Credit Suisse ESG Research

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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07 September 2016

Global

Equity Research

Credit Suisse ESG Research Environmental, Social and Governance (ESG) Research

Oil & Gas: Quantifying ESG Opportunities

In this report, we turn our attention to ESG risks in the global O&G sector and

apply our quantitative and cost of capital approach to allow risks to be evaluated

in the investment process. We establish ESG rankings for 64 companies.

■ Five ESG factors: 1) Country risk; 2) Asset risk; 3) Environmental risk; 4) Safety score ; 5) Governance score. We weight each factor equally.

■ Most O&G investors are focused on navigating a commodity down-

cycle, but the transition to a low carbon world is a medium term risk.

Markets have yet to differentiate between companies whose assets are

dependent on a 4° environment. As countries ratify detailed responses to the

2° limit, assets will be at risk

■ Correlation between ESG and cost of capital: we find a correlation of -0.12x between WACC and each additional point on our scoring methodology. This can be incorporated into DCF analysis to derive valuation implications.

■ Disclosure is an easy win for companies: whilst we hope to see companies continue to invest in environmental and safety measures, an easy, short term way to improve ESG rankings is disclosing metrics. We rate non-disclosure below poor performance.

■ We present two sets of ESG stocks for investors. The good –top quartile stocks where CS analysts have Outperform or Neutral ratings: Anadarko, ARC, Caltex, Hess Corp, Chesapeake, Marathon Oil, Marathon Petroleum, Newfield, Occidental, Noble, Santos and ConocoPhillips.

■ Those with the greatest potential for improvement and Outperform or Neutral ratings: Antero, EOG, Formosa Petrochems, Cenovus, Galp, Repsol, Kunlun, ONGC, Canadian Nat Resources, DiamondBack, Rosneft and Tupras. Some of this is due to poor disclosure.

Figure 1: WACC vs company ESG score (%)

AnadarkoAntero

Apache

ARC

BP

Bharat

Caltex

CNQ

Cenovus

Cheniere

Chesapeake

Chevron

Sinopec

CNOOC

Concho

ConocoPhillips

CrescentDevon

Diamondback

Copec

EncanaENI

EOG

ExxonMobil

Formosa

GalpGazprom

Hess

Holly Frontier HuskyImperial

INPEXKunlun

MRO

MPC

Murphy

Newfield

LUKOIL

Rosneft

Noble

NOVATEK

Occidental

ONGC

OMVOrigin

PetroChina

Phillips 66

Pioneer

PTT

Range

Reliance

Repsol

Shell

Santos

Statoil

Suncor

Surgutneftegas

Tatneft

TesoroTotal

Tupras

Valero

Woodside

Petrobras

y = -0.0012x + 0.1510R² = 0.2529

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

35 40 45 50 55 60 65 70 75 80

WA

CC

Overall ESG ranking Source: Company data, Credit Suisse estimates

Credit Suisse Environmental, Social

and Governance (ESG) research seeks

to focus on sustainability and

accountability factors that are then

integrated into the investment process.

Research Analysts

Julia Dawson

44 20 7883 3715

[email protected]

Marcelo Preto

44 207 888 0873

[email protected]

Richard Kersley

44 20 7888 0313

[email protected]

Edward Westlake

212 325 6751

[email protected]

David Hewitt

65 6212 3064

[email protected]

07 September 2016

Credit Suisse ESG Research 2

Table of contents Introduction 3

Executive summary 3 Global Oil and Gas ESG Ranking 5

Key conclusions 6 Does the market price in ESG risks? 8

Stock picks & valuation implications from improved ESG rankings 9 COP 21 Adds An Extra Sense of Policy Urgency 11

Are oil management teams well suited to investing in other sectors like renewables? 12 How to measure ESG risks 16

Country risk score 18 Environmental risk score 21

Focus on Fracking 22 Health and safety score 25 Governance score 28 Asset risk score: the oil and gas sector in a lower carbon world 31 Appendix 34

Global Oil and Gas team 43 Global Oil and Gas team 44

07 September 2016


Introduction The ESG and Global Energy Equity Research Teams have collaborated to introduce an

ranking of 64 large cap global producers and refiners globally. The ranking covers 5 key

factors - 1) Country risk; 2) Asset risk; 3) Environmental risk; 4) Safety score; 5)

Governance score. We weight each factor equally. We build the five factors from 16

different data points for each company to give a broad and in-depth view of a company's

ESG metrics. We believe that investors should find the comparability and trends in the data

useful in the investment process. We will publish regular annual updates, highlighting how

company performance has changed over time. We welcome comment and questions on

the data and the ranking methodologies from the companies covered and from investors.

ESG is important to Credit Suisse.

Executive summary

ESG is of ever-increasing importance today. Asset owners demand an ESG consideration

for their mandates as social and impact investing become the philanthropic face of

investments today. This spans the broad spectrum from sovereign wealth funds to retail

investors. We believe that a quantitative approach to ESG factors is the best way to

compare these risks. We have measured ESG factors for 40 companies in the mining

sector in our report ESG in the mining sector: Quantifying opportunities and in this oil and

gas sector report, we introduce ESG rankings for 64 oil and gas companies globally. We

build these rankings around five ESG pillars, weighting each pillar equally.

We then correlate these rankings with a company's cost of capital and find that the

correlations are very similar for both sectors – an r2

of 0.2529 for the oil and gas sector

compared to an r2 of 0.2437 in the mining sector. This quantitative approach allows

investors to assess different risk levels between companies and between sectors. It also

allows investors to change weightings to reflect specific areas of interest or those

considered more or less important. This approach will also enable us to capture ESG

improvements over time. We list the overall ESG score for each company in Figure 6 and

then scores for each factor in more detail later in the report.

As with the mining sector, the easiest area to capture improvement is through the

disclosure of information. We award the lowest rankings where data is not disclosed.

Disclosure or non-disclosure is management choice.

Behind the five principal ESG factors measured, country, asset, environmental, safety and

governance, we include considerable detail. This is all factual information provided by

companies but we believe our quantitative approach and level of detail involved to be

unique. All the detailed rankings are included in the report. The underlying data is available

in Excel format so that investors can change weightings or rankings so that they can see

the implied impact on potential valuations.

Figure 2: ESG scores & WACC in the mining sector Figure 3: ESG scores & WACC in the oil & gas sector

Agnico Eagle Mines

Alrosa

Aluminum Corp of China

Anglo American

AntofagastaBaotou Rare Earth

Barrick GoldBHP

Boliden

Cameco

China Coal

China Molybdenum

China Shenhua

Coal IndiaFirst Quantum

Fortescue

Fresnillo

Glencore

Goldcorp

Hindustan Zinc

Industrias Penoles

Jiangxi Copper

KGHM

MMC Norilsk Nickel

NMDC

Newcrest

NewmontNorsk Hydro

Polyus Gold

Randgold

Rio Tinto

Shandong Gold

Southern Copper

TeckUC Rusal Vale

Vedanta

Yanzhou Coal

Zhongjin Gold

Zijin Mining

y = -0.0009x + 0.1348R² = 0.2437

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

35 40 45 50 55 60 65 70 75 80 85

WA

CC

ESG Overall Score

AnadarkoAntero

Apache

ARC

BP

Bharat

Caltex

CNQ

Cenovus

Cheniere

Chesapeake

Chevron

Sinopec

CNOOC

Concho

ConocoPhillips

CrescentDevon

Diamondback

Copec

EncanaENI

EOG

ExxonMobil

Formosa

GalpGazprom

Hess


INPEXKunlun

MRO

MPC

Murphy

Newfield

LUKOIL

Rosneft

Noble

NOVATEK

Occidental

ONGC

OMVOrigin

PetroChina

Phillips 66

Pioneer

PTT

Range

Reliance

Repsol

Shell

Santos

Statoil

Suncor

Surgutneftegas

Tatneft

TesoroTotal

Tupras

Valero

Woodside

Petrobras

y = -0.0012x + 0.1510R² = 0.2529

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

35 40 45 50 55 60 65 70 75 80

WA

CC

Overall ESG ranking Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

https://plus.credit-suisse.com/r/CnBUuu

07 September 2016


The two sectors incorporate broad and to some extent, similar, ESG risks – environmental

risks from extraction, energy-heavy production and processing, dangerous working

conditions in many instances – and face potentially changing demand scenarios within a

post COP-21 world. Nevertheless, there is no consistency between which factors rank as

important in terms of cost of capital drivers, despite these similar risks, as we see in Figure

4 and Figure 5 below. Three factors with potentially the most significant impact on asset

valuations and share prices – asset (only demand for a company's assets and production),

safety and environmental (both key operating risks) have a lower correlation than the top

down risk of the countries of operations and the widely differing levels of corporate

governance.

Figure 4: Correlation of ESG factors - mining Figure 5: Correlation of ESG factors – oil & gas

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Country Asset Safety Environmental Governance

Correlation coefficient Coefficient of determination (R2)

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

Country Asset risk Safety Environmental Governance

Correlation coefficient (R), %

Coefficient of determination (R²)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

We intend to update these rankings regularly and add companies into the universe as

appropriate.

07 September 2016


Global Oil and Gas ESG Ranking Figure 6: Overall ESG score and share price movement from 2011 to present Company ESG Score Price change

(1)

Chesapeake Energy Corp. 77 -78.8% Woodside Petroleum 77 -42.4% Caltex Australia 76 116.3% Statoil 75 -31.8% Hess Corporation 74 -3.7% ARC Resources 73 -27.0% Marathon Petroleum Corp 73 136.9% Encana Corp. 73 -60.9% Marathon Oil Corp 72 -41.3% Santos 71 -68.9% Anadarko Petroleum Corp. 71 -23.2% Occidental Petroleum 71 -57.8% PTT Exploration & Production 71 -5.8% Newfield Exploration 69 -11.5% ConocoPhillips 68 -18.3% Noble Energy 68 -18.0%

CNOOC Ltd 68 -37.7% Royal Dutch Shell 67 -23.6% Cheniere Energy, Inc. 67 457.6% Pioneer Natural Resources 67 139.1% NOVATEK 67 -12.8% Apache Corp. 67 -48.9% Devon Energy Corp 66 -33.8% BP 66 -12.2% Copec 65 -43.6% Phillips 66 65 233.0% PetroChina 65 -46.3% ENI 65 -21.5% Chevron Corp. 65 3.4% OMV 64 -27.0% Valero Energy Corporation 64 177.7% Tesoro Corp. 63 222.3%

Origin Energy 63 -70.0% Imperial Oil 63 -23.1% Petrobras 62 -67.4% Concho Resources, Inc. 62 53.6% Reliance Industries 62 -6.4% INPEX Corp 62 -48.4% Husky Energy 62 18.4% ExxonMobil Corporation 62 -47.7% Murphy Oil Corp 62 -36.4% Total 61 1.3% Holly Frontier Corp. 61 -28.4% Range Resources 60 -39.2% Bharat Petroleum 60 147.8% Crescent Point Energy Corp 60 -65.2% SINOPEC 60 -2.0% Suncor Energy 60 -12.0%

Canadian Natural Resources Limited 59 -13.3% EOG Resources 59 95.4% Cenovus Energy Inc. 59 -57.9% Diamondback Energy, Inc. 57 563.0% Repsol 57 -37.2% Tupras 56 2.5% Rosneft 53 -31.5% Kunlun Energy 51 -50.1% Galp Energia 51 -24.0% LUKOIL 50 -23.8% Formosa Petrochemical 49 0.3% Antero Resources Corporation 48 46.0% Oil and Natural Gas Corporation 48 -37.1% Gazprom 48 -66.6% Surgutneftegas 37 -44.2% Tatneft 37 -4.6%

Source: Datastream, Company data, Credit Suisse research. Prices as of 05/09/2016. Note (1): Measured in USD since 01/01/2011, except for

Marathon Petroleum (24/06/2011), Diamondback Energy (12/10/2012), Phillips 66 (12/04/2012) and Antero Resources (10/10/2013).

07 September 2016


Key conclusions

We see a good correlation between the cost of capital in the oil and gas sector and ESG

scores. This is -0.12x for each point on our proprietary ranking system which is built from

ESG-related data disclosed by the companies and benchmark data for non-company

specific factors such as countries of operations. This means that were a company to

improve its ESG scores by 10 points on our ranking system, the theoretical cost of capital

would decrease by 1.2%, thereby raising valuations and target prices. The r2 of this

correlation is 0.2529, almost identical to the correlation of 0.2532 that we found in the

mining sector when we conducted the same exercise for 40 leading mining companies

globally ESG in the Mining Sector: Quantifying Opportunities.

Figure 7: WACC vs overall ESG score

AnadarkoAntero

Apache

ARC

BP

Bharat

Caltex

CNQ

Cenovus

Cheniere

Chesapeake

Chevron

Sinopec

CNOOC

Concho

ConocoPhillips

CrescentDevon

Diamondback

Copec

EncanaENI

EOG

ExxonMobil

Formosa

GalpGazprom

Hess


INPEXKunlun

MRO

MPC

Murphy

Newfield

LUKOIL

Rosneft

Noble

NOVATEK

Occidental

ONGC

OMVOrigin

PetroChina

Phillips 66

Pioneer

PTT

Range

Reliance

Repsol

Shell

Santos

Statoil

Suncor

Surgutneftegas

Tatneft

TesoroTotal

Tupras

Valero

Woodside

Petrobras

y = -0.0012x + 0.1510R² = 0.2529

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

35 40 45 50 55 60 65 70 75 80

WA

CC

Overall ESG ranking Source: Company data, Credit Suisse estimates

For oil and gas companies, we illustrate the correlation of WACC with each individual

factor in Figure 8 to Figure 13. The strongest correlation, which comes as no surprise, is

between the country or countries of operations with an r2

of 0.4494. The weakest

correlation is with safety scores where the r2 is just 0.0045. We would also highlight the

inverse relationship between environmental rankings and a company's WACC. This is

counterintuitive in a world where there is increasing focus on environmental protection.

Figure 8: Country score vs WACC Figure 9: Asset risk vs WACC

y = -0.0009x + 0.1394R² = 0.4494

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

40 45 50 55 60 65 70 75 80 85 90 95

WA

CC

Country ranking

y = -0.0003x + 0.0951R² = 0.1193

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

WA

CC

Asset risk ranking

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

https://plus.credit-suisse.com/r/CnBUuu

07 September 2016


Figure 10: Safety score vs WACC Figure 11: Environmental score vs WACC y = 0.0001x + 0.0709

R² = 0.0045

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

WA

CC

Safety ranking

y = 0.0001x + 0.0679R² = 0.0089

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

20 25 30 35 40 45 50 55 60 65 70 75 80 85

WA

CC

Environmental ranking

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

Figure 12: Governance score vs WACC Figure 13: Correlations between WACC and ESG factors y = -0.0007x + 0.1145

R² = 0.1574

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

WA

CC

Governance ranking

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

0.5


Correlation coefficient (R), %


Source: Company data, Credit Suisse research Source: Credit Suisse research

Disclosure would be the easiest area for companies to improve their rankings. As we

penalise companies for non-disclosure of generally available, potentially material risks that

are often cited in press reports, any disclosure of these operational metrics would improve

ratings. We are indeed surprised by the different level of disclosure by companies and

frequent reluctance to disclose data despite the general push for better reporting by the

Global Reporting Initiative. In the mining sector, we found that disclosure levels split

broadly between developed markets and emerging markets due to listing requirements.

However, in the oil and gas sector, we tend to find better disclosure in many areas by

emerging market companies compared to North American names. There is very varied

reporting across the sector of such factors as water usage intensity, gas flaring and

volumes of oil spills. This could be easily rectified with board and management

commitment and a good signal of a company's strategy towards managing and prioritising

ESG risks. Emerging market and Asian companies on the other hand generally give limited

details as to the profile and backgrounds of their board members. This too is an easy area

for improvement.

07 September 2016


Does the market price in ESG risks?

