1 Meeting Future Distillate Needs Jean Sentenac President & CEO

2OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Worldwide refining: recent past context Future global demand for refined products 2020 Interest in heavier crudes Refining economics: “The New Deal” Impact on refining investments

3OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Recent Past Context Facts Last decade characterized by Low level of investment in refining during the 1990’s due to overcapacity and low margin Limited investments in crude exploration and production due to low crude prices A sharp increase of world oil demand since 2003 Market driver China, to a lesser extent emerging countries & the US Oil Demand Growth Mbpd Source: AIE

4OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Projected Refined Products Demand Demand (Mbpd) AAGR (%/year) Incremental Demand (Mbpd) Asia/Pacific Africa Middle East South Eastern Europe + CIS Western Europe Latin America North America World Total Demand Geographical Breakdown Incremental Demand by Region Mbpd Source: Hart WRFS, 2004 Edition

5OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Trend in Global Demand for Refined Products 2020 ~ 105 Mbpd 38% 25% Middle Distillate* Gasoline Naphtha 1990 ~ 66 Mbpd Middle Distillate* Gasoline Naphtha 31% 27% 7% 4% 62% 70%

6OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Global Demand for Refined Products in 2020 Continuous change in product mix AAGR, % Incremental Demand, Mbpd Naphtha Gasoline Middle Distillate Diesel On-Road Off-road Kerosene Fuel Oil

7OAPEC-IFP Joint Seminar – Rueil-Malmaison, North America Europe Central & South America Asia - Pacific -25 CIS Africa & Middle East -8 Imbalances & Major Flows 2005 Gasoline Jet/Kerosene Diesel Fuel Oil All figures in Mt/y

8OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Imbalances & Major Flows North America Europe Asia - Pacific -45 CIS Africa & Middle East -45 Gasoline Diesel All figures in Mt/y Jet/Kerosene

9OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Crude Oil Quality World Trends Excluding Condensate Source: Axens API Gravity Sulfur, wt.% Gravity Sulfur

10OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Supply & Demand Tension Trends Average barrel of crude: heavier, more sulfur Distillate demand is increasing Residual fuel oil demand is decreasing Product qualities will continue to rise Consequences Investments on the Supply side: SCO production (non-conventional resources) or new refineries (conventional crudes) Demand side: Hydrocrackers, cokers, FCCs Hydrotreatreaters everywhere

11OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Attractive Economics High crude prices accompanied by increased product spreads Increased HSFO - gas oil price differential Beginning of 2004: 150 $/t Today above 300 $/t  attractive investment conditions to convert residues into lighter products

12OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 HSFO & Diesel Prices 1998 – Apr Brent Dated Prices, $/bbl $/ton 2003: Diff. ~ 130 $/t 2005: Diff. > 300 $/t On-Road Diesel FOB NWE HSFO (3.5%S) FOB NWE Source: Platts

13OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Light-Heavy Differential Widening price differential between light-sweet and heavy-sour crudes Declining demand for HSFO Lack of sufficient heavy-sour crude processing capacity Widening price differentials have significantly contributed to increasing refining margins for refineries with heavy upgrading capacity

14OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Refining Diff. vs. Crude Diff – Mar period Crude Price Diff: ~ 1.5 $/bbl Ref. Marg. Diff: ~ 1 $/bbl Urals (API=31.3) Source: IEA, Platts Brent – Urals Crude Price Differential, $/bbl Cracking – Hydroskimming Diff. Refining Margins, $/bbl Brent (API=38.6) period Crude Price Diff: ~ 4 $/bbl Ref. Marg. Diff: ~ 2.5 $/bbl

15OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 The Market Direction 1. As crude prices increase, the light-heavy price spread increases 2. Operating margins are higher with heavier and more sour feeds 3. Margins increase further with increased refinery complexity Treating heavy, extra-heavy crudes requires more complex refineries: added conversion technology

16OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Impact on Refining Industry To satisfy additional demand, significant conversion capacity will be required through 2020 Conversion capacity: Mbpd Each year + 800,000 bpd Middle distillate HDS capacity: Mbpd

17OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Refining Investment Strategies Europe, US, Japan  Continued investments in regulation attainment and conversion capacity  Creep capacity expansion will continue Product demand growth areas (Asia)  New world-scale refineries Producing countries  Refineries dedicated to export (Middle East)  Upgrading of non conventional hydrocarbon reserves (Canada, Venezuela) to produce synthetic oil to be refined in US / Europe

18OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Projected Conversion Capacity Expansion Region 2005 Cap. (Mbpd) Add. Cap. (Mbpd) North America Latin America EU CIS + South Eastern Europe0.4< 0.1 Asia-Pacific Middle East Africa World Total Capacity Geographical Breakdown Additional Capacity by Region Mbpd Source: Hart WRFS, 2005 Edition

19OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Capacity Expansions Geographical Breakdown Hydrocracking: + 4 Mbpd (+1.1 AR/VRDS) (80 – 90 units) Catalytic Cracking: + 5 Mbpd (60 – 75 units) Coking : +3.3 Mbpd (55 – 70 units) North America Latin America EU 28 CIS + South Eastern Europe Asia-Pacific Middle East Africa Source: Axens & Hart WRFS, 2005 Edition

20OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Conclusions Steadily increasing product demand %/y Continuous change in product mix in favor of light transportation fuels Declining crude quality (API, sulfur) Increasingly stringent fuel specifications Need 12.3 Mbpd additional conversion capacity by 2020

21OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Attractive operational margins Tight supply – additional investments required High sulfur FO/GO differential above 300 $/t and expected to remain there for the foreseeable future Widening LS and HS crude differential Conditions favorable for investing in conversion technologies Conclusions