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    Annual Report 2010

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    Key f igure s 2010 2009 Number of participations 185 181 of which exploration 48 45 EBN’s share of sales (billion m3)1 33 29 In millions of euros Sales (from continuing activities) 6,486 6,387 Net profit from continuing activities 2,076 2,211 Payments to the State 5,339 5,188 Capital expenditure 664 550 Depreciation and amortization 499 462 Number of employees 2 75 79 1 This includes the proportion of sales from onshore production licences in which EBN does not have an equity share, but is entitled to a proportional share of the revenues. Unless stated otherwise, all volumes in this annual report are stated in billions m3 of natural gas (35.17 Mj at 0 degrees Celsius), based on the percentage of EBN’s participation. 2 Total number of employees at year-end 2010. EBN | Annual Repor t 2010 | 3

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    Conte nts 6 Preface by Jan Dirk Bokhoven I 10 About EBN II 16 Corporate Social Responsibility III 20 Report of the Executive Board 28 Interview with Renee Stoeller 30 Interview with Hans Diekman IV 36 Report of the Supervisory Board V 40 Corporate Governance VI 46 Risk Management VII 52 Financial Statements 54 General 55 Principles for the valuation of assets and liabilities and determination of profit 60 Statement of comprehensive income 61 Balance sheet 62 Summary of changes in shareholder’s equity 63 Statement of cash flows 64 Notes to the financial statements 65 Notes to the statement of comprehensive income 67 Notes to the balance sheet 72 Policy to control financial risks 76 Other notes 78 Other information (Profit appropriation) 80 Independent auditor’s report 82 Glossary 84 Key figures 85 Contact information EBN | Annual Repor t 2010 | 5

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    “ Our ambition to produce some 30 billion cubic metres of gas from small fields by 2030 should be achievable provided all partners involved truly cooperate.” Preface by Jan D ir k Bok hove n According to Jan Dirk Bokhoven, Chairman of the Executive Board of Energie Beheer Nederland, gas will remain an essential component of the Dutch energy mix. With the large fields becoming depleted, the challenge is to develop small fields more profitably by using new technology and achieving better harmonisation of licences and permits. That requires EBN and its partners to be more proactive. As Jan Dirk Bokhoven explains, ”Our ambition to produce some 30 billion cubic metres of gas from small fields by 2030 should be achievable provided all partners involved truly cooperate.” Does gas still have a future? Groningen field is not very likely. But there are other Definitely. A few years ago, the Dutch government possibilities. That is why EBN formulated its 30/30 stated that the Dutch gas reserves were dwindling challenge in 2009: by 2030, the Netherlands will be and would even run out in a decade or so. At the producing 30 billion m³ of gas annually from small same time, the government stated its aim of having a fields. sustainable national energy supply in fifty years’ time. It is questionable whether a completely sustainable How achievable is that ambition? energy supply is in fact possible as, for the time being, In theory, there are enough small fields in the there are not enough alternatives to ensure continuous Netherlands to meet the 30/30 challenge. However, supply from sustainable sources of energy. So there there are two important prerequisites. In the first will be plenty of opportunities for gas in the next place, exploration and production prospects in the forty to fifty years. The only questions are how many Netherlands will have to be sufficiently attractive opportunities will there be and where will the gas to investors from a commercial perspective. In the come from? second place, the chosen options will need to be able to compete cost-effectively with gas imported The major sources are indeed becoming depleted, via pipelines and LNG carriers into the Netherlands. and the discovery of a new field the size of the Although the challenge of meeting these prerequisites 6 | EBN | Annual Repor t 2010

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    may seem tough, experience from the US shows that to onshore permits. The Netherlands is becoming it is not impossible. Technological breakthroughs progressively more densely populated, which makes it mean ‘shale gas’ can be produced more cheaply increasingly difficult to develop new activities. than LNG. New techniques have created enormous potential for new resources, and more parties than What are EBN’s specific plans? previously are consequently becoming interested We have three strategic objectives that guide all our in producing smaller quantities of natural gas. We activities. In addition to encouraging continuity in firmly believe that, within ten to twenty years, these exploration and production, another EBN strategic techniques will also be applied in the Netherlands. objective is to actively manage joint ventures. Our joint venture partners will notice that we are “Releasing licence areas playing a more proactive role than in the past is crucial for developing new and that we will enter operations rapidly.” into discussions about long-term developments more often. For some, What else do you think should happen? that will take some getting used to. The challenge for To ensure continuity of gas supply, it is important EBN is to convince our partners of the benefits of our to start releasing areas where at present little or no more proactive role, while making sure they do not activity takes place. The 2010 covenant between see this as a threat. Initially, some critical eyebrows the Ministry of Economic Affairs, Agriculture and were raised about EBN being the first customer for Innovation and the oil companies stipulates that Fugro’s major 3D seismic study. But without EBN’s operators may voluntarily relinquish their offshore commitment and participation, this type of study licence areas. In our view, it is important to start would not very readily be embarked on. And even so releasing these areas soon so as to enable new we have not been able to make it sufficiently clear players to develop new activities. We also should not to market parties that they will all benefit from these wait too long before applying the same measures developments and our other initiatives. We realise that EBN | Annual Repor t 2010 | 7

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    we need to explain even more clearly what we are planning to How has EBN changed and how do its employees feel do. And that we need to do our job more effectively and smartly. about the change? Our mission requires a new attitude and increased self- Our third strategic objective is to use the deep subsurface awareness among our employees and, therefore, in our in a profitable way. EBN is already the joint owner of three organisation. Many new employees have joined, while underground gas-storage facilities, and a fourth, Bergermeer, is experienced employees have left the organisation and our under construction. All these storage facilities are located in fully workforce is generally becoming younger and more diversified. or partly depleted gas fields. Empty gas fields that are not suitable for gas storage can alternatively be used for “ Mar ket par tie s c a n CO2 storage. be nef it f rom our ex pe r tise Gas exploration and production is not considered sustainable. Gas a nd ex pe r ie nce.” production is also opposed by certain sectors in society. What is EBN’s view on this? EBN obviously faces challenges in establishing and retaining We believe that, as a partner in investments, we share the sufficient expertise and promoting a proactive role. We are responsibility for the impact of our activities on society. demanding different skills from our employees than in the Social responsibility, as we see it, starts with transparency. past, and everybody deals with this differently. Although these As an industry, we need to be more transparent and explicit changes sometimes make employees uncertain, they also about what we are doing, how we are working and about our understand and appreciate that the changes create a whole emissions. EBN is currently examining the main effects that our range of new opportunities. We consider it essential to support operations have on society so that we can report on them, set them in discovering and performing their new roles. objectives and then actively address these issues. 8 | EBN | Annual Repor t 2010

