11-04-05 1 Key Challenges Ahead PELC, The Hague, April 11, 2005

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Key Challenges Ahead

PELC, The Hague, April 11, 2005

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AGENDA

1. Key Challenges

2. Technip’s Response

3. Who we Are?

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1. Key Challenges Selected

1.1 Risk and Risk Sharing

1.2 Globalization

1.3 Information Technology (Tools)

1.4 Rules, regulations & requirements

1.5 Technology & Innovations

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1. Challenges

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1.1 Risk & Risk Sharing (1)

NET EARNINGS 1994 2003 USD in Billions

10 largest oil companies

10 largest E&C companies

23.2 75.7

Source : Bloomberg 2003

0.8 -0.3

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GROWING IMBALANCE BETWEEN OIL AND E&C COMPANIES

SHAREHOLDERS‘ EQUITY 1994 2003 USD in Billions

10 largest oil companies

10 largest E&C companies

235 423


Source : Bloomberg 2003

8 9

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PROJECTS GROWING FASTER THAN E&C COMPANIES‘ SIZE

At Technip, the 5 largest contracts in backlog (Group share) amounted to:

10 years ago : € 1.6 Billion 5 years ago : € 2.1 Billion 2003 : € 2.9 Billion

Average size of the 5 largest contracts is now close to Euro 600 million per contract;

equivalent to about 1/3 of the Technip Group’s equity.


MEGA PROJECTS = HIGHER RISKS BUT are those really FAIRLY SHARED?

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Find & Development cost per BARREL : 1992 - 2000 fluctutating between 4.2 to 5.1 USD/Barrel 2001 - 2003 suddenly going up from 4.6 to 7.1 USD/Barrel (oops!)

Source : ABN/AMRO

To reduce project cost, companies are inclined to tighten terms and conditions on projects. E&C contractors are forced to accept:

Lower margins for higher risks Heavier liabilities Negative cash flows Lower insurance coverage

Paradoxically, such an approach is more likely to lead to higher costs on projects (+ a few casualties among the E&C companies).

In turn E&C companies wil try to transfer parts of the above risks towards their suppliers and subcontractors, normaly with the same end results and the claim culture is born.


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1.2 Globalization

1. Challenges

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E&C companies have been transferred from local engineering outfits into large global companies (Technip from 6.000 to 19.000 people in last 5 years).

Ongoing reducing margins and pressure on project budgets has forced the E&C contractors and their suppliers to find low cost labor and hardware.

Significant investments needed to upgrade low/moderate cost engineering centers (requires about 10 years).

Hardware : value for money ! Tremendous effort needed to maintain quality and ensure project schedules when purchasing in low cost countries.

Potential danger of loosing competences in home office engineering centers by outsourcing design & engineering work.

More and more difficult to find skilled, well trained engineering staff in Western Europe. Engineering is not sexy!

Some vendors are technically preferred (single source) by one company but blacklisted by another for the same application. This is hampering efficient global procurement and competitive bidding.

1.2 Globalization (1)

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USA 55-65 €/hNorthern Europe

55-75 €/h

Southern Europe 30-45 €/h

SE Asia 18-25 €/h

India 15-20 €/h

(1 € = 1.30 $)(1 € = 1.30 $)

1.2 Globalization (2)

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1.3 Information Technology

1. Challenges

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1.3 Information Technology (1)

Investments in IT tools are high : 70-80 million Euros for the Technip Group on a yearly basis.

Selected IT tools of (engineering) companies are embedded in their work processes.

Software suppliers are launching new programs and versions irrespective if there is a need or not (Windows 95, 98, 2000, SE, XP). Technip Group went from W’95 directly to XP. Same is applicable for engineering tools.

Clients/owners are insisting on their own tools during project execution, resulting in inefficiencies, loss of data and extra costs on those project(s).You can think about Smartplant P&ID versus Autocad or PDS versus PDMS etc.

