What is Driving Today’s Deepwater

Market?
1
World Energy Consumption – Global Economics and Energy

Population Non-OECD GDP Energy Demand

Billions OECD Trillion (2000S) MBDOE
10 80 350
Average Growth/Yr.
2000 - 2030
70 300
8 0.9% 2.8%
1.6%
60
250

50
6
200
40 4.7%
2.4%
150
4
1.1% 30

100
20
2 2.2%
50 0.7%
10
0.4%
0 0 0
1950 1990 2030 1950 1990 2030 1950 1990 2030

Source: ExxonMobil

2
World Energy Consumption – Macro Level

• Continued world economic

growth with attendant growth in
oil demand
• Increasing resource
nationalization and diminished
access
• Non-OPEC struggling to
increase production
• OPEC spare capacity largely in
Saudi Arabia
• Depletion is real
• Super majors will be compelled
to focus on organic growth

3
World Energy Consumption

4
Deepwater Market Fundamentals

5
Deepwater Market Fundamentals

6
Deepwater Market Fundamentals

7
Deepwater Market Fundamentals
‰ Rising costs are a major concern
• Capital costs for deepwater development projects increased by about 50% in the last 2 years
¾ Further cost inflation could slow down projects even further
¾ Lack of experienced staff is a major factor
¾ Delays and longer delivery times forcing projects into longer construction times, further
stretching resources
¾ It could be 2008 before any significant relief on cost increases

8
Deepwater Rig Deliveries

Sche dule d Rig De live rie s

‰ Deepwater drilling rig deliveries will help 2006 2007 2008 2009 2010
Ja ck-ups 10 17 31 16 3 77
ease the shortage, but will it push rates
Se m is 0 1 12 17 7 37
down? Drillships 0 1 4 7 2 14
10 19 47 40 12 128
10
% Incre a se to Curre nt Fle e t
9 Ja ck-ups 19%
Timing of Floater Deliveries Se m is 22%
8 2 Drillships 37%
Number of Scheduled Deliveries

6
3
5
3
4 2 2
7 1
3
5 5
2 4
3 3 3 3 3
1
1 1 1
0
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

Contracted Not Contracted

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Deepwater Market Fundamentals

‰ There appears to be sufficient demand to absorb new construction without

pushing rates lower
¾ The majority of new builds scheduled to enter the market over have already
received contracts, at very attractive day rates

‰ Through 2012, Anadarko has booked 339 rig months for drilling, giving them
significant leverage to buy into other opportunities. Other notable commitments
for deepwater rigs in the GOM include:
¾ BP (196 rig months); Chevron (168); Shell (125); Devon (95); StatoilHydro (90);
BHP (89); Petrobras (87); Hess (50,5); Repsol (48); Nexen (24); Murphy (23.5)
Woodside (23); Noble (18); ExxonMobil (14); Dominion (13.5); Eni (12);
Mariner (12)

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Deepwater Market Drivers

‰ Leading indicator - pending lease expirations will drive new deepwater activity

Source: MMS

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Deepwater Market Fundamentals

‰ For the production floater, the fundamentals driving the sector have never
been stronger
‰ Deepwater floater CAPEX is predicted to rise between 2006-2010 to
nearly US $90 Bn, compared to nearly $60 Bn in the period 2001-2005

Source: Douglas-Westwood

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Competing Projects Will Squeeze Resources

13
Worldwide FPS Awards 2005 (a) – 2011 (e)

40

35

30
Award Counts

25

20

15

10

0
2005 2006 2007 2008 2009 2010 2011
North Sea 2 3 6 4 2 1 3
South America 3 4 7 5 5 3 3
Africa/ Med 6 4 6 6 10 7 6
Asia/Pacific 9 11 13 10 10 4 8
North America 4 5 2 1 3 5 3

Excludes storage only units Hull Award Year

Source: Quest

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Gulf of Mexico FPS Awards 2005 (a) – 2011 (e)
• Big Foot FPS*
• Mrage MinDOC • GUMBO TLP*
• Phoenix MOPU • Kaskida Spar*/Semi*
• Blind Faith Semi • Shenzi TLP • St Malo Spar*/Semi
• Independence Hub Semi • Thunderhawk Semi • Jack Spar*/Semi
• Neptune TLP • Perdido Hub Spar
• Tahiti Spar
6 • Tubular Bells Spar
• Knotty Head FPS* • Chuck EPS FPSO
• Pony TLP* • Sturgis FPS
• Stones Spar*
5 • Chinook-Cascade EPS FPSO
5 • Exmar Semi- Spec Unit
5

