Petrocapita is an energy investment trust and is the second in a family of hard asset funds co-founded by the investment team. We believe that demand for energy will continue to move prices higher over the long-term. Petrocapita was created to allow investors to add professionally managed oil production directly to their portfolios. Petrocapita provides investors 10.25% interest and 10% profit participation.

1. Petrocapita Energy Update
February 2010
1

2. Summary
Global demand for oil is projected to increase up to
60% by 2030. To achieve this production level we
would have to find the equivalent of 6 Saudi Arabia’s
in the next 20 years.
The major driver of this demand growth is
China. China is undergoing a once in a life-time
industrialization that is expected to increase its
consumption from its current lows of around 2-3
barrels per person per year to developed nation levels
of around 20 barrels per person per year.
Despite this challenging supply/demand environment,
oil is trading well below its inflation-adjusted peak of
around US$105/bbl from the 1970s.
CONTENTS
2 Inflation Adjusted Oil Prices
2 China’s Oil Demand
3 Peak Oil
4 Commodity bull market -
CRB SP 500 Ratio
1

3. Energy Update
INFLATION ADJUSTED OIL PRICES
Chart 1 shows inflation adjusted oil prices and (South Korea level) in 30 years (significantly slower
its clear that even though the global supply and than South Korea) global production will have to
demand situation is very different from the 1980s oil increase 22% from 84 million BOPD to 102 million
is currently trading significant discount to its 1979 BOPD the next 10 years.
inflation adjusted high of around $105/bbl.
Taking into account production decline rates we will
CHINA’S OIL DEMAND have to replace 26 million BOPD to maintain supply -
30% of current production levels and almost 3 times
China will be the key future driver of incremental Saudi Arabia’s output.
energy demand. Petrocapita’s research indicates
that if you assume China moves from 2.5 barrels
per capita per year to 17 barrels per capita per year
CHART 2: CHINA PER CAPITA OIL DEMAND
CHART 1: INFLATION ADJUST MONTHLY CRUDE
PRICE (JUNE 2009 DOLLARS)
$140
Dec. 1979 Monthly Ave. Peak June 2008 Monthly Ave. Oil Price
$120 $124.62 in June 2009 Dollars
$106.86 in June 2009 Dollars
$100
$80
Nominal Peak $38 (Mo. Ave. Price)
$60 Intraday Prices peaked much higher
$40
Inflation Adjusted Oil Price
$20
Nominal Oil Price China: 2 bbls South Korea: 17 bbls US: 24 bbls
$0
1946
1947
1949
1951
1953
1954
1956
1958
1960
1961
1963
1965
1987
1968
1970
1972
1974
1975
1977
1979
1981
1982
1984
1986
1988
1989
1991
1993
1995
1996
1998
2000
2002
2003
2005
2006
2007
2009
Source: IEA - annual consumption per capita
Source: CPI-U inflation index, www.ioga.com
2

4. Energy Update (continued)
PEAK OIL
The current oil markets, are dramatically different – Approximately 1 million BOPD must be added
from their 1980s counterparts. China is now second each year to meet demand growth
largest oil consumer in the world but still at the – More than 2/3 of existing capacity must be
early stages of increasing its per capita energy replaced by 2030 to prevent production declines
consumption and some experts believe that global – A peak in conventional oil production before 2030
peak oil is occurring or will occur within next 10 years. appears likely with a significant risk of a peak
Third party research indicates that: before 2020
– Average decline rate of post-peak fields is at least
6.5% per year Petrocapita’s research indicates that if you assume a
– Average decline rate of all currently producing 2020 peak oil production at approximately 100 million
fields is at least 4%per year BOPD prices could increase by up to 250% in real
– Approximately 3 million BOPD must be added terms in the next 10 years.
each year to maintain production levels
In 1981: In 2009:
Global consumption - 69 million bopd - 84 million bopd
OPEC spare capacity - 10 million bopd - 2-3 million bopd
Decline rate - existing production rate - existing production rate
increasing approximately 1% pa decreasing approximately 4% pa
China consumption - 2 million bopd or approximately - 8 million bopd or approximately
1 bbl/person/year 2-3 bbls/person/year
US consumption - 24 bbls/person/year - 24 bbls/person/year
3

