• Brent crude traded above US$105/bbl for most of 2011 (210 of the year’s 258 trading sessions, to be precise) – a reality noteasily inferred from the wild gyrations in market value observed for the Brent-levered E&Ps in our space during the year.
• We expect Brent prices will remain within a similar range over the next 12 months. Our 2012 average forecast isUS$100/bbl – ~12% lower than the current spot price.
• Most of the mid to larger cap international oil companies under coverage are heading into 2012 with record/near recordproduction levels, solid balance sheets, and self-funded organic growth prospects.
• In contrast, most of these companies are trading below 2P reserve value. Should capital market valuations remaindepressed – particularly in the event that our macro/commodity outlook pans out (or proves conservative) – we wouldexpect M&A activity to intensify substantively.
• Valuations in the small cap space, on the other hand, are less straightforward. As a large percentage of companies remainin the exploration stage, there are no booked reserves to underpin fundamental value assessments. Having said that, webelieve several companies do offer a very compelling investment thesis, albeit with varying risk elements.

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