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    How do you view the future? The year 2010 was an interesting year in various respects, both in the market and certainly also for EBN as an organisation. Over the coming years, we will be building on our expertise and experience of the market, and exploring new opportunities. We will be investing in new technology as we see opportunities for applying technology that has been successfully proven in other countries and especially in making even better use of currently producing fields. Dutch gas has played a key role in supplying energy over the past fifty years. And we believe this role should continue for many years to come. The Netherlands has also clearly expressed its ambitions in its Gas Hub plans. EBN has close links with government authorities, making us a good discussion partner, while on the other hand we are also close to the market and so can share expertise, experience and resources. We intend to do so increasingly effectively and efficiently in order to be able to meet our 30/30 challenge. Our 30/30 challenge can be met, provided all the parties involved work together properly. “ Social re sponsibilit y, as we se e it, star ts with transpare ncy.” EBN | Annual Repor t 2010 | 9

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    “EBN’s ambition is to produce some 30 f rom small f ie lds by 10 | EBN | A nnu a l Re p o r t 2 010

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    billion cubic metre s of gas annually 2030 (the 30/30 challe nge).” I A bout EBN E B N | A n n u a l R e p o r t 2 0 1 0 | 11

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    A bout EBN Profile EBN is active in the exploration for, production of and trading in oil and gas in the Netherlands. Together with other national and international oil and gas companies we invest in exploration and production and in gas-stora- ge facilities in the Netherlands. The initiative for exploration, development and production activities is up to the licence holders. EBN does not aim to be the operator in the joint ventures, but invests, facilitates and shares its knowledge. EBN is also involved in selling Dutch natural gas via its interest in GasTerra. EBN distributes all the profits from these activities to the State, our sole shareholder. EBN also advises the government on the mining climate in the Netherlands and on new applications of the subsurface. Vision Gas plays a key role in the Dutch energy supply and the Dutch economy: natural gas revenues contribute substantial amounts to State revenues. World-wide demand for energy is expected to double between 2005 and 2050. Although sustainable energy will meet part of this higher demand, there will also still be a significant demand for fossil fuels. Gas is by far the cleanest fossil fuel, with the lowest CO2 emissions per unit of energy generated. It would therefore be logical to allocate a larger share of the fossil-fuel component in the energy mix to gas. And EBN is dedicated to this cause. Even though there is still plenty of gas available, parties active in the mining sector will have to join forces to reveal and develop the many sources of Dutch gas. Ambition EBN’s ambition to produce some 30 billion cubic metres of gas from small fields by 2030 (the 30/30 challenge). Gas exploration and production is no longer just capital-intensive, but is also becoming increasingly knowledge- intensive. Society’s acceptance of gas is also becoming an increasingly important issue. EBN therefore supports the development and exchange of knowledge needed to ensure that Dutch gas remains part of our energy supply, both now and in the future. We have translated our vision into three strategic objectives, whereby we seek to: • Actively manage our joint ventures in exploration and production activities; • Ensure continuity in exploration and production (E&P); and • Profitably use the subsurface. Active management of joint ventures EBN participates in the exploration for and production of oil and gas. We actively manage our participation in joint ventures and focus on optimally developing existing gas reserves and on cost containment. We only participate in projects that are expected to produce a positive return. Sustainability and long-term relationships with all our stakeholders are also essential to our activities. 12 | E B N | A n n u a l R e p o r t 2 0 10

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    Where needed, EBN takes the initiative to encourage licence holders to explore for and produce more oil and gas. Because EBN participates in virtually all the licences in the Netherlands it has a good overview of all fields, infrastructure and best practices. This means we can provide added value to licence holders and partners in the oil and gas industry. EBN also seeks to play an active role in projects that are given less priority by our partners, such as developing marginal or sub-economic fields, research into new gas-production techniques and extending the life of essential offshore infrastructure. “ EBN unde rstands the impor tance of active dialogue with our par tne rs and othe r stake holde rs.” EB N | A n n u a l R e p o r t 2 010 | 13

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    Ensuring continuity in E&P In order to meet its 30/30 challenge, EBN intends to help develop as yet undeveloped fields, to map new potential deposits in open areas and to keep the offshore infrastructure optimal and operational for as long as possible. This is because economic gas production from new fields will only be possible if we can keep using the existing infrastructure. In addition, the Dutch government and EBN will need to work together to create attractive conditions for new investments and investors in the Dutch E&P sector. Utilisation of the subsurface This objective covers activities such as gas storage, which are outside oil and gas production, but have obvious synergy with EBN’s core activities and expertise. We are also looking into other opportunities to make sustainable use of the subsurface, such as geothermal energy or CO2 storage. A pilot project currently running in K12-B is storing 300 kilotons of CO2 annually. 14 | E B N | A n n u a l R e p o r t 2 0 1 0

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    “A cle ar course has be e n set for the nex t f ive ye ars.” EB N | A n n u a l R e p o r t 2 010 | 15

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    “O ne of the main obje ctive s of our CSR in which EBN par ticipate s are, as far 16 | EB N | A n nu a l R e p o r t 2 010

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    II Corporate Social Re sponsibilit y policy is to e nsure that activitie s as fe asible, c ar r ied out in a sustainable, re sponsible ma nne r.” E B N | A n n u a l R e p o r t 2 0 1 0 | 17

