THE FPSO MARKET REVIEW 2014. A Certainly Uncertain World

THE FPSO MARKET REVIEW 2014 A Certainly Uncertain World

C O N T E N T S PART A: The Participants Outlook Introduction 1 List of Diagrams 3 List of Tables 4 List of Pictures 5 Section 1 1 Oil Market Analysis 7 1.1 Past Year Performance 7 1.2 Technical Analysis 9 1.3 The Spread between WTI and Brent 11 1.4 Oil Market Participants 13 1.5 Oil Industry Estimations 16 1.6 Conclusions 19 Section 2 2 FPSO Vessel Analysis 23 2.1 Regional / Field Analysis 26 2.2 Future Projects 28 2.3 Idle Units 32 2.4 FPSO Cidade de Sao Paulo 37 2.4.1 Vessel Characteristics 37 2.4.2 Field Characteristics 38 2.5 FPSO Cidade de Itajai 44 2.5.1 Vessel Characteristics 43 2.5.2 Field Characteristics 44 2.5.3 Technical Details 45 2.5.3.1 Oil Production Train 45 2.5.3.2 Mooring System 45 2.5.3.3 Seabed Configuration 46 2.6 FPSO Armada Sterling 49 2.6.1 Vessel Characteristics 49 2.6.2 Field Characteristics 50 2.6.3 Technical Details 50 2.6.3.1 E-house Package 50 2.7 FPSO Voyageur Spirit 53 2.7.1 Vessel Characteristics 53 2.7.2 Field Characteristics 54 2.8 FPSO Cidade de Paraty 59 2.8.1 Vessel Characteristics 59 2.8.2 Field Characteristics 60 2.8.3 Technical Details 63 2.8.3.1 BSR Risers 63 2.8.3.2 Gas Condition/Compression Systems 65 2.8.3.2.1 Detailed Analysis 65 2.8.3.2.2 Rotordynamic Stability 67 2.8.3.2.3 Rotordynamic Modelling 67 2.8.3.2.4 Stability Predictions 68 2.8.3.2.5 Stability Test Setup 68 2.8.3.2.6 Stability Test Results and Comparison with Predictions 69

2.9 FPSO Montara Venture 73 2.9.1 Vessel Characteristics 73 2.9.2 Field Characteristics 74 2.10 FPSO OSX-3 77 2.10.1 Vessel Characteristics 77 2.10.2 Field Characteristics 77 2.11 FPSO P-63 Papa Terra 81 2.11.1 Vessel Characteristics 81 2.11.2 Field Characteristics 82 2.11.3 Technical Details 83 2.11.3.1 Wartsila s 50DF 83 2.11.3.1.1 Fuel Flexibility 84 2.11.3.2 Technip s IPB 84 2.11.3.3 Cathelco s ICCP 84 Editor s Note 85 Platforma Project Development 86 Disclaimer 87 PART B: The Investors Outlook SUPPLEMENT 1 1 Platforma s Offshore Oil Industry Index 1.1 Platforma s Offshore Oil Industry Investing Facility 1.2 Offshore Oil Industry Investing Facility Performance SUPPLEMENT 2 2.1 SBM Offshore company report 2.2 SBM Offshore stock market valuation SUPPLEMENT 3 3.1 MODEC company report 3.2 MODEC stock market valuation SUPPLEMENT 4 4.1 BW Offshore company report 4.2 BW Offshore stock market valuation SUPPLEMENT 5 5.1 Teekay Petrojarl company report 5.2 Teekay Petrojarl stock market valuation SUPPLEMENT 6 6.1 Bumi Armada company report 6.2 Bumi Armada stock market valuation

