1. Onshore Rush By Offshore MoratoriumDian L. Chu, July, 2010Economic Forecasts & Opinions

2. Deepwater Horizon Apr. 20, 2010 - Explosion at BP's Deepwater Horizon oil rig in the Gulf of Mexico Graphic Source:Treehugger.com, & WSJ.com 2010 Economic Forecasts & Opinions by Dian L. Chu 3. Oil Spill in the U.S. Gulf The largest oil spill in U.S. history Current estimate - 12,000 to 19,000 barrels leaking a day. 2010 Economic Forecasts & Opinions by Dian L. Chu 4. Some Gulf Oil Facts Oil Production from the Gulf of Mexico 1.6 million barrels a day in 2009 30% of U.S. domestic production, 8% of the U.S. oil consumption 19% of total U.S. oil reserves Crude oil production loss resulting from the moratorium - 31,000 bbl/d in Q4, 2010 and 82,000 bbl/d in 2011 (EIA estimates, July 2010) Source: U.S. EIA, June & July 2010 2010 Economic Forecasts & Opinions by Dian L. Chu 5. Offshore Drilling Moratorium A six-month halt on new permits in has idled 33exploratory wells & rigs Expect a global tightening of offshore drilling relatedregulations Graphic Source: NY Times, Mar. 31, 20102010 Economic Forecasts & Opinions by Dian L. Chu 6. Moratoriums Deep Impact Oil Services - Small to mid-size U.S. Gulf-centric cos. Including but not limited to Drillers e.g. , Noble, Diamond Offshore and Ensco Transportation such as Hornbeck and PHI, Inc. Rig Exodus - Two deepwater rigs already left the Gulf for new long-term contracts Large offshore services cos to redeploy resources outside of U. S. Smaller offshore players have no choice but to stay and fight the moratorium for survival2010 Economic Forecasts & Opinions by Dian L. Chu 7. Onshore Rush - North America North America onshore remains the closest region to the Gulf with high profit potential to quickly redeploy capital and personnel Oil companies are jumping onshore North America to make up for the reserve and production shortfall due to the moratorium2010 Economic Forecasts & Opinions by Dian L. Chu 8. Onshore Rush - Europe & Canada Bigger producers most likely will also shift focus to international gas shale plays (East Europe) & Canadian oil sand Graphic Source: Petroleum Economist, Dec. 2009 2010 Economic Forecasts & Opinions by Dian L. Chu 9. Domestic Shale Gas Drill or lose lease, producers hedging, andfavorable joint ventures will most likely ensure ahigh shale gas activity level at least till 2012 Graphic Source: U.S. EIA2010 Economic Forecasts & Opinions by Dian L. Chu 10. Rising Activity in Oil Shales Hot Now U.S. oil and liquid rich shale plays, due to favorable commodity pricing Graphic Source: geology.com 2010 Economic Forecasts & Opinions by Dian L. Chu 11. Peak Oil This! Total world resources of oil shale - 411 gig tons to yield 2.8 to 3.3 trillion barrels of shale oil (2005 est.) The United States, Russia and Brazil account for 86% of the world's shale oil resources United States accounts 62% of world shale oil resources Source: Wikipedia & newenergyandfuel.com2010 Economic Forecasts & Opinions by Dian L. Chu 12. Shale Oil - Economical Now Shale oil became economic in 2001 with the advancements in horizontal drilling and completion technology Process similar to Canadian oil sand - $35 -$54 crude for a 15% returnSource: Fact Sheet: U.S. Oil Shale Economics, Fossil.energy.gov 2010 Economic Forecasts & Opinions by Dian L. Chu 13. The Prolific Bakken Shale Formation The largest continuous petroleum system in the U.S. Lower 48 states ever assessed by USGS as of 2008. Most of the Bakken play is in the Williston Basin, across North Dakota, Montana, South Dakota, Manitoba and Saskatchewan. The basin covers roughly 300,000 square miles. Source: geology.com & Powerlineblog.com 2010 Economic Forecasts & Opinions by Dian L. Chu 14. Bakken Reserves Estimate USGS estimated mean undiscoveredvolumes of 3.65 billion barrels of oil in theBakken Shale Formation The area of Bakken oil shale formation in theWilliston Basin is estimated to hold as muchas 400 billion barrels of oil. Various studies, including the USGS and thestate of North Dakota, put the recoverablereserves raging from 2.1 billion to 4.3billion barrels. Source: USGS,Wikipedia2010 Economic Forecasts & Opinions by Dian L. Chu 15. Three Forks Formation The recoverable oil in the Three Forks formation-- under the Bakken Formation is estimated at up to 2 billion barrels of oil within North Dakota alone. (Based on the North Dakota Geological Survey and Department of Mineral Resources report issued on Apr. 29, 2010. ) 2010 Economic Forecasts & Opinions by Dian L. Chu 16. Good For The Goose . Many gas-focusedproducers are shiftingtowards oil to balanceasset portfolio New technologies forshale gas are aseffective in shale oil Increasingly, high specrigs fromunconventional gasplays are moving toshale oil plays, such asBakken Source: RigZone.com and WSJ.com 2010 Economic Forecasts & Opinions by Dian L. Chu 17. A White Hot Bakken One of the hottest playsin the nation Record lease saleactivity Rig count in NorthDakota more thandoubled since mid-2009driven mostly by theBakken play Shortages of skilled andservice labor, housingand hotel room drivingup costsSource: RigZone.com, & The bismark tribune 2010 Economic Forecasts & Opinions by Dian L. Chu 18. Some Active Players at Bakken E&Ps EOG Resources, Whiting Oil and Gas, Continental Resources Drillers Nabors, Precision Drilling, Helmerich & Payne, Inc. Ensign Energy Services, Patterson UTI. Pioneer Drilling Drilling & Completion Services Schlumberger, Complete Production, Core Lab Source: RigZone.com 2010 Economic Forecasts & Opinions by Dian L. Chu 19. Stable Commodity Prices Favor Services Sector In a stable commodity price environment, service companies tend to have higher returns on capital than other energy sub-sectors. Futures curve suggest we could be heading towards that scenario..2010 Economic Forecasts & Opinions by Dian L. Chu 20. Moratorium Tipping the Scale Offshore services providers traditionally enjoy higher margins than land services companies Oil spill and moratorium has tipped the scale favoring the onshore service sector in the short to medium term Providing an entry point for long term investment in the offshore services sector 2010 Economic Forecasts & Opinions by Dian L. Chu 21. Charts Tale Favoring Onshore Onshore services cos performing better than the offshorecounterparts In addition to offshore, Halliburton (HAL) also enjoys dominantmarket share positions in quite a few onshore oil service categories HAL shares appear oversold due to its association with DeepwaterHorizon rig Graphic Source: Reuters, June 24, 2010 2010 Economic Forecasts & Opinions by Dian L. Chu 22. American Shale Oil Forecast The U.S. EIAs latest Annual Energy Outlook in 2010 forecast oil shale production to become more significant as world oil prices increase. 2010 Economic Forecasts & Opinions by Dian L. Chu 23. The Next Energy Game Changer? U.S. shale gas has shifted the world energylandscape by weakening the long stronghold ofGazprom and Russia on natural gas. Shale oil in America could be the next gamechanger in the energy geopolitical balance. Graphic Source: Powerlineblog.com 2010 Economic Forecasts & Opinions by Dian L. Chu 24. Onshore Rush By Offshore MoratoriumDian L. Chu, July, 2010Economic Forecasts & Opinions