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    Corporate Social Re sponsibilit y EBN is committed to corporate social responsibility (CSR). Our CSR policy outlines how we address this responsibility. The CSR policy is based on three key themes: • EBN as a responsible partner; • socially relevant; • excellent people. These themes were formulated in a workshop and in various interviews with internal stakeholders. EBN as a responsible partner One of the main objectives of our CSR policy is to ensure that activities in which EBN participates are, as much as feasible, carried out in a sustainable, responsible manner. In our joint ventures we proactively enter into a dialogue with all our partners about the long-term and short-term programmes defined for these fields. A key aim is to increase the transparency of the chain of our activities through relevant reporting on E&P activities. EBN has consequently started compiling an overview of the environmental reports currently routinely prepared in the oil and gas industry. In the short term, we are seeking to identify trends and translate these into long-term objectives. These trends may include issues such as CO2 emissions per cubic metre of gas produced, prompt replacement of Freon cooling systems and making an inventory of the chemicals in use. Socially relevant Dialogue with partners EBN is seeking to maintain an active dialogue with its partners and other stakeholders. In the past year, for instance, we have had discussions on preventing wells watering out, on shooting 3D seismic surveys using state-of-the-art technology and on shale gas. In addition, EBN seeks to develop and share knowledge with partners and knowledge institutes so as to ensure the continuity of oil and gas operations in the Netherlands. EBN is currently participating in five joint research projects. Helping to develop knowledge EBN has concluded that there is currently little knowledge about deep geothermal energy in the Netherlands. Many parties nevertheless have plans to drill geothermal wells, without having sufficient knowledge of the subsurface. EBN is therefore actively supporting Delft University of Technology’s geothermal project to increase our expertise of the subsurface and of new drilling techniques. EBN also commissioned TNO to perform a study on combining oil or gas exploration with geothermal research. Sponsorship and financial support EBN provides financial support to organisations and events that it considers appropriate in view of its mission and commitment to society. Details of our sponsorship policy can be found on our website. EBN provides funding for organisations such as the Clingendael International Energy Programme (a think-tank for geopolitical 18 | EB N | A n n u a l R e p o r t 2 010

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    issues) and the Energy Delta Institute (a training and knowledge institute for the gas industry). EBN also supports professional, academic and student organisations of varying sizes that are seeking to encourage public interest in the oil and gas sector and promote research in these fields or disseminate and increase the knowledge available in the E&P industry. From 2011, EBN will fund a prize for the best Master’s thesis on innovative techniques for oil and gas production. EBN also provides funding to various-sized initiatives seeking to increase the general public’s knowledge of the sector by, for example, setting up a deep-subsurface theme room in the Museon, a popular-science museum in The Hague. Disseminating knowledge EBN employees presented papers at various national and international venues in 2010, thus helping to disseminate EBN’s knowledge and experience. In 2010, EBN employees gave 27 lectures on subjects such as the Dutch mining climate, shale gas and CCS. Excellent people EBN is a socially involved and responsible employer. We want to attract and retain the right sort of people and help them excel. We do this by investing in developing their professional knowledge and personal skills. More information on the people at EBN can be found in the Report of the Executive Board. It is also important that our employees, too, feel a need to contribute to society. The EBN volunteer fund has been set up to support our employees in their involvement in various projects and to fulfil one of the objectives of our sponsoring policy. From 2011, the organisation will annually make a total of c 25,000 available for this purpose. Employees can apply to this fund for a financial contribution to projects in which they themselves are actively involved. Managing and monitoring performance In 2011 we will start formulating Key Performance Indicators (KPIs) for each activity in order to monitor our CSR performance and progress towards our objectives. EB N | A n nu a l R e p o r t 2 010 | 19

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    “ We suppor t the code’s basic 20 | EBN | Annual Repor t 2010

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    pr inciple that tra nspare ncy to stake holde rs is cr ucial.” II I Re por t of the E xe cutive Board EBN | Annual Repor t 2 010 | 21

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    Re por t of the E xe cutive Board Looking back at 2010 EBN completed its move from Heerlen to Utrecht in 2010 and the internal organisation is now at full strength. EBN’s main focus now is on its ambition to produce some 30 billion cubic metres of gas from small fields in the Netherlands by 2030 (the 30/30 challenge). Participation in licences In 2010, two production licences in which EBN participates came into force. EBN has also been invited to participate in eight new exploration licences. Five exploration licences were relinquished and two production licences were merged into one. As at 31 December 2010, EBN participated in 126 production licences and 48 exploration licences. Capital expenditure The year 2010 saw good levels of capital expenditure in the joint ventures in which EBN participates. Total expenditure was approximately c 1.6 billion, which is comparable with previous years. Most projects were implemented according to plan. EBN’s share of total capital expenditure was c 607 million, of which c 152 million was for exploration and appraisal wells, c 138 million for production wells and c 317 million for construction operations. Exploration and appraisal wells Faster drilling, particularly of wells, resulted in slightly lower expenditure than forecast. As a result of the recession, the costs of renting drilling platforms and other support services and equipment in 2010 were considerably lower than in previous years. If this trend continues, it will have a positive effect on the number of marginal gas and oil projects that can be developed. 22 | EBN | Annual Repor t 2010

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    With 13 completed exploration and appraisal wells, we remained below our target of 15 in 2010. Ten wells struck gas, while the other three were dry or encountered sub-economic quantities of hydrocarbons. The drilling of two exploration wells was postponed to 2011 because of priority being given to drilling production wells. The total number of 30 completed wells (exploration, appraisal and production) was exactly on target. Projects 2010 Enhanced Gas Rec. Field Development Gas Storage Seismic Planned well Developing oil and gas fields EBN invested in developing 17 gas fields and three oil fields in 2010; nine of these projects were carried over from 2009, while 11 new projects were started. These projects resulted in five gas fields and one oil field coming on stream in 2010: three onshore and three offshore. The largest and most important projects in which EBN is currently investing are those involving redevelopment of the Schoonebeek oil field, construction of the Berger- meer gas storage facility and development of the five new gas fields. 3D seismic In order to promote exploration for new reserves, in particular under the North Sea, EBN was, in 2010, the first company to buy Fugro’s seismic data covering the D, E and F blocks. Other interested parties can also buy licences for all or part of the area from Fugro Multi Client Services. This organisation acquires seismic surveys covering an area of more than 6,000 km², from the British-Dutch median line to the German-Dutch offshore boundary. That area was covered by comparatively few seismic surveys up to now, and has only been sparsely explored. The survey, which will be completed in 2012, will yield high-quality 3D seismic data, outlining the oil and gas potential of the area. EBN | Annual Repor t 2010 | 23

