Managing Energy Supply Risks in France Through Strategic Stock Management

Socit Anonyme de Gestion de Stocks de Scurit Strategy, logistics and financial transparency Anticipate and manage oil supply crises SAPIA SUPPLY SECURITY SEMINAR JOHANNESBURG, 12 November 2013 Didier HAREL Chairman & CEO Updated: 8 November 2013

Contents I. A strictly-regulated, strategic public-service mission II. A complex and responsive logistical network III. Financial stability based on transparency and rigorous risk management 2

A strategic mission: to manage the risks related to the external energy dependence of France 1 France has a long-term dependance on petroleum products If consumption in France has fallen by 6,4% since 1990, oil remains a major component of the energy supply mix and covers 31% of French energy needs in Mtoe In 2012, 99% of the crude oil consumed in France was imported 140,0 Coal 120,0 100,0 Oil 80,0 Gas 60,0 Primary electricity 40,0 Renewable energies 20,0 0,0 1990 2002 2009 2010 2011 2020 2030 Established in 1988, on the initiative of oil operators and under the supervision of the French Government, SAGESS s mission is to secure supplies in cases of international or domestic crises, mainly through the establishment of compulsory oil stock obligations * Sources: SOeS, Energy balance 2011 3

Roles and missions (1) SAGESS : Soci t Anonyme de GEstion de Stocks de S curit A not-for-profit plc (public limited company) with a strong integral link with the French Government, in line with the regulatory framework in place. a unique plc : despite being a plc, SAGESS is a Government-related entity in charge of a public service mission By-laws approved by Government decree. Enjoys preferential tax regime (enshrined by law). Appointed on 01/01/2013 as the sole CSE (Central Stockholding Entity) for France, under European Union regulations, with powers to acquire, maintain or sell oil stocks in France. 34 shareholders, comprising some 94% of oil operators on the market. Shareholding in SAGESS is in proportion to stockholding obligations, as determined by sales. Minimal share capital (240 k ). Board consists of 13 Directors and 3 Government Representatives, with quasi veto rights. 13 full-time equivalent (FTE) employees. 4

Roles and missions (2) CPSSP : Comit Professionnel des Stocks Strat giques P troliers (a professional agency for economic development , i.e a public policy body with a quasi-state entity status). Created by Government on 01/01/1993. Government then transferred full responsibility for holding national Compulsory Stock Obligation ( CSO ) to CPSSP. CSO delegated to SAGESS and independent operators by CPSSP. Manages CSO Tickets directly Administered by a Board appointed by Government Decree and constituted of Refiners, independent Distributors and Government directors. Very strong Government supervision over CPSSP with full veto rights on Board s decisions. Has a Mandate Convention with SAGESS for physical stockholding and all operating & administrative management. Is the sole client of SAGESS and reimburses the latter for the totality of its costs, in the line with the Mandate Convention. Covers its costs through mandatory monthly membership fees paid by operators. Defines SAGESS s oil / product purchasing & sale programs and determines monthly fees to operators. Each oil operator can delegate a certain percentage of its CSO to CPSSP. Part-time Chairman plus one full-time General Delegate. 5

French Government / SAGESS / CPSSP : a unique tripartite partnership for CSO management in France French Government SAGESS CPSSP Robust & stable Government stockpiling regulatory framework Bilateral convention a delicate system of checks and balances in place 6

The mission of SAGESS is hence at the heart of a strictly controlled, and combined public-private system 1 A unique system of tripartite CSO management Regulatory obligations determining the level of CSO 1 Supervisory Ministry (Boards of Directors ) International Energy Agency Decision-maker Observer 90 days of net imports CPSSP** SAGESS Bilateral 2 In charge of the delegated obligation Obligation met by: - Delegation to SAGESS Operational management of strategic stocks (purchase, storage, maintenance, sale) European Union* 90 days of net imports convention Delegation Distribution into 3 categories (gasoline, diesel fuel, fuel oil) - Tickets: stocks owned by operators and contractually placed at CPSSP s disposal: 1.3 million tonnes EQuivalent Finished Products (EQFP)*** (8% of total obligation) as at 30 June 2013 SAGESS stocks: 12.7 million tonnes EQuivalent Finished Products (EQFP) (70% of total national obligation) as at 30 June 2013 Checks on the quantities and quality of stocks Usage decision 3 France 91.0 days of net imports = 17.8 million tonnes (EQFP) (27% of releases to domestic consumption of the previous calendar year on 1 July 2010, 28.5% from 1 July 2011, 29.5% from 1 July 2012) Breakdown in 4 categories (gasoline, diesel fuel, fuel oil, jet fuel) Substitution possible in crude oil of up to 50% Membership Fee Delegation Oil operators Delegation of CSO according to releases to domestic consumption (RDC) Delegation levels: either 56% or 90% 3.8 million tonnes EQFP of non delegated own stocks (22% of the total obligation as at 30 June 2013) Compulsory Stock Obligation requirement * In 2009, a European Union Directive aligned European rules regarding compulsory stock obligation requirements on those of the IEA ** CPSSP: French acronym for Professional Board for Strategic Petroleum Reserves *** EQFP: EQuivalent Finished Products 7

