The Risk Management Function

Presented to The University of Houston Bauer College of Business

March 29, 2012

McDermott International

© 2010 McDermott International, Inc.  All rights reserved.

Cautionary Statements

2

In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, McDermott cautions that statements in this presentation that are forward-looking and provide other than historical information involve risks and uncertainties that may impact actual results and any future performance suggested in the forward-looking statements. The forward-looking statements in this presentation speak to conditions as of the date of this presentation and include statements regarding backlog, to the extent backlog may be viewed as an indicator of future revenues, our expectation that oil demand will grow until 2015, our plans for investments in certain markets, our expectation that revenues in 2012 and beyond will be solid, our belief that market conditions are improving, our intentions to not sell equity, the timing, scope and execution of recent awards and the timing of delivery and technical specification of the NO105 and planned upgrades to the NO102. Although McDermott’s management believes that the expectations reflected in those forward-looking statements are reasonable, McDermott can give no assurance that those expectations will prove to have been correct. Those statements are made based on various underlying assumptions and are subject to numerous uncertainties and risks, including, without limitation, disruptions experienced with customers and suppliers, the inability to retain key personnel and adverse changes in the demand for oil and gas. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those anticipated. For a more complete discussion of these and other risks, please see McDermott’s periodic filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2011. We do not undertake any obligation to update the forward-looking statements included in this presentation to reflect events or circumstances after the date of this presentation, unless we are required by applicable securities laws to do so.

Presentation Overview

McDermott Company Information Risk Management Overview Risk Identification Examples of Risk Treatment Insurance Programs Captives Inside a Risk Management Department Post Macondo Enterprise Risk Management (ERM)

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McDermott International, Inc.

Leading engineering and construction company Exclusively focused on offshore upstream oil & gas

Engineer, procure, construct and install (“EPCI”) Front-end design and detailed engineering Overall project management and procurement services Construction and installation of offshore production facilities Installation of pipelines and subsea systems

Worldwide with approx. 15,000 employees Only American headquartered company with EPCI services on

global scale Over 90% of 2011 revenues derived outside the U.S.

Long-term relationships with energy customers Primarily national (“NOCs”) and super major oil & gas companies

Absolute commitment to safety, quality and ethical behavior

Source: Engineering News-Record 2010 Sourcebook

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Key Clients

Majors Independents

NOC’s

5

6

Global Presence in Major Oil & Gas Regions

Operating in about 20 countries Engineering offices: 5 (+1 JV)

Construction facilities / marine bases: 4 (+1 JV) Vessels:

7 heavy-construction derrick lay barges 4 multi-functional; 1 subsea; 1 lay barge

EPCI is a Unique Delivery Platform

7

Construction ProcurementEngineering Installation

700+ engineers globally Offices in 5 locations worldwide

FloaTEC, LLC 50:50 JV with Keppel FELS

Capabilities / Services: Studies & conceptual designs

Front-End Engineering & Design (“FEED”)

Detailed engineering & design

Transportation & installation engineering

300+ dedicated employees

Capabilities / Services: Negotiating, purchasing,

transporting, inspecting, inventory control and quality assurance

Global sourcing

Deep local knowledge

Strong supplier relations

Strategically located facilities Aggregate area: Over 1,000 acres

Largest deck to date 23,000 tons

Largest jacket to date 38,000 tons

Capabilities / Services: Topsides & onshore modules

Jackets, piles & compliant towers

TLPs, SPARs, FPSOs

Subsea production systems

Standardized fabrication processes & procedures

Dedicated installation fleet Global construction fleet, multi-

functional and subsea support vessels

Capabilities / Services: Single & dual heavy-lift

Floatover install

Various diameter pipeline install

S-Lay, J-Lay, Flex-Lay and Reel-Lay

Dynamic positioning & mooring systems

Subsea installation support

Repair & salvage

Providing Fully Integrated, Single-Source Solutions For Worldwide Offshore Development

