Construction. Overview: Key questions facing the oil industry

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1 Saudi Aramco fires opening salvo Overweight (Maintain) Industry Report March 22, 217 Overview: Key questions facing the oil industry Q: Is increased US oil output a threat to major oil-producing nations? A: Yes, greater production by the US poses risks to countries like Saudi Arabia. Mirae Asset Daewoo Co., Ltd. [/ Materials] Kwangsoo Lee kwangsoo.lee@miraeasset.com Myoungjoo Kim myoungjoo.kim@miraeasset.com Q: What measures are Middle Eastern oil-producing nations taking to meet the challenge from the US? A: Middle East oil producing nations and the US have traditionally enjoyed a mutually beneficial relationship. Specifically, Middle East nations have played the role of oil suppliers, while the US has provided refining capacity. However, with the US expanding oil and gas output, Middle Eastern producers are likely to reduce reliance on the US downstream sector by ramping up refining capacity. Refinery investments are likely to present a threat to the US and independent oil companies (IOCs) around the world Q: What other measures are being taken to defend the Middle Eastern oil industry? A: Middle Eastern oil-producing nations are making serious efforts to secure captive customers, which explains King Salman s recent trip to Southeast Asia (the first visit by a Saudi monarch to the region in almost 5 years). Saudi Arabia is deeply committed to investing in refining facilities in Southeast Asia to secure a stable source of demand. Q: How will low oil prices affect investments? A: Going forward, refinery investment plans will likely be aligned with efforts to ensure the long-term survival of the regional oil industry, rather than short-term changes in oil prices. As such, barring a collapse in oil prices, Middle Eastern nations will continue to make investments. Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

2 March 22, 217 Saudi Aramco fires opening salvo Increasing oil production in North America is posing a threat to oil-producing countries, including Middle Eastern nations. In our view, the Middle East needs to pursue aggressive diversification beyond crude oil production. For 217, we forecast that the Middle East and North Africa (MENA) region will increase investments in refinery projects. Middle Eastern oil-producing countries are approaching industry diversification from a long-term perspective. Recently, King Salman of Saudi Arabia visited Southeast Asia and pledged to invest more than US$3bn for refinery facilities in the region. Saudi Aramco is poised to raise a massive amount of capital via its IPO. Saudi Arabia plans to make direct investments in Southeast Asia in order to take advantage of growing demand, secure captive customers, and accelerate business diversification. We project that Southeast Asia s refining capacity will begin to increase in 218. We expect refinery project orders from the Middle East to reach US$26bn in 217 and US$28bn in 218. In addition, Asian refineries will require over US$6bn in investments through 22. We expect petrochemical plant orders (e.g., naphtha-cracking centers) to increase beginning in 219, following an increase in refinery orders from the Middle East and Asia. We expect overseas order intake by Korean contractors to increase, given their competitiveness in the refinery segment. Table 1. Likely beneficiaries of increased investment in refinery projects Company Recommendation Target price Notes GS E&C Buy W35, Competitiveness in MENA; vast experience in refinery segment Hyundai E&C Buy W53, Synergies with Hyundai Engineering; solid experience in plant construction Daelim Industrial Buy W11, Competitiveness in Asia; recently won order for an Iranian refinery project Samsung Engineering Buy W15, Source: Continuous investments in refinery technology; abundant experience in large-scale refinery projects 2

3 March 22, 217 IOCs and national oil companies (NOCs) are the primary customers of global engineering, procurement, and construction (EPC) companies. Given the global plant market s heavy reliance on investments by IOCs and NOCs, an analysis of the key market players is needed to assess the long-term industry outlook. Major IOCs include ExxonMobil, BP, Chevron, Shell, Total, and ConocoPhillips. NOCs are operated by most oil-producing countries in the Middle East, Latin America (e.g., Brazil and Mexico), and Southeast Asia. Major NOCs include Saudi Aramco (Saudi Arabia), KPC (Kuwait), ADNOC (UAE), and PDVSA (Venezuela). At present, NOCs and IOCs have very different business structures. For NOCs, oil production capacity greatly exceeds refining capacity, while the opposite is true for IOCs. Against this backdrop, IOCs are expanding oil production by developing unconventional resources and pursuing deep-sea oil exploration, while NOCs are increasing their focus on refinery projects. Figure 1. Oil production and refinery capacity for major IOCs and NOCs (' bbl/day) 14, 12, Oil production Refinery capacity 1, 8, 6, 4, 2,?? ExxonMobil Shell Aramco NIOC Note: As of 216 Source: Company data, Figure 2. ExxonMobil s US unconventional holdings Source: ExxonMobil, 3

