and foreign participation. Nonetheless, ample subsidies, legal reform, and productivity targets are among the reasons production is expected to grow in the short-term with significant increases in the 2020s. Companies that specialize in drilling, extraction 2015 Oil and Gas Top Markets Report 17

equipment, pipeline construction or provide operational services for shale gas developers may benefit from the growth of the Chinese shale gas market. In addition, companies with expertise in deep extraction and water efficiency will also be well positioned as the market expands. Deep-water resources, too, have a prominent place in Beijing s upstream growth strategy. More than half of the oil fields that provide about 80 percent of China s oil production are declining, and the country increasingly depends on imported O&G. To help reverse these declines, Beijing supports investments in technologies such as enhanced oil recovery and encourages the search for new supply through deepwater exploration. In particular, China s National Energy Administration (NEA) has stated that the South China Sea would 'form the main part' of the country s offshore exploration under the current five year plan. As a result, the domestic offshore support market is developing fast to cater to the needs of the Chinese offshore O&G industry. International Oil Companies (IOCs) and service companies have established their presence in China chiefly through partnerships with Chinese companies. In offshore development, IOCs mostly partner with state-owned CNOOC, while China s three largest stateowned firms for both onshore and offshore projects, which often involves complicated drillings, hire service companies. Offshore participation, however, carries risks because of China s expansive territorial claims. While some of China s offshore activity falls within recognized boundaries, conflicting claims with Indonesia, Japan, Malaysia, the Philippines, and Vietnam add operational uncertainty to future East and South China Sea exploration and production. Recommendations for Export Strategies China s is positioned in the high risk/high reward quadrant of the risk reward analysis and is also characterized as having small U.S. market share. There are a number of risks that U.S. O&G equipment and service suppliers face, specifically violations of intellectual property rights. U.S. companies are reluctant to bring their most advanced equipment to China, which has ramifications to increased development in China s O&G sector, most notably in unconventional and deepwater oil and gas extraction. 2015 Oil and Gas Top Markets Report 18

Colombia Type: Large Market; Small Market Share Oil remains Colombia s top export product and boosting O&G production and exports are priorities for the Government of Colombia. Regulatory reforms were enacted as an incentive for foreign investment from international companies in unconventional exploration and development. Commercial-level production in Colombia s deepwater is untested, but has garnered interest from major international O&G companies. More capital-intensive equipment is needed to address the technical challenges associated with such unconventional production, and the significant environmental and safety concerns associated with deepwater offshore exploration. However, rule of law, corruption, weak infrastructure, and groups opposed to building up the oil industry represent significant concerns for increased U.S. exports. Overall Rank: 2 Colombia is the United States eleventh largest market for O&G equipment exports with about $339 million exports in 2013. This is a decrease from the 2010 high of $631 million, and even the 2011 and 2012 levels of $459 million and $453 million, respectively. The largest portion of these exports was parts for boring and sinking equipment and attachments for derricks followed by high quality pipes. By 2017, these exports could be above $750 million if current trends continue. The United States is Colombia s largest source of imports, providing consistently over 30 percent of its equipment. China is the second largest supplier with 17.3 percent in 2013 followed by Mexico, which supplied almost 13 percent in 2013. Imports from the United States and China declined about 30 percent between 2012 and 2013 while those from Mexico fell by only hour percent and increased as a share of the total imports. Imports from both China and Mexico were mostly concentrated in pipes. Policy Context: Challenges and Opportunities Colombia has an attractive fiscal regime, contract terms and regulatory environment for O&G investors, which helped it grow its production by more than 70 percent since the mid-2000s. As of 2013, production was above one million barrels of oil per day and by 2018 may reach 1.3 million barrels of oil per day. However, in recent months output fell for the first time since 2005 due to security issues and damage to the pipelines. Future success in the oil industry is contingent on security and shifting the exploration focus away from conventional oil sites, where finds recently had been slowing, to offshore and unconventional sources. Colombia is working hard to provide a stable environment for success in this industry. In 2003, the government created the National Hydrocarbons Agency (ANH) to administer the hydrocarbons resources. This administrative change allowed Ecopetrol, Colombia s national oil company, the ability to compete on equal footing with other oil companies in bidding for exploration and production blocks (block rounds coordinated by ANH). Both Ecopetrol and ANH report to the Ministry of Energy and Mines (MEM). Ecopetrol plays both roles as resource administrator and state oil company. Consequently IOCs were reluctant to partner with Ecopetrol, because there was the perception that Ecopetrol retained the best areas. With the change, companies like Anadarko and Statoil have become partners with Ecopetrol in Colombia, Gulf of Mexico, Brazil, Peru, among other countries. While the new organization has been successful in 2015 Oil and Gas Top Markets Report 19

increasing production significantly through 2013, much remains to be done. In 2011 the government made a policy change in favor of using natural gas domestically in its power sector to supplement hydropower and to increase gas exports. Since then natural gas production, like oil production, has risen substantially; international investments have contributed to this growth. Chevron is the largest natural gas producer in the country, producing more than 600 million cubic feet per day of gross natural gas. In partnership with Ecopetrol, Chevron operates an offshore field in the Caribbean and recently started exporting gas to Venezuela. Colombia would also like to become a gas hub for the Andean region given its access to both the Pacific and the Atlantic and plans to export LNG, and build an offshore regasification terminal by 2016. The oil and gas sector is a pillar of Colombia s economy and the government has committed its resources to aid in its smooth operation and development. The Finance Ministry estimates overall economic growth could reach 7 percent if the energy industry is allowed to develop in a stable regulatory environment. A principle challenge to further exploration in Colombia is armed attacks on its infrastructure. Colombia has been in peace talks with the Revolutionary Armed Forces of Colombia (FARC) for the last two years, trying to curtail the 50-year war with that group. Another indication of the importance of this sector to Colombia is that officials from several ministries meet regularly to coordinate government efforts to get production back to its 1 million barrel a day mark. The ANH has defined a policy aimed at making more attractive exploration and production terms for riskier O&G resources, which include offshore, heavy crude, O&G shale, and coal bed methane, where much of the future production growth is likely to be. Colombia continues to develop terms and conditions for unconventional hydrocarbons and deep offshore exploration and production. The group representing private oil companies operating in Colombia recently indicated they need to drill 230 exploratory wells per year for five years to maintain the 1 million barrel per day production levels; they have voiced concerns about delays in permitting and regulatory burden in addition to security. Part of the coordinated government efforts to aid the industry include reforms which decrease the amount of time needed for processing environmental permits (from over 10 months to about 4) and improve dialog and field visits. However, the environmental reforms for fracking permits will remain vigorous; Ecopetrol has several applications outstanding for exploratory fracking. Recommendations for Export Strategies Colombia is considered a low risk/high reward country with large U.S. share of its O&G imports. The recent investments in Colombia s unconventional and deepwater offshore markets represent significant opportunities for U.S. equipment and service suppliers to expand into the country. Colombia s interest in exploring unconventional hydrocarbons and deep offshore sites without inflicting environmental damage should offer opportunities to companies that use recognized international safety standards and equipment suppliers and latest technologies. This presents a good opportunity for U.S. suppliers especially those with experience working with the international companies operating in Colombia. Also as part of the U.S. Colombia Trade Promotion Agreement, Colombia eliminated its import duties on equipment and spare parts for O&G exploration and production. 2015 Oil and Gas Top Markets Report 20

Ghana Type: Small Market; Large Market Share Overall Rank: 19 As one of the most stable democracies in West Africa, and historically welcoming to U.S. companies, Ghana presents an attractive environment for U.S. exports. In 2007, significant amounts of O&G were discovered in the Gulf of Guinea, and since that time, the sector has been rapidly growing. While U.S. exporters can find ample opportunities to engage in exploration and production in this active market, the country s high trade deficit could negatively impact Ghana s ability to increase exports in the future. Because of the relatively recent developments in its offshore O&G sector, Ghana is an active market for U.S. O&G equipment. Despite the overall trend of decline in O&G equipment imports, the United States remains the largest exporter of equipment for O&G exploration and production into Ghana. In 2013, parts for boring or sinking machinery were $29 million while parts and attachments for derricks were $15 million in U.S. exports. In 2012 and 2013 drill pipe also represented $7 million and $2 million respectively. The overall trends in global O&G equipment exports to Ghana show an increase and as more resources are discovered, a trend that we believe is likely to continue. Over the past seven years, the Ghanaian oil sector has been marked by impressive offshore O&G discoveries. Business Monitor International reported that in 2013 Ghana s oil reserves were 660mn barrels (bbl) and gas reserves were at 23 bcm. The discoveries began when Tullow Oil and Kosmos Energy discovered oil in commercial quantities in the Jubilee Field in 2007. The closest port to the offshore field is located in the city of Takoradi in the Gulf of Guinea. U.K.-based Tullow Oil became the main operator and production and export began in 2010. The largest original commercial partners were Tullow, Anadarko, and the Ghana National Petroleum Corporation (GNPC), with small shares for Sabre O&G and EO Group. BMI estimated that Jubilee is currently producing about 91,400 barrels per day (bbl/d). After the discovery of Jubilee, Ghana was the first of four countries including Ivory Coast, Liberia, and Sierra Leone, where major O&G finds led to the detection of the West Africa Transform Margin, an area between two tectonic plates marked by a particular type of seismic activity. In addition to Jubilee, six other fields have demonstrated commercial quantities of oil within Ghana. The Tweneboa, Enyenra, and Ntomme fields, the so-called TEN fields, were discovered in March 2009. The TEN fields are expected to produce about 75,000 bbl/d and 50 million cubic feet (mcf) of gas per day beginning around 2017. Tullow will be the main operator in the TEN fields. In 2013, the Ghanaian government awarded offshore exploration licenses to Cola Natural Resources, AGM, Amni Development, and Carmac. With the exception of Carmac, these companies are smaller operators and have less experience as operators. According to BMI, there could be opportunities for farm-outs as these companies will likely need help in development. Recent licenses have also been issued to Ophir Energy and ENI in the eastern Accra-Keta Basin east of the current finds. Further opportunities may be available for U.S. companies in these latter fields, depending on whether or not commercial quantities are found. GNPC is trying to raise $1 billion in capital in order to develop its own exploration and production capabilities. In November 2014, GNPC had entered into formal discussions with Dutch commodities trader Trafigura regarding a $700 million loan. The United States could look to assist GNPC with their future 2015 Oil and Gas Top Markets Report 21

