Global Subsea Market Outlook from an Asia Pacific Perspective

Global Subsea Market Outlook from an Asia Pacific Perspective 4th Asian Subsea Conference and Exhibition Prepared by Kian Zi Chew Douglas-Westwood Singapore

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Macro-Economic Environment Offshore Market Outlook Subsea Market Review Conclusions

Global Energy Demand Outlook Primary energy demand is the prinicple indicator for all oil & gas related expenditure. Global demand is expected to grow by 41% between 2012 & 2035. Population growth projected at 24% for the same period. Energy intensity per capita is growing... 12.5btoe 17.6btoe 8.1btoe 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 Global Primary Energy Demand BP Energy Outlook 2035

Global Energy Demand Outlook Asian Import Dependence 22% 47% 0% -10% -20% -30% -40% -50% -60% -70% -80% -90% -100% Asia China India Japan S. Korea 40% 22% 5% 4% 2% % of global energy demand (2013) Gas Balance Oil Balance Asian % Share of Global Demand Asian Import Dependency Asian population and economic the major driver behind projected global energy demand surge. Asia will account for 47% of global demand by 2035 compared to 22% in 1990. However, Asia is major importer of oil & gas, in particular oil which has a regional import/export balance of -71%. China s oil imbalance is currently estimated at -58%. Major global economies such as Japan and S.Korea are almost exclusively reliant on external oil & gas.

Global Energy Demand Outlook Growing Importance of Gas 100% 90% 80% 70% 60% 42% 51% 6,000 mtoe 5,000 4,000 Oil 2012-2035 Increase 20% 50% 3,000 40% 30% 2,000 20% 10% Power Transport Industry 1,000 Gas 2012-2035 Increase 55% 0% 1990 2035-1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 Global Energy Demand by Sector Global Energy Demand by Fuel The combination of increased energy efficiency throughout OECD states and growing economies in Asia is driving demand for power generation at the expense of transportation. Natural gas is becoming an increasingly popular fuel for power generation offering a relatively safe (compared to nuclear); cheap (compared to oil); and clean (compared to coal) energy source. Demand for natural gas to increase by 55% over the next 20 years...

Brent $/bbl Oil Supply Outlook Prices & Sanctioning $160 $140 DW expects oil prices to straddle the $90-$100/bbl mark for the next five years. The majority of major projects will be viable at these levels. Duvernay Shale $120 Only arctic and some shale projects will be threatened. Prirazlom $100 $80 Approval threshold Based on anticipated oil price levels Block 18 West Lucapa Papa Terra Egina $60 nt Spot Price FOB (Dollars per Barrel) se se Cepu Mars B $40 $20 Block 18 West Lucapa Papa Terra Europe Brent Spot Price FOB (Dollars per Barrel) EIA High Case EIA Low Case $0 2000 2001 2002 2003 Cepu 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Mars B Egina Breakeven Price ($/bbl) Oil Price Outlook and Impact on Offshore Project Sanctioning

$/mmbtu Gas Supply Outlook Prices & Sanctioning 18 16 14 12 10 8 6 US Japan (LNG) UK Europe Unlike oil the gas market has a more regional pricing structure due to historical geographical supply limitations. Up to 2008 regional prices typically trended together however the flooding of US shale gas between 2009-11 and rapid demand growth in North Asia post Fukoshima have created massive price disparity globally. With the US poised to become a major exporter of natural gas via LNG over the next ten years most analysts expect a gradual convergence of regional pricing. 4 2 Significant short-mid term arbitrage opportunities for North American gas producers. 0 2000 2002 2004 2006 2008 2010 2012 Regional Gas Prices Influx of US exports is creating uncertainty in project sanctioning for gas projects in exporting nations such as Australia (see Browse).

