Energy Business Prospects

Energy Business Prospects gy John Westwood Chairman, Douglas-Westwood Douglas- SNS 2012 NorwichSNS 2012, Norwich 1 Mar 2012 1

www.dw‐1.com Our Business History and Office Locations • Established 1990 • Aberdeen Canterbury London Aberdeen, Canterbury, London, New York & Singapore Activities & Service Linesoffshore power • Business strategy & advisory • Commercial due‐diligence •M k t Market research & analysis h& l i • Published market studies Large Diversified Client Base Large, Diversified Client Baseonshore • 750 projects, >400 clients, LNG LNG >70 countries • Leading global corporates • Energy majors and their suppliers • Investment banks & PE firms Investment banks & PE firms • Government agencies downstreamSNS 2012, Norwich 1 Mar 2012 © Douglas-Westwood Limited 2011 renewables 2

Leading commercial advisor for M&A and financing SNS 2012, Norwich 1 Mar 2012 © Douglas-Westwood Limited 2011 3

Industry-leading published research ‘An amazing and comprehensive report’ Riverside (USA) ‘‘E Excellent report, very comprehensive and well laid out’ Vestas (Denmark) ll h i d ll l id ’ Douglas‐Westwood are the sector study experts’ Woodside (Australia)SNS 2012, Norwich 1 Mar 2012 © Douglas-Westwood Limited 2011 4

The end of cheap energy The UK situation Norway & the high north Global oil & gas opportunities Sustainable energy ConclusionsSNS 2012, Norwich 1 Mar 2012 5

The problems of oil • Global energy demand to double by 2030 • Growing oil demand, mainly from APac• Spare oil production capacity collapse • Russian demand growth restricting exports • Have 8 of the top 11 oil companies peaked? • N Sea & Venezuelan production down Source: Credit Suisse Global Commodities Research Supplier i t bilit reduces production S li instability d d ti • South Sudan -300,000 b/d • Libya -600,000 b/d • Syria -175,000 b/d • And Iran??SNS 2012, Norwich 1 Mar 2012 6

The end of cheap oil? • $111 Brent av 2011 – up 13% av. 150 • Highest since 1860’s 2012 forecasts 130 • OECD inventories lowest since 2008 $110 to $150 ? 110 • High oil prices will drive increasing E&P spend 90 • But $150 could p the US into recession! $ push S/barrel 70 50 30 10 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 ‐10 Annual Average Oil Prices (Brent) Source: historic BP, forecast Reuters Oct 2011, $15 Vitol Feb 2012SNS 2012, Norwich 1 Mar 2012 7

We need offshore production 14.0 3.0 Chan in crude oil production - mbpd 12.0 10.0 2.0 8.0 rillions Change in Crude 6.0 Oil Production US $ tr Over Period (left) 4.0 Cumulative Capex 1.0 over Period (right) 2.0 nge - 1995-2004 2005-2010 (2.0) - Productivity of Upstream Capital Expenditure 1995-2010 y p p p Source: Barclays Capital, BP Statistical Review: • 1995 2004 $2 4 trillion capex: oil production increased by 12 3 mbpd 1995-2004, $2.4 12.3 • 2005-2010, $2.4 trillion capex: oil production fell by 0.2 mbpd • The oil industry is mature – each marginal barrel will be more expensive and will require more equipment and services to extractSNS 2012, Norwich 1 Mar 2012 8

“Prepare for a golden age of gas”* • A major energy resource • A relatively ‘clean’ fuel y • Gas demand to grow 50% by 2030 • Costly to transport >1,100 km • So local supply issues. And short-term disruptions.... • LNG FLNG and GTL LNG, • Unconventional gas transforming US energy • More new gas p g provinces emerging ( Med?) g g (E ) • Supply growth in deepwater gas Martin Wolf FT 22 Feb 2012SNS 2012, Norwich 1 Mar 2012 9

The end of cheap energy The UK situation Norway & the high north Global oil & gas opportunities Sustainable S t i bl energy ConclusionsSNS 2012, Norwich 1 Mar 2012 10