development depending on the status of the Trafigura deal. Currently, only one Floating, Production, Storage, & Offloading (FPSO) facility is in use in Ghana, the Kwame Nkrumah FPSO. In 2011, USTDA funded a feasibility study for a floating regasification and storage unit (FRSU). Ghana s refining capacity lags well behind its ability to process crude oil. Several projects have been planned for expansion of the limited refining facility of Tema outside of Accra, but have fallen through. In addition, Ghana has struggled to develop its natural gas capabilities. A $3 billion loan given by the China Development Corporation several years ago to build a pipeline from associated gas with the Jubilee field has not been successful. Policy Context: Challenges and Opportunities In 2013, the Government of Ghana passed legislation to support greater local content development related to the O&G industry. The purpose of the local content is to retain a greater proportion of the economic benefits in Ghana from the recent offshore O&G discoveries through greater employment of local labor and increased foreign investment in manufacturing facilities. While the policy starts from a relatively low 10 percent for O&G goods and services, it ramps up quickly to 60-90 percent in ten years. In addition, the requirement for local companies to comprise a five percent equity participation in future petroleum development could present an opportunity for corruption. Ghana s debt currently constitutes 65 percent of GDP and has a trade deficit of 9.5 percent of GDP. This debt and rising trade deficit should be of concern to exporters since it has the potential to threaten economic growth in the medium to long-term. In October 2014, Ghana issued $1 billion of bonds and also sought financial aid from the International Monetary Fund. The Ghanaian cedi has decreased by 35percent relative to the dollar this year, and Moody s Investors Service cut the nation s credit rating in June. Low oil prices and the presence of Ebola in the region have not helped the overall investment environment. In addition, Tullow Oil is expected to cut back its worldwide exploration costs from $1 billion to $300 million in 2015 as a result of declining oil prices. If this trend continues, it is possible that Tullow will be acquired by a major or super-major oil company, which could impact its Ghanaian holdings. Ghana s Petroleum Revenue Management Act (PRMA) of 2011 is meant to reform an earlier 1984 law regulating the oil sector. The PRMA is unique in that it came out of a public debate surrounding petroleum revenue management and the public s desire to reduce future opportunities for corruption. Ghana had the benefit of scaling up slowly before reaching full production. Petroleum revenues only accounted for 4 percent of government spending in 2011, a very small number in comparison with other African oil-producing nations such as Nigeria and Angola whose percentage ranges from 70-80 percent. Ghana continues to rank more favorably than many of its African counterparts on corruption indexes such as Transparency International. With oil exploration, many are watching to see if Ghana maintains its high ranking. Recommendations for Export Strategies As Ghana is a small market with large U.S. market share, but is also a high-risk country. The country s local content requirements, specific labor requirements, and the overall need to improve the investment environment remain risks for business, and create uncertainty for greater development of the O&G sector. 2015 Oil and Gas Top Markets Report 22

Israel Type: Small Market; Large Market Share In Israel, development of commercial scale offshore natural gas has created a market for offshore drilling and sub-sea pipeline equipment. The offshore gas finds are significant enough to support natural gas exports with the future potential for floating liquefaction development. However, regulatory and political challenges hinder development, specifically due to the Israeli Anti- Trust Authority s requirement for additional divestments. Noble Energy has suspended development of the Leviathan field until a final agreement can be reached with the government. Companies interested in selling equipment and services to Israel are likely to encounter a challenging regulatory environment for the foreseeable future. In 2009 and 2010, Texas-based oil major Noble Energy, and its Israeli partners, discovered three major natural gas fields off the coast of Israel: Tamar (10 Tcf), Leviathan (19 Tcf), and Dalit (14 Tcf). The Tamar field was the first large deep-water natural gas discovery in Israel, while Leviathan was one of the largest offshore gas discoveries in the world in 2009. Noble Energy is the operator of the Leviathan fields with a 39 percent stake, while Delek and Avner each hold a 23 percent stake and Ratio Oil a 15 percent stake. These discoveries have changed the course of Israel s future energy development, requiring production equipment, pipeline infrastructure, and processing facilities. While there are significant potential for U.S. equipment manufacturers and service suppliers, delays in developing the offshore resources pose a threat for near-term business development. In 2013, the Tamar SW field (700 Bcf) was also found, and investors expect more discoveries will be made in the coming years. Noble Energy is currently the only offshore gasproducing operator in Israel. Israel s peak year for O&G equipment imports was in 2012 when it imported more than $500 million of equipment, 60 percent of which were from the United States. In 2013, imports from the United States were concentrated in parts for boring and sinking machines, containers for compressed gas, and parts for derricks all products for which the U.S. is consistently the top source for Israel. Noble Energy largely procured these Overall Rank: 16 through its Houston headquarters. While the levels of O&G equipment imports decreased in 2013, Israel imported substantially increased amounts of wide diameter pipe for pipelines and other line pipe, the majority from Turkey and China. As Noble begins drilling production wells in Leviathan and Tamar SW, these trends will likely repeat and expand as additional subsea equipment and pipelines are installed, maintained and upgraded. Policy Context: Challenges and Opportunities The United States is Israel s largest trading partner. Total exports from the United States to Israel increased by 14 percent in 2013, the majority in the technology and defense sectors. However, U.S. companies face significant foreign competition, in particular from European competitors in the O&G sector. Under the U.S.-Israel Free Trade Agreement, most trade barriers between the United States and Israel have been eliminated apart from agricultural barriers. A tax treaty exists to ensure both governments do not doubly tax companies. Other major exporters to Israel for O&G equipment include Italy, Turkey, the United Kingdom, China and Romania. The large scale of Israel s offshore gas reserves was unexpected. To develop fields of such a significant size, the natural gas would need to be exported in addition to supplying the Israeli natural gas market. However, Israel was such a resource poor country for so long 2015 Oil and Gas Top Markets Report 23

that many in Israel were staunchly opposed to any form of natural gas exports because it was seen as exporting the country s energy security. The recent decision by the Israeli Supreme Court to upholding the cap on exports at 40 percent of proven gas reserves provides the industry with some measure of certainty. The Palestinian Power Generation company has signed a 20-year $1.2 billion sales agreement for natural gas from Leviathan. Jordan s National Electric Power Co. utility has signed a 15-year $500 million non-binding Letter of Intent (LOI) for natural gas deliveries from Israel s Tamar field. Faced with a growing energy crisis, Egypt is also looking to Israel for supplies of natural gas for both domestic consumption and export. LOIs have been signed with British Gas and Fenosa to supply their LNG facilities in Egypt. The Tamar consortium, led by Noble, has signed an LOI to negotiate with Dolphinus Holdings; their company represents non-governmental and industrial and commercial consumers in Egypt. Turkey could also be a recipient of natural gas exports through a subsea pipeline connecting the two countries, likely under Cypriot waters, although the strained bilateral relationship threatens the future deal. In addition to the national debate around Israel s natural gas exports, Noble Energy and Delek s commanding position in Israel s natural gas market resulted in a finding that their position violated Israel s anti-trust regulations. Noble Energy and Delek have agreed to divest some of their offshore assets, specifically the Karish and Tanin fields. This agreement was again revised in December 2014 as the Israeli Anti- Trust Authority requested that the Noble Consortium make further divestitures. Consequently Noble Energy has suspended further development of the Leviathan field until a final agreement can be made with the Israeli government. Natural gas export plans have now changed toward constructing a regional pipeline network to bordering countries, and potentially across the Mediterranean Sea. The proposed pipeline network would connect Israel to Jordan, and the West Bank, and the offshore fields directly to Egypt and Turkey. Israel hopes that natural gas export pipelines will strengthen regional relationships as well as regional economic development. Security and geopolitical risks in Israel impact the O&G industry. The overland natural gas pipeline from Egypt to Israel was attacked more than a dozen times until it was finally shut down in 2012. In addition, offshore platforms have been targeted by Hamas, a threat that is likely to persist for the foreseeable future. Despite regulatory uncertainties, Israel remains a growth market for new sales of offshore, and gas processing equipment. Development of the Leviathan field should pick up in the not too distant future once Noble and the government reach an agreement on divestments. In the meantime, the low price of gas could put pressure on commercial gas sales facing a more competitive world market. Recommendations for Export Strategies While Israel is characterized as a low risk/high reward country, there are regulatory challenges in the O&G sector in Israel that have become more pronounced in the last couple years. The lack of a clear policy to develop Israel s offshore O&G resources is having a negative impact on investor confidence. Export strategies should focus on business development after the Israeli government forms a coherent and consistent offshore gas development policy. 2015 Oil and Gas Top Markets Report 24