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    Three other new offshore 3D seismic surveys started in 2010. This will bring the total area covered by new 3D seismic surveys to around 8500 km², which is comparable to all the 3D seismic shot in the Netherlands between 2003 and 2009. EBN is confident that this increase in exploration activity will eventually result in new oil and gas fields being developed under the North Sea. Incentive measures The Ministry of Economic Affairs, Agriculture and Innovation has introduced two measures to further encourage E&P activities in the Dutch sector of the continental shelf. Firstly, a tax incentive was announced for marginal fields, while, secondly the Fallow Acreage Covenant has come into effect. The latter encourages voluntary relinquishment of licence areas in which activities are not or no longer taking place. The covenant will facilitate access to these areas for new interested parties. EBN expects both measures to be major incentives for offshore exploration and production activities. Production and reserves The relatively severe 2009 - 2010 winter and the cold fourth quarter of 2010 contributed to considerably higher gas sales than expected. As a result, production from the Groningen field exceeded 50 billion m³. Conversely, production from small fields was 0.5 to 1 billion m³ lower than expected as a result of technical problems and delays in a number of new gas fields coming on stream. EBN’s share of gas sales amounted to 33 billion m³, which was 4 billion m³ higher than in 2009. EBN’s 2010 oil production totalled approximately 1.1 million barrels (BOE), which is 39% less than in the preceding year. Production of gas condensate (BOE) was 25% lower than in 2009 at 0.9 million barrels. In determining its reserves, EBN applies the definitions laid down in 2007 in the Petroleum Resources Management System. On 31 December 2010, gas reserves (on a 100% field basis) in the fields in which EBN participates 24 | EBN | A nnual Repor t 2 010

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    amounted to 1139 billion m³, of which EBN’s share is 462 billion m³. On a 100% field basis this means a net decrease of 78 billion m³ in comparison with the position at 31 December 2009. This decrease was attributable to production of 78 billion m³, while 24 billion m³ reserves were added as a result of new projects and a revision of the 2009 production. This addition to reserves, however, was offset by a downward revision of reserves by 24 billion m³. More than 78% of the gas reserves are located in the Groningen field, while the remainder is contained in small onshore and offshore fields. Sales Gas markets in Northwest Europe were very volatile in 2010. The current linkage between oil and gas prices means that many major gas buyers faced high purchase prices on the one hand, whereas gas on the spot market was temporarily cheap because of a fall in demand. When the lower prices resulted in higher demand for gas in the spot market, prices at trading centres in Northwest Europe such as NBP and TTF started rising in mid-2010 and ended up higher than in previous years. Oil prices also continued rising from summer 2010 onwards. Result for the year With annual sales of c6.5 billion, the result for the year was the same as in 2009. This was thanks to a combination of ongoing high demand and high gas prices, both those linked to oil and those on the spot market. As operational expenses remained at the forecast level, net profit for the year came out at c2.1 billion. Payments to the State, including taxes, totalled c5.3 billion. EBN raised new capital in the market to finance capital expenditure and repay existing loans. Despite the volatility in the financial markets that resulted from the Greek debt crisis, EBN made a successful 10-year CHF 450 million bond issue in May, which yielded some c318 million at an all-in rate of 3.18%. “ EBN continuously monitors the gas pr ice so that it c an adapt its strate g y if ne ce s sar y.” EBN | Annual Repor t 2010 | 25

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    Gas Hub EBN participated in the Ministry of Economic Affairs, Agriculture and Innovation’s Gas Hub discussion platform during the year. The final report of the four working groups was published in early December. The Brattle Group also reported on the Gas Hub, calculating the potential added value of natural gas for the Netherlands in the future. On the basis of these reports, the minister stated that market parties should pay more attention to investment and innovation, as well as to regulation and communicating the importance of natural gas for the Netherlands. EBN is participating in a working group that, in 2011, will formulate concrete recommendations for improving the mining climate in the Netherlands. Activity plans EBN has formulated activity plans for seven topics. These plans outline how we should set about removing obstacles so that we can develop oil and gas reserves and meet our 30/30 challenge. EBN will update the plans annually and, wherever possible, share the results of studies with external stakeholders. In the next few years, research projects and concrete field developments will establish whether and to what extent these gas resources can help contribute to meeting EBN’s strategic 30/30 challenge. 26 | EBN | Annual Repor t 2010

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    A number of conditions will have to be met to achieve these objectives: • More exploration; • More production from currently producing fields; • Development of difficult-to-produce, sub-economic fields; • Development of as many different forms of gas as possible; and • Keeping crucial infrastructure in the North Sea operational for as long as possible. The seven subjects that EBN will explore further and that could make a contribution are: Topic Activities 1 Exploration Looking for oil and gas in areas where: - infrastructure is in danger of disappearing because of a lack of activity; - little activity is taking place; or - building of specialised technical know-how is needed. 2 Sub-economic fields Developing known gas fields that previously could not be produced because (stranded fields) of technical or economic challenges. 3 Extending field life Producing more gas from existing fields by applying various life-extending techniques. 4 Extending the life of Developing a strategy to keep infrastructure that is crucial for future gas important infrastructure production operational for as long as possible and looking into cost-effective and sustainable methods for decommissioning and removing old production platforms. 5 Difficult-to-produce gas Studying the opportunities for establishing a knowledge centre for fraccing (tight gas sands) applications (fracturing reservoir rock) in cooperation with Dutch universities of technology and the oil and gas industry. 6 Shallow gas Mapping all potential shallow gas deposits in the northern part of the North Sea. 7 Shale gas Making an inventory of the potential of shale gas in the Netherlands and studying the possible environmental effects of shale-gas production. EBN | Annual Repor t 2010 | 27