4 March 22, 217 We believe the refinery segment will attract the bulk of NOCs investments in the short to medium term. Indeed, in the Middle East, refinery investments are necessary to meet growing demand for petroleum products, drive industry diversification, and support policy interests, such as price stabilization. And in Europe and the US, aging refineries are in need of large-scale maintenance and repairs. As such, we expect refinery orders to increase going forward. Middle East to resume placing refinery orders In 217, we expect to see an increase in new refinery orders from the Middle East. Specifically, we estimate refinery orders from the Middle East to increase from US$6.6bn in 216 to US$26bn in 217 (+293% YoY), breaking the record of US$23.8bn set in 29. Refinery orders from the Middle East have been on the rise since 214, except for in 216, when orders dropped on sharp oil price declines. (Refinery projects in the Middle East were the main source of new plant orders in in 214 and 215.) Major refinery orders expected in 217 include the Sitra refinery expansion (US$4.1bn) in Bahrain, the Duqm Refinery (US$W4.4bn) in Oman, the Takreer-POC Refinery (US$3bn) in the UAE, the EORC-Esfahan Refinery upgrade (US$1.8bn) in Iran, and the Takreer-Ruwais refinery restoration (US$1bn) in the UAE. Figure 3. Refinery plant orders in Middle East (US$bn) F Source: MEED Projects, Table 2. Major projects for which Korean companies are competing in 1H 217 Project EORC Esfahan refinery upgrade Country Area Iran Oil refining Expected value Bapco refinery (Sitra) Bahrain Oil refining 4.1 Duqm refinery Oman Oil refining 4.4 Takreer - POC refinery UAE Oil refining 3. TAKREER - Ruwais refinery restoration UAE Oil refining Source: MEED Projects, E&C bidders Daelim Industrial - GS E&C+JGC - Samsung ENG+Technip+Tecnicas Reunidas - Hyundai E&C+Daewoo E&C+Flour - CB&I+Petrofac+Mitsui - Daewoo E&C+Tecnicas Reunidas - Samsung ENG+Chiyoda+Petrofac - CB&I+CTCI - GS E&C+JGC+Saipem - Samsung ENG - GS E&C - Tecnicas Reunidas 1. - GS E&C Current status (US$bn) - Daelim Industrial received LOA on December 28, 216 (approximately W2.3tr) - Final contract scheduled for 1H17 - Bidding submitted on December 9, Bapco finished service contracts with local companies on February 16, Winner to be selected in 1Q17 - Commercial bidding submitted on February 23, Winner to be selected in May Rebidding submitted on January 11, Winner to be selected in March GS E&C is sole bidder - Winner to be selected in 1H17 4

5 March 22, 217 Refineries play a significant role in Middle Eastern oil-producing countries. First, refining is the starting point for industry diversification. Oil-producing countries can diversify their petrochemical industry structures by refining crude oil into gasoline and feedstock for petrochemical products. As such, refinery investments are imperative for oil-producing countries seeking to diversify beyond crude oil production. Second, refinery investments are needed to meet domestic consumption growth. Oil consumption in the Middle East continues to expand, but refineries are in short supply. Middle Eastern countries are facing sharp increases in energy demand, driven by growing populations and higher income levels. In particular, electricity demand is surging amid severe heat waves. Middle Eastern countries have only recently turned their attention to refineries in earnest. For the most part, Middle Eastern oil-producing countries still export crude oil to refineries in Asia, Europe, and the US, while importing gasoline, jet fuel, and petrochemical products. According to the US Energy Information Administration (EIA), total refinery imports by Saudi Arabia, the UAE, and Iraq nearly match those of the US in 212. For reference, in 212, Middle Eastern oil-producing countries imported a total of 1.4mn bbl/day and consumed 8.8mn bbl/day. Figure 4. Refinery imports by Middle Eastern countries (' bbl/day) 1,6 1,4 1,2 1, Source: EIA, Figure 5. Refinery imports by US (' bbl/day) 3, 2,5 2, 1,5 1, Source: EIA, 5