5. Energy Update (continued)
COMMODITY BULL MARKET - CRB SP 500
CHART 3: CRB INDEX VS. S&P 500
RATIO
4
The ratio of the Commodity Research Bureau Total
Return Index and the S&P 500 is basically the value
of a standardized basket of commodities compared 3
to the value of a basket of stocks – in simple terms
how much stock you can buy with a fixed amount of
commodities. 2
It is noteworthy that:
– The 50-year average for this ratio is around 1.1 1
times
– During the commodity bull market in the 1970s,
0
the ratio peaked at over 3 times
1964 1970 1976 1982 1988 1994 2000 2006 2009
– The ratio is currently at a 50 year low of around
0.2 times. In other words, we are at a very low Source: Commodity Research Bureau Total Return Index,
relative valuation between “hard assets” vs. Petrocapita Research
“stocks.”
4

6. Petrocapita Macro Update
February 2010

7. Summary
Complacent, comfortable and sitting on an economic
fault line - that’s what I see when I visualize the
West. Over the next 20 years as the baby boomers
try to retire, the effects of the poor decisions our
society has been making over the last 20 years will
come back to damage the foundation of our affluent
lifestyles. Why?
– Low savings rates – Western economies
are heavily skewed to consumption with
commensurately low savings rates while the
emerging economies are skewed towards capital
accumulation and have extremely high savings
rates. China saves 40% of household disposable
income, the US saves 6%. Only savings can
create capital and because of this our capital pool CONTENTS
is shrinking while the emerging economies’ are
growing. Capital, not consumption, drives growth M3 Subsidizing failure – is this really the
so we should expect growth to continue to slow path to prosperity?
in the west and continue to accelerate in the
emerging world. M3 Debt to GDP
– Inflation – The money supply in the west M3 Inflation the Insidious, Hidden Tax
continues to grow more rapidly than any other
time in history driven by fiscal deficits, currency M4 There’s no God-given gift of a ‘AAA’
interventions and bailouts. Financial assets tend sovereign debt rating
to perform poorly in periods of high inflation and
a large part of western wealth is tied up in these M6 Yuan is now the linchpin of the global
types of investments. financial system
– Debt – Debt to GDP levels are at all time highs M6 US current account deficit with $200
and growing. Unfortunately we have borrowed oil?
to support consumption so we have not created
assets that generate cash flow to service our M6 US Oversight Committee Says...
debts. Our options are tax, repay, default or
inflate. Which do you think is most likely? M7 Who Do Mainstream investment Funds
– Demographics – Aging populations and large Actually Benefit?
unfunded social programs with a diminishing
number of workers to pay for them. On top of this
M1

8. Summary (continued)
we are increasingly competing with younger, well-
educated work forces in emerging economies.
– Energy – Western lifestyles are dependent on low
cost energy with the highest per capita usage on
the planet (think – long commutes, large houses
etc).
How do you protect your retirement in this
environment?
– Protect and enhance your intellectual capital -
continually strive to build unique, high value skills
otherwise your only competitive advantage in the
global market for services will be price.
– Protect the purchasing power of your savings
and assets - place a portion of assets away from
effects of local currency devaluation and inflation
– Energy price hedges
– Under consume and over-save
– Make demographics your ally and invest in
countries that have young populations and high
savings rates
– Start now – don’t delay and don’t rely on the
government or house price appreciation to pay
for it
M2

