The document examines how the top performing upstream oil and gas companies are able to deliver higher returns on capital employed compared to their peers. It analyzes 74 of the largest global oil and gas companies based on data from 2006-2012. The top performers significantly outperformed the industry average, achieving a 38% return on capital employed versus 21% for the industry. The key differentiators of the top companies were selectivity in capital investment rather than velocity of spending, higher capital productivity through generating more revenue per dollar invested, and a strong focus on operating excellence through lower production costs. While the top companies demonstrated a positive relationship between returns and pursuit of growth, capital productivity was declining across the industry as exploration moved to more challenging areas.

1. Driving Value in
Upstream Gas
Brian Cooke
Consulting Partner
8th November 2013
Industry Briefing
PwC Brisbane
November 2013
pwc.com.au/industry/energy-utilities-mining

2. PwC 2
Driving Value in Upstream Gas
Substantial capital investment is needed if the upstream oil and gas sector is to meet the growing
demand for energy . This paper examines the ability of companies in the upstream Oil & Gas
sector to deliver value to shareholders on this large future investment.
We have done this by identifying the top performing companies, as measured by their return on
capital employed (ROCE), and isolating the key characteristics that enable them to deliver
returns over and above that of their peers.
The study excludes the midstream (processing and refining) and downstream (marketing and
distribution) activities of the companies included in the study.
The companies selected for analysis are the Top 100 global Oil & Gas companies based on total
assets in the latest published financial statements as at December 2012. A total of 26 companies
were removed from the sample if upstream operations were insignificant or published data on
key financial or operational metrics was not available. The sample for the study comprises 74 of
the largest global Oil & Gas companies.
PwC acknowledges Evaluate Energy, who provided the required operational and financial data
for this study. The findings in the study are based on PwC’s analysis of the Evaluate Energy Data.

3. PwC
Megatrends are driving fundamental demand for energy
As populations and economies grow, so to will the demand for energy increase.
Global Population Growth Global Energy Consumption
• Global population is forecast to grow by
25% in next 30 years.
• 75% of that population will live in either
Asia or Africa.
Sources: ExxonMobil – The outlook for energy: A view to 2040; OECD ECONOMIC OUTLOOK, VOL.2012/1, U.S. Energy Information Administration (EIA)
3
• Global energy consumption projected to
grow by 1.6% per annum up to 2030.
• 36% growth – solely driven from the
Non-OECD economies.
3.79
1.24
0.890.93
4.59
2.11
0.90
1.13
+70.2 %
+21.1 %
Asia PacMEAEurope
& CIS
Americas
2040
2010
5.53 5.60 5.73 5.80 5.84
+5.6 %
+36.2 %
OECD
Non-OECD
2030
10.88
2025
9.95
2020
8.97
2015
7.77
2011
6.75
6.9 6.9
5.1
3.0
2031-502012-17 2018-30
2.1
2001-07
2.0 1.92.2
Non-OECD
Total OECD
Global GDP Growth
• Projections of global GDP growth
indicate an expected growth of between
3.3 % p.a. from 2013 to 2030.
• Non-OECD economies will drive this
growth.

4. PwC
Shareholder Value & stock market performance
Oil & Gas stocks outpaced the global stockmarket between 2000 – 2013
Source: S&P Capital IQ, PwC Analysis
4
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
MSCI - World Oil,Gas & Fuel Index
MSCI - World Index
3.3%
CAGR
10%
CAGR

