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									September 24, 2009

Research Roundtable

Global Roundtable

Global: Energy: Oil – Recovery and relapse, v2: Oil demand recovery key to breaking the range
Breaking the range
We believe the key to oil equities and prices breaking out of the narrow trading range seen over the past three months is greater investor confidence in rebounding global oil demand. While the normally choppy fall “shoulder months” period still has another month or so to run, we believe a return to positive yoy demand growth will become evident as we move through 4Q2009 and into 2010. A combination of oil inventory reductions and higher OPEC production (i.e., lower OPEC spare capacity if inventories do not build or draw) is the most likely key catalyst.

Entering ISM "sweet spot" for Energy
In addition to the oil price cycle, we see four key investment themes for the oil sector that will impact stock price performance including: (1) deepwater exploration (Brazil, Lower Tertiary, Ghana-to-Sierra Leone); (2) Brazil; (3) NOC exposure; and (4) “low profile” M&A.

Top ten global oil favorites
Our global oils team continues to favor generally higher-beta, oil leveraged companies. Our global top ten oil favorites are BG, Cameron, CNOOC, Lukoil, Petrobras, Reliance Industries, Statoil Hydro, Suncor Energy, Technip, and Weatherford. Our favorites are expected to benefit from positive EPS revisions, with our 2010 global integrated oil EPS estimates an average 20% above consensus and our 2011 oil services/driller EPS estimates an average 15% above consensus.
Arjun N. Murti
(212) 357-0931 | arjun.murti@gs.com Goldman, Sachs & Co.

Higher oil demand drives price deck, EPS revisions
Following recent upward revisions to global GDP forecasts by our economists as well as tangible signs that US/OECD oil demand is stabilizing, we have raised our 4Q2009 and 2010 oil demand projections, which are the main driver of our higher price deck and upward EPS revisions for the oil sector. We believe potentially robust 2010 oil demand growth sets the stage for a sizable decline in the combination of OPEC spare capacity and oil inventories over the next year.

Michele della Vigna, CFA
+44(20)7552-9383 | michele.dellavigna@gs.com Goldman Sachs International

Kelvin Koh, CFA
+852-2978-1218 | kelvin.koh@gs.com Goldman Sachs (Asia) L.L.C.

Key risk: Renewed economic weakness
The key risk to our bullish outlook for oil equities would be renewed global economic weakness, which led to weaker-than-forecast global oil demand and therefore lower oil prices than we are currently forecasting.

Nilesh Banerjee
+91(22)6616-9045 | nilesh.banerjee@gs.com Goldman Sachs India SPL

Anton Sychev
+7(495)645-4012 | anton.sychev@gs.com OOO Goldman Sachs Bank

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc.

Goldman Sachs Global Investment Research

Global Investment Research

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September 24, 2009

Research Roundtable

Table of contents
Recovery and relapse, v2: Oil demand recovery key to breaking the range Oil macro update: Global oil demand recovery key to breaking the range Key investment themes: Deepwater exploration, Brazil, NOC exposure, “low profile” M&A Entering ISM/PMI “sweet spot” for energy equities Top ten global oil equity favorites Disclosures 3 6 19 23 25 31

Exhibit 1: Goldman Sachs Global Energy Equity Research Team
Americas Energy - Arjun Murti, Business Unit Leader Integrated Oils, Refining Arjun Murti Amil Mody Joe Citarrella E&Ps, Coal Brian Singer Andre Benjamin Pavan Hoskote Uma M. Yanamandra Electric Utilities, IPPs Michael Lapides Jaideep Malik Zac Hurst Neil Mehta Aditi Rai Dastidar Pipelines, MLPS Ted Durbin Michael Cerasoli Smriti Dixit Europe Energy - Michele della Vigna, Energy Team Leader European Marketing Analyst Hugh Selby-Smith European Integrated Oils Michele della Vigna Michael Rae Russian Oils Anton Sychev Geydar Mamedov E&P Christopher Jost Oil Services Henry Tarr Daniel Brook Refiners Henry Morris Asia Energy - Kelvin Koh, Energy Team Leader Asia ex-Japan, India Kelvin Koh Patrick Tiah Chris Shiu Jason Jin Nikhil Bhandari Peter Zheng India Nilesh Banerjee Nishant Baranwal Japan Hiroyuki Sakaida Shintaro Horinouchi Taiwan Jim Hung Rowena Chang Australia Energy (GS JBWere) Aiden Bradley Mark Wiseman
Source: Goldman Sachs Research.

Oil Services/Drillers Daniel Boyd Dimitry Dayen Kyle Jenke

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Research Roundtable

Recovery and relapse, v2: Oil demand recovery key to breaking the range
We believe the key to oil equities and prices breaking out of the narrow trading range seen over the past three months is greater investor confidence in rebounding global oil demand. While the normally choppy fall “shoulder months” period (between peak summer and winter demand in the northern hemisphere) still has another month or so to run, we believe a return to positive year-over-year demand growth will become evident as we move through 4Q2009 and into 2010. In our view, investors will gain confidence that oil markets have returned to healthier conditions via a combination of oil inventory reductions and higher OPEC production (i.e., lower OPEC spare capacity if inventories do not build or draw). Following recent upward revisions to global GDP forecasts by our economists as well as tangible signs that US/OECD oil demand is stabilizing, we have raised our 4Q2009 and 2010 oil demand projections, which are the main driver of our higher price deck and upward EPS revisions for the oil sector. We believe the potential for robust 2010 oil demand growth sets the
stage for a meaningful reduction in the combination of OPEC spare capacity and oil inventories over the next 12-18 months. We believe that in the late 2010-to-2011 time frame, oil prices will need to return to demand rationing levels. Reasonable arguments can be made for that level to be higher or lower than what we saw in 1H2008. At this time, our base-case price deck takes a conservative approach to 2011.

Our global oils team continues to favor generally higher-beta, oil leveraged integrated oils, E&Ps, and oil services/drillers. Our global top ten oil favorites are BG, Cameron, CNOOC, Lukoil, Petrobras, Reliance Industries, Statoil Hydro, Suncor Energy, Technip, and Weatherford International (see Exhibit 2). Our favorites are expected to benefit from positive EPS revisions,
with our 2010 global integrated oil EPS estimates an average 20% above consensus and our 2011 US oil services/driller EPS estimates an average 15% above consensus (oil service/driller earnings tend to lag sector recoveries by about one year, though stocks anticipate revisions much earlier). We are comfortable adding to our top picks at current prices or on “shoulder months” weakness, given our bullish outlook for the rest of 2009 and into 2010. Exhibit 2: Goldman Sachs Global Energy Equity Research: Top ten favorites
GS Lead Analyst della Vigna Boyd Koh Sychev Murti Banerjee della Vigna Murti Tarr Boyd Enterprise Value ($ mn) $63,089 $8,163 $60,974 $53,018 $206,931 $77,984 $80,288 $39,895 $4,579 $20,948 Crude oil leverage o ++ + ++ + ++ ++ ++ ++

Company BG Cameron CNOOC Lukoil Petrobras Reliance Industries Statoil Hydro Suncor Energy Technip Weatherford ++ most favorable

Region Europe USA China Russia Brazil India Europe Canada Europe USA

Growth ++ + + ++ ++ o ++ + ++

Profitability ++ ++ ++ ++ ++ ++ ++ o ++ o

Valuation NA ++ + + NA NA

--most unfavorable

Source: Goldman Sachs Research.

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Research Roundtable

Entering ISM/PMI “sweet spot” for energy equities
While it is intuitive to both energy specialists and generalist portfolio managers that higher crude oil prices benefit oil equities, it may be somewhat less known that we have also entered the “sweet spot” for energy equities as it relates to the current phase of the ISM index. Research by Goldman Sachs’ strategists and options research teams in both the United States and Europe highlights that when key ISM/PMI indices move from 50 to peak, energy equities tend to outperform the broader market. Notably, energy equities tend to outperform the broader market from peak to 50, though lower-beta sectors like the integrated oils do best during that phase. Not surprisingly, it makes sense to avoid energy altogether when moving from 50 to trough in the ISM.

Key investment themes: Deepwater exploration, Brazil, NOC exposure, “low profile” M&A
In addition to the over-arching importance of the oil price cycle, we see four key investment themes for the oil sector that will impact stock price performance for individual companies over the remainder of 2009 and into 2010.

Key investment themes include: • Deepwater exploration optionality has been a key driver of share price performance in 2009 and we think will remain so over
the next year. Key deepwater plays we are watching especially closely include Brazil, Gulf of Mexico (Lower Tertiary), and the Ghana-to-Sierra Leone trend offshore West Africa. Our favorite stocks for this theme are Acergy, BG, Cameron, Devon, Petrobras, Statoil, Schlumberger, Subsea7, and Technip.

•

Brazil is driven by deepwater exploration, but has become so large that we see it as a theme in its own right. While much of the
focus in rightfully on the massive Santos Basin “pre-salt” opportunity, it is important to remember Brazil has meaningful nonpre-salt upside in the Campos, Espirito Santo, and Santos Basins. Our favorite stocks for this theme are Petrobras, BG, Cameron, and Technip.