4
Award Counts

3
3 3
Williams Unnamed Spar EPS-
Spec Unit
2
2

1
1

0
2005 2006 2007 2008 2009 2010 2011
*Candidates for dry tree units Hull Aw ard Year
Source: Quest Offshore

15
Asia Pacific FPS Awards 2005 (a) – 2011 (e)

KG-DWN-98/2 FPSO
Kikeh Spar AC/RL3 Methanol FPSO
Puffin FPSO
Basker/Manta/Gummy FPSO MA D6 FPSO Liwan FPSO Block H Sarbah FPSO
Vincent Phs 1 FPSO
Wenchang FPSO Van Gogh FPSO Ichthy’s Semi Scarborough Semi
Gumusut Semi
Tui FPSO Bombay FPSO Sunrise FLNG Echuca Shoals Semi
Montara FPSO Bunga Orkid FPSO
Stybarrow FPSO Camago-Malampaya FPSO Kerala-Konkan FPSO
Galoc FPSO Blackbird/Dua FPSO
Pyrenees FPSO Pandora FPSO
Sakhalin 5 FPSO

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Dhirbubhai FPSO
12 13 Rotan Spar
Award Counts

Petrel FPSO
10 11 11 Chaoshan FPSO
10
8 9
6 7
4
4
2
0
2005 2006 2007 2008 2009 2010 2011
Hull Award Year
All units wet tree unless otherwise noted, listed projects do not represent all opportunities

Source: Quest Offshore

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Africa FPS Awards 2005 (a) – 2011 (e)
Negage, Gabela, Lucapa, Malange FPSO
Block 31 Southeast-South FPSO
Agbami Phase 2 FPSO Venus FPSO
Bosi/Bosi North FPSO Kizomba D FPSO
Block 31 Southeast FPSO Belinda Semi
Clov FPSO Ibhubesi TLP Nord Marine FPSO
Agbami FPSO Block 32 FPSO
12 Oudna FPSO Usan, Usan West, Ukot FPSO Block 15 FPSO
Antan FPSO Azurite Marine FPSO Giove, Medusa FPSO
Mobim Bilondo FPU Bonga SW FPSO Ofrima North FPSO
10 Kizomba C Phase 2 FPSO Pazflor FPSO Baraka South East FPSO
Awa FPSO
Block 31 Northeast FPSO
10 Mahogany FPSO
Award Counts

Mer Profonde Nord FPSO

8 Kizomba C Phase 1 FPSO Block 32 FPSO
Jimbao/Gimboa FPSO
Bilabri, Orobiri, Owanare FPSO
6 Bosi/Bosi North EPS FPSO 7
6 6 6 6
4
4
2

0
2005 2006 2007 2008 2009 2010 2011
Hull Award Year
All units wet tree unless otherwise noted, listed projects do not represent all opportunities

Sourc: Quest Offshore

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South America FPS Awards 2005 (a) – 2011 (e)
Jabuti FPSO
Peregrino FPSO Cachalote, Baleria Franca & Ana FPSO
Albacora FPSO Jubarte Phase 2 FPSO
Espadarte-22 FPSO Marlim Sul Module 3 Semi
Golfinho Module 3 FPSO Roncador Module 4 FPSO
Posa FPSO Papa Terra FPSO Atlanta TLP
Tambau-Urugua FPSO Papa Terra Dry Tree TLP
8 Shell Park FPSO
Carapicu, Caratai FPSO
Polvo FPSO Roncador Module 3 Semi
Manganga, Catua FPSO
7 Frade FPSO
MPF 1000 EPS
Atlanta FPSO
Pirambu FPSO

Camarupim FPSO
7
Marlim Sul Module 4 Semi
6
Award Counts

BM-S-22 FPSO
ES-11 FPSO
Marlim Leste FPU
5 Espadarte FPSO
Golfinho Module 2 FPSO 5 5
4
4
3
3 3 3
2
1
0
2005 2006 2007 2008 2009 2010 2011
Hull Award Year
All units wet tree unless otherwise noted, listed projects do not represent all opportunities
Source: Quest Offshore

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North Sea FPS Awards 2005 (a) – 2011 (e)
Shelley Roundship FPSO
Skarv FPSO
Millburn Roundship FPSO

7 Pilot Roundship FPSO

Sevan 5 Roundship FPSO
Acorn/Beechnut FPSO
Rosebank/Lochnagar FPSO
Sevan 6 Roundship FPSO Spanish Point Semi
Goliat FPSO
6 Helvick FPSO Crawford FPSO
Luva Semi
6
5
Award Counts