5. PwC
Top performers significantly outperform
Upstream / E&P Average Returns on Capital employed (2006 – 2012)
5
Capital Productivity is defined as revenue generated per $ capital employed
Rank Top performers Based in
Total Assets
(US$m)
Upstream
ROCE (%)
Upstream
Operating Margin
Upstream Capital
productivity
1 Ecopetrol Colombia $ 64,521 71% 55% 1.30
2 Statoil Norway $ 140,515 57% 63% 0.90
3 Total France $ 227,125 55% 66% 0.84
4 ENI Italy $ 184,578 47% 54% 0.88
5 PTT Thailand $ 53,747 46% 87% 0.53
6 Shell Netherlands $ 350,294 42% 57% 0.75
7 Chevron United States $ 232,982 42% 55% 0.75
8 PDVSA Venezuela $ 218,424 41% 30% 1.36
9 Imperial Oil Canada $ 29,464 40% 63% 0.64
10 Inpex Japan $ 32,566 40% 63% 0.63
11 BHP Billiton Australia $ 129,273 39% 55% 0.70
12 Novatek Russia $ 15,215 37% 59% 0.63
13 MOL Hungary $ 21,696 37% 60% 0.62
14 PetroChina China $ 344,207 35% 41% 0.87
15 Marathon Oil United States $ 35,306 34% 59% 0.58
16 OMV Austria $ 40,340 33% 42% 0.79
17 CNOOC China $ 72,379 32% 53% 0.60
18 Petrobras Brazil $ 331,645 32% 47% 0.68
19 ExxonMobil United States $ 333,795 32% 34% 0.93
Top performers average 38% 54% 0.75
Industry average 21% 38% 0.51

6. PwC
Capital Productivity is defined as revenue generated per $ capital employed
6
-20 %
-10 %
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4
AverageOperatingMargin
Average Capital Productivity
ExxonMobil
Petrobras
CNOOC
OMV
Marathon Oil
PetroChina
MOL
Novatek
BHP Billiton
Inpex
Imperial Oil
PDVSA
Chevron
Shell
PTT
ENI
Total
Statoil
Ecopetrol
Other
Top performers
Top performers significantly outperform
Upstream / E&P Average Returns on Capital employed (2006 – 2012)
0
Bottom Quartile
(9%)
Top Quartile
(32%)

7. PwC
Capital Productivity is defined as revenue generated per $ capital employed
7
-20 %
-10 %
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4
Novatek
BHP Billiton
Inpex
Imperial Oil
Average Capital Productivity
AverageOperatingMargin
ExxonMobil
Petrobras
CNOOC
OMV
Marathon Oil
PetroChina
MOL
PDVSA
Chevron
Shell
PTT
ENI
Total
Statoil
Ecopetrol
Gas dominant companies did not perform as well
Returns on Capital employed (2006 – 2012) by production profile
Bottom Quartile
(9%)
Top Quartile
(32%)
Gas Dominant
Mixed Portfolio
Oil Dominant
0

8. PwC
Gas company underperformance driven by pricing pressures
Evidenced by the delinking of North American gas prices from crude pricing.
Source: PwC Analysis
8
0
2
4
6
8
10
12
14
16
$-
$20
$40
$60
$80
$100
$120
$140
Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013
Gas-HenryHub($/btu)
WTI($/bbl)
Henry Hub and West Texas Intermediate Prices, 2005 – 2013
Spot Oil Price: West Texas Intermediate
Natural Gas Price: Henry Hub, LA

9. PwC
“There has been an
exponential growth in
upstream capital
expenditure in the
past 7 years.”
9

10. PwC
Upstream capital expenditure has risen exponentially.
Production growth stagnates at 6.5%, while capital expenditure grew 72%.
10
22,95722,85122,995
21,97122,06021,829
21,538
320
2006
336
511
419
2009
352
201020082007
526
+72.6 %
2012
580
2011
+6.6 %
Capex ($ bn)
Production (mmboe)

11. PwC
Global capital expenditure reached $580 billion last year.
The study participants spent more than $3.1 trillion in exploration and development capex
since 2006.
• Upstream capital expenditure grew
13.5% in 2012,.
• Over the 7 years studied, it has grown
72% and is strongly correlated with oil
prices.
• However, the velocity of this growth is
slowing and has fallen from 0.38 to
0.30 in 7 years.
• The slowdown in velocity of capital
commitments, indicates heightened
capital discipline within the sector.
• North American are redirecting
spending from gas to oil and liquids-
rich plays.
• Gas dominant companies and those
with limited oil acreage have slowed
CAPEX spend ruthlessly.
Capital Velocity is the ratio of CAPEX to Capital Employed. It is PwC’s proxy for measuring an
organisation’s growth agenda in capital intensive industries.
11
0.30
0.28
0.31
0.370.38
2011
511
2010
526
2009
352
0.24
2008
419
2007
320
0.30
2006
336
2012
580
-3.9 %
Capex ($ bn)Capital Velocity (x times)