I N T R O D U C T I O N President Kennedy during a speech in Cape Town in June 1966, stated the following: There is a Chinese curse which says 'May he lives in interesting times.' Like it or not we live in interesting times. They are times of danger and uncertainty; but they are also more open to the creative energy of men than any other time in history. Those words although some 50 years old describe precisely the current outlook of the offshore oil industry. Our world remains on a fragile path ailing to achieve robust growth and there is uncertainty almost in every aspect of the economic environment. Even China doesn t look like the Asian tiger it used to a few years ago. The offshore oil industry however remains one of the most dynamically growing sectors performing remarkably. Consistent to Kennedy s words, the industry has demonstrated innovative and creative thinking and through revolutionary technological breakthroughs has expanded oil Exploration and Production to places beyond any imagination a few years ago. But the economy behaves cyclically and now, more than ever, a growing part of industry participants is trying to identify where the sector actually lies. As a result, through this year s Annual Report Platforma wishes to participate in the effort to identify this position and support offshore oil industry participants strategic thinking and planning. The report is quite different than the one published a year ago. Besides, the whole Project of Platforma altered its identity significantly the previous year. It is divided in two parts. Part A The Participant s Outlook addresses mainly to individuals actually and directly involved in the offshore oil industry and is also divided further in two sections. The first section, the Oil Market Analysis is a comprehensive study of the oil market. In this section past year s performance of oil market is described and through Technical Analysis Tools patterns and trends are investigated. It should be stated at this point that the end of 1H of 2014 evolves as a very interesting period that could be marked by significant changes in the price of oil, especially Brent. Further in this section, the spread between Brent and WTI is analyzed in depth and the size, the distribution of participants and the efficiency of oil market and its derivatives is described in detail. Additionally oil industry data through reports, presentations and estimations are presented in order for the reader to obtain a total view of the oil market and the offshore oil industry. The section concludes with some very interesting remarks of what offshore oil industry participants could anticipate in the near future and proceeds to the provision of certain actions that could be taken in the effect of a negative scenario rising. In the second section of Part A, The FPSO Vessel Analysis the report provides an in depth analysis of the FPSO fleet. Data of vessels in operation, decommissioning and first oil and the outlook of the market for FPSOs in general are presented. The report demonstrates trends in the vessel origin (construction newbuilding), in the vessel ownership (lease own) and identifies key points of the market, for example the constant deepening of - 1 -

fields being developed. A first glance to some key players of the FPSO industry is stretched in this section, like Petrobras and generally Brazil, and what is their influence in the vessel supply and demand. Idle units are being recorded and the process of idling and redeploying units is described further. The report also tries to identify future projects which are expected to fulfill the process and reach the operational status. About 19 units are in advanced phases and are expected to achieve first oil sometime between 2014 and 2016 in various places of the world. Finally a very detailed description is provided for the FPSOs that achieved first oil during 2013. Technical information for the projects, contractual and sub-contractual activity and cost whenever disclosed, data of the oil fields and their development process are presented. In addition selected specialized information for certain technical challenges that were addressed during the application of the projects are provided aiming to support participants with examples of challenges and solutions across the industry. Part B is quite a different story. In this Part The Investor s Outlook Platforma wishes to provide financial data for the sector and some of its key players. The main objective of this approach is to facilitate third parties and entities outside the offshore oil industry to gain a view of the sector, its potentials, its performance and how an individual, through an investing position, can get involved in the offshore oil industry. Part B will be applied through Supplements. Supplement 1 presents for the first time one of Platforma s subproject that hasn t been disclosed till now. The Platforma s Offshore Oil Industry Investing Facility and Platforma s Offshore Oil Industry Index. Through these products Platforma created an investing vehicle for the potential investor and provided a mean for financial outcomes directly from the offshore oil industry. The Index and the Facility involve companies across the whole Upstream chain and confirm loudly that the two past years were very profitable for the potential investor. Supplements 2-6 provide financial data for some key FPSO Operators, their performance and investigate fair stock market valuation of the Operators shares. Platforma through this report wishes to provide a helpful instrument of the offshore oil industry, a Tool with guidelines for industry participants and an investing manual for the investors society. It hopes to support decision process of every individual that already possesses or wishes to acquire stakes in this specialized and fascinating industry. Enjoy your journey. - 2 -

