How to Partner With the European Bank

for Reconstruction and Development In the Russian Oil and Gas Industry

Exploration, Production, Processingin Russia

19 November 201310:00 session 2

International Investment Forum

Eric Rasmussen Director, Natural Resources

November 2013 © European Bank for Reconstruction and Development 2013 2

Agenda

What is the EBRD?

Russia’s Potential and Challenges for Oil and Gas Investors

Private CEOs views and expectations

How can EBRD help?

A network of over 40 offices in 35 countries

More than half our bankers based in the region

St. Petersburg RO

Moscow ROYekaterinburg RO

Vladivostok RO

Rostov RO

Samara RO

Krasnoyarsk RO

EBRD in Russia 7 offices

120 Professionals

November 2013 © European Bank for Reconstruction and Development 2013 4

EBRD offers a comprehensive product portfolio to address the investment challenges in Russia

Direct EBRD

financing

LoansLoans

• Non or limited recourse to sponsors

• Hard / local currency

• Medium / long term

• Floating / fixed rates

• New equity

• Privatizations

• Underwriting

• Quasi-equity

• ‘Portage’

Indirect EBRD

financing

• Guarantees to Confirming Banks for trade finance instruments (i.e. L/Cs, payment guarantees etc.) of local issuing Bank covering the payment risk

• Short-term financing of local Issuing Banks providing exporters/importers with liquidity for pre-export and post import and local trade finance purposes

GuaranteesGuarantees

• Specific risk guarantees

• Commodity-backed instruments

EquityEquity

November 2013 © European Bank for Reconstruction and Development 2013 5

2000

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0

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051015202530354045505560657075808590

Debt ABV Equity ABV Net Cumulative Business Volume

Annual busi

ness

volu

me (

AB

V)

Net cu

mula

tive b

usin

ess v

olu

me

Promote market efficiency by investing mainly in the private sector

Mobilise foreign direct investment

Support municipal services to improve people’s lives

Encourage environmentally sound and sustainable development

More than 4,000 projects since 1991

1/4 of all new business in Russia

Largest equity fund program in the EBRD countries of operation

EBRD’s historical investments of EUR 82 billion. About 28% in Russia.

November 2013 © European Bank for Reconstruction and Development 2013 6

EBRD has mobilised EUR 7 billion funding for oil and gas projects in Russia with EUR 1.6 billion of own funds

Pipelines, Storage

& Gasoline Stations

OFS / Remediation

Russia Central Asia Central & SE Europe Ukraine & Caucasus

Refineries

Oil & Gas Extraction /

APG utilisation

November 2013 © European Bank for Reconstruction and Development 2013 7

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

500

1,000

1,500

2,000

2,500

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Oil & Gas portion of GDP GDP (USD bn) (left axis) GDP per capita (USD) (right axis)

USSR POS-TUSSR

Putin inaugurated as President

Subsoil Law introduced

Yukos collapse

Gazprom allows Third Party AccessProduction

Sharing Law introduced

BP + TNK merger

Rosneft completes TNK-BP takeover

Roseneft & Exxon alliance

Russia’s oil and gas industry was dramatically transformed and modernised in the past decade

Russian - Ukrainian gas disputes

November 2013 © European Bank for Reconstruction and Development 2013 8

0

500

1,000

1,500

2,000

2,500

3,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Oil & Gas portion of GDP GDP (USD bn) (left axis) EBRD Mobilised Investment (EUR million)GDP per capita (USD) (right axis)

Uncertainty Low oil prices

Putin promises to double GDP

within a decade

Russia crisis

GDP per capita returns to the levels

of 1990

Asia demandExport boom

High oil pricesExploration boom

USSR Russia

… and Russia and its oil and gas markets still offer lots of potential…

Banking crisis

Asia crisis

November 2013 © European Bank for Reconstruction and Development 2013 9

…however Russia’s high potential for conventional oil and gas is located in places with little infrastructure…

• Uvat oil project in the Tyumen region

• Lukoil's Imilor and Istochnoye fields in the Khanty Mansiysk Autonomous Region

• Surgutneftegaz’s severo-Rogozhnikovskoye field

• The Novoportovskoye oil and gas condensate field in the Yamal-Nenets Autonomous Region

• Caspian Sea - Yuri Korchagin field,• Pechora Sea: Gazprom's Prirazlomnoye field

The government has introduced preferential taxes for East Siberian projects. • Vankor field• Verkhnechonsk oilfield• Suzunskoye and Tagulskoye fields • Lodochnoye field

November 2013 © European Bank for Reconstruction and Development 2013 10

.. and also the high potential for unconventional oil and gas is located in places with little infrastructure.

Tight oil and shale gas formations (EIA, May 2013)

November 2013 © European Bank for Reconstruction and Development 2013 11

2013Refineries 34Refinery capacity (barrels per day) 5.4 m LNG terminals  1Liquefaction capacity (tons per year) 10.4 mLNG storage capacity (000 m3) 200Gas storage terminals  25Gas storage capacity (billion m3) 66 blnTransmission pipelines (000 Km) 250

Russia’s oil and gas industry needs up to $1 trillion investments over the next 15 years for modernization and development

November 2013 © European Bank for Reconstruction and Development 2013 12

A SWOT of Russia’s oil and gas industry suggest a ‘reset’ of international partnerships could boost FDI and enhance exports…

SWOT

Strengths

•One of the world's largest proven reserves of oil (93.1bn bbl) and gas (45.3 tcm)

• Huge output with 10.5 mn bpd of oil and 657bcm of gas

•World's third largest refiner after the US and China.