•

Exposure to resources dominated by national oil companies, which own the bulk of the world’s remaining resource, is an important differentiator for oil services/drillers. While major oil companies are shut-out or have only limited exposure to countries like Saudi Arabia, Mexico, and Iraq, oil services/drillers often have sizable opportunities to help state-owned oil companies develop resources. Our favorite stocks for this theme include Petrobras, Schlumberger, Technip, and Weatherford. “Low-profile” M&A and restructuring we think will continue over the remainder of 2009 and into 2010. We are not expecting
a wave of “high profile” mega-mergers like seen in the late 1990s and early 2000s. Over the next 6-12 months, we see five important areas to watch: (1) Devon Energy’s Lower Tertiary joint venture; (2) acquisition of international assets by Chinese oil companies; (3) Reliance Industries recently indicated its interest in growing its E&P business outside of India; (4) Additional US shale gas joint ventures; and (5) Suncor Energy rationalizing its asset base following the Petro-Canada merger.

•

Avoiding a relapse of 1H2008 requires accelerated efforts to moderate demand at trend GDP
In our view, the biggest takeaway from the 2004-2008 super bull market for oil was the fact that non-OPEC supply growth shrank slightly at the end of the period, despite massive increases in capital spending, rig counts, and the delivery of major new projects. We believe non-OPEC supply is on-track to be flat at best in 2009 and 2010. Beyond 2010, the combination of a sparse project queue and accelerating declines in legacy areas suggests overall declines in supply are likely.

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Our long-standing view remains that the issue is not one of an inadequate oil endowment but rather that “above ground” challenges—geopolitics—are the key driver of non-OPEC disappointments. We are not believers in the so-called “peak oil” theory. Unfortunately, the prospect of a combination of peace, stability, and/or leadership changes in too many disparate countries seems pretty unlikely; it therefore remains hard to reasonably believe that non-OPEC supply will resume sustainable growth any time soon. As such, the world remains very dependent on OPEC’s ability to grow its supply. Many OPEC countries, however, face similar above-ground challenges, as do key non-OPEC producers. While there is considerable focus by politicians and the media on alternative energy sources, we do not believe commercially relevant alternative energy solutions yet exist for transportation fuels. This is in contrast to power generation where there are many options, including natural gas, nuclear, coal/clean coal, wind, solar, geothermal, and hydro. For transportation markets, the only real choice is to use crude oil-based gasoline or diesel. In recent years, corn-based ethanol has proven disappointing and both cellulosic ethanol and biodiesel appear to be many years, if not decades, away from mass-scale commercial viability. Sugar ethanol may be the most promising alternative energy transportation fuel, but thus far has been confined primarily to the Brazilian market. The key therefore to avoiding future increases in oil prices, in our view, is the need to sustainably flatten out future oil demand growth relative to trend real global GDP growth of about 3.5%. The current expectation would be for about 1.5%-1.8% annual oil demand increases relative to 3.5% trend real GDP growth. In order to achieve sustained flattish global oil demand growth, real gains in fuel economy will be needed in the United States coupled with investment in mass transportation systems. For the nonOECD, the main area of opportunity revolves around the need to decrease the industrial use of diesel/gasoil and residual fuel oil, which in part requires meaningful investment in non-oil-fired power generation. In the absence of concrete actions that either curb or substitute away from oil, oil demand will need to be rationed via higher prices. The public policy motivation to tackle the demand side of the equation is often lacking as it requires tough choices to be made and tough messages to be delivered to consumers. While it may be politically expedient to try to forcibly reduce price volatility, in our view such steps will only exacerbate the issue to the extent consumers miss the important signal that higher prices send to curb consumption. Proactive public policy actions that constructively tackle the demand side of the equation are, we believe, the best way to keep oil prices low.

Key risk: Renewed global economic weakness
The key risk to our bullish outlook for oil equities would be renewed global economic weakness leading to weaker-than-forecast global oil demand and therefore lower oil prices than we are currently forecasting. With oil equities currently reflecting approximately $70/bbl WTI spot oil, there is some cushion for demand disappointment relative to our base-case view.

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Research Roundtable

Oil macro update: Global oil demand recovery key to breaking the range
Continued strength in non-OECD demand, stabilizing OECD oil demand, and flattish non-OPEC crude oil supply are the key drivers to our view that oil prices will rise further in 2010. Based on our current base-case assumptions, we believe oil markets will work through much of the inventory and OPEC spare capacity overhang by year-end 2010 or early 2011 (see Exhibit 3). Our 2010 global oil demand forecast is consistent with the Goldman Sachs Global ECS Research forecast of 4% global GDP growth. Our oil supply estimates are driven by our “Top 230” projects research and our ongoing global oil company coverage. Exhibit 3: Global oil supply/demand model
million b/d, unless otherwise indicated
1Q Demand: OECD Non-OECD Demand y-o-y growth y-o-y growth (adjusted for balancing item) Supply: Non-OPEC y-o-y growth OPEC: Crude NGLs Total Total Inventory build (draw): Implied stock change from S/D model Less: Net underestimation of demand/other Floating storage/oil in transit Government inventory build (draw) Total adjustments Reported OECD inventory build (draw) Demand growth (y-o-y): OECD Non-OECD Total Supply growth (y-o-y): Non-OPEC OPEC Total 47.9 39.6 87.5 1.0 1.4 49.9 (0.2) 32.4 4.7 37.1 87.0 2Q 46.2 40.1 86.3 0.8 1.8 49.8 (0.1) 32.3 4.7 36.9 86.7 2008 3Q 45.6 40.4 85.9 (0.4) 0.6 49.0 (0.4) 32.4 4.8 37.2 86.2 4Q 46.2 39.2 85.4 (2.3) (1.6) 49.6 (0.2) 31.4 4.9 36.3 85.9 Year 46.5 39.8 86.3 (0.2) 0.5 49.6 (0.2) 32.1 4.8 36.9 86.5 1Q 45.5 39.0 84.5 (3.0) (2.1) 51.2 0.2 28.6 4.8 33.4 84.6 2Q 43.4 40.7 84.1 (2.3) (2.3) 50.8 (0.0) 28.5 5.0 33.5 84.3 2009E 3QE 44.4 40.4 84.9 (1.1) (1.1) 50.1 0.0 28.8 5.3 34.1 84.2 4QE 45.3 40.2 85.6 0.1 0.2 50.5 (0.2) 29.3 5.3 34.7 85.1 Year 44.7 40.1 84.7 (1.6) (1.3) 50.6 0.0 28.8 5.1 33.9 84.5 1QE 45.8 40.3 86.1 1.6 2.8 50.9 (0.3) 30.0 5.5 35.5 86.4 2QE 43.7 42.1 85.8 1.7 2.1 50.3 (0.5) 30.1 5.6 35.6 85.9 2010E 3QE 44.5 41.8 86.4 1.5 1.5 49.9 (0.2) 30.3 5.7 36.0 85.9 4QE 45.2 41.6 86.8 1.2 0.8 50.4 (0.1) 30.3 5.8 36.2 86.5 Year 44.8 41.4 86.3 1.5 1.8 50.4 (0.3) 30.2 5.7 35.8 86.2 2011E 44.6 42.7 87.3 1.1 1.1 49.8 (0.6) 31.7 6.0 37.6 87.4 2012E 44.4 44.1 88.5 1.1 1.1 49.0 (0.8) 33.5 6.1 39.6 88.6 2013E 44.3 45.4 89.7 1.2 1.2 48.3 (0.7) 34.5 6.1 40.6 88.9 2014E 44.1 46.8 90.9 1.2 1.2 47.9 (0.4) 34.8 6.1 40.9 88.8 2015E 43.9 48.2 92.2 1.3 1.3 47.4 (0.5) 35.3 6.1 41.4 88.7

(0.5) (1.0) 0.3 0.1 (0.6) 0.1

0.4 0.0 (0.0) (0.0) (0.0) 0.4

0.3 0.0 (0.3) (0.0) (0.3) 0.6

0.5 (0.1) 0.1 0.0 0.0 0.5

0.2 (0.2) 0.0 0.0 (0.2) 0.4

0.1 (1.2) 0.6 0.2 (0.4) 0.5

0.2 (0.4) 0.2 0.2 (0.0) 0.2

(0.7) 0.0 (0.4) 0.2 (0.3) (0.4)

(0.4) 0.4 (0.2) 0.2 0.4 (0.8)

(0.2) (0.3) 0.0 0.2 (0.1) (0.1)

0.3 0.0 0.0 0.1 0.1 0.2

0.1 0.0 0.0 0.1 0.1 0.0

(0.4) 0.0 0.0 0.1 0.1 (0.5)

(0.2) 0.0 0.0 0.1 0.1 (0.3)

(0.1) 0.0 0.0 0.1 0.1 (0.2)

0.1 0.0 0.0 0.1 0.1 (0.0)

0.1 0.0 0.0 0.1 0.1 0.0

(0.8) 0.0 0.0 0.1 0.1 (0.9)

(2.1) 0.0 0.0 0.1 0.1 (2.2)

(3.4) 0.0 0.0 0.1 0.1 (3.5)

-1.6% 4.7% 1.2% -0.4% 4.6% 1.7%

-1.9% 4.6% 1.0% -0.3% 4.6% 1.8%

-4.6% 4.7% -0.4% -0.7% 3.9% 1.2%

-5.2% 0.6% -2.6% -0.4% -0.8% -0.6%

-3.3% 3.6% -0.2% -0.4% 3.0% 1.0%

-5.0% -1.5% -3.5% 0.5% -7.2% -2.8%

-6.2% 1.5% -2.6% 0.0% -6.6% -2.8%

-2.5% 0.2% -1.3% 0.1% -5.5% -2.3%

-1.9% 2.6% 0.1% -0.4% -1.6% -0.9%

-3.9% 0.7% -1.8% 0.0% -5.2% -2.2%

0.7% 3.4% 2.0% -0.5% 6.2% 2.1%

0.7% 3.4% 2.0% -1.0% 6.4% 1.9%

0.2% 3.4% 1.8% -0.4% 5.6% 2.1%

-0.3% 3.4% 1.4% -0.2% 4.3% 1.6%

0.3% 3.4% 1.8% -0.5% 5.6% 1.9%

-0.4% 3.1% 1.3% -1.2% 5.1% 1.4%

-0.4% 3.1% 1.3% -1.6% 5.3% 1.4%

-0.4% 3.1% 1.4% -1.4% 2.4% 0.3%

-0.4% 3.0% 1.3% -0.9% 0.8% -0.1%

-0.4% 3.0% 1.4% -1.1% 1.1% -0.1%

Note: Non-OPEC and OPEC growth rates adjusted for movement of countries between he groups in 2007, 2008, and 2009.

