Julian Callanan, Analyst with Infield Systems, on the global macro overview of FPSO an how the oil price volatility will make the decision making process for the sector and uncertain one. Find out about the new market dynamics at the 12th Annual FPSO Congress. Visit www.fpsoasia.com or enquiry@iqpc.com.sg

1. Global FPSO market dynamics 2010 -2014
Julian Callanan
Infield Systems Ltd
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2. Contents
• Infield Systems Ltd
•Global Macro Overview
• Economic crisis; Impact on FPSO Industry
• Oil price volatility – decision making uncertainty / field viability
• Funding issues
• Prospects for Recovery
• FPSO market Forecasts (Demand)
• Leased vs. Owned
• Conversion vs. New Build vs. Redeployment
• FPSO availability (Supply)
•Fleet availability in different scenarios
• FPSO market key concerns
2

3. Infield
•Specialist provider of energy data, analysis, information & due diligence globally
Macro, offshore, onshore, fields, platforms, pipelines, subsea, drilling, deepwater, rigs &
vessels , yards, plants, companies etc..
•Some of our clients:
•Peer-reviewed, bottom-up methodology with 22 years experience
3

4. Global Recession
• “The days of boom and bust now over”
- Gordon Brown, UK PM, 2007
• Uninterrupted economic growth for a
decade driven by a bubble of credit
• Financial institutions failed to correctly
gauge exposure to poor debtor classes
4

5. A Truly Global recession – headline statistics
The US Europe
•US unemployment at a 26yr high, 9.7% of • In Britain, unemployment at 1995 levels,
the workforce out of a job. 7.8% of the workforce out of a job.
• 6.9 million jobless since 2007 downturn. • 9.1% unemployment in France.
• US Congress; “worst since the depression • 8.3% unemployment in Germany
of the 1930s”.
Asia
• In China, in 2008, between 70,000 and 80,000 companies went out of business.
• Overall 2008 was the first year when global GDP decreased since 1946.
Domestic and Industrial energy consumption forecasts
downgraded. Downwards shift in market fundamentals.
5

6. Oil Price Volatility – undermining contract awards
Departure from price fundamentals Rising market average
140
120
• Volatility:
100 • Undermines a stable
business environment
$/bbl
80
60
40
20 • Measure of volatility like a
0
1980 1985 1990 1995 2000 2005 springboard
Oil Price Collapse Gulf War Ongoing Crisis
.16
Measure of Volatility
.12
.08
.04
.00
1980 1985 1990 1995 2000 2005 2009
6

7. Oil price swings and project viability
Type of Field Development $/boe range • Fall back to $40bbl threatened
Large deepwater fixed or floating 23 - 55
Large shallow water fixed or floating 20 - 40
project viability
Small Subea tie-back 35 - 65
Small Subsea stand alone 27 - 55
Mid - sized tie back 32 - 50
• Uncertainty over future revenue
Mid - sized stand alone 32 - 50 generation undermines funding
Oil sands 80+
140
120
Economic Price US $ per bbls
2008 av. $99bbl
100
2007 av. $71bbl
80
Q3:2009 $70bbl
60
Q2:2009 $56bbl
40
Q1:2009 $40bbl
20
0
0 1000 2000 3000 4000 5000 6000
Available Oil (billion bbls)
7

8. Funding Constraints
160
Bumi Armada awarded
Price $/bbl Modec awarded Jubilee Hoang Long
140
Nortechs awarded Bilabri
120
HHI awarded Usan
100
Modec awarded Pyrenees FPSOcean bankrupt
US$ bbl
80
Ithaca cancel Uisge Gorm
contract with Bluewater
60
SBM awarded Aseng contract
40
Nexus abandons talks with
Vanguard Oil and Gas
20 Roc abandon talks with BW
Petrobras awards Papa Terra
offshore for BMG floater
contract. Then cancel to cut
costs
0
1/10/07
1/11/07
1/12/07
1/10/08
1/11/08
1/12/08
1/1/07
1/2/07
1/3/07
1/4/07
1/5/07
1/6/07
1/7/07
1/8/07
1/9/07
1/1/08
1/2/08
1/3/08
1/4/08
1/5/08
1/6/08
1/7/08
1/8/08
1/9/08
1/1/09
1/2/09
1/3/09
1/4/09
1/5/09
1/6/09
1/7/09
1/8/09
1/9/09
No new contract
awards
8