Upstream Cost Index $/bbl Industry Challenges Cost Inflation 250 200 $120 $100 150 100 50 0 Upstream Capital Costs Oil Price 2000 2002 2004 2006 2008 2010 2012 Upstream Capital Cost Index vs Oil Price BP, CERA $80 $60 $40 $20 $0 Upstream capital costs have increased by over 200% since 2000. Whilst costs rose rapidly in line with oil prices during 2005-08 they remained high during the oil price crash of 2009-10. High industry costs are an increasing concern for oil & gas companies and the profitability of their new projects.

Global Supply Outlook The Role of Offshore Offshore and natural gas becoming increasing important to global hydrocarbon supply over the next ten years. 200mn boepd 70mn boepd 70mn boepd 180mn 160mn 60mn 60mn 140mn 50mn 50mn 120mn 40mn 40mn 100mn boepd 30mn 30mn 20mn boepd 20mn boepd Offshore Onshore Deep Shallow Offshore Gas Offshore Oil Global Oil & Gas Production Global Offshore Production Global Offshore Production

Offshore E&P Spend $211.9 billion spent in 2011 unprecendented levels of expenditure. An additional $1.4 trillion to be spent over the next five years at a CAGR of 7.7%. 76% of anticipated expenditure to be associated with shallow water over 2014-18. $350 $306.8 $300 $250 $211.9 $200 $150 $100 $50 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Offshore E&P Expenditure Outlook ($billions)

Offshore E&P Spend by Segment $1.4 trillion Offshore E&P Expenditure 2014-18 by Segment

Offshore E&P Spend Regional Breakout Western Europe 19% Others 2% Africa 14% $1.4 trillion South - East Asia 17% North America 20% Latin America 13% Rest of Asia 7% Australasia 3% Middle East 5% Offshore E&P Expenditure 2014-18 by Region

Others $billions Asia-Pacific $100 $80 $60 $40 $20 $0 Shallow Deep APAC is a large, mature and predominantely shallow water area controlled by NOCs. 58% of demand accounted for by three largest countries (India, China & Malaysia). The region will account for 30% of fixed platform expenditure more than any other. Brunei 2% Darussalam Myanmar 2% 1% 60 Australia India 6% 25% 50 40 30 20 10 0 APAC Offshore E&P Spend Thailand 7% Viet nam 10% Russian Federation Indonesia 12% New Zealand 1% Malaysia 13% Sri Lanka 1% East Timor 1% China 19% APAC Drilling Rig Demand by Operator APAC Drilling Rig Demand by Country

Others $billions Middle-East $20 $15 $10 $5 $0 Shallow Deep The Middle East is a mature, shallow water market. Activity is concentrated in the Persian Gulf, particulary throughout Saudi Arabia and the UAE. Despite limited growth in E&P expenditure strong drilling growth will drive demand for OSVs. 50 40 Middle East Offshore E&P Spend Qatar 11% Egypt 7% Saudi-Kuwait Neutral Zone 2% Oman 1% Saudi Arabia 45% 30 20 10 Middle East Offshore Drilling by Contractor Iran 14% 0 UAE 20% Middle East Drilling Rig Demand by Country

$billions Latin America $50 $40 $30 $20 $10 $0 Shallow Deep The Latin American E&P landscape is dominated by NOCs such as Petrobras in Brazil and Pemex in Mexico. Deepwater rig requirements are expected to grow at a CAGR of 14.8% over the next five years to support ultra-deep pre-salt developments offshore Brazil. 80 70 60 50 40 30 20 10 0 Latin American Offshore E&P Spend Mexico 36% Venezuela 3% Trin. & Tobago 2% Ecuador 1% Brazil 58% Latin America Drilling Rig Demand by Operator Latin America Drilling Rig Demand by Country

ARENA Tana Cardon Others $billions North America $70 $60 $50 $40 $30 $20 $10 $0 Shallow Deep The US Gulf of Mexico is the world s largest shallow water basin by installed infrastructure. Over the next five years both shallow and deepwater drilling are expected to pick up with Jack-ups experiencing a CAGR of 3.2%. The deepwater industry is dominated by major IOCs whereas the shallow water market is highly fragmented. 30 25 20 15 10 5 0 North America Offshore E&P Spend Canada 3% US 97% North America Drilling Rig Demand by Operator North America Drilling Rig Demand by Country