Project and Risk Management

(Graphics compliments of Offshore Magazine; 2005 Offshore Oil & Gas Industry Deepwater Solutions for Concept Selection)

McDermott’s leadership covers shallow to the deepest water

Spectrum of Offshore Infrastructure

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Three Primary Market Segments

Topsides Design

Top TensionRiser Systems

Flow AssuranceDownhole -to- Shore

Field Layouts

Pipeline Design & Installation Analysis

Fixed SolutionsJacket – Tripod - CPT Floating Solutions

TLP - SPAR - SEMI

Subsea SystemArchitecture

ProcurementServicesSubsea Technologies

Marine ConstructionPipelay

InterventionIMR

FlexibleRiser Systems

RigidRiser Systems

Steel CatenaryRiser Systems

FPSOTopside Modules

Subsea StructureDesign/Fabrication

Hull Alliance

SURF Subsea Infrastructure,

Umbilicals, Risers & Flowlines

Conventional Infrastructure(Shallow)

Floating Production

Systems (FPS & FPSO)

Angel Project

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Strategy in Action – Newest Additions to our Fleet

North Ocean 102* Rigid or flex-lay pipelay capability 7,000 MT carousel payload Two 120 MT tensioners 140 MT abandonment and recovery (A&R)

system, capable for pipe abandonment or subsea lowering to 10,000-foot water depth

250 MT active heave compensation (AHC) main crane, for subsea lifts and construction supports

Dynamically positioned and fast transit

North Ocean 105 Rigid or flex-lay pipelay capability 2,700 MT vertical reel payload Pipelay tower with 400 MT tensioner 450 MT & 150 MT abandonment and recover

(A&R) system, capable for pipe abandonment or subsea lowering to 10,000-foot water depth

Two portside active heave compensation (AHC) main cranes, 100 MT and 400 MT, for subsea lifts and construction supports

Dynamically positioned and fast transit Expected availability in summer 2012

* Includes planned December 2011 upgrades

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2008 2009 2010 20110

1,000

2,000

3,000

4,000

5,000

6,000

4,404

3,261

5,039

3,879

2008 2009 2010 20110.00

0.20

0.40

0.60

0.80

1.00

1.20

0.26

0.881.00

0.64

2008 2009 2010 20110

100

200

300

400

107

279315

251

2008 2009 2010 20110

1,000

2,000

3,000

4,000 3,098 3,282

2,404

3,445

Revenues Operating Income

Diluted Earnings Per Share Historical Backlog

($MM) ($MM)

($MM)($)

____________________Note: Presented on the basis of continuing operations.[1] Includes approximately $46 million ($0.20 per share) of non-cash impairment & related expenses[2] Includes approximately $162 million of project charges, $5.5 million of non-cash impairment charges and $35 million of non-operating benefits

[1] [2]

[1] [2]

Recent Operating Performance

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Backlog by Geographic Region

Backlog by Type of Contract Backlog by Estimated Recognition Year

Backlog by End Market

____________________Note: Figures above do not include the backlog of the FloaTEC joint venture. Presented on the basis of continuing operations.

Conventional Struc-tures75%

Floating Structures

3%

SURF and Charter

22%

Middle East46%

Asia Pacific36%

Atlantic18%

201283%

201312%

2014+5%

Fixed Price71%

Other29%

Strong Backlog Provides Visibility(as of December 31, 2011)

(M = US$ million) (B = US$ billion)

Financial Position (12/31/11 or as shown)

US $

Cash & Investments 731.8 M

Available Credit 643.9 M

Debt 93.7 M

Equity - Book Value 1.7 B

Equity - Market Cap (2/21/12) 3.2 B

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What We Do – Jacket Loadout

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Risk Management Overview

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Risk Analysis

Design Risk Management Strategy

Risk Identification

Implement Strategy

Review

Loss Control

Captives

Go bare

Finite ins, retros, etc

Transfer - Contract

Debt

Risk Financing

Transfer - Ins

Risk Avoidance

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Risk Management Process

Risk Identification - Attitude

The view of some:

“ But in all my experience, I have never been in any accident…of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and never have been wrecked nor was I ever in any predicament that threatened to end in disaster of any sort.”