Figure 14: 5 year share price performance vs ESG overall score

y = 0.0096x - 0.6169R² = 0.0092

-200%

-100%

0%

100%

200%

300%

400%

500%

35 40 45 50 55 60 65 70 75 80

5yr

pri

ce p

erfo

rman

ce

ESG Overall score

Median: -24%

Median: 63

Source: Datastream, Credit Suisse research. Prices as of 05/09/2016.

Figure 14 demonstrates how little the market has acknowledged and priced in ESG risks

over the past five years. Looking at a five year correlation, we see an R2 = 0.0092 but this

reflects a closer dispersion as the linear correlation is negative, ie there is no positive

pricing relative to companies with better ESG performance vs those with the greatest

scope for improvement. It is particularly disappointing to see the negative correlation

currently between governance with share price movements during the past 12 months

(Figure 15) despite as more and more investors starting to include ESG and governance

considerations in their investment process but that this has yet to be reflected in share

price movements.

Figure 15: Correlation between 1 year share price performance vs ESG factors

-0.010

0.000

0.010

0.020

0.030

0.040

0.050

0.060


Correlation coefficient (R)


Source: Datastream, Credit Suisse research. Prices as of 05/09/2016.

07 September 2016


Stock picks & valuation implications from improved ESG rankings The good: top 10 currently: Chesapeake, Woodside Petroleum, Caltex Australia, Statoil, Hess Corporation, ARC Resources, Marathon Oil Corp, Marathon Petroleum, Santos and Anadarko. Credit Suisse analysts have Outperform or Neutral ratings on Anadarko, ARC Resources, Caltex, Hess Corp, ARC Resources, Chesapeake, Marathon Oil, Marathon Petroleum, Noble, Occidental and ConocoPhillips in the top quartile.

Those with low scores currently but which could generate the best upside: Antero, Canadian Natural Resources, Diamondback, Formosa Petrochemicals, Galp Energia, Kunlun Energy, Gazprom, ONGC, LUKoil, Tupras, Tatneft and Surgutneftegaz. Our analysts have Outperform or Neutral ratings on Antero, Canadian Natural Resources, Cenovus, Diamondback, EOG, Formosa Petrochemicals, Galp Energia, Kunlun Energy, ONGC, Repsol, Rosneft and Tupras amongst the companies in the bottom quartile.

No company appears in the top quartile for each factor. Chesapeake Energy however is in the top quartile four times and in the top quartile overall.

Tatneft is in the bottom quartile for each metric and in the bottom quartile overall.

Figure 16: Companies by overall ESG score

Top Quartile Second Quartile Third Quartile Bottom Quartile

Anadarko Petroleum Corp. Apache Corp. Bharat Petroleum Antero Resources Corporation

ARC Resources BP Concho Resources, Inc. Canadian Natural Resources Limited

Caltex Australia Cheniere Energy, Inc. Crescent Point Energy Corp Cenovus Energy Inc.

Chesapeake Energy Corp. Chevron Corp. ExxonMobil Corporation Diamondback Energy, Inc.

ConocoPhillips CNOOC Ltd Holly Frontier Corp. EOG Resources

Encana Corp. Copec Husky Energy Formosa Petrochemical

Hess Corporation Devon Energy Corp Imperial Oil Galp Energia

Marathon Oil Corp ENI INPEX Corp Gazprom

Marathon Petroleum Corp NOVATEK Murphy Oil Corp Kunlun Energy

Newfield Exploration OMV Origin Energy LUKOIL

Noble Energy PetroChina Petrobras Oil and Natural Gas Corporation

Occidental Petroleum Phillips 66 Range Resources Repsol

PTT Exploration & Production Pioneer Natural Resources Reliance Industries Rosneft

Santos Royal Dutch Shell SINOPEC Surgutneftegas

Statoil Tesoro Corp. Suncor Energy Tatneft

Woodside Petroleum Valero Energy Corporation Total Tupras

Source: Credit Suisse research

07 September 2016


Figure 17: Overall ESG scores by sub-sector

Top Quartile Second Quartile Third Quartile Bottom Quartile

North America producers

Anadarko Petroleum Corp. Apache Corp. Concho Resources, Inc. Antero Resources Corporation

ARC Resources Cheniere Energy, Inc. Crescent Point Energy Corp Canadian Natural Resources Limited

Chesapeake Energy Corp. Devon Energy Corp Imperial Oil Cenovus Energy Inc.

Encana Corp. Pioneer Natural Resources Murphy Oil Corp Diamondback Energy, Inc.

Hess Corporation Range Resources EOG Resources

Marathon Oil Corp

Newfield Exploration

Noble Energy

Other producers

PTT Exploration & Production INPEX Corp

Woodside Petroleum

OECD integrateds

ConocoPhillips BP ExxonMobil Corporation Galp Energia

Occidental Petroleum Chevron Corp. Husky Energy Repsol

Santos ENI Origin Energy

Statoil OMV Suncor Energy

Royal Dutch Shell Total

Non-OECD integrateds

CNOOC Ltd Bharat Petroleum Gazprom

Copec Petrobras Kunlun Energy

NOVATEK Reliance Industries LUKOIL

PetroChina SINOPEC Oil and Natural Gas Corporation

Rosneft

Surgutneftegas

Tatneft

Tupras

OECD refiners

Caltex Australia Phillips 66 Holly Frontier Corp. Formosa Petrochemical

Marathon Petroleum Corp Tesoro Corp.

Valero Energy Corporation

Source: Company data, Credit Suisse estimates

07 September 2016


COP 21 Adds An Extra Sense of Policy Urgency The COP 21 agreement in Paris in December 2015 set unique challenges for the global oil

and gas industry. The burning of coal, natural gas and oil lies behind 75% of global GHG

emissions. A total of 374bn mt of CO2 has been emitted since 1750 with half being

released since the mid-1980s. Despite numerous efforts to outline a climate agreement to

limit GHG emissions since the United Nations framework Convention on Climate Change

was ratified in 1992 (Kyoto 1997, Copenhagen 2009, Cancun 2010, Durban 2011 amongst

others), it took until December 2015 for the 197 countries represented to agree to a

universal, binding global treaty to reduce emissions.

At current levels of emissions, the world is set for an increase in temperature of 4°C above

pre-industrial levels by 2100, an increase at which climate change would become

irreversible (for more detail, please refer to the Intergovernmental Panel on Climate

Change Fourth Assessment Report) . This would lead to rising sea levels, changing

climate conditions that would threaten food security, fresh water scarcity, higher risk

weather patterns and the loss of biodiversity. The Paris Agreement enshrines the long-

term goal of keeping the increase in global average temperatures to "well below 2°C above

pre-industrial levels" with the explicit aim of limiting the increase to even 1.5°C. Whilst the

detail country level responses are to be established, the Paris Agreement seeks for global

emissions to peak as soon as possible. With this framework now agreed, the mix in

demand for energy sources is set to shift over the medium to long run.

Figure 18: Global CO2 emissions from Fossil-Fuel Burning (1800 – present)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

1800 1850 1900 1950 2000

Gas

Liquids

Solids

Cement Production

Gas Flaring

Total

Per capita

Source: Global CO2 Emissions from Fossil-Fuel Burning, Cement Manufacturing and Gas Flaring: 1751-

2011, Boden, Andres & Marland June 2015

Shifting demand presents significant challenges for the industry both in terms of assets

and the business model. Fossil fuel reserves contain potential GHG emissions that could

exceed levels that would be permissible under the 2°C world, meaning that some assets

on company balance sheets will have to be written off as having zero economic value as

they would not be developed. These are potentially "stranded assets" and involve not just

reserves but infrastructure assets exposed to a shift in demand and emissions reduction.

Whilst this is the extreme outcome, companies may be forced to shift their business model

to focus on less polluting fossil fuels, i.e. gas or renewables. We discuss this in more detail

later in the report.

http://www.ipcc.ch/publications_and_data/ar4/syr/en/contents.html

http://www.ipcc.ch/publications_and_data/ar4/syr/en/contents.html

07 September 2016


The Paris Agreement also implies that, at some point in the future, capex spent on further

exploration and development has potentially zero value unless it is to develop new lower

carbon assets that are short cycle oil resources that could be monetised for short term

returns to shareholders. Add to the mix the fact that many of the largest resource bases

are owned by State-owned companies and the ability for companies to prioritise the

development of their existing assets may be difficult.

We have already seen many companies look to adapt to this challenge with investment in

alternative, renewable energy sources such as wind power, solar power, biofuels etc. We

have also seen a widespread step back from exploration in such environmentally

vulnerable areas such as the Arctic Sea. President Obama blocked further Arctic oil

exploration off the north coast of Alaska in October 2015 and refused to extend leases sold

to Royal Dutch Shell and Statoil. RDS spent $8bn on exploration in the Arctic Sea (FT,

October 17, 2015) before deciding to capitulate on its development strategy in the region

after failing to find sufficient reserves and due to broad reputational risks. $8bn is the

equivalent of 4% of the company's current market capitalisation. Other companies with

historical capex in the region include Chevron, Cairn, ConocoPhilips, ExxonMobil and

Rosneft.

In addition to the prospect of asset write offs and wasted capex, companies may be forced

to invest in lower return strategies. Indeed, some companies may be or may have been

slow to rise to the challenges of the post-Paris exigencies as new investments might dilute

returns and strategy has focused on maximising returns rather than the broader pillars of

responsible investing. This is particularly evident for US oil and gas companies and the

vocal political debate that questions whether climate change exists at all.

Are oil management teams well suited to investing in

other sectors like renewables?

However, in the upstream segment of the sector the key skillsets are geological expertise,

risk management (as the hydrocarbon exploration / exploitation process is by its nature

high risk) and engineering execution. The managements of upstream entities tend to

populate therefore with those that excel in those skills. Unfortunately those very skills are

not necessarily universally applicable across different sectors, a point that oils (and

especially big oil) have learnt in history. This has been true for sectors that some might

think of as very similar to oil and gas like power and coal, where in both cases big oil has

diversified into those sectors only to realise the key managerial skillsets are actually

different.

Big oil has also occasionally stepped yet further from its comfort zone, with less than

successful outcomes. The textbook example of this might be Exxon’s acquisition of Zilog

computer, where it invested circa US$1 billion but eventually sold the company back to

employees at a fraction of the sunk cost. Schlumberger bought Fairchild Camera ( a semi-

conductor pioneer) in 1979 for US$425 million, 8 years later it sold the business to National

Semiconductor at a US$220 million loss. Whilst it is evident that there is a clear desire to

increase the share of renewables in the global primary energy mix at the expense of fossil

fuels including oil and gas it is not an automatic given that oil and gas managements are

best placed to put capital to work in the renewables sector.

Should investors in the oil and gas sector be concerned about COP 21?

Directionally yes. COP 21 suggests more assertive policy focus on demand side measures

for the sector. Existing policy e.g. the US CAFÉ standard for rising automotive efficiency or

the market share gains from renewables relative to natural gas in the US power industry,

are already mitigating the demand growth for fossil fuels in the US. There are also direct

C02 emissions from the hydrocarbon industry, e.g. methane emissions in the drilling for

natural gas, the energy intensive refining and petrochemical processes, and tail pipe

emissions.

https://next.ft.com/content/8e19310e-7463-11e5-bdb1-e6e4767162cc

https://next.ft.com/content/8e19310e-7463-11e5-bdb1-e6e4767162cc

07 September 2016


However, the counterpoint is the relative time frame over which such policy measures may

bite relative to the investment horizons of investors today. Certainly the industry is

increasingly using inflationary carbon pricing in investment decisions. However, it is difficult

to argue the end of the oil industry, notwithstanding COP21, Tesla, ride sharing, and a

falling cost curve in solar.

The rise in population and income drives an underlying rate of growth of energy

usage that needs to be mitigated by energy efficiency gains.

The supply of energy needs to be decarbonised

Both processes will take a long time.

The latest BP Statistical Review highlights some of the challenges

Figure 19: Demographics and future global GDP growth forecasts

Source: BP 2016 Energy Outlook

BP forecast of 34% energy consumption increase between 2014 and 2035. "Fossil fuels

will remain the dominant energy source providing around 60% of the growth in energy and

accounting for almost 80% of total energy supply in 2035 (down from 86% in 2014)." BP

2016 Energy Outlook. Despite the outlook for emission reductions at a global policy level,

they forecast oil demand to continue to grow at 0.9% pa over this time horizon. Coal is set

to bear the brunt of fossil fuel declines being replaced by natural gas.

https://www.bp.com/content/dam/bp/pdf/energy-economics/energy-outlook-2016/bp-energy-outlook-2016.pdf

https://www.bp.com/content/dam/bp/pdf/energy-economics/energy-outlook-2016/bp-energy-outlook-2016.pdf

07 September 2016


Figure 20: Future energy demand by region


In the base case, C02 emissions would still rise. The faster transition case below could

lead to a reduction in C02 emissions but in BP's scenario planning, would require a C02

price of $100/MT by 2035 in the West and at least $50/MT in the non-OECD. It would

require twice the pace of reduction in energy efficiency than 1994-2014 and a massive

acceleration in the carbon intensity of the fossil fuel mix.

Figure 21: Implied future carbon emissions and changes in energy intensity


We note that the base case already includes a strong increase in renewable usage (though

this could still be an underestimate). We note that the fossil fuel facing the largest risk is

coal. Despite the S02, NOX emissions from coal, its historical cheapness means that coal

accounts for 30% of primary energy consumption today. There are knotty problems to

solve to reduce coal consumption. For those who worked very hard to get COP 21

agreement, even harder work is still ahead.

07 September 2016


Figure 22: Renewable power forecasts


The good news is that the solar curve has improved dramatically which has lowered the

subsidy required to compete with natural gas fired power. The challenge is that there are

system limits to the penetration of solar, without improvements in storage technology also,

that would add to the costs of the solar subsidy once solar accounted for 15-20% of US

electricity demand.

Figure 23: Solar PPAs have Declined to $50-$60/MWhr Figure 24: US Utility Scale Solar Installed Costs Have

Declined

Source: LBNL, Credit Suisse estimates Source: GTM, Credit Suisse estimates

07 September 2016


How to measure ESG risks Figure 25: Five ESG measures

Factor Measures

Asset risk

Reserve life and the risk of potential asset write-offs in a COP-21 world

Refinery complexities and capex requirements

Country

Transparency International corruption index, local bond rating,

political risk score from PRS Group Regional Index

Environmental

South Pole emissions data, Oil spillages,

World Resources Institute country water risk

Safety Fatality rates, long term injury frequency rates (LTIFR)

Governance

Board independence, diversity, overboarding, tenure,

Global Reporting Initiative reporting Source: Credit Suisse research

We have selected five indicators – reserve life, environmental, country, safety and

governance – to evaluate relevant ESG risks within the oil and gas sector. By equally

weighting rankings for each factor in Figure 25, we can arrive at an overall ESG risk core

with which we can then evaluate oil and gas companies on a relative basis.

A number of these measures correspond to those used to weigh ESG risks in the mining

sector, namely country and safety. In addition, two of the environmental risk factors,

namely emissions levels and World Resources Institute (WRI) ratings weighted by country

of production, overlap so that we can begin to build some ESG comparison between

sectors. We have changed the disclosure measure of our mining report to a closer focus

on governance here that incorporates a number of important criteria for the board of

directors as outlined in the table above.