Opportunities

• ‘Reset’ partnerships with EU and Asia

•Potential to expand refining capacity to 6 million b/d by 2017

• Underexplored East Siberia and offshore fields

• Tax & permit reform can double LNG by 2020

• Bazhenov may hold 75 bn barrels of shale oil

Weaknesses

• Limited FDI from international oil companies (IOC) is holding back innovation and modernization needed to explore difficult reserves

• Gas export infrastructure need upgrade

•Gas sales depend on EU

Threats

• US$280 billion investment needed to keep current oil output until 2020

• Oil output will drop 20% without tax & permit reform

• Proven oil reserves are expected to fall

• Without proactive planning new shale gas will significantly replace Russian gas in Europe and Asia.

November 2013 © European Bank for Reconstruction and Development 2013 13

YEAR

2012

2013

STATE REGULATIONPARTICIPATION BY STATE COMPANIES

80%

13%7%

INCREASE REMAIN THE SAME DECREASE

57%29%

14%

INCREASE REMAIN THE SAME DECREASE

73%

20%7%

INCREASE REMAIN THE SAME DECREASE

47%43%

10%

INCREASE REMAIN THE SAME DECREASE

CEOs welcome the new energy tax reform, but need non-protectionist reform to open access to potential opportunities.

Source: Deloitte 2013 Russian Oil & Gas Outlook Survey

November 2013 © European Bank for Reconstruction and Development 2013 14

The Russian oil and gas industry also needs a high pace of innovation and that requires more private sector engagement.

Oil Production - Market Structure 2013 (%)

Refining - Market Shares 2013 (%)

Gas Production - Market Structure 2013 (%)

Oil Storage - Market Shares 2013 (%)

Sources: BMI, OG Analysis 2013

37

1612

6

29Rosneft

LukoilSurgutneftegas

Gazprom Neft

Others

74.4

8.5

2.72.4 11.9

Gazprom

Novatek

LukoilRosneft

Others

46.8

23.3

17.2

12.7Rosneft OJSC

Lukoil

Gazprom Neft

JSC Bashneft

26.4

21.920.8

19.5

11.4OAO Lukoil

Alliance Oil Co.Gunvor

Rosneft

Caspian PipelineConsortium

November 2013 © European Bank for Reconstruction and Development 2013 15

FDI is eyeing the Russian oil and gas potential, but there are still substantial investment barriers and risks to form new alliances…..

Exploration

Access EHS

Production

Transport

Refining

Favored local

players

Lack of infrastructure

local servicecapacity

Gvt take

… so how can the EBRD help?

• Supporting Russian companies in cross-border investments in EBRD’s countries of operation

• Working with big companies to support smaller local content providers

• Process/resource efficiency: increase refining value added, reduce energy consumption and emissions with better processing and “greener” products.

• Supporting private players with a regional development impact.

• Companies pursuing corporate governance enhancement programmes (especially for early stage and 2nd tier companies, pre-IPO financing, environmental clean-up as well support for Joint Ventures).

November 2013 © European Bank for Reconstruction and Development 2013 16

November 2013 © European Bank for Reconstruction and Development 2013 17

How does EBRD partner with oil and gas companies depending on circumstances?

Russian GovernmentStrategic Interest

Co

mp

lexity of A

sset D

evelop

men

t

EBRD supports• FDI partners • service providers

Incentivised FDI

Domestic playersNOC

NOC alliance with FDI

HIGH

HIGH

LOW

LOW

EBRD supports • FDI• service providers• local content

development

EBRD supports • service providers• energy efficiency • environment, safety

EBRD supports • private players• service providers• efficiency, environment,

safety• corporate governance

November 2013 © European Bank for Reconstruction and Development 2013 18

We all need more international alliances to meet the global energy demand, which may double by 2050….

3 times more energy must come from renewable sources

1.2 billion additional vehicles will be on the roads

300 million people will exit poverty and demand more energy

…. while CO2 emissions must be reduced by 75% of today’s level to avoid climate meltdown

9.5 billion people will live on the planet with 75% in cities (2.5 billion more than today)

November 2013 © European Bank for Reconstruction and Development 2013 19

How to obtain EBRD financing

Financing requirementsFinancing requirements How to obtain finance?How to obtain finance?

Ensure appropriate returns by

carefully assessing the risks:

Disclosed owners and corporate

structure Management team and strategy Business plan and project costs IFRS audits Environmental, social, health and

safety - action plan Need to develop local content?

Ensure appropriate returns by

carefully assessing the risks:

Disclosed owners and corporate

structure Management team and strategy Business plan and project costs IFRS audits Environmental, social, health and

safety - action plan Need to develop local content?

Provide EBRD with an overview of

proposed investment Commitment to cooperation

clarify role of EBRD mandate to initiate transaction mutual understanding of

corporate integrity issues Project / business plan, market

analysis, financial analysis, risk

assessment Exit strategy

Provide EBRD with an overview of

proposed investment Commitment to cooperation

clarify role of EBRD mandate to initiate transaction mutual understanding of

corporate integrity issues Project / business plan, market

analysis, financial analysis, risk

assessment Exit strategy

www.ebrd.com

Contact

Eric RasmussenDirectorNatural Resourcest: + 44 20 7338 8615e: RasmussE@ebrd.com

EBRD, One Exchange SquareLondon, EC2A 2JN United Kingdomwww.ebrd.com

Aida Sitdikova DirectorEnergy, Russia and Central Asia t: + 44 7 8025 106 44 e: Sitdikoa@ebrd.com

November 2013© European Bank for Reconstruction and Development 2013

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