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Eighth U.S.-China Oil and Gas Industry Forum (OGIF)

Sep 9-11, 2007San Francisco

What is Driving Today’s Deepwater Market?

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Presentation Overview

Setting the Scene: World Energy Demand

Deepwater Market Fundamentals

Advances in Deepwater Drilling and Production

Deepwater Floater Types

Key Deepwater Issues and Challenges

Project Cycle Time Analysis

Ensuring Project Success

Key Drivers for Floating System Selection

Concluding Remarks

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World Energy Consumption – Global Economics and Energy

1.1%

0.4%

1950 1950 19500 0 0

50

100

150

200

250

300

350

10

20

30

40

50

60

70

80

2

4

6

8

10

1990 1990 19902030 2030 2030

0.9%

Average Growth/Yr.2000 - 2030

2.2%

2.8%

4.7%

0.7%

2.4%

1.6%

Energy DemandMBDOE

GDPPopulationTrillion (2000S)Billions

Non-OECDOECD

Source: ExxonMobil

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Developing Regions Drive Energy Demand

4%

2%

14.8%

33.6%

5.8%

7.8%

10.6%

26.6%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Western Europe

North America

Middle East

Latin America

FSU & Eastern Europe

Australasia

Asia

AfricaAfricaAsiaAustralasiaFSU & Eastern EuropeLatin AmericaMiddle EastNorth AmericaWestern Europe

12

10

8

6

4

2

01965 1971 1977 1983 1989 1995 2001

Demand Growth 2000-2005Billion Tons of Oil Equivalent

China & India Driving Huge Demand

Source: BP Statistical View of World Energy, June 2006

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Future Global Energy Demand

Source: IEA

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Deepwater Market Fundamentals

US Gulf Deepwater vsTotal Production

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Deepwater Market Fundamentals

For the production floater, the fundamentals driving the sector have never been strongerDeepwater 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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Deepwater Market Fundamentals

Production floater orders up 75% over past 2 years

Source: IMA

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Deepwater Market Fundamentals

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Deepwater Market Fundamentals

Clouds on the horizon

• Capital costs for deepwater development projects increased by

about 50% in the last 2 years

Lack of experienced staff is a major factor

Delays and longer delivery times are forcing projects into longer

construction times, further stretching resources

It will be 2008 before any significant relief on cost increases

Further cost inflation could slow down developments

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Deepwater Drilling and Production Advances

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Deepwater Floater Types

Industry recognized wet and dry tree solutions. Industry accepted because:

Tension Leg Platform (ETLP)

• Proven - Many years of Operating

history

• Functional - Used for a large variety

of functions, wet or dry tree

• Scaleable – Wide range of topsides

payloads

• Adaptable – Applications worldwide

Spar

Semi-submersible (Semi)

FPSO

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Floater Application Ranges

• Combination of water depths and topsides influence the choice between a TLP, Semi, and Spar.

0

10,000

20,000

30,000

40,000

50,000

0 2,000 4,000 6,000 8,000 10,000Water Depth (ft)

Faci

lity

Payl

oad

(st)

SparsSemisTLP

Spar

SemiTLP

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Deepwater Floater Breakdown

24 Tension Leg Platforms 18 Spar Platforms

> 100 FPSO Vessels> 25 Semi FPS Platforms

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TLP Technology Providers

Enabling deepwater dry tree or wet tree solutions

MODEC DESIGN

SBM ATLANTIA DESIGNS

FLOATEC DESIGNS

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Semi FPS Technology Providers

Enabling ultra-deepwater wet tree solutions

AKER KVAERNER DEEP DRAFT DESIGN

ATANTIA DEEP DRAFT DESIGN

GVA / KBR DESIGN

EXMAR DESIGN MOSS MARITIMEDESIGN

FLOATECDEEP DRAFT DESIGN

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Spar Technology Providers

Enabling ultra-deepwater dry tree or wet tree solutions

FLOATEC DESIGNSTECHNIP DESIGNS

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Concept Advantages, Limitations

Issue TLP SPAR SEMI SHIP-SHAPEMooring System Vertical tendons Taut leg Taut Leg Catenary, compliant

catenary, or turretmoored

Mooring Footprint Small (same as hull) Large (approximately 2x water depth)

Impacts field development layout but allows for drilling flexibility

Riser support Short stroke tensioner Long stroke air can, Riserguides, Keel joint

Wet tree only

Buoyancy can supportwith jacking guidemechanism.

Wet tree only

Well Bay Conventional Confined within moon pool Conventional Wet tree only

Storage Capability No Yes. Not typical. No Yes. Typical

Issue TLP SPAR SEMI SHIP-SHAPEWater Depth More sensitive (limit

depends on payload)Less sensitive

Platform Motion Excellent – very low heave,roll, pitch

Long period waves favorTLP.

