1. The Role of Fiscal Regimes in Determining Competitiveness of Company Investments Marianne Kah 32 nd USAEE/IAEE North American Conference Petroleum Fiscal Regimes July 30, 2013

2. Company Capital Allocation and Fiscal terms  Companies allocate capital to those opportunities that offer the most attractive returns with the highest capital efficiency at an acceptable level of risk  Project attractiveness is determined by a number of key metrics  Net present value and probabilistic expected value (EMV)  Profitability index  Rate of return  Net operating income  Cash breakeven  Return on capital employed  Fiscal terms impact the attractiveness of project returns  Instability of fiscal terms are a major project risk and impact the risk- weighted expected value of the project 2

3. Factors Considered in Oil & Gas Company Investments 3 Economic Attractiveness Fiscal Terms - % gov’t take - Stability Strategic - Fit with portfolio - Materiality Cost - Complexity - Remoteness Doability - Location constraints - Infrastructure Prospectivity - Resource size - Probability of success Commercial - Access to markets - Crude quality Cycle Time - Time to production Legal & Regulatory Political Risk - Rule of law - Gov’t stability Health, Safety, Environment & Sustainability - Personal & process safety - Environmental sensitivity & stakeholder issues

4. Characteristics of Fiscal Regimes That Encourage Investment  Government take commensurate with the commercial discovery size and cost of developing and operating in that country  Simple and transparent system  Stable regime  Not overly progressive such that extinguishes upside  Contains special incentives for challenged and mature basins  Minimizes distortions such that pre-tax and post-tax returns should result in the same project rankings  Recognizes revenue per barrel differences between oil and natural gas developments 4

5. Relationship of Field Size and Cost to Pre-Tax Net Cash Flow 5 Total Development Cost per Barrel of Oil Equivalent Total Pre-Tax Net Cash Flow* ($MM) Field size and cost will determine how much room there is for investor returns and government take Example from U.S. Gulf of Mexico *Undiscounted, cumulative

6. Value Sensitivity in Balanced and Progressive Government Take Regimes 6 Balanced Tax RegimeProgressive Tax Regime A progressive tax regime reduces potential upside for oil price $ Millions

7. Balanced and Progressive Value Uncertainty Comparison 7 Progressive Government Take EMV = $(-36.8) MM Balanced Government Take EMV = $62.5 MM In this example: Under a balanced government take the project would be developed Under the progressive government take the project would not go forward.

8. 8 Production w/o continued investment Operating Cost per Barrel As mature fields decline, their unit cost of operations increases Mature Fields Face Many Challenges Assumptions 10% /yr. production decline $135 MM / yr. operating cost w/o continued investment With continued investment of $228MM /yr. (if resource available) Production Mature fields need substantial investment to slow the production decline Production vs. Operating Cost Thousand Barrels per Day Production (Thousand Barrels per Day) Operating Cost ($ / Barrel)

9. SB21 Improves Alaska’s Competitiveness 9 Industry Share Improves Under SB21

10. Cost Structure Adversely Impacts Alaska Competiveness 10 $/boeUnconventional- Bakken-North Dakota Mid-High Cost Development Alaska Revenue100.00 Capex17.5025.00 Opex5.0015.00 Divisible Income77.5060.00 70% Government Take / Royalty 54.2542.00 30% Industry Keep 23.2518.00 Lower government take is required to provide competitive $/boe values in higher cost environments

11. 11 United States China Brazil India Canada Australia Indonesia Venezuela Angola Nigeria United Kingdom Qatar Norway Malaysia Russian Federation Algeria Libya Iraq Countries With Lower Tax Takes Receive More Investment Total Tax Take Drilling and Completion Spending ($MM / energy output) Total Government Tax Take vs. Industry Oil and Gas Spending Source: Goldman Sachs Global Economics, Commodities and Strategy Research, June 2013

12. CHANGED COMPETITIVE LANDSCAPE 12

13. The North America Shale Revolution Turns to Oil 13 Bakken, Eagle Ford, Permian & others pushed U.S. production over 7.0 MMBD Source: U.S. Department of Energy, Energy Information Administration

14. Tight Oil Drives Substantial Growth in U.S. Oil Production 14 ~4 MMBD increase in total U.S. production between 2013-2020 U.S. Lower 48 Crude Production Million Barrels per Day U.S. Tight Oil Production Source: COP Analytics; Rystad Energy; U.S. DOE Statistics

15. North America Oil Demand, Supply, and Net Imports 15 North America will likely become oil independent by 2020 Source: PIRA Energy Group

16. Global Oil Demand vs. Non-OPEC Oil Production* Growth Non-OPEC supply growth outpacing global oil demand growth Million Barrels per Day Demand Growth Outpacing Non-OPEC Supply Growth Outpacing Demand Growth Source: International Energy Agency *Non-OPEC oil production includes NGLs (including OPEC), biofuels and refinery process gain 16

17. Attractiveness of U.S. Tight Oil Investments  Relatively low breakeven oil prices (for resources accessible to IOCs)  Relatively low risk  Low exploration risk  Strong rule of law  Close to markets with high crude quality  Fast pay-back period  Complements long lead-time projects in portfolio  Flexibility of varying investment levels to smooth out cash flow  High doability (service industry, infrastructure) 17

18. Summary  The underlying attractiveness of the project will determine how much room there is for investor returns and government take  Overly progressive tax regimes discourage investment  Changes to Alaska’s tax system should draw more investment  The shale revolution is increasing competition for company investment. 18