12. PwC
Differentiators of Value
The three factors we believe best explain the differences in performance are:
1. Selectivity not velocity in their approach to capital investment – it’s
not about how much you spend but what you spend it on that counts
2. A commitment to driving capital productivity – top performers are
on average almost 47 % more effective as their peers in terms of capital
productivity.
3. A strong focus on operating excellence – companies in the top quartile
had production costs almost 10 % lower than the industry average
12

13. PwC
Capital Velocity is the ratio of CAPEX to Capital Employed. It is PwC’s proxy for measuring an organisation’s growth agenda in capital intensive industries.
13
-10 %
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70
Average ROCE
Average Capital Velocity
The rate of capital investment does not drive value
Growth does not necessarily generate value, equally - rationing capital to minimise risk can
lead to value opportunities being overlooked.
Pursuit of Growth
PursuitofValue
0.028
Correlation
Coefficient

14. PwC
Capital Velocity is the ratio of CAPEX to Capital Employed. It is PwC’s proxy for measuring an organisation’s growth agenda in capital intensive industries.
14
-10 %
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70
Ecopetrol
Shell
ChevronPDVSA
Imperial Oil
Average ROCE
Inpex
BHP Billiton
MOL PetroChina
Marathon OilOMV
CNOOC
Petrobras
Novatek
ExxonMobil
Average Capital Velocity
PTT ENI
Total
Statoil
Selectivity not Velocity drives value
Top performers show a positive relationship between returns on capital generated and their
pursuit of growth.
Top Performers
Other
Pursuit of Growth
PursuitofValue
0.028
0.417
Correlation
Coefficient

15. PwC
Differentiators of Value
The three factors we believe best explain the differences in performance are:
1. Selectivity not velocity in their approach to capital investment – it’s
not about how much you spend but what you spend it on that counts
2. A commitment to driving capital productivity – top performers are
on average almost 47 % more effective as their peers in terms of capital
productivity.
3. A strong focus on operating excellence – companies in the top quartile
had production costs almost 10 % lower than the industry average
15

16. PwC
Capital productivity is a general industry issue
The decline in upstream productivity is as consistent amongst the top performers as well as
the industry as a whole.
* Capital Productivity is defined as $ revenue generated per $ capital employed.
16
• Despite production increases, the
industry has been less than
efficient in its use of capital.
• Trend not likely to revert
anytime soon, as exploration to
discover reserves is being pushed
to deeper water and frontier
regions.
• Unconventional reserves whilst
largely easier to discover, the
development infrastructure
(gathering, pipelines, cleansing
and compression facilities)
significantly add to the
development costs.
0.64
0.54
0.64
0.37 0.40
0.46 0.42
0.78
0.87
0.76
1.02
0.88
0.92
2006 2007
0.66
201220112009 2010
47%
2008
Top performers average* Industry average

17. PwC
Capital productivity is a general industry issue
Production (boe) per $’000 Capital Employed (Real $ Terms)
Unit Productivity - Production (boe) per $ Capital Employed (in nominal terms)
17
25
20
15
10
0
Production(BOE)per$CapitalEmployed
2012
9.56
2011
9.99
10.35
9.15
2010
11.79
11.84
2009
14.43
13.45
2008
15.84
15.01
2007
19.13
17.70
2006
23.18
21.59
• The industry has been less than efficient in
its use of capital.
• 55% less output per unit of capital
employed today in comparison to seven
years ago
• Trend not likely to revert anytime soon, as
exploration to discover reserves is being
pushed to deeper water and frontier
regions.
• In Australia, the recent wave of investment
will near completion, resulting in large
scale construction teams rapidly
downsizing to smaller operational
workforces
• The shift from a project mentality to a
reliable and efficient operating rhythm will
necessitate a large cultural shift in many
instances.
Top PerformersIndusty average

