2018 oil price forecast: who predicts best? Information document

Amsterdam, March 2018 Since 2007, Roland Berger has published an annual review of available oil price forecasts

Roland Berger study of oil price forecasts – February 2018, WTI based

Last year's results > Since 2007, Roland Berger has published a yearly review of the oil price forecast Top-3 most accurate forecasting countries 1) > Major oil exporting countries use a forecasted value Average absolute year-on-year oil price forecasting error [%] of the oil price in their annual budgets Ø 20 Period 1999-2017 > We have studied the forecasting track records of the ten largest oil exporting countries from 1999 to 2017 Iraq 18 Nigeria 19 > The budgeted oil prices of the top-3 most accurate countries are used to forecast the oil price for the 23 year ahead > National oil price forecasts are compared to 1) Ø 55 forecasts from the major energy institutions: USD 55 forecast for 2017 NYMEX, EIA and OECD Iraq 42 Nigeria 52 Saudi Arabia 72 1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2001, 2009 and 2015) Source: Roland Berger 2 In addition to analyzing forecasting accuracy, Roland Berger's annual review examines current market dynamics

Elements of this year's study

1 Analysis of 2017 Oil price development & market dynamics of 2017

Accuracy of oil price Analysis of the accuracy of countries and institutions as forecasters of the 2 forecasts oil price in 2017 and aggregate over the last years

Forecast of the 2018 oil price based on national and institutional 3 Future oil prices forecasts Analysis of market dynamics for future oil supply and demand

3 1. Analysis of 2017

4 1 Analysis of 2017 In 2017, the average barrel price was USD 51/bbl, slightly lower than the USD 55/bbl forecasted by the top-3 forecasters

Development of monthly WTI averages [USD/bbl], Jan 2006 – Dec 2017 150 140 Top-3 130 forecasts 120 110 100 90 80 70 USD 55 60 2017 average 50 51 40 30 20 10 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: EIA; Roland Berger 5 1 Analysis of 2017 Both supply and demand grew in 2017 – For the first time since 2013, 2017 saw a consistent period of undersupply

Global supply and demand of oil and net differential [m bbl/day]

100

95

90

85

2012 2013 2014 2015 2016 2017 1.7 1.3 1.3 1.5 1.5 0.8 0.6 0.9 Net change 0.4 0.0 0.1 0.0

-0.4 -0.5 -0.4 -0.4 -0.3 -0.7 -0.8 -0.8 -0.5 -0.6 -1.3 -1.2 2012 2013 2014 2015 2016 2017

Oversupply Undersupply Total global supply Total global consumption Source: EIA; Roland Berger 6 1 Analysis of 2017 This undersupply was driven by OPEC's extended production quota, which they are reportedly adhering to

OPEC production quota and actual production [m bbl/day]

38.8 37.6 37.0 36.0 36.0 34.6 35.5 33.5 32.7 33.3 32.5 32.4 31.1 31.8 30.9 31.9 28.9 29.2 30.0 30.0 30.0 30.0 30.0 30.0 24.9 24.9

n/a 2009 2010 2011 2012 2013 2014 2015 2016 2017 Deviation from quota

OPEC data 16.4% 17.7% 3.7% 8.9% 6.1% 3.0% 6.2% 10.9% -0.4%

BP data 34.8% 39.2% 18.3% 23.3% 20.1% 20.1% 25.3% 29.4% n/a

Quota Production – OPEC reports Production – BP statistical review

Source: OPEC; BP Statistical Review of World Energy 2017; Roland Berger 7 1 Analysis of 2017 Overall, OPEC complied with the quota – Libya and Nigeria were excluded from the quota and increased production significantly

OPEC oil production and difference with quota Difference with quota OPEC oil production 2017 ['000 bbl/day] ['000 bbl/day] [%] 1,039 Algeria 1,043 4 0.4% 1,673 Angola 1,639 -34 -2.0% Ecudaor 522 531 9 1.7% Equatorial Guinea1) 153 -18 -11.6% 135 Gabon1) 211 -11 -5.1% 200 3,797 3,811 14 0.4% 4,351 Iraq 4,445 94 2.2% 2,707 Kuwait 2,708 1 0.0% Libya2) 390 427 109.5% 817 2) 1,556 Nigeria 1,660 104 6.7% Qatar 618 -11 -1.8% 607 10,058 Saudi Arabia 9,953 -105 -1.0% 2,874 UAE 2,915 41 1.4% 1,972 Venezuela 1,916 -56 -2.8% Quota Production 2016 Production 2017 1) Quota not published; estimated based on overall 4.6% production cut; 2) Excluded from quota due to internal conflicts. 2016 production shown as quota