6 March 22, 217 Oil producers in the Middle East are working steadily to lower their reliance on imports through investments in refinery projects. According to the BP Statistical Review of World Energy, Middle Eastern refining capacity increased at a CAGR of 41% from 6.64mn bbl/day in 2 to 9.34m bbl/day in 215. Political considerations are among the key drivers behind refinery investments. Specifically, one of the major policy priorities for oil-producing countries is keeping gasoline affordable. Investments in refineries will help oil producers stabilize their prices and keep gasoline prices at affordable levels over the long term. We believe that the history of the US oil industry provides clues to the future of refinery investments in the Middle East. After becoming the world s largest oil producer in 196, the US lost the throne to the Middle East in the 197s. With the epicenter of crude oil production shifting toward the Middle East, the US oil industry underwent tremendous changes. The most notable change was industry diversification on the back of refining capacity expansion. Between 1965 and 198, the US saw its refining facilities expand 79% as it lost ground in the crude oil market. During that period, the US aggressively promoted the refining industry, while scaling back oil production. Notably, growing consumption of petrochemical products accelerated industry diversification toward refining. Figure 6. Comparison of oil production and refinery capacity in US (' bbl/day) 14, 12, 1, 8, 6, 4, 2, Oil production (L) Refinery capacity (R) (' bbl/day) 21, 18, 15, 12, 9, 6, 3, Source: BP Statistical Review of World Energy 216, Figure 7. US oil production plant built in 197s Source: Google Images, 6

7 March 22, 217 Refinery project orders from Southeast Asia to increase In addition to the Middle East, Southeast Asia is likely to post an increase in order placements in the refinery segment. We estimate that US$81.1bn in refinery projects are being pursued in Southeast Asian countries, including Indonesia, India, and Vietnam, where crude oil consumption is surging on the back of population growth and economic development. Despite a rapid increase in crude oil demand, Southeast Asia s refining capacity expansion remains lackluster. The pace of expansion has slowed since 2, due to shrinking investments amid commodity price hikes and the global financial crisis. The impact of slowing capacity investment was barely perceptible when consumption growth was limited. However, the gap between oil consumption and refining output has been widening since 21, due to the recovery in oil consumption. Figure 8. Oil consumption and refining output in Asia (excl. Korea, China, and Japan) (' bbl/day) 2,5 Oil consumption - Refining output 2, 1,5 1, Source: BP Statistical Review of World Energy 216, Financing is the biggest challenge for refinery projects in Southeast Asia. As it is difficult to finance refinery projects independently, governments and state-run companies are actively seeking foreign investments. The Middle East is showing the keenest interest in Southeast Asia, with state-run oil companies planning to expand investments in the region. We think that Southeast Asia-Middle East investment partnerships have the potential to be mutually beneficial. For Middle Eastern oil producers, investments in Southeast Asian refinery projects are important, as the likely increase in US crude oil exports is making it increasingly important to secure captive customers. Meanwhile, refinery projects must secure at least eight years of crude oil supply, on top of funds to cover construction costs, in order to move forward. Furthermore, given the geographical proximity between the two regions, we think Southeast Asian countries view Middle Eastern state-run oil companies as the most suitable investors. 7

8 March 22, 217 Table 3. Expected major oil plant orders in Southeast Asia Project Country Order issuer Expected value (US$ bn) Tuban Refinery Indonesia Pertamina 14. Bontang Refinery Indonesia Pertamina 16. Notes Cilacap Refinery Indonesia Pertamina 5.5 Joint venture with Saudi Aramco Konkan Refinery India Indian Oil 3. Visakh Refinery India Hindustan Petroleum Corporation Limited Dung Quat Refinery Vietnam Binh Son 2. Pertamina has investment MOU with Russia-based 'Rosneft'; completion scheduled for 221 Co-investment under discussion with Saudi Aramco; completion scheduled for 219 Land purchasing ongoing; IOC investment under discussion with Saudi Aramco and other E&Cs 3.1 Expansion project Introduction of foreign loans expected for expansion of refinery plant; EPC contract is scheduled in 218 Vung Ro Refinery Vietnam Vung Ro 4. Front End Engineering Design (FEED) processed by JGC Dong Quat Refinery Vietnam BSR 1.8 Expansion project; EPC contract scheduled for 2H 217 Dawey Refinery Myanmar Guangdong Zhenrong 3. JV establishment completion Chittagong Refinery Bangladesh BPC Eastern 1.7 Engineers India Ltd. won order for Project Monitoring and Control (PMC) New Refinery Thailand Thai Oil 8. 5-yr investment plan for 4,bpd/d capacity increase Source: MEED Projects, Between 217 and 22, Asia is projected to add 2.6mn bbl/day in refining capacity, which translates into roughly US$6bn in construction investments (based on the 216 capex). In the same period, the Middle East is forecast to add 9, bbl/day, South America 4, bbl/day, and North America 25, bbl/day. Figure 9. Refinery capacity increase plan by region (217-22) (' bbl/day) 3, 2,5 2, 1,5 1, 5-5 Africa Asia Middle East North America South America Europe CIS Source: HIS, 8

