DISCLAIMER: The information contained in this presentation is given without any liability whatsoever to SkyWorks Capital, LLC or any of its related entities (collectively "SkyWorks") or their respective directors or officers, and is not intended to constitute legal, tax or accounting advice or opinion. No representation or warranty, expressed or implied, is made as to the accuracy, completeness or thoroughness of the content
of the information.



Oil Supply & Demand Market Dynamics

December 2008 Aircraft Finance Conference

Conventional Oil Fields Are Facing Peak Production Due to "Depletion"

Existing oil fields are over 20 years old on average, and as they have become depleted their production rates are declining by approx. 4+ MM bpd annually.

In spite of new technology, conventional field discoveries in recent years have not kept pace with the combination of production declines and incremental demand.

Supply shortfall has been met through “stopgap” measures including tapping of OPEC surplus production capacity, corn‐based ethanol & oil sands.

exhibit 1 skyworks chart

 


Emerging Market Oil Demand Ignored Price Rises In Last Economic Upturn

Demand for oil from emerging economies grew steadily from 1998‐07 even though prices grew by approx. 450% over this period.

The lack of price elasticity from emerging economies even as prices broke through $70 / bbl in 2007, coupled with a speculative market environment, led to soaring prices as the market searched for the price‐point of demand destruction.

 


Economic Downturn Has Provided Relief in Supply/Demand for Now

Oil prices have retreated in tandem with the broad U.S. equity market during 2H08.

Due to eroding economic fundamentals and need for financial market participants to generate liquidity as a result of frozen fixed income and alternative asset markets.


The wholesale withdrawal of liquidity from commodity markets has resulted in “digital” price behavior for oil and certain other commodities: Prices have shifted from the price‐point of demand destruction to the marginal cost of production.

dj Ind Average

 

 

Possible Outcome of Next Economic Upturn: "Digital" Price Recovery for Oil

Fears of unsustainable demand for oil are likely to re‐emerge.

This could cause a rapid shift in oil prices back towards the price‐point of demand destruction.

Problem will be exacerbated if the current relief in oil prices slows up progress on the development of solutions to
move away from petroleum.

table4

 

Appendix: Sources Used for Chart Data

Oil supply and demand data is sourced from the following reports supplied by the Energy Information Administration:

Short‐Term Energy Outlook ‐ July 2008.
International Petroleum Supply, Consumption and Inventories ‐ July 2008.
World Production of Crude Oil, NGPL, and Other Liquids, and Refinery Processing Gains ‐ April 2008.

Supply includes production of crude oil (including lease condensates), natural gas, plant liquids, other liquids, and refinery processing gains.

Oil prices computed based on all countries’ spot price FOB weighted by estimated export volume (dollars per barrel) ‐ July 2008.

Population data is supplied by the United States Census Bureau.