-E.J. Smith 1907

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Your own Experience (trailing): Prior losses Near Misses

Your Own Experience (leading) Questionnaires/interviews (labor, staff) Audits (e.g., safety, property, financial controls)

The experience of others (leading – at least to you): Trade/industry peer groups (e.g., CII, IMCA) Subject matter experts (e.g., surveyor, lawyers)

Risk Wellness Assessments ©

Risk Identification

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Risk Wellness Assessments

Risk Management Process

Risk Wellness Assessment

Prevention Review

Coverage Evaluation

Deliverables:Executive SummaryRWA Report Action Item Registry

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Other Contractor People and PropertyMcD People and

Property

Work in Progress

Company People and PropertyThe Environment

Risk Identification

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Risk Identification – Sometimes Difficult

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Think in terms of frequency and severity How often? What is the likelihood? How much? What is the impact?

Tools for analyzing risk include: Trend Lines Probability Distributions Benchmarking databases Probable Maximum Loss/Maximum Possible Loss Analysis Simulation and models Claims and near miss reviews Legal analysis of exposures Mapping

Risk Analysis

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1 2 3 4 5 6 7 8 9 10

9 10

10 2 9

11 4 1 8

7 3 7

5 6

6, 13 8 5

12 4

3

2

1

Co

ns

eq

ue

nce

Likelihood

Ca

tast

rop

he

Ch

alle

ng

eD

istr

act

ion

Probable CertainImprobable

Risk Analysis – Risk Map

• Chart the risks identified in interviews and questionnaires

• Where should we start with loss control?

• How much should we be willing to spend (not relevant if HSE&S)

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Avoidance Do not engage in task/activity Drastic step as revenue = zero

Loss Control Steps to decrease frequency and/or severity Examples are safety systems, sprinklers, containment systems Components of an effective loss control system

Management commitment – it all starts (and can end) here Procedures - Practices/policies that reduce risk Training – It doesn’t matter if no one knows Behavior – Need to have rewards and accountability to drive the

correct behavior Communication – Need to talk and walk, share results and updates,

etc.

Risk Treatment Methods

25

Risk Treatment (continued)

Financing (not mutually exclusive) Go bare

Take as current expense when loss occurs Can use cash or debt to finance

Self finance through: Reserves Captives

Transfer Pure/guaranteed cost insurance Contractual indemnity from third party

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Transfer/Financevia Insurance

Frequency

Cost Effective LossControl or Ignore

Avoid

Retain andFinance via Captive

Severity

Low FreqHigh Severity

Low FreqLow Severity

High FreqLow Severity

High FreqHigh Severity

Risk Categorization for Financing

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Low Frequency

High Severity

Risk Financing – The Basics

Risk RetentionFinanced Via Captives

Transfer/FinanceVia Insurance

High Frequency

Low Severity

Lim

its - $$$$$$

Limits based on:• Benchmarking

• Calculated exposure• Historic losses• Market capacity

• Cost

Transfer point determined actuarially and by insurance

market’s appetite for risk

MII Captives:• Allow us to avoid “dollar

swapping” with insurers• Allow us to control our claims

• Risk transfer from OUs; Captives accept risk for a fixed premium with no adjustments

• Premiums based on actuarial analysis, market conditions,

and risk factors

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What We Do – Jacket Launch

29

Work in Progress•McD indemnity from customer•Also CAR coverage•Maybe McD DIC CAR•Extensive loss control

Company People and Property

•Customer Indemnity•If not full, project CGL•Corporate liability excess captive funded SIR and excess project cover