9. Positive Sentiment
• Oil Price consistency
• Performance of
developing countries
• Falling volatility:
•36% In Oct 2008
• 17% in May
• 16% in June 160 6
• 12% in July 140
Oil ($bbl)
5
• 9% in August Libor (%)
Libor Interest Rate (%)
120
• ?% in September 4
Oil Price ($bbl)
100
80 3
60
2
• Return of funding 40
1
• Bumi Armada loan 20 Relatively high oil prices and low interest rates
suggests good future investment potential
oversubscribed 0 0
9

10. Contents
• Infield Systems Ltd
•Global Macro Overview
• Economic crisis; Impact on FPSO Industry
• Oil price volatility – decision making uncertainty / field viability
• Funding issues
• Prospects for Recovery
• FPSO market Forecasts (Demand)
• Leased vs. Owned
• Conversion vs. New Build vs. Redeployment
• FPSO availability (Supply)
•Fleet availability in different scenarios
• FPSO market key concerns
10

11. The FPSO in context of the wider offshore industry
FPSO market Capex expected to increase relative to other platform markets driven by:
• Maturing of shallow water regions
• Promotes deepwater growth
• Encourages leased assets
• Nationalisation of shallow water
reserves – Majors & large Indie’s have
valuable deepwater experience
• Key prospective areas now W. Africa,
Brazil, GoM – Lower Tertiary,
W.Australia
• Far away from exportation
FPSO market infrastructure
7% CAGR
11

12. Plenty of opportunities to play for
• FPSO installations by contract status.
• Eni, Kitan – Timor
• Fast-track project suitable for a redeployment
• Blade ,Cadlao - Philippines
• First oil targeted for mid-2011
• Afren, Ebok - Nigeria
25
Non-contracted • Total, CLOV – Angola
20 Contracted • New build, Owned vessel
• Delayed to 2014
FPSO Installations
15
10
• Petrobras, Tupi – Brazil
• MV22 Pilot FPSO already on field
5
• Full production expected 2014
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
12

13. Diverse Regional Demand
FPSO installations by region FPSO fabrication tonnage regional dependency 2004 - 2008
Percentage of tonnage fabricated
Unknown North America Middle East & Caspian
Latin America Europe Asia
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Africa Asia Australasia Europe Latin North
America America
Country of Installation
North America
1%
• Note growth in Asia
Africa • Key energy demand here relative
30%
Latin America
28%
to other regions
• Asia still limited exportation
Europe
8%
infrastructure
Asia
Australasia
14%
19% • Collection of local FPSO expertise
makes cost effective option
2005 - 2009 2010 - 2014
13

14. Change in operator type demand
Historic market 2010 - 2014
Large
Independent Leased
12% Operator
Large 3%
Small Independent Leased
Independent 18% Operator
25% 2% Small
Independent Major
41% 14%
Major
24%
NOC
NOC
31%
30%
• Significant growth in demand from
small independent operators
• Impacts the future characteristics of
FPSO demand
14

15. Diverse FPSO types increasingly in demand
• Note diversification of FPSO design type
30
Pilot FLNG EWT EPS Production
25
FPSO Installations
20
15
10
5
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
•New design, fabrication and leasing opportunities may be created through this
additional unorthodox demand.
• SBM’s Versatile Reservoir Unit
15

16. Deployment Type
• Significant and growing trend towards conversions. These can also be redeployment
opportunities
Historic market 2010 - 2014
Redeployment Redeployment Growth in future
14% Only confirmed redeployments included 10% redeployment
market?
?% future
redeployment
New Build
19%
New Build Conversion
29% 57% Conversion
71%
• Driven by:
• Growing demand from independent operators
• Less major discoveries
16

