1. Prospects, issues, and implications of gas exploration in the Eastern Mediterranean Focus on energy developments and commercial dynamics in Cyprus Prepared by Anastasios Giamouridis, Senior Consultant, Pöyry Management Consulting ( UK) Limited for the “Security of Gas Supply: The Role of Developments in the Mediterranean Region” Malta Energy Conference 2014 10-11 July 2014

2. 2 FINANCING STRUCTURES FOR ENERGY SUPPLY PROJECTS - FOCUS ON LNG Shareholder 1Shareholder 2Shareholder 3Shareholder 4 Etc... Equity LNG Project Equity Loans Export Credit Ag. 1Export Credit Ag. 2Export Credit Ag. 3Export Credit Ag. 4 Etc... Loan guarantees Loans Commercial bank 1Commercial bank 2Commercial bank 3Commercial bank 4 Etc... Loans Multilateral bank 1Multilateral bank 2Multilateral bank 3Multilateral bank 4 Etc... Loans Completion guarantees Project Owners from 20% to 100% Project Finance - Lenders from 0% to 80%

3. 3 FINANCING CRITERIA FOR ENERGY SUPPLY PROJECTS - FOCUS ON LNG

4. EXPLORATION AND GAS COMMERCIALISATION PROGRESS SO FAR IN CYPRUS Source: Pöyry Management Consulting License Seismic Surveys Exploratory Drilling Appraisal Drilling Declaration of Commerciality Block 12 – Aphrodite field ( 1 st Round ) Block 12 – other prospectivity ( 1 st Round ) 4 Blocks 1,4,5,6,7,8,13 ( potential 3 rd round ) Blocks 2,3,9,10,11 ( 2 nd Round )

5. STEPS TOWARDS GAS MONETISATION AFTER DECLARATION OF COMMERCIALITY * Source: Pöyry Management Consulting Front End Engineering and Design (FEED) Negotiate and sign Long- Term Contracts (LTCs) with gas buyers Screen and select Contractor for Engineering, Procurement, and Construction (EPC) Reach positive Final Investment Decision (FID) Construction of gas upstream and export infrastructure commences * Reaching a positive FID presupposes 1)Projected revenues outweigh estimated CAPEX and OPEX by a margin superior to other investment options 2)The project in question can successfully compete for capital and can secure financing on attractive terms 5 Estimated Aphrodite resources insufficient to proceed on this basis alone - potential solutions 1.Gas discoveries by Noble Energy over and above Aphrodite in its Block 12 license 2.Gas discoveries in the new licenses awarded to Total and/or ENI-KOGAS 3.Joint monetisation of offshore natural gas resources with Israel 4.Oil discoveries ( liquids credits supporting gas economics)

6. POTENTIAL CYPRUS GAS RESOURCES SET IN REGIONAL AND EU CONTEXT Aphrodite field * ( discovered but not proved ) 6 Source: BP Statistical Review 2013 and Pöyry Management Consulting Cyprus EEZ Blocks ( speculated ) * Actual exports from Cyprus on this basis could amount to as much as 70% of Phase 1 of the Southern Corridor

7. MORE OFFSHORE EXPLORATION NEEDED – POLITICAL RISK REAL BUT EXAGGERATED 7 Source: Oxford Institute for Energy studies and Pöyry Management Consulting

8. EXPORTS TO BE DECIDED ON COMMERCIAL MERIT OR RISK CANCELLATION Source: Oxford Institute for Energy studies and Pöyry Management Consulting 8

9. RELEVANCE OF CYPRUS GAS TO THE EU AND HOW TO SUPPORT DEVELOPMENTS 9 Cyprus economy Hydrocarbons production and exports out of Cyprus are possible but should not be taken for granted Potentially significant impact but challenging to achieve gas exports before mid-2020s Cyprus dispute Making exploration and/or export routes conditional on politics may delay project or lead to outright cancellation Pipeline to TR is not necessarily the best commercial option, it requires normal pre- FID scrutiny EU companies Total and ENI currently faced with normal technical and commercial risks associated with E&P process Politics could undermine project if allowed to delay and/or interfere with commercial logic Supply Security No proved reserves at the moment in offshore Cyprus but oil/gas prospectivity needs to be assessed in full Cannot replace RUS but Aphrodite exports alone could reach 70% of Phase 1 of South Corridor Support uninhibited exploration in internationally-recognised Cyprus EEZ Facilitate decision-making on potential exports on the basis of commercial merit Consider reasonable engagement of European multilateral banks and ECAs as appropriate

10. Anastasios Giamouridis Email: anastasios.giamouridis@poyry.com Tel.: +44 1865 812 247 (office) / +44 7875 886 152 (mobile) 10