Mexico Type: Large Market; Small Market Share Overall Rank: 4 Sweeping constitutional reforms are dramatically changing Mexico s energy sector, offering new opportunities for U.S. O&G equipment suppliers. New opportunities for O&G companies play to U.S. competitiveness in the O&G sector, such as unconventional and deep-water equipment and services. The United States is by far the largest source of Mexico s O&G field equipment, representing more than half of Mexico s imports, however experienced equipment suppliers will need to look beyond PEMEX for new commercial opportunities. Mexico is one of the world s top ten oil producers, at some 2.9 million bbl/d of total oil liquids in 2013, though production has declined by 22 percent since its peak in 2004-2009, and crude oil production is at its lowest since 1995. Although Mexico continues to confront declining production, the country is poised to revitalize its ailing O&G sector through historic energy reforms. In 2013, the United States exported almost $1.7 billion of O&G field equipment to Mexico, its second largest partner after Canada for these exports, representing 16 and 13 percent of U.S. exports. Exports to Mexico have grown steadily from $600 million in 2008. Parts for derricks and boring and sinking machinery are by far the top exports, together representing more than 70 percent of the product mix imported from the United States. The United States is by far the largest source of Mexico s O&G field equipment, representing more than half of Mexico s imports. After the United States, Mexico imports significant O&G equipment from China (8 percent), Canada (5 percent) and Sweden (4 percent). Of the imports that do not originate in the United States, they are largely floating platforms or submersibles with drilling equipment, platforms or cranes. Mexico imported $35 million of tankers from Sweden in 2013. Policy Context: Challenges and Opportunities Mexican president Enrique Pena Nieto s Partido Revolucionario Institucional (PRI) government has continued to push through historic changes in the energy sector since announcing reforms in August 2013. The Mexican Congress approved broad proposals at the end of last year, and a raft of reforms laying out the specific measures the critical secondary laws effectively signal the end of stateowned energy company PEMEX s 75-year monopoly over the sector. As of August 2014, President Nieto signed into law legislation passed by Mexico s upper and lower houses that will open the country s O&G industry to foreign investment for the first time since 1938. The government has targeted a 40 percent increase in oil production to 3.5 million barrels a day by 2025, which it hopes will increase GDP by two percentage points. New legislation mandates that Pemex transform from a state-owned enterprise into a Productive State Enterprise ( EPE ) in two years. Pemex will retain a 20 percent stake in trans-boundary reservoirs without having to become the lead operator, and it will maintain exclusive rights over gasoline stations until 2017. Mexico s energy secretary (SENER) has also introduced a Round 0.5, which will comprise PEMEX s Round Zero gains that the company will seek to develop in partnership with foreign firms. Round 0.5 process in early 2015 and will consist of 10 projects 2015 Oil and Gas Top Markets Report 25

including mature onshore, mature offshore, deepwater and offshore heavy oil assets. Mexico s sweeping O&G sector changes aim to inject foreign capital, attract international technical expertise, and stimulate Mexico s flagging production. Exploration and production contracts allowing profit sharing, production sharing, and licensing should entice international companies. The first competitive upstream bid rounds are expected in 2016. Crucially, reforms permit companies to book reserves, and opportunities to invest in deep-water and unconventional plays will present opportunities for U.S. energy companies, which provide unique expertise in these technically-advanced areas. The development of these plays including access to previously closed parts of the Gulf of Mexico owing passage of the US-Mexico Transboundary Hydrocarbon Agreement could raise Mexico s O&G production by nearly 1M bbl/d over the next 15 years, according to industry analysts. Further commercial opportunities exist in pipelines, production platforms, living quarters platforms, container ships, and crude oil storage tanks. Local content rules have been a hotly-contested issue in reform debates. These rules are still being developed, but it appears that for contracts in which the state or a state-owned corporation is a party, LCRs will be set at 25 percent for new project by 2015 that will increase to 35 percent by 2025, with some exemptions for deep-water development. Mexico aims to avert production delays that Brazil has faced as a result of its high LCRs, but we foresee that Mexico will face intense political pressure to protect local industry. A number of major projects will drive investment in the sector and offer U.S. companies opportunities either as contractors, sub-contractors, or suppliers of equipment/technology: Oil exploration and production: 53 exploration wells in the Chicontepec area with a budget of $530 million; 6 mature fields exploration Wells in the North Region with a budget of $220 million; 10 deep water exploration projects (including the Perdido Area) with a budget of $300 million; and 40 offshore platforms on the Gulf of Mexico with a budget of $1 billion. Shale gas exploration: 10 wells in the State of Coahuila, Tamaulipas, Veracruz, and Nuevo Leon with a budget of $150 million Pipe Rehabilitation and New Pipelines: 600 km natural gas pipeline project from Veracruz to Tamaulipas and Nuevo Leon with an estimated budget of $700 million; 2,000 new kilometers of gas pipelines to link U.S. natural gas suppliers and PEMEX gas pipeline system for states on the Gulf of Mexico and states on the Pacific Refineries: Reconfiguration of the Salina Cruz Refinery and the Salamanca Refinery, and continued work at the Tula New Refinery. Recommendations for Export Strategies Mexico is classified as a country with large U.S. market share but is high risk and low reward. While this was the case when all of Mexico s hydrocarbon resources were controlled by the state, the political reforms to open the country s O&G sector to private companies has changed this calculus. Now, Mexico is considered a major destination for O&G companies and the longstanding relationship with the U.S. O&G sector is a major advantage for U.S. companies in Mexico. 2015 Oil and Gas Top Markets Report 26

Norway Type: Small Market; Small Market Share Overall Rank: 6 Investment in O&G production in Norway will increase for the foreseeable future as the sector plays a crucial role to Norway s economy. Bids for Norwegian equipment and service contracts are competitive, and significant investment potential remains. Shortages of harsh-environment oil rigs, major field developments, potential partial privatization of Statoil, new licensing rounds in frontier areas, continued awards of blocks in mature areas (APA rounds), and consistent need for energy capital and technologies contribute to Norway s encouraging investment environment. But companies will find strong competition in a market with a well-developed equipment and service sector. In 2012, Norway was the tenth largest exporter of crude oil and the third largest exporter of natural gas in the world. According to Norway s Ministry of Petroleum and Energy, Norway retains 66 percent of its reserves, and thus, O&G production will continue to play a critical role in the economy in the foreseeable future. Major areas of demand in the O&G sector in Norway are offshore as all of its reserves are found in three regions of the Norwegian Continental Shelf (NCS): the North Sea, the Norwegian Sea, and the Barents Sea (in descending order of output). Following the 2011 resolution of maritime border disputes with Russia, seismic surveys and exploration in the Barents Sea have grown. Discovery of the Wisting Central oil field (60 million to 160 million barrels recoverable) has provided encouragement for exploration in this frontier region. While production is expected to fall in the short-term as a result of reduced output from maturing fields, there are reasons for optimism regarding Norway s O&G sectors. For the first time in eight years, Norway has increased its proven oil reserve estimate, which is now estimated to be 5.83 billion standard cubic meters of oil equivalents (billion Sm3 o.e.). The world s largest discovery of oil and natural gas in 2011, the Johan Sverdrup field in the North Sea, contains between 1.8 and 2.9 billion barrels of oil equivalent (boe) of recoverable resources and will begin to produce in 2019. Norway's oil production peaked in 2001 at 3.4 million barrels per day and declined to 1.8M bbl/d in 2013. Norwegian oil production is predicted to recover some from its current decline, but is expected to level off again by 2020. Norway currently has 74 tcf of proven natural gas reserves, and has consistently grown natural gas production since 1993 from the development of new fields. Many Norwegian companies focus on the development of subsea systems. As all of Norway s O&G production is offshore, and new fields are increasingly rare and in more challenging environments, there is a greater emphasis on advanced technology. New technology in the areas of seismic surveys, interpretation of seismic data, directional drilling, subsea processing, and information and communication technology will be crucial for new discoveries in Norway s key offshore areas. A promising sub-sector for U.S. suppliers continues to be drilling and well completion technology. Key areas for the market are: Zero-surface, subsea and deepwater technology used to replace traditional platforms; LNG technology/gas value chain, including technology facilitating more efficient and clean production and transportation of gas from remote locations; Advanced technology facilitating remote/onshore, real-time operations, and 2015 Oil and Gas Top Markets Report 27

solutions advancing the e-field, reducing the need for transportation and the number of personnel having to stay on offshore platforms; Innovative solutions for improved recovery and marginal field technology; New and advanced environmental technology for emissions into the air and sea; Decommissioning and abandonment technology and services. Policy Context: Opportunities and Challenges The Norwegian government seeks to create a favorable environment with predictable and transparent framework conditions for companies to explore for and develop new resources. This includes a favorable and predictable tax regime, availability of new acreage in mature and frontier areas, a stable fiscal and monetary climate, and large amounts of capital spending. Taxes and tax deductions are significant drivers for the offshore energy sector in Norway. The government refunds 78 percent of exploration costs to companies, and has recently reduced taxes on exported LNG. The availability of new acreage will support greater production in the future. In February 2014, the Norwegian Petroleum Directorate announced the 23 rd licensing round with 61 new production blocks, 54 in the Barents Sea and 7 in the Norwegian Sea. Norway remains a major destination for capital spending with around $36 billion directed toward the upstream O&G sectors. and recent industry trends indicate a decline in the oil industry coupled with weaker employment prospects. Norway s concession process continues to be operated on a discretionary basis with the government awarding licenses based on subjective factors other than competitive bidding. Costs in the O&G industry in Norway also have been increasing at almost twice the rate of overall inflation. The near term outcomes likely indicate that in 2015 companies will need to exercise greater fiscal prudence on high capital expenditure project to keep costs down. The sector may already be facing a decline as manufacturers of ships, offshore vessels, and mobile offshore units experienced a decline in production partially as a result in companies reining in spending. The unemployment rate in Norway was 3.2 percent at the end of Q2 2014, which is its lowest since September 2012. The implication of such a low unemployment rate is higher wages, higher production costs, and less employment flexibility. Recommendations for Export Strategies Norway is considered a country with small U.S. market share with low risk/low reward. Norway is a mature market for the O&G sector as it has been producing O&G from the North Sea for decades. The challenge that U.S. companies face is the competition from well qualified domestic and regional equipment and service suppliers. The Norwegian O&G sector can be difficult to enter in terms of cost of entry, both in terms of conducting business and the high capital costs of operatorship, 2015 Oil and Gas Top Markets Report 28