Source: Zero Hedge; OPEC; Roland Berger 8 1 Analysis of 2017 The OPEC production decline was compensated by an increase in swing capacity from US shale oil, which dampened prices

Profitability and growth of US shale oil

WTI price and shale oil profitability [USD/bbl] 150

100

50

0 US shale oil production ['000 bbl/day] 12,757 11,779 12,354 10,073 8,894 7,549 7,862 6,784 7,263 7,817 8,175 8,113 7,125 6,816 6,620 Other 6,260 6,660 6,753 Shale 2,948 3,962 4,582 4,241 n/a 524 603 797 1,242 2,078 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Indicative break-even price of shale oil Profitability of shale oil US shale oil production

Source: EIA; Rystad Energy; BP Statistical Review of World Energy 2017; Roland Berger 9 1 Analysis of 2017 The growth of US (shale) oil production by ~5.6 m bbl/day is the main reason behind the growth in global oil production

Biggest changes in oil production between 2008 and 2016

Market share Rank Change in production ['000 bbl/day] 2008 2016 2008 2016

World total 9,256 US 5,570 8.2% 13.4% 3 1 Iraq 2,037 2.9% 4.8% 12 5 Saudi Arabia 1,687 12.9% 13.4% 1 1 Russia 1,276 12.0% 12.2% 2 3 Canada 1,253 3.9% 4.8% 7 6 Norway -472 3.0% 2.2% 11 14 -536 1.9% 1,1% 18 19 Mexico -710 3.8% 2.7% 8 11 Venezuela -812 3.9% 2.6% 6 12 Libya -1,394 2.2% 0.5% 17 30

Source: BP Statistical Review of World Energy 2017; Roland Berger 10 2. Accuracy of oil price forecasts

11 2 Accuracy of oil price forecasts Saudi Arabia, the historical top forecaster, was much too bullish in 2017 – Institutions remain the better forecasters

Absolute year-ahead oil price forecasting error, 2017 [%]

Top 10 oil exporting countries and institutions 2017 forecast1) 2017 forecasting error

Actual 50.9 Algeria 67.4 32% Iran 51.3 1% Iraq 41.7 18% Kuwait 75.2 48% Historically top-3 Mexico 43.0 16% best forecasters 51.6 1% had a forecast error Nigeria of 20% in 2017 Norway 48.3 5% Russia 36.8 28% Saudi Arabia 71.6 41% Venezuela 43.7 14%

NYMEX 49.3 3% Average forecasting EIA 50.2 1% error: 8% OECD 41.4 19%

1) To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2015) Source: Ministry of Finance of selected countries; EIA; NYMEX; OECD; Press reports; Roland Berger 12 2 Accuracy of oil price forecasts In 2009, institutions started forecasting better than oil exporting countries – Since 2012, they are unbeaten

Yearly oil price forecasting error, institutions and top-3 countries1), 2002-2017 [%]

"Countries predict best" "Institutions predict best"

65

53 48

35 28 24 27 20 21 20 20 19 17 19 19 19 16 16 15 14 10 11 10 12 7 9 8 8 8 12 4 6 6 5 5 2

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Institutions Top-3 most accurate countries 1) Updated top 3 based on up to year n-1. To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2001, 2009 and 2015) Source: Ministry of Finance of selected countries; EIA; NYMEX; OECD; Press reports; Roland Berger 13 2 Accuracy of oil price forecasts The emergence of institutions as better forecasters coincides with the rise of the US as a major (shale) oil producer and exporter

Crude oil production per country and US exports, 2007-2017 ['000 bbl/day]

"Countries predict best" "Institutions predict best" CRUDE OIL 15,000 PRODUCTION

10,000

5,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 15,000 EXPORTS (all products) 10,000

5,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Saudi Arabia Russia USA Other producers Source: OPEC; EIA; Roland Berger 14 2 Accuracy of oil price forecasts Saudi Arabia's bullish forecast was driven by some misplaced estimates but mainly by management of the public budget

Main drivers behind Saudi Arabia's bullish forecast

Management of the public budget 1 > Between 1999 and 20161), Saudi Arabia's oil price forecast averaged 37% below the actual > The National Transformation Plan (NTP 2020) launched in 2016 has put extra pressure on Saudi Arabia's public budget > A less conservative estimate helps keep the public deficit as small as possible (8.9% of GDP in 2017), since the petroleum sector accounts for 87% of the public budget

Interpretation of US shale oil break-even price > Saudi Arabia had not expected shale oil prices to drop below USD ~75/bbl, 2 so it underestimated US supplies at current oil prices

Outlook on Iran's exports > Saudi Arabia expected the oil ban on Iran to be reinstated, removing ~3 m 3 bbl/day2), or 3.8% of the total exported volume, from the market