E&C contractors on their turn are forcing vendors to use their procurement tools resulting in the same.

The increase in data transfer and handling is asymptotic, especially the data transfer by email :

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Electronic Mail: The Numbers!!!

18,000 Users in the Technip Group

3,100 Email Accounts in Technip Paris Office.

2,800 Individual Email Accounts

300 Project Email Accounts

About 800,000 emails per Day in the Group

About 250,000 Internet Emails per Day to the Group,including:

35,000 Spams and

18,000 virus infected emails (blocked by our tools)

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1 Bite = 1 Character (0 or 1)1 Byte = 8 Bits1 Kilo Byte (KB) = 1,024 Bytes1 Mega Byte (MB) = 1,024 KB1 Giga Byte (GB) = 1,024 MB

1 Page Email (Text) = 5 KB1 Message of 1 MB = 200 Pages

= 2.5 cm1 Picture = Few KB to > 1 MB

1 Email Account of 1 GB = 200,000 Pages= 25 m= 1/12 Eiffel Tower!

Unit of Measures…

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Electronic Mail: The Numbers!!!

For Information, Technip Group currently has:

120 Email Accounts over 1Giga Bytes

450 Email Accounts over 500 Mega Bytes

1,250 Email Accounts over 200 Mega Bytes

2,300 Email Accounts over 50 Mega Bytes

Total Individual Accounts Volume = 750 GB

Total Project Accounts Volume = 1500 GB

This represents a pile of paper of nearly 60 km high and please note this is without the fact most of this paper is printed in multiple number of copies.


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THIS OR THIS ?

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Easy to loose track on the ongoing developments : what is not possible today can be done tomorrow.

Required education levels engineering staff are going up (i.e Red lining on document control).

People are overwhelmed with information E-mail culture without clear questions/organization,

Server capacity of today is too small for tomorrow.

E&C companies are fully dependent on IT tools. Standard E&C formats are not excepted by owners.

IT tools do not save one single engineering hour, although reducing inconsistencies.

IT tools are capital intensive i.e. PDS 3D, FEM analysis, CFD & EFD, E-procurement, ERP

Against the IT philosophy, clients and authorities are asking more and more paper and TECHNIP transfers this message to the suppliers


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1.4 Rules and regulations

1. Challenges

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1.4 Rules, Regulations & Requirements (1)

Pressure Equipment Directive (PED)

CE marking

Safety Integrity Level (SIL)

Atmosphere Explosive (ATEX 137 & ATEX 100a)

Local Authorities : TUEV/STOOMWEZEN/APAVE…… NOBO’s!

HAZARD reports

HAZOP reports

ISO 9001

ISO 14001

OSHA 18001

And ………………………..

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1.4 Rules, Regulations & Requirements (2)

Specific client requirements and of course all different.

Environmental requirements.

Local (authority requirements)

ALL ABOVE RESULTING IN :

– An Inspection & Test Plan for a compressor these days consist of 100 pages.

– Significant increase in size (data) of requisitions containing contradictive information.

– Vendors are not capable to read everything in the proposal phase.– Increased prices due to risk coverage is the result.– Changes to the vendor standard products increases the error rate.

BUT HAS HARDLY ANY EFFECT ON THE PLANT DESIGN (HARDWARE) ITSELF.

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1.5 Innovations & Developments

1. Challenges

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1.5 Innovations & Developments (1)

This is typically accepted as an innovation:

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This is typically NOT accepted as an innovation:

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Neither is this one :

80" P10004A-DA10-H

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Type of costs Reference Plant(80’s):

600 kta

Mega-Plant(2004):

1000+ kta

Energy input 8000 kWh per ton ofProduct

5300 kWh per ton of Product

Product losses Less than 1% Less than 0.25%

CO2 emissions 1550 kg per ton of product

790 kg per tonof product

Operators 7 per shift 7 per shift

Also the silent Reduction in OPERATING COST for Ethylene Production is seen as “normal” and not as an

innovative design


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2. Technip’s Response


2.2 Globalization

2.3 Information Technology Tools

2.4 Rules and regulations


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What is needed to restore a more balanced relationship between plant owners/Clients and E&C contractors?