07 September 2016


Figure 26: ESG ratings for the oil and gas sector

Country Asset Safety Environmental Governance Overall Score

Chesapeake Energy Corp. 85 100 70 62 68 77

Woodside Petroleum 89 80 80 58 76 77

Caltex Australia 89 na 80 63 72 76

Statoil 83 100 50 62 80 75

Hess Corporation 73 100 70 66 60 74

ARC Resources 92 100 80 41 52 73

Marathon Petroleum Corp 85 60 100 55 64 73

Encana Corp. 88 100 60 35 80 73

Marathon Oil Corp 74 100 80 46 60 72

Santos 76 100 80 33 68 71

Anadarko Petroleum Corp. 81 100 60 54 60 71

Occidental Petroleum 75 100 60 46 72 71

PTT E&P 56 100 80 60 56 70

Newfield Exploration 83 100 50 48 64 69

ConocoPhillips 82 80 70 51 60 69

Noble Energy 74 100 60 60 48 68

CNOOC Ltd 67 100 60 67 47 68

Royal Dutch Shell 69 80 70 41 76 67

Cheniere Energy, Inc. 85 na 60 63 60 67

Pioneer Natural Resources 85 100 30 63 56 67

NOVATEK 44 80 100 66 44 67

Apache Corp. 71 100 40 50 72 67

Devon Energy Corp 86 100 30 52 64 66

BP 62 80 60 49 80 66

Copec 80 na 50 65 67 65

Phillips 66 85 60 60 55 64 65

PetroChina 64 80 60 50 70 65

ENI 50 80 70 39 84 65

Chevron Corp. 59 100 60 52 52 65

OMV 70 100 60 27 64 64

Valero Energy Corporation 85 60 60 53 60 64

Tesoro Corp. 85 40 80 48 64 63

Origin Energy 89 80 40 33 72 63

Imperial Oil 92 20 100 41 60 63

Petrobras 51 80 70 51 60 62

Concho Resources, Inc. 85 100 20 63 44 62

Reliance Industries 72 60 90 39 50 62

INPEX Corp 63 60 50 84 53 62

Husky Energy 89 80 70 25 44 62

ExxonMobil Corporation 77 60 70 41 60 62

Murphy Oil Corp 85 80 40 43 60 62

Total 65 80 60 32 68 61

Holly Frontier Corp. 85 60 40 63 56 61

Range Resources 85 60 50 55 52 60

Bharat Petroleum 54 60 70 71 47 60

Crescent Point Energy 91 80 40 45 44 60

SINOPEC 64 100 50 40 47 60

Suncor Energy 92 40 70 33 64 60

Canadian Nat Resources 92 60 60 29 55 59

EOG Resources 85 80 30 54 44 59

Cenovus Energy Inc. 92 20 90 31 60 59

Diamondback Energy, Inc. 85 80 20 53 48 57

Repsol 52 80 60 45 48 57

Tupras 54 40 80 51 56 56

Rosneft 44 60 50 56 56 53

Kunlun Energy 55 100 20 43 36 51

Galp Energia 47 60 60 27 60 51

LUKOIL 43 40 80 35 52 50

Formosa Petrochemical 81 20 80 27 40 49

Antero Resources 85 40 20 73 24 48

ONGC 53 20 70 58 40 48

Gazprom 44 20 80 42 52 48

Surgutneftegas 44 20 20 65 36 37

Tatneft 44 20 50 22 47 37


07 September 2016


Country risk score

As in the mining sector, share listings frequently belie the actual locus (or loci) of

operations in the oil and gas sector, again an industry where companies have global

operations. Oil and gas assets are frequently to be found in emerging markets that can be

subject to greater macroeconomic risks, political instability and less transparent business

standards. This can come about despite companies' best endeavours to control for these

risks. More than any industry, the oil sector has seen the re-nationalisation of assets on

many occasions, Venezuela, Iran, Bolivia for example, and Mexico in more distant history.

We have also seen government intervention in the development of specific fields, Russia

halved the interests of Shell, Mitsubishi and Mitsui in the Sakhalin 2 project in 2006 to give

Gazprom a majority stake. Kazakhstan halted development of the ENI-led Kashagan field

in the Caspian Sea in 2007, the same year as Yukos was forced into bankruptcy. There

are numerous further examples.

To create a country risk score, we repeat the exercise of our mining report, equally

weighting three factors: 1) each country's rating according to Transparency International's

Corruption Index (2015); 2) a political risk score as measured by the Political Risk Services

Group (which assesses 17 risk components including turmoil, financial transfers, direct

investments, export markets); and 3) the relevant S&P or Fitch local bond rating. If the

three factors are not all available for a given country, we take the average of the ratings

that are.

For each company, we weight the country risk score by FY2015 production volumes

according to the country of operation. We include BP and Origin Energy in Figure 27 and

Figure 28 below as illustrations.

Figure 27: BP plc – calculation of country risk

Production contribution

(2015)

Country Rating Contribution to country

risk

Algeria 2.1% 53 1.1

Angola 11.3% 38 4.3

Argentina 4.2% 40 1.7

Australia 3.2% 89 2.9

Azerbaijan 10.6% 51 5.4

Bolivia 0.4% 49 0.2

Canada 0.2% 92 0.2

Egypt 7.3% 40 2.9

India 1.0% 54 0.6

Indonesia 3.4% 41 1.4

Iraq 9.1% 30 2.8

Norway 2.3% 92 2.2

Trinidad & Tobago 9.6% 64 6.2

UAE 3.7% 83 3.1

UK 4.2% 86 3.6

US 27.2% 85 23.1

Total 100.0% 61.6


Figure 28: Origin Energy – calculation of country risk

Production contribution

(2015)

Country Rating Contribution to country

risk

Australia 89.5% 89 79.7

New Zealand 10.5% 88 9.2

Total 100.0% 88.9


07 September 2016


Figure 29: Country risk scores by company

Company Country risk score

ARC Resources 92

Canadian Natural Resources 92

Cenovus Energy 92

Imperial Oil 92

Suncor Energy 92

Crescent Point Energy Corp 91

Woodside Petroleum 89

Caltex Australia 89

Husky Energy 89

Origin Energy 89

Encana Corp. 88

Devon Energy Corp 86

Antero Resources 85

Cheniere Energy 85

Chesapeake Energy 85

Concho Resources 85

Diamondback Energy 85

EOG Resources 85

Holly Frontier Corp. 85

Marathon Petroleum Co 85

Murphy Oil Corp. 85

Phillips 66 85

Range Resources 85

Tesoro Corp. 85

Valero Energy 85

Pioneer Natural Resources 85

Newfield Exploration 83

Statoil 83

ConocoPhillips 82

Anadarko Petroleum 81

Formosa Petrochemical 81

Copec 80

ExxonMobil Corporation 77

Santos 76

Occidental Petroleum 75

Noble Energy 74

Marathon Oil Corp 74

Hess Corporation 73

Reliance Industries 72

Apache Corp. 71

OMV 70

Royal Dutch Shell plc 69

CNOOC Ltd 67

Total 65

China Petroleum & Chemical Corp 64

PetroChina 64

INPEX Corp 63

BP 62

Chevron Corp. 59

PTT Exploration & Production 56

Kunlun Energy 55

Bharat Petroleum 54

Tupras 53

Oil and Natural Gas Corporation 53

Repsol 52

Petrobras 51

ENI 50

Galp Energia 47

Gazprom 44

Rosneft 44

NOVATEK 44

Surgutneftegas 44

Tatneft 44

LUKOIL 43


07 September 2016


Figure 30: Countries of operation risk scores

Country Local Currency Bond

ratings

Bond score Transparency Intl

2015 Corruption

Perception Index

Political Risk

Services Regional

Index April 2015*

Country Risk score

Norway AAA 100 87 90 92

Canada AAA 100 83 93 92

Denmark AAA 100 91 83 91

Netherlands AAA 100 87 85 91

Australia AAA 100 79 88 89

New Zealand AA 90 88 86 88

Austria AA+ 95 76 88 86

UK AA 90 81 86 86

US AA+ 95 76 84 85

Qatar AA 90 71 89 83

United Arab Emirates AA 90 70 89 83

Japan A+ 80 75 85 80

Chile AA- 85 70 84 80

Taiwan AA- 85 62 90 79

South Korea AA 90 56 82 76

Saudi Arabia A- 70 52 78 67

Malaysia A- 70 50 78 66

China AA- 85 37 70 64

Trinidad & Tobago A- 70 39 83 64

Oman BBB- 55 45 84 61

Peru BBB+ 65 36 78 60

Thailand BBB+ 65 38 76 60

Romania BBB- 55 46 76 59

Colombia BBB 60 37 78 58

Italy BBB- 55 44 73 57

India BBB- 55 38 70 54

Turkey BB 45 42 71 53

Brunei - - - 53 53

Algeria - - 36 69 53

Azerbaijan BB+ 50 29 75 51

Brazil BB 45 38 70 51

Kazakhstan BBB- 55 28 70 51

Bahrain BB 45 51 53 50

Bolivia BB 45 34 69 49

Jamaica B 30 41 76 49

Vietnam BB- 40 31 68 46

Jordan BB- 40 53 40 44

Papua New Guinea B+ 35 25 72 44

Russia BB+ 50 29 52 44

Myanmar - - 22 64 43

Bangladesh BB- 40 25 62 42

Indonesia BB+ 50 3 69 41

Argentina B- 25 32 63 40

Congo B- 25 23 72 40

Equatorial Guinea - - - 33 0

Nigeria B+ 35 26 59 40

Egypt B- 25 36 58 40

Ecuador B 30 32 55 39

Angola B 30 15 69 38

Pakistan B- 25 30 54 36

Sudan - - 15 50 33

Mauritania - - 31 - 31

Iraq B- 25 16 50 30

Libya - - 16 44 30

Timor-Leste - - 28 - 28

Venezuela CCC 20 17 45 27

Mozambique CCC 20 31 - 26

Yemen - - 18 - 18

Source: Transparency International 2015 Corruption Perceptions Index, Political Risk Services Group Regional Risk Index as of April 2015, S&P,

Moody's, * AMBest ratings, Credit Suisse estimates

07 September 2016


Environmental risk score

We consider the direct environmental impact of production and operations at each

company to understand the relative environmental efficiency of operations, both from an

operating risk perspective and for the environmental investment needs this may highlight

as emissions reductions come into force over the medium and long term. We take South

Pole carbon data for each company, flaring rates, oil spillage rates, water consumption

data, the water stress of each country of operation weighted by production and the oil-gas

production mix. For carbon emissions, flaring, oil spillages and water consumption, we

measure the intensity relative to production volumes to see the relative efficiency or

otherwise of each company.

There is of course a difference in the level of energy intensity in production depending on

whether production is upstream, downstream, onshore or offshore or whether fields are

more mature or more remote. These tend to include the combustion of fuels onsite to

provide energy and so this is captured in the emissions data in large part. These fields will

be unlikely to shift to alternative or renewable fuel sources and will therefore see particular

challenges given the emission reduction targets adopted at COP21.

There is an element of double counting between the carbon emission data and the oil-gas

production split, but given that this is a critical consideration for future business strategies

for the companies involved, we are comfortable for this to be reflected and include both

measures. We use data as disclosed by each company where it is available.

We include carbon data compiled by South Pole Group, which in turn is taken from

company data. The data is in metric tonnes of CO2e and to measure and compare the

relative carbon intensity of each company, we divide this by annual production in mboe.

We then rank the companies by the level of carbon intensity. For water usage, we rate the

level of water consumption intensity using data where disclosed. We also take into account

the relative water stress at the country level by using the Country Water Stress ratings

according to the World Resources Institute's (WRI) Aqueduct Index Figure 32. We have

inverted their rankings of 5 being severe water stress to zero meaning no stress to mirror

our own one (bad) to five (good) methodology. We again weight the water stress by

country of operations.

There is a notable difference in the level of disclosure from emerging market companies in

the oil and gas sector compared to emerging companies involved in mining. We do not see

anything of the developed market: emerging market split that we saw in our previous

report. If anything, we see considerably better disclosure from some Russian, Chinese and

other emerging market companies relative to North American upstream plays. This would

appear to reflect aspects of the political debate around the existence of climate change or

not in the US.

We weight each of the six factors – emissions, flaring, spillages, oil-gas production mix,

water consumption and water stress. Emissions, flaring, spillages and the production mix

make up 20% each. Water consumption and water stress add 10% each. Where

companies do not disclose data, we assign a rating of one to encourage companies to

reveal data, even if it is below sector averages. Given that South Pole Group and the WRI

are external sources, we do not have any companies that do not have at least two of the

six data points. Where companies are downstream operations only, there is an equal

weighting between, emissions, water stress and water consumption when that data is

available.

We show illustrations of ExxonMobil's and Noble Energy's environmental scores below in

Figure 31.

http://www.thesouthpolegroup.com/

07 September 2016


Figure 31: Environmental ratings for ExxonMobil and Noble Energy

Vol

(kboed)

/ GHG

(tCO2)

GHG/

Vol

score

Vol

(kboed)

/ Water

used

(ml/y)

Water

consum

ption

score

Water

stress

score

Water

score

Vol

(kboe) /

gas

flaring

(tCO2)

Gas

flaring

score

Spills

(bbls/y)

/ Vol

(kboe)

Spillage

score

Gas

weight-

ing (%)

Gas

weight-

ing

score

Overall

score

ExxonMobil 89.7 1 6.11 2 2.6 2.30 91,674 2 5.51 2 44 3 41

Noble Energy 18.1 3 16.69 2 2.14 2.07 268,665 3 4.30 3 58 4 60

Source: Company data, South Pole Carbon data, Credit Suisse estimates

Focus on Fracking

The oil and gas industry has always been an industry that has the potential to cause environmental damage – e.g. Exxon Valdez, BP Macondo, the MTBE ground water contamination. On the other hand, access to energy has created huge benefits to society. Fracking is no exception. The advent of shale has lowered energy costs for global consumers. "Technologies have ushered in a new era of energy abundance and diversity" (XOM). However, fracking has brought the oil industry into contact with new communities. Drilling for natural gas or oil involves the movement of equipment, building of well pads, use of chemical, and water. Drilling casing failures can lead to pollution of local groundwater. The amount of trucks involved in a single well can overwhelm local infrastructure. The EPA estimate that in 2014, the US upstream industry emitted 243 MMTC02 with 28% from oil production, 45% from gas production and 23% from the processing and transmission and storage of natural gas. So the solutions

The STAR program run by the EPA is designed to help the industry reduce emissions across the value chain

There is a listing of the chemical used in wells available

Due care and attention needs to be paid to fluid handling

Reporting of spillages at a more micro level needs to be improved to give investors (and the public and regulators) more information within which to make investment decisions

The incessant focus of Wall Street on drilling and completion costs needs to take any deterioration in environmental performance into account and the potential consequences in the license to operate.