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    “ EBN is par ticipating in the Schoone be e k re developme nt The Nederlandse Aardolie Maatschappij (NAM) started redeveloping the Schoonebeek oil field in Drenthe in 2007. EBN has a 40% stake in this project. Renee Stoeller, a facility engineer, has been involved in the project for two years and works closely together with colleagues from EBN and NAM. As Renee explains, “Schoonebeek, the largest onshore oil field in Western Europe, was discovered in 1943. Between 1947 and 1996, total oil production was 250 million barrels. In 1996, the field was closed because the remaining oil was too viscous to produce. Even though the reservoir rock still contained another 750 million barrels of oil, all the wells were permanently abandoned, all the equipment was dismantled, the pipelines removed and the sites, where necessary, remediated.” New technology will generate 120 million barrels of oil New technological developments since 1996 mean the oil can once again be produced economically. NAM and its partner EBN have been actively redeveloping the Schoonebeek oil field since December 2007. Of the 750 million barrels of oil still contained in the reservoir rock, 120 million barrels are expected to be producible. As Renee explains, “The rest will be left behind because in oil production the recovery factor is generally much lower than in gas production. Normally, about 35% of oil is recoverable, whereas for gas this is around 80-85%. Oil is simply harder to produce. However, with a bit of luck, production techniques may have improved even further in ten years’ time, and then we can achieve even more efficient recovery of the Schoonebeek oil resources.” Steam injection Drilling of new wells from new drilling locations started in 2009. As Renee explains, “Steam injection is needed to make the viscous oil easier to produce. Instead of the traditional ‘nodding donkeys’, we now use modern, highly efficient pumping units. A total of 44 new production wells, 25 injection wells and 4 observation wells will be drilled at 18 new extraction locations. Steam is generated by heating ultrapure or demineralised water, which prevents the equipment from scaling up with impurities. Insulated pipelines transport the steam to the well sites where it is injected through horizontal injection wells into the pores of the reservoir rock, which is Bentheimer Sandstone. The steam heats the oil in the reservoir rock. The oil liquefies, which makes it flow more easily to the horizontal production wells, where plunger pumps pump up the oil and water mixture. At the surface, the oil is separated from the water and transported via an underground pipeline to the BP refinery in Lingen, Germany.” 28 | EBN | Annual Repor t 2010

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    Project planning As Renee points out, “The first oil is expected to be produced in early 2011. But that won’t mean the end of the project. We’ll keep drilling to finish the other planned wells and the cogeneration plant, where steam is produced at the same time as electricity is generated. Two drilling rigs will actually be operating simultaneously between December 2010 and March 2011. The last well is expected to be drilled in September 2011. The project will be completed once the cogeneration plant comes into operation in late 2011 or early 2012. The final well locations will be completed in 2012.” What does Renee see as the most striking aspect of this project? “That the investment decision was taken in 2007, which was only eleven years after production from Schoonebeek ceased. You can’t help thinking: if only they had kept those wells open. It just goes to show how rapidly technology is advancing.” “ Instead of the traditional ‘nodding donkeys’, we now use ” modern pumping units.” EBN | Annual Repor t 2010 | 29

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    “ Be rge n Gas Storage Preparations for the Bergermeer gas-storage facility project started in 2007. Gas will be stored in this depleted gas field close to Alkmaar and serve as a subsurface reserve buffer that can be retrieved at any time. The oil and gas operator Taqa saw the investment and exploitation opportunities in this project. EBN was also interested as underground gas storage ties in with its objective of making ‘profitable use of the subsurface’. Moreover, EBN is already participating in the Bergen production licence and so has been involved in the Bergermeer gas-storage facility ever since the first outline sketches of the project were prepared. Peak demand Hans Diekman, Commercial Manager at EBN, has been involved in the project since 2007. As Hans explains, “Gas production is declining, both in the Netherlands and everywhere else in Northwest Europe. There is sufficient gas available for another fifty to eighty years of production, but the underground reserves are declining and so eventually we will not be able to meet peak demand. Once the facility is operational, we will be able to store gas in the Bergermeer gas-storage facility in summer because demand in that season is lower. And then we can use the stored gas in the winter.” Cooperation with Taqa Hans manages the project for EBN. “The operator Taqa is responsible for day-to-day operational supervision and cooperates closely with partner EBN. This cooperation is proving very productive for both parties.” Preparation and implementation It will be another four years before the Bergermeer project actually becomes operational. As Hans explains, “We are expecting to put the gas-storage facility into operation in 2013. The length of time needed is due to the project’s complexity, the need to obtain the required permits and licences and the time required to fill the storage facility with a volume of cushion gas. Drafts were submitted to the Ministry of Economic Affairs, Agriculture and Innovation in September 2010 and the period during which the public can comment has passed. The views that were submitted are now being assessed. Once the licence has been granted, drilling and other construction work can start.” 30 | EBN | Annual Repor t 2010

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    “ What’s fascinating about this project is that we are building one of the largest commercial gas-storage facilities in Europe.” Fascinating project What does Hans consider the most fascinating aspect of this project? “Obviously the fact that we are building one of the largest commercial gas-storage facilities in Europe. Almost c 800 million is being invested, and so it is not just a major project for EBN, but also for the Netherlands as a whole. And EBN is closely involved in this. Managing EBN’s contribution to the project is challenging. And the Taqa project team is also very professional and inspiring to work with.” ” EBN | Annual Repor t 2 010 | 31