The strategic stocks managed by SAGESS have specific characteristics compared with international standards and are constantly growing From crude to finished products 2 Growth in CSO delegation by oil operators to SAGESS Distribution of French strategic stocks by category of stakeholder 100% 90% 22 80% 50 8 70% Priority to the storage of finished products 60% Operators Tickets 50% SAGESS 40% (contrary to the IEA policy orientations) 70 31 30% 20% 10% 19 0% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2011 2012 June 2013 Distribution of French strategic stocks by product type Development in SAGESS stocks (KT) 16,000 14,000 Crude Jet Fuel Distillates Gasolines Compulsory stocks held in CRUDE and in THREE main product categories : 12,000 10,000 8,000 CAT I -- GASOLINES 6,000 4,000 CAT II -- DISTILLATES 2,000 CAT III -- JET A-1 0 1987 1996 2005 1988 1989 1990 1991 1992 1993 1994 1995 1997 1998 1999 2000 2001 2002 2003 2004 2006 2007 2008 2009 2010 2011 2012 June 2013 Source: SAGESS 2011 8

High stability of the shareholding structure - a salient feature of SAGESS 2 Only oil sector stakeholders can be shareholders... SAGESS shareholder structure (2013) 94% of the French strategic stocks obligation is covered by SAGESS shareholders Independent distributors 14% To be a SAGESS shareholder, it is essential to: Market petroleum products Be an authorised warehouse-keeper duly accredited by the customs authorities Shareholding percentages are marginally adjusted each year, based on data regarding the releases to domestic consumption (RDC) of petroleum products for the previous year International refiners 52% Hyper-Markets 34% for a rather unconventional remuneration SAGESS's shareholders receive no dividend SAGESS provides them with: Information about strategic stocks in France The ability to monitor and control the pooled management of their stocks Over and above the mechanisms that lead to the change in shareholding according to variation in releases for domestic consumption, shareholder stability is also guaranteed by the necessary approval by the State for any transfer of shares Source: SAGESS 2012 9

Contents I. A strictly-regulated, strategic public-service mission II. A complex and responsive logistical network III. Financial stability based on transparency and rigorous risk management 10

The SAGESS logistical network (105 storage points) must always ensure a sufficient volume of stocks across the national territory 1 Governing principles of the product procurement strategy Principles determining the localization strategy for stocks Geographic distribution of stocks over 7 defense zones Proximity to the end consumer must be guaranteed Compliance with the minimum stock targets for each defense zone: - 10 days of consumption for gasolines Volumes and breakdown by type of product updated every year according to the releases to domestic consumption of the previous year A maximum of 50% of crude currently in overall crude/product stock mix held by SAGESS is allowed by law 15 days of consumption for distillates (diesel fuel and heating oils) Location of gasoline and Diesel (GOM) / Domestic Heating Oil (FOD) stocks / 2012-2013 - Distribution of SAGESS stocks per product family in 2012 North: Gasoline data Diesel (GOM) data / Domestic Heating Oil (FOD) data Ile-de-France: 628 km3 30 d 110 km 21 d 482 km3 57 d 51 km 37 d Gasolines 7% Crude oil 33% East: 624 km3 35 d 42 km 16 d West: Diesel 39% 1,031 km3 27 d 367 km 63 d Jet fuel 7% South East: 351 km3 16 d 65 km 18 d South West: 755 km3 35 d 64 km 18 d Domestic heating fuel 14% South: 3,741 km3 170 d 450 km 91 d Mapping: indication by region of the accumulated volumes of stocks and the number of days of autonomy Source: SAGESS analysis 11

