1) The NDRC adjusted the windfall tax threshold from $40/bbl to $55/bbl, effective November 1, 2011. This will benefit all three major Chinese energy companies, with PetroChina expected to benefit the most. 2) Sinopec is viewed as the biggest gainer from the tax changes on a net basis. The analyst reiterates a preference for Sinopec and CNOOC due to their attractive valuations. 3) Acquisition appetite from Chinese NOCs remains strong, as evidenced by recent deals, though spending has declined slightly from record levels in 2011. Strategies differ between focusing on unconventional versus conventional assets.

1. Global Strategy
Equity Research Asia Sector Strategy
January 6, 2012
China Oil & Gas: Windfall Relief
2012 GDP ESTIMATES:
China: 7.7%-8.2% Tax threshold adjusted We are positive on the NDRC’s adjustment in the
adjusted:
Hong Kong: 2.5%-3.0% windfall tax threshold to USD55/bbl from USD40/bbl, effective Nov. 1, 2011.
India: 6.8%-7.3% This confirms our view following our December 2011 company visits that the
Indonesia: 6.0%-6.5% NDRC was likely to increase the threshold to offset the impact of the
Japan: 1.5%-2.0% nationwide resource tax, which incidentally also came into effect from Nov.
Korea: 2.8%-3.3% 1, 2011.
Malaysia: 4.4%-4.9%
Singapore: 2.0%-2.5% Positive impact on all fronts: All three Chinese energy companies should
Taiwan: 2.3%-2.8% benefit from the adjustment, and we expect analyst earnings upgrades over
Thailand: 3.5%-4.0% the next week to drive a positive share price reaction to the news. Our initial
U.S.: 1.8% estimates indicate in absolute terms that PetroChina (00857, HKD10.60)
Eurozone: 0.4% should benefit the most from the adjustment (2012 EPS impact: + 14%),
which is unsurprising given its upstream dominance, followed by CNOOC
Ltd (00883, HKD15.06) at +10% and Sinopec (00386, HKD8.80) at +7%. Recall
2012 INDEX TARGETS: that our forecasts already factor in a 4%-5% resource tax burden for the O&G
S&P 500: 1,400 companies.
S&P Euro 350: 1,050
S&P Asia 50: 3,500 Reiterate preference for Sinopec & CNOOC Ltd: Valuations for Sinopec
Corp and CNOOC Ltd - both at 4-STARS (Buy) - are attractive, while Sinopec
also offers reform leverage and significant injection opportunities (e.g.
Addax, Daylight). PetroChina’s unexciting valuations lead us to a 3-STARS
(Hold) call.
Energy Net-
Net - net, Sinopec wins: We concede that in the short term, investors may
flock to PetroChina and CNOOC Ltd given their bigger, and more visible,
Overweight upstream profiles. However, in our calculations, the change in the windfall
tax regime would only be enough to fully offset the resource tax impact for
Oil & Gas the two companies. When taking both the resource tax and the windfall tax
threshold adjustment, on a net basis Sinopec would be the biggest gainer, as
Overweight the resource tax was expected to add some CNY7 bln in taxes, while the
threshold adjustment should save the company some CNY9.1 bln.
Acquisition appetite remains strong While 2011 acquisitions by Chinese
strong:
NOCs shrank to some USD14.0 bln, based on IHS Herold data, this came on a
Ahmad Halim, CFA record USD24.7 bln spent in 2011 acquiring large-scale resources from
Equity Analyst majors undertaking divestitures (e.g. BP) in a loose monetary environment.
We note 2011 spending by Chinese NOCs is still ahead of 2005-2008 levels
and only slightly below 2009.
Acquisition appetite appears to remain strong, with both CPC - parent of
Hong Kong-listed Sinopec - and PetroChina announcing deals to take stakes
in North American and Canadian plays this week. PetroChina increased its
exposure to the Canadian oil sands space by purchasing the remaining 40%
stake in Athabasca Oil Sands Corp’s Mackay River project for USD666 mln
(CNY4.19 bln), while CPC purchased a one-third stake in five Devon Energy
oil shale exploration projects in the US for USD900 mln (CNY5.66 bln).
This report is for information purposes and should not be considered a solicitation to buy or sell any security.