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    T he pe ople of EBN To ensure continuity at EBN it is important to develop our organisation and to increase its professionalism. We do so by, for example, seeking to attract talented, self-motivated professionals, and then encourage and retain them. We are very keen not only to retain our employees, but also to motivate them by offering them challenging work and developing their knowledge and skills. Workforce At the end of 2010, EBN had 75 employees (FTE: 69.5), three of whom (1.5 FTE) were seconded via an employment agency. One third of the employees has a part-time contract. In 2010, EBN supervised internships and graduation thesis projects for five students from Delft University of Technology and Utrecht University. The percentage of female employees is 33.3%, a slight decrease on 2009. In 2010 the proportion of university graduates increased by 7% to 64%. The average age of our employees is now 42.7 years. The age range of our workforce is now also more evenly spread across the different age groups than in previous years, with more than half our employees now aged under 45. Training Our internal training programme, the EBN academy, took further shape during the year under review. The academy offers standard and individual professional courses and training. Employees may choose from a selected range of training institutes to further their development. There are also customised programmes for new employees, new graduate recruits, technical specialists and management. In 2010, employees spent an average of 40 hours on training activities. Health and safety In 2010 EBN made an inventory of the risks associated with employee health and safety in the workplace. Twelve issues warranting further attention were identified, and a detailed action plan was drawn up to tackle these issues. The main health risk is working at computer workstations. The workplaces of all EBN employees will be examined early 2011. At the 2010 year-end the EBN emergency response team had six members. Four of these employees completed an industrial emergency response course during the year, while the other two did a refresher course. Two evacuation exercises were held during the year. No safety incidents occurred at EBN in 2010. Absenteeism Despite a reduction in short-term absenteeism from 2.3% to 1.1%, total absenteeism increased considerably over the year to an average of 4.1% by the year-end. This was due to three employees suffering protracted illness during the year. 32 | EBN | Annual Repor t 2010

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    Employee satisfaction survey An employee satisfaction survey was conducted in 2010. The results showed a major improvement since 2008. Four out of five employees, i.e. 80%, consider EBN a ‘great place to work’ often or always, whereas the figure for 2008 was 60%. The main improvement in satisfaction levels was in respect of ‘transparent communication of the vision towards which the organisation is working and how it intends to achieve that’ (this improved from 27% to 61%). There is still room for improvement, however, particularly in the fields of quality of work (less paper, more challenges) and the management and coaching of employees (clear expectations, workload). Works Council The Executive Board and the Works Council held four consultative meetings in 2010. Informal consultations with the Works Council were also held regularly. The main topics discussed were: • Completing the transition from Heerlen to Utrecht; • Selecting a new Health and Safety Executive; • Problems surrounding the transfer of pensions of EBN employees who were formerly on DSM contracts; • Amendment of the EBN working conditions regulations; • Streamlining the EBN organisation as at 1 January 2011. A new Works Council was elected in the final quarter of 2010. As from 1 January 2011, the members of the Works Council are: J. Piket (chairman), M. Boubin, L.R. Swart and E. Wellenstein. EBN | Annual Repor t 2010 | 33

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    O utlook Forecast for 2011 The economy is gradually recovering and so demand for gas is increasing. The balance between supply and demand is expected to improve over the coming year, and so EBN expects that gas sales will in 2011 be comparable to those in 2010. Production from small fields is expected to remain at the same level as in 2010. As a result of the Schoonebeek field being redeveloped, EBN’s oil production is expected to increase to approximately 3.8 million barrels a year. Sales and profits are expected to remain approximately the same. Exploration and production activity levels will remain high in 2011. EBN expects the total number of production and exploration licences to increase further from 174 to 188. Total capital expenditure is expected to be close to c 2 billion, of which EBN’s share will be c 770 million. This will enable 15 exploration and appraisal wells and 46 production wells to be drilled, 22 of which will be in the Schoonebeek field. EBN is also working on the development of 19 fields, 11 of which will come on stream in 2011. We are not expecting any field to be abandoned in 2011. In order to maintain and, where possible, increase Dutch E&P activity levels, EBN and its partners will carry out various studies into the potential of shale gas deposits in the Netherlands. Apart from exploration and production, the main activity for EBN in 2011 will be its work on the Bergermeer gas-storage facility. All the necessary preparations have been made in the past few years, and construction will start in 2011. With respect to Carbon Capture and Storage (CCS), EBN will participate in the ROAD discussions and will continue participating in K12-B. 34 | EBN | Annual Repor t 2010

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    Forecast for 2012 - 2015 According to current forecasts, production of gas from small fields will decrease from 31 to 18 billion m³ between 2012 and 2015. The ‘Groningen ceiling’ means that this decline in production will only partly be offset by increased production from the Groningen field. In addition, several offshore installations will be decommissioned. As a result of these various developments, EBN’s gas production will decrease from 78 to 64 billion m³. EBN’s oil production is expected initially to rise to over 12 million barrels in 2013, particularly thanks to increasing production from the Schoonebeek field, and will then gradually decrease to 9 million barrels a year. Between 2012 and 2015 EBN and its partners from industry will focus more on promoting gas so as to make this fuel a key component in the energy mix. The initial results of our 30/30 challenge should also become noticeable in this period. If the Dutch shale gas resources can be produced economically, initial activities will start in this period. Signed by J.D. Bokhoven D.G. Roest EBN | Annual Repor t 2010 | 35

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    “EBN and its par tne rs f rom industr y will focus so as to make this 36 | EBN | Annual Repor t 2010

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    IV Re por t of the Supe r visor y Board more on promoting gas f uel a key compone nt in the e ne rg y mix.” EBN | Annual Repor t 2010 | 37