A new Behavior?– Limit Lump Sum contracts to well-defined scope end technologies.– Allocate risks/costs to the right party.– Let business people run the show (Rather then lawyers)– …and provide them some give-and-take authority.– Focus on the long term partnerships

Contractual Terms– Provide the E&C contractor a neutral, if not positive cash flow.– In turn E&C contractor shall do the same to their suppliers.– Payments in multi-currencies in line with contractor’s cost structure.

Or in other words : Plant owners to re-establish an appropriate risk-award balance for their

contractors and actually SHARE risks in order to provide sustainable profits for all participants in the engineering chain.

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Each project is evaluated on its own meritsNo market share or asset utilisation target supersedes this rule

TENDER

CostEstimation,

Legal & FinancialReview

ManagementAuthorization

to Tender(ATT)

BID

Cost, Legal

& FinancialUpdate

ManagementAuthorization

to Commit(ATC)

AWARD

Ensure Appropriate Risk/Reward Achieved on Each Contract


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2.2 Globalization

Multi Office project executions are very well possible today by means of IT tools, but actual cost savings shall not be over estimated.

By means of global networks on all engineering levels and IT tools (databases via Lotus Notes, red-lining) this can be managed.

(Expensive) investments on IT tools are an absolute must as well as the definition of one set of company standards and work processes. This is achieved via the Global Engineering & Construction Council within the Technip group.

By global procurement and lumping of project volumes, price discounts can be achieved. A global procurement organization is a must for today's E&C contractor in order to obtain best prices and buy goods as per the project currency.

Vendor lists in case of LSTK contracts shall not be restricted in order to obtain fair & global competition.

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GLOBAL NETWORK OF ENGINEERING CENTERS

BogotaCaracas

Abu DhabiChennai Bangkok

170300

1,080690 160

Shanghai

520

Moderate cost centres provide enhanced competitiveness on projects

Staff by Location

Aberdeen + Oslo2,430

Rome1,120 Zoetermeer

+ Düsseldorf580

Kuala-Lumpur

960

Rio1,520

Houston2,170

PARIS3,380

A powerful tool to:Manage fluctuating workloadsMitigate currency exposure

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2.3 Information Technology

Control of project data an absolute must. Sharing of data via controlled databases only instead of sending i.e. 20 MB emails to 20 people. Email filling is difficult and expensive, while databases can be maintained after the correct instructions are provided. Also security aspects (access rights can be easily handled )are covered.

Companies shall not interfere in each others’ working process, except when it has added value for both parties and on mutual agreed basis only. Cost involved shall be recognized.

Exchange of data via a predefined protocols/forms during the project life cycle is an absolute must. It is our vision this shall be one global standard. How companies enter or extract data shall be up to them.

Better strategic tool development a must. Better communication between software suppliers and E&C contractors (wants & needs) shall be established.

Difficult to share I.T. developments as competition between E&C contractors and competition between software suppliers will remain.

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2.4 Rules, Regulations & Quality Requirements

Limit the adoption of more rules and regulations. The positive affect of the old ones is still subject to debate…..

Clients/Plant owners to accept E&C and equipment suppliers standards instead of imposing their own. It safes money for all participants in the chain when doing so. Authority and HSE requirements are of course an obligation for all parties involved.

Of course shall each plant be safe, ensure health of all involved and have as less as possible impact on the environment. Generating tons of additional paper will not lead to the desired results.

Technip promotes besides modern tools the traditional working processes like combined P&ID reviews, combined HAZOP studies, combined Model reviews. Training and education for all involved shall secure a safe plant design.

Involvement of notified bodies has not increased safety either quality, but early involvement a must to avoid surprises later on by opinion engineering.