UK’s energy sources – none is ideal Renewables 7% Hydro – environmental concerns over large dams Nuclear 7% Wind, solar etc – high costs NIMBY concerns Long p g plant build time 5x gas plant Capex? Oil 35% Preferred transportation fuel Supply concerns Emissions concerns Coal 15% Abundant supplies Highly polluting CCS very expensive and Gas 40% unproven at scale Abundant – but local shortages Expensive to transport ‘Off-the-shelf’ powergen plant Emits half CO2 of coal Data: BPSNS 2012, Norwich 1 Mar 2012 11

UK oil production fell by 18% in 2011 • Three times the average fall of recent years • UK crude oil imports exceed p p production for first time since1978 • Exploration – only 15 wells • Commitments on five key projects made before the tax change • Projects such as BP’s $4.5 bn Claire are “not typical” • UK Opex costs grown by 130% (real money) since 2001 • T regime needs t recognise th more diffi lt & small fi ld Tax i d to i the difficult ll fields • At $125, the UK economy needs all the oil it can get! Source: Oil & Gas UKSNS 2012, Norwich 1 Mar 2012 12

SNS 2011E&A activity “relatively good” • Producing for the past 40 years. • Current production is steadily in decline; • Key p y production hubs e.g. Caister-Murdoch-System (CMS) remain important g y ( ) p • Several interesting projects under development :Cygnus (GDF Suez), Wingate ( ga e (Wintershall), Seven Seas (Centrica) a d probables such as Ju e e s a ), Se e (Ce ca) and p obab es suc Juliet (GDF Suez), Breagh & Clipper South (RWE Dea), Harrison (ConocoPhillips) • Notable deal activity in the past few years Majors divesting years. assets & acreage in SNS and smaller & new companies seeking to take up more • Overall SNS E&A Overall, activity levels in 2011 compared to other provinces in the UK have been relatively good, albeit lower than 2010 levels Source: DeloitteSNS 2012, Norwich 1 Mar 2012 13

UK gas import dependency grows 300000 Belgium 120 250000 UK gas The Netherlands 100 production 200000 Norway peaked in 2000 LNG 150000 80 100000 bcm 60 50000 b 40 0 Production 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20 Consumption UK gas imports soar 0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 Belgium 2% U.S. Trinidad 2010 Netherlands 1% 9% Norway 15% 5% LNG Algeria 35% 7% Egypt 1% Nigeria Norway Qatar 75% 2% 48% UK LNG sources 2010 The importance of Norway and LNGSNS 2012, Norwich 1 Mar 2012 14

Could shale gas rescue us? Source: Unconventional OGM Sept 2011 • But developing shale gas is dependent on public acceptance of fracking SNS 2012, Norwich 1 Mar 2012 15

The end of cheap energy The UK situation Norway & the high north Global oil & gas opportunities S t i bl energy Sustainable ConclusionsSNS 2012, Norwich 1 Mar 2012 16

Norway E&A Drilling Strong drilling Source: Delloite activity off ti it ff Norway NW Europe E&A Drilling Source: Delloite Norway y UKSNS 2012, Norwich 1 Mar 2012 17

Norwegian offshore projects • Norwegian production fell 5% in 2011 • “O&G “O&G companies to invest a record $31 i i d $31 billion in Norway this year” (Norwegian Statistics Office) • Statoil capex to be >$9.4 bn on 12 developments (+ six others yet uncosted?) North Sea: Barents Sea: • Det Norsk Jette field plan • Statoil: Skalle, Skrugard, approved 14,000 b/d. 2.5 Norvarg billion NOK billion NOK Capex • 250‐500 m barrels, 200 km • Statoil: Aldous‐Avaldsnes. 1.7 from shore, 400 meters to 3.3 billion barrel field depthSNS 2012, Norwich 1 Mar 2012 18

The arctic hots up "It is the project of a generation" Norwegian Foreign Minister Jonas Gahr Stoere 18 Nov 2011 • A vast hydrocarbon resource • Alaska: >$30bn spend in prospect? Drive to refill the Trans-Alaska pipeline • 13% world’s undiscovered oil, 30% gas ? • C d St t il fi d Canada: Statoil finds • >80% offshore • Greenland: nothing yet, but new eastern • Environmental issues blocks in 2012. Iceland?? • Operational challenges • Barents Sea: border settled. Statoil findsSNS 2012, Norwich 1 Mar 2012 • Russia: a determination emerges 19