18. PwC
Finding and developing reserves increasingly more expensive
F&D costs ($ / boe 1p reserves added) on a 3 year rolling average.
• F&D costs takes all exploration,
development and acquisition
costs and divides by the proved
reserve additions (net revisions,
extensions, discoveries and
acquisitions)
• A 3 year average is used to
minimise annual fluctuations
and lag times between costs and
discoveries.
• Given heightened revenue
pressure in the gas sector, this is
the only sector to show
improvement in F&D costs.
• As “cheap” oil and gas becomes
increasingly more expensive to
develop, improved F&D costs are
unlikely to eventuate.
* We converted gas volumes into energy equivalent barrels of oil using an average factor of 6,000 (i.e. Six thousand cubic feet of gas equals one barrel of oil equivalent)
18
$11.67
$15.62
$11.89
$10.73
$15.17
$9.46
$17.05
$14.29$14.36
+10.3 %
oil dominant
$19.10
$8.68
$11.80
gas dominant
+2.9 %
mixed portfolio
$17.29
$14.90
$13.35
-6.8 %
2011201020092008 2012CAGR

19. PwC
Differentiators of Value
The three factors we believe best explain the differences in performance are:
1. Selectivity not velocity in their approach to capital investment – it’s
not about how much you spend but what you spend it on that counts
2. A commitment to driving capital productivity – top performers are
on average almost 47 % more effective as their peers in terms of capital
productivity.
3. A strong focus on operating excellence – companies in the top quartile
had production costs almost 10 % lower than the industry average
19

20. PwC
Lifting (production) Cost Profile
Lifting Costs ($/boe) have grown at 9.7% p.a. since 2006
• Upstream sector as a whole has
seen lifting (production) costs
increase by a compound annual
growth of 9.7%
• Collapse of oil prices from a high
in June 2008 saw a renewed and
rapid shift in focus to operating
excellence and cost efficiency.
• This is the only period where the
industry have managed to
improve efficiency.
• Faced with declining gas prices,
gas companies were more
successful in controlling operating
costs (6.8% CAGR)
• Top performers manage the
demanding balance between risk,
cost, and performance
(availability and reliability).
20
$6.15
$15.10
$11.54
$21.82
251015205
ProductionCosts($/boe)
20122006
$8.47 $9.12
2007 20112008 20102009
11.2%
10.1%
6.8%
CAGR
Crude Prices Collapse
June ’08 to May ‘09
gas dominant oil dominantmixed portfolio

21. PwC
Operational productivity uplift opportunity exists
Lifting Costs ($/boe produced).
21
14.57
Predominantly
Gas
7.48
Predominantly
Oil
20.99
22.16
Mixed Portfolio
-5.3 %
-19.5 %
9.28
15.37
-5.2 %
Average Top Performer
• Performance gap in production
costs cannot be explained away
by differing production profiles
• We have found differentials of
5- 19% between top performers
and industry average for well
efficiency and production
metrics.
• The opportunity to close this
gap represents almost $22
billion in annualised value
• Top performers are learning
organisations . …
…. They realise that to drive
down the cost curve they must
first drive their people up the
experience curve
Lifting Costs ($/boe) by production profile in 2012

22. PwC
Jock O'Callaghan
National Leader
Energy, Utilities & Mining
Melbourne
61 (3) 8603 6137
jock.ocallaghan@au.pwc.com
Brian Cooke
Consulting Partner
Mining, Oil and Gas
Brisbane
61 (7) 3257 8630
brian.cooke@au.pwc.com
Authors
22
Other PwC Contacts
Steve Loadsman
Consulting Partner
Mining, Oil and Gas
Brisbane
+61 (7) 3257 8304
stephen.loadsman@au.pwc.com
Wim Blom
Deals Partner
Mining, Oil and Gas
Brisbane
+61 (7) 3257 5236
Wim.blom@au.pwc.com
Gui Capper
Manager
Energy, Utilities & Mining
Brisbane
61 (7) 3257 8273
gui.capper@au.pwc.com
Matt McKee
Senior Manager
Mining, Oil and Gas
Brisbane
+61 (7) 3257 8168
Matt.mckee@au.pwc.com

23. PwC
Look out for the full PwC Australia report on 'Driving Value in
Upstream Oil & Gas', available here –
pwc.com.au/industry/energy-utilities-mining
Twitter: @PwC_AU
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