DSC

1
DSCs entry into the EP sector

• NELP VII

2
Agenda

• DS Objectives and Strategy
• NELP VII Objectives and Strategy
• Action Plan

3
DS Objective Strategy for Oil

• DSC Boards Objectives for EP
• Cash multiple of X times by which year?
• IRR of 25 by Year 8
• NPV of X million by which year?
• Strategy
• Entry into Indian Oil Industry through NELP VII
• Acquisition of Acreage/blocks in order hopefully
  to discover reserves (!)
• Commitment of 200 million (?)
• Over 7-8 years
• Form JVs with experienced EP Companies
• Manpower, Systems Software
• Outsource first and then build In-house

4
DS Objective Strategy for Oil

• Initial Strategy
• Active JV Partner vs Sleeping Partner?
• Depends on partner
• Working interest
• 90 Naftogaz 20? OIL or other offshore
  operator
• How do we realise value?
• Farm out (i.e. sell part of working interest for
  cash, royalty or work done)
• Win revenue from production
• Do we enter Production delay the decision

5
NELP Objective Strategy

• Objectives
• Acquire x blocks that imply capital expenditure
  of y million (approx. 200 million?)
• Say 5 blocks for a balanced affordable portfolio
• But need to bid for say 10 blocks to win 5
• Revised estimate of 225 million on exploration
  for 10 blocks (8 onshore) for typical winning
  minimum work programmes, expended over 7-8 years
  (taken from analysis of NELP VI winners)
• Revised estimate of additional 57m for 10 Blocks
  if one discovery is found on each of them (the
  obligatory appraisal programme in the Contract)

6
NELP Objective Strategy

• Overall Strategy
• Take a working interest of at least 80 for
  onshore blocks
• Willing to take minority interest in offshore
  blocks
• Joint venture with experienced Operators
• Sole risk on a few S blocks?
• Active (lead) JV Partner where high working
  interest
• Leverage other partners technical teams to our
  advantage
• After award, spread risk by
• Farm-in to additional 5 blocks by trading equity
  and/or paying cash and/or work
• Farm-out to other companies if DSC win too many
  blocks

7
NELP Objective Strategy

• Detailed Strategy
• Analyse about 20 blocks in detail, ideally 25
• Latter achievable if help from JV partners
• Bid on 10 blocks ideally (to win 5)
• Budget must cover winning all blocks (or farm
  out)!
• Achieve maximum marks on the biddable Minimum
  Work Programme (MWP)
• Achieve DSCs minimum corporate hurdle IRR in
  fiscal package

8
NELP Action Plan

• Mobilise
• Teams, hardware, software, videocoms starting now
• Public information to pre-prioritise blocks for
  detailed study (starting now until Jan 8th)
• Supplemented by contact with DGH
• View online data as soon as DGH makes it
  available
• Focus on the 38 onshore and shallow offshore
• Agreement with Naftogaz (onshore)
• Negotiate with OIL for offshore, but identify
  competitor offshore operators
• OIL unlikely to collaborate on many blocks, or
  permit DSC significant working interest

9
NELP Action Plan

• Mumbai road show- Jan 8th
• Overview potential JVs networking
• Physical data room- hopefully Jan 10th
• Objectives finalise blocks for detailed
  analysis fine tune additional data for purchase
• Purchase of data packages- from Jan 10th
• Interpret seismic and well data- Jan 10th to Mar
  10th
• Identify possible hydrocarbon accumulations on
  each block analysed, their range of potential
  sizes, and the geological probability that they
  exist and are economic

10
NELP Action Plan

• Above information passed to Engineering (25th Jan
  until 10th Mar), who then deliver
• Recovery factor
• Production profile
• No. of wells
• Cost of wells and surface facilities and
  pipelines
• Schedule to first oil/gas
• Capital and operating cost schedules, and
  pipeline/processing tariffs
• Economic modeling (25th Jan to 25th Mar)
• Input assumptions (e.g. oil and gas price series
  escalation)
• Basic cash flows
• PSC terms (easily adjustable)
• Any additional India- specific taxation

11
NELP Action Plan

• Outputs (1st Mar to 31st Mar)
• Economic metrics for various bid strategies (e.g.
  IRR, NPVX, EMV, Payback, maximum exposure)
• Range of potential hydrocarbons in place and
  probability of existence
• Cost of Minimum work programme for each favoured
  block
• Outputs according to bid rules and according to
  reality!
• Bid package suitable for submission (25th Mar to
  5th Apr)
• Legal and taxations final due diligence
• Board presentations
• Internal decision making
• Submission to government

12
NELP Immediate Steps (in order of priority)

• Purchase I.H.S database (70k approx. for min.
  one year, and temporary export to Buenos Aires)
  NOW!
• Purchase/lease geophysics software (55k to
  130k, temp exp to BA) NOW!
• Purchase high end hardware for 60k for temp
  export to BA) NOW!
• Review existing video conferencing hardware for
  compatibility and purchase two units for temp exp
  to BA and UK for 60k (or borrow chairmans in
  London?)
• Resolve data upload capability in Delhi for use
  of video conferencing (bonded ADSL?)
• Purchase/lease other software (265k to 500k)
  for temp exp to BA
• Identify Indian academic to advise on petroleum
  geology of offered Blocks.

13
NELP Cost Estimate of Exploration and Appraisal
Work Programmes (based on NELP VI winning bids)
14
Cost Estimate of Bidding Process