17. Contract Type
• Leased vs. Owned asset dynamics
25
Owned Leased
• Undertaken statistical analysis of historic
20
FPSO contracts to forecast future split
between leased and owned.
FPSO Installations
15
10
•Key considerations include:
• Operator type
5 • Size of Reserves
• Length of time on a field
0
• Production requirements
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
• Topside configuration
• Historic operator contractual preferences
• Historic market split fairly even, however consolidation around leased solutions
expected
17

18. Contract Type
This forecasting methodology does reveal some areas where it will be a close call
between leasing and owning an asset.
25
Owned Owned, Possible Leased, Possible Leased
20
FPSO Installations
15
10
5
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
These marginal projects will be important in shaping which companies are successful
over the next five years.
18

19. Contents
• Infield Systems Ltd
•Global Macro Overview
• Economic crisis; Impact on FPSO Industry
• Oil price volatility – decision making uncertainty / field viability
• Funding issues
• Prospects for Recovery
• FPSO market Forecasts (Demand)
• Leased vs. Owned
• Conversion vs. New Build vs. Redeployment
• FPSO availability (Supply)
•Fleet availability in different scenarios
• FPSO market key concerns
19

20. Areas of risk - Operators
“Choose your clients carefully”
25 Assess risk:
High Medium Low
20
•Operator type / cash position
FPSO Installations
15 • Field Participants
• Geo-political risk
10 • Projects placement within operators
5
portfolio
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Understand your business offering:
• Marrying up of market leaders (yards /
leased FPSO companies) with Majors.
20

21. Areas of risk - Supply
• Available Supply – 2009 – ~12 vessels
• Including Leased Vessels recently ending • Available vessels built on speculation:
contracts: • Aker Smart 2
• Glas Dowr – Bluewater • Nexus 1
• Munin FPSO – Bluewater
• Uisge Gorm - Bluewater • More availability in the pipeline –
• Knock Davie – Prosafe Under Conversion / Construction
• Rang Dong – SBM
• East Fortune – Songa • Aker Smart 3 – Aker
• Deep Producer 1 – Ex.
• Owned Vessels becoming available: FPSOcean
• Bohai Ming Zhu – 3 year window
21

22. Areas of risk - Supply
50
40
30
20
10
0
2009 2010 2011 2012 2013 2014
High Medium Base
• Even in our base case scenario, supply is set to increase substantially over coming
years.
• We assume available assets would leave the market after 3 years inertia.
• This level of supply is without historical precedent.
• Posses critical business orientation issues.
• day rates
• redeployment opportunities
• puddle-hopping / development of marginal fields / alternative FPSO
projects?
• new build and conversion demand, however growth of modifications market
• M & A activity, as market consolidates 22

23. Areas of risk - Supply
60
Non-contracted Demand Base case with exits
50
Number of FPSO's
40
30
20
10
0
2009 2010 2011 2012 2013 2014
• Potentially very significant supply - demand imbalance
• Some caveats to this:
• Regional traps – legislation, climate
• Configuration limitations – production, storage, water handling, topside
configuration
• Age of assets – especially age of converted hulls
Not every asset can be redeployed – however indication of tough times to come?
23

24. Conclusion
• After a difficult year, both the short-term and long-term market fundamentals are
starting to align positively for the FPSO market.
• We see plenty of future un-contracted FPSO opportunities in the pipeline.
• Early indications are that the characteristics of future FPSO demand are going to be
changing
• The regional focus, and type of operator contracting FPSO’s also looks set to evolve
• This will create new opportunities.
• However, the issue of FPSO supply remains as a future cloud on the horizon
24

25. Thank You
All Graphs, charts and data taken from Infield Julian Callanan
Systems FPSO and FLNG market report 2010 – T: +44 20 7423 5029
2014. Please contact: E: julian.callanan@infield.com
25