United Arab Emirates Type: Large Market; Small Market Share Overall Rank: 7 In the United Arab Emirates (UAE), goods and services manufactured in the United States enjoy an outstanding reputation for quality, after-sales service and support. With the UAE s declining production from conventional O&G resources, significant demand exists for companies with advanced enhanced oil recovery technology. Despite the significant amount of opportunity in UAE, the decline in global oil price may negatively impact future O&G projects in UAE and limit growth of O&G equipment imports to the country. The UAE represents a major market for U.S. exports and serves as an important regional hub for American companies conducting business throughout the Middle East, Africa and South Asia. The Emirate of Abu Dhabi has more than 95 percent of the UAE s O&G reserves are found both onshore and offshore. O&G production remains central to the UAE economy. In 2012, UAE hydrocarbon exports were $118 billion, more than half of the country s goods exports and comprised 80 percent of government revenues. The industry is set for expansion as the UAE seeks to increase daily production from approximately 2.7 million to 3.6 million bbl/d by 2020. The market potential for UAE is based primarily on the amount of investment that UAE is making in its O&G sector to meet the goal of 3.6 million bbl/d and the increase in demand for natural gas. Over the next five years, Abu Dhabi is planning to spend $60 billion to help reach its production goal. Natural gas production in UAE is forecasted to rise to support increased crude oil production and power production. For many of UAE s existing onshore and offshore fields, production is being kept up by using new and highly technical enhanced oil recovery (EOR) techniques. While these techniques have increased production, the UAE has directed approximately 26 percent of natural gas production for EOR, which has taken up marketable gas volumes. In addition to natural gas used for EOR, UAE s rapidly expanding electric demand is also supplied primarily by power generated from natural gas. Natural gas processing facilities are needed to keep up with growing domestic demand. Market share for U.S. manufactured O&G equipment is declining in the UAE. Countries such as China, Japan and Germany have begun to erode U.S. market share, especially in O&G gas equipment trade. In 2009 U.S. O&G exports to UAE were 18 percent but decreased to 8 percent in 2013. In the same time, China s share of UAE s O&G equipment trade increased from 8.2 percent in 2009 to 26 percent in 2013. The UAE s biggest imports of O&G equipment are boring and sinking machinery, line pipe for O&G lines, sub-sea line pipe and casing and tubing for O&G drilling. One region of particular focus for U.S. companies is the Zakum petroleum system. This system may contain over 65 billion barrels of recoverable oil and is owned by ZADCO, a consortium owned by ADNOC (60 percent), ExxonMobil (28 percent), and the Japan Oil Development Company (12 percent). In July 2012, ZADCO awarded an $800 million engineering, procurement, and construction contract to Abu Dhabi's National Petroleum Construction Company along with French firm Technip with the goal of expanding production to 750,000 bbl/d by 2016. Production from the Lower Zakum field operated by the Abu Dhabi Marine Operating Company (ADMA-OPCO) should also increase from the 300,000 bbl/d it currently produces to 425,000 bbl/d. 2015 Oil and Gas Top Markets Report 29

The Shah Gas Project is being constructed to gather and process very sour gas. While the project is behind in development, it is projected to be operational in early 2015. The multi-billion dollar project is being constructed in conjunction with U.S.-based Occidental Petroleum. The plant will process around 1 bcf/day of sour gas into 0.5 bcf/day of usable gas in a remote desert area. The Shah Gas Project is a major priority for the Abu Dhabi government as it looks for new sources of domestic natural gas to reduce its dependence on natural gas imports. Policy Context: Opportunities and Challenges While recent exploration in the UAE has not yielded any new significant discoveries of crude oil, the UAE is looking to increase production from existing O&G assets. ADNOC s expansion of production in O&G fields, both onshore and offshore provides opportunities across a wide range of technologies and services. As costs of field exploitation rise, technologies that improve yield and drive costs down will be particularly attractive. To keep production up and to meet the 3.6 million bbl/d target by 2020, current production will have to come from existing, but mature, fields and companies will need to employ even more advanced EOR technologies. Opportunities exist for companies with natural gas flooding, CO2 flooding, or other advanced reservoir stimulation technologies. The UAE is currently renegotiating contract terms for its largest oil fields with international oil companies. ExxonMobil, Shell, Total and BP have each held a 9.5 percent stake in the Abu Dhabi Company for Onshore Oil Operations (ADCO) since the 1970s. The deal expired in January 2014 and Shell, Total and BP have made new bids along with new companies like Norway s Statoil, China s National Petroleum Corporation (CNPC), Italy s ENI, and Occidental Petroleum Corporation. In August 2014, CNPC secured the rights to produce and will help develop several onshore and offshore fields in Abu Dhabi. CNPC will hold a 40 percent stake in a joint venture and ADNOC will hold the other 60 percent controlling stake. The joint venture will drill for crude and build the processing and transport infrastructure needed to export it to China. Recommendations for Export Strategies U.S. firms are highly regarded for superior technology and quality. There is a strong demand for companies with sour gas treatment equipment, drill bits, drilling fluids and upstream chemicals. Goods and services sourced from foreign companies must be prequalified before they can be sold to ADNOC. Companies should be aware that the prequalification process is both cumbersome and complicated. Foreign companies must have a legal presence in the UAE in order to be able to bid on Abu Dhabi National Oil Company (ADNOC) procurement tenders and projects, and must employ a local agent. Selection of the right agent continues to be a very important decision. Registered agents may only be terminated by mutual consent, and disputes are resolved by a government committee that has historically ruled in favor of the local agent. In most cases, compensation to a terminated agent is required even if the committee rules for the foreign firm. Only UAE nationals or companies wholly owned by UAE nationals can register with the Ministry of Economy as local agents. 2015 Oil and Gas Top Markets Report 30

Burma Type: Small Market; Small Market Share Overall Rank: 56 Positive developments in Burma s political and economic environment have created space for U.S. companies to participate in developing its extensive natural resources. While Burma s geographic position is ideal for supplying energy resources to the rapidly growing economies of South and East Asia, uncertainty remains regarding domestic political risks and overly optimistic estimates of proven reserves. As production blocks are studied and more detailed estimates of potential reserves are released, developments in Burma s O&G sector will continue to be closely watched. Burma is a promising market for U.S. exporters as the country continues to integrate with the global economy. Following the transition to a civilian government in 2011, Burma has transformed its economy through the introduction of a managed float of its currency, the establishment of independence for the Central Bank, and the easing of international sanctions. As a result, foreign investment into Burmese O&G is estimated at $14 billion. Although Burma still has a long way to go in order to improve its institutions, infrastructure, and human capital, the recent political and economic developments show Burma to be one of the most promising small markets for U.S. exports of O&G upstream materials. While there is optimism about Burma s potential O&G reserves, there is also a huge degree of uncertainty. Proven natural gas reserves are only about 555 bcm and crude oil 50M bbl, respectively, but there is hope that further exploration will unveil much more substantial reserves. Burma is known to possess significant O&G resources, but more than a decade of sanctions decreased investment in exploration and production. With the country now formally open to international exploration, major international oil companies are making significant investments in Burma using updated technology to locate new resource plays. Another of Burma s great strengths is geography, since it is located between the rapidly growing markets of China and India, as well as its fellow members of the Association of Southeast Asian Nations (ASEAN). Ease of access to Southeast Asia s dynamic economies can facilitate greater investments in O&G equipment. Increased energy demand in the region has resulted in gas prices for northeast Asia to be multiple times the prices in Europe or the United States. Asian national oil companies have already constructed some infrastructure to bring the gas to those markets, including a pipeline to China and another to Thailand. Burma s imports of O&G equipment were small between $100 million and $150 million until 2011 when imports peaked at $671 million. In 2013, China, Indonesia, Thailand, Singapore and Japan were the top the sources of these imports, while the United States was ranked eighth in 2013. While Burma is currently ranked 118 th in the world for U.S. O&G field equipment exports, U.S. exports to Burma grew over 300 percent from 2012 to reach $2.7 million in 2013. Parts for boring and sinking machinery and casing and tubing are the largest portion of these exports to Burma from the United States. The largest exporter of O&G field equipment by far to Burma was China. In 2012, China exported $380 million in equipment consisting mostly oil line pipe and some submersible drilling equipment, and in 2013, it exported $274 million to Burma including floating drilling platforms and vessels, but also parts for derricks and parts for boring equipment. Indonesia s O&G field equipment exports consisted mainly of line pipe. Policy Context: Challenges and Opportunities Substantial progress has recently been made for international participation in Burma s O&G sector. In 2013, the Ministry of Energy stated that deep-water blocks would not be encumbered by local ownership requirements, that there would be tax-based incentives for these investments, and that each 2015 Oil and Gas Top Markets Report 31