9. Global Macro Update
SUBSIDIZING FAILURE – IS THIS REALLY THE
PATH TO PROSPERITY?
Despite widespread belief to the contrary, The situation is not much better in most other
government intervention into broad swathes of the western nations. Chart 2 shows the impact of
economy to support “too big to fail” companies unfunded social obligations for ageing populations
is not a positive for future growth. There is an across the developed world.
economic truism that whatever you subsidize you
get more of – hence by subsidizing failure we are
INFLATION THE INSIDIOUS, HIDDEN TAX
ensuring bigger failures in the future and worst of all
penalizing well run businesses. The firms that were Just 3% annual inflation over the course of a 45-
prudently managed leading up to the crisis should year working career can cause a 75% reduction in
have benefited from the demise of their poorly run the purchasing power of your money. Of course,
competitors – in a free economy capital would have inflation has been running much higher than a “mere”
flowed to the profitable businesses rather than the 3%. The US government, like most others, regularly
loss making ones. The fact that this didn’t happen recalibrates its inflation indicators to make the
creates a perverse “if you can’t beat’em, join’em” numbers seem less alarming. Chart 3 highlights the
mentality with respect to risky and imprudent disparity between the CPI-U produced by America’s
business practices. Bureau of Labour Statistics and the SGS Alternate
CPI produced by Shadow Government Statistics
DEBT TO GDP using older, less massaged methodologies.
Up and away into the wild blue yonder…
CHART 2: IMPACT OF AGING
CHART 1: TOTAL US DEBT TO GDP
300
380%
360% 2009 Q3=369.7
250
340%
320% 1933=299.8
300% 2003=301.1 200
280%
260% 150
240%
220% 100
200%
180% 1875=156.4 50
160% 2010 2015 2020 2025 2030 2035 2040 2045 2050
140%
1916=170.4 Advanced G20 economies, government debt / GDP ratio
120%
100% projected as % GDP
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Source: BEA, Federal Reserve and Census Bureau Source: IMF
M3

10. Global Macro Update (continued)
As you can see, over the past 20 years, prices have money and inflating asset classes versus the rest of
been rising much faster than government numbers the participants in the economy. The net result is
would have you believe. If you are searching for a that wealth is redistributed from the inflatees to the
possible explanation for such a disparity Marc Faber inflators.
summed it up succinctly when he said, “Never ask
the barber if you need a haircut. Never ask the realtor THERE’S NO GOD-GIVEN GIFT OF A ‘AAA’
if the house you are considering buying is a bargain SOVEREIGN DEBT RATING
at the price offered. And never ask the government to
calculate the rate of inflation when it can save millions As has been predicted by the extensive financial crisis
of dollars in cost-of-living adjustments.” research of Kenneth Rogoff, sovereign credit ratings
are coming under pressure as fiscal deficits grow
In addition to a general erosion of purchasing power, rapidly and tax bases shrink. The following is some
inflation also has another more insidious effect. anecdotal evidence of this trend.
Because inflation does not happen in the aggregate –
does not increase the price of all goods and services – Portugal - “If Portugal wants to avoid a
at the same rate at the same time - inflation benefits downgrade, it is going to have to take meaningful,
the groups who have first access to newly created credible steps to get the deficit under control,”
said Anthony Thomas of Moody’s credit rating
agency. Financial Times - January 10, 2010
– Iceland - Standard & Poor’s put Icelandic debt
CHART 3: CURRENT GOVERNMENTS under negative credit watch after Iceland’s
CPI V. SGS ALTERNATE president blocked a bill of compensation for the
failure of Icesave bank. The agency said “as a
15
CPI-U SGS Alternate CPI result, we could lower our ratings on Iceland by
one to two notches within a month”. Fitch credit
10 rating agency downgraded Iceland’s long-term
Year-to-Year Change (%)
debt rating from BBB- to BB+ citing a “renewed
wave of domestic political, economic and financial
5 uncertainty.” The Telegraph - January 6, 2010
– France and United Kingdom - Fitch Ratings
0 warned Britain and France that they risk losing
their AAA status unless they map out a clear path
to budget discipline over the next year. Telegraph
-5 - December 22, 2009
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
– Mexico - Standard & Poor’s reduced Mexico’s
Source: John Williams’ Shadow Government Statistics credit rating one notch to BBB from BBB-plus.
M4

