Risk - A Drilling Contractor’s Perspectives Anton Dibowitz, Vice President Marketing

Paris, September 20th 2011

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The next barrels of oil are more challenging:

More complex wells (deeper, HPHT, highly deviated, managed pressure)

In more challenging locations (harsh environment, remote / frontier area)

Under increased regulatory oversight (politically challenging areas, local content issues)

After Macondo, everything has changed…or has it?

Changed perceptions/ attitudes towards risk

Challenges to knock-for-knock indemnities

Reactions and responses

Managing risk

QHSE focus

Client base, geographic diversification, contract timing

Asset integrity, personnel competence, management systems

The “Cliff Notes”

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The bigger finds are in deeper water

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324m

3km

Deepwater brings technical challenges

Challenges

More remote locations

Extreme pressures and temperatures

Bigger wells, heavier loads

Extended reach, highly deviated, longer horizontals

More challenging reservoirs, more complexity

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Major deepwater regions all have challenges

Trend towards more complex and challenging resource plays

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Ghana

Mauritania

Sierra Leone

Democratic Republic of Congo

Sao Tome & Principe

Tanzania

Mozambique

French Guiana

Selected deepwater finds 2011

Significant finds in frontier plays

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Arctic Drilling: Great Promise / Great Challenge

Arctic developments to date have been in the least severe ice regimes

Industry is moving to basins where water is deeper and ice environments are more severe

Limited open water season creates challenges.

Example Canadian Beaufort Sea Shelf (20-50m WD): 85 day season Shelf Edge (50-70m WD): 70 day season Slope (70-1200m WD): 50 day season

Same season relief well (SSRW) capability (required in Canada, USA, Norway and Greenland) Alternatives to traditional relief wells will have to

be found

Ice flow severity by location

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Access challenges

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Infrastructure challenges

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Political Instability Challenges

Security concerns

Protection of crews and assets

Stunted development of local support, infrastructure, competence

Tend to be areas of:

High corruption: bureaucracy often implemented to compensate

High cost: unattractive economics

Contract issues

War Risk, Force Majuere

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Regulatory Challenges

Access to emerging markets

75% of world known conventional resources are closed to international oil companies (Andy Gould, SLB)

Restricted access from citizens groups and lobbyists

Oil companies move further offshore, more remote, harsher environments

Local Content

Often high on the political agenda, regardless of practicality.

Brazil: Crew, assets, pace

Angola: Crew, local partners

Nigeria: Asset ownership, currency

Indonesia: Assets ownership

China / Vietnam: NOC rig ownership

Other Regulatory Issues

Nigeria : Petroleum Industry Bill

UK: Tax increases

US GoM: Permitting process

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Operators perception on risk

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Post Macondo: Big picture

Public perception of risks has changed

Regulatory environment has changed If risk management has failed yet again, are there grounds for

challenging the fundamental approach to risk and risk management?

If management has failed yet again, are there grounds for challenging the fundamental approach being taken to management and control ?

Magne Ognedal, Director General PSA

Operators expectations have changed Increased focus on higher specification assets

Increased technical acceptance / inspection

Focus on training and personnel competency

Re-examination of contractual risk allocation

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What are the operators saying?

Question: How will oil services companies be exposed to risk from contracts (going forward)?

Nothing has changed?

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What are the operators doing?

There has been a long standing agreement on allocation of risks between contractors and operators

Risk goes with reward…contractor is responsible its rig & crew, operator responsible for its well.

BP / Transocean challenges this split

Significant implications if indemnity provisions are negated by court

Attitudes of some operators appear to already have changed

Changed perception of risk?

Opportunism?

Regular business cycle “give and take” ?

Prudent / established contractors will just walk away

Some contractor may take on liabilities they can’t cover

In the long run operators will end up bearing the risk

anyway.

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Post Macondo : Creating positives from tragedy

The blow-out was ultimately stopped

Any complacency that may have existed is gone

Proactive responses from operators and contractors Increased focus / cooperation on blow-out response

and capping systems US GoM: Marine Well Containment Company North Sea / Worldwide: Subsea Well Response Project

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How are drilling contractors reacting?

Post Macondo orders favor established contractors

Numerous joint industry task forces (API, OGP)

Revised IADC Guidelines (HSE Case for MODU’s, DW Well Control)

Redundancy (7 ram stacks, Dual BOP’s)

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Evolving where we focus our QHSE efforts

Source: Peter Sharpe EVP Shell, Shell Global Solutions International

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24 units

- 2 Semis

- 4 Semi-tenders - 9 Tender rigs - 8 Jack-ups

- 1 HE jack-ups

- 4 BE jack-ups

Worldwide operations diversifies risk

Worldwide operations

- 2 Semis

- 3 Drillships

6 units - 2 Drillships

- 2 Semi-tenders

- 2 Jack-ups

6 units

-3 Semis

-2 Jack-up -1 Drillship

-3 Tender rigs

-1 semi-tender

Newbuilds – 14 units

10 units

North America -2 Semis -1 Jack-up -1 Semi-tender Central & South America - 3 Semis - 1 Drillship - 2 Jack-ups

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Unit Customer

West Leo - Newbuild

West Capricorn - Newbuild

West Polaris Exxon US$560,000 US$618,000

West Navigator 1, 4

Shell US$610,000

West Aquarius Exxon US$525,000

West Auriga - Newbuild

West Hercules 3 Husky US$515,000 US$495,000 US$490,000

West Vela - Newbuild

West Tellus - Newbuild

West Gemini Total US$445,000 US$445,000

West Alpha 1, 4 BG Consortium US$503,000 US$477,500 US$477,500

West Capella Total US$542,000

West Sirius BP US$474,000

West Phoenix 1, 4 Total US$547,000 US$445,000

West Taurus 2, 3

Petrobras US$650,000

West Eminence 2, 3

Petrobras US$618,500

West Venture 1, 4

Statoil US$440,000 07.2017

West Orion 2, 3 Petrobras US$618,500 07.2016

West Pegasus PEMEX Newbuild Transit US$465,000 08.2016

Contract Option Yard plus transit period

2015

1Q 2Q 3Q 4Q2Q 3Q 4Q1Q 2Q 3Q 4Q 1Q

20142011 2012 2013

1Q 2Q 3Q 4Q3Q 4Q1Q 2Q

Floating Rig Availability

Staggered contract rollover dates spreads risk

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Customer base

Worldwide operations diversifies risk Prime client base reduces risk

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Asset Integrity

Focus on modern high specification assets

Asset management to maintain competitive cost structure with sustainable integrity

Consistent worldwide management systems / performance

Minimum operational standards

Verification of operational change / deviations from agreed standards

Technical specification and maintenance philosophies

Experience and best practice transfer

Reducing risk by Setting the Standard

Personnel training and competence

Attract top class talent

Position specific training and competence assurance

Demonstration of training, competence, and reporting

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Delivering wells safely, efficiently and cost-effectively

Setting the Standard in Drilling

Being our customers' most important partner in making oil and gas available through combination of:

Competence