company would be limited to three blocks in order to promote competition between firms. In the spring of 2014, the government awarded 20 blocks for offshore O&G exploration to foreign firms in a bidding process widely believed to be transparent and fair. Blocks were awarded to prominent groups including Chevron, Shell, Statoil, Total, ENI, and other regional players and independents. These blocks are far from the development stage, with optimistic estimates that production could begin by 2020. Though companies are optimistic about future rewards, they are still striving to mitigate risk by operating in coalitions. The companies production-sharing contracts with the Burmese government are structured such that they have two years in order to make their finds, and either leave in the event no resources have been found, or develop the resources within three years. The government is expected to ask for a high percentage of revenues, and to promote its own domestic consumption of natural gas rather than its exportation; however, the contract specifics have yet to be negotiated. In order to develop the oil blocks in a country without the local expertise available, there is an increasing reliance on foreign companies to provide specialized O&G support services, such as Halliburton and Schlumberger. Burma has recently joined the Multilateral Investment Guarantee Agency (MIGA) and is also a candidate country for the Extractive Industries Transparency Initiative (EITI) two positive steps for the country s integration into the world economy. In late 2013, MIGA, the insurance and credit enhancement arm of the World Bank Group, accepted Burma as a member, increasing favorability of the country for investing. The country s MIGA membership allows foreign direct investment to become eligible for investment guarantees. As a candidate for the EITI, the country must disclose the recipients of the blocks awarded in the 2013-2014 bidding rounds, its oil receipts, as well as its production data. Disclosing the recipients of the blocks may help to allay allegations of corruption and political cronyism that some have directed at the government. The country still ranks very low on the World Bank s Doing Business ranking, and must prove itself to be committed to transparency and openness in the long run. Despite the political liberalization experienced since 2011, Burma is still vulnerable to political instability, as well as high tension between the Muslim and Buddhist populations. The elections in 2015 will be important for determining the country s future political stability. A major challenge for American firms will be to penetrate the market as it develops. Although efforts are being conducted to build diplomatic ties with Burma, these relationships are much weaker than those for competing countries in Asia. A new market like Burma, if its resource endowment is near the size of what some experts and its government expect, could become an ideal partner for exports from U.S. firms. To address these challenges, Secretary of Commerce Penny Pritzker recently inaugurated the new Foreign Commercial Service office at the U.S. Embassy in Rangoon. This office will help U.S. companies navigate the complexities of the market, find reputable partners and promote U.S. exports into the Burmese market. Nine foreign banks have received licenses to conduct business in Burma, making it easier for foreign firms to do business there. The licenses allow foreign banks to open a single branch and offer loans to foreign companies. The banks will be restricted to providing loans in foreign currency and be required to partner with local banks in order to lend to local companies. The banks are from the countries of Japan, Singapore, Australia and New Zealand, Thailand, China, and Malaysia. The fact that all the banks originate from the Asian-Pacific region may disadvantage foreign entities attempting to do business that are not from the region. 2015 Oil and Gas Top Markets Report 32

Mozambique Type: Small Market; Small Market Share Overall Rank: 42 Major discoveries of offshore natural gas in Mozambique have created a large potential for exporters of offshore equipment. Despite competition from third countries, and local labor quotas, U.S. companies should expect to find substantial opportunity for O&G equipment sales as development in Mozambique s O&G sector begins to accelerate. The political situation in Mozambique is fluid and often contentious; however, political will exists to move forward with the development of large-scale offshore natural gas resources. Mozambique presents a promising market for O&G equipment exports. Mozambique is a relatively new country in upstream O&G production with substantial room for development. The massive potential for growth stems from its rich reserves and improving political situation is the reason for its inclusion in the top markets highlights, despite its lower rank according to our scorecard. In 2013 the United States exported $25 million of O&G field equipment to Mozambique. Although these exports are small, they were only $1 million in 2008 and rose to a peak of $43 million in 2011. More than 80 percent of the U.S. exports to Mozambique are in pipe products, specifically large diameter oil pipe and casings an indication of the early stages of Mozambique s industry. U.S. exports to Mozambique are expected to double by 2018. Mozambique s imports of O&G field equipment are quite small at $132 million in 2013 with about 20 percent originating from the United States. Mozambique s other top import partners in the equipment sector were Japan and China. In 2012, Anadarko and ENI made discoveries of natural gas in offshore Mozambique. These natural gas fields are estimated at 100 tcf, raising Mozambique s proven reserves to the third-largest in Africa, after Nigeria and Algeria. Despite recent natural gas discoveries, production in country has not yet started. 2012 production was 154 bcf of natural gas from two previous and relatively small onshore gas fields. Anadarko, one of the two main operators in Mozambique, predicts that the country will be the third-largest LNG exporter in the world once LNG production facilities are operational. Major market groups have predicted around $30 billion in investment into Mozambique s energy industry over the coming years. Anadarko and ENI, the two companies with controlling stakes in the new large finds in the Rovuma Basin, have begun to develop Mozambique s LNG infrastructure for LNG export. Anadarko has issued a front end engineering and design (FEED) studies for two onshore 5-million-tons-per-annum (Mmtpa) (or 240 bcf) LNG trains while ENI is considering a 2.5 Mmtpa (120 bcf) floating LNG facility. In 2012, Anadarko awarded six FEED contracts for offshore installation and onshore LNG. The three FEED contracts for onshore installation went to Technip; a joint venture (JV) between Subsea 7 and Saipem SA; and a JV of McDermott and Allseas. The three onshore LNG FEED contracts went to Flour Transworld Services; a JV of CB&I and Chiyoda Corporation; and Bechtel. Business Monitor International expects these projects to begin operation and allowing exports of LNG by 2019 or 2020. Anadarko reported that it has secured longterm contracts with Asian buyers for most of the first train of its planned LNG project. U.S. exporters have a large opportunity in Mozambique but there will be plenty of international competition and building a foothold for American industry will require effort. While Anadarko has taken a leading role in the exploration of Mozambique s natural gas resources, third country firms are ITA Oil and Gas Top Markets Report 2015 33

leveraging historical ties and geographic proximity to corner a sizeable share of the market. In recent years, China, Japan, Italy, and Portugal have held substantial shares of Mozambique s import market in upstream O&G equipment and pipes. Policy Context: Challenges and Opportunities Mozambique s political parties agree on developing the offshore gas reserves in the northern portion of the country, but political stability remains tenuous in Mozambique. In late August 2014, a ceasefire between the ruling party, Frelimo, and the opposition party, Renamo, was concluded, following a two-year upswing in violence. Most of the political unrest is located in the center and south of the country while the natural gas development is concentrated in the far north of the country; it is unclear if political disputes will in any way impact natural gas development. Although the issues that plague many African countries with regard to the O&G sector are found in Mozambique, such as political volatility, regulatory uncertainty, and institutional corruption, there have been recent encouraging signs. In mid-august 2014, the Mozambican parliament concluded two years of debate to pass an amended Petroleum Law allocating up to 25 percent of O&G production for domestic consumption and adding in a provision to require a partnership with Mozambique s national oil company. The passage of this law will allow for investors to plan projects with greater certainty. The law also permits the companies that have discovered O&G to develop facilities for the processing of gas, which should enable a quicker investment decision to be made on pending LNG export facilities. In 2012, Mozambique became officially designated as an Extractive Industries Transparency Initiative (EITI) compliant country, meaning it was taking steps towards regulatory reform in the extractive sector. Human capital constraints are a serious problem for the gas sector since Mozambique s government is hesitant to accept the highly trained expatriate laborers needed for the industry. The Labor Ministry has been strongly behind the enforcement of quotas in local labor and this policy is likely to continue to drag of the development of the sector, diminishing U.S. export potential. Mozambique is characterized as a high risk/high reward country as there are challenges to developing its resources related to lack of infrastructure, human capital, and political instability. Mozambique is a relatively small market for U.S. produced O&G equipment as it is also relatively new area for natural gas development. The United States already has a comparatively large market share with regard to Mozambique s imports compared to other countries, but Mozambique s newly developing O&G sector still presents significant opportunity for new U.S. businesses to enter the market. ITA Oil and Gas Top Markets Report 2015 34

Sector Snapshots This section contains sector snapshots that summarize U.S. oil and gas export opportunities in a subsector. The overviews outline ITA s analysis of the export potential across each technology s supply chain. Each snapshot offers commentary on the relative competitive position of U.S. suppliers. ITA Oil and Gas Top Markets Report 2015 35

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Unconventional O&G Unconventional O&G resources are produced using techniques other than those used for conventional reservoirs of O&G. Methods include horizontal drilling, hydraulic fracturing (fracking), and in situ-types of production (commonly used for oil shale and oil sands). Unconventional O&G can be found in different types of geological formations, but the most widely discussed types of unconventional resources come from shale, tar sands (aka. oil sands), and oil shale. In 2010, the U.S. Geological Survey (USGS) conducted a global assessment of shale gas and shale oil in 48 major basins in 32 different countries. Their initial assessment indicated large potential for resource development of hydrocarbons from shale. The map below details shale basins with a resource assessment in red and shale basins without an assessment in yellow. While the resource assessments from the 2010 were significantly revised, the study nonetheless concludes that in terms of geology there is substantial potential for shale gas and shale oil development around the world. U.S. companies have experimented with producing hydrocarbons from shale since the early 1980s. Around 2005, O&G companies developed a technique for commercial shale gas production that utilized horizontal drilling and hydraulic fracturing with a mixture of water, sand and chemicals pumped at high pressures. The amalgamation of these pre-existing techniques spurred a shift in the O&G sector that is now referred to as the shale gas revolution. The shale gas revolution is characterized by shifting production activities toward geographical areas with significant shale resources, an increase in O&G produced from shale, a decrease in the price of U.S. natural gas, and a decline in U.S. imports of both oil and natural gas. As a result of the success from shale gas production in the United States, and the USGS 2010 global assessment of shale basins around the world, other countries have become interested in developing their own shale gas and shale oil deposits. Shale resources represent a new frontier of O&G supply in a world of increasing energy demand. However, developing hydrocarbons from shale requires significant amount of human resources, pipeline and refining infrastructure, a well-developed regulatory system, and access to a dynamic and experienced O&G equipment and service supply chain. In addition, the geological, structural, and resource characteristics of shale formations can vary widely from formation to formation, requiring different processes and technologies to develop shale gas wells in different areas around the world. Since the O&G industry does not have a recipe book on how to develop a shale gas play, extensive geological resource assessment and seismic analysis is required along with specialized equipment and highly trained professionals. Figure 1: Global Unconventional Oil and Gas Resources ITA Oil and Gas Top Markets Report 2015 37

