Gas LiftGas LiftA Service Company A Service Company

PerspectivePerspective

Gas Lift Workshop February 2003

Brian A. Matusek

2 Initials

Artificial Lift Market Info and Well Distribution

World: 830,000 wells

Canada 48,200

US 500,0

00

Argentina13,50

0

FSU 115,00

0

Indonesia 9,500

Venezuela

14,200Brazil 6,300

Peru 4,500

Nigeria 300

Egypt 1,100

Oman 2,300

China 77,000

India 3,000

Australia

1,100

North Sea 600

Germany

1,000

MM$Rod Pumps (reciprocating) 670Gas Lift 110PCP's 260Electro Submersible Pumps 980Hydraulic Pumping 25Others 10

Worldwide Expenditures 2,055

(excluding CIS and China)Spears 2001 Annual Spend

% WW Wells WWRod Pumps (reciprocating) 71% 443,000Gas Lift 10% 62,000PCP's 6% 39,000Electro Submersible Pumps 10% 61,000Hydraulic Pumping 1% 8,000Others 2% 15,000

* Total Systems 100% 628,000

BY WELLS / SYSTEMS (exclude CIS and China)

3 Initials

Artificial Lift Market Evolution

0

200

400

600

800

1000

M$

Mar

ket

1990 330 500 160 16 140 1146

2002 985 550 110 270 60 1975

ESP Rod Pump Gas Lift PCP Other Total

* Excludes Russia and China.

Artificial Lift Industry has grown by more than $500 million in the last 12 years

4 Initials

Gas Lift – Areas of Opportunity & Encroachment

Land Gas Lift Applications Growth Opportunity - De-Watering Gas Wells with Gas Lift Encroachment - Electric submersible pumps; some PCP applications due

to drawdownInland Bay & Offshore Gas Lift Applications Opportunity – Competitive due to infrastructure limitations, available natural

gas; alternative uses? Encroachment – Electric Submersible Pumps and other lift methods as reliability

improves Offshore Deep Water/Sub Sea Gas Lift Applications Still undefined, although systemic issues currently limit application depth

Land Inland Bay & Offshore (Shelf)

Offshore (Deep Water/ Sub Sea)

5 Initials

Largest Oil-Producing Companies, mb/d

6 Initials

Contribution to Falling E&P Costs

Source: Salomon Smith Barney

1995 to 1997

Drilling Technology

Horizontal Drilling

Subsea

CompletionsFracturing

Seismic

46%8%

26%

5%

11%

4%

7 Initials

R&D Spending 1990 to 2001

8 Initials

Return on Capital Employed - Oil Service Companies

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

'94 '95 '96 '97 '98 '99

WACC = 12.2% Source: Simmons & Co.

9 Initials

Product Development Processand Risk Reduction

Size of Effort

Risk

Time

10 Initials

So what is taking Schlumberger so long to introduce new Gas Lift

Products?• SLB Systematic approach to the Product Development• Technical Audit of Gas Lift Product Line mandated the

“re-engineering” of several product lines to accommodate the incorporation into the SLB Engineering Database and Manufacturing Process

• Over the past two years, SLB has invested a significant amount of its annual Gas Lift Revenue on the Sustaining and Re-Engineering of the Product Line

• New Product Development project commenced in 2002

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Business Issues affecting new Gas Lift R&D Decisions

• In the end, it is a Risk vs. Reward Proposition– Commercial Risk Factors

• Early Market acceptance of technology• Viable Business Model - Market pricing and volume which

allows for reasonable return on the R&D Investment

– Technical Risk Factors• Will it work! – that is, does it fulfill the product

requirement s• Can we build it for the original estimate?

• Other Influencing Factors– Marketshare Impact of new technology– Leverage across Schlumberger is an advantage– Strategic Initiatives can assist in project funding– Track Record

12 Initials

Potential Gas Lift R&E Focus Areas

• Energy Optimization through engineering improvements

• Expanding the range of Gas Lift Deployment• Continuous Gas Lift Optimization• Systemic Improvement efforts with surface

equipment providers such as control valve companies and compression companies

• Reliability

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Concluding Remarks