07 September 2016


Figure 32: Country Water Stress ratings from World Resources Institute

Country Water risk ranking

Algeria 3.3

Angola 2.4

Argentina 2.2

Australia 2.4

Austria 1.5

Azerbaijan 3.1

Bahrain 3.7

Bangladesh 2.5

Bolivia 2.1

Brazil 1.5

Brunei 0.7

Bulgaria 1.9

Canada 1.4

Chile 2.6

China 3.0

Colombia 2.0

Congo 2.0

Denmark 0.8

Timor-Leste 4.4

Ecuador 2.3

Egypt 1.8

Equatorial Guinea 1.0

India 3.3

Indonesia 3.1

Iraq 2.9

Israel 3.3

Italy 2.3

Japan 2.3

Jordan 3.4

Kazakhstan 3.1

Libya 3.2

Malaysia 1.7

Mauritania 2.5

Mozambique 2.4

Myanmar 2.1

Netherlands 1.9

New Zealand 1.3

Nigeria 2.2

Norway 1.3

Oman 3.7

Pakistan 3.6

Papua New Guinea 2.1

Peru 3.6

Qatar 3.2

Romania 2.1

Russia 1.4

Saudi Arabia 4.1

South Korea 2.6

Sudan 2.6

Taiwan 1.3

Thailand 2.0

Trinidad 3.4

Turkey 2.2

United Arab Emirates 3.6

UK 2.4

US 2.3

Venezuela 2.3

Vietnam 1.9

Yemen 4.4

Source: WRI Aqueduct Index, Gassert et al 2013

07 September 2016


Figure 33: Environmental ratings for the oil and gas sector

Environmental

Score

Carbon Score Water score Flaring score Spillage score Gas weighting

score

INPEX Corp 84 5 4 5 3 3

Antero Resources 73 5 2 na na 5

Bharat Petroleum 71 3 3 na 5 1

CNOOC Ltd 67 4 3 na na 2

Hess Corporation 66 3 2 5 na 3

NOVATEK 66 5 1 2 5 5

Copec 65 3 2 na 5 1

Surgutneftegas 65 3 2 na 5 2

Cheniere Energy, Inc. 63 4 2 na na 5

Concho Resources, Inc. 63 4 2 na na 3

Holly Frontier Corp. 63 4 2 na na 1

Pioneer Natural Resources 63 4 2 na na 3

Caltex Australia 63 4 2 na 3 1

Chesapeake Energy Corp. 62 4 2 na 3 5

Statoil 62 4 2 3 3 3

Noble Energy 60 4 2 3 3 4

PTT E&P 60 3 3 3 3 4

Woodside Petroleum 58 1 4 2 5 5

Oil and Natural Gas Corp 58 3 3 1 5 1

Rosneft 56 4 1 5 1 2

Marathon Petroleum Co 55 3 2 na 3 1

Phillips 66 55 3 2 na 3 1

Range Resources 55 5 2 na 1 4

EOG Resources 54 3 2 na na 2

Anadarko Petroleum Corp. 54 3 2 na na 4

Diamondback Energy, Inc. 53 3 2 na na 2

Valero Energy Corporation 53 3 2 na na 1

Devon Energy Corp 52 3 2 na na 3

Chevron Corp. 52 2 2 3 3 3

Petrobras 51 2 1 3 4 2

Tupras 51 3 2 na na 1

ConocoPhillips 51 3 3 1 3 3

PetroChina 50 2 3 na na 3

Apache Corp. 50 3 2 3 na 3

BP 49 2 2 3 3 3

Newfield Exploration 48 4 2 na 1 3

Tesoro Corp. 48 2 2 na 3 1

Marathon Oil Corp 46 3 2 na 2 3

Occidental Petroleum 46 2 3 na 2 3

Crescent Point Energy Corp 45 3 2 na na 2

Repsol 45 2 2 3 2 4

Murphy Oil Corp. 43 2 2 na na 3

Kunlun Energy 43 1 3 na na 2

Gazprom 42 3 1 na na 5

ExxonMobil Corporation 41 2 2 2 2 3 ARC Resources Ltd. 41 4 2 1 1 4

Imperial Oil Ltd 41 2 1 2 3 2

Royal Dutch Shell plc 41 2 2 3 1 4

China Petr. & Chem. Corp 40 1 3 na na 3

Reliance Industries Limited 39 1 2 3 na 4

ENI 39 2 4 1 1 3

LUKOIL 35 3 1 na 1 2

Encana Corp. 35 3 2 1 1 4

Santos 33 2 2 2 1 4

Origin Energy 33 1 2 na na 5

Suncor Energy 33 2 1 na na 2

Total 32 2 2 1 1 3

Cenovus Energy Inc. 31 2 2 1 1 3

Canadian Natural Resources 29 2 2 1 1 3

OMV 27 1 1 2 1 3

Galp Energia 27 1 1 2 1 2 Formosa Petrochemical 27 1 2 na na 1

Husky Energy Inc. 25 1 2 na 1 3 Tatneft 22 1 1 1 na 2

Source: South Pole Carbon data, Company data, Credit Suisse estimates

07 September 2016


Health and safety score

We repeat the approach of our mining report and measure, where available, 4 year fatality

rates and 4 year average injury frequency rates by company. We have taken published

data from companies' annual or sustainability reports and adjusted for the size of the

workforce including contractors to calculate a fatality rate. We see a broader range of

fatality rates compared to the mining sector, though we do not see the outliers (Coal India,

Glencore, Vedanta Resources) that we found in that industry. We separate the fatality

rates into five groupings and give this a weighting of 50%. Only zero fatality rates get a

score of five. Thirteen companies reported zero fatalities (four downstream) over the four

year period compared to just two in the mining sector.

Injury rates tend to be report on a per million hours-+ basis, unlike the mining sector which

tends to report based on 200,000 hours (a US convention equal to 10 people working 40

hours per week and for 50 weeks per year). Fifty four of the sixty four companies report

LTIFRs or TRIRs and forty one report fatality rates. These are not a homogenous group so

a number of companies report one metric but not the other. As we highlight above, we do

not see the same difference in the level of disclosure between Developed Market and

Emerging Market companies, a notable divergence from the mining sector.

Figure 34: Disclosure rates between DM and EM in the oil and gas sector

Developed Markets % Emerging Markets %

Fatality rates 36 78% 15 83%

LTIFR 31 67% 10 56%

Total no of companies 46 18 Source: Company data, Credit Suisse estimates

Figure 35: Disclosure rates between DM and EM in the mining sector

Developed Markets % Emerging Markets %

Fatality rates 19 90% 15 65%

LTIFR 18 86% 9 39%

Total no of companies 21 23


Across the oil and gas universe, there are different disclosures of safety statistics with companies generally reporting either Total Recordable Injuries Rate (TRIR, see below for definition) or Lost Time Injury Frequency Rates (LTIFR). There is no common industry practice. In order to compare injury rates, we have calculated a correlation between the data to create a proxy LTIFR for those companies that only reported TRIR. Both are calculated on an hours worked basis and we find there is an R

2 of 78%.

For companies that do not report any data, they are awarded the lowest ranking of 20 in our scoring system, a practice we maintain across all metrics included. Companies will always have higher rankings if they disclose data. Total Recordable Injuries rates (TRIR) include:

Fatalities - accidental deaths at workplace Lost Time Injuries (LTI) - workplace injury causing an individual to be unfit for work

and causes absence from work

Restricted Work Cases (RWC) - workplace injury causing an individual to be given an alternative job assignment

Medical Treatment Cases (MTC) - workplace injury requiring treatment by a medical professional

07 September 2016


Figure 36: Fatality and LTIFR data and overall Health and Safety Score by company (2011-14)

Overall Safety

Ranking

Avg. Fatality

ratio/000 employees

Fatality score Avg LTFIR per m

hours (2011-2014)(1)

LTIFR score

Imperial Oil 100 0.0 5 0.2 5

Marathon Petroleum Corp 100 0.0 5 0.2 5

NOVATEK 100 0.0 5 0.1 5

Cenovus Energy Inc. 90 0.0 5 0.3 4

Reliance Industries 90 2.7 4 0.1 5

ARC Resources 80 0.0 5 0.6 3

Caltex Australia 80 0.0 5 0.7 3

Formosa Petrochemical 80 0.0 5 0.5 3

Gazprom 80 4.7 4 0.4 4

Marathon Oil Corp 80 0.0 5 0.9 3

LUKOIL 80 1.6 4 0.3 4

PTT Exploration&Production 80 6.0 3 0.1 5

Santos 80 0.0 5 0.7 3

Tesoro Corp. 80 0.0 5 0.9 3

Tupras 80 2.6 4 0.4 4

Woodside Petroleum 80 0.0 5 0.6 3

Bharat Petroleum 70 26.8 2 0.0 5

Chesapeake Energy Corp. 70 17.7 2 0.2 5

ConocoPhillips 70 5.5 3 0.3 4

ENI 70 9.2 3 0.4 4

ExxonMobil Corporation 70 6.7 3 0.3 4

Hess Corporation 70 2.6 4 0.7 3

Husky Energy 70 4.6 4 0.9 3

Oil and Natural Gas Corp 70 13.0 3 0.4 4

Royal Dutch Shell 70 6.6 3 0.3 4

Suncor Energy 70 11.9 3 0.3 4

Petrobras 70 2.1 4 0.6 3

Anadarko Petroleum Corp. 60 26.5 2 0.3 4

BP 60 4.4 4 1.7 2

Canadian Natural Resources 60 7.4 3 0.5 3

Cheniere Energy, Inc. 60 0.0 5 na 1

Chevron Corp. 60 12.6 3 0.7 3

CNOOC Ltd 60 1.3 4 11.8 2

Encana Corp. 60 18.4 2 0.5 4

Galp Energia 60 3.6 4 1.2 2

Noble Energy 60 10.1 3 0.7 3

Occidental Petroleum 60 19.9 2 0.4 4

OMV 60 12.9 3 0.6 3

PetroChina 60 na 1 0.0 5

Phillips 66 60 na 1 0.2 5

Repsol 60 6.2 3 0.9 3

Total 60 10.6 3 1.0 3

Valero Energy Corporation 60 7.2 3 0.6 3

SINOPEC 50 2.5 4 na 1

Copec 50 5.6 3 5.0 2

INPEX Corp 50 17.6 2 0.6 3

Newfield Exploration 50 79.7 2 0.9 3

Rosneft 50 8.9 3 11.3 2

Range Resources 50 na 1 0.4 4

Statoil 50 8.7 3 1.5 2

Tatneft 50 0.8 4 na 1

Apache Corp. 40 107.2 2 2.7 2

Crescent Point Energy Corp 40 na 1 0.6 3

Holly Frontier Corp. 40 na 1 1.0 3

Murphy Oil Corp 40 na 1 0.7 3

Origin Energy 40 20.5 2 1.5 2

Devon Energy Corp 30 na 1 1.3 2

EOG Resources 30 na 1 1.0 2

Pioneer Natural Resources 30 26.8 2 na 1

Antero Resources Corp 20 na 1 na 1

Concho Resources, Inc. 20 na 1 na 1

Diamondback Energy, Inc. 20 na 1 na 1

Kunlun Energy 20 na 1 na 1

Surgutneftegas 20 na 1 na 1

Source: Company data, Credit Suisse estimates. (1) Anadarko Petroleum, Devon Energy, EOG Resources, Holly Frontier, Murphy Oil Corp,

Newfield Exploration, NOVATEK, Occidental Petroleum, Origin Energy, PetroChina, Phillips 66, Range Resources, Reliance Industries, Tupras

derived from TRIR regression.

07 September 2016


Figure 37: Fatality rates by sub-sector

Company Fatality rate per

100,000 employees

Company Fatality rate per

100,000 employees

North America producers

ARC Resources Ltd. 0.0 Pioneer Natural Resources 26.8

Cenovus Energy Inc. 0.0 Newfield Exploration 79.7

Cheniere Energy, Inc. 0.0 Apache Corp. 107.2

Imperial Oil Ltd 0.0 Antero Resources Corporation na

Marathon Oil Corp 0.0 Concho Resources, Inc. na

Hess Corporation 2.6 Crescent Point Energy Corp na

Canadian Natural Resources Limited 7.4 Devon Energy Corp na

Noble Energy 10.1 Diamondback Energy, Inc. na

Chesapeake Energy Corp. 17.7 EOG Resources na

Encana Corp. 18.4 Murphy Oil Corp. na

Anadarko Petroleum Corp. 25.9 Range Resources na

Other producers Woodside Petroleum 0.0 INPEX Corp 17.6

PTT Exploration & Production 6.0

OECD integrateds

Santos 0.0 Statoil 8.7

Galp Energia 3.6 ENI 9.2

BP 4.4 Total 10.6

Husky Energy Inc. 4.6 Suncor Energy 11.9

ConocoPhillips 5.5 Chevron Corp. 12.6

Repsol 6.2 OMV 12.9

Royal Dutch Shell plc 6.6 Occidental Petroleum 19.9

ExxonMobil Corporation 6.7 Origin Energy 20.5


NOVATEK 0.0 Gazprom 4.7

Tatneft 0.8 Copec 5.6

CNOOC Ltd 1.3 Rosneft 8.9

LUKOIL 1.6 Oil and Natural Gas Corporation Limited 13.0

Petrobras 2.1 Bharat Petroleum 26.8

China Petroleum & Chemical Corp. 2.5 Kunlun Energy na

Tupras 2.6 PetroChina na

Reliance Industries Limited 2.7 Surgutneftegas na

OECD refiners

Caltex Australia 0.0 Valero Energy Corporation 7.2

Formosa Petrochemical 0.0 Holly Frontier Corp. na

Marathon Petroleum Co 0.0 Phillips 66 na

Tesoro Corp. 0.0

Source: Company data, Credit Suisse research

We include comparisons of fatality rates for sub-sectors and unsurprisingly see little

difference between developed market and emerging market integrated companies (Figure

37) given that assets and operations are in similar locations. It is notable though that the

North American producers which do disclose fatality rates tend to have a wider and higher

dispersion showing that safety is not necessarily higher amongst purely developed market

upstream operations.

We have also considered firm size and scale risk and this is confirmed in by the correlation

of small sized companies and higher average fatality rates (Figure 38). We assess the

average number of fatalities for the 52 companies disclosing fatality rates over the four

year period 2011 to 2014 and measure that relative to the capital employed by those

companies. The correlation is clear with an r2 of 0.4343, far higher than the r

2 of just

0.0127 we find in the mining sector where there is a concentration of fatalities in larger

companies dependent on greater numbers of employees in underground operations.

07 September 2016


Figure 38: Firm size and fatality risk

y = 0.0371x + 0.5112R² = 0.4243

0

5

10

15

20

25

0 50 100 150 200 250 300 350

Avg

fat

alit

ies

(201

1-14

)

$bn capital employed Source: Company data, Credit Suisse research

Governance score

We have changed our criteria for governance ratings in response to investor interest in the

boards. We now have five factors that comprise our governance score and still include a

rating for disclosure according to the Global Reporting Initiative and the level of

commitment to sustainability reporting guidelines. The four other factors relate specifically

to the make-up and independence of the board and are discussed in more detail below.

The Global Reporting Initiative was founded in 1997 and is the voluntary disclosure of

sustainability and ESG metrics and has been adopted by over 7,500 companies globally.

The GRI Sustainability Disclosure Database collects and makes available all corporate

sustainability reports, currently totalling over 23,000 GRI reports and 33,000 sustainability

reports. As for the mining sector, we have assigned a ranking of 5 to companies disclosing

2015 data to GRI 4 standards, 4 for GRI 3 or pre-2015 GRI reporting, 3 for some

disclosure, 2 for limited disclosure and 0 for no disclosure. This is the only rating to which

we assign a zero score believing that it is a question of management choice to disclose or

otherwise. We again note that there is significantly better reporting to GRI from emerging

market oil and gas companies compared to their mining peers.

Figure 39: GRI disclosure by DM and EM oil and gas companies

DM % EM %

G4 17 35% 8 42%

G3 11 22% 9 47%

0 score 11 22% 1 5%

Total 49 19 Source: Company data, Credit Suisse estimates

Figure 40: GRI disclosure by DM and EM mining companies

DM % EM %

G4 11 52% 2 9%

G3 4 19% 2 9%

0 score 0 0% 6 26%

Total 21 23 Source: Company data, Credit Suisse estimates

07 September 2016


We look at four aspects to evaluate the board and how it may reflect investors' interests:

diversity, tenure, independence and overboarding. Each factor contributes 20% towards

the overall governance score.

Diversity: we calculate the percentage of women on the board at each company.

This information is typically available on the corporate website and usually

includes a biography.

Tenure: we calculate the percentage of directors who have served on the board

for more than nine years, the so-called "London Rule" of 3 mandates of 3 years

each. After nine years, the UK Corporate Governance Code recommends that

boards should state why a director is still considered independent. We find that

board tenure is typically longer in North America and that independent directors

may not be as independent as shareholder interests might warrant. Tenure data is

often disclosed by companies though not necessarily in emerging markets.

Independence: We show the number of nominally independent directors as a

percentage of the board. This information is disclosed in corporate materials.

Overboarding: we include overboarding rates for 55 companies where there is

sufficient disclosure.

