Haas Energy Team Republic Petroleum Refinery Decision 10/25/2015.

Haas Energy TeamRepublic Petroleum Refinery Decision

10/25/2015

Team Haas

Andrey Gutkovsky

Stephanie Moon

Yuriy Pryadko

Avanti Tamhane

Key goal• Advise Republic Petroleum on

whether to invest in 500,000 barrel/day refinery in PADD 3

Introduction

Treat refinery as long term investment

IntroductionFramework

Introduction Summary and recommendation

Lack of crude supply advantage in the long term

Lot of existing capacity in PADD 3 Uncertain policy outcomes Poor demand projections in the US

Given our investment analysis, we do not recommend building a 500,000 bpd refinery in the PADD3 Region

Overview of Current MarketUSGC Competitive Environment

Gulf coast has a lot of coking capacity

Overview of Current MarketSupply of crude oil stocks

Oversupply in the US starting in 2012 due to the tight oil revolution.It drives both domestic and worldwide prices down.

• PADD-3 and US in general will face a non-growing consumption market

• Non-OECD growth is predicted to be robust

• Focus on growing markets makes strategic sense

Overview of Current MarketDemand Challenges in US

Stagnant demand in US & OECD; rest of the world continues growth

Overview of Current MarketGlobal Supply vs Demand

Investment AnalysisCrude Oil Reference Forecast

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Brent WTI WCS

Based on EIA Reference case

Price rise steadily after 2015 due to demand growth in non-OECD countries

Continued growth in U.S crude oil production contributes to downward pressure on prices

Heavy crudes trade a 25-30% differential from Brent/Crude Historically

Investment AnalysisFramework

Largely depending on key assumptions: Overall WTI-Brent differential

Will the Export Ban be repealed? Will the Keystone Pipeline be built? Feedstock price forecasting – WCS or WTI? WTI – Brent differential anticipated to move towards parity in the

long run due to minimal US demand Coker versus Cracker Decision

Different Investment Costs Coking Margins versus 3-2-1 Cracking Calculation

Modeled forecasted returns for 4 regulation scenarios

Investment Analysis: Scenario Modeling

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Forecasted Margin/bbl by Scenario

IRR NPV Keystone Pipeline is Built & Export Ban Remains Coker 11.5%$6.6BKeystone Pipeline is Built & Export Ban Lifted Coker 9.4%$5.2BExport Ban Remains Cracker 5.6%$1.7BExport Ban Lifted Cracker 4.9%$1.5B

Keystone Pipeline Decision

Impact of Keystone Pipeline is positive for PADD-3 U.S Refineries

WCS crude at 20-35% discount to lighter crudes

Will decrease WTI in relation to Brent, thus creating advantages for U.S refineries

Due to broad support of the keystone pipeline by democrats and republicans, it is likely to be built ~75%

If Keystone pipeline is built, it is likely that the WTI-Brent differential will become greater than $10 and Export ban will be repealed

Export Ban DecisionWTI-Brent Differential

Export Ban in Place

Sources: U.S. Energy Information Administration, Reference, Low Oil Price, High Oil and Gas Resource, and High Oil and Gas Resource/Low Oil Price cases, with current crude oil export restrictions.

Export Ban Lifted

WTI-Brent spread will be closer to the Low Oil Price Scenario forecasted by the EIA

Keystone Pipeline Built in 2020 75%

Keystone Pipeline not Built 25%

Export Ban Repealed 80%

Export Ban Remains 20%

USGC Conclusion

NOT A SOUND LONG TERM STRATEGIC MOVE

IF NOT USGC, THEN WHAT?

Demand Around the World

20102040

2010

2040

NigeriaDemand:• 2nd Largest Net

Importer of Refined Products in Africa

180MBPD in 2012• GDP Growth of 5-6%

Supply:6th Largest Crude Producer in the World

Regulatory Environment:President Muhammadu

Buhari

• Anti-Corruption Policies• Supports Private

Investment • Vows to crush militant

groups

THANK YOU!

#haasome

Best Case Scenario: Keystone Pipeline is Built & Export Ban Restrictions

NPV 6,598,915 IRR 11.5%Type of Refinery Coker

Yr Contsruction 2018 2021 2024 2027 2030 2033Proccessing BBLS (000's) 164,250 164,250 164,250 164,250 164,250 164,250

Margin Per Barrel 25.62 28.93 29.43 29.84 30.11 30.31

Sales Revenues 4,207,317 4,751,409 4,834,156 4,901,001 4,945,206 4,977,968

Depreciation Expense (1,717,050) (879,130) (450,114) (230,459) (117,995) (60,413)

Transportation Costs - Inbound (985,500) (985,500) (985,500) (985,500) (985,500) (985,500) Tranportation Costs - Outbound (160,965) (160,965) (160,965) (160,965) (160,965) (160,965)

Operating Costs (152,511) (159,478) (166,762) (174,380) (182,345) (190,674)

NIBT - 1,191,291 2,566,337 3,070,815 3,349,698 3,498,401 3,580,415 Taxes - (416,952) (898,218) (1,074,785) (1,172,394) (1,224,440) (1,253,145) Tax Shield 500,000 Net Income After Taxes 500,000 774,339 1,668,119 1,996,030 2,177,304 2,273,960 2,327,270