In order to achieve the desired quality level of goods, ordered with low cost suppliers, the quality control need proper attention from both expediting and quality control at the supplier premises. This is achieved by the Technip Group by using expediting and inspection power available within the group at the locations needed. The EPC.business.com tool is used for this.

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Technology is a differentiator for the Technip Group.

Technology developments are centrally coordinated outside the Business Units, however with input from the BPU w.r.t. needs and wishes.

Technology Budgets available in each operating centers but Group wise coordinated based on market need/trends.

Technology Manager assigned and responsible for local developments.

Clients to recognize innovations and realize the latest technology is not developed at zero cost. E&C companies and their suppliers shall be compensated for their innovative work.

Technology and lessons learnt are shared via the database philosophy as explained earlier. Engineering defects are reported via the Quality Improvement Database and require a physical implementation in the existing QA system before it can be approved. Turn around time is set on 12 weeks. Q.I.P. databases can be shared by the whole Technip Group.

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3. Technip Group - Who are we?

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TECHNIP IN A SNAPSHOT

A leading provider of engineering, technologies and construction services for the oil & gas, petrochemical and other industries

Listed on Euronext Paris and New York Stock Exchange

OFFSHORE:

Engineering

Subsea Construction

Platforms

ONSHORE:

Refining / Hydrogen

Petrochemicals

Gas, LNG, GTL

Onshore Pipelines

INDUSTRIES:

• Lifescience/Chemicals • Metal & Mining • Power Plant / Infrastructures

Share of 2004 Revenues

48.5%48.5% 46.5 %46.5 %

5 %5 %

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2004 REVENUES BY REGIONS

Europe, Russia - Central Asia

Asia - Pacific

Americas

TECHNIP : 5.141 M€

18%

7%

50%25% Africa, Middle East

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TECHNIP: No. 1 IN EUROPE, No. 4 WORLDWIDE

10.2

9.4

8

6.4

6.1

5.4

4.4

3.3

3.1

2.6

2.6

1.4

1.3

1.2

1.2

12.5

Schlumberger

Fluor

Halliburton

Baker Hughes

Saipem

Smith Intl

JGC

Weatherford

Transocean

BJ Services

McDermott

IHC Caland

Stolt Offshore

Non oil service engineering & construction segments

Oil service engineering & construction segments

2004 Revenues (USD in billions)

Source: Bloomberg

* * 9 months 2004 – Annual Results on 10 March

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Hallib

urton

Kvaer

ner

Saipem

Schlu

mber

ger

Foster

Whee

ler

Fluor

Technip

TECHNIP: HIGHLY INTEGRATED

Up

str

ea

mD

ow

ns

tre

am

No

n-

oil

Oil

& G

as

Exploration & drilling

Engineering & project management

Subsea construction

Pipelay

Subsea equipment

Facilities fab. & install.

Refining

Gas processing

Petrochemicals

Life Sciences

Mining & Metals

Power plants & infrastructures

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GLOBAL NETWORK OF ENGINEERING CENTERS, YARDS & PLANTS

UK2 550

USA3 480

Colombia140

Brazil1 570

Venezuela300

Africa160

France3 530

Italy1 870

Benelux360

Scandinavia930

Germany350

Russia100

Middle East + Abu Dhabi

1 030

India670

Australia170

Asia-Pacific1 450

Spain/Portugal290

Canada50

19,000 People Worldwide

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VESSELS

Apache - 122,9 m

Sunrise 2000 - 132 m

Alliance - 78 m

Constructor - 126,3 m

Marianos - 91,1 m

Orelia - 119 m

Deep Pioneer - 158,6 m

Venturer - 129,1 m

Wellservicer - 111,4 m

Seamec 3 - 92,7 mSeamec 2 - 92,7 mSeamec 1 - 92,7 m

Deep Blue - 206,5 m

Pipelay Vessels

Subsea Construction Vessels

Trenching Vessel

Normand Pioneer* - 95 m

* Owned by Solstad (Long term charter)