Oil & Gas E&P spend forecasts grow Source: Global 2012 E&P Spending Outlook. Barclays Capital (Dec 2011) • Barclay’s $598bn E&P spend forecast in 2012, up10% y • Many E&P co’s in ‘catch up mode’ on delayed projects • Big focus on offshore, particularly deepwater • And natural gasSNS 2012, Norwich 1 Mar 2012 21

Oil & Gas E&P – the big spenders International E&P Expenditure ($ in millions) Total Company Name Type 2008 2009 2010 2011E 2012E 2008-2012 Petrobras NOC 16,580 16,000 24,000 22,000 25,000 103,580 Petrochina NOC 19,000 14,000 24,728 27,500 28,800 114,028 Shell IOC 16,400 17,000 17,400 20,500 22,500 93,800 Pemex NOC 16,100 16,200 14,450 19,500 23,000 89,250 ExxonMobil IOC 14,515 14 515 16,200 16 200 14,693 14 693 30,200 30 200 32,000 32 000 107,608 107 608 Chevron IOC 11,800 13,600 14,150 22,500 26,500 88,550 Total IOC 11,750 12,350 10,298 17,500 20,000 71,898 Eni IOC 11,000 10,000 12,520 14,800 15,500 63,820 Sonangol NOC 9,250 9 250 12,000 12 000 12,520 12 520 10,000 10 000 11,000 11 000 54,770 54 770 Statoil NOC 9,201 10,350 9,075 14,000 17,000 59,626 Saudia Aramco NOC 11,800 8,500 7,900 8,500 9,500 46,200 BP IOC 9,500 8,500 7,000 14,000 16,500 55,500 Sinopec NOC 8,600 8 600 6,800 6 800 8,175 8 175 8,500 8 500 9,500 9 500 41,575 41 575 Petronas NOC 6,100 5,800 8,520 17,100 19,000 56,520 PDVSA NOC 8,500 5,217 3,961 6,200 10,200 34,078 Top Selected Companies 180,096 172,517 189,390 252,800 286,000 1,080,803 Total Intl E&P Expenditure 318,597 318 597 305,072 305 072 324,098 324 098 396,707 396 707 438,819 438 819 1,783,293 1 783 293 Total Global Expenditure 453,562 394,771 441,768 544,518 598,523 2,433,142 Intl % of Global Expenditure 70.2 77.3 73.4 72.9 73.3 73.3 Source: Global 2012 E&P Spending Outlook. Barclays Capital (Dec 2011)SNS 2012, Norwich 1 Mar 2012 22

Deepwater: $XXX bn capex over next five years 80 Africa Asia 70 Australasia Eastern Europe and FSU Expenditu ($ billions) 60 Latin America 50 Middle East Please visit www.Douglas‐ North America 40 Westwood.com for the full original ure Western Europe 30 version of this presentation 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: “The World Deepwater Market Report 2012-2016” Douglas-Westwood p p g • Brazil’s pre-salt spend begins North W America Europe 4% Africa • US GOM activity resuming 13% Middle 25% • Drilling $XXbn (35%). East 1% • Subsea processing emerging ($X.X bn) Asia 8% 2012-16 • Fl ti production build Floating d ti b ild Latin L ti America Austr Total 34% 4% Capex E Eur & FSUSNS 2012, Norwich 1 Mar 2012 11% 23

Subsea production grows $40 Africa Asia Australasia Eastern Europe & FSU $35 Latin America Middle East North America Norway $30 RoWE UK Please visit www.Douglas‐ Please visit www Douglas xpenditure $bn $25 Westwood.com for the full $20 original version of this $15 presentation Ex $10 $5 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: FMC Technologies Subsea Hardware $XXX bn 6.0 Others 300 Intervention & P&A Western Europe North America Field Development 5.0 250 Latin America Asia-Pacif ic Please visit Inspection, Repair & Maintenance Please visit Af rica 4.0 www.Douglas‐ 200 www.Douglas‐ millions sels Westwood.com for the Westwood com for the Westwood.com f th W t d for the # Vess$m 3.0 30 150 2.0 full original version of 100 full original version of 1.0 this presentation this presentation 50 0.0 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $XX bn in Subsea IRM SNS 2012, Norwich 1 Mar 2012 XX Subsea Ops Vessels Needed 24