Source: IEA, Goldman Sachs Research estimates.

Our return to a cyclically bullish crude oil view earlier this year had been predicated on our expectation that over the course of 2009 (1) non-OECD oil demand growth would return, (2) OECD demand would stabilize, and (3) non-OPEC supply declines would accelerate over the course of 2009. It now looks like we under-estimated non-OECD demand in 2009, which has rebounded faster and more strongly than our original expectation (see Exhibit 4). However, we also underestimated non-OPEC supply and now expect it to be broadly flat this year versus 2008. The better non-OECD demand and non-OPEC supply trends have largely offset one

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another. Therefore, the key uncertainty in our crude oil view over the remainder of 2009 and as we head into 2010 is our call for stabilization in OECD demand, most importantly in the United States. Exhibit 4: Changes to our global oil supply/demand relative to our June 2009 report
million b/d, unless otherwise indicated
2008 Global oil demand: Old (June 2009) change, mn b/d, y-o-y % change y-o-y New (September 2009) change, mn b/d, y-o-y % change y-o-y change, mn b/d, new vs old % change, new vs old Non-OPEC supply: Old (June 2009) change, mn b/d, y-o-y % change y-o-y New (September 2009) change, mn b/d, y-o-y % change y-o-y change, mn b/d, new vs old % change, new vs old 86.0 2009 83.7 (2.3) -2.6% 84.7 (1.6) -1.8% 1.0 1.2% 2010 84.3 0.6 0.7% 86.3 1.5 1.8% 1.9 2.3% 2011 85.6 1.3 1.5% 87.3 1.1 1.3% 1.7 2.0% 2012 86.6 1.0 1.1% 88.5 1.1 1.3% 1.9 2.2% 2013 87.6 1.0 1.2% 89.7 1.2 1.4% 2.1 2.4% 2014 88.7 1.1 1.2% 90.9 1.2 1.3% 2.2 2.5% 2015 89.8 1.1 1.3% 92.2 1.3 1.4% 2.4 2.6% DEMAND CHANGES 2009 demand changes: --US oil demand showing clear signs of recovery this summer. --Asia/EM demand growing again in 2009. 2010 demand changes: --GS economists now forecast 4.1% global GDP growth. Long-term demand growth little changed, but now off of a higher base. NON-OPEC SUPPLY CHANGES Non-OPEC supply revised higher in 2009 and 2010: --FSU (Russia, Azeri, and Kazakh) supply doing much beteer than originally expected. --"Top 230" project delivery much better over past year. --2010 boosted largely due to "annualization" effect of new projects, including higher FSU supply. Long-term: The relatively sparse queue of new projects expected to be brought on-line in 2010-2012 coupled with lower CAPEX in 2009 drives non-OPEC declines in 2011+ period.

86.3

0.3

50.1 (0.5) -1.0% 50.6 0.0 0.0% 0.6 1.1%

49.3 (0.8) -1.6% 50.4 (0.3) -0.5% 1.1 2.2%

48.6 (0.7) -1.4% 49.8 (0.6) -1.2% 1.2 2.4%

48.2 (0.4) -0.8% 49.0 (0.8) -1.6% 0.8 1.6%

47.9 (0.3) -0.6% 48.3 (0.7) -1.4% 0.4 0.8%

47.8 (0.1) -0.2% 47.9 (0.4) -0.9% 0.1 0.1%

47.6 (0.2) -0.5% 47.4 (0.5) -1.1% (0.2) -0.5%

Balance (demand less non-OPEC supply growth): Old (June 2009), mn b/d (1.8) 1.4 1.9 New (September 2009, mn b/d (1.6) 1.8 1.7 Stronger/(weaker) balance 0.2 0.4 (0.2) (Note: A positive number suggests a tightening balance, a negative number a weakening balance)

1.4 1.9 0.6

1.3 1.9 0.6

1.2 1.6 0.4

1.4 1.8 0.4

Source: Goldman Sachs Research estimates.

Global oil demand: Non-OECD recovery on-track, OECD stabilization in process
We believe 2Q2009 will mark the low point of the global oil demand cycle on an absolute basis, with demand expected to recover sequentially in 3Q and 4Q2009 and on a year-over-year basis starting in 1Q2010 (see Exhibits 5-10). Notably, non-OECD oil demand proved relatively resilient throughout the global financial and economic crisis, dipping slightly in 4Q2008 and 1Q2009 before returning to positive growth in 2Q2009. Our economists have a particularly robust outlook for the non-OECD through 2010, which provides significant confidence to us that non-OECD oil demand will continue to increase. While there is some debate on the magnitude of demand strength, we believe most oil market observers will largely agree with the notion of non-OECD resilience. The big uncertainty on the demand side has been the OECD and in particular United States oil demand growth, though we would note that Japanese oil demand growth also fell precipitously through 2Q2009. Over the course of the summer, oil demand in both the United States and Japan has improved meaningfully off of 2Q2009 lows and we are optimistic that the worst is now in the past.

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In the United States in particular, upward revisions to forward GDP expectations, in addition to the recovery in the ISM index to 52.9 in August (above 50 marks expansion), all suggest an improved outlook for OECD oil demand. The combination of the secular strength in non-OECD oil demand and the stabilization in the OECD ought, we think, to reduce fears that global oil demand would show multi-year negative growth as occurred from 1979-1982 (1984 was also negative). We believe in the current period, global oil demand declines will be limited to the 5-6 quarters between 3Q2008 and 3Q or 4Q2009. Exhibit 5: GS economists calling for above-trend global GDP growth in 2010 Exhibit 6: Expected 2010 GDP rebound drives oil demand recovery
Global GDP grow th vs. Global oil dem and grow th 6.0% 5.0%

Real GDP, % yoy 2008 United States Europe Japan Advanced Economies China BRICs Emerging Markets World 0.4% 0.9% -0.7% 0.6% 9.0% 7.5% 6.2% 2.8% 2009E -2.6% -3.6% -5.7% -3.2% 9.4% 5.1% 2.8% -0.9% 2010E 2.0% 1.4% 1.4% 1.9% 11.9% 8.9% 7.3% 4.1%

4.0% 3.0% 2.0% 1.0% 0.0% 2008E -1.0% -2.0% -3.0% Global oil dem and grow th (% yoy) Global real GDP grow th (% yoy) Trend oil dem and Trend GDP grow th 2010E
8

1990

1992

1994

1996

1998

2000

2002

2004

Source: Goldman Sachs Global ECS Research.

Source: IEA, Goldman Sachs Global ECS Research, Goldman Sachs Research estimates.

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Exhibit 7: US oil demand has rebounded over the past two months
US total implied demand, 4-wk avg.
22,000 21,500 21,000 20,500 (Mbbl/d) 20,000 19,500 19,000 18,500 18,000 17,500 Q1 Q2 Q3 Q4

Exhibit 8: Japan oil demand also showing signs of stabilization
Japan im plied oil dem and grow th (y-o-y) 40.0% 30.0% 20.0% 10.0% 0.0% Oct-07 Oct-08 Jun-09 Feb-09 Aug-07 Aug-08 -10.0% -20.0% Aug-09 Jun-07 Feb-07 Jun-08 Feb-08 Dec-06 Dec-07 Dec-08 Apr-07 Apr-08 Apr-09

2005

2006

2007

2008

2009

2009E

-30.0%

Source: DOE, Goldman Sachs Research estimates.

Source: PAJ, Goldman Sachs Research.

Exhibit 9: GS GLI has moved up sharply, which bodes well for future oil demand growth
GS Global Leading Indicator versus implied global oil demand growth (%, y-o-y)
7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 (1.0) (2.0) (3.0) (4.0) (5.0) (6.0) (7.0) (8.0) (9.0) (10.0) Jan-93 GS Global Leading Indicator 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% GLI continues to rebound, which bodes well for future global oil demand. Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 -2.0% -3.0% -4.0% Implied oil demand growth (%)

Exhibit 10: Global oil demand growth troughed in 1H2009 and we believe will again show year-over-year growth in 1Q2010
Year-over-year growth in OECD, non-OECD, and global oil demand (mn b/d)
3.0 2.0 Growth (mn b/d) 1.0 0.0 (1.0) (2.0) (3.0) (4.0) 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09E 4Q09E 1Q10E 2Q10E 3Q10E 4Q10E 3.0 2.0 1.0 0.0 (1.0) (2.0) (3.0) (4.0)

GLI index (% change, y-o-y)

Implied global oil demand Jan-94 Jan-95 Jan-96 Jan-97 Jan-98

OECD

Non-OECD

Global

Source: IEA, Goldman Sachs Global ECS Research, Goldman Sachs Research estimates.