11. Global Macro Update (continued)
The cut came after Fitch cut the country’s credit – Ukraine - Standard & Poor’s cut Ukraine’s
rating one notch to BBB. This was Mexico’s first credit rating two levels to the lowest in Europe.
downgrade in over 10 years. Reuters - December Ukraine’s long-term foreign currency rating was
14, 2009 lowered to CCC+, seven levels below investment
– Dubai - Moody’s said that its rating downgrades grade. S&P left the outlook negative, indicating
reflect the weakening in Dubai’s economy and a possible further cut. Bloomberg - February 25,
the repercussions on its banks’ asset quality and 2009
earning power. Reuters - December 10, 2009 – United States - John Chambers, the chairman
– Spain - Standard & Poor’s cut Spain’s credit of Standard & Poor’s sovereign ratings committee
outlook to negative from stable. “Reducing said pressure is building on the “AAA” rating of
Spain’s sizable fiscal and economic imbalances the United States. Chambers said “There’s no
requires strong policy actions, which have not yet God-given gift of a ‘AAA’ rating, and the U.S.
materialized,” according to Standard & Poor’s. has to earn it like everyone else.” Reuters -
BBC News - December 9, 2009 September 17, 2008
– Greece - Fitch cut Greece to BBB+, outlook
negative. Fitch said its move was due to
“concerns over the medium-term outlook for
public finances given the weak credibility of fiscal
institutions and the policy framework in Greece.” CHART 4: GLOBAL SOVEREIGN
Wall Street Journal Online - December 8, 2009 DOWNGRADE WATCH
– United Kingdom and United States - Moody’s
said U.S. and U.K debt ratings may “test the
Aaa boundaries” because public finances are
worsening in the wake of the global financial
crisis. “The deterioration has been pretty
severe,” said Pierre Cailleteau, managing director
of sovereign risk at Moody’s. Bloomberg -
December 8, 2009
– Japan - Moody’s removed the Japanese
government’s last triple-A foreign currency credit
rating. The agency described the move as a
largely technical one but also said Japan was in a
worse position than many other governments in
its top ratings bracket. Reuters - May 18, 2009
M5

12. Global Macro Update (continued)
YUAN IS NOW THE LINCHPIN OF THE GLOBAL
FINANCIAL SYSTEM
The US has been exporting inflation with China’s as underlying commercial real estate prices began
cooperation for over a decade via China’s fixed to drop in late 2008. Once the bailout funds began
exchange rate with the dollar – eventually all the to flow in 2009 REITs recovered rapidly and have
dollars, Euros, loonies etc that China has been more than doubled from the stock market lows of last
absorbing will come home to roost causing global March.
inflation. Although, the Chinese government keeps
the Yuan artificially depressed and appears set to do
so for the immediate future, the Yuan ultimately will be CHART 5: REITS VERSUS S&P 500 INDEX
revalued causing a severe downturn in the currencies
of its trading partners. As part of the revaluation 300 Bloomberg Hotel REIT Index
Bloomberg REIT Index
process China will stop buying US treasuries causing 250
S&P 500 Index
200
interest rates to increase rapidly. Though US demand 150
for Chinese goods might rapidly decelerate this 100
could be offset by a large increase in the domestic 50
0
purchasing power of the Chinese economy and a -50
large reduction in input costs for Chinese companies 27 4/17 5/18 29 6/19 7/10 31 8/21 9/11 10/20 23 11/13 12/4 25 1/15/10
(commodity prices will fall in Yuan terms) – domestic Source: Agorafinancial.com
growth could accelerate in China.
US CURRENT ACCOUNT DEFICIT WITH $200 This presents something of a paradox as the
OIL? NCHREIF commercial real estate price index shows
that underlying commercial property prices have
Assuming 10 million bopd of imports, $200/bbl fallen almost 40% and do not appear to justify such a
oil would add US$ 438 billion per year to the US recovery – in fact the evidence strongly supports the
current account deficit. That would increase the conclusion that conditions are still deteriorating.
deficit by approximately 4% of GDP on top of already
historically high levels – how would the US fund such In the spirit of sublime understatement the latest
a deficit and sustain its way of life? Congressional Oversight Panel (COP) report stated
that the “most serious wave of commercial real
US OVERSIGHT COMMITTEE SAYS, “MOST estate difficulties is just now beginning”. The report
SERIOUS WAVE OF COMMERCIAL REAL ESTATE is an interesting read but here are some excerpts
DIFFICULTIES IS JUST NOW BEGINNING” from the summary for those disinclined to read the
entire document:
Real Estate Investment Trusts (“REITS”) values
increased steadily from 2000 to 2007 then fell sharply
M6