9 March 22, 217 Saudi Aramco sets its sights on Southeast Asia and China Recently, Saudi Arabia's King Salman visited Indonesia - the first for a Saudi monarch in 47 years - to discuss bilateral economic cooperation plans worth US$25bn, among other things. Saudi Aramco announced that, following its IPO, it would invest US$6bn in an oil refinery development project in Cilacap, Central Java, and US$7bn in Petronas Refinery and Petrochemical Integrated Development (RAPID) project in Malaysia. Figure 1. Meeting between Saudi Arabia s King Salman and Indonesia s President Joko Widodo Source: Media report, We also expect Saudi Aramco to enhance cooperation with China. In fact, the two parties are already partnering on major projects. For instance, Saudi Aramco (62.5%) and China s Sinopec (37.5%) jointly operate Yanbu Aramco Sinopec Refining Company (YASREF) in Saudi Arabia. President Xi Jinping of China attended the YASREF refinery ribbon-cutting in February 216, and leaders from the two countries have clearly voiced their long-term commitment to bilateral cooperation and mutual investments. Figure 11. China President Xi Jinping s visit to Saudi Arabia Source: Media report, 9

10 March 22, 217 We believe that Saudi Arabia is increasing investments in China and South East Asian countries from a strategic standpoint, given that Asia and Africa are the only regions with rising oil demand. According to British Petroleum (BP), oil demand from Asia will grow at a CAGR of 1.9% through 235, while demand from the North America will decline at a CAGR of.7%. Figure 12. Oil demand forecast (mn tonne) 2,5 2, North America Asia 1,5 1, F 225F 23F 235F Source: BP Statistical Review of World Energy 216, Aramco is pursuing an IPO in line with its expansion into the South East Asian countries. The company has recently chosen an advisor to complete its IPO in 218. Its enterprise value is estimated at US$2tr. As the company is expected to list 2% of its stake, it will likely secure more than US$1bn, equivalent to the amount required to build 167 oil refineries, with a capacity of 23, bbl/day each. Figure 13. Saudi Aramco s overseas operations Source: Saudi Aramco, 1

11 March 22, 217 Figure 14. Aramco s expected post-ipo market cap Saudi Aramco Apple Alphabet Microsoft Berkshire Hathaway Amazon Facebook Johnson&Johnson ExxonMobil JP Morgan & Chase (US$bn) 5 1, 1,5 2, 2,5 Note: List includes top-1 global market cap companies, as of 17 March 217 Source: Aramco s global assets mostly consist of oil refining plants. The company holds stakes in refining plants in Korea, China, the US, Japan, Germany, and Indonesia. In Korea, it has a 63% stake in S-Oil. In China, Aramco has invested in the refining plants of the Fujian Refining and Petrochemical Company (FREP), jointly with ExxonMobil and China Petroleum and Petrochemical Company (Sinopec), with Sinopec owning 5% and Aramco and Exxon 25%. In the US, the company formed a joint venture, Motiva, with Shell Oil Company. Motiva operates refineries in Texas and supplies gasoline to 8,3 Shall-branded gas stations. It also holds a 15% stake in Showa Shell in Japan, and investing in the oil refinery upgrade project, jointly with an Indonesian state-run oil refining firm, PT Pertaminan. Table 4. Saudi Aramco s refinery capacity Plants (or companies) Refinery capacity of plants Ownership share of Saudi Aramco (' bbl/day) Refinery capacity for Saudi Aramco Ras Tanura 55 1% 55 Riyadh 126 1% 126 Jiddah 78 1% 78 Yanbu 245 1% 245 Petro Rabigh 4 38% 15 SAMREF - Yanbu 4 5% 2 YASREF - Yanbu 4 63% 25 SASREF - Jubail 3 5% 15 SATORP - Jubail 4 63% 25 Total (Saudi Arabia) 2,899 1,999 Motiva - USA 1,7 5% 535 S-Oil - South Korea % 424 Showa Shell - Japan % 67 FREP - China 28 25% 7 Total (overseas) 2,464 1,96 Note: As of 215 Source: Saudi Aramco, 11