07 September 2016


Figure 41: Board and disclosure data and overall Governance Score by company

Gover-

nance

score

Diversity Diversity

score

% over

9 yr

tenure

Tenure

score

Over-

boarding

rate

Over-

boarding

score

% Indep-

endent

directors

Indepen-

dence

score

GRI

score

ENI 84 33% 5 0% 5 1.2 3 56% 3 5

BP 80 23% 3 0% 5 1.3 3 0.8 4 5

Encana Corp. 80 27% 4 0% 5 1.6 2 0.9 5 4

Statoil 80 45% 5 9% 4 1.5 3 0.5 3 5

Royal Dutch Shell 76 27% 4 9% 4 1.5 2 0.8 4 5

Woodside Petroleum 76 33% 5 22% 3 1.6 2 0.9 5 4

Apache Corp. 72 18% 2 27% 2 1.1 4 0.9 5 5

Caltex Australia 72 29% 4 14% 3 2.0 2 0.7 4 5

Occidental Petroleum 72 20% 2 20% 3 1.4 3 0.9 5 5

Origin Energy 72 25% 3 25% 3 1.8 2 0.9 5 5

PetroChina 70 0% 1 0% 5 0.0 na 0.6 3 5

Chesapeake Energy Corp. 68 10% 1 0% 5 1.3 3 0.9 5 3

Santos 68 11% 2 11% 3 1.9 2 0.9 5 5

Total 68 33% 5 17% 3 2.4 1 0.7 4 4

Copec 67 0% 1 0% na 0.0 na 0.9 5 4

Devon Energy Corp 64 22% 3 22% 3 1.2 3 0.7 4 3

Marathon Petroleum Corp 64 10% 1 0% 5 2.2 1 0.7 4 5

Newfield Exploration 64 20% 2 50% 1 1.1 4 0.8 4 5

OMV 64 10% 1 20% 3 1.5 3 0.8 4 5

Phillips 66 64 25% 3 0% 5 1.9 2 0.9 5 1

Suncor Energy 64 33% 5 50% 1 1.5 3 0.4 2 5

Tesoro Corp. 64 20% 2 22% 3 1.6 2 0.9 5 4

Anadarko Petroleum Corp. 60 9% 1 18% 3 1.4 3 0.9 5 3

Cenovus Energy Inc. 60 18% 2 0% na 1.6 2 0.8 4 4

Cheniere Energy, Inc. 60 14% 2 0% 5 1.9 2 0.9 5 1

ConocoPhillips 60 18% 2 27% 2 1.6 2 0.8 4 5

ExxonMobil Corporation 60 17% 2 17% 3 2.1 1 0.9 5 4

Galp Energia 60 11% 2 0% 5 4.0 1 0.3 2 5

Hess Corporation 60 15% 2 31% 2 1.4 3 0.8 4 4

Imperial Oil 60 29% 4 43% 1 1.6 2 0.7 4 4

Marathon Oil Corp 60 11% 2 22% 3 2.2 1 0.8 4 5

Murphy Oil Corp 60 17% 2 33% 2 1.2 4 0.8 4 3

Valero Energy Corporation 60 20% 2 40% 2 1.3 3 0.9 5 3

Petrobras 60 13% 2 0% na 0.0 na 0.4 2 5

Holly Frontier Corp. 56 0% 1 0% 5 1.5 3 0.8 4 1

Rosneft 56 0% 1 0% 5 2.1 1 0.3 2 5

Pioneer Natural Resources 56 23% 3 23% 3 1.2 3 0.8 4 1

PTT Exploration&Production 56 7% 1 0% 5 2.1 1 0.4 2 5

Tupras 56 7% 1 20% 3 1.1 4 0.3 2 4

Canadian Natural Resources 55 18% 2 55% 1 0.0 na 0.8 4 4

INPEX Corp 53 0% 1 0% na 0.0 na 0.3 2 5

ARC Resources 52 20% 2 20% 3 2.8 1 0.7 4 3

Chevron Corp. 52 9% 1 27% 2 2.0 2 0.9 5 3

Gazprom 52 0% 1 20% 3 1.2 4 0.2 1 4

LUKOIL 52 0% 1 36% 2 1.2 4 0.4 2 4

Range Resources 52 17% 2 58% 1 1.0 5 0.8 4 1

Reliance Industries 50 7% 1 0% na 1.6 2 0.6 3 4

Diamondback Energy, Inc. 48 0% 1 0% 5 1.6 2 0.6 3 1

Noble Energy 48 9% 1 55% 1 1.1 4 0.6 3 3

Repsol 48 6% 1 31% 2 1.9 2 0.6 3 4

Bharat Petroleum 47 0% 1 0% na 0.0 na 0.3 2 4

SINOPEC 47 0% 1 0% na 0.0 na 0.5 3 3

CNOOC Ltd 47 0% 1 0% na 0.0 na 0.5 2 4

Tatneft 47 0% 1 0% na 0.0 na 0.1 1 5

Concho Resources, Inc. 44 0% 1 38% 2 1.9 2 0.9 5 1

Crescent Point Energy Corp 44 22% 3 56% 1 2.0 2 0.8 4 1

EOG Resources 44 14% 2 57% 1 1.7 2 0.9 5 1

Husky Energy 44 13% 2 60% 1 2.0 2 0.6 3 3

NOVATEK 44 0% 1 33% 2 2.1 1 0.4 2 5

Formosa Petrochemical 40 7% 1 47% 1 0.0 na 0.2 1 5

Oil and Natural Gas Corp 40 0% 1 0% na 0.0 na 0.2 1 4

Kunlun Energy 36 0% 1 10% 4 2.1 1 0.4 2 1

Surgutneftegas 36 0% 1 100% 1 1.0 5 0.0 1 1

Antero Resources Corp 24 0% 1 50% 1 3.2 1 0.4 2 1


07 September 2016


Asset risk score: the oil and gas sector in a lower

carbon world

To assess asset risk, we consider that long reserve lives value assets that may not be

produced in a post-COP 21 world and therefore a possible negative. This of course

depends on whether these reserves are liquids or natural gas and we make the necessary

adjustments. We note the different approaches of companies in their scenario planning

with many relying on carbon capture and storage. We also see any strategy to develop and

monetise short duration reserves as a potential positive if these cashflows are returned to

shareholders. So rather than present a long reserve life as a positive, we weight our

scoring in favour of 1P reserve lives of 10 years or less. In practice, the market in many

cases values the companies as going concerns into perpetuity regardless of the proved

reserve life. This could be due to a large unbooked resource as in shale or the view that

management teams will be able to recycle current cashflows into future opportunities

(either through exploration, business development or M&A) of equal return. A late life

company with declining production would typically trade on 3-4x CF versus multiples in the

sector that range from 5x and much higher.

In addition to the prospect of asset write offs and risks to longer dated traditional

investments, companies may be forced to invest in lower return strategies. Indeed, some

companies may be or may have been slow to rise to the challenges of the post-Paris

exigencies as new investments might dilute returns and strategy has focused on

maximising returns rather than the broader pillars of responsible investing. This is

particularly evident for US oil and gas companies and the vocal political debate that

questions whether climate change exists at all.

As for the refiners included in our universe, we take the Nelson refining complexity rate to

measure these assets, weighted by capacity. We believe that any upgrade investment

requirements needed in response to emission reduction targets will fall most heavily on the

refineries with the lowest Nelson complexity rating and therefore be detrimental to

shareholder returns.

Detailed rankings are included in Figure 44

Figure 42: Asset rankings vs ESG score

y = 0.2305x + 45.538R² = 0.5133

0

10

20

30

40

50

60

70

80

90

20 30 40 50 60 70 80 90 100

Ove

rall

ES

G S

core

Asset Score Source: Company data, Credit Suisse research

07 September 2016


Figure 43: Correlation between asset score and share price performance 2011-16

y = -0.0028x + 0.1063R² = 0.0152

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

20 30 40 50 60 70 80 90 100

5yr

shar

e p

rice

per

form

ance

Asset Risk Source: Datastream, Company data, Credit research

Of course, considering current reserves ignores the differing strategies by companies to

position themselves for future changes in the energy mix, particularly investments into

renewables which varying very significantly between companies. We include an Appendix

on page 36 with comments from our team of analysts about the individual companies'

investments into renewable technologies and their efforts to reduce their future

dependency on carbon assets. This is not a strategy adopted by all companies. In

particular, many North American companies continue to focus strategy and investments

purely on carbon liquids which largely reflects different political views to climate risk. Our

discussion of renewables in the Appendix also reflects potential assets at risk if emission

reductions are enforced.

07 September 2016


Figure 44: Reserve life and refinery complexity by company

Asset risk

score

Proven

Reserves

(mmboe)

Reserve 1P

life (yrs)

Natural Gas &

NGL as % of

1P reserves

Nelson

refining

complexity

Anadarko Petroleum Corp. 100 2,060 6 70% -

Apache Corp. 100 1,564 6 49% -

ARC Resources Ltd. 100 392 9 69% -

Chesapeake Energy Corp. 100 1,504 6 79% -

Chevron Corp. 100 11,168 10 44% -

China Petroleum & Chemical Corporation 100 3,216 7 36% -

CNOOC Ltd 100 4,292 9 37% -

Concho Resources, Inc. 100 623 10 41% -

Devon Energy Corp 100 2,182 8 64% -

Encana Corp. 100 1,009 8 79% -

Hess Corporation 100 1,086 7 24% -

Kunlun Energy 100 100 8 30% -

Marathon Oil Corp 100 1,465 8 42% -

Newfield Exploration 100 509 8 59% -

Noble Energy 100 1,421 9 78% -

Occidental Petroleum 100 2,200 7 41% -

OMV 100 1,028 9 42% -

Pioneer Natural Resources 100 664 8 53% -

PTT Exploration & Production 100 738 5 77% -

Santos 100 485 8 96% -

Statoil 100 5,060 7 59% -

BP 80 10,384 13 61% -

ConocoPhillips 80 8,180 12 42% -

Crescent Point Energy Corp 80 592 11 18% -

Diamondback Energy, Inc. 80 157 12 32% -

ENI 80 6,890 11 43% -

EOG Resources 80 2,118 10 48% -

Husky Energy Inc. 80 1,324 10 29% -

Murphy Oil Corp. 80 774 10 41% -

NOVATEK 80 6,635 13 92% -

Origin Energy 80 474 10 100% -

PetroChina 80 21,442 14 60% -

Repsol 80 2,373 12 76% -

Royal Dutch Shell plc 80 11,747 11 57% -

Total 80 11,580 14 57% -

Woodside Petroleum 80 1,150 12 98% -

Petrobras 80 10,520 11 15% -

Bharat Petroleum 60 - - - 10

Canadian Natural Resources Limited 60 5,713 18 21% -

ExxonMobil Corporation 60 24,759 15 47% -

Galp Energia 60 276 17 14% -

Holly Frontier Corp. 60 - - - 12

INPEX Corp 60 3,264 17 48% -

Marathon Petroleum Co 60 - - - 12

Rosneft 60 34,465 18 29% -

Phillips 66 60 - - - 11

Range Resources 60 1,649 16 97% -

Reliance Industries Limited 60 - - 96% 13

Valero Energy Corporation 60 - - - 11

Antero Resources Corporation 40 2,202 21 99% -

LUKOIL 40 17,585 20 24% -

Suncor Energy 40 4,679 22 1% -

Tesoro Corp. 40 - - - 10

Tupras 40 - - - 10

Cenovus Energy Inc. 20 2,546 27 33% -

Formosa Petrochemical 20 - - - 6

Gazprom 20 122,389 40 95% -

Imperial Oil Ltd 20 4,227 32 3% -

Oil and Natural Gas Corporation Limited 20 6,836 30 46% - Surgutneftegas 20 18,325 37 NA -

Tatneft 20 6,245 32 5% -

Source: Company data, Credit Suisse estimates, * gas share of reserves is for 2P reserves

07 September 2016


Appendix

Figure 45: ESG scores and strategies by company Company name

Ticker Country Risk

Safety Risk

Environ-ment risk

Gover-nance Risk

Asset risk

Overall Score

Comments

Anadarko Petroleum

APC.N 81 60 54 60 100 71 Generally, APC is an excellent operator in both the offshore and shale. However, APC was part of the BP lead Macondo consortium. APC has a larger than average natural gas portfolio in its US shale operations and also with offshore gas discoveries e.g. Mozambique. The country exposure does include Algeria, Mozambique, Cote D'Ivoire, Ghana and Colombia.

Antero Resources

AR 85 20 73 24 40 48 AR is a leading North American natural gas and NGL producer with development focus in the West Virginia Marcellus and Ohio Utica. The company is also a majority LP ower of Antero Midstream which controls gas gathering and water handling infrastructure in the same region.

Apache Corp. APA 71 40 50 72 100 67 APA does have a large legacy gas footprint in the US and Canada which would benefit growing global natural gas demand. APA’s near term activity is shifting towards oil drilling in the Permian given stronger economics. APA does have a sizeable share of production from Egypt’s Western Desert which adds to the country risk score. We don’t anticipate any portfolio exit from Egypt given the deep resource base and strong operational track record. APA has invested significantly to improve the asset integrity of its older North Sea fields (Forties and Beryl).

ARC Resources

ARX.TO 92 80 41 52 100 73 ARX has a track record of strong social, governance, and environmental performance. Since ARX launched their Eco-Efficiency program in 2009, with a focus on funding energy efficient projects and emerging technologies, energy intensity has been reduced by 10% and emissions intensity has been reduced by 16%. ARX was also the first operator to successfully apply frac-water recycling to fracturing operations in NEBC.

BP BP.L 62 60 49 80 80 66 BP: the company has the largest operated renewable business amongst its peers, and its activities are focused on biofuels (its main activity is in Brazil, where it operates three sugar cane mills producing bioethanol and sugar) and onshore wind. It is the top wind energy producer in the US with 16 onshore wind farms, of which the company operates 14 of them with a net 1,556 MW of electricity. The company also runs two wind farms in its refinery sites in the Netherlands (32MW of generating capacity. In biofuels, it is currently investing in the development and commercialisation of biobutanol. BP has been in many ways early to venture into Renewables (Beyond Petroleum), such that it has in fact reduced its exposure from prior levels (eg it existed its solar business in 2011 after 40 years), yet remains the biggest player amongst its peer group. The company invested ~$9bn in alternative energies in the past decade.

Bharat Petroleum

BPCL.BO 54 70 71 47 60 60 BPCL currently has minimal revenues from renewables but is focusing on wind and solar for cost saving. BPCL has installed 5 MW capacity windmills; BPCL has commissioned smaller scale solar plants for a total capacity of about 1500 KW for lighting and admin office building. Under the renewable energy policy, a 4 MW solar plant at Bina Despatch Terminal and a 6 MW grid connected wind power project are being put up.

07 September 2016


Caltex Australia

CTX.AX 89 80 63 72 na 76 CTX has no revenues from renewables, but has decreased its footprint following a restructure of its supply chain that included the conversion of the Kurnell refinery to a major import terminal. CTX is committed to addressing climate change and working with governments to develop effective policies to reduce emissions and continues to hold a watching brief over the government’s Direct Action Policy Emissions Reduction Fund (ERF). With respect to the Reverse Auction Process under the ERF, CTX conducted project suitability assessments in 2015, but did not apply for auction participation. With the Safeguarding Mechanism legislated to commence on 1 July 2016, CTX will participate in technical workshops via the Australian Industry Greenhouse Network (AIGN) to prepare for the submission of the Lytton refinery baseline emissions data set. CTX continues to support greenhouse gas reduction policies which maintain the international competitiveness of Australian industries such as petroleum refining.

Canadian Natural Resources

CNQ.TO 92 60 29 55 60 59 As Canada's largest energy producer, it is also the largest Canadian energy R&D investor with a focus on improving environmental performance in all their operations. In 2014, CNQ invested $450mln into R&D such as sequestration of CO2 in tailings to reduce GHG emissions. CNQ is currently constructing a CO2 capture plant at Horizon which is capable of capturing 438,000 tonnes of CO2 annually and reduce fresh water usage.

Cenovus Energy

CVE.TO 92 90 31 60 20 59 CVE has been consistently recognized by sustainability experts (ie. Dow Jones Sustainability Indexes, RobecoSAM, Maclean, and more) for their strong track record of corporate responsibility and high reporting standards. The company has reduced GHG emissions intensity by 46% from 2006 to 2014 through flaring reduction, new well technologies and boiler efficiency - the company is one of the lowest GHG intensive in-situ oil sands operators in our universe with potential to further reduce GHG emissions through new innovations. CVE is a major investor in technology with plans to develop the next in-situ oil sands project at Narrows Lake using solvent (SAP) which is expected to reduce steam to oil ratio by 30% compared to SAGD.

Cheniere Energy, Inc.

LNG 85 60 63 60 na 67 LNG is a pure play natural gas liquification company

Chesapeake Energy Corp.

CHK 85 70 62 68 100 77 CHK is a leading North American natural gas producer with footprints in the Marcellus, Barnett and Haynesville shale regions. The company also is focused on oil shale development in the Eagle Ford.