The Environment• Clean up coverage• Liability Coverage• Extensive loss control

Other Contractor People and Property

• Contractual indemnity with customer and/or contractor

• Corporate liability program excess of captive funded SIR

• Perhaps project specific CGL

McD People and Property

•Contractual indemnity•Backed by naming and waiving to relevant insurance policies (liability, hull, etc.)•Extensive loss control

Risk Treatment – Real Life

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31

32

33

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What We Do – Deck Floatover

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Piracy

Not Really…

Modern day Pirates (Pictures of Pirates in the Gulf of Aden)

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Piracy Reports

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Piracy Heat Map of potential encounters. (Left)

Vessel Incidents (Right)

Risk Identification and Assessment: London Offshore Consultants to assess vessel readiness ($30K) Control Risk to assess security plan, vessel, & intended route ($20K) Naval architect to verify hull integrity ($10K) Medical assessments of riding crew ($32K)

Risk Management: Change tow route to decrease racking stress ($200K) Add emergency tow gear, new damage control equipment, and enhanced crew

safety equipment (e.g., new survival suits) ($70K) Continuous Wilkens weather forecast($4K) Damage control training for crew and add welders to riding crew ($10K) De-mob crew prior to Gulf of Aden ($200K direct and $100K increased tow time) Guys with guns ($400K)

Total cost: > $1,100,000 plus internal cost Incidents: Zero

Risk Treatment - PiracyRisk Treatment - Piracy

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Convoy through the Gulf of Aden (March 2011)

Marshal-5 (right) and Marshal 1 (below) providing escort duty to McDermott’s Agile Sea during her transit of the Gulf of Aden. Pictures taken from the bridge of the Agile Sea.

The Hardening of the Agile Sea

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McDermott fortifies its vessels on top of hiring security contractors to ensure a high level of security has been reached.

Insurance: Because Loss Control Does not Always Work

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Insurance: Because of Ingenuity….

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Risk Treatment – Role of Insurance

The view of some (per Cecil Beaton):Americans have an abiding belief in their ability to control reality

by purely material means... airline insurance replaces the fear of death with the comforting prospect of cash.

McDermott’s (current) view: Use only to finance low frequency, high severity losses The less you use it, the happier everyone is Growing bias towards retaining risk

Down Low – avoid dollar swapping with insurers Quota share – skin in game Invest in loss control - not in insurers

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($10,000,000)

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,00019

92

1993

1994

1995

1996

1997

1998

1999

New

99

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Excess Transfer Premiums

Captive Premium

2008 Captive Programs

Expenses & <$2MM RiskTransfer

HIGH $ 82.2M

2011 $ 14.6M

1992 cost of $24.04 per $1K revenue

2011 cost of $4.25 per $1K revenue

Difference of $68.2M

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Excess Liability and Captive Program

Insurance Programs

Diversity of MII’s operations drive diversity and complexity of insurance programs Currently approx. 32 different insurance policies in place Most are placed at the McD level on behalf of it and its subs Cumulative annual premium spend of approx. $20M for risk

transfer Also self finance SIRs on most programs through captives with

annual “spend” of approx. $8M Tendency to be very conservative

Higher limits vis-à-vis peers Very stable markets with focus on long term relationships Conservative reserving for captives

Lockton is our universal Broker

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Synopsis of Major Insurance Programs Limits Cost

Liability/Third Party

Primary Casualty

Captives finance most workers comp, auto and general liability up to attachment point of excess programs $2M $8M

Directors & Officers

Protects D’s & O’s and the Company for “Wrongful Acts “committed in fulfilling duties

$165M - side A$115M - Side B $1.4M

Employment Practices

Protects against claims by employees for discrimination, sexual harassment or other employment related allegations

$15M xs &$15M

$66K &$108K

Fiduciary Liability

Protects against breach of fiduciary duty claims in regards to Company’s sponsored Employee Benefit Plans $40M $192K