Talisman Others $billions North Sea $60 $50 $40 $30 $20 $10 $0 Shallow Deep Given the maturity of the basin, shallow water drilling is expected to decline at a compound rate of 4.6%. Increased exploration in deeper areas will drive floating rig demand at a CAGR of 2.8% These deepwater campaigns will be dominated by larger oil companies such as Statoil, BP and Shell. 30 25 20 15 10 5 0 North Sea Offshore E&P Spend UK 38% Netherlands 11% Denmark 6% Norway 45% North Sea Drilling Rig Demand by Operator North Sea Drilling Rig Demand by Country

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Global Subsea Expenditure Outlook 27.1bn 28.5bn 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013 usher in a stepchange in subsea expenditure - $213 bn of investment over the next five years compared to $122 bn over the previous period. This change is largely driven by the increasing reliance on deepwater developments. Subsea hardware is expected to account for 55% while vessel operations account for the remaining 45% Offshore Drilling Trends Fixed Platform Installations Floating Platform Installations 1 Deepwater Drilling (Indexed to 2007) Shallow Water Drilling (Indexed to 2007) 2007 2009 2011 2013 2015 2017

Strong growth in subsea hardware spend Picture: FMC Worldwide expenditure to total $117bn over the 2014-2018 period. (83% growth on the previous five years) 49% Subsea production hardware 36% SURF (subsea umbilicals, risers & flowlines) 15% Trunk pipelines

World Subsea Hardware 2014-2018 N America $17bn UK & Norway $24bn Africa $21bn Asia $16bn S America $19bn 40% Subsea production hardware 32% SURF (subsea umbilicals, risers & flowlines) 26% Trunk pipelines

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 2014 2015 2016 2017 2018 Deliveries Subsea vessel deliveries 50 45 40 35 30 25 20 15 10 5 0 PipeLay ReelLay FlexLay DSV MSV Subsea Vessel Deliveries The build cycle is undoubtedly cooling off now Strong demand demand for larger, technically advanced vessels Potential orderbook of $5-6 billion over the next few years

$billions Subsea vessel operations market outlook Global market to see a CAGR of 10% to exceed $22 billion by 2018. Largest growth from vessels supporting deepwater developments. L. America to grow from 27% & Africa to 38% of demand between now & 2018. North America 21% Western Europe 19% others 6% Latin America 19% Africa 15% Asia 16% Australasia 4% 25 20 $22.4 15 $13.8 10 5 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Subsea Vessel Demand Outlook

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Regional Subsea Profiles Asia Asian subsea expenditure to total $32bn over the next five years 15% of global demand. Investment is trending away from conventional shallow water infrastructure and towards subsea and deep waters. The future of the subsea industry is top-heavy with 65% of forecast demand accounted for by the top five E&P co s. Subsea Hardware accounts for 52%, vessel operations for 48% Major investment in manufacturing capacity already occuring in the Asian region to ready for growing deepwater demand. Subsea Expenditure Subsea Tree Installation Vessel Demand Analysis >2000 4% 16% 5.0bn 1500-2000 800-1499 64% 16% 500-799 250-499 <250 2013 2014 2015 2016 2017 Field Development IRM Trunklines Subsea Intervention

Conclusions Macro-economic Environment: 1. Long term fundamentals of the oil & gas industry remain highly robust. 2. Key industry risks include rising costs and manpower. Offshore Market 1. $1.4 trillion of anticipated spend on the offshore E&P industry over the next five years. 2. Continued trends towards deepwater developments, while shallow water continue to account for the majority of expenditure. Subsea Market: 1. Long-term growth potential, particularly in Africa, Asia-Pacific and Brazil. 2. At a price, and as a result our study shows the sector has become a very sizable opportunity for the oilfield service and equipment community.

Questions? Kianzi.chew@douglaswestwood.com