Chevron Corp. CVX 59 60 52 52 100 65 CVX has a higher country risk than US Major peers and more in line with European peers. Today the portfolio is relatively oil biased This should change as Gorgon and Wheatstone ramp up. These LNG facilities will also provide more OECD production CVX has had its fair share of operational incidents in recent years. These need to improve for the safety ranking The large Permian acreage position should reduce the operational risk over time. Renewables : Chevron is leading producer of geo thermal energy in the work. Their subsidiaries in Indonesia and Philippines have a capacity of 647MW and 692MW resp. They are investing in next generation Solar energy technologies (Project Brightfield) and through their Technology ventures arm they have invested in firms like Acumentrics, Ensyn and Inventys working on alternative energy technologies.

Sinopec 0386.HK 64 50 40 47 100 60 Sinopec persistently upgrades the quality of refined oil products - the sulfur content in gasoline was reduced from nearly 1,000ppm in year 2000 to current 10ppm. Industrial water consumption in 2015 decreased 6% compared with that in 2010. The total emission of four major pollutants - COD, sulfur dioxide, ammoniac nitrogen, nitrogen oxide - had all achieved the emission reduction targets which were signed in the responsibility agreement at the beginning of the year.

07 September 2016


CNOOC Ltd 0883.HK 67 60 67 47 100 68 CNOOC consistently emphasized the progress of CO2 capture, utilization and storage technologies (CCUS), and actively promoted the application study of CO2 capture and separation, geological storage and large-scale utilization technologies.

Concho Resources, Inc.

CXO 85 20 63 44 100 62 CXO is the largest pure-play Delaware Basin operator in US E&P, with a large presence also in the Midland Basin and the New Mexico shelf. The company continues to highgrade its asset portfolio through acquisition and divestiture, as well as delineate stacked potential in the Permian Basin.

ConocoPhillips COP 82 70 51 60 80 69 COP has a good track record of operations in its large diverse portfolio. COP is involved in shale, LNG, Alaska, North Sea and Asia offshore assets The business has one of the highest shares of OECD activity in the Majors. COP has a well thought through C02 strategy. Renewables : COP participates in Carbon Disclosure project and reduced GHG emissions by ~3.5% (eq to 6.8mn tonnes). They have a very robust process to analyze Carbon Asset risk.

Crescent Point Energy

CPG.TO 91 40 45 44 80 60 Environmental scores could improve as company's targeting to eliminate fresh water usage in well completions such as blending deeper saline water to reduce amount of fresh water needed. CPG's employee and contractor injury frequency has also consistently tracked below Canadian peers.

Devon Energy Corp

DVN 86 30 52 64 100 66 DVN has refocused on North America shale. DVN does have 125kbd of in-situ oil sands exposure. The industry is working on technology to reduce the C02 intensity of the in-situ oil sands.

Diamondback Energy,

FANG 85 20 53 48 80 57 FANG is a premier mid-cap Midland Basin operator, that recently expanded into the Delaware through acquisition. The company has been one of the most active consolidators in the Permian Basin. FANG is a majority owner of Viper Energy Partners, which owns mineral interests, primarily located in the Permian Basin.

Encana Corp. ECA 88 60 35 80 100 73 With Encana more focused in shale drilling and fracking, more water will be used to produce oil and gas out of the ground. Despite higher water intensity, Encana is working on their water management and using less fresh water for production. In the Montney, Encana has invested in a Water Resource hub that will have a capacity of 50kbd of recycling and saline, non-potable source wells. The water handling facility is expected to conserve 2.6 million cubic metres (687 million gallons) of freshwater over the next five years and is expected to produce an ROR of ~30%. In the Duvernay, the company is also reducing fresh water intensity by using more brackish and saline water, and increasing recycling of flowback water.

ENI ENI.MI 50 70 39 84 80 65 Eni: renewables investment is split 50/50 into converting old refineries to biodiesel facilities, and renewable energy projects (Italy, Pakistan, Egypt). Its approach towards Renewables is somewhat different to some of its peers. Eni plans to implement new renewable energy generation projects in the vicinity of the company’s plants and areas of operation to make the most of all possible industrial, logistic, contractual and commercial synergies with its traditional activities.

EOG Resources

EOG 85 30 54 44 80 59 EOG has a good track record of operational and exploration success on its large diversified portfolio. The company produces hydrocarbons from most major shale basins in the US, in Trinidad and Tobago, the UK, China, and Canada. EOG also maintains a strong commitment to safe operations and the environment. Renewables: EOG participates in Carbon Disclosure project and reduced GHG emissions by ~22.2% (currently at 28 metric tons of CO2 per Mboe produced). The company also continues to invest in technologies that reduce the impact operations have on the environment.

07 September 2016


ExxonMobil Corporation

XOM 77 70 41 60 60 62 XOM has the most diversified portfolio considering hydrocarbon type, geological setting and country risk XOM is also a good operator. Today, XOM's oil share of production is rising but XOM has a large share of gas resources. Renewables : ExxonMobil funds a portfolio of biofuels research programs through research collaborations and university partnerships They are working with REG on Cellulosic research and Synthetic Genomics on algae.

Formosa Petrochemical

6505.TW 81 80 27 40 20 49 FPCC: Company has achieved a 83% decline in number of environmental protection violations, 134,000 tons of CO2 absorbed , 98.7% water recycled, and 96.7% of resources recycled.

Galp Energia GALP.LS 47 60 27 60 60 51 For Galp, a key strategy of responsible and sustainable investment is through incorporating environmental, social and corporate governance critieria – doing this, it believes, guarantees greater competitiveness and enables opportunities and risks to be anticipated and managed to preserve long term value. Some of the things, more specific to the environmental aspects, it puts great value in include the reduction of (i) carbon intensity of its activities through energy efficiency, (ii) flaring with a commitment to achieve zero flaring by 2030 (it is part of the World Bank’s initiative of Zero Routine Flaring by 2030), and (iii) the development of a portfolio that ensures the increase in natgas production (to transition to a lower carbon economy) etc. The company is also present in renewables, which allows it to monitor trends in the broader energy space. Its investments are mainly in the area of biofuels (with the aim of achieving the 10% target in 2020, consistent with the goal set by the European Commission), and also is invested in wind (it has two onshore wind farms).

Gazprom GAZPq.L 44 80 42 52 20 48 The world’s largest gas producer; with c.419bcm, Gazprom accounts for c.11% of total global gas production. Gazprom has recently refocused its strategy on China’s gas markets, taking a long-term view on the country’s plans to tackle pollution levels via use of cleaner fuels. With spare production capacity of 180bcm, it is not a question of if Gazprom has enough gas to supply, but a question of demand from its customers.

Hess Corporation

HES 73 70 66 60 100 74 HES has an excellent offshore operator track record and in its Bakken shale operations. HES new Guyana acreage is operated by XOM, another recognised industry operations leader. HES is biased more to oil than to cleaner burning natural gas

Holly Frontier Corp.

HFC 85 40 63 56 60 61 HFC's refining system would be subject to risk from transport efficiency gains and direct C02 emission costs, to the extent these were not recovered in the wholesale price Inland refiners are more at risk from US CAFÉ standards given transport costs to reach export markets General : TSO's investment in natural gas and NGL infrastructure does provide some diversification of CO2 risks

Husky Energy Inc.

HSE.TO 89 70 25 44 80 62 HSE is committed to improve safety, operating reliability and minimizing the impact to the environment across all their businesses. CO2 at the company's Lloydminster Ethanol plant is captured to aid in EOR. More than 150,000 tonnes of CO2 has been captured between 2012 and December 2014 for CO2 injection to increase oil production. The company continues to invest in additional opportunities to use captured CO2 for oil recovery. Overall, the company has reduced GHG emissions intensity by ~10% from 2012 to 2014.

07 September 2016


Imperial Oil Ltd IMO.TO 92 100 41 60 20 63 IMO's approach to resource development begins with a commitment to sustainable development - balancing economic growth, social development and environmental protection. With ~$850mln invested in technology and environmental research in 2009-14, the company has significantly reduced freshwater consumption, added cogenerations to oil sands operations to improve energy efficiency and continues to fund technologies that will reduce GHG emissions. Last year, IMO filed to develop future in-situ oil sands projects that will utilize solvent (SA-SAGD) which will reduce GHG emissions intensity by 25% compared to SAGD. Furthermore, IMO is piloting waterless in-situ technology (CSP) that will reduce direct GHG emissions intensity by 90% compared to SAGD.

INPEX Corp 1605.T 63 50 84 53 60 62 Inpex has a written policy to 'reinforce renewable energy initiatives. It already operates a solar power generation business and is studying the opportunity to build a geothermal development in the northern island of Hokkaido. Inpex, along with a number of other Japanese entities is also participating in the early stage investigation of methane hydrate production offshore Japan.

Kunlun Energy 0135.HK 55 20 43 36 100 51 Kunlun Energy has begun the strategic transformation with “Low-Carbon Economy Green Development” as its mission since 2009. The Company has been mainly engaged in developing the LNG “Gas in Substitution of Oil” business and promoting the application of LNG fuels on highway transportation vehicles, vessels, and drilling rigs. *Note: Safety score set default at 20 for lack of disclosure. However, the safety level might be similar to or slightly better than its Chinese peers, according to local media.

LUKOIL LKOHyq.L 43 80 35 52 40 50 Even though LUKoil has large gas reserves, unlike Rosneft the company has chosen not to enter gas distribution market. Instead, LUKoil uses gas production for own uses as well as selling some volumes (c10bcm) to Gazprom.

Marathon Oil Corp

MRO 74 80 46 60 100 72 MRO's shale footprint has become more diversified - both by basin and by hydrocarbon type, though it is still relatively oil focused. The AOSP oil sands business has a higher C02 burden, and accounts for circa 10% of production. MRO has been shifting away from riskier countries to focus on US shale but still has exposure to Equatorial Guinea

Marathon MPC 85 100 55 64 60 73 MPC's investment in natural gas and NGL infrastructure does provide some diversification of CO2 risks Management has a strong operational track record. This shows up in the safety risk and EBITDA delivery.

Murphy Oil Corp.

MUR 85 40 43 60 80 62 MUR has historically operated in the offshore in a diverse set of countries (notably Malaysia). This carries higher risk. However, in recent years MUR has been selling offshore assets and has been growing the shale footprint. This should be positive for the ranking in future years.

Newfield Exploration

NFX 83 50 48 64 100 69 NFX is the pure-play on the STACK in Central Oklahoma, one of the best rate of change stories in North American E&P. The company also has exposure in the SCOOP, Bakken and Uinta plays.

Noble Energy NBL 74 60 60 48 100 68 NBL is a large-cap diversified E&P with North American focus in the DJ basin, Delaware, Eagle Ford and Marcellus. The company also is focused on offshore exploration and development in the GOM, Eastern Mediterranean, West Africa and the Falklands.

07 September 2016


NOVATEK NVTKq.L 44 100 66 44 80 67 The 2nd largest gas producer in Russia, with natural gas sales representing slightly less than 50% of revenues. While Novatek has increasingly been investing in its liquids business to diversify away from Russia’s domestic gas market, we nevertheless expect steady gas sales volumes going forward.

Occidental Petroleum

OXY 75 60 46 72 100 71 OXY's focus has shifted towards the Permian (both shale and Enhanced Oil Recovery) and a narrower core of Middle East operations. This should reduce the country risk score over time. The EOR business is more energy intensive than some forms of extraction but is a C02 sink.

ONGC ONGC.BO 53 70 58 40 20 48 ONGC is actively pursuing alternate energy options, having installed 51 MW wind at an energy farm in Gujarat and 102 MW wind in Rajasthan. ONGC is also implementing sustainable development projects in backward districts of Rajasthan, on wind power. ONGC is the lead partner with 26% equity in a SPV set up for implementing large-scale grid connected solar, wind and renewable projects, which is in the planning stage. ONGC Energy Centre (OEC) has been set-up under the aegis of the OEC Trust to work on various clean energy options.

OMV OMVV.VI 70 60 27 64 100 64 OMV’s sustainability strategy, called ‘Resourcefulness’, brings together its commitments on health, safety, security, environment, diversity, business ethics, human rights and stakeholder engagement under one overarching strategy. The company is committed to the ten principles under the UN Global Company, and submits information to leading sustainability rating agencies. With its ‘Resourcefulness’ strategy, it focusses on three main areas, which include (i) Education & Development: ‘Skills to Succeed’ (which includes the development of communities in which it operates), (ii) Environmental Management: ‘Eco-Efficiency’ (with a greater focus going forward on gas), and (iii) New Technologies: ‘Eco-Innovation’ (using its core skills to tap into alternative energy sources and new opportunities).

Origin Energy ORG.AX 89 40 33 72 80 63 ORG has managed the risk of a more carbon constrained future by investing in less carbon intensive forms of energy such as natural gas and renewables, and assets that are more carbon efficient than industry average – such as the Eraring coal-fired power station. Recognising the inevitable move to more renewable generation, ORG has remained underinvested in generation relative to the energy sold of customers. This reduces the risk that ORG will have stranded generation assets and gives ORG the opportunity to invest in less carbon intensive assets such as renewables when it is economic to do so.

Petrobras PBR.N 51 70 51 60 80 62 We expect the company to focus efforts on the production development in pre-salt oil/gas reservoirs, rather than renewable energies (such as ethanol and biodiesel production)

PetroChina 0857.HK 64 60 50 70 80 65 PetroChina has been actively participating in carbon trading at home and abroad in order to achieve carbon reduction targets through market mechanisms. E.g., to enable the recycling of associated gas, the CDM Project (carbon trading project) of Daqing Oilfield was put into operation in May 2012. Under the project, 900,000 cubic meters of natural gas can be recycled per day and 400,000 tons of carbon dioxide emission reductions can be sold every year.

Phillips 66 PSX 85 60 55 64 60 65 PSX's investment in natural gas, NGL infrastructure and chemicals does provide some diversification of CO2 risks Management has a strong operational track record. This shows up in the safety risk and EBITDA delivery. General : MRO's shale footprint has become more diversified - both by basin and by hydrocarbon type, though

07 September 2016


Pioneer Natural Resources

PXD 85 30 63 56 100 67 PXD is a large cap pure-play on the Midland Basin, one of the best returning assets in North American E&P. The company also has a presence in the Eagle Ford.

PTTEP PTTEP.BK 56 80 60 56 100 70 PTTEP has no plan to invest in renewable business. Renewable investments are carried out by other subsidiaries and affiliates of PTT group.

Range Resources

RRC 85 50 55 52 60 60 RESTRICTED

Reliance Industries

RELI.BO 72 90 39 50 60 62 RIL continues to work towards the development and implementation of climate change mitigation projects. This is primarily done through energy efficiency initiatives at all manufacturing sites, where use of cleaner fuels and renewable energy has been adopted. During the year, RIL has taken up various initiatives for the deployment of renewable energy, like rooftop solar photovoltaic projects, biogas generation project, and carrying out wind resource assessment for exploring possibility of installation of wind turbines. 2. RIL’s ‘Algae to Biocrude’ effort aims at establishing a green platform to achieve sustainable and economically viable production of biocrude by large scale cultivation of ‘producer’ algal strains.

Repsol REP.MC 52 60 45 48 80 57 Repsol’s commitment to sustainability can be defined as ‘A company that is able to anticipate risks in order to manage them properly, minimizing the impact of its activities and generating value for its shareholders’, and this touches areas such as governance, environment, human rights, labour practices, consumer affairs, fair operating practices, development of communities amongst other, which is regularly reviewed by senior management. With regards to community relations and human rights management, the company operates with special preventive measures, especially as its operations touch many areas with an indigenous population. For example, Repsol is the first Oil and Gas company operating in Latin America with an official policy explicitly supporting indigenous rights defined by ILO Covenant 169 (and also co-chairs the IPECA indigenous peoples task force since 2014). Other commitments include (i) goal to achieve zero accidents by 2020, and (ii) to reduce a further 1.9mt of CO2 by 2020 (having already achieved more than 4mt in CO2 reduction since 2006) and invest in energy efficiency measures.