List of Diagrams Diagram 1: WTI price index movement 7 Diagram 2: Brent price index movement 8 Diagram 3: Historical Prices of WTI and Brent 8 Diagram 4: Long term trend for Brent 9 Diagram 5: Short term trend for Brent 10 Diagram 6: Long term trend for WTI 10 Diagram 7: Short term trend for WTI 11 Diagram 8: Spread between WTI and Brent in dollars 11 Diagram 9: Historical performance of spread between WTI and Brent 12 Diagram 10: Spread between WTI and Brent as percentage of their mean 12 Diagram 11: Average daily open interest in crude oil futures on US 13 exchanges Diagram 12: World Petroleum and other liquids production 2010-2040 mbpd 16 Diagram 13: Liquids demand per region 16 Diagram 14: Global Upstream Capex 17 Diagram 15: Demand Growth against Field Depletion 17 Diagram 16: Petrobras Upstream CAPEX 17 Diagram 17: North Sea drilling activity 18 Diagram 18: GoM drilling activity 18 Diagram 19: Rising cost of E&P per barrel 18 Diagram 20: Newbuildings / Conversion FPSO vessels 25 Diagram 21: Leased to Owned FPSOs 26 Diagram 22: Country contribution in the global FPSO fleet 27 Diagram 23: Number of fields commissioning with FPSOs per depth 28 Diagram 24: New FPSOs per region 31 Diagram 25: New FPSOs per time of expected first oil 31-3 -

List of Tables Table Νο 1: FPSOs that ceased oil production during 2013 23 Table Νο 2: FPSOs that produced first oil during 2013 23 Table Νο 3: Economics of 2013 commissioning FPSOs 24 Table Νο 4: New producing vessels (additions) per region per year 26 Table Νο 5: Idle FPSOs as of end of 2013 32 Table No 6: Predicted stability per bearing clearance 68-4 -

List of Pictures Picture Νο 1: FPSO Cidade de Sao Paulo off the beach of Angras dos 37 Reis, Brazil Picture Νο 2: FPSO Cidade de Sao Paulo local content analysis 38 Picture Νο 3: Sapinhoa Oil Filed (BM-S-9) 39 Picture Νο 4: Sapinhoa (Guara) field development (accomplished and 39 forecasted in 1Q 2013) Picture Νο 5: FPSO Cidade de Itajai during trials at Jurong shipyard, 43 Singapore Picture Νο 6: Schematic of the oil production train aboard the FPSO 44 Cidade de Itajai Picture Νο 7: Schematic of the FPSO Cidade de Itajai mooring system 46 Picture Νο 8: Bauna and Piracaba fields wells configuration 47 Picture Νο 9: FPSO Armada Sterling during mooring to final 49 anchorage Picture Νο 10: FPSO Voyageur Spirit during conversion work at Nymo 53 shipyard Picture No 11: Huntington oil field 54 Picture No 12: Huntington oil field wells 55 Picture Νο 13: FPSO Cidade de Paraty during conversion at Keppel 59 Shipyards Picture Νο 14: FPSO Cidade de Paraty local content analysis 60 Picture Νο 15: FPSO Cidade de Paraty modules construction and 61 integration at BrasFels Shipyard Picture Νο 16: Field development (Accomplished and Forecasted in 1Q 62 2013) Picture Νο 17: Lula Field (including NE) production 63 Picture Νο 18: General schematic illustrations of BSR Risers 63 Picture Νο 19: Lula field applied BSR Risers 64 Picture Νο 20: Schematics of gas administration 65 Picture Νο 21: Test results of the ASME PTC-10 Type 1 test 66 Picture No 22: Rotordynamic stability example 67 Picture Νο 23: Magnetic Bearing Exciter configuration 68 Picture Νο 24: Shaft extension 69 Picture Νο 25: Stability with discharge pressure performance 70 Picture Νο 26: Log dec measurements with different discharge 70 pressures Picture No 27: FPSO Montara Venture during trials at Jurong shipyard 73 Picture Νο 28: FPSO OSX-3 during conversion works at Jurong 78 shipyard Picture Νο 29: Mooring of FPSO P-63 at COSCO Shipyards 81 Picture Νο 30: Papa Terra oil field 82 5