Source: IEA, Goldman Sachs Research estimates.

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Non-OPEC supply: Less negative than expected in 2009/2010, with greater declines likely in 2011+
We have raised our forecasts for 2009 and 2010 non-OPEC supply growth to reflect: (1) better-than-expected Russia oil production; (2) fewer operating challenges at ACG in Azerbaijan; and (3) strong delivery of “Top 230” projects over the past 12 months. Even with the better performance, we are still looking for non-OPEC supply (adjusted for the movement of various countries to and from OPEC) to be broadly flat in 2009 and 2010. However, we believe that overall non-OPEC supply declines will increase in 2011 and beyond. The year 2009 looks to be a peak year in terms of incremental production from major projects (see Exhibit 11). We also expect the acceleration in decline rates seen over the past three years to continue in the years ahead (see Exhibit 12). Exhibit 11: 2009 is a peak year for new volumes from growth projects
Incremental annual production from “Top 230” projects
Top 230 project growth increment
1,600 1,400 1,200 thousands b/d 1,000 800 600 400 200 0 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 0.5% We see 2009 as the peak year for growth from major projects. 0.0% -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% -3.5% -4.0% -4.5% We see the acceleration in decline rates for legacy areas continuing in the years ahead. 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E

Exhibit 12: Acceleration in legacy decline rates expected to continue
Non-OPEC production growth/(declines) excluding Top 230 projects
Non-OPEC ex-Top 230 decline rate

Source: Company reports, Goldman Sachs Research estimates.

Source: Goldman Sachs Research estimates.

We still find it remarkable that the outlook for non-OPEC supply is flat at best over the 2008-2010 period following what was one of the industry’s biggest boom periods between 2002-2008. The complete lack of a supply response is in sharp contrast to the experience of the 1970s. In fact, both the demand and non-OPEC supply outlook for the current period stands in stark contrast with the previous super cycle in the 1970s (see Exhibit 13).

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Exhibit 13: Core supply/demand balances have remained tight in stark contrast to the 1970s super cycle
Growth rate in global oil demand and non-OPEC supply; "Balance" is difference in growth rates (supply less demand)

1970s super-cycle
10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1973 1974 1975 1976 1977 1978 1979 1980 1981

Throughout the 1970s bull market, non-OPEC supply was growing in excess of global oil demand

5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1999 2000 2001 2002 2003

2000s super-cycle
This time, non-OPEC supply has lagged demand

2004

2005

2006

2007

2008

2009E

2010E

-2.0% -4.0% -6.0%

-1.0% -2.0% -3.0%

Global oil demand

Non-OPEC supply

Balance (S-D)

Global oil demand

Non-OPEC supply

Balance (S-D)

Source: BP Statistical Review of World Energy, IEA, Goldman Sachs Research estimates.

As we look out over the next five years, we believe only Brazil and Canada will deliver sustained, positive supply growth among key non-OPEC regions (see Exhibit 14). We also now show the former Soviet Union as being slightly positive over the period. Overall, we see non-OPEC crude oil supply shrinking by 2.4 million b/d over the next five years, or an average of just under 0.5 million b/d per year. We believe risk to our non-OPEC supply forecasts is to the downside based on the 2002-2008 experience. Exhibit 14: Non-OPEC supply forecast to decline 2.4 million b/d over next five years
Cumulative crude oil supply growth (2009E-2013E)
1.0 0.5 million barrels per day 0.0 (0.5) (1.0) (1.5) (2.0) (2.5) (3.0) FSU Canada Brazil US Total nonOPEC North Sea All Other Mexico

Source: Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

2011E

1982

1983

1984

1985

1986

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OPEC spare capacity expected to fall sharply over next 12-18 months
We expect OPEC spare capacity to fall sharply over the next 12-18 months, essentially returning to the minimal levels that existed prior to the global financial and economic crisis (see Exhibit 15). It remains our view that OPEC spare capacity in 2009 has been limited to the oil it took off the market between 3Q2008 and 1Q2009, or approximately 3 million b/d. We think that ongoing geopolitical turmoil in Nigeria calls into question its approximate 0.7 million b/d of spare capacity. In the case of Saudi Arabia, we note that the country has never in its history produced more than 10 million b/d of crude oil. While our OPEC capacity figures for Saudi give the country credit for the 12 million b/d it claims following the recent start-up of the Khurais and Khursaniya fields, we believe investors will remain uncertain that it can produce more than 10 million b/d until proven otherwise. As such, we believe the consensus view that OPEC may have 5-6 million b/d of spare capacity significantly overstates the likely reality of what can be produced over the next several years. If we rephrase OPEC spare capacity in terms of an overall industry supply “utilization rate” (including both OPEC and non-OPEC supply), we find that the industry troughed at a stunning 93% utilization rate during the worst financial and economic crisis in many decades. We suspect most industries would be happy to have troughed at such a utilization rate. Depending on the treatment of Nigeria and Saudi capacity as noted above, we believe the utilization rate will return to essentially “full” levels by 2011. Exhibit 15: OPEC spare capacity expected to fall sharply over next 12-18 months; supply "utilization" rate still very high
Annual OPEC immediately deliverable spare capacity: 1974-2012E
14,000 12,000 thousands b/d 10,000 8,000 6,000 4,000 2,000 0 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010E Total OPEC ex-Nigeria ex-Nigeria, Saudi over 10 mnb/d While there is some build in spare capacity, we expect it to start declining again by 2H2009; some of the excess in the Niger Delta and Saudi (over 10) we think is questionable 100%

Worldwide crude oil supply "utilization rate"

ex-Nigeria, Saudi over 10 mn b/d ex-Nigeria

% utilization

95%

90%

85%

We estimate supply "utilization rate" will trough in 2Q2009 at 93% and average 95% in 2009--all during a time when demand is expected to be at its weakest. 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009E 2011E

80%

Source: Goldman Sachs Research estimates.

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Updating our 2009-2011 oil price forecasts
We are raising our 2009-2011 oil price forecasts (see Exhibits 16-17). We are also updating our 2009-2013 forecasts for refining margins and our 2009 US natural gas price forecast (see related research for additional details on our refining margin and US natural gas views). Our framework for forecasting spot crude oil prices can be broken out into two key components, with (1) our forecast for long-dated oil prices plus (2) the shape of the forward curve equaling our forecast for spot oil prices.

•

Long-dated oil prices. In an environment of modest OPEC spare capacity (as is currently the case), we believe long-dated oil prices will tie to full-cycle upstream economics. In an environment of limited spare capacity—as seen in 1H2008—we believe long-dated oil prices will reach levels that incentivize demand rationing. Shape of the forward (time spreads). The shape of the forward in all environments we think will reflect near-term oil
inventory levels.

•

Exhibit 16: Goldman Sachs Global Energy Equity Research: Updated commodity price forecasts
Crude oil prices WTI spot oil ($/bbl) Brent ($/bbl) new old new old 2009E: 1Q 2Q 3QE 4QE Year 2010E: 1QE 2QE 3QE 4QE Year 2011E 2012E 2013N $43 60 67 77 $62 $85 85 90 100 $90 $110 $105 $85 $43 60 65 70 $59 $80 80 80 80 $80 $100 $105 $85 $45 59 67 77 $62 $85 85 90 100 $90 $110 $105 $85 $45 59 65 70 $60 $80 80 80 80 $80 $100 $105 $85 Gulf Coast 3:2:1 (WTI) new old $9.13 7.32 6.62 5.90 $7.24 $8.00 10.67 9.67 8.67 $9.25 $10.67 $11.00 $9.67 $9.13 7.32 8.17 5.67 $7.57 $7.17 9.33 8.17 7.00 $7.92 $9.50 $11.00 $9.67 Refining margins Europe 2:1:1 (Brent) new old $10.79 10.08 9.00 9.50 $9.84 $9.70 11.20 10.75 10.60 $10.56 $11.50 $12.70 $12.10 $10.79 10.08 8.50 8.00 $9.34 $8.70 8.70 8.70 8.70 $8.70 $10.50 $12.50 $12.50 Singapore 2:1:1 (Dubai) new old $12.11 8.26 8.25 8.00 $9.16 $9.45 9.45 9.45 9.45 $9.45 $10.50 $11.00 $10.00 $12.11 8.26 6.90 7.50 $8.69 $8.00 8.00 8.00 8.00 $8.00 $9.00 $10.50 $9.50 Light-heavy, sweet-sour spreads WTI-WTS ($/bbl) WTI-Maya ($/bbl) new old new old $0.91 1.38 1.61 2.70 $1.65 $4.25 4.25 4.50 5.00 $4.50 $5.50 $5.25 $4.25 $0.91 1.38 1.95 2.80 $1.76 $4.00 4.00 4.00 4.00 $4.00 $5.00 $5.25 $4.25 $4.66 4.73 5.83 7.70 $5.73 $12.75 12.75 13.50 15.00 $13.50 $17.60 $14.70 $11.90 $4.66 4.73 6.50 8.40 $6.07 $12.00 12.00 12.00 12.00 $12.00 $15.00 $15.75 $12.75 Natural gas US Henry Hub ($/MMBtu) new old $4.75 3.75 3.40 4.00 $3.98 $5.00 5.00 5.50 6.50 $5.50 $7.00 $6.50 $6.50 $4.75 3.75 4.00 4.50 $4.25 $5.00 5.00 5.50 6.50 $5.50 $7.00 $6.50 $6.50

Source: Bloomberg, Goldman Sachs Research estimates.