Addback Depreciation - 1,717,050 879,130 450,114 230,459 117,995 60,413 Capital Expenditures (8,585,250) Change in NWC - 252,439 2,615 1,614 979 849 638

Free Cash Flow (8,085,250) 2,743,828 2,549,864 2,447,758 2,408,742 2,392,804 2,388,321 PVFCF (8,085,250) 1,874,071 1,308,483 943,717 697,727 520,744 390,510

2nd Best ScenarioKeystone is Built & Export Ban is Lifted

NPV 5,154,492 IRR 9.4%Type of Refinery Coker

Yr Contsruction 2018 2021 2024 2027 2030 2033Proccessing BBLS (000's) 164,250 164,250 164,250 164,250 164,250 164,250

Margin Per Barrel 24.28 27.02 27.05 26.99 26.81 26.59

Sales Revenues 3,987,500 4,438,112 4,442,163 4,433,203 4,404,319 4,367,778

Depreciation Expense (1,717,050) (879,130) (450,114) (230,459) (117,995) (60,413)

Transportation Costs - Inbound (985,500) (985,500) (985,500) (985,500) (985,500) (985,500) Tranportation Costs - Outbound (160,965) (160,965) (160,965) (160,965) (160,965) (160,965)

Operating Costs (152,511) (159,478) (166,762) (174,380) (182,345) (190,674)

NIBT - 971,474 2,253,040 2,678,821 2,881,899 2,957,514 2,970,226 Taxes - (340,016) (788,564) (937,588) (1,008,665) (1,035,130) (1,039,579) Tax Shield 500,000 Net Income After Taxes 500,000 631,458 1,464,476 1,741,234 1,873,235 1,922,384 1,930,647

Addback Depreciation - 1,717,050 879,130 450,114 230,459 117,995 60,413 Capital Expenditures (8,585,250) Change in NWC - 239,250 1,093 65 (538) (584) (720)

Free Cash Flow (8,085,250) 2,587,758 2,344,698 2,191,413 2,103,155 2,039,794 1,990,340 PVFCF (8,085,250) 1,767,474 1,203,201 844,885 609,209 443,919 325,437

3rd Best ScenarioExport Ban Restrictions & Keystone Pipeline Not Built

NPV 1,689,543 IRR 5.7%Typer of Refinery: Cracker

Yr Contsruction 2018 2021 2024 2027 2030 2033Proccessing BBLS (000's) 164,250 164,250 164,250 164,250 164,250 164,250

Margin Per Barrel 16.48 17.93 17.77 17.39 16.73 15.88

Sales Revenues 2,706,445 2,945,648 2,918,050 2,855,723 2,747,734 2,608,481

Depreciation Expense (1,063,750) (544,640) (278,856) (142,774) (73,100) (37,427)

Transportation Costs - Inbound (985,500) (985,500) (985,500) (985,500) (985,500) (985,500) Tranportation Costs - Outbound (160,965) (160,965) (160,965) (160,965) (160,965) (160,965)

Operating Costs (244,812) (255,994) (267,688) (279,915) (292,701) (306,071)

NIBT - 251,419 998,549 1,225,041 1,286,569 1,235,468 1,118,517 Taxes - (87,997) (349,492) (428,764) (450,299) (432,414) (391,481) Tax Shield 500,000 Net Income After Taxes 500,000 163,422 649,057 796,277 836,270 803,054 727,036

Addback Depreciation - 1,063,750 544,640 278,856 142,774 73,100 37,427 Capital Expenditures (5,318,750) Change in NWC - 162,387 930 (688) (1,836) (2,306) (2,915)

Free Cash Flow (4,818,750) 1,389,559 1,194,627 1,074,444 977,208 873,848 761,549 PVFCF (4,818,750) 949,087 613,033 414,245 283,062 190,175 124,519

4th Best ScenarioExport Ban is Lifted & Keystone Pipeline Not Built

NPV 1,468,058 IRR 5.0%Type of Refinery Cracker

Yr Contsruction 2018 2021 2024 2027 2030 2033Proccessing BBLS (000's) 164,250 164,250 164,250 164,250 164,250 164,250

Margin Per Barrel 16.12 17.58 17.42 17.04 16.38 15.54

Sales Revenues 2,647,526 2,888,319 2,861,022 2,798,929 2,691,096 2,551,999

Depreciation Expense (1,063,750) (544,640) (278,856) (142,774) (73,100) (37,427)

Transportation Costs - Inbound (985,500) (985,500) (985,500) (985,500) (985,500) (985,500) Tranportation Costs - Outbound (160,965) (160,965) (160,965) (160,965) (160,965) (160,965)

Operating Costs (244,812) (255,994) (267,688) (279,915) (292,701) (306,071)

NIBT - 192,499 941,220 1,168,014 1,229,775 1,178,830 1,062,035 Taxes - (67,375) (329,427) (408,805) (430,421) (412,590) (371,712) Tax Shield 500,000 Net Income After Taxes 500,000 125,125 611,793 759,209 799,354 766,239 690,323

Addback Depreciation - 1,063,750 544,640 278,856 142,774 73,100 37,427 Capital Expenditures (5,318,750) Change in NWC - 158,852 942 (682) (1,833) (2,303) (2,911)

Free Cash Flow (4,818,750) 1,347,726 1,157,376 1,037,383 940,295 837,036 724,839 PVFCF (4,818,750) 920,515 593,917 399,956 272,370 182,164 118,517