13. Global Macro Update (continued)
“Over the next few years, a wave of commercial space, have exerted a powerful downward pressure
real estate loan failures could threaten on the value of commercial properties.
America‘s already-weakened financial system.
The Congressional Oversight Panel is deeply A significant wave of commercial mortgage defaults
concerned that commercial loan losses could would trigger economic damage that
jeopardize the stability of many banks, particularly could touch the lives of nearly every American.“
the nation‘s mid-size and smaller banks, and that as
the damage spreads beyond individual banks that Is this prediction overly pessimistic? Japan’s
it will contribute to prolonged weakness throughout experience with a commercial real estate collapse is
the economy.” informative. Chart 6 shows that that land prices fell
87% over the last 20 years from their peak in 1990.
Between 2010 and 2014, about $1.4 trillion in
commercial real estate loans will reach the WHO DO MAINSTREAM INVESTMENT FUNDS
end of their terms. Nearly half are at present ACTUALLY BENEFIT?
―underwater! – that is, the borrower owes more
than the underlying property is currently worth. Michael Lee Chin founder of mutual fund company
Commercial property values have fallen more than AIC Limited recently stated, “Let’s look at the history.
40 percent since the beginning of 2007. Increased If over the past 14 years you had invested $10,000
vacancy rates, which now range from eight percent in the best CI mutual fund, that would have earned
for multifamily housing to 18 percent for office you $41,000, had you owned CI stock that derives its
buildings, and falling rents, which have declined 40 money from revenue generated from that fund, that
percent for office space and 33 percent for retail $10,000 [would be] worth $164,000.”
According to Lee-Chin, the best AGF fund over the
last 14 years was the AGF precious metals funds
CHART 6: JAPANESE LAND PRICES - $10,000 invested in that would now be worth
$35,000. But owning AGF stock would have given
(Trillion yen, seasonally adjusted) (Mar. 2000=100)
800
you $56,000. Investors Group’s best fund would be
700
worth $26,000, [while] shares in IG would be worth
$63,000.” Summary return data:
600
500
– CI mutual fund - $41,000 - return 22%
400
down
– CI stock - $164,000 - annual return 22%
Last seen 87%
300
– AGF mutual fund - $35,000 - annual return 9%
in 1973 200
– AGF stock - $56,000 - annual return 13%
100
– Investors Group mutual fund - $26,000 - annual
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
0 return 7%
– Investors Group stock - $63,000 - annual return
Sources: Cabinet Office, Japan Real Estate Institute
14%
M7

14. DISCLAIMER:
The information, opinions, estimates, projections and other materials
contained herein are provided as of the date hereof and are subject to
change without notice. Some of the information, opinions, estimates,
projections and other materials contained herein have been obtained from
numerous sources and Petrocapita Income Trust (“PETROCAPITA”) and
its affiliates make every effort to ensure that the contents hereof have been
compiled or derived from sources believed to be reliable and to contain
information and opinions which are accurate and complete. However, neither
PETROCAPITA nor its affiliates have independently verified or make any
representation or warranty, express or implied, in respect thereof, take no
responsibility for any errors and omissions which maybe contained herein or
accept any liability whatsoever for any loss arising from any use of or reliance
on the information, opinions, estimates, projections and other materials
contained herein whether relied upon by the recipient or user or any other
third party (including, without limitation, any customer of the recipient or
user). Information may be available to PETROCAPITA and/or its affiliates that
is not reflected herein. The information, opinions, estimates, projections and
other materials contained herein are not to be construed as an offer to sell, a
solicitation for or an offer to buy, any products or services referenced herein
(including, without limitation, any commodities, securities or other financial
instruments), nor shall such information, opinions, estimates, projections and
other materials be considered as investment advice or as a recommendation
to enter into any transaction. Additional information is available by contacting
PETROCAPITA or its relevant affiliate directly.
#400, 2424 4th Street SW Tel: +1.403.218.6506 www.petrocapita.com
Calgary, Alberta T2S 2T4 Fax: +1.403.266.1541
Canada