Aircraft/Aviation Non-owned for chartered aircraft $10M $121.6 K

Excess Liability

Excess coverage on General Liab; Auto Liab; Employers Liability, certain Marine Insurance (e.g. MEL, Wreck Removal, P&I), Non – Owned Aircraft Liab

$535.75M $5.97M

Terrorism Separate terrorism liability placement $100M $230K

Secunda P&I Club

Covers vessel related risk including crew liability, vessel liability, and wreck removal Circa $7B $710K

Property/First Party

Global Property

Covers all risks of direct physical loss or damage from any external cause, except as excluded or limited (e.g., flood and named windstorm) $250M $1.2M

Marine Insurance

Covers physical loss or damage to Hull or Contractors Equipment; loss of hire, and other incidental marine risks (e.g., Lift/Loading Risk; Construction/Installation)

Fleet value$1B

Plus LOH & ROW$7.6M

Cargo McD programs covering loss or damage to shipments As declared

Terrorism Separate property coverage for terrorism losses $200M $212.8K

Example: EPL Limit Benchmarking – This allows us to price against the Market to make sure we are getting accurate pricing from insurers and the market.

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Insurance Industry: Market Participation

London Market Casualty Program Marine Program Property Terrorism

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Insurance Industry: Market Participation

Domestic Market Financial Products Property

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Bermuda Market Excess Casualty

Insurance Industry: Market Participation

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Captives

•Captives used to fund self-insured retentions for WC, General Liability, and Auto Liability

•Max per occurrence $2mm

•Annual “premiums” total $8mm

•Consolidated captives for: decrease admin cost, and increase ability to retain risk

•McD makes almost all claim decisions•Pre-fund losses (through actuary) so premium can be invested, Investment

income helps to defray claim costs•Allows us to retain risk in hard markets•Favorable tax treatment (e.g. Bermuda)•Fewer regulatory restrictions and better access to reinsurance•Possible accumulation of cash reserves

Captive Benefits

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Captives Cont.

Fronting Insurer

•Captives typically are not admitted insurers by states. Therefore, a fronting insurer is needed to:

•Provide evidence of Insurance

•Administer and Pay claims (later reimbursed)

•May or may not accept risk of claims at certain levels

•ACE (our Fronting Insurer) agrees to evidence coverage to employee’s and third parties above a deductible and up to a limit

•ACE also pays claims and is reimbursed the amounts paid within McD’s Deductible

•The captives are funded by the data from analysis done by 3rd party actuaries and industry trends

•These use law of large numbers and macro trends, not individual claims

How do McDermott’s Captives Work?

52

Historically, and with the exception of domestic GL liability, we transferred through insurance number of certain casualty risks below $2M

For example, we bought: Auto liability cover above $250K domestic and $100K

foreign Foreign GL cover above $1.5M Workers Comp above $1M non-Ohio and $750K Ohio

A Case Study in Risk Retention

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Be Careful What You Buy

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Ohio W/C Non Ohio W/C Domestic Auto Domestic GL MEL Foreign GL Foreign WC Foreign Auto

Do

llar

s

Retention Transfer

ACE or London X/S

A Case Study in Risk Retention

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The issue: from 1999 through 2008, we have paid approx. $18M in premiums to transfer these risks, during which time insurers have paid out approx. $1M in claims Total of 3 losses with 2 of them very minor and one serious Net underwriting profit of about $17M or $1.9M per year Calculations do not include time value of money which

would bolster profits given the delays in pay out on claims CIRM proposed we retain these risks in the captives

rather than transferring them Significant savings to company since the change

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Be Careful What You Buy

Inside a Risk Management Department

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Risk Management Group

Year over Year Insurance Cost

58

Prem. ($mm) 23.6 25.4 29.4 28.6 30.1 28.1 26.4

Rev. ($B) 1.2 1.6 2.5 3.8 3.4 2.4 3.45

Limit ($B) 2.83 3.19 5.09 5.86 5.89 6.0 6.6

• We need to track how we are doing as stewards of the Company’s resources

• Here we look at insurance cost in relation to the amounts of coverage we are buying, or our “Rate per Mill”

