QUARTIC DECISION

FACING LARGE OIL PRODUCING NATIONS AND COMPANIES

CUT PRODUCTION

NOW, SELL FUTURE

CUT PRODCTION NOW ONLY

STATUS QUO

INCREASE PRODCUTION

NOW ONLY

CURRENT STATE

1BEST

2

3

4

FRONT GOES UP, BACK STAYS MUTED, STORAGE CLEARS, CASH POSITION OF

LEVERED PRODUCERS REMAINS POOR – THEY STILL CUT PRODUCTION. IN ORDER

TO BALANCE MARKET, THE BIG GUYS HAVE TO GIVE UP SOMETHING, A

PORTION OF THEIR FUTURE SUPPLY

RATE OF DEMAND INCREASE NOT SUFFICIENT TO BALANCE MARKET,

QUICKLY, DRIVES WHOLE CURVE DOWN, STORAGE REMAINS FULL BECAUSE OF

CURVE SHAPE, HIGH COST UN-LEVERED PRODUCERS FORCE TO LIQUIDATE

WHICH IS A BONUS – CAN BUY THEIR RESERVES /ASSETS

DRIVES PRICES HIGHER, BUT UNCERTAIN WHAT IT DOES TO CURVE SHAPE, COULD INCENTIVIZE MORE BORROWING, RISK

OF LOSING MARKET SHARE

DRAMATIICALLY LOWERS SHORT TERM PRICES, FORCES TOO MUCH

PRODUCTION OFF LINE QUICKLY, CREATES MAJOR SUPPLY OVERHANG

WHICH WILL TAKE LONG TO CLEAR, RISK OF MAJOR SUPER SPIKE WITH

UNKNOWN CONSEQUENCES, COULD LEAD TO FASTER THAN EXPECTED ADOPTION OF NEW TECHNOLOGY,

GAINED MARKET SHARE BUT OFFSET WITH LOWER PRICE

ACTION CONSEQUENCE