Dumbarton FPSO
Ettrick FPSO
Gjoa Semi Luva Semi

4 Alvheim FPSO
Connemara FPSO

Chestnut Roundship FPSO

4
3
3 Skipper Semi 3
2
2 2
1
1
0
2005 2006 2007 2008 2009 2010 2011
Hull Award Year
All units wet tree unless otherwise noted

Source: Quest Offshore

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Project Slippage is a Major Concern

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Project Slippage

The Reasons
‰ Portfolio gap
‰ Resource constraints within oil
companies
• Lack of experienced staff
• Limited rig availability delaying appraisal
programs
• Delayed or extended projects extending
resources

‰ Limited supplier capacities causing

delivery bottlenecks
‰ Rising costs impacting project
economics

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Project Timelines are Getting Longer

‰ For IOC’s it can take up to 7 years to go from discovery to production

‰ For Independents, it can still take up to 5 years
• Appraisal programs adding to schedule
• Emphasis at the front end to “get it right”
• Lessons learned fosters conservatism

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Key Deepwater Issues and Challenges

• Cost and availability of Mobile Offshore Drilling Units (MODU’s)

• Access to human resources
• Increased cost of goods and services
• Longer lead times for raw materials and major equipment items
• Access to fabrication and shipyard capacity
• Access to deepwater technology
– The technological know-how to develop deepwater reserves is critical and lie
primarily with IOC’s
– Technology is a major driver of success
– Proprietary hull designs, limited players, mean business “not as usual”

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Deepwater Drilling and Completion Costs Rule

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Ultra-Deepwater: Drilling Technical Challenges
Storms and hurricanes

Sea Loop and eddy currents

Level
Empire State Gulf of
Building ~500 Mexico
Meters
Unpredictable high pressure gas
8,000’ Suprasalt and faults near surface
Sediment
10,000’ thick salt canopy with
unpredictable layers of highly
Allochthonous Sigsbee variable trapped sediments
16,000’ Salt Canopy

Unpredictable base of salt –

Upper Tertiary
24,000’ rapid pressure differentials
Sediments

“Thief zones” of significantly

lower pressure which cause lost
Lower circulation – fluid loss
32,000’ Tertiary
Cretaceous Ultra-deep reservoir with high
temperatures, high pressures
Autochthonous Salt and low natural flowability
Basement
40,000’

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Biggest Challenge: Finding the People

• 13% of the current oil industry workforce will have retired by 2008
and 33% by 2012
• Structural weakness in the labor market - lack of adequately skilled
professionals between 30 and 40 years of age
• Most of the emerging frontiers do not have appropriately skilled
domestic labor
• Rigs on order need 5-10,000 people to man!
• Plus 50 more offshore construction vessels

Source: SPE, Maxwell Drummond Intl., Douglas-Westwood

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GOM Trend – Early Development Contracting

‰ Pre-FEED & FEED – moving towards same contractor to limit verification time of

existing work, improve schedule, reduce cost and meet technical challenges of deep

water (desirable to keep the same team together for better execution)

‰ Master Service Agreements – most contractors have existing MSA’s in-place to

allow expedited start, lessen impact of changes, and maintain rate structure

throughout project

‰ Relationships – because the industry’s capacity is close to 100%, most operators

are aligned with particular contractors to secure services and resources, including

fabrication slots.

‰ Negotiated Terms – Competitive bidding on early studies is gone, trend turning

towards aligned relationships due to capacity

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GOM Trend – Emerging Bias Towards Dry Tree Units

‰ Wet Completions Face Depletion Challenges

‰ Dry completion features and benefits:
9 Direct vertical access for well intervention
ƒ Enhances reservoir testing, monitoring, inspection and maintenance operations
9 Drilling and workover capabilities
9 Lower operating costs because of well intervention ease

Source: MMS

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GOM Trends – Floating Systems

‰ Spars and Semi’s – starting to dominate deepwater developments due to

superior motion characteristics, versatility, larger rig packages, and deck load
capability

‰ Dry tree systems – new semi designs will enable ultra-deep dry tree production,
opening up new opportunities in some frontier plays

‰ TLP – dominant floater concept up to about 4,500 ft. w.d., tendon technology
needs improvement before ultra-deep deployment can take place

‰ FPSO’s – MMS approval still on a case-by-case basis, Petrobras Cascade will be

US GOM’s first

‰ Installation – move to designs that allow quayside integration, reduce installation

risk

‰ Vessel excursion – deeper water depth means greater excursion and thus
higher bending loads and a reduction in fatigue life on SCR’s and TTR’s

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Thank You!

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