2005 2006 2007 2008 2009 2010 2011$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000 8,3497,930

5,766

4,875 5,1154,664

3,959

Property

Marine Package

Other-Cargo, EPC, Air…

FinPro

Excess Liability

Primary Risk Transfer

Captive

MII Corp

Cost/Limits

Premium per $1K of Revenue

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• Here we look at insurance cost in relation to our revenue• It shoes an uptick in our cost of insurance per $1K of

revenue because our insurance cost we basically consent while our revenue decreased

• We could have purchased less coverage but elected not to

2005 2006 2007 2008 2009 2010 2011$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$-

$5.00

$10.00

$15.00

$20.00

$25.00

$19.07

$15.76

$12.00

$7.48 $8.87

$11.66

$7.67

PropertyMarine PackageOther - Cargo, EPC, AirFinProExcess LiabilityPrimary Risk TransferCaptiveMII CorpCost Per $1000 of Revenue

Claim Analysis

60* Based on actual cost or current reserve

MII total Liability claims: 2005 – 46 2006 – 7 2007 – 20 2008 – 10 2009 – 5 2010 – 0 2011 – 4 2012 YTD – 1

Percent of Claims since 2000 below*: $250K – 97.78% $500K – 98.33% $1M – 100%

20002001

20022003

20042005

20062007

20082009

20102011

2012$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

Largest Single Claim*

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Post Macondo

Macondo Well Insurance Market Issues

Aggregation. The accumulation of Insureds at one location was much greater than insurers believed. This created significant concerns because multiple Insureds being brought into the same loss could result in catastrophic global market limit erosion. For example, just the key participants in the Macondo Well Incident had insurances available of approximately $3 billion including Operators Extra Expense and General Liability. BP was self-insured.

62

Macondo Well Insurance Market Issues Cont.

Contracts. Almost immediately, the Operator (BP) began posturing that the Drilling Contractor (Transocean) should be responsible for pollution resulting from the Control of Well event. This, for the most part, goes against common indemnity agreements between operators and drillers in the energy industry. If the indemnity was ruled void, the protection insurers believed existed for service contractors would become non-existent and change how business has been done in the energy industry forever.

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Macondo Well Insurance Market Issues Cont.

Loss Potential. Before the Macondo Well Incident, insurers did not consider that such a large loss could occur. The Macondo Well Incident became the largest accidental marine oil spill in the history of the energy industry. The explosion killed 11 men working on the platform, injured 17 others and released about 5 million barrels of crude oil. BP has approximately $37 billion budgeted for spill-related expenses.

Post the Macondo Well Incident, the liability market for offshore Operators, Drilling Contractors, and Service Contractors saw rate increases between 20% to 100%+ on average. Some had even higher increases depending on their loss history and how close they were to the Macondo Well Incident.

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McDermott “IS NOT”

A Drilling Contractor An Operator/Non-Operator of oil and/or gas wells An Owner or Operator of pipelines An Over-Hole Service Contractor i.e. Well Completion,

Casing, Cementing, Fracturing, Workover, etc. A designer, manufacturer or servicer of Production

Equipment. i.e. BOPs, SSSCVs, etc. Commonly operating on or adjacent to any live wells Commonly operating with other contractors on

location

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McDermott “IS”

A Marine Engineering and Construction Contractor Focused 95%+ internationally with minimal exposure

in the Gulf of Mexico Willing to have “skin in the game” as evidenced by

McDermott’s Risk Retention and NO paid claims to Underwriters during the past 10 years for CGL, EL, MEL, or AL

67

Instances Esso KTT Project – Work conducted adjacent

to producing platforms

Su Tu Vang – Removal/Replacement of drilling template, stabbed a jacket over 2 live wells.