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    Re por t of the Supe r visor y Board Supervisory Board The Supervisory Board met four times in 2010. Each meeting was attended by all the Board members. The Supervisory Board approved various decisions of the Executive Board, including investment decisions. In addition, the Supervisory Board discussed the following topics: EBN’s long-term ambition (the 30/30 challenge), as well as the Strategic Long-Term Plan, risk management, developments in shale gas and CO2 storage, the financial return-on-investment criteria to be adopted by EBN, the legal and financial embedding of non-public tasks in the EBN organisation and various subjects of discussion with NAM. Developments in the ‘Gasgebouw’ partnership were also discussed at two of the meetings. The Executive Board and Supervisory Board jointly paid a working visit to N.V. Nederlandse Gasunie. The Supervisory Board discussed the performance of the two boards at a meeting that was not attended by the Executive Board. The Supervisory Board members Gert-Jan Kramer and Hein van Oorschot resigned at the General Meeting of Shareholders in 2010 in accordance with the schedule for resignation by rotation. Both were reappointed for a further four-year period. Schedule for resignation by rotation Date of first appointment Date of reappointment End of 4-year term R.M.J. van der Meer 1 January 2006 2009 2013 A.H.P. Gratama van Andel 1 January 2006 2009 2013 G-J. Kramer 1 January 2006 2010 2014 H.M.C.M. van Oorschot 1 January 2006 2010 2014 EBN is not a listed company and so the Corporate Governance Code is not applicable to it. Nevertheless EBN, like other State-owned entities, complies with the Code as far as possible and relevant. The section on Corporate Governance in this report includes an explanation of where EBN does not comply or only complies partially with the Code. The Supervisory Board satisfies the independence criteria and profile approved by the shareholder, as stipulated in article 12.2 of the Articles of Association. The chairman of the Supervisory Board is the first point of contact for EBN’s Executive Board. The Supervisory Board has collective responsibility. All members of the Supervisory Board are also members of the remuneration and audit committees. The remuneration and selection committees have been combined and are referred to as the remuneration committee. Gert-Jan Kramer is the chairman of the remuneration committee, while Arnold Gratama van Andel chairs the audit committee. 38 | EBN | Annual Repor t 2010

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    Audit Committee The audit committee met twice in 2010. The Executive Board attended both meetings, while the external auditors, Ernst & Young, attended one of them. During the meetings, the audit committee reviewed the annual report, financial statements and auditors’ report for 2009. The committee members also discussed funding plan and credit facilities, the cash flow forecast, risk management and the assessment of the financial returns from various investment projects approved by the Supervisory Board. Remuneration Committee The remuneration committee met four times in 2010. The committee was also actively involved in streamlining the new organisation as of 1 January 2011 and in the appointment of a new Director Finance. Since 1 January 2010 two members of the Executive Board have been employed by EBN, while the third member is employed by DSM and has been seconded by DSM to EBN. Financial statements The Supervisory Board has reviewed the annual report, the financial statements and the report of the auditors Ernst & Young. The Board can accept these and recommends that the General Meeting of Shareholders should adopt the financial statements accordingly. Supervisory Board Utrecht, 29 March 2011 Signed by R.M.J. van der Meer Chairman A.H.P. Gratama van Andel G-J. Kramer H.M.C.M. van Oorschot EBN | Annual Repor t 2010 | 39

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    “EBN adhe re s to the gove r nme nt policy we e ndorse the pr inciple of the Code that and str ucture our activitie s in 40 | EBN | Annual Repor t 2010

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    V Corporate G ove r nance for state par ticipations: transpare ncy towards stake holde rs is cr ucial, accordance with the pr inciple s of the Code.” E B N | A n n u a l R e p o r t 2 0 10 | 41

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    Corporate G ove r nance As EBN is not a listed company, it is not required to apply the Corporate Governance Code. EBN adheres, however, to the government policy for state participations. In other words, it endorses the principle of the Code that transparency towards stakeholders is crucial, as well as generally structuring its activities in accordance with the principles of the Code. This does not apply to all the best practice provisions included in these principles as most of these are not relevant and, therefore, not applicable to EBN. EBN complies with the following principles of the Corporate Governance Code: • II.1 (Executive Board: role and procedures); • II.3 (Executive Board: conflicts of interest); • III.1 (Supervisory Board: role and procedures); • III.2 (Supervisory Board: independence); • III.3 (Supervisory Board: expertise and composition); • III.4 (Supervisory Board: roles of the chairman of the Supervisory Board and the company secretary); • III.5 (Supervisory Board: composition and roles of the three key Supervisory Board committees); • III.6 (Supervisory Board: conflicts of interest); • III.7 (Supervisory Board: remuneration); • V.1 (Financial reporting); • V.2 (Role, appointment, remuneration and evaluation of the performance of the external auditors); • V.3 and V.4 (External auditors’ relationship and communications with company bodies). ” EBN value s clar it y and tra nspare ncy also within its own organisation.” 42 | EBN | Annual Repor t 2010

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    Chairman Executive Board HR Director Asset Director Director Director Management Technology Corporate Affairs Finance E&P Asset Technology Business Groups A,B,C Support Commercial Legal Control Roadmaps Corporate Accounting Gasgebouw & Resources Secretary & Reporting Public Affairs & Treasury Exploration Communication ICT Shareholder EBN is a private limited company, with the Dutch State as its sole shareholder. All shares are held by the Ministry of Economic Affairs, Agriculture and Innovation. One General Meeting of Shareholders was held in 2010. In addition, the Ministry and EBN held regular informal consultations. The shareholder appoints the Executive and Supervisory Boards of EBN and also adopts the financial statements. Under EBN’s Articles of Association, certain Executive Board decisions require the shareholder’s approval, such as decisions on entering into or ending joint ventures or investments exceeding c200 million. Management of the company The EBN Executive Board has collective responsibility for managing the company and determining its policy. The Executive Board regulations, which have been approved by the Supervisory Board, divide the duties among the members of the Executive Board. In principle, the Executive Board meets once a week. If necessary, decisions are submitted to the shareholder and/or the Supervisory Board for approval. The Executive Board is also responsible for a properly functioning internal risk management and control system, which is reported on in the next section of this annual report. The shareholder determines the policy on Executive Board remuneration. The Supervisory Board determines the remuneration of the individual members of the Executive Board within the framework of that policy. The Executive Board remained the same during the year under review. It consisted of three members: Jan Dirk Bokhoven (Chairman), Joost Haenen (Commercial Director) and Dick Roest (Director of Finance). Joost Haenen resigned on 1 January 2011, and Dick Roest will resign on 31 March 2011. From 1 April 2011, the management team will, in addition to the Chairman, consist of the Director Asset Management, the Director Corporate Affairs, the Director Finance and the Director Technology. EBN | Annual Repor t 2010 | 43