Rosneft ROSNq.L 44 50 56 56 60 53 Gas business has been an important focus for the company. Rosneft has large gas reserves post its recent M&A spree and as such is looking for options to monetise it, including potential pipeline exports.

07 September 2016


Royal Dutch Shell

RDSa.L 69 70 41 76 80 67 RDS: within longer term themes, which is defined as potentially attracting material growth spending in the future, it now include a strategic theme called ‘new energies’. New energies contains more than just the traditional renewables, such as wind and biofuels, in which the company has invested for many years (including a small position in solar). It has identified three areas in new energies as opportunities for the company, which include (1) new fuels for mobility, such as biofuels and hydrogen, (2) integrated energy solutions, such as wind and solar energy, which can partner with natural gas to tackle intermittency issues, and (3) new business models for energy, connecting customers with digitalisation and decentralisation of energy systems. Elsewhere, RDS has a big position in biofuels, mostly via its shareholding in Raizen (Brazil).

Santos STO.AX 76 80 33 68 100 71 STO's LNG strategy enables them to substantially increase natural gas production; supplying low carbon energy for the region. They see natural gas a having a key role to play in providing for a low carbon energy future. STO, alongside seven other leading businesses in Australia, announced support for the Australian Government’s commitment to limit global warming to less than two degrees Celsius above pre-industrial levels within an international agreement. STO believes a global agreement on the steps to achieve this goal will allow for a responsible transition to decarbonised and sustainable economic development and are keen to play their part.

Statoil STL.OL 83 50 62 80 100 75 The company is engaged in wind farms, but also has a new energy investment fund (a $200m fund dedicated to investing in renewable energy companies). Over the last ~3 years it has invested around $1bn in renewables, the main bulk (c.70%) being the Sheringham Shoal wind farm. Over the next 3-4 years, the current activities look to invest $1.5-2.0bn in renewables, half of which will go to the Arkona project (German offshore wind farm).

Suncor Energy SU.TO 92 70 33 64 40 60 Suncor's renewable energy portfolio includes 8 wind power projects in Canada (7 operating and 1 in construction) and operates the largest ethanol facility in Canada. Suncor is also a leader in sustainable oil sands development, participating in several oil sands pilots using solvent (ie. ESEIEH and NSolv) at their Dover site. If successful, the new technologies will significantly reduce GHG emissions intensity and water required to produce bitumen.

Surgutneftegas SNGSyq.L 44 20 65 36 20 37 Limited gas production and there is no plans to invest in the segment in the foreseeable future.

Tatneft TATNxq.L 44 50 22 47 20 37 Limited gas production and there is no plans to invest in the segment in the foreseeable future.

Tesoro Corp. TSO 85 80 48 64 40 63 TSO's investment in natural gas and NGL infrastructure does provide some diversification of CO2 risks Management has improved operational performance over the last few years. This shows up in the safety risk and EBITDA delivery.

07 September 2016


Total TOTF.PA 65 60 32 68 80 61 Total’s ambition is to be positioned in certain links of the electricity value chain, especially renewables and has a slogan ‘20% in 20 years’. The company has recently created a new business segment, which encompasses gas, renewables and power. In other words, it is not only about renewables, but also ‘low carbon’ solutions such as gas. In terms of renewables, Total’s focus today is on solar and biofuels. Solar via its shareholding in SunPower and biofuels via Amyris and La Mede biodiesel refinery. Its aim is to be a top three player in solar energy, by integrating across the photovoltaic chain, all the way to distribution to end customers. The company will also develop energy storage, which is the logic behind the recently proposed acquisition of Saft. It also works to continuously improve energy efficiency of its installations (eg eliminating routine gas flaring by 2030).

Tupras TUPRS.IS 54 80 51 56 40 56 Recently completed a major residuum upgrade; management have a strong focus on improving efficiency, recycling levels and emissions

Valero Energy VLO 85 60 53 60 60 64 VLO's refining system would be subject to risk from transport efficiency gains and direct C02 emission costs, to the extent these were not recovered in the wholesale price VLO's coastal footprint could mitigate risk from US CAFÉ standards given access to export markets

Woodside Petroleum

WPL.AX 89 80 58 76 80 77 WPL believes natural gas can (and needs to) play a pivotal role in the world’s future energy mix as it has lower emissions of greenhouse gases and local air pollutants than other fossil fuels. For example, since 2013, Woodside’s flaring intensity has decreased from 14.2 to 9.2 t/kt, seeing a reduction of 900,000 tonnes of greenhouse gases (the 2016 target has been reduced to 9 t/kt). The core business focus of delivering greenhouse gas emission reduction, combined with targeted energy efficiency and flare reduction initiatives, facilitates effective emissions management at WPL. From 2016 WPL will set annual energy efficiency targets for their operations. WPL conclude that natural gas consumption will continue to grow until at least 2040 under the most prominent low carbon scenarios and the current portfolio of economic assumptions to test commercial decisions also include a scenario consistent with the national pledges made to the United Nations Framework Convention on Climate Change.


07 September 2016


Global Oil and Gas team Equity Research - Oil and gas

United States

Commodities Macro Strategy

Jan Stuart (New York) +1 212 325 1013 [email protected]

Jonathan Aronson (New York) +1 212 325 1014 [email protected]

Integrated Oils & Refiners

Ed Westlake (New York) +1 212 325 6751 [email protected]

Ben Combes (New York) +1 212 538 2383 [email protected]

Chandra Meenaga (New York) +1 212 538-2439 [email protected]

Johannes Van Der Tuin (New York) +1 212 325 4556 [email protected]

Exploration & Production

Mark Lear (New York) +1 212 538 0239 [email protected]


Ben Combes (New York) +1 212 538 2383 [email protected]

Chandra Meenaga (New York) +1 212 538-2439 [email protected]

Venkatesh Duvvuri (New York) +1 212 325 6994 [email protected]

Tom Hughes (New York) +1 212 538 8448 [email protected]

Oilfield Services

James K. Wicklund (Dallas) +1 214 979 4111 [email protected]

Jacob Lundberg (New York) +1 212 325 6785 [email protected]

Chas Foote (New York) +1 212 538 8444 [email protected]

Oilfield Services & Marine

Gregory Lewis (New York) +1 212 325 6418 [email protected]

Neesha Khanna (New York) +1 212 325 6974 [email protected]

Joseph Nelson (New York) +1 212 538 4894 [email protected]

MLPs

John Edwards (Houston) +1 713 890 1594 [email protected]

Bhavesh Lodaya (New York) +1 212 325 2337 [email protected]

Dylan Nassano (New York) +1 212 325 8375 [email protected]

Ander Thompson (New York) +1 212 538 8458 [email protected]

Renewables & Alternative Energy

Patrick Jobin (New York) +1 212 325 0843 [email protected]


Andrew Highes (San Francisco) +1 212-325-8277 [email protected]

Maheep Mandloi (New York) +1 212 325 2345 [email protected]

Jennifer Ky (New York) +1 212 325 6608 [email protected]

Khanh Nguyen (New York) +1 212 538 3524 [email protected]

Specialist Sales

Jonathan Sisto (New York) +1 212 325 1292 [email protected]

Canada

Energy Infrastructure/Pipelines

Andrew Kuske (Toronto) +1 416 352 4561 [email protected]

Paul Tan (Toronto) +1 416 352 4593 [email protected]

Oil & Gas

Jason Frew (Calgary) +1 403 476 6022 [email protected]

David Phung (Calgary) +1 403 476 6023 [email protected]

Robert Loebach (Calgary) +1 403 476 6021 [email protected]

Brian Ho (Calgary) +1 403 476 6009 [email protected]

07 September 2016


Global Oil and Gas team

Europe

Integrated Oils & Refiners

Thomas Adolff (London) +44 20 7888 9114 [email protected]

Justin Teo (London) +44 20 7888 9484 [email protected]

Yaroslav Rumyantsev (London) +44 20 7883 1722 [email protected]

Exploration & Production

Thomas Adolff (London) +44 20 7888 9114 [email protected]

Justin Teo (London) +44 20 7888 9484 [email protected]

Oilfield Services

Phillip Lindsay (London) +44 20 7883 1644 [email protected]

Gregory Brown (London) +44 20 7888 1440 [email protected]

Specialist Sales

Jason Turner (London) +44 20 7888 1395 [email protected]

Latin America

Oil & Gas and Utilities

Vanessa Quiroga (Mexico) +52 55 5283 8939 [email protected]

Pablo Ricalde (Mexico) +52 55 5283 5444 [email protected]

Omar Rodriquez (Mexico) +52 55 52835459 [email protected]

Oil & Gas

Andre Natal (Brazil) +55 11 3701 6299 [email protected]

Regis Cardoso (Brazil) +55 11 3701 6297 [email protected]

Australia

Oil & Gas

Mark Samter (Sydney) +61 2 8205 4537 [email protected]

David Hewitt (Singapore) +65 6212 3064 [email protected]

Sam Webb (Sydney) +61 2 8205 4535 [email protected]

Asia-Pacific

Oil & Gas

Horace Tse (Hong Kong) +852 2101 7379 [email protected]

Jessie Xu (Hong Kong) +852 2101 7650 [email protected]

David Hewitt (Singapore) +65 6212 3064 [email protected]

Gerald Wong (Singapore) +65 6212 3037 [email protected]

Shew Heng Tan (Singapore) +65 6212 3014 [email protected]

Jeremy Chen (Taiwan) +8862 2715 6368 [email protected]

Poom Suvarnatemee (Bangkok) +66 2 614 6210 [email protected]

Wattana Punyawattanakul (Bangkok) +66 2 614 6215 [email protected]

Muzhafar Mukhtar (Kuala Lumpur) +60 3 2723 2084 [email protected]

Badrinath Srinivasan (Mumbai) +91 22 6777 3698 [email protected]

Fahd Niaz (Pakistan) +65 6212 3035 [email protected]

Russia/Emerging Europe

Oil & Gas

Ilkin Karimli (London) +44 20 7883 0303 [email protected]

Turkish Oil Refiners

Onur Muminoglu (Istanbul) +90 212 349 0454 [email protected]


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Figure 46: Oil and Gas sector: Key valuation metrics

Company Investment Primary EV Share Target Potential PE EV/EBITDA P/B Div. Yield

Ticker Name Rating Analyst USD price Price Upside 2016 2017 2016 2017 2016 2016

US$mn (local) (local) (%) x x x x x %

North American producers

CVE.TO Cenovus Energy Inc. OUTPERFORM Jason Frew 14,184 19 22 14% -20.7 -61.5 13.8 8.9 1.5 1.0%

IMO.TO Imperial Oil Ltd NEUTRAL Jason Frew 32,838 41 48 17% 100.3 19.1 17.2 8.9 1.5 1.4%

CHK Chesapeake Energy Corp. NEUTRAL Mark Lear 14,657 7 4 -39% -22.3 15.2 10.5 6.0 -11.7 0.0%

ARX.TO ARC Resources Ltd. OUTPERFORM Jason Frew 6,949 23 26 13% 88.5 38.6 12.4 9.8 2.4 3.0%

LNG Cheniere Energy, Inc. OUTPERFORM John Edw ards 18,346 44 86 97% -59.9 13.9 41.8 15.2 -14.7 0.0%

MRO Marathon Oil Corp OUTPERFORM Edw ard Westlake 19,180 15 19 23% -15.2 -62.6 15.2 8.5 0.6 1.3%

HES Hess Corporation NEUTRAL Edw ard Westlake 20,726 53 66 24% -11.6 -20.1 17.4 9.5 0.8 1.9%

CNQ.TO Canadian Natural Resources Limited OUTPERFORM Jason Frew 47,373 41 47 14% -40.9 33.8 15.6 8.2 1.8 2.2%

AR Antero Resources Corporation OUTPERFORM Mark Lear 12,647 26 39 50% 52.0 61.1 10.9 9.8 1.2 0.0%

APC.N Anadarko Petroleum Corp. NEUTRAL Edw ard Westlake 43,648 56 68 20% -18.2 -59.2 15.6 9.5 2.7 0.4%

NBL Noble Energy OUTPERFORM Mark Lear 21,798 34 45 31% -27.2 -37.2 8.7 8.0 1.5 0.0%

PXD Pioneer Natural Resources OUTPERFORM Mark Lear 32,975 184 212 15% -809.3 143.6 17.4 12.7 3.1 0.0%

APA Apache Corp. NEUTRAL Edw ard Westlake 27,588 51 63 23% -62.8 44.6 11.1 7.6 2.8 2.0%

NFX New field Exploration OUTPERFORM Mark Lear 11,379 45 55 22% 60.8 43.9 11.7 10.2 9.0 0.0%

DVN Devon Energy Corp OUTPERFORM Edw ard Westlake 34,474 44 50 13% -105.9 54.6 13.6 8.1 4.7 0.9%

CXO Concho Resources, Inc. OUTPERFORM Mark Lear 21,616 131 154 17% 886.3 -384.7 14.4 13.4 2.3 0.0%

CPG.TO Crescent Point Energy Corp NEUTRAL Jason Frew 10,989 20 23 15% -96.4 299.1 8.3 7.1 1.1 2.5%

MUR Murphy Oil Corp. NEUTRAL Edw ard Westlake 7,391 27 36 34% -15.8 -1067.4 8.8 4.8 0.7 4.5%

FANG Diamondback Energy, Inc. OUTPERFORM Mark Lear 7,996 96 108 12% 84.9 40.9 26.8 14.6 3.2 0.0%

EOG EOG Resources NEUTRAL Mark Lear 54,893 89 90 1% -48.6 159.2 23.7 12.6 4.2 0.0%

Other producers

WPL.AX Woodside Petroleum UNDERPERFORM Mark Samter 22,757 29 27 -7% 26.7 28.7 9.3 8.7 1.3 3.0%

1605 INPEX Corp OUTPERFORM David Hew itt 11,832 859 1,180 37% 74.7 39.0 2.6 3.8 0.5 1.9%

PTTEP.BK PTT Exploration & Production UNDERPERFORMPaw oramon (Poom) Suvarnatemee9,877 80 81 2% 21.2 14.6 3.2 2.5 0.8 4.2%

OECD refiners

CTX.AX Caltex Australia OUTPERFORM Mark Samter 7,055 34 40 18% 16.3 15.2 9.0 8.0 3.1 3.0%

TSO Tesoro Corp. NEUTRAL Edw ard Westlake 11,981 75 85 14% 10.8 14.2 4.9 4.9 1.6 2.8%

MPC Marathon OUTPERFORM Edw ard Westlake 33,175 42 45 6% 23.2 14.2 7.3 5.9 1.7 3.2%

6505.TW Formosa Petrochemical OUTPERFORM Jeremy Chen 30,958 94 105 11% 15.9 15.2 11.2 11.3 3.1 4.1%

VLO Valero Energy Corporation NEUTRAL Edw ard Westlake 28,558 55 60 9% 17.3 10.5 6.4 5.0 1.3 4.4%

PSX Phillips 66 NEUTRAL Edw ard Westlake 47,050 79 75 -5% 21.5 14.1 11.8 8.6 1.8 3.1%

HFC Holly Frontier Corp. NEUTRAL Edw ard Westlake 5,085 25 30 22% 8.5 10.5 8.1 5.4 0.8 5.3%

Credit Suisse: Oil and Gas: Key Valuation Metrics

Source: Company data, Credit Suisse estimates. Prices as of 06/09/2016.

