January 2018 HY Corporate Credit HY Multi Sector.Media. Cable & Satellite iFigure 10: Tight oil growth scenarios (kb/d yoy) 2000 1500 1000 - 500 0 -500 -1000 Soon Diatch• ant —WTI 545/bbl —WTI $50/bbl WTI $55/bbl — WTI 560/bbl —WTI S65/bbl - WTI 570/lab WTI 575. Productivity growth would Scaly lift longer term numbers 2016 2017 2018 2019 2020 2021 1Pre-FID breakevens falling • With upstream project economics under pressure and oil industry capex suppressed, it is no surprise that full-cycle breakevens of prospective projects would be coming down. To quantify just how much, we look at pre-FID upstream projects where recoverable reserves are at least 50mboe, and where liquids reserves constitute at least half of the resource. We also limit the survey to projects outside of OPEC; we include Alaska and Gulf of Mexico but exclude US tight oil assets. Comparing the O4-16 dataset against O3-17, we see that breakevens on a 10% discount rate have fallen from USD 53/bbl to USD 46/bbl. We also observe that deepwater reserves still contribute the most reserves by resource theme, and that USD 65/bbl could still be considered a marginal cost of new supply from oil sands projects. IA balanced market • Broadly speaking, oil markets look to be in relative balance after three years of oversupply. However, we expect some retracement of H2-17 strength owing to first quarter oversupply and a resurgent US tight oil sector. • The O1 surplus is modest at +541kb/d in comparison to the 2015 full-year surplus of +1.7mb/d, but this breaks the string of two quarters of undersupply and further progress in eliminating the last 140mbb1 of OECD liquids surplus. • According to the relationship between cumulative quarterly supply- demand imbalances and price, this would suggest weakness of -5% on the quarterly average price. Page 50 Figure 11: Changes in break-even by type - conventional through sands liquids reserves 44-2016 Cony.