The U.S. government has supported shale gas development in countries such as China and Poland, through the Unconventional Gas Technology Engagement Program (UGTEP) through the Department of State. The Department of Energy (DOE) also works with foreign governments on technical workshops as well as regulatory and energy policy development. The U.S. Department of Commerce s International Trade Administration works with U.S. companies through its posts in U.S. embassies in foreign countries, the U.S. Export Assistance Centers, and through commercial policy development within the Industry & Analysis Unit of ITA. Export Destinations As the USGS map form 2010 shows, there are known shale basins on all continents, and government are looking for ways to develop these resources. However, not all shale deposits are rich in hydrocarbons like many of those in the United States, and it may not be economical to devote capital to infrastructure development, drilling, or seismic evaluation in certain markets. For instance, Poland was estimated to hold significant amounts of natural gas in its shale, and a number of O&G companies began making significant investments to learn more about the resource potential in Poland s shale resources. In 2012, many of those same O&G companies, upon drilling a number of test wells, found that the natural gas production in Poland s unconventional resources were not commercially viable and pulled out of the country. Despite the disappointing results in Poland, there are some initial shale gas success in countries such as Argentina, Australia, and the United Kingdom. International O&G companies are drilling production wells in Argentina s Vaca Muerta, a geologic formation in central Western Argentina that is known to hold deposits of both crude oil and natural gas. In the United Kingdom there is no commercial production of shale gas, but O&G companies continue to invest in test wells and seismic surveys. The most promising areas in the UK are areas of eastern and southern England. Shale gas in Australia is similarly in an exploratory phase, as a result of technical and geological challenges. However, some companies see Australia as the next big producer of shale gas after the United States. ITA Oil and Gas Top Markets Report 2015 38

Offshore Ultra-Deepwater O&G Development In addition to unconventional O&G development, offshore O&G continues to be a source of growth for the O&G sector worldwide. Exploring for oil in ultradeep water (approximately depths of 3000 ft. or greater) is highly capital intensive. As the depth increases, the cost of offshore O&G exploration and production increases exponentially. Despite the recent decline in the global price of oil, O&G companies are still exploring for new O&G resources in ultradeepwater. As a result of greater investment in offshore ultra-deepwater exploration, O&G companies are able to reach depths in offshore O&G production that were previously unattainable. Ultra-deepwater exploration and production primarily relies upon two types of drilling rigs: semi-submersible drilling rigs and drillships. Both semi- submersibles and drillships are able to drill in water depths up to 10,000 ft. and can be moved into position either by a tugboat or by dynamic positioning systems. While semisubmersibles can be used both to drill exploratory wells as collect and store produced oil from a well, drillships are able to sail between oilfields in less time. In addition to semi-submersibles and drillships, breakthroughs in deepwater seismic imaging, sub-sea O&G separation, and underwater remote vehicles have also allowed for O&G companies to explore for and produce O&G in new areas. Advancements in offshore O&G exploration and production have stemmed decline of some existing fields and brought previously uneconomic and undiscovered resources to market. ITA Oil and Gas Top Markets Report 2015 39

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Appendix 1: Methodology The seven indicators listed here are weighted and summed together to provide a relative ranking that results in a list of possible top prospects. This list includes set of countries in diverse geographic areas, and is consistent with where there is projected upstream investment. A country may not be excluded because it is not in the highest rank for one or two indicator categories provided the country has sufficiently favorable rankings in other indicators. When summing across the export opportunity indicators ranked by quartile, the initial top 20 markets emerge, spanning all continents. The ranking is ordinal and provides prospects for U.S. exports relative to other countries, although the distance between countries is not measured. Since opportunity is not a quantifiable, the relative commercial opportunity in between country X and country Y may be less than the opportunity between country Y and country Z. Proximity to the United States Proximity, or the distance goods must travel from point of origin to point of destination, is statistically significant in explaining changes in international trade. The indicator is used to as a proxy for transportation costs, which are not consistently available for O&G field equipment shipments. The study employs a Proximity variable based on the French Research Center in International Economics that provides bilateral distances (in kilometers) for the countries selected using a population-weighted center. The country distances from the United States are divided into quartiles (with 4 being the closest), which are then added to the final score to rank countries against one other. Because proximity was found to be very relevant to the export trends given the analysis, the Proximity variable was given 15 percent of the overall weight of the final ranking [see Figure 1]. Figure 1: Legend of Quartile Determinations (Proximity to the United States) Indicator Quartile Range (Numerical) Score/ Rank Closest 261.7-7787.2 km 4 Proximity to the United States 2 nd Closest 7926.3-10194.0 km 3 3 rd Closest 10307-119721 km 2 Furthest >12115.1 km 1 Export Rank In 2013, U.S. upstream O&G equipment and pipe exports totaled $13.4 billion, with a 10-year compound annual growth rate of 12 percent. According to ITA projections, $19 billion in O&G field equipment will be exported in 2018. The Export Rank captures future trends and preferences for countries imports from the United States. The Export Rank variable is weighted as 30 percent of a country s overall score. The U.S. Exports variable is subdivided into equipment and pipe exports, respectively. These subdivisions are further divided into 2013 values, 2018 projected values, and the projected CAGR 2013-2018. These figures are then grouped into quartiles and added together to provide a score for the U.S. Exports variable. A single average score is then calculated for the entire export indicator for each country. The methodology divides the projected U.S. export levels for equipment and pipe in 2013 and 2018 for each of the 75 key O&G country into four quartiles. The countries with the greatest amount of U.S. exports receive a rank of 4, while the countries that receive the least amount of exports from the United States receive a rank of 1. The ranking process is repeated for growth rates between 2013 and 2018. Quartiles differ for equipment and pipe, and some countries rank high for equipment but not for pipe. For example, Chile is in the top quartile for U.S. equipment exports but not for U.S. pipe exports in 2018 [see Figure 2]. ITA Oil and Gas Top Markets Report 2015 41

Figure 2: Legend of Quartile Determinations (Projected U.S. Exports) Indicator Quartile Range (Numerical) Score/ Rank largest > $168 million 4 2013 value quartile 2nd largest $44 - $168 million 3 3rd largest $14 - $40 million 2 smallest less than $10.9 million 1 largest $190 - $1,371 million 4 Projected 2018 value 2nd largest $73 - $189 million 3 quartile 3rd largest $27.5 - $73 million 2 smallest less than $27 million 1 largest greater than 128% 4 growth 2013-18 quartile 2nd largest 60-107% 3 3rd largest 10-60% 2 smallest less than 10% 1 largest $18.5-$1,054 million 4 2013 value quartile 2nd largest $7-$18.5 million 3 3rd largest $2.1-$7 million 2 smallest less than $2 million 1 largest $28-$1,270 million 4 Projected 2018 value 2nd largest $14.3-$28 million 3 quartile 3rd largest $5.1-$14million 2 smallest less than $5million 1 largest 126.7-1967% 4 growth 2013-18 quartile 2nd largest 62-126% 3 3rd largest 25-61.9% 2 smallest less than 25% 1 Projected U.S. Exports in 2018 * equipment pipe Import Market Global upstream O&G equipment trade is estimated to reach $207 billion by 2018, with a projected $19.1 billion originating from U.S. equipment suppliers. This is captured in the Import Market indicator and is weighted to provide 20 percent of the final score. The Import Market indicator reflects demand for U.S. exporters and forecasts openness and growth. The market size in 2018, the U.S. import share of that market, and the growth rate are grouped into quartiles for the analysis as was done above (for equipment and pipe separately). A 4 would represent the biggest quarter of each concept. Import market depends on a country s import statistics; where unavailable (e.g. Iraq, Mozambique), we use reverse trade data [see Figure 3]. ITA Oil and Gas Top Markets Report 2015 42

Figure 3: Legend of Quartile Determinations (Projected Market Size) Indicator Quartile Range (Numerical) Score/ Rank largest $1,296-$5,183 million 4 2013 value quartile 2nd largest $378-$1,097 million 3 3rd largest $160-$370 million 2 smallest less than $160 million 1 largest $1,190-$6,907 million 4 Projected 2018 value 2nd largest $336-$1,003 million 3 quartile 3rd largest $58-$310 million 2 smallest less than $50 million 1 largest 46-797% 4 growth 2013-18 quartile 2nd largest 11.9-45.3% 3 3rd largest (52%) - 8.1% 2 Projected Market Size in 2018* equipment pipe U.S. Share of the market in 2018 2013 value quartile Projected 2018 value quartile growth 2013-18 quartile U.S. Share of the market in 2018 Below Ground Resources smallest less than -52% 1 largest 29.1-1194.7% 4 2nd largest 17.6-28.9% 3 3rd largest 0.8-17.4% 2 smallest less than 0.8% 1 largest $496-$6,773.9 million 4 2nd largest $246-$482 million 3 3rd largest $63.4-$223.3 million 2 smallest less than $63.4 million 1 largest $617.3-$6,190 million 4 2nd largest $157.3-$612.2 million 3 3rd largest $21.0-$153.6 million 2 smallest less than $21 million 1 largest 48.2-401% 4 2nd largest 11.7-46.6% 3 3rd largest (40.9%)-9.5% 2 smallest less than -40.9% 1 largest 7.7-100% 4 2nd largest 2.3-7.2% 3 3rd largest 0-2.1% 2 smallest less than 0% 1 The Below Ground Resource variable measures a country s estimated, economically-viable O&G reserves. The variable is subdivided into a country s estimated oil reserves and natural gas reserves, respectively. These two subvariables are further divided into projected reserves for 2018 and projected production in 2018 based on the EIA history and BMI s forecasts from May 21, 2014. The numbers are then divided into quartiles, ranked, and the quartile score is added into a country s score for market opportunities. Below ground resources however, do not have a significant impact on a country s imports, as a result this variable is given only 5 percent of the weight to the final score [see Figure 4]. ITA Oil and Gas Top Markets Report 2015 43