Standard & Poor’s Neither Standard & Poor’s nor any other party guarantees its accuracy or makes warranties regarding results
Equity Research Services from its usage. Redistribution is prohibited without written permission. Copyright © 2012. All required
17th Floor, Prudential Tower d i s c l o s ur e s a nd an a l y st c er t if i c a t io n ap p e ar s o n t he la s t 3 p a g e s of t h i s r epo r t . A dd i t io n a l i nf or m a t io n i s
30 Cecil Street, Singapore a v a i l a b le on r eq u e st .

2. January 6, 2012 Global Strat egy
CPC will also fund future drilling costs to the tune of USD1.6 bln (CNY10.07
bln), in order to drill some 125 wells. 2
Differing strategies CNOOC Ltd appears to focus on unconventional plays
strategies.
in continental North America (tight oil and oil shale plays in U.S., and oil
sands in Canada) while also pursuing conventional plays in South America
and Africa. For Sinopec, most of the significant deals related to the company
are done at the parent CPC level - probably a reflection of Sinopec’s more
stretched balance sheets - and are also more focused on South American
conventional and deepwater assets (with the exception of the Devon deal).
The sole deal of significant size over recent years done at the Sinopec Corp
level was unsurprisingly the injection of CPC’s deepwater Angolan
operations in 2010. We believe CPC will continue to acquire assets and
inject into the listed entity at a later time, providing further avenue for
growth. PetroChina, like CNOOC Ltd, is also focused on unconventional
assets, with coal seam gas plays in Australia and oil sands assets in Canada.
Standard & Poor’s Equity Research

3. January 6, 2012 Global Strat egy
Select Integrated Oil & Gas and E&P Performance and Key Capital IQ Consensus Ratios as at Oct. 11, 2011 3
Price Performance PER (x) PAT Growth
Market
Trading Cap (USD
Company Name CIQ Ticker Ccy Share Price mln) 1 Mth 3 Mths 6 Mths FY2011 FY2012 FY2011 FY2012
Integrated O&G
Exxon Mobil Corporation NYSE:XOM USD 85.76 411,066 6.1% 16.1% 5.1% 10.0x 10.2x 36.9% -6.1%
PetroChina Co. Ltd. SEHK:857 HKD 10.60 279,534 6.2% 14.0% -8.0% 10.8x 9.7x 5.5% 12.0%
Royal Dutch Shell plc LSE:RDSA GBP 23.52 231,245 3.6% 14.4% 4.5% 7.8x 7.6x 32.8% 5.0%
Chevron Corporation NYSE:CVX USD 109.10 217,271 4.5% 15.3% 3.8% 7.9x 8.3x 44.0% -6.8%
BP plc LSE:BP. GBP 4.77 139,236 2.4% 21.4% 4.8% 6.5x 6.4x NM 2.0%
China Petroleum & Chemical Corp. SEHK:386 HKD 8.80 100,866 8.1% 15.3% 11.8% 8.0x 7.5x 10.3% 8.2%
ConocoPhillips NYSE:COP USD 73.23 97,230 1.0% 13.8% -3.7% 8.4x 8.6x 6.3% -8.7%
PTT Public Co. Ltd. SET:PTT THB 324.00 29,587 0.6% 17.8% -4.7% 9.3x 8.4x 22.3% 9.8%
Average 4.07% 16.01% 1.72% 8.6x 8.3x 22.6% 1.9%
Production
Exploration & Production (E&P)