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CONTROL OF PROJECT EXECUTION

Two principles are concurrently implemented:Project Director: single point of accountability for each project Senior Management: hands-on policy, supported by central expertise

SeniorManagement

Reporting

SVP Project Management

SVP Global Procurement

SVP Cost and Planning

Support

Reporting

Monitoring (Monthly Project Reviews)

CostControl

ConstructionInstallation

Engineering Procurement

Project Director

Full AuthorityReporting

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GLOBAL PROCUREMENT NETWORK

Worldwide Network Increases Flexibility and Competitiveness

EPC Internet-Based Procurement SystemVolume Processed in 2003: €1,200M Sourcing from USD zone: 2000: 27% 2003: 41% Estimated net savings in 2003: €30M

Houston

Los Angeles

Kuala Lumpur

Aberdeen

ParisRome

Rio de Janeiro

Düsseldorf

RegionalProcurement

Manager

RegionalProcurement

Manager

GlobalProcurement

Officer

GlobalProcurement

Officer

Commodity Family

Managers

Commodity Family

Managers

Zoetermeer

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ANNEX

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OFFSHORE CREDENTIALS

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OFFSHORE CREDENTIALS - SPAR EVOLUTION

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ONSHORE REFERENCES

LNG RECEIVING TERMINAL, FREEPORT, TX, USA

First terminal to be built in USA in 20 years Capacity: 1.5 billion cubic feet/day of gas - Delivery: 2007

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ONSHORE REFERENCES

QATARGAS II LNG PLANT (QATAR)

The two biggest trains to be built as of todayLNG capacity: 15.6 million tons/year - Delivery: 2008

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ONSHORE REFERENCES

Contract Value: $1.1bn

MIDOR REFINERY (EGYPT)

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INDUSTRIES REFERENCES

ChemicalsFertilizersPharmaceuticalsFood ProcessingEthyl AlcoholProprietary technologies: sodium chlorate chlorine dioxide perchlorate hydrogen

peroxide soda ash ethanol phosphoric acid

Airbus 380 - Assembly Halls

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MANAGEMENT STRUCTURE

OffshoreI. REPLUMAZ, CEO

Onshore-DownstreamD. BURLIN, CEO

J. DESEILLIGNY, SVP Business and Operations

IndustriesJ.N. MEARY, CEO

D. VALOT, Chairman

Executive Management

D. VALOT, Chairman and CEOD. BURLIN, A. DECRESSAC, J. DESEILLIGNY,

O. DUBOIS, I. REPLUMAZ

Board of Directors (11 members)

A. DECRESSAC O. DUBOIS

CFOHR/COMM

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OVERALL DIVISION STRUCTURE (BPU)

OFFSHOREONSHORE /

DOWNSTREAM

INDUSTRIES

North Sea, Canada

USA, Mexico,

Caribbean

Western Europe,

Russia, CIS

Southern Europe, Eastern

Europe, Africa

Chemicals Life SciencesAmericas

Ethylene ElectricityGNL

Africa-Mediterranean

Industries Buildings

Middle-East, Pakistan,

India

N. UCCELLETTIP. BARRILL. POPE

D. MIELCAREK

M. BUFFENOIR A. DURANTE E. FALLEURH. OGER

S. ALEV N. GRECO G. CAVANNA

J.F. CAZESI. STEVENSON

S. EGGEN J.N. MEARY

Asia-Pacific

B. DI TULLIO

Brazil

F. DELORMEL

I. REPLUMAZD. BURLIN

J. DESEILLIGNYJ.N. MEARY

Caspian Sea

K. BOE

Latin America

E. GORY

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BREAKDOWN OF TECHNIP'S CAPITAL

February 28, 2005

6 % Oppenheimer Funds Inc.

3.20 % IFP

1.40 % Treasury stock

2.20 % Employees

87.20 % Others

Documents

11-04-05 1 Key Challenges Ahead PELC, The Hague, April 11, 2005