Offshore ops & maint spend to see good growth $80 Africa Asia-Pacific Eastern Europe & FSU $70 Latin America Middle East $60 North America Norway $billions UK $50 Rest of Europe Please visit www.Douglas‐ Westwood.com for the full $40 original version of this $30 presentation $20 $10 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: “The World Offshore Operations & Maintenance Market Report 2010‐14” Douglas‐ Westwood • >X,000 fi d & >XXX fl ti platforms X 000 fixed XXX floating l tf • World spend to exceed $XXX billion over the next five years • Plus demand for major modificationsSNS 2012, Norwich 1 Mar 2012 25

Emerging opportunities – decommissioning Please visit www.Douglas‐ Westwood.com for the full original version of this original version of this presentation UK Decommissioning Spend Forecast ($bn) Source: Douglas-Westwood • e g UK; XX platforms X X million t steel X XXX wells e.g. platforms, X.X t. steel, X,XXX • Total spend to exceed $XX billion • Wider impact as timing coincides with N Sea offshore windfarm buildSNS 2012, Norwich 1 Mar 2012 26

The end of cheap energy The UK situation Norway & the high north Global oil & gas opportunities S t i bl Sustainable energy ConclusionsSNS 2012, Norwich 1 Mar 2012 27

Are we prepared or able to pay for a green planet? • Coal & nuclear plant replacement to meet EU requirements • Solar – drive to cut FIT-driven boom • Biomass – Drax: “new subsidy rates challenge viability of three projects” • Offshore wind – BG: “need to re- examine the economics of projects” • Onshore wind – 100 MPs letter objecting to (onshore) wind turbines • Recabling the UK – >£60 billion • Electricity prices to double under EU ‘high renewables’ scenario – bi ‘hi h bl ’ i big infrastructure requirementsSNS 2012, Norwich 1 Mar 2012 28

Sustainable energy is high Capex energy 6.0 6 5.6 5.3 5 4.7 4.8 4.1 Cape ($ mllion / mW) 3.9 4 3.1 31 2.8 3 2.4 2 ex 1.0 10 1 0 Source: US projects. EIA Nov 2010 • Weakness: All renewables require subsidy • Strength: Offer an alternative to energy importsSNS 2012, Norwich 1 Mar 2012 29

A UK nuclear future is almost certain • Relatively safe • Low GHG • Suits existing grids • 440 reactors operating in 30 countries • 65 under construction d t ti • 152 planned Decommissioning: • 250 in next 15 years • No real large-scale alternative to nuclear? • £300 bn global market • 19 sites across the UK • NDA spend £3 bn p.a.SNS 2012, Norwich 1 Mar 2012 30

Strong growth in offshore wind underway 2015: Capex £10.6 bn Turbines 914 Please visit www.Douglas‐ Westwood.com for the full original 2010: g Capex £3.1 bn version of this presentation Turbines 370 • UK aiming to source 31% of electricity from • Trends: capacity, water depth & distance from shore all renewables by 2020 (currently c. 9%) increasing • UK largest, but Germany to grow strongly • Note Chinese activitySNS 2012, Norwich 1 Mar 2012 Source: Douglas-Westwood 31

Where can we get the people from? 350 300 and) 250 OFS Jobs (thousa 200 • Global oil field services 150 headcount up 125,000 in four 100 O years 50 • Employment anticipated up 0 2004 2005 2006 2007 2008 2009 2010 12% in 2012 Headcount from Leading OFS Companies 2004-2010 • Halliburton to hire 5,000 Includes Baker Hughes, Schlumberger, Halliburton, NOV , Weatherford, BJ Services and Smith engineers and g g geologists this g year… • FMC to hire 240 in UK. Reporting engineering R ti i i shortages in recent updateSNS 2012, Norwich 1 Mar 2012 33

Conclusions • The global offshore oil & gas business is busier than it has ever been. Companies report record backlogs and/or orders. But costs are orders climbing • UK offshore needs a tax re-think to access the remaining fields re think • Offshore wind has major ‘megaprojects’ on the horizon • Nuclear will be essential to future energy security • Energy efficiency must be prioritised • And the education system focussed into delivering the needed skills • Unless we have complete financial meltdown in Europe... 2012 should p p be another great year for the energy industrySNS 2012, Norwich 1 Mar 2012 34 34

Thank Th k you john@dw- john@dw-1.comSNS 2012, Norwich 1 Mar 2012 35

Energy Business Prospects

by Douglas-Westwood on Mar 14, 2012

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