Australia lube prices increase drivers January 30th, 2005

2 Australia Lube price increases drivers Through 2005 base oil prices continued to increase due to escalation in crude oil prices as well as constrained supply of base oils and increased demand mainly in China, India and the US. Similarly diesel prices increased significantly resulting in higher distribution costs. Between Jan 2005 and Nov 2005 average base oil prices increased by 46%, and average diesel prices by 20% Plastics (HDPE) prices increased by about 7% (and by 16% since June 2005) thus increasing packaging costs Additive import index increased by 9% over the period Over the period the Australian dollar depreciated by 2% against the US dollar. Thus increasing the cost of base oils in Australian dollars Inflation has increased with the Australian Consumer Price Index (CPI) increasing by 2% over the period The International Maritime Organisation (IMO) manages international conventions in regards to shipping. Australia is a signatory to these international conventions.

3 Data and references One of these conventions is MARPOL (Marine Pollution). It is an international convention for the prevention of marine pollution from ships. From April 5, 2005, MARPOL requires that all Dirty Petroleum Products (DPP) such as heavy lube oils be transported into Australia using double hull ships. (see website below for more details). Commercially, this convention narrows the pool of available ships for use in Australian waters and due to normal supply and demand drivers, directly increases our costs.

4 Base stock market From , over 60 refineries closed removing an estimated 175kbd of base stock capacity Global base stock manufacturing is running a full capacity Shift in base stock production from Group I to group II+ (Group II is a higher quality than Group I). Suppliers are repositioning capacity to meet demand for higher quality base stocks Group I capacities are continuing to decline through plant closures and upgrades. Investment projects are for Group II base stocks and higher Majority of our locally manufactured lube oils are based on Group I base stock technology. Reduced capacity in Group I production means that base oil pricing is expected to remain high with the possibility of further increases Evolution of Base stock Manufacturing* * data source Exxonmobil

5 Market Fundamentals (Exxonmobil L&S understanding/interpretation) Market FundamentalsSituationImplication Energy Complex All Basic commodity values significantly up Demand driven, supply constrained Raw material cost increasing Value of alternative products increasing Basestock Market Basestock refineries are closing and there is little investment in new Group I production facilities Manufacturing operating at full capacity Finished lube oil market driving a shift in basestock quality requirements Rebalancing of supply (Move to Group II+) More profitable alternatives to basestock production drive prices up New investment focused on meeting higher quality standards (e.g Group II+ and GTL) Group I basestock capacity reducing Additive Market Chemical market strengthening Manufacturing is running at full capacity Demand driven Raw materials are capacity constrained Additive cost increasing Limited investment in new technology Returns on additive business below historic levels Total Finished Lube Oil Market Overall demand flat Increased demand for higher quality products All product values increasing Price increases in all markets Other Technology demand growing Rapid and sustained raw material cost increases Finished product prices lag all market indicators Market under performing Prices are increasing Market fundamentals are interrelated. The price increase is not a result of a cyclical blip in any one factor but is a reflection of an overall supply and demand market correction.

6 Additive Market Additive market has experienced a rapid shift from an over to under supply Natural gas is used in various aspects of additive manufacture and has been subject to significant price increases (see charts) Overall tightening of the energy market has resulted in additive raw material shortages and price increases (see charts) Global additive inventories are low and industry is operating a full capacity Operating facilities slow to recover from supply disruptions in 2005 (e.g. fire at Oronite’s Singapore plant and hurricane damage to US Gulf Coast plant) Demand for additives continues to grow Additive suppliers have reduced manufacturing capacity through the rationalization of high cost production Additive industry re-investment levels low due to poor returns **Data source ICIS-LOR *Data source NYMEX ** *