ARAMCO Karan – Installation of jackets and piles with drilling rig

Exxon Mobil AKG 1&2 – Post completion hook up on live wells

Ras Gas Phase 1&2 – Post completion hook up on live wells

ADMA Project – Shutdown work adjacent to production platform

Platong Project – Set up adjacent to production platforms and LQs

PV Gas Pipeline project – Laid pipeline adjacent to live production platform

PM – CAA Bunga Tulip A Project – Offshore installation work

Instances in last 5 Years Where We Worked Adjacent to Live Well*

Risk Treatment

Every time had a consequential damage waiver

8 times - indemnity from customer for pollution losses from well (either ground up or excess of a reasonable cap)

5 times bought project specific CGL coverage

* Out of about a total of 170 contracts; Not scientific but no others known

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Other Contractor People and Property

• Not originally part of “Customer Group” but did enter into mutual hold harmless agreement for:• People• Property excess of US

$350mm• However, we required

Customer indemnity and placed project specific $350mm CGL

McD People and Property

•McD took its people and property•Backed by naming and waiving of Customer Group to relevant insurance policies

Work in Progress•US$300K during fab; US$1mm offshore•Customer waiver and indemnity above this•BAR

Customer People and Property

•Customer took its people•McD first $1mm for existing property

Pollution•McD took emanating from our vessels•Customer indemnity all other excess $1mm

Conoco Indonesia Kerisi

Enterprise Risk Management

69

Question: What do we want to achieve with our ERM Process?

Why do this?

Answer: The Company wants to anticipate surprises and avoid

them or lessen their impact so that we achieve our goals; we need

to reduce uncertainty

External Drivers: Credit rating agencies, outside auditor, customer

requirements, etc.

What Do We Seek to Accomplish and Why?

70

McDermott ERM Mission Statement

To facilitate achievement of Company goals through

the creation of a sophisticated risk culture that

systematically identifies and appropriately treats risk

at all levels of the Company

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Revenue and Income Volatility Operational Disruptions Project Management Financial Controls Supply Chain Information and Technology Geopolitical Strategic Market and Customer Regulatory and Environmental Compliance Many others

Controlled, not controlled,or uncontrollable?

Which to acceptand which to avoid?

Who owns risks?

A Few Enterprise Risks We Face

72

Patents

• Attrition

Patents

Attrition

Discovery Development Manufacturing Marketing Sales

• Communication

• Skills/Competencies

• Accountability

• Change Readiness

• Global Diversity

• Culture

• Leadership

• Decision -makingHuman Capital

• Treasury Operations

• Insurance

• Market

• Tax Payments

• Loss of

Revenues/EarningsFinance

• Ethics/Social

Responsibility

• Conflict of Interest

• Fraud

• Reputation/ Industry &

CompanyIntegrity

• Organizational Model • Change Response• Lack of Business Process

• Lack of SOPsProcess• Applications of

Lessons Learned

• Crisis Management

• Strategic Plan

Development

• Political/ Government• Business ModelStrategy

• Shareholder Relations• Media

• Governance/

Oversight

• Environmental Health

and Safety

• Compliance Network/

InfrastructureRegulatory/

Compliance

• SEC/ Disclosures • Health Authority

Reporting

• Stakeholder Class

Actions

• Product LiabilityRegulatory/Legal

• Physical SecurityMiscellaneous

• Financial Reporting

• Debt Rating

• Strategic Plan

Execution

• Regulatory/Legal

Controls

• Hiring/Retention

• Human Rights• Empowerment• Succession Plans

• Business Continuity

• Data IntegrityInformation

Technology

• Data Security/Access

• Reliability

• Availability

• Capacity

• Infrastructure

• Ecommerce

• Cash Flow• Currency

• Liquidity• Credit

• Unauthorized Acts

• Knowledge Management

• Management Reporting

Patents

• Attrition

• Quality• Security of Supply• Sourcing Diversity• Supplier

Certification• Tariffs• Ethical Production• Political Issues

DiscoverySourcing DevelopmentSupply Chain ManufacturingProduction MarketingMarketing SalesSales