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Exhibit 17: Goldman Sachs Global Energy Equity Research: WTI forward price path
$150 $140 $130 $120 WTI spot crude oil ($/bbl) $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 "Supply destruction" zone "Normalized" oil price "Demand destruction" zone

Actual GS Low case

GS Equity Research base case GS High case

Source: Bloomberg, Goldman Sachs Research estimates.

Long-dated WTI oil
There is no change to our long-standing view that over the long run (20-30 years) the oil business will be a cost-of-capital industry, with long-term returns on capital employed expected to be 8%-10% after tax. From the perspective of investing in energy equities, the most important consideration is the outlook for returns on capital, more so than the specific oil price forecast, despite the fact that the latter is what receives most of the attention. We arrive at a “normalized” oil price by solving for the price that will yield an 8%-10% return on capital for industry taking into account the expected “all-in” cost structure to find, develop, and produce crude oil. Earlier this year, we saw the potential for oil services, drilling, and basic materials costs to fall sharply, leading to a sharp decline in the “all-in” cost structure. We thought it was possible to see as much as 35%-50% cost deflation, which, had it occurred, would have meaningfully lowered our view of the “normalized” oil price. In fact, cost deflation has been far less than expected—perhaps not much more than 10%-15% for oil developments. Given the potential for costs to again rise once capital spending once more picks up, our view of the “normalized” oil price remains unchanged at $85/bbl for WTI spot crude oil. Given the lack of (or severely limited) access to many of the most promising hydrocarbon-bearing provinces like Iraq, Venezuela, Iran, Saudi Arabia, Russia, and Mexico, we do not believe our global coverage universe can meaningfully grow crude oil supply organically (i.e., excluding acquisitions). This is consistent with our view of flat-to-declining non-OPEC supply. Importantly, if oil prices were to fall below the level needed to earn a reasonable return on new investments, we would expect capital spending to fall and supply to decline further. As such, we think it will be difficult for oil prices to remain below the “normalized” price for an extended period of time, unless demand is sustainably declining.

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Toward the end of 2008 and early 2009, when both spot and long-dated oil prices were under severe pressure, oil companies began announcing steep cuts in capital spending. The announced reductions began when crude oil fell through $60/bbl and accelerated as spot WTI fell through $40/bbl. We believe oil market participants took notice of the sharp capital spending reductions and became concerned that non-OPEC crude oil supply might collapse. Unlike OPEC crude oil production cuts—which can more easily be reversed—declining supply in mature non-OPEC regions would not have been easily reversible. It was at this time that long-dated oil prices began to stabilize in the mid-$60s/bbl, halting the capital budget reduction process (see Exhibits 18-19). As it has become increasingly apparent that cost deflation was going to be far less than expected and that the worst of the financial crisis was over, long-dated prices have firmed to ensure a sufficient level of capital spending given the growing prospects for a recovery in global oil demand. It is important to emphasize the asymmetric risk/reward for non-OPEC crude oil supply. Sharp increases in capital spending did not lead to faster production growth—in fact just the opposite occurred over the 2002-2008 period as non-OPEC growth counterintuitively slowed and actually declined slightly in 2008. However, we believe a sharp reduction in capital spending would lead to falling non-OPEC supply. It is the recognition of the apparent asymmetric nature of non-OPEC supply that has made the demand outlook the over-arching driver of crude oil prices. Exhibit 18: Long-dated WTI prices proved resilient in order to keep CAPEX and supply from collapsing
$160 $150 $140 $130 $120 $110 $100 $/bbl $90 $80 $70 $60 $50 $40 $30 $20 Aug-08 May-08 May-09 Aug-09 Apr-08 Dec-08 Feb-08 Jun-08 Feb-09 Apr-09 Sep-08 Jun-09 Nov-08 Sep-09 Jan-08 Oct-08 Jan-09 Jul-08 Mar-08 Mar-09 Jul-09 Long-dated WTI has traded in a $65$85/bbl range this year--consistent with industry costs. Long-dated oil began to stabilize in late 2008 as companies began announcing sharp CAPEX reductions.

Spot

60 mo. forward

Source: Bloomberg, Goldman Sachs Research estimates.

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Exhibit 19: Upstream “all-in” cost curve did not fall much during downturn
Oil price required to earn a "cost of capital" return for our global coverage universe
Oil price required for cost of capital return 140 120 100 80 60 40 20 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 30,000 32,000 34,000 36,000 Oil and gas production (kboe/d) 2007 2006 2005 2004 2003 2002 2001 2000 2008 Marginal producers requre $90/bbl or more to earn a cost of capital return. Using 2007-2008 "all-in" costs, the average oil company needs $60-$80/bbl WTI oil to earn a cost of capital return.

Source: Company reports, Goldman Sachs Research estimates.

Shape of the forward curve (time spreads)
While spot WTI crude oil prices have traded in a very wide range over the past decade, the relationship between the shape of the forward curve (also referred to as time spreads by oil market participants) and oil inventory levels has been far more stable (see Exhibit 20). We believe many observers mistakenly try to relate the absolute level of spot WTI oil prices with inventory levels when in fact it is the shape of the forward curve that correlates to inventory levels. Importantly, when WTI spot oil was trading in the low $30s/bbl, our analysis shows that it was disconnected with inventory levels on the downside. In other words, oil prices were actually over-sold relative to fundamentals. As discussed below in more detail, we attribute approximately $13/bbl of the increase in WTI spot oil to simply a normalization of the relationship between inventories and oil prices.

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Exhibit 20: Shape of the forward remains linked to oil inventories
WTI month 1-12 time spread (%) versus DOE crude and key product inventories (million barrels)

DOE inventories vs WTI time spreads
40% 30% 1-12 month time spread 20% 10% 0% 625 -10% -20% -30% -40% -50% US DOE crude and key product inventories (mn barrels)
2000-present Last 4 weeks

R = 64%

2

650

675

700

725

750

775

800

825

When spot WTI was trading in the low $30s/bbl, WTI was actually over-sold relative to fundamentals.

Source: Bloomberg, DOE, Goldman Sachs Research estimates.

Decomposing the 2009 rally in WTI spot oil We believe the entirety of the increase in oil prices in 2009 can be explained by fundamental factors. WTI spot crude oil
troughed at $33.98/bbl on February 12, 2009. On September 21, 2009 WTI spot oil closed at $69.71/bbl or an increase of $35.73/bbl. Looking at our two key variables of time spreads and long-dated oil prices, we find that stronger time spreads account for $23.41/bbl of the increase and an increase in long-dated oil prices account for $12.32/bbl of the gain (see Exhibit 21). Using the historic relationship between inventories and time spreads shown in Exhibit 20, we estimate that about $13/bbl of the tightening in time spreads can be attributed to a simple normalization of the relationship to inventories. In other words, when WTI spot oil was trading at $33.98/bbl it was over-sold by about $13/bbl—a fact almost always overlooked by commentators in describing the oil price increase this year. The rise in long-dated oil prices to $82.86/bbl from $70.54/bbl moves it near our $85/bbl “normalized” price that we think is needed for the average oil company to earn merely a cost-of-capital return over a full cycle. The increase coincides with a period of time where a variety of markets (equity, debt, currencies, commodities, etc.) regained confidence that the world was moving beyond the worst of the financial and economic crisis. Credit markets began to loosen. Markets in developing countries that are important to oil demand like China began to rebound sharply. Even the beleaguered United States stock market started its sharp ascent from a March 9 low. In an environment where oil market participants saw considerable proof following the 2002-2008 boom that higher capital spending did not lead to higher crude oil supply, the major uncertainty for oil prices is the outlook for economic growth and hence oil

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demand growth. Strangely, some commentators do not make the link between economic growth and oil demand and therefore seem confused as to why oil prices have been correlated with global stock markets. In our view, the answer is pretty straightforward: if (1) stock markets are meant to be leading indicators of the economic outlook, (2) if economic growth is strongly related to oil demand growth, and (3) if there is little confidence oil supply can grow, then (4) oil prices will trade on the expectation of oil demand growth as indicated by increases in global stock markets. The major risk is the same risk that has always existed, which is if oil demand growth does not materialize or the outlook changes for any number of reasons, oil prices indeed would be highly likely to fall, barring a geopolitically driven supply disruption. Exhibit 21: Decomposing the increase in WTI spot oil prices in 2009: Fundamentals and normalization fully explain the increase
$150 $125 $100 $75 $50 $25 $0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 Month 7/14/2008 2/12/2009 9/21/2009 7/14/2008 (peak) 2/12/2009 (trough) Peak to trough change 2/12/2009 (trough) 9/21/2009 (current) Trough to current change 1 $145.18 $33.98 ($111.20) $33.98 $69.71 $35.73 Month 12 $146.32 $55.28 ($91.04) $55.28 $74.50 $19.22 60 $141.45 $70.54 ($70.91) $70.54 $82.86 $12.32 Time spreads 1-12 (A) 12-60 (B) ($1.14) $4.87 ($21.30) ($15.26) ($20.16) ($20.13) ($21.30) ($4.79) $16.51 ($15.26) ($8.36) $6.90 60 (C) 1 (A+B+C) $141.45 $145.18 $70.54 $33.98 ($70.91) ($111.20) $70.54 $82.86 $12.32 $33.98 $69.71 $35.73

WTI forward oil price ($/bbl)

Tighter time spreads account for over $23/bbl of the increase in oil prices, with $12/bbl via higher long-dated oil prices.