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Figure 47: Oil and Gas sector: Key valuation metrics continued

Credit Suisse: Oil and Gas: Key Valuation Metrics

Company Investment Primary EV Share Target Potential PE EV/EBITDA P/B Div. Yield

Ticker Name Rating Analyst USD price Price Upside 2016 2017 2016 2017 2016 2016

US$mn (local) (local) (%) x x x x x %

OECD Integrateds

STL.OL Statoil UNDERPERFORM Ilkin Karimli 67,171 135 100 -26% 94.0 15.7 4.9 3.3 1.3 5.4%

COP ConocoPhillips NEUTRAL Edw ard Westlake 73,186 41 46 12% -13.1 -31.9 17.0 9.2 0.7 2.5%

SU.TO Suncor Energy OUTPERFORM Jason Frew 54,066 36 42 18% -267.8 23.2 11.6 6.4 1.3 3.2%

STO.AX Santos Ltd NEUTRAL Mark Samter 4 5 11% 76.0 13.1 8.8 5.3 0.9 0.0%

ORG.AX Origin Energy NEUTRAL Mark Samter 13,955 5 6 14% 18.4 16.9 11.3 7.4 0.4 1.9%

BP.L BP NEUTRAL Thomas Adolff 135,392 435 430 -1% 32.6 14.1 6.9 5.2 1.2 6.9%

RDSa.L Royal Dutch Shell plc OUTPERFORM Thomas Adolff 197,694 1,891 2,150 14% 28.6 15.3 6.4 4.8 1.1 7.5%

HSE.TO Husky Energy Inc. NEUTRAL Jason Frew 17,595 16 19 16% -23.1 44.3 7.7 4.5 1.1 1.8%

ENI.MI ENI OUTPERFORM Thomas Adolff 77,357 14 16 16% -324.8 24.8 7.2 4.6 1.0 5.7%

XOM ExxonMobil Corporation UNDERPERFORM Edw ard Westlake 398,016 87 78 -11% 38.0 21.4 11.4 7.8 2.1 3.5%

OMVV.VI OMV UNDERPERFORM Thomas Adolff 13,420 26 22 -14% 12.1 9.0 5.0 3.6 0.7 3.9%

TOTF.PA Total OUTPERFORM Thomas Adolff 151,039 44 48 8% 16.5 13.2 8.4 6.3 1.2 5.4%

OXY Occidental Petroleum NEUTRAL Edw ard Westlake 63,237 78 72 -7% -95.4 76.2 18.5 10.7 2.7 3.8%

CVX Chevron Corp. NEUTRAL Edw ard Westlake 217,403 101 105 4% 126.8 24.2 13.8 12.0 1.3 4.2%

GALP.LS Galp Energia OUTPERFORM Thomas Adolff 14,787 13 16 18% 23.9 20.7 10.7 5.9 2.2 3.2%

REP.MC Repsol NEUTRAL Thomas Adolff 33,976 13 12 -4% 10.2 8.4 5.7 4.4 0.6 4.7%


NVTKq.L NOVATEK NEUTRAL Ilkin Karimli 36,854 107 100 -7% 12.8 10.8 11.6 9.2 4.0 2.3%

0883.HK CNOOC UNDERPERFORM Horace Tse 76,142 10 7 -27% -133.6 16.3 6.8 4.3 1.1 2.4%

GAZPq.L Gazprom UNDERPERFORM Ilkin Karimli 81,512 4 4 -8% 3.5 3.8 3.4 3.8 0.3 2.4%

RELI.BO Reliance Industries Limited NEUTRAL David Hew itt 69,948 1,013 1,075 6% 10.8 13.2 10.5 11.0 1.2 1.0%

ONGC.BO Oil and Natural Gas Corporation Limited NEUTRAL David Hew itt 36,785 239 235 -2% 14.5 11.5 6.0 5.9 1.1 2.1%

BPCL.BO Bharat Petroleum OUTPERFORM Badrinath Srinivasan 15,432 587 600 2% 10.6 11.5 7.2 7.3 3.1 3.2%

ROSNq.L Rosneft NEUTRAL Ilkin Karimli 65,037 5 5 -4% 12.7 10.2 4.1 3.8 0.9 1.8%

0386.HK Sinopec NEUTRAL Horace Tse 119,614 6 6 4% 15.3 10.6 5.2 4.4 0.8 2.6%

TUPRS.IS Tupras NEUTRAL Onur Muminoglu 7,460 60 67 12% 10.9 7.1 8.8 6.8 1.8 5.9%

LKOHyq.L LUKOIL UNDERPERFORM Ilkin Karimli 43,204 47 43 -9% 4.6 4.6 3.3 3.3 0.7 5.4%

TATNxq.L Tatneft UNDERPERFORM Ilkin Karimli 10,188 30 29 -3% 53.0 38.3 4.8 3.7 6.7 0.5%

PBR.N Petrobras NEUTRAL Andre Natal 136,151 10 9 -10% 35.2 14.9 5.1 3.9 0.7 2.0%

0857.HK PetroChina UNDERPERFORM Horace Tse 267,870 5 4 -22% 69.3 39.6 8.6 7.6 0.8 1.3%

SNGSyq.L Surgutneftegas UNDERPERFORM Ilkin Karimli -14,227 5 5 5% 602.8 490.7 -5.0 -4.1 27.0 0.0%

0135.HK Kunlun Energy UNDERPERFORM Horace Tse 7,427 6 5 -16% 10.6 10.5 5.0 4.7 0.9 2.8%

Source: Bloomberg, Credit Suisse estimates. Prices as of 06/09/2016.

07 September 2016


Companies Mentioned (Price as of 05-Sep-2016)

ARC Resources Ltd. (ARX.TO, C$23.0) Anadarko Petroleum Corp. (APC.N, $56.49) Antero Resources Corporation (AR.N, $25.92) Apache Corp. (APA.N, $51.29) BP (BP.L, 431.0p) Bharat Petroleum (BPCL.BO, Rs586.55) CNOOC (0883.HK, HK$9.62) Cabot Oil & Gas (COG.N, $24.41) Caltex Australia (CTX.AX, A$33.89) Canadian Natural Resources Limited (CNQ.TO, C$41.36) Cenovus Energy Inc. (CVE.TO, C$19.27) Cheniere Energy, Inc. (LNG.A, $43.65) Chesapeake Energy Corp. (CHK.N, $6.6) Chevron Corp. (CVX.N, $100.93) Concho Resources, Inc. (CXO.N, $131.49) ConocoPhillips (COP.N, $40.92) Copec (COP.SN, CLP$6093.4) Crescent Point Energy Corp (CPG.TO, C$19.96) Devon Energy Corp (DVN.N, $44.27) Diamondback Energy, Inc. (FANG.OQ, $96.38) ENI (ENI.MI, €13.72) EOG Resources (EOG.N, $88.91) Encana Corp. (ECA.N, $9.79) ExxonMobil Corporation (XOM.N, $87.42) Formosa Petrochemical (6505.TW, NT$93.4) Galp Energia (GALP.LS, €13.09) Gazprom (GAZPq.L, $4.1) Hess Corporation (HES.N, $53.08) Holly Frontier Corp. (HFC.N, $24.68) Husky Energy Inc. (HSE.TO, C$16.39) INPEX Corp (1605.T, ¥883) Imperial Oil Ltd (IMO.TO, C$40.87) Kunlun Energy (0135.HK, HK$5.7) LUKOIL (LKOHyq.L, $45.9) Marathon (MPC.N, $42.32) Marathon Oil Corp (MRO.N, $15.49) Murphy Oil Corp. (MUR.N, $26.8) NOVATEK (NVTKq.L, $108.0) Newfield Exploration (NFX.N, $44.9) Noble Energy (NBL.N, $34.25) OMV (OMVV.VI, €25.45) Occidental Petroleum (OXY.N, $77.51) Oil Search (OSH.AX, A$6.63) Oil and Natural Gas Corporation Limited (ONGC.BO, Rs238.85) Origin Energy (ORG.AX, A$5.25) PTT Exploration & Production (PTTEP.BK, Bt79.5) PetroChina (0857.HK, HK$5.24) Petrobras (PBR.N, $9.58) Phillips 66 (PSX.N, $78.87) Pioneer Natural Resources (PXD.N, $183.71) Range Resources (RRC.N, $40.47) Reliance Industries Limited (RELI.BO, Rs1012.85) Repsol (REP.MC, €12.52) Rosneft (ROSNq.L, $5.34) Royal Dutch Shell plc (RDSa.L, 1870.5p) S-Oil Corp (010950.KS, W73,900) SK Innovation (096770.KS, W150,000) Sinopec (0386.HK, HK$5.68) Statoil (STL.OL, Nkr132.0) Suncor Energy (SU.TO, C$35.63) Surgutneftegas (SNGSyq.L, $4.74) Tatneft (TATNxq.L, $29.58) Tesoro Corp. (TSO.N, $74.55) Total (TOTF.PA, €43.98) Tupras (TUPRS.IS, TL58.4) Valero Energy Corporation (VLO.N, $54.83) Woodside Petroleum (WPL.AX, A$28.51)

Disclosure Appendix

Important Global Disclosures

Julia Dawson, Edward Westlake and David Hewitt each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

07 September 2016


The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms rep resenting the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For L atin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential w ithin an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.

Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 55% (52% banking clients)

Neutral/Hold* 28% (25% banking clients)

Underperform/Sell* 17% (53% banking clients)

Restricted 0%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factor s.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

See the Companies Mentioned section for full company names

The subject company (TSO.N, HFC.N, PSX.N, VLO.N, CXO.N, NBL.N, SU.TO, 0883.HK, GAZPq.L, OMVV.VI, RRC.N, CVE.TO, BP.L, TOTF.PA, HSE.TO, EOG.N, ONGC.BO, 0857.HK, LNG.A, ORG.AX, NFX.N, PXD.N, CTX.AX, GALP.LS, MRO.N, CVX.N, RELI.BO, PBR.N, 0386.HK, RDSa.L,

07 September 2016


XOM.N, IMO.TO, WPL.AX, ECA.N, CPG.TO, OXY.N, REP.MC, TUPRS.IS, STL.OL, DVN.N, PTTEP.BK, NVTKq.L, APC.N, FANG.OQ, OSH.AX, ROSNq.L, ENI.MI, APA.N, AR.N, CHK.N, COP.SN, COP.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (TSO.N, PSX.N, VLO.N, CXO.N, 0883.HK, RRC.N, CVE.TO, BP.L, TOTF.PA, LNG.A, ORG.AX, NFX.N, PXD.N, RDSa.L, XOM.N, IMO.TO, WPL.AX, ECA.N, OXY.N, DVN.N, APC.N, FANG.OQ, ENI.MI, AR.N, CHK.N, COP.N) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (ORG.AX, NFX.N, XOM.N) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (PSX.N, VLO.N, CXO.N, BP.L, TOTF.PA, LNG.A, NFX.N, PXD.N, XOM.N, IMO.TO, WPL.AX, DVN.N, APC.N, FANG.OQ, AR.N, COP.N) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (TSO.N, PSX.N, VLO.N, CXO.N, 0883.HK, RRC.N, CVE.TO, BP.L, TOTF.PA, LNG.A, ORG.AX, NFX.N, PXD.N, RDSa.L, XOM.N, IMO.TO, WPL.AX, ECA.N, OXY.N, DVN.N, APC.N, FANG.OQ, ENI.MI, AR.N, CHK.N, COP.N) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (TSO.N, 6505.TW, HFC.N, PSX.N, VLO.N, 1605.T, CXO.N, NBL.N, SU.TO, 0883.HK, GAZPq.L, OMVV.VI, RRC.N, CVE.TO, BP.L, TOTF.PA, BPCL.BO, HSE.TO, EOG.N, ONGC.BO, LNG.A, ORG.AX, NFX.N, PXD.N, CTX.AX, GALP.LS, LKOHyq.L, MRO.N, CVX.N, RELI.BO, PBR.N, RDSa.L, XOM.N, IMO.TO, WPL.AX, ECA.N, CPG.TO, OXY.N, REP.MC, TUPRS.IS, STL.OL, DVN.N, PTTEP.BK, NVTKq.L, CNQ.TO, APC.N, FANG.OQ, OSH.AX, ROSNq.L, ENI.MI, MUR.N, APA.N, AR.N, CHK.N, COP.SN, COP.N) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (ORG.AX, NFX.N, XOM.N) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (TSO.N, MPC.N, HFC.N, PSX.N, VLO.N, CXO.N, NBL.N, RRC.N, EOG.N, HES.N, LNG.A, NFX.N, PXD.N, MRO.N, CVX.N, XOM.N, TATNxq.L, OXY.N, DVN.N, APC.N, MUR.N, APA.N, CHK.N, COP.N).

Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014

Credit Suisse may have interest in (BPCL.BO, ONGC.BO, RELI.BO)

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (TSO.N, 0857.HK, CTX.AX, 0386.HK).

Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (TSO.N).

Credit Suisse has a material conflict of interest with the subject company (VLO.N) . Credit Suisse Securities (USA) LLC is acting as financial advisor to Valero Energy Corp. on their announced decision to pursue separation of their retail business.

Credit Suisse has a material conflict of interest with the subject company (GAZPq.L) . Economic sanctions imposed by the United States and European Union prohibit transacting or dealing in new equity of Gazprom issued on or after the date when the Company became the target of such sanctions. This report should not be construed as an inducement to transact in any such sanctioned securities.

Credit Suisse has a material conflict of interest with the subject company (RRC.N) . Credit Suisse Securities (USA) LLC acted as exclusive financial advisor to Range Resources Corporation in its acquisition of Memorial Resource Development Corporation.

Credit Suisse has a material conflict of interest with the subject company (0857.HK) . Any Nielsen Media Research material contained in this report represents Nielsen Media Research's estimates and does not represent facts. NMR has neither reviewed nor approved this report and/or any of the statements made herein.

Credit Suisse has a material conflict of interest with the subject company (PBR.N) . Andre Natal was formerly employed by Petroleo Brasileiro SA. within the past 12 months and received compensation from the company during that period. A household member of the research analyst Andre Natal is employed by Petroleo Brasileiro SA.

Credit Suisse has a material conflict of interest with the subject company (0386.HK) . Credit Suisse is acting as financial advisor to both CNOOC Ltd. and SINOPEC on the acquisition of Marathon Oil Corporation's 20% interest in Block 32, offshore Angola.

Credit Suisse has a material conflict of interest with the subject company (XOM.N) . Kofi Adjepong-Boateng, a Senior Advisor of Credit Suisse, is a Senior Advisor to Exxon Mobile (XOM).

Credit Suisse has a material conflict of interest with the subject company (NVTKq.L) . Pursuant to sectoral sanctions imposed by the Office of Foreign Assets Control (“OFAC”) of the United States Department of the Treasury, U.S. persons are currently prohibited from providing funding for, or otherwise dealing in, new debt of more than 90 days maturity issued by Novatek. This report should not be construed as an inducement to transact in sanctioned securities. Economic sanctions imposed by the United States and European Union prohibit transacting or dealing in new equity of Novatek issued on or after the date when the Company became the target of such sanctions. This report should not be construed as an inducement to transact in any such sanctioned securities.

Credit Suisse has a material conflict of interest with the subject company (ROSNq.L) . Economic sanctions imposed by the United States and European Union prohibit transacting or dealing in new equity of Rosneft issued on or after the date when the Company became the target of such sanctions. This report should not be construed as an inducement to transact in any such sanctioned securities.

07 September 2016


For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

For a history of recommendations for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to https://rave.credit-suisse.com/disclosures/view/report?i=145566&v=-6yat1321au3jr7eyqel33yl76 .

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.

The following disclosed European company/ies have estimates that comply with IFRS: (GAZPq.L, OMVV.VI, BP.L, RDSa.L, XOM.N, REP.MC, TUPRS.IS, STL.OL, NVTKq.L, ENI.MI).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (PSX.N, VLO.N, CXO.N, BP.L, TOTF.PA, 0857.HK, LNG.A, NFX.N, PXD.N, XOM.N, IMO.TO, WPL.AX, DVN.N, APC.N, AR.N, COP.N) within the past 3 years.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: PTT Exploration & Production (Excellent)

This research report is authored by:

Credit Suisse Securities (USA) LLC .............................................................................................................................................. Edward Westlake

Credit Suisse AG, Singapore Branch .................................................................................................................................................... David Hewitt

Credit Suisse International .................................................................................................................................................................... Julia Dawson

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse AG, Singapore Branch .................................................................................................................................................... David Hewitt

Credit Suisse International .................................................................................................................................................................... Julia Dawson

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With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of

https://rave.credit-suisse.com/disclosures/view/report?i=145566&v=-6yat1321au3jr7eyqel33yl76

07 September 2016


default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.

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For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

07 September 2016

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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