12 March 22, 217 Global refining capacity and construction capex As of 215, global refining capacity stood at 97.23mn bbl/day, roughly 17.62mn bbl more than the daily production of 79.61mn, according to BP. While we see global overcapacity statistically, we still think refinery investments will continue, given the aging facilities and regional differences in available capacity. Between 1965 and 198, global refining capacity continued to expand, led by the US and Europe. Between 1981 and 1995, capacity remained flat or contracted, as capacity growth in China was offset by contraction in the US and Europe. Since 1996, a surge in Chinese refining capacity has driven global capacity expansion. Figure 15. YoY change in refinery capacity of US and Europe (YoY, %) 15 US Europe Source: BP Statistical Review of World Energy 216, Figure 16. Refinery capacity change in China and Asia (excl. China) (1965=1) 7, 6, China Asia (ex China) 5, 4, 3, 2, 1, Source: BP Statistical Review of World Energy 216, 12

13 March 22, 217 Historically, global investments in refineries have been concentrated in regions, where demand for both refined oil and base chemicals (for use in petrochemicals) is high. For example, Europe, the US, and China have seen notable increases in investments in refineries, amid growing oil refining demand. We thus believe that future refinery investment growth should be driven by high-demand regions. Over the past five years (211-15), the Middle East, Africa, and Asia posted strong growth in imports of main petroleum products (CAGR of 1%, 4.4%, and 3.6%, respectively), while North America, including the US, saw imports of such products shrink by 5% per annum. For reference, during the same period, global imports of petroleum products logged a CAGR of 2.5%. Given recent petroleum product import trends, we expect global investments in refineries to be concentrated in the Middle East, Africa, and Asia, going forward. Figure yr (211-15) CAGR growth of main petroleum product imports (%) Middle East Africa Asia North America Western Europe World Source: OPEC, Given regional imbalances in refining capacity, we project that the Middle East and Africa will further expand investments in refining facilities. The Middle East s crude oil production and refining capacity reached 3m bpd and 9.34m bpd, respectively, in 215. The refining capacity relative to crude output stands at 31% for the Middle East and 43% for Africa, much lower than that of developed counterparts. We expect the regional gap to narrow over the long term, with the Middle East and Africa expanding investments in refining capacity. We think that cost competitiveness will allow oil-producing countries to expand refining capacity and reduce regional imbalances. Indeed, the increase in non-conventional oil production, such as US shale output, is posing a threat to oil-producing countries. However, oil production cost per barrel comes in at US$35 for Middle Eastern oil producers and US$6 for US shale producers. Assuming that the production cost of crude oil remains relatively low, we think oil-producing countries will continue investing in refining capacity to narrow the regional capacity gap, diversify their industry structure and enhance price competitiveness. 13

14 March 22, 217 Figure 18. Oil production and refinery capacity by region (' bbl/day) 35, Oil production 3, Refinery capacity 25, 2, 15, 1, 5, US Middle East Europe Asia (ex Korea, China and Japan) Africa Note: as of 215 Source: BP Statistical Review of World Energy 216, Figure 19. Oil production cost comparison by region Source: HIS, 14