SAGESSs storage strategy is based on the rental of third- party storage capacity that meets two major criteria: proximity and logistical reliability 1 SAGESS storage strategy is based on third-party storage rental and subcontracting Key geographic locations of SAGESS stocks in France Priority is given to the rental of storage capacity from oil operators, rather than having its own storage facilities - Subcontracting of storage activities in the case of leased storage facilities - SAGESS only owns one depot (Chasseneuil) The choice of a site is based on specific logistic and economic criteria designed to facilitate the provision of stocks: - Trading area of the site (size, etc.) - Terminals > 100,000 m Logistical attractiveness (supply facilities, product rotation, pick-up by trucks, etc.) - Terminals [10,000:99,999] m Terminals with capacities < 9,999m Financial counter-party risk - Manosque underground storage site HSE risk exposure - Economic dependence risk reduction consumption and the increased severity of HSE* constraints are progressively resulting in the streamlining of the storage reduction in the number of storage sites - Refineries Pipelines The in releases to domestic network and a * HSE: Health, Safety and the Environment Source: SAGESS 2011 12

In this context, SAGESS has recourse to three main types of storage terminals... 2 Unit storage costs Manosque Refineries Third-party owned terminals Characteristics: - Comingled above-ground storage facilities - Density of the terminal network enables prompt stock availability and good stock turnover - Wide mix of storage capacities Types of products stored: - Crude oil: 9.7% - Distillates: 71.7% - Jet Fuel: 12.6% - Gasolines: 6.0% (underground caverns) Characteristics: - Underground storage site - Segregated & comingled storage - Guaranteed stability and liquid tightness of caverns - Low product stock turnover (impossible to store biofuels) Types of products stored: - Crude oil: 50.8% - Gasoline: 2.9% - Bio Free Distillates: 46.3% Characteristics: - Comingled above-ground storage facilities - High stock turnover - Semi-finished product components Types of products stored: - Crude oil: 38.4% - Gasoline: 16.2% - Distillates: 38.9% - Jet Fuel: 6.5% Breakdown of SAGESS stocks by type of storage site (as at 31 December 2012) Breakdown of petroleum products stored by type of storage site (as at 31 December 2012) in k m3 18000 Non French Terminals 3% 16000 Refineries 26% 14000 Local Terminals 26% Refineries 12000 10000 Manosque 8000 Depots 6000 4000 in k Tons Underground caverns 45% 2000 0 Gasolines Crude oil Distillates Jet fuel Total 13 Source: SAGESS 2012

A strict control process ensures close monitoring of both the quality and quantity of SAGESS strategic stocks 1 Two types of external audits in the control process: European Union - Quality control to prevent any degradation of the stocks French government Verification by sampling Quantitative control to ensure compliance by SAGESS and by storage providers of the volumes of strategic stocks determined by the public authorities Monitoring compliance with obligations Audit of strategic stocks Permanent customs control Accounting and physical checks of the existence of products The frequency of the checks can be increased at the discretion of SAGESS SAGESS Stocks Regularly monitoring on site the quantity and quality of products Compliance with storage standards is subject to a dual control process: Control of the compliance of stored products Control of the materiality and location of the stocks Stocks delegated to oil operators Penalties exist and are applicable in the event of non-compliance 14

In the event of a crisis, SAGESS must ensure responsive and optimal compulsory stock release to domestic consumption, using two main mechanisms 1 Crisis affecting the country Government decision Procedures for release to domestic consumption 1. Exchange of products by temporary delocalisation Replacing a volume of a given product from one stock- holding to another through stock-accounting records Physical delocalisation of a stock of a given product if there is a counterpart on a second site Authorization of Quantification of stock movement requirements by stakeholders in the Allocation of stocks 2. Reduction in overall SAGESS stock by: Granting loans of products The sale of stocks via tenders sector (refiners & to release onto the marketers) to market Government Authority Lesser-used alternatives: Allocation against tickets held by CPSSP General decrease in the compulsory stockholding obligation percentage for oil operators by ministerial decree 15