Source: Bloomberg, Goldman Sachs Research.

Our new 2010 and 2011 forecasts reflect our view of a return to demand rationing prices in the 2011 time frame
Based on our global oil supply/demand outlook, we believe oil markets will return to a demand-rationing environment in 2011. Relative to the 2002-2008 cycle when most oil market participants expected a surge in supply that never materialized, we expect oil prices to better anticipate the coming tightness this time. The major question, in our view, is the path of demand recovery. Based on our supply/demand outlook, we see demand growth exceeding non-OPEC supply growth by 1.8 million b/d in 2010 and 1.7 million b/d in 2011. The combined 3.5 million b/d of better demand relative to non-OPEC supply will, we believe, eat through the effective 3.0 million b/d of OPEC spare capacity and reduce global oil inventories back to the middle of the historic range. The key risk to our view would be renewed global economic weakness and hence slower-than-forecast global oil demand growth. Our $90/bbl 2010 WTI spot oil forecast reflects our view that long-dated WTI oil will average around $90/bbl and that time spreads will strengthen further to a broadly flat curve as inventories are drawn down. Given our view that markets will anticipate the need for demand rationing by 2011, we expect long-dated WTI oil prices to trade slightly above our $85/bbl “normalized” expectation. For 2011, our $110//bbl WTI spot oil forecast reflects an increase in long-dated prices to $105/bbl and a slightly backwardated forward curve, the latter of which is driven by further reductions in oil inventories.

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Key investment themes: Deepwater exploration, Brazil, NOC exposure, “low profile” M&A
In addition to the over-arching importance of the oil price cycle, we see four key investment themes for the oil sector that will impact stock price performance for individual companies over the remainder of 2009 and into 2010. Key investment themes include:

• • • •

Deepwater exploration optionality Brazil Exposure to resources dominated by national oil companies “Low-profile” M&A and restructuring

There are also several important themes related to global gas, including North America shale gas development, the divergence between global LNG and North America natural gas prices, Australia LNG, and liberalization of the Russian gas market. However, we leave those issues for a report focused on global gas.

Deepwater exploration optionality
A major driver of relative share price performance in 2009 has been exposure to key deepwater exploration hot spots, including Brazil (Santos Basin pre-salt), West Africa (Ghana-to-Sierra Leone), and the Gulf of Mexico (Lower Tertiary). As shown in Exhibit 22, deepwater production is expected to comprise the largest portion of production growth over the next 5-10 years among the major projects we track. Exhibit 22: Deepwater a major driver of future production
Production by “win zone” from our “Top 230” projects analysis
30,000 25,000 20,000 MBOE/d 15,000 10,000 5,000 0 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E GTL Russia Exploitation Heavy Oil

Traditional

Deepwater

Source: Company reports, Goldman Sachs Research estimates.

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In an environment of lackluster non-OPEC crude oil supply growth, the ability to grow reserves through exploration activities has become a key differentiating driver of stock price performance. Following the extended low oil price period of the 1980s and 1990s, many companies abandoned impact exploration strategies, leaving a surprisingly small number of companies with the expertise to execute impact exploration programs. Access to acreage, in particular outside the United States, and balance sheet strength are other critical success drivers. As Hess and ExxonMobil have reminded investors with thus-far disappointing drilling results on BMS-22 in Brazil, exploration remains a high-risk business, where a 30% success rate is considered excellent.

Favorite stocks: • The best positioned oil companies in deepwater exploration among our coverage universe, in our view, are Anadarko
Petroleum, BG, BP, Chevron, Devon Energy, ExxonMobil, Galp Energie, Hess, Petrobras, Total, and Tullow (see Exhibit 23).

• •

Among oil services/drillers, key beneficiaries include Acergy, Cameron, FMC Technologies, Noble Corp., Pride International, Schlumberger, Subsea7, Technip, and Transocean. Of this group, our favorite stocks at this time are Acergy, BG, Cameron, Devon, Petrobras, Statoil, Schlumberger, Subsea7, and Technip.

Exhibit 23: Oil companies with impact exposures in key exploration plays
Brazil Santos Basin "pre-salt Other cluster" Brazil X X X X X X X X X X X X X X X X X X Denotes a leading position X X X X X X X X X X X Deepwater Gulf of Mexico (Lower Tertiary) X West Africa Ghana-toOther Sierra West Leone Africa X

Andarko Petroleum BG BP Chevron Devon Energy Exxon Mobil Galp Energie Hess OGX Petrobras Statoil Hydro Total Tullow

Enteprise Value ($ mn) $39,995 $63,237 $195,673 $145,635 $37,689 $320,764 $16,894 $21,181 $21,904 $206,922 $81,178 $155,264 $14,382 X

Source: Company reports, Goldman Sachs Research.

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Brazil
Although the driver is deepwater exploration highlighted above, Brazil has been a key investment theme in its own right given the massive oil resources discovered in the Santos Basin pre-salt cluster and the sizable multi-decade investment program that will be led by Petrobras. It is important to emphasize that while the pre-salt trend rightfully receives significant attention, there are still sizable non-pre-salt opportunities in the Campos, Espirito Santo, and Santos Basins in Brazil, which will also see oil discoveries and significant investments made.

Favorite stocks: • Best positioned oil companies include BG, Galp Energie, OGX (Not Covered), Petrobras, and Hess. • •
Best positioned oil services/drillers include Baker Hughes, Cameron, FMC Technologies, and Technip. Of this group, Petrobras, BG, Cameron, and Technip are our favorites at this time.

Exposure to resources dominated by national oil companies
The majority of the world’s remaining recoverable resources are increasingly in the hands of national oil companies. We favor the few that are publicly traded, including Petrobras in Brazil and Lukoil in Russia. However, the greatest exposure for equity investors is often found among oil services/drillers that are welcomed by state-owned companies like Saudi Aramco (Saudi Arabia), PEMEX (Mexico), and Iraq. Besides Brazil, we highlight Iraq and Mexico as key countries likely to see increased activity in coming years. With Mexico currently completely off limits to foreign oil companies, the oil services/drilling industry is the only way for equity investors to benefit from increased capital spending by PEMEX. Exposure to Mexico has been one of the key drivers of our favorable view of Weatherford. We also see activity in Iraq continuing to rebound following a multi-decade period of weakness due to a series of conflicts in the country starting with the Iran-Iraq war that began in 1980. The recent easing in tensions and improved security have permitted a limited restart of oil development activities in the country. Like Mexico, we see Weatherford as a key early beneficiary of the improvement. Unlike Mexico, it does appear that foreign oil companies will have access to Iraq, though the recent bid round highlights that the process of engaging foreign oil companies will likely be drawn out. As such, we see Iraq as more meaningfully benefitting oil services/drilling and E&C companies over the next few years.

Favorite stocks: • Best positioned oil companies include Petrobras and CNOOC. • •
Best positioned oil services/drillers include Baker Hughes, Halliburton, Petrofac, Saipem, Schlumberger, Technip, and Weatherford. Of these companies, our favorites are Petrobras, Schlumberger, Technip, and Weatherford at this time.

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“Low profile” M&A and restructuring
We see “low-profile” M&A and restructuring as a subtle but important driver for many energy equities. We use the term “low profile” as we are not expecting a wave of “high profile” mega mergers like seen in the late 1990s and early 2000s among integrated oil companies. Over the remainder of 2009 and into 2010, the key areas of restructuring and M&A we are focused on include the following (see previously published research for expanded commentary on key areas below):

•

Devon Energy Lower Tertiary joint venture. Devon is currently in the midst of looking for a joint venture partner for its sizable acreage position in the deepwater Gulf of Mexico’s Lower Tertiary play. Devon is expected to find a partner by year-end 2009. As we have written previously, we see the possibility that the joint venture process leads to a more meaningful consolidation involving Devon. Acquisitions of international assets by a Chinese oil company. The three major Chinese oil companies—PetroChina,
Sinopec, and CNOOC—have been on a well-documented international E&P acquisition drive in recent years. We believe the three companies continue to look for opportunities. Media reports indicate that the Angola state-owned oil company Sonangol has exercised its pre-emptive rights for the 20% stake in deepwater Block 32 that was to be sold by Marathon Oil to a joint venture between Sinopec’s parent and CNOOC. In our view, the potential loss of that transaction will not deter the companies from pursuing other opportunities.

•

•

Reliance Industries recently indicated its interest in growing its E&P business outside of India. In recent public
interactions, Reliance Industries management indicated an interest in acquiring E&P assets outside of India. It is our understanding that management would prefer to make an asset acquisition as opposed to a corporate purchase and based on the strength of the company’s balance sheet, we believe it could spend up $7-10 billion on inorganic growth.