Cross-Organizational Risks

Operational Risks

• Communication• Skills/Competencies

• Accountability• Change Readiness

• Diversity• Culture

• Leadership

• Decision MakingHuman

Resources

• Treasury Operations• Insurance

• Capital Allocation• Tax Payments

• Loss of Revenues/Earnings

Finance

• Ethics/Social • Responsibility

• Conflict of Interest• Fraud

• Reputation/ Industry Company & Integrity

• Organizational Model • Change Response• Lack of Bus Process• Lack of SOPs

Process• Applications of Lessons Learned

•Crisis Management

• Strategic Plan • Development • Political/ Government

• Business ModelStrategy

• Shareholder Relations• Media

• Governance/ Oversight

• Environmental, Health, and Safety

• Compliance Network/ • Infrastructure

Regulatory - Compliance

• SEC/ Disclosures• Local/Federal • Reporting

• Stakeholder Class• Actions

• Product LiabilityRegulatory -Legal

• Physical SecurityMiscellaneous

• Financial Reporting• Debt Rating

• Strategic Plan • Execution

• Regulatory/Legal • Controls

• Hiring/Retention• Human Rights

• Empowerment• Succession Plans

• Business Continuity• Data Integrity

Information

Technology• Data Security/Access• Reliability

• Availability• Capacity

• Infrastructure• E-commerce

• Cash Flow• Currency

• Liquidity• Credit

• Unauthorized Acts

• Knowledge Management• Management Reporting

• Labor Relations• Transportation Costs• Warehousing• Product Safety• Logistics• Fleet Security• Product Tracking• Inventory Control

• Competitors• Brand Protection• Reputation• Customer Trends• Emerging Social

Issues

• Transaction Control• Turnover• Labor Relations• Compliance Execution• Regulatory• Facility Closures

Sales & Marketing Practices

Product Pricing Site Acquisition

Partnering Customer Needs Project Lead Time Country of Origin Political Issues

• Consistency

• Operational Execution

• Customer Damage Lawsuits• Interest Group Lawsuits

• Regulatory Adherence• Port Security• Transportation Costs• Product Tampering• Labor Shutdowns• Terrorism

Customer Needs Media Pressures Government Relations

73

74

2.0 3.0 4.0 5.0 6.0 7.0 8.02.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2011 survey resultsThe risk map utilizes impact and likelihood scores to depict which risks have high inherent risk and may require further management attention

Likelihood

Imp

ac

t

Possible - 5 Likely – 7+Unlikely - 3

Minor 3

Moderate5

Major 7+

LBC

DE

F

G

K

HA

I

M

N

O

P

J QR

ST

U

75

0

1

2

3

4

5

6

7

8

9

0

1

2

3

4

5

6

7

8

9

Management Effec-tiveness

Inherent Risk

Inherent risk 7.7 7.3 7.5 8.1 8 7.1 4 8 8 7 7.5 7.4 6.5 7 9 6 7 7 8 8 5 Inherent riskME 5.4 6.3 4 4.1 7 4.6 5 6.4 5 3.7 2.5 5.4 5.5 7 8 6 5.3 6 5 7 5 MEGap 2.3 1 3.5 4 1 2.5 1 1.6 3 3.3 5 2 1 0 1 0 1.7 1 3 1 0 Gap

2011 survey resultsManagement gap analysis provides insight into which risks may not be receiving sufficient management attention by examining residual risk.

Minimal 1

Minor 3

Moderate 5

Major 7

Catastrophic 9

Gap analysis compares the relationship between inherent risk and current risk management effectiveness to determine if a risk is over- or under-managed. Large positive gaps indicate potential under-management and the need to develop a risk response

9 Extremely effective

7 Strong

5 Moderately effective

3 Limited

1 Minimally effective

Inherent riskManagement effectiveness

2011 Focus Risk

Thank You!

McDermott Risk Management and Insurance Department

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