Contents I. A strictly-regulated, strategic public-service mission II. A complex and responsive logistics III. Financial stability based on transparency and rigorous risk management 16

SAGESSs financial strategy is based on two structuring principles: balance and transparency 1 The main objective of SAGESS s financial strategy, approved annually by the Board of Directors, is to fully meet its financing needs in a proactive and secured fashion 1 Balance Sheet Management and policy of full cost recovery Safety diversification of sources of finance mechanisms for secured financing of strategic stocks, based on the Full coverage of SAGESS's costs by the CPSSP High stability of the shareholding structure 2 Dynamic and responsible financial management A reactive funding policy and a unique practice in Europe: the regular recourse to the public bond market through bond issues A systematic policy of financial risk management with particular emphasis on liquidity risk 17

SAGESS implements security mechanisms for strategic stock financing that help ensure optimised balance sheet management 1 Guaranteed, secure assets 88% of SAGESS' assets consist of stocks of petroleum products booked at historical acquisition cost The value of these stocks is financially guaranteed (by Government Decree): - They cannot be sold at a loss, the CPSSP compensating SAGESS, should the selling price be lower than the purchase price - In this way they are secured against any market price variation Diversification of sources of finance 85% of assets are financed by bonds. Main sources of financing (as a % of SAGESS debt as at 31 December 2012): - CPSSP loan: 2% - Bond market: 90% - Banks (commercial paper, etc.) 8% Bond issues are settled at a fixed rate and fully "swapped" at a variable rate An optimised balance sheet structure Assets ( M) Liabilities ( M) 2011 2012 2011 2012 Fixed assets 89 82 Shareholder worth and provisions 4 10 Stocks of products 2 960 3 714 Borrowings 2 962 3 972 Trade receivables Other loans and similar borrowings 57 407 140 221 TOTAL 3 106 4 203 TOTAL 3 106 4 203 Source: SAGESS 2012 18

The costs incurred by SAGESS are fully covered by the charge-back of fees to the CPSSP 1 Oil operators CPSSP SAGESS Payment of operating costs related to stock management: Storage operators Receipt of operators' fees Monthly fee ( / t) per ton of release for domestic consumption -storage -renewal of stocks -control Payment of various other costs: Coverage of costs incurred by SAGESS Banks and financial markets Quarterly update to cover all CPSSP costs -insurance -overheads -financing costs Payment of exceptional non recurring costs Bank guarantees against any default of payment Monthly remuneration of operators for tickets (renting of stocks) Other service providers Profit and Loss Account & Balance Sheet equilibrium enshrined in SAGESS's articles of association (through legislation (Decrees) and as per the Bilateral Convention between SAGESS and the CPSSP) 19

The maturity dates of the bond issues are staggered over time between 2015 and 2025 2 Profile of maturity periods of current and future emissions ( M) 800 700 700 625 600 600 600 500 500 500 400 350 300 200 100 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 The debt maturities were lengthened in the recent issues, with an average maturity of more than six years. After the new issue of February 2013, 62% of the bond issues have a maturity period of more than 5 years. 20

In conclusion, SAGESSs financial strategy is regularly acclaimed by the rating agencies 2 Latest rating (October 2013) of long-term debt: AA+ * with negative outlook aligned with that of France, Recognized short- and long-term stability Latest rating of short-term debt: A-1+ (June 2013) Recognition of future outlooks in line with those of France each year by Standard & Poor s Consistent alignment by Standard & Poor s since January 2001 of the SAGESS debt rating on French sovereign debt. A special relationship based on complete financial transparency with respect to S&P A special relationship between SAGESS and Debt rating is based on the strict implementation of a financial liquidity guarantee program, based on the management of the maturity dates of bond issues, the availability of a commercial paper program and adequate bank credit lines S&P's agency Stability of the legislative environment In charge of public interest mission Supervision and regulation provided by the CPSSP Management transparency SAGESS s role as a Central Storage Entity in accordance with the European Union Directive Unflinching & sustainable government support Government letter of comfort to allow SAGESS to sell up to 10% of its stocks and support of a State financing entity (Agence France Tr sor) in case of a systemic financial crisis The key reasons substantiating a rating equivalent to that of the French sovereign debt * French sovereign LT debt rating downgraded by S&P on 8th November 2013 to AA (with stable outlook) 21