•

Additional US shale gas joint ventures. North America E&P companies currently dominate the most important (and for that matter less important as well) shale plays. Major integrated oil companies have, for the most part, been conspicuously absent from most of the key plays or have very small positions. A series of joint ventures over the past 12 months between US E&Ps and European oil companies has begun to change the landscape, with BG, BP, ENI, and Statoil all partnering with US E&Ps. We believe joint venture activity is not finished and expect additional transactions to be announced over the next 12 months. At this time, we continue to believe joint ventures are more likely than outright company acquisitions, as the partnering major oil would like to keep talented E&P company executives needed to execute successful development of the plays. Suncor Energy rationalizing its asset base following its recently closed merger Petro-Canada. Since announcing its merger
with Petro-Canada, Suncor has become increasingly open about its desire to sell the majority of Petro-Canada’s international E&P assets and exploration acreage. We expect it to keep the Buzzard field in the North Sea, but sell almost everything else, with Libya and Syria key assets we expect to be disposed. In our view, potential acquirers include Chinese and Indian oil companies. Wee see a successful divestiture of much of its international E&P business as a key catalyst to Suncor re-rating higher.

•

Favorite stocks: • Key restructuring beneficiaries include Suncor as well as a host of US E&Ps including Chesapeake Energy, Devon Energy,
EXCO Resources, and Quicksilver Resources.

•

Within this group, our favorites at this time are Suncor, Chesapeake, and Devon.

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Entering ISM/PMI “sweet spot” for energy equities
Recent analysis by Goldman Sachs’ strategists and options research teams highlights that Energy tends to be a sector that outperforms broader market indices when key ISM/PMI indices move past 50—signifying industrial expansion. With the August US ISM reading at 52.9, we have entered the “sweet spot” for energy equities relative to broader market indices (see Exhibits 24-27). The analysis has been based on US ISM and European PMI data, as historically these key OECD regions have dominated global economic growth. We note that high-beta energy equities did perform well from the trough in the ISM to 50, as the market became confident that industrial recovery in China and other key emerging markets had begun. With that said, we think that stabilization in OECD economies is important for the next leg up in energy equities and oil prices, with the recent US ISM and European PMI readings providing encouragement. Exhibit 24: Energy is the best performing sector relative to the S&P 500 as ISM rises from 50-to-peak
Median annualized performance 1973 through August 2009 Sector outperformance versus the S&P 500 during ISM cycle phases
65 50 to Trough: 60 55 50 Peak to 50: 45 40 35
Energy Financials Telecom Utilities ISM Peak Staples Health Care Telecom Utilities 50

Trough to 50:
ISM Peak Materials Industrials Discretionary Financials 50

Aug-09 = 53

50 to Peak:

Dec-08 = 33

ISM Trough

Energy Materials Tech Industrials
Staples

Source: Haver Analytics, Factset and Goldman Sachs Global ECS Research.

Exhibit 25: Current cycle has been similar to historical trends, with higher beta sub-sectors outperforming initially and integrated oils seemingly acting defensively
Performance in current cycle: 50 to trough (Nov-06 to Dec-08); Trough to 50 (Dec-08 to Aug-09)
Energy and sub-sector returns during the current ISM cycle Return S&P 500 Energy Integrated E&Ps R&M Drilling Absolute -32.4% -27.1% -13.7% -30.9% -57.3% -56.3% vs. S&P 500 5.4% 18.8% 1.5% -24.9% -23.9% 15.1% 3.4% -11.7% -5.9% -21.0% 17.0% 1.8% -16.4% -31.5% 45.6% 30.5%

Phase 50 to Trough

Services -49.2% -16.8% 35.8% 20.7%

Trough to Absolute 50 vs. S&P 500

Source: ISM, Factset, Goldman Sachs Research.

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Exhibit 26: Energy has historically outperformed S&P 500 by 7.4% from ISM 50-to-peak
Median annualized performance 1973 through August 2009
Consumer Discr Consumer Staples

S&P 500 ISM Period

Energy

Materials

Industrials

Health Care

Financials

Info Tech

Telecom

Utilities

Absolute annualized returns (median since 1973) 13.6 7.5 28.2 13.7 23.8 13.8 11.1 16.9 7.9 4.3 52.5 20.2 9.9 3.8 32.8 18.0 9.6 7.1 47.3 11.9 13.9 15.3 21.5 10.0 18.3 22.3 16.6 3.3 23.8 (6.5) 20.1 7.2 7.9 (6.8) 16.8 20.8 17.9 13.5 1.8 1.7 23.0 14.5 21.1 1.7

Peak to 50 50 to Trough Trough to 50 50 to Peak
ISM Period

Annualized outperformance versus S&P 500 (median since 1973) 3.5 0.4 (4.3) 7.4 (8.9) (9.2) 9.1 6.8 (3.3) (3.0) 5.0 1.3 (5.6) (9.8) 8.7 (1.5) (1.8) 17.1 (2.8) 1.3 (0.8) 8.8 (11.6) (9.4) 5.5 (14.1) 4.4 (3.1) (4.6) (14.4) (11.2) 5.3 3.4 7.5 (26.4) (12.9) 1.6 7.8 (15.3) (10.8)

Peak to 50 50 to Trough Trough to 50 50 to Peak

Source: Haver Analytics, Factset and Goldman Sachs Global ECS Research.

Exhibit 27: Integrated Oil is more defensive while Refining, Drilling and E&P higher beta
Sub-sector performance during ISM phases

ISM Phase

SPX

Energy

Integrated Oil & Gas

Drilling

Equipment Exploration & Refining & & Services Production Marketing

Storage & Transport 38.1 -5.1 13.0 11.2 13.3 2.4 -4.9 -7.7 7.2 -6.0 0.2 -8.1

Peak to 50 50 to trough Trough to 50 50 to peak Peak to 50 50 to trough Trough to 50 50 to peak Peak to 50 50 to trough Trough to 50 50 to peak

13.6 7.5 28.2 13.7

23.8 13.8 11.1 16.9

Absolute annualized returns since 1973 (median) 25.6 16.4 33.0 33.9 23.7 14.2 -27.1 -18.2 -7.3 -4.8 13.4 12.6 14.8 7.2 9.2 16.2 17.7 16.3 15.6 15.5 Annualized outperformance versus S&P since 1973 (median) 3.5 -0.8 0.4 9.7 10.7 13.8 0.4 10.9 -12.4 -8.8 -17.3 -15.2 -4.3 -2.9 -3.2 -1.0 -8.6 -20.9 7.4 6.7 7.8 2.2 1.6 9.0 Annualized outperformance within Energy since 1973 (median) -1.8 -5.5 3.8 7.1 8.5 6.8 -12.9 -14.0 -11.3 -25.0 1.3 7.7 10.0 -5.8 -1.9 0.9 2.7 -2.7 -2.8 5.7

Source: ISM, Factset, Goldman Sachs Research.

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Top ten global oil equity favorites
Our regional energy analyst teams around the world continue to emphasize generally higher-beta energy equities favorably leveraged to our bullish crude oil view. Exhibit 28 highlights our top ten favorite global energy companies, which include BG (Europe), Cameron (United States), CNOOC (China), Lukoil (Russia), Petrobras (Brazil), Reliance Industries (India), Statoil Hydro (Europe), Suncor Energy (Canada), Technip (Europe), and Weatherford International (United States). Exhibit 28: Goldman Sachs Global Energy Equity Research: Top ten global oil favorites
GS Lead Analyst della Vigna Boyd Koh Sychev Murti Banerjee della Vigna Murti Tarr Boyd Enterprise Value ($ mn) $63,089 $8,163 $60,974 $53,018 $206,931 $77,984 $80,288 $39,895 $4,579 $20,948 Crude oil leverage o ++ + ++ + ++ ++ ++ ++

Company BG Cameron CNOOC Lukoil Petrobras Reliance Industries Statoil Hydro Suncor Energy Technip Weatherford ++ most favorable

Region Europe USA China Russia Brazil India Europe Canada Europe USA

Growth ++ + + ++ ++ o ++ + ++

Profitability ++ ++ ++ ++ ++ ++ ++ o ++ o

Valuation NA ++ + + NA NA

--most unfavorable

Source: Goldman Sachs Research.

Key characteristics of our top picks: Crude oil leverage, growth, profitability, valuation
In addition to being exposed to the key investment themes highlighted above, the key characteristics of our global favorites include (see Exhibits 29-34):

• • • •

Crude oil leverage. We look at EPS/DACF sensitivity to a $10/bbl change in oil price as well as share price correlation to 2-year strip WTI oil (using weekly returns). Growth. For oil companies, we look at BOE production CAGR, oil production CAGR, and absolute oil production growth. For oil
services/drillers, we look at revenue growth. All growth metrics compare 2012E versus 2009E.

Profitability. We look at both accounting returns (ROCE) and cash flow returns (CROCI) on both an absolute basis (2009E-2012E
average) as well as the change over the next few years (2011E versus 2009E).

Valuation. For valuation, we look at EV/DACF and EV/GCI in 2010E, both relative to peers and relative to a company’s own
history.

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Exhibit 29: Leverage to crude oil
EPS sensitivity to a $10 change in WTI oil (x-axis); weekly share price correlation since 2000 to 2-year strip WTI oil (y-axis)
80.0% Share price correlation to 2 yr. WTI strip oil 70.0% 60.0% Oxy 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 7.0% PBR BG XOM MRO CNOOC INPEX SU MUR OMV Statoil CNQ HES Cairn LUK Sasol Gazprom 37% 38%
HIGH EPS AND SHARE PRICE SENSITIVITY TO CRUDE OIL

NXY

COP CVX

BPTOT RDS PTR

Reli 2% ONGC Sinopec 12.0%

Eni

17.0%

22.0%

27.0%

32.0%

EPS sensitivity to $10/bbl change in WTI spot oil

Source: Bloomberg, Goldman Sachs Research estimates.