15 March 22, 217 Korean EPCs competitiveness in the refinery plant segment As investments in new refining facilities have almost dried up over the past few decades, not many EPC contractors have had opportunities to undertake large-scale refinery plant projects. Refineries in Europe and the US focused on scaling back existing capacity, rather than investing in new capacity, in response to stricter environmental regulations and shrinking consumption. Asia excluding China has been unable to afford new investments, due to financing difficulties and low profitability. In contrast, the Middle East and Africa have made relatively aggressive investments in refining capacity. As such, we examined which EPC companies undertook refinery plant projects in the Middle East and Africa to chart the competitive landscape in the market. Our analysis of 12 refinery plant projects (based on core processing units and standalone projects) undertaken in the Middle East and Africa since 2 showed that five EPC contractors joined a ten billion club, each recording over US$1bn in the value of projects implemented. Of note, four out of the five companies are Korean contractors. SK E&C topped the list, with projects worth US$18.5bn, followed by GS E&C (US$17bn); Samsung Engineering (US$15.4bn); Spain-based Tecnicas Reunidas (US$1.4bn); and Daelim Industrial (US$1.2bn). The number of bidders shows that the refinery plant segment is not as competitive as other EPC project markets. An infrastructure EPC project would attract over 2 bidders, while a petrochemical plant project, excluding certain processing units, would see fierce competition. Figure 2. Refinery plant order intake ranking in Middle East and Africa (2 216) (US$bn) SK E&C GS E&C Samsung Eng TR Daelim Ind'Hyundai E&CDaewoo E&C JGC Flour Technip Saipem Source: ICAK, Despite the long history of the refinery plant market, lack of continuous investments makes it difficult for market players to develop and maintain expertise in the field. Notably, contractors in Europe and the US have not channeled their resources into the refinery plant segment, due to shrinking refinery investments in those regions. As a result, European and US contractors lack competitiveness in the refinery plant market. In contrast, Korean contractors have developed a solid track record in the market, leveraging their ties to refining affiliates. We think the vast project experience of Korean contractors has enabled them to sharpen their competitiveness, in terms of technology and pricing. One of the market-leading companies is GS E&C, which is part of GS Group, along with GS Caltex. GS E&C has undertaken various refinery plant projects in Korea and abroad, including the ERC project (US$2.9bn) in Egypt, the Ruwais project (US$3.1bn) in the UAE, and the Clean Fuel project in Kuwait. 15

16 March 22, 217 Samsung Engineering has aggressively pursued refinery plant contracts, as part of a strategic effort to develop a solid track record. Given this, we expect the company to be able to secure sound margins on new orders. The company s major overseas refinery plant projects include the Clean Fuel Refinery (US$1.6bn) in Kuwait, the carbon black and delayed coker (CBDC) project (US$2.6bn) in the UAE, and the Jubail Refinery Project (US$2.4bn) in Saudi Arabia. During January 25-February 217, Hyundai E&C, Daelim Industrial, GS E&C, Samsung Engineering, Daewoo E&C, and SK E&C have globally won a total of US$65.7bn in refinery plant orders, which accounts for 21% of total plant orders. As such, major Korean E&C contractors have a proven track record in the global refinery plant market. Korean E&C contractors have extended their reach beyond the Middle East, the largest market, to include Latin America and Asia, undertaking projects in Venezuela, Algeria, Egypt, Vietnam, the Philippines, Turkey, Ecuador, and Indonesia. By company, refinery plant order intakes came in at US$16.1bn for GS E&C, US$12.4bn for SK E&C, and US$12.1bn for Samsung Engineering. Figure 21. Korea s top-6 E&C companies refinery order intake by country (US$mn) 16, 14, 12, 1, 8, 6, 4, 2, Vietnam Egypt Iran Algeria Iraq Venezuela Saudi Arabia UAE Kuwait Note: Cumulative amounts after 215 Source: Figure 22. Refinery plant order intake by major Korean E&C companies (US$bn) GS E&C SK E&C Daelim Industrial Daewoo E&C Samsung Engineering Hyundai E&C Note: Cumulative amounts after 215 Source: ICAK, 16

