EFTA01367345.pdf

31 May 2015 Integrated Oil US Integrated Oils Incentivizing the US producer As mentioned previously, the 500 Mb/d call on US onshore growth in 2017 will begin to ramp in the 21116. We estimate that as early as late 2016 -350 Mb/d of US onshore crude production will be needed vs. 1016 production levels. Assuming the need for an incremental 350 Mb/d of YoY growth in US Lower 48 oil production starting in the 211 of 2016 there is a clear need for WTI price to incentivize incremental activity. While US onshore production has continued to climb in the first half of 2015 as producers have decelerated from high 2014 exit rates, we expect that production will peak in 2015, with 2H15 trending slightly lower. In the absence of incremental activity, we anticipate that 2016 crude production growth in the Lower 48 would be down 200 Mb/d YoY. In order to incentivize a resumption in drilling activity sufficient to generate this level of growth, we estimate the need for WTI at $65-$70/bbl. While some have pointed to single well economics as a justification for why growth/returns could work at $50 or $55/bbl, we believe corporate Meed cash lbw WI be the dateentning lector for go forward activity levels. Figure 45; Oil price to generate 35% of prior peak growth in 2016-17 $80 S72 $70 $50 $40 S30 • $20 S10 • SO act EOG 0%0 ARC CNN VVLL HES MRO Avg ■CFO=Capex CFC*124% Capex Son Aland* a., In order to estimate the oil price necessary to support the proper level of corporate cash flow, we made the following assumptions: 1) well costs 20% lower than late-2014 vintage cost estimates, 2) 1Q15 operating cost assumptions, 3) base case assumes capex in line with 2016 operating cash flow (CFO), 4) 2016 volume growth at 35% of pre-collapse growth rate (ie. price necessary to support -350 Mb/d in the US vs. the prior pace of -1,000 Mb/d). Within these constraints, companies in our coverage universe averaged an average need of $60 - $85/bbl to restart and maintain the onshore "growth machine". There is clearly a large degree of uncertainty surrounding this number, driven both by varied preferences of individual companies and significant uncertainty around the eventual scale and pace of efficiency and productivity gains. From a matter of timing, we see the need for a moderate increase in activity levels beginning in the third quarter of 2015. Given the general preference for Deutsche Bank Securities Inc. Page 2/ CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0058878 CONFIDENTIAL SDNY_GM_00205062 EFTA01367345