Offshore construction opportunities and challenges

28th of May 2015

Bruno Ferreol

2 Page 3-Jun-15

Challenges are at the heart of our industry

3 Page 3-Jun-15

US shales are threatening the economics of Ultra Deepwater projects

Offshore shallow water

Onshore Middle East

Extra Heavy Oil

Deepwater

Onshore Russia

Onshore Rest of World

Ultra Deepwater

American Shale

Oil Sands

20

40

60

0

80

100

120

0 20 40 60 80 100

The price of oil in US$ per barrel

Barrels of oil produced per day

Source: IHS Energy

Mid term market price?

Industry effort -30%

US shales are the new swing producers

4 Page 3-Jun-15

Over the past decade, project costs have more than doubled

SURF 2020 FOCUS

Cost drivers

Deepwater Project - 2000

Supply chain / market

Complexity and spec. choice Regulations

Deepwater Project - 2012

30-40%

45-55%

10-15%

GOM project development cost comparison, 2000 vs. 2012*

• Main drivers of the inflation in project costs are complexity and technological choices

* Source: Shell OTC 2015, McKinsey & Co.

Rig rate Material cost Technical/Construction Labour Supply Chain supply / demand

Facility and subsea Well equipment and technical design Water and well depth

Post-Macondo regulations

5 Page 3-Jun-15

“Never let a good crisis go to waste”

Winston Churchill

6 Page 3-Jun-15

Reducing our cost base

7 Page 3-Jun-15

Typical Deep Offshore EPCI cost breakdown structure

TYPICAL LARGE EPCI

PMT 5%

ENGINEERING 10%

PROCUREMENT 40%

FABRICATION 10%

OFFSHORE OPS 35%

Internal 30%

External 70%

The cost challenge goes well beyond the 1st ring of offshore contractors

8 Page 3-Jun-15

Curbing the inflation of PMT & Engineering manhours

• LEAN Engineering – Developed by the automotive and

aerospace industries in the late 70’s

– Two main concepts: avoid waste (redo, iterations, …) and focus on « value for client »

• Maintain high risk control while cutting in “non value” adding tasks

• Maintain high end expertise

• In progress with some clients on a project by project basis

– Need a more systematic approach

Louisiana Offshore Oil Port Porject Abandonment procedure

ETPM 1601, 1979

9 Page 3-Jun-15

Accelerating the path of innovation: Electrical Traced Heated PIP example

• Electrical Traced Heated PIP combines ITP high performance thermal insulation with a resistive electrical heating system laid between the insulation and inner pipe.

• Technology enabling recovery of “complex” fluids, long reach tie-backs, simplified field architecture, enhanced fluid preservation, reduced footprint on topside

CAPEX and OPEX reduction

10 Page 3-Jun-15

Bringing North Sea technology to other regions: BUNDLES

• Towed pipeline bundles are multi flowline, control and injection lines encased within a larger carrier pipe between two manifold (towhead) structures. The manifold structures range from simple valve structures to complex subsea processing structures.

• Concept develop in 80’s and continuously upgraded over the 70 Projects carried out, predominantly in the North Sea

• Technology providing cost efficient alternative for Field Development and Architecture, ability to include monitoring and subsea Processing, High thermal performance, limited offshore installation spread

Deeper waters, other areas

11 Page 3-Jun-15

Subsea 7 live projects – Leveraging on experience to bring value at concept stage

12 Page 3-Jun-15

Restructuring Client/Supplier relationship

13 Page 3-Jun-15

Current contracting model is unable to converge towards the cheapest solutions

• Supply chain process aims at minimising costs through:

– Maximise commonality to maximise competition

– Package “standard” interfaces

– Competitive bidding per package

• Process does not work anymore:

– Unrealistic project costs and schedules

– Under-optimised concepts

– Long & costly post tender clarifications (>12months)

– Major modifications to concepts required during tender process

– Unable to capture full range of opportunities because of rigid packages

Concept selection

FEED by 3rd party Eng

Competitive Tender

FID

Concept selection

FEED by 3rd party Eng

Competitive Tender FID

14 Page 3-Jun-15

Current trend: involve SURF contractor at the earliest and open door to most innovative concepts

• Major shift over the past 12 months: Clients engaging with SURF contractor at concept stage

– Fully optimised solutions (advanced technology, expertise, best combination of design/asset capabilities, …)

– Shorter time to 1st oil

– Cheaper projects

Concept selection

Design competition

FID

SURF Contractor input

Concept selection

FEED by 3rd party Eng

Competitive Tender

FID

15 Page 3-Jun-15

HSE: how will it look like in 20 years?

16 Page 3-Jun-15

Safety perception and Safety standards

17 Page 3-Jun-15

The Famous

100+ people killed during construction, but it hasn’t

caved in – Brunel is famous.

Isambard Kingdom

Brunel – the most

famous of all British

Engineers

The famous tunnel

at Box, on the GWR

18 Page 3-Jun-15

Pipeline Installation – Safety

19 Page 3-Jun-15

Pipeline Installation – Safety

20 Page 3-Jun-15

Safety standards 30 years after

• What will be our safety standards in 10, 20, 30 years?

• What are the implications in terms of risk identification, quantification and acceptability?

• What technology will we develop?

21 Page 3-Jun-15