CNOOC Ltd. SEHK:883 HKD 15.06 84,169 -1.1% 22.4% -17.7% 7.7x 7.9x 32.1% -2.3%
Statoil ASA OB:STL NOK 156.40 82,770 4.4% 21.7% 13.9% 9.8x 8.8x 36.7% 7.7%
Suncor Energy Inc. TSX:SU CAD 31.46 48,566 1.9% 9.7% -18.6% 9.3x 9.7x 49.5% 0.1%
Anadarko Petroleum Corporation NYSE:APC USD 80.80 40,236 -0.9% 21.5% 2.6% 26.0x 24.0x 104.8% 4.6%
Apache Corp. NYSE:APA USD 97.17 37,319 -0.2% 12.7% -21.5% 8.3x 7.8x 53.4% 5.7%
Woodside Petroleum Ltd. ASX:WPL AUD 31.04 25,669 -7.3% -9.6% -24.1% 14.7x 13.6x 9.3% 12.5%
Hess Corporation NYSE:HES USD 57.60 19,287 -4.7% 5.3% -22.6% 9.2x 8.3x 0.1% 10.0%
PTT Exploration and Production Public Co. Ltd. SET:PTTEP THB 176.50 18,506 7.3% 18.5% 1.4% 13.3x 10.8x 5.1% 24.0%
Average -0.06% 12.78% -1 0.82% 12.3x 11.4x 36.4% 7.8%
EV/EBITDA PBV ROE Gross Margin Div Yield
Company Name FY2011 FY2012 FY2011 FY2012 FY2011 FY2012 FY2011 FY2012 FY2011 FY2012
Integrated O&G
Exxon Mobil Corporation NYSE:XOM 4.6x 4.8x 2.5x 2.3x 25.3% 21.8% 46.40% 47.50% 2.16% 2.27%
PetroChina Co. Ltd. SEHK:857 6.1x 5.6x 1.5x 1.4x 14.2% 14.5% 36.40% 36.64% 3.98% 4.36%
Royal Dutch Shell plc LSE:RDSA 4.0x 3.9x 1.4x 1.2x 17.4% 15.9% 22.20% 21.90% 4.69% 4.95%
Chevron Corporation NYSE:CVX 3.3x 3.5x 1.8x 1.6x 23.8% 19.2% 45.20% 46.00% 2.82% 3.02%
BP plc LSE:BP. 3.7x 3.7x 1.2x 1.1x 20.5% 18.1% 18.90% 19.80% 3.77% 4.15%
China Petroleum & Chemical Corp. (Sinopec) SEHK:386 5.0x 4.6x 1.3x 1.1x 16.8% 16.0% 16.72% 17.11% 3.26% 3.58%
ConocoPhillips NYSE:COP 3.8x 3.9x 1.5x 1.4x 17.6% 15.6% 28.30% 29.40% 3.55% 3.82%
PTT Public Co. Ltd. SET:PTT 6.8x 5.9x 1.7x 1.5x 19.4% 18.6% 9.06% 9.59% 3.85% 4.12%
Average 4.7x 4.5x 1.6x 1.5x 19.4% 17.5% 27.90% 28.49% 3.51% 3.78%
Exploration & Production (E&P)
CNOOC Ltd. SEHK:883 4.0x 4.0x 2.0x 1.8x 28.6% 22.9% 59.33% 53.10% 4.31% 4.13%
Statoil ASA OB:STL 2.2x 2.1x 1.9x 1.7x 24.6% 19.8% 47.05% 48.85% 4.17% 4.42%
Suncor Energy Inc. TSX:SU 5.0x 5.1x 1.3x 1.1x 14.4% 12.0% 60.80% 62.40% 1.39% 1.47%
Anadarko Petroleum Corporation NYSE:APC 6.9x 5.8x 2.1x 1.9x 5.3% 8.3% 70.70% 71.30% 0.45% 0.45%
Apache Corp. NYSE:APA 3.7x 3.4x 1.3x 1.1x 17.0% 15.9% 78.10% 79.30% 0.65% 0.64%
Woodside Petroleum Ltd. ASX:WPL 9.6x 7.5x 2.0x 1.8x 13.9% 13.6% 69.90% 68.60% 3.64% 3.81%
Hess Corporation NYSE:HES 3.5x 3.1x 1.0x 0.9x 12.4% 11.4% 25.10% 25.30% 0.73% 0.72%
PTT Exploration and Production Public Co. Ltd. SET:PTTEP 5.7x 4.8x 2.9x 2.5x 23.2% 24.3% 52.31% 50.76% 2.93% 3.58%
Average 5.1x 4.5x 1.8x 1.6x 17.4% 16.0% 57.91% 57.45% 2.28% 2.40%
Source: S&P Capital IQ
Standard & Poor’s Equity Research

4. January 6, 2012 Global Strat egy
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In Asia
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5. January 6, 2012 Global Strat egy
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