Good – very low heave, pitchup to 10o

Long period waves generatehigh heave motion in classicspar.

High motioncharacteristics havelimited application for drytrees

High roll motion haslimited application for drytrees

Transportation,Installation

Single piece complete

Integration quayside nearinstallation site

Hull mating requirescapability nearshore.

Hull upending and deckintegration requiresoperations offshore.

Single piece complete.Wet tow or dry tow tosite.

Single piece complete.Wet tow to site.

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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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Ultra-Deepwater: Drilling Technical Challenges

Storms and hurricanes

Loop and eddy currents cause vortex induced vibrations and motions to drill strings

Unpredictable high pressure gas charged stringers and faults near surface

Mobile/flow-able/dissolvable 10,000’ thick salt canopy with unpredictable layers of highly variable trapped sediments

Unpredictable base of salt –rapid pressure differentials

“Thief zones” of significantly lower pressure which cause lost circulation – fluid loss

Ultra-deep reservoir with high temperatures, high pressures and low natural flow-ability

Sea Level

40,000’

16,000’

24,000’

32,000’

Allochthonous Sigsbee Salt Canopy

Cretaceous

Upper Tertiary Sediments

Autochthonous Salt

Basement

Suprasalt Sediment

Gulf of Mexico

Empire State Building ~500 Meters

Lower Tertiary

8,000’

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Deepwater Drilling and Completion Costs Rule

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• 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 skilleddomestic labor

• Rigs on order need 5-10,000 people to man!

• Plus 50 more offshore construction vessels

Biggest Challenge: Finding the People

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

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Deepwater Project Timeline – Putting it in Perspective

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

For Independents, it can take up to 5 years• Emphasis at the front end to “get it right”

• Lessons learned fosters conservatism

• Appraisal programs adding to schedule

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Deepwater Project Cycle Time Analysis

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Project Success Hinges on Front End

Project Influence Curve

Ability toinfluenceProjectSuccess

The Influence Curve

Time

• The Influence Curve, promoted by experts in project management remains especially true for high risk deepwater projects.

Concept and FEED stage

• A higher cost at the early phase has the potential to increase the project savings multifold

• Get it right the first time!

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Project Success Hinges on Front End

Proper Framing and Evaluation = Project Success

BASIS of DESIGN OPTIONIDENTIFICATION

OPTIONDEFINITION

ECONOMIC MODEL

TECHNICAL/RISKASSESSMENT

FACILITIESCAPEX/OPEXGENERATOR

CANDIDATESCREENING

ADDITIONAL OPTIONS/SENSITIVITIES

FramingPhase

• Identify & Assess Options• Generate & Select Options• Define Potential Candidates

• CAPEX/OPEX• Risk & Contingencies• Opportunity Planning• Best Practices• Lessons Learned

DefineNext Phase• Assess Candidates

• Develop Alternatives

EvaluationPhase

ScreeningPhase

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Project Success Hinges on Front End

Option Identification – Building Blocks

DEVELOPMENT OPTIONS

Dry Trees Dry TreesWet

TreesTLP SPAR

Floating Production

Unit

Semi-Submersible FPSO

DryTreeUnit

Tender Assist Drilling

Mobile Rig

Drilled

Permanent Platform Facilities

FSO

DRILLINGSTORAGE &

EXPORTSUBSTRUCTURES

Selection of potential development options

Development Option Components

Facilities Elements

Development Option Strategies

All WetTie-backs

Wet &Dry

SubseaTiebacks

Pipeline

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Key Drivers for Floating System Selection

Risers

Wet vs dry trees

Well layout, complexity

SCRs, TTRs, Umbilicals

Drilling Requirements

Rig capacity

Hook load

Associated equipment (weights, c.g., area)

Deck Requirements

Quarters

Process facilities (weight, c.g., area)

Total deck area, operability

Motions

Maximum heave, pitch, offset

Minimum deck clearance

Impact on drilling

Impact on human factors

Environmental

Design criteria

Metocean data

Others

Design life

Classification requirements

Industry design code requirements

Local infrastructure

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Floating System Selection - The Bigger Picture

• Subsea architecture; field planning and layout

• Drilling, completion & workover philosophies; costs

• Export options

– Pipeline transport

– Storage and shuttle transport

• Standardization

• Model testing validation

• Future expandability; Opex

• Delivery model

– Fabrication, transportation & installation

– Local content issues

• Clear understanding of risk issues & mitigating measures

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Conclusion

• China is an emerging deepwater play

• Deepwater solutions are available for China’s O&G

development plans, from 300 meters to 3000 meters

• Cooperation between China and the deepwater

technology providers