Figure 4: Legend of Quartile Determinations (Below Ground Resources) Indicator Quartile Range (Numerical) Score/ Rank largest 1800-49,099 bcm 4 reserves in 2018 quartile 2nd largest 336-1,719 bcm 3 3rd largest 27.8-284.5 bcm 2 smallest less than 27.8 bcm 1 largest 47.6-801.1 4 production 2018 quartile 2nd largest 14.1-44.9 3 3rd largest 1.9-14.0 2 smallest less than 1.9 1 largest 56.4-761 bcm 4 consumption 2018 2nd largest 16.0-50.4 bcm 3 quartile 3rd largest 4.8-14.3 bcm 2 smallest less than 4.8 bcm 1 largest 8,238.8-310,214.2 mn bbl 4 reserves 2018 quartile 2nd largest 693.8-5351.8 mn bbl 3 3rd largest 76.8-605.9 mn bbl 2 smallest less than 70 mn bbl 1 largest 468-4646.8 mn bbl 4 production 2018 quartile 2nd largest 75.8-464.8 mn bbl 3 3rd largest 7.5-73.3 mn bbl 2 smallest less than 7.5 mn bbl 1 Below Ground Resources, 2018 Gas Oil consumption 2018 quartile Upstream Project Investments largest 1,129.4-19,189.1 mn bbl 4 2nd largest 382.7-1,073 mn bbl 3 3rd largest 130.7-335.8 mn bbl 2 smallest less than 130 mn bbl 1 Using publicly available information, the Upstream Project Investment variable summarizes investments for specific O&G projects by country. Business Monitor International maintains a database of on-going upstream projects, including project parameters and the known investments. Data are available for 48 countries as of May 27, 2014 when the data were pulled. Some countries, such as China, Mexico, and Brazil, do not publically report all upstream project investments as these investments may be associated with a state-owned enterprise. Country investments are ranked into quartiles as are the other four variables which are used in a country s final score. However, the variable is given only 5 percent of the final weight as upstream investments are not shown to have significant impact on a country s imports [see Figure 5]. Figure 5: Legend for Quartile Determinations (Known Upstream Investment Projects) Indicator Quartile Range (Numerical) Score/ Rank Known Upstream Investment Projects only 48 countries' data available largest $39,902-$5,5057,250 mn 2nd largest $3,790-$26,178 mn 3rd largest $211-$3,400 mn no data available 0 4 3 2 1 Institutional Risk The Institutional Risk variable represents above-ground risk in the top markets report. Institutions play a significant role in the risk profile companies face. Corruption, the absence of rule of law, and civil unrest can all negatively affect trade with otherwise high-potential markets. Together, institutional risk was given a 5 percent weight in the market selection. The World Bank s Worldwide Governance Indicators assess the quality of institutions by using data from a variety of organizations and comprise six concepts: (i) Control of Corruption; (ii) Rule of Law; (iii) Regulatory Quality; (iv) ITA Oil and Gas Top Markets Report 2015 44

Government Effectiveness; (v) Political Stability and Absence of Violence; and (vi) Voice and Accountability. The Worldwide Governance Indicators have been updated annually since 1996, and the most recently available data set comes from 2012. In order to construct an Institutional Risk variable in the top markets report, the countries in our sample of 75 were ranked according to their percentile scores and then divided into quartiles for each of the six identified measures. The quartile scores for each country were summed and then divided by 6, resulting in an institutional risk score. The scores range from 4 (least risky) for countries like Canada, Australia, and Norway, to 1 (most risky), for countries like Iraq and Sudan [see Figure 6]. Figure 6: Legend for Quartile Determinations (Institutional Risk) Indicator Quartile Range (Numerical) Score/ Rank Largest 74.6-100 4 Control of Corruption: Percentile 2nd largest 51.2-73.7 3 Rank 3rd largest 23.9-50.7 2 smallest 0.9-22.0 1 Largest 82.3-99.5 4 Government Effectiveness: 2nd largest 60.3-80.9 3 Percentile Rank 3rd largest 31.6-57.9 2 smallest 1.4-29.7 1 Institutional Risk Voice and Accountability: Percentile Rank Rule of Law: Percentile Rank Regulatory Quality: Percentile Rank Political Stability and Absence of Violence/Terrorism: Percentile Rank Largest 72.0-100 4 2nd largest 47.9-70.1 3 3rd largest 21.3-47.4 2 smallest 0.5-20.4 1 Largest 80.6-100 4 2nd largest 52.6-79.6 3 3rd largest 25.7-51.7 2 smallest 0.9-24.6 1 Largest 78.9-100 4 2nd largest 63.2-78.5 3 3rd largest 28.7-57.9 2 smallest 1.4-27.3 1 Largest 68.2-97.2 4 2nd largest 47.9-64.5 3 3rd largest 23.7-46.9 2 smallest 0.9-20.9 1 Qualitative Ranking The Qualitative Rating variable incorporates O&G industry knowledge from ITA, Industry and Analysis Unit s Office of Energy and Environmental Industries. The variable is a qualitative ranking of market access issues in different countries. The Qualitative Rating attempts to capture qualitative market access issues in a quantitative measure for the purposes of the Top Markets Report. As market access issues are significant drivers of commercial opportunity, the Qualitative Rating variable was given 20 percent of the final weighted score [see Figure 7]. Figure 6: Legend Qualitative Rankings Score/ Indicator Rank Few/Minor Market Access Issues 4 Some market access issues but still favorable business environment 3 Qualitative Rating Issues exist that could impare normal business activities 2 Major impediments to conducting business 1 Regression analysis used to determine how to emphasis certain variables in the market ranking/weights To determine which markets might be most promising for U.S. exporters based on the information available, our model had to determine the relative importance of each to future U.S. exports. The analytic approach taken to determine how to best given priority to the exports with the other 6 available variables was to calculate weights ITA Oil and Gas Top Markets Report 2015 45

for how variables might impact potential U.S. exports. Three ordinary least squares regressions were run on the data used in the methodology to determine how to weigh the factors used in the analysis. Final Weights Calculated Projected U.S. Exports- Relatively Strong Weight (30 percent) Proximity to the U.S. - Slightly Strong Weight (15 percent) Projected Market Size-Slightly Strong Weight (20 percent) Below Ground Resources-Weak Weight (5 percent) Upstream Projects-Weak Weight (5 percent) Institutional Risk-Weak Weight (5 percent) Qualitative Measure-Slightly Strong Weight (20 percent) Below is the regression formula of how the data used in the methodology was used to determine the final weights for prioritizing the market selection. Dependent Variable: y i U.S. O&G Upstream Product Exports 2013 Independent Variables: β 1 U.S. O&G Upstream Product Exports 2005 (Proxy for our Projected U.S. Exports Variable) β 2 Proximity to U.S. (1 implies the greatest distance) β 3 Projected Market Size β 4 Below Ground Resources β 5 Institutional Risk Qualitative Measure β 6 Issue of Outliers The export values for Canada and Mexico are much higher than for the other countries, making them outliers. The countries proximity to the United States make them appear more powerful than other countries, so two regressions different regressions were performed with Canada and Mexico, the second regression including dummy variables to account for proximity to the United States. The results changed substantially when including the dummy variables. The significance of the proximity variable dropped while the significance of the projected market size variable grew. A third regression was conducted without Canada or Mexico in the sample yielding similar results. Model Results The three models explained exports well as measured by the reasonably high R-squared shown in the Table below. Regressions 1 and 3 had a similar R-squared: with the independent variables explaining about 60 percent of the variation in the 2013 upstream export numbers. The second model, including dummy variables counting for both Canada and Mexico, had a much higher R-squared, at 0.91, meaning that the model could explain over 90 percent of the variation in 2013 upstream exports. These strong results suggest a reasonably constructed model that could be used as the basis for weighting the variables to determine the market ranking. The challenge was to calculate weights of each data element using the model results. This was done by multiplying the coefficient by each variable s mean then dividing this number for each variable by the summation of this number for all the variables. The result is expected to be the average contribution of each independent variable to the final dependent variable for each scenario. While the precise weight calculations differed by scenario, this approach showed similar trends among the three scenarios. ITA Oil and Gas Top Markets Report 2015 46

Based on the three scenarios, U.S. Exports were given the greatest weight, and Proximity to the United States and Projected Market Size were given slightly strong weights. Below Ground Resources and Institutional Risks have lower weights than the other measures, according to this analysis, though their inclusion is expected to provide diversified perspectives for the benefit of the analysis. Since the Upstream Investment Project indicator was not included in this analysis, the full importance of this variable was unknown and was given a weight similar to that of Below Ground Resources and Institutional Risk. Although regression analysis showed the Qualitative indicator deserves approximately 15 percent of the total weighting, the chosen weighting for the qualitative measures was increased to 20 percent in order to allow for greater input from experts on market access issues. Market access can be quite variable, and new laws or other changing circumstances on the ground can greatly affect U.S. export prospects. Allowing a 20 percent weighting for the Qualitative indicators allows experts to contribute forward-looking analysis to the Top Markets report that strictly quantitative data may not catch. Regression 1 Weights Variable Weighting Statistical Significance 2005 US Exports 0.407233347 Yes (99% Confidence Level) Final Proximity Value 0.332022568 Yes (99% Confidence Level) Projected Market Size 0.09279259 No Below Ground Resources 0.008313889 No Institutional Risk 0.01779889 No Qualitative 0.141838716 Yes (90% Level) Regression 2 Weights Variable Weight Statistical Significance 2005 US Exports 0.712039687 Yes (99% Confidence Level) Final Proximity Value 0.060082432 No Projected Market Size 0.246859258 Yes (90% Confidence Level) Below Ground Resources -0.070746158 No Institutional Risk -0.087779523 No Qualitative 0.139544303 Marginally (85% Confidence Level) Regression 3 Weights Variable Weighting Statistical Significance 2005 US Exports 0.712039687 Yes (99% Confidence Level) Final Proximity Value 0.060082432 No Projected Market Size 0.246859258 Yes (90% Confidence Level) Below Ground Resources -0.070746158 No Institutional Risk -0.087779523 No Qualitative 0.139544303 Marginally (85% Level) ITA Oil and Gas Top Markets Report 2015 47