17 March 22, 217 Table 5. Major refinery projects by Korean E&C companies Country Project name E&C companies Order issuer Amount (US$mn) Contract year Egypt ERC Hydrocracker Project GS E&C Egyptian Refining Co. 2, United Arab Emirates Green Diesel Project. GS E&C Abu Dhabi National Oil Company 1, Kuwait Al-Zour Refinery Project - PKG 5 Hyundai E&C Kuwait National Petroleum Co 1, Kuwait Al-Zour Refinery Project - PKG 4 Daelim Industrial Kuwait National Petroleum Co 1, Kuwait Al-Zour Refinery Project - PKG 1 GS E&C Kuwait National Petroleum Co 1, Kuwait Al-Zour Refinery Project - PKG 2 SK E&C Kuwait National Petroleum Co 2,62 28 Algeria Skikda Refinery Project Samsung Engineering Sonatrach 2,59 29 United Arab Emirates United Arab Emirates United Arab Emirates United Arab Emirates Ruwais refinery expansion - PKG 1 SK E&C Abu Dhabi National Oil Company 2,15 29 Ruwais refinery expansion - PKG 2 GS E&C Abu Dhabi National Oil Company 3,19 29 Ruwais refinery Expansion Tank Farm Package Daewoo E&C Abu Dhabi National Oil Company 1, Takreer Ruwais refinery expansion - PKG 3 (offsite Samsung Engineering Abu Dhabi National Oil Company 2, & utility ) Saudi Arabia Yanbu Export Refinery project PKG (EPC-3) Daelim Industrial Saudi Aramco 1, Philippines Petron refinery project (RMP-2) - EPC Daelim Industrial Petron Corporation 2, Venezuela Puerto La Cruz refinery project Hyundai E&C Petroleos de Venezuela, S.A. 2, United Arab Emirates TAKREER carbon black and delayed coker project Samsung Engineering Abu Dhabi National Oil Company 2, Saudi Arabia Jazan refinery project PKG - 9 SK E&C Saudi Aramco 2, Vietnam NSRP Refinery project SK E&C Nghi Son Refinery and Petrochemical 1,5 213 Vietnam NSRP Refinery project GS E&C Nghi Son Refinery and Petrochemical 1,5 213 Turkey STAR ARP Projec GS E&C STRA 1, Venezuela Batalla de Santa Ines refinery project - Phase I Hyundai E&C Petroleos de Venezuela, S.A. 1, Oman Sohar Refinery Improvement Project Daelim Industrial ORPIC 1,5 213 Iraq Karbala Refinery Project SK E&C NIOC 1, Iraq Karbala Refinery Project Hyundai E&C NIOC 1, Iraq Karbala Refinery Project GS E&C NIOC 2, Kuwait Clean Fuels Project - MAB2 PKG Daewoo E&C Kuwait National Petroleum Co 1, Kuwait Clean Fuels Project - PKG 1 SK E&C Kuwait National Petroleum Co 1, Kuwait Clean Fuels Project - PKG 1 - MAA GS E&C Kuwait National Petroleum Co 1, Kuwait Clean Fuels Project - MAB1 Samsung Engineering Kuwait National Petroleum Co 1, Venezuela Puerto La Cruz expansion and facility upgrade package Hyundai E&C Petroleos de Venezuela, S.A. 3, Kuwait New Refinery Project PKG - 2&3 Daewoo E&C Kuwait National Petroleum Co 2, Iran Esfahan Refinery Upgrading Project Daelim Industrial Esfahan Oil Refining Company 1,8 217 Source: MEED Projects, 17

18 March 22, 217 APPENDIX 1 Important Disclosures & Disclaimers 2-Year Rating and Target Price History Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price GS E&C(636) 1/24/217 Buy 35, No Coverage No Coverage 4/21/215 Buy 11, 7/3/215 Buy 33, 1/23/215 Buy 75, 4/29/215 Hold - Hyundai E&C(72) 1/24/217 Buy 53, 1/28/215 Trading Buy 27, No Coverage Samsung Engineering(285) 1/24/217 Buy 15, 1/14/216 Buy 52, No Coverage 7/26/215 Buy 62, 1/3/215 Hold - 4/26/215 Buy 7, Daelim Industrial(21) 1/24/217 Buy 11, 2/26/215 Buy 6, (W) 4, GS E&C (W) 5, Samsung Engineering (W) 12, Daelim Industrial (W) 8, Hyundai E&C 3, 2, 1, 4, 3, 2, 1, 1, 8, 6, 4, 2, 6, 4, 2, Mar 15 Mar 16 Mar 17 Mar 15 Mar 16 Mar 17 Mar 15 Mar 16 Mar 17 Mar 15 Mar 16 Mar 17 Stock Ratings Industry Ratings Buy : Relative performance of 2% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 1% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -1% and 1% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -1% Ratings and Target Price History (Share price ( ), Target price ( ), Not covered ( ), Buy ( ), Trading Buy ( ), Hold ( ), Sell ( )) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Equity Ratings Distribution Buy Trading Buy Hold Sell 75.13% 13.99% 1.88%.% * Based on recommendations in the last 12-months (as of December 31, 216) Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding. Analyst Certification The research analysts who prepared this report (the Analysts ) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Mirae Asset Daewoo Co., Ltd. ( Mirae Asset Daewoo ) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein. Disclaimers This report is published by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean 18

19 March 22, 217 language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Mirae Asset Daewoo and its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. 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