2013 has been a remarkable year for the FPSO society, marked with significant events. However it has been an uneasy time for the oil markets. The Offshore Industry is showing growing anxiety of what lies ahead. If there is a common feature that describes current outlook globally, that is Uncertainty. 6

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We are confident that the report will provide valuable information to you, either acting as an offshore oil industry participant, or as an investor and help you conclude in the most significant question currently: Is there a bubble in the offshore oil industry that is about to break, or its performance is a fundamental supply and demand quarrel? Enjoy your study Vasilis Moutoupas Director or Platforma e-library 8

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Editor s Note Dear Reader It is our honour to provide to you this year s Annual Review for the FPSO industry. Indeed 2013 was an interesting period with significant activity across the Upstream chain from one hand and the first concerns, mainly expressed in the personal level, of where does the industry go from here on the other. Unless someone has special abilities it is extremely difficult to identify accurately the turning point. Perhaps that sort of accuracy isn t necessary for a business as risky as the offshore oil. Exploring and producing hydrocarbons from the depth of the sea is a demanding, uncertain and challenging task and, in order to prevail, an individual must proceed gradually. In these uncertain times Fundamentals become very important. As stated inside the report balanced Planning and Adaptation become critical and the way provisions are taken currently, to address future challenges, will define future developments. I would like to reiterate at this point the last phrase of Section 1: A bubble cannot be identified till it blows off. It s the story of the ant and the cicada that teach us to prepare through good times to overcome the bad ones. On behalf of the Platforma team I would like to thank you for your trust and your support that encourages our efforts to provide a useful instrument to the FPSO, and the offshore oil in general, industry. We will constantly try to provide qualitative and reliable services and support industry participants, and lately investors, in their decisions. Moutoupas Vasilis Platforma Project

Editor s Note Platforma evolved The project was launched in 2012 aiming to become an open access online encyclopedia for the FPSO Industry. Through this innovative e-library, industry participants could acquire informative data for every aspect of the FPSO as a vessel, or as a market, or investigate the processes involved in its design, operation and decommission. The success was unexpected. The e- library in these almost 2 years, received in total about 800.000 visitors and had a daily visit rate of 150 individuals. This encouraged us to proceed to the next level. The Project evolved and will soon provide an Investors and an Academia branch. Through the first development the potential investor could get helpful information for the offshore oil industry, its members, recent developments and financial data. The underlying reason is to provide an instrument that will support the financial sector or individuals, considering acquiring stakes in the industry, with a tool through which they can evaluate sector s performance. For this last reason The Platforma s Offshore Oil Industry Investing Facility and Platforma s Offshore Oil Industry Index are introduced. The Index is a concept created to incorporate the whole Upstream chain under one scheme, through which an updated outlook of the industry can be obtained. Companies from seismic survey, to equipment and service providers, to vessel contractors and so on are inserted and used to utilize a sole index. Furthermore financial data in increased detail are provided for some key FPSO operators. The Academia branch will soon provide an online facility through which e- courses regarding the FPSO industry in general will be delivered by industry experts. The concept specifies the provision of four quarter long series of lessons annually that will support course attendees to acquire an in depth knowledge of the industry. Interested individuals or entities can address Platforma about details of this branch. In any case further data for this development can be retrieved through the e-library. I hope that Platforma will become a point of reference in the FPSO and the offshore oil industry in general and I wish that the services it provides would be of great importance to industry participants. After all as we state in ours e- library introduction page we all live in the FPSO era. Available at: www.theplatforma.org Moutoupas Vasilis Platforma Project