1) Excluding crisis years 2001, 2008 and 2015; 2) Based on Iran's exports of crude oil and petroleum products in 2016

Source: OPEC; CIA; Press reports; Roland Berger 15 3. Future oil prices

16 3 Future oil prices The oil price is now at about USD 58 – For 2018, both institutions and the top-3 most accurate countries predict a price of around USD 54

2018 WTI price forecasts1) [USD/bbl]

NYMEX 55

EIA 51 Prediction of institutions OECD WTI oil price as of Dec 56 2017 Average 54

58

Both countries and institutions Iraq 47 expect the oil price to decrease Corrected Nigeria 55 prediction of top-3 Saudi Arabia 59 countries Average 54

1) Updated top 3 based on up to year n-1. To improve comparability, forecasts are adjusted for the ratio of local oil prices to WTI prices (5-year moving average) and for budget deviations (5-year moving average, excluding 2015) Source: Ministry of Finance of selected countries; National banks; Press reports; Roland Berger 17 3 Future oil prices Historically, global oil consumption has followed global GDP growth

Global oil consumption [m bbl/day] vs. global GDP, 1965-20161)

100 2016 2007

90

/day] 80 bbl 2000 70 1990 2008 prices 1979 1995 60 1975 1983 50 1970

40 Global oil consumption [m 30 1965 20 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 Global GDP [constant 2010 USD]

1) 2016 forecast based on OECD GDP growth, applied to data

Source: The World Bank Development Indicators; BP Statistical Review of World Energy 2017; Roland Berger 18 3 Future oil prices However, since a peak in 1973, the correlation between oil consumption and GDP growth has weakened

Global oil consumption [m bbl/day] per trillion USD GDP, 1965-20161)

1973 peak: 2.5 m bbl/day per USD tn GDP 2.5

1979 oil crisis

2.0 1973: USD ~22 tn GDP with 56 m bbl/day oil consumption

/day] per trillion trillion USD per /day] GDP 1.5 2016: 1.2 m bbl/day

bbl per USD tn GDP

Oil [m 2016: USD ~78 tn GDP with 91 m bbl/day oil consumption

1.0 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

1) 2016 forecast based on OECD GDP growth, applied to World Bank data

Source: World Bank Development Indicators; BP Statistical Review of World Energy 2017; Roland Berger 19 3 Future oil prices Depending on the scenario, BP predicts global oil demand to peak between 2025 and 2035 Global oil demand [m bbl/day] per year

120 110 100 90 80 70 60 50 40 30 20 Expected 10 peak oil 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Actuals Evolving transition Faster transition Even faster transition ICE1) transition 1) Internal combustion engine

Source: BP Energy Outlook 2018; Roland Berger 20 3 Future oil prices With its proven reserves, the US can ride it out until peak oil, maintaining pressure on the oil price as a swing supplier

Proven reserves and production rate of 10 biggest oil producing countries

Time left Country Proven reserves ['000 million bbl] Production 2016 ['000 bbl/day] [years]

US 48 12,354 10.6

Saudi Arabia 266 12,349 59.1

Russia 110 11,227 26.7

Iran 158 4,600 94.3

Iraq 153 4,465 93.9

Canada 172 4,460 105.4

UAE 98 4,073 65.8

China 26 3,999 17.6

Kuwait 102 3,151 88.2

Brazil 13 2,605 13.3 1) Based on years 2006-2016

Source: BP Statistical Review of World Energy 2017; Roland Berger 21 3 Future oil prices CEOs of major oil companies generally agree that the oil price will see a slight increase in the coming years

Selection of quotes on the oil price

Lower forever; yeah, that's the mindset. Yeah, to be perfectly honest, I do think we I don't expect there to be a real spike in the will have quite a bit of movement in the oil markets, barring some geopolitical I think we will most likely be below USD price going forward, and there is a better event…I've always said we're in the USD 70 a barrel than 50-50 chance that we will see oil 50-60 range until the end of the decade prices trend up 02-07-2018, Eldar Sætre 11-13-2017, Bob Dudley CEO, Statoil 08-01-2017, Ben van Beurden CEO, BP CEO, Shell

A continuation of these market trends, While the outlook for commodity prices It's very hard to predict what will be the oil combined with further steady draws in has improved, our operating plan remains price…We see the prices for the medium global oil inventories, is now creating the unchanged and we have already taken term between USD 65 and USD 55 per required foundation for further upward clear actions to demonstrate our barrel movement in oil prices and subsequent commitment to maintain discipline and growth in global E&P investment follow our priorities 11-15-2017, Pedro Parente CEO, 10-20-2017, Paal Kibsgaard 11-08-2017, Ryan Lance CEO, CEO, ConocoPhillips

Source: Press; Roland Berger 22