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Appendix 2: Full Country Rankings Country List of 75 countries with oil and gas reserves Proximity to the United States Export Rank Market Rank Below Ground Rank Upstream Projects (ongoing) Institutional Risk Qualitative Rating (Market Access) Market Weighted Scenario French Research Center for International Economics ITA ITA EIA/BMI forecast Publicly Available Upstream Investment BMI (quartile) World Bank, Revenue Watch, Brookings Institution ITA Weighted Score Market Weighted Scenario Rank Canada 3.78 3.17 3.8 4 4 4.00 4 3.67 1 Colombia 3.21 3.83 3.4 2.5 4 2.00 4 3.53 2 Brazil 2.47 3.83 3.4 3.5 4 2.50 4 3.50 3 Mexico 3.69 3.00 3.1 3.75 4 2.50 4 3.39 4 Australia 1.17 3.50 3.8 3.25 4 4.00 4 3.34 5 Norway 2.66 2.67 3.3 3.75 4 4.00 4 3.24 6 UAE 1.65 3.33 3.0 4 4 3.17 4 3.21 7 Nigeria 2.06 3.50 2.5 3.75 4 1.17 4 3.11 8 China 1.85 3.33 2.4 4 4 1.83 4 3.04 9 Venezuela 3.23 3.33 3.6 3.75 3 1.17 2 3.00 10 Oman 1.60 2.83 3.1 3 4 2.67 4 3.00 11 United Kingdom 2.71 3.50 3.3 2.75 3 3.83 2 2.99 12 Saudi Arabia 1.75 3.67 3.8 4 3 2.17 2 2.97 13 Angola 1.68 3.33 2.4 3.25 4 1.17 4 2.95 14 Bahrain 1.72 3.00 2.8 2.25 4 2.33 4 2.94 15 Israel 1.99 2.83 3.4 2 4 3.17 3 2.88 16 Ecuador 3.08 2.67 3.3 2.25 3 1.67 3 2.86 17 Iraq 1.91 2.83 3.4 3.5 4 1.00 3 2.84 18 Ghana 2.15 2.83 3.3 2.25 3 2.67 3 2.82 19 Russia 2.30 3.50 3.3 4 2 1.33 2 2.81 20 Equa. Guinea 1.92 2.50 2.9 2.5 4 1.33 4 2.81 21 Singapore 1.08 3.83 3.5 1 3 3.83 2 2.80 22 Peru 2.87 3.33 1.9 2.5 3 2.17 3 2.79 23 India 1.47 3.33 3.3 3.25 4 2.17 2 2.74 24 Trinidad & Tobago 3.17 2.83 1.9 3 3 2.50 3 2.72 25 Turkey 2.15 3.00 3.0 1.5 2 2.50 3 2.72 26 Malaysia 1.13 2.50 2.9 3.5 4 2.67 3 2.60 27 Qatar 1.69 2.33 1.4 4 4 3.33 4 2.60 28 Algeria 2.47 2.50 2.0 4 3 1.67 3 2.55 29 Chile 2.40 3.50 3.1 1.5 1 3.83 1 2.55 30 Thailand 1.30 2.33 3.4 2.5 3 2.00 3 2.55 31 Egypt 2.00 3.17 2.5 3.5 2 1.67 2 2.51 32 Indonesia 1.00 2.17 3.4 3.5 3 2.17 3 2.51 33 South Africa 1.23 2.83 2.5 1.5 3 2.83 3 2.50 34 South Korea 1.94 3.50 3.4 1 1 3.17 1 2.47 35 Libya 2.24 2.67 1.8 3.5 3 1.17 3 2.47 36 Vietnam 1.35 2.50 2.6 2.75 3 1.83 3 2.46 37 Argentina 2.33 2.67 1.9 3 4 2.17 2 2.38 38 France 2.60 2.83 3.1 1.25 1 3.83 1 2.37 39 Germany 2.56 2.83 2.9 2 1 4.00 1 2.36 40 Kuwait 1.80 2.50 2.6 3.5 2 2.50 2 2.34 41 Mozambique 1.18 2.33 2.6 1.75 3 2.00 3 2.34 42 Poland 2.46 2.17 2.6 1.75 2 3.33 2 2.30 43 Azerbaijan 1.99 1.83 2.1 3 3 1.33 3 2.24 44 Gabon 1.88 2.17 1.8 2 3 2.00 3 2.23 45 Tanzania 1.35 2.00 2.5 1.5 3 1.67 3 2.21 46 Papua New Guinea 1.49 2.33 2.9 2.5 2 1.50 2 2.20 47 Italy 2.43 3.17 1.8 2 1 3.17 1 2.17 48 Denmark 2.60 1.83 1.8 2.25 2 4.00 2 2.10 49 Belgium 2.62 2.50 2.1 1 1 4.00 1 2.07 50 Japan 2.02 2.33 2.8 1.25 1 4.00 1 2.07 51 Turkmenistan 1.89 1.83 2.4 3.25 2 1.33 2 2.04 52 Kazakhstan 2.02 1.83 2.0 3.75 2 1.67 2 2.02 53 ITA Oil and Gas Top Markets Report 2015 49

Cameroon 1.93 2.17 2.1 2 2 1.17 2 2.02 54 Bolivia 2.68 2.00 2.8 2.25 1 1.67 1 2.00 55 Burma 1.38 1.00 2.9 2 3 1.00 3 1.98 56 Czech Republic 2.48 2.17 2.4 1 1 3.67 1 1.98 57 Congo 1.75 2.50 1.4 2.5 2 1.17 2 1.97 58 Philippines 1.46 2.00 2.3 2 2 2.00 2 1.97 59 Ukraine 2.28 1.67 2.0 2.5 2 1.83 2 1.96 60 Romania 2.31 2.00 1.3 2 2 2.67 2 1.93 61 Spain 2.61 2.17 1.9 1.25 1 3.50 1 1.90 62 New Zealand 1.56 2.17 2.3 2 1 4.00 1 1.88 63 Pakistan 1.63 1.83 1.5 2.5 2 1.17 2 1.78 64 Hong Kong 1.56 1.83 2.4 1 1 3.83 1 1.75 65 Uzbekistan 1.88 1.50 1.4 3 2 1.17 2 1.72 66 Taiwan 1.65 1.67 2.1 1 1 3.83 1 1.66 67 Sudan 1.74 1.00 1.9 2.25 2 1.00 2 1.60 68 Greece 2.23 1.50 1.4 1 2 2.83 1 1.55 69 Bulgaria 2.27 1.33 1.5 1 1 2.83 1 1.48 70 Hungary 2.40 1.33 1.1 1.25 1 3.33 1 1.46 71 Slovakia 2.42 1.17 1.4 1 1 3.50 1 1.46 72 Slovenia 2.44 1.17 1.3 1 1 3.67 1 1.45 73 Croatia 2.41 1.33 1.1 1 1 3.00 1 1.44 74 Iran 1.87 1.00 1.0 4 1 1.33 1 1.30 75 ITA Oil and Gas Top Markets Report 2015 50

Appendix 3: Resources 1 http://online.wsj.com/articles/brazils-new-oil-output-stems-decline-1407435699 1 PWC, The Brazilian O&G Industry, www.pwc.com.br/pt.../oil-gas/oeg-tsp-13.pdf 1 ITA country commercial guide 1 http://www.bloomberg.com/news/2010-11-10/petrobras-may-invest-400-billion-through-2020-on-finds-minister-says.html 1 U.S. Energy Information Administration (EIA), http://www.eia.gov/countries/cab.cfm?fips=br 1 http://www.bloomberg.com/news/articles/2013-12-02/petrobras-fuel-price-increase-puts-limit-on-subsidy 1 http://online.wsj.com/articles/brazils-new-oil-output-stems-decline-1407435699 1 PWC, The Brazilian O&G Industry, p.4, http://www.pwc.com.br/pt_br/br/publicacoes/setores-atividade/assets/oil-gas/oeg-tsp- 13.pdf 1 http://riotimesonline.com/brazil-news/rio-business/petrobras-requests-local-content-changes/# 1 http://online.wsj.com/articles/brazils-new-oil-output-stems-decline-1407435699 1 PWC, The Brazilian O&G Industry, www.pwc.com.br/pt.../oil-gas/oeg-tsp-13.pdf 1 Country commercial guide 2013 1 Canadian Petroleum Producers (CAPP), in their Energy Outlook 2014, accessed 9/16/14 at: http://www.capp.ca/getdoc.aspx?docid=250450&dt=ntv 1 China Country Analysis Brief, U.S. Energy Information Administration, http://www.eia.gov/countries/cab.cfm?fips=ch 1 Ibid. 1 Ghana s Petroleum (Local Content and Local Participation) Regulations 2013 (L.I. 2204), p. 29 1 U.S. Trade Representative, 2014 National Trade Estimate Report on Foreign Trade Barriers, p. 254 ITA Oil and Gas Top Markets Report 2015 51

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