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    Supervisory Board EBN has had a Supervisory Board since 1 January 2006, with the chairman and members being appointed by the shareholder. The Supervisory Board is responsible for supervising and, where necessary, advising the Executive Board. EBN’s Executive Board in turn provides all the necessary information to the Supervisory Board. External auditors The shareholder is responsible for appointing external auditors, with the Supervisory Board having a right of nomination. Ernst & Young were appointed in 2009 to audit the financial statements for the years 2009, 2010 and 2011. Code of conduct and regulations protecting whistleblowers EBN also values clarity and transparency within its own organisation. It has consequently adopted a code of conduct applying to all its employees. The code of conduct is intended to guide choices made and decisions taken. We also use the code of conduct as a means of assessing conduct, both of the company and of individual employees. Individual employees who have complaints can contact a confidential advisor or the complaints committee. Under the regulations designed to protect whistleblowers, employees may report alleged cases of abuse or improper conduct within the company to the chairman of the Executive Board or the Supervisory Board. No such cases were reported in 2010. EBN’s Articles of Association and other regulations are available at www.ebn.nl. “ T he e conomy is gradually re cove r ing and so de mand for gas is incre asing.” 44 | EBN | Annual Repor t 2010

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    EBN | Annual Repor t 2010 | 45

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    “ We control the r isks involved in c ar r ying out by wor k ing according to 46 | EBN | Annual Repor t 2010

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    VI Risk Manage me nt our ope rational activitie s sta ndardised ope rational proce s se s.” EB N | A n nu a l R e p o r t 2 010 | 47

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    Risk manage me nt and inte r nal control EBN further refined its risk management and internal control system in 2010. The basic principle remains structural embedding of risk management in all EBN’s business processes. We put this principle into practice by translating the organisation’s objectives into concrete responsibilities and introducing a proper performance assessment scheme. Risk analyses In 2010 EBN carried out in-depth company-wide risk analyses, both at strategic and operational levels. This involved identifying the risks involved in all EBN’s areas of operation, and also risks resulting from our strategic objectives, departmental objectives and activities. We also adopted measures to limit and contain these risks, while also assessing whether sufficient measures were already in place, and where reinforcement was required. Concrete action plans were then drawn up to improve risk management. The operational risk analyses were followed by internal statements of responsibilities signed by the responsible managers and thus directly underpinning the Executive Board statement of responsibilities. These initiatives, which have contributed greatly to risk awareness within the organisation, focused specifically on ensuring that EBN has proper management measures in place, while the focus over the coming year will be on ensuring that these measures are correctly implemented. 48 | EBN | Annual Repor t 2010

  • Page 49

    Risk management Using financial instruments as a means of covering financial risks can itself create risks. In accordance with the requirements of Book 2, Article 391:3 of the Dutch Civil Code, the objectives and policy of risk management are discussed in the annual report insofar as they relate to the use of financial instruments and the management of these risks. In accordance with Book 2, Article 391:1 of the Dutch Civil Code the annual report provides information on the objectives and the policy of the legal person and the group companies included in the legal person’s financial statements. Attention must in any event be paid to the policy with regard to covering risks associated with all significant types of transactions contemplated. Attention must also be devoted to the price, credit, liquidity and cash flow risks to which the legal person and the group companies are exposed (Dutch Accounting Standards Board 400.111). A more detained explanation can be found in the financial statement from page 72 onwards. Risk profile The risk categories mentioned below constitute significant threats to the realisation of our strategic objectives. Investment climate in the Netherlands Once important infrastructure has disappeared, there is a risk that areas with E&P potential will become less attractive. To reduce that risk, EBN analyses the expected infrastructure development in detail and discusses this intensively with all parties involved. The next ten years will be particularly crucial for drilling and developing new offshore prospects in order to be able to preserve the existing infrastructure. EBN and the Ministry of Economic Affairs, Agriculture and Innovation jointly promote opportunities for exploration and production in the Netherlands and regularly evaluate whether there are any obstacles. EBN | Annual Repor t 2010 | 49

  • Page 50

    An unfavourable mining climate may result in oil companies shifting their investment priorities and new technology applications to more attractive parts of the world and in our then being unable to attract the right new parties. This would mean that new projects in exploration and innovative gas-production techniques would require even more efforts in the future. We seek to manage this risk by participating in a working group aimed at improving the mining climate. The working group includes a wide range of stakeholders from industry, government, suppliers and knowledge institutes. EBN’s strength It is essential for EBN to have sufficient stakeholder support for its strategic objectives. A key risk in this context is that stakeholders will not be receptive to EBN’s ideas, that EBN will not have sufficient freedom to achieve its objectives, that EBN will not have sufficient opportunities to influence operators and that society’s acceptance of oil and gas production will decline. EBN contains these risks through measures such as active relationship management, by ensuring transparent communications on EBN’s strategy and roles and by using standard agreements with operators. EBN also uses its expertise to share relevant and objective information with the parties involved. External factors Low market prices for prolonged periods could result in fewer investments by E&P companies. EBN continually monitors gas prices in order, if necessary, to be able to adapt its strategy. EBN does not use tools such as hedging to manage the risks of fluctuating market prices. Its low operating cost structure means that low market prices have little effect on EBN’s continuity. Internal risk management and risk containment systems The Executive Board reviews and makes adjustments if potentiaal or actual issues are identified during the analysis and monitoring of internal risk management. It is always possible that risks that are not currently recognised or considered substantive may at a later stage turn out to affect EBN’s ability to achieve its business objectives. The risks involved in EBN’s operational activities are managed primarily through the adopting and enforcing of standardised business processes. Management has also put in place other quality assurance systems, such as: • describing the organisational structure; • delegating responsibilities; • management contracts; • job separation; • planning & control cycle; • financial reporting requirements; • authorisation rules; • active management of the insurance portfolio; • periodic management reports and business reviews. 50 | EBN | Annual Repor t 2010

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