Exhibit 30: Oil production versus BOE production CAGR for oil companies
25.0%
HIGH CAGR FOR CRUDE OIL AND BOE PRODUCTION

Exhibit 31: Oil services/drillers revenue CAGR, 2009E-2011E
40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0%
Sevan Marine Patterson-UTI Energy Weatherford Petrofac China Oilfield Services Basic Energy Atwood Oceanics Hornbeck Offshore Pride International Halliburton Schlumberger Nabors Industries Tenaris S.A. Baker Hughes Saipem emgs C.A.T oil AG Cameron Oil States International FMC Technologies ENSCO International Smith International Prosafe Eurasia Drilling Technip Fugro NV Diamond Offshore CGGVeritas Transocean Noble Corporation Aker Solutions Acergy National Oilwell-Varco BJ Services Rowan Companies Subsea 7 John Wood Group Plc SBM Offshore Dresser-Rand Petroleum Geo TGS Nopec Integra Group Helmerich & Payne Tidewater

(109.7%) Reliance

20.0% Oil production CAGR (2009-2012) (119.5%) Gazprom 15.0% SU 10.0% INPEX 5.0% Sasol TOT 0.0% OMV LUK BP -5.0% -3.0% CNQ MRO COP HES Oxy NXY PBR BG PTR CNOOC ONGC MUR Sinopec (84.6%) Cairn India

Statoil RDS CVX XOM Eni 1.0%

-1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

Total production CAGR (2009-2012)

Source: Goldman Sachs Research estimates.

Source: Goldman Sachs Research estimates.

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Exhibit 32: Oil company ROCE vs. CROCI, 2009E-2011E
22.0% 20.0% 18.0% CROCI (2009-2011 avg.)
STRONG CASH AND ACCOUNTING RETURNS

Exhibit 33: Oil services/drillers ROCE vs. CROCI, 2009E-2011E
30% EDCLq.L 25% NBL CROCI (2009-2011 Avg.) FMC DO

CNOOC

16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 8.0%

INPEX MUR OMV PTR Sinopec Gazprom Eni RDS CNQ HES MRO SU COP NXY LUK Reli BP CVX TOT

Oxy PBR Sasol Statoil

BG

Cairn ONGC XOM (39% ROCE)

20%

15%

10%

5% EMGS
13.0% 18.0% 23.0% ROCE (2009-2011 avg.) 28.0% 33.0% 38.0%

SLB Technip ATW Subsea 7 Prosafe WG.L HAL Acergy Fugro C.A.T. Aker RIG Saipem SBM ESV HOS TS OIS TDW BHI NBR PDE WFT INTEq.L HP ESV SII PTEN BAS BJS China O.S. PGS.OL GEHP.PA TGS Sevan

CAM

NOV

0% -20% -10% 0% 10% 20% 30% 40% 50% 60% ROCE (2009-2011 Avg.)

Source: Goldman Sachs Research estimates.

Source: Goldman Sachs Research estimates.

Exhibit 34: 2010E EV/DACF versus EV/GCI for oil companies
1.80 1.60 CNOOC 1.40 1.20 EV/GCI 1.00 0.80 0.60 0.40 0.20 0.00 3.0
INEXPENSIVE

BG Sasol Reli

Oxy

PBR Cairn ONGC PTR CNQ TOT SU

XOM MUR OMV HES INPEX LUK NXY COPMRO Gazprom Sinopec CVX Eni Statoil BP RDS

4.0

5.0

6.0

7.0

8.0

9.0

10.0

EV/DACF (2010E)

Source: Goldman Sachs Research.

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Valuation and EPS revisions
We believe we are in the midst of a multi-year positive EPS revision cycle for oil companies, with our new 2010 EPS estimates meaningfully above consensus in most regions (see Exhibit 35). We see notable upside for our global oil coverage universe, with most sectors and regions still trading below the average long-term valuations using stable-denominator metrics like EV/GCI (see Exhibits 36-41). Exhibit 35: We see meaningful upside to consensus estimates for 2010 for most energy sub-sectors
EPS growth 2010E vs 2009E 103% NM -8% 16% 58% 95% 597% -23% 33% -10% 58%

2009E vs 2008 Americas Integrated oils Refining E&Ps Oil services/drillers Europe Integrated oils Refining E&Ps Oil services/drillers Asia Integrated oils Refining E&Ps -54% -87% -41% -35% -48% -50% -85% -26% 23% 153% -30%

2011E vs 2010E 40% 61% 72% 44% 30% 18% 122% 49% 17% 15% 59%

GS versus Consensus 2009E 2010E 15% -20% -1% -1% -4% 10% NA -1% 8% -4% -20% 39% 23% 28% 7% 10% 30% NA -6% 13% -21% 25%

Source: DataStream, Reuters, ThomsonOne, Goldman Sachs Research estimates.

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Exhibit 36: Americas Oils EV/GCI
1.6 x 1.4 x 1.2 x 1.0 x 0.8 x 0.6 x 0.4 x 2002 2003 2004 2005 2006 2007 2008 2009 +1 std. dev.

Exhibit 37: European Oils EV/GCI
1.2 x 1.1 x 1.0 x 0.9 x +1 std. dev.

Avg. -1 std. dev.

0.8 x 0.7 x 0.6 x 0.5 x 2002 2003 2004 2005

Avg. -1 std. dev.

2006

2007

2008

Source: Factset, ThomsonOne, Goldman Sachs Research.

Source: Datastream, Reuters, ThomsonOne, Goldman Sachs Research estimates.

Exhibit 38: Russian Oils EV/GCI
1.8 x 1.6 x 1.4 x 1.2 x 1.0 x Avg. 0.8 x 0.6 x 0.4 x 2002 2003 2004 2005 2006 2007 2008 2009 -1 std. dev. +1 std. dev.

Exhibit 39: Asia Oils EV/GCI
1.8 x 1.6 x 1.4 x +1 std. dev. 1.2 x 1.0 x 0.8 x 0.6 x 0.4 x 2002 2003 2004 2005 2006 2007 2008 2009 Avg. -1 std. dev.

Source: Datastream, Goldman Sachs Research.

Source: Datastream, Goldman Sachs Research.

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Exhibit 40: Americas oil services/drillers
2.0 x 1.8 x 1.6 x 1.4 x 1.2 x 1.0 x 0.8 x 0.6 x 0.4 x 2002 2003 2004 2005 2006 2007 2008 2009 Avg. +1 std. dev.

Exhibit 41: European oil services EV/GCI
2.9 x

2.4 x +1 std. dev.

1.9 x

1.4 x -1 std. dev. 0.9 x

Avg. -1 std. dev.

0.4 x 2002 2003 2004 2005 2006 2007 2008 2009
Target px period 12-month 6-month 12-month 6-month 6-month 12-month 12-month 6-month 12-month 6-month

Source: Factset, ThomsonOne, Goldman Sachs Research.

Source: Datastream, Reuters, ThomsonOne, Goldman Sachs Research estimates.

Exhibit 42: Global Top 10 – valuation summary
GS Lead Analyst della Vigna Boyd Koh Sychev Murti Banerjee della Vigna Murti Tarr Boyd Latest Price £11.05 $38.27 HK$10.44 $53.80 $38.22 Rs2104.40 Nkr132.50 $35.57 €43.29 $21.88 Enterprise Value ($ mn) $63,237 $8,049 $59,246 $53,438 $206,922 $78,371 $81,178 $39,600 $4,485 $20,600 New Target Price £14.25 $52 HK 14.25 $94.10 $61 Rs 2,620 Nkr 200 $59 € 65 $33 Return to new target 30.1% 35.9% 36.5% 77.1% 62.4% 25.1% 54.7% 66.6% 52.9% 50.8%

Company BG Cameron CNOOC Lukoil Petrobras1 Reliance Industries Statoil Hydro Suncor Energy Technip Weatherford

Ticker BG.L CAM 0883.HK LKOH.RTS PBR.A RELI.BO STL.OL SU TECF.PA WFT

Rating Buy Buy* Buy* Buy Buy* Buy Buy* Buy* Buy* Buy*

Region Europe USA China Russia Brazil India Europe Canada Europe USA

1

*Also on regional Conviction Buy List For Petrobras, PBR/A shares are on the Americas Conviction Buy List; PBR shares are Buy-rated

For important disclosures, please go to http://www.gs.com/research/hedge.html. For methodology and risks associated with our price targets, please see our previously published research. Source: Goldman Sachs Research estimates.

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Reg AC
We, Arjun N. Murti, Michele della Vigna, CFA, Kelvin Koh, CFA, Nilesh Banerjee and Anton Sychev, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month

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Goldman Sachs Investment Research global coverage universe
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Buy

Hold

Sell

Buy

Hold

Sell

Global 30% 51% 19% 54% 52% 44% As of July 1, 2009, Goldman Sachs Global Investment Research had investment ratings on 2,709 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.

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Price target and rating history chart(s)
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Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The

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investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.
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there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

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This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment. Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research Division. SIPC: Goldman, Sachs & Co., the United States broker dealer, is a member of SIPC (http://www.sipc.org). Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents which are available from Goldman Sachs sales representatives or at http://www.theocc.com/publications/risks/riskchap1.jsp. Transactions cost may be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation will be supplied upon request. Our research is disseminated primarily electronically, and, in some cases, in printed form. Electronic research is simultaneously available to all clients. Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, One New York Plaza, New York, NY 10004. Copyright 2009 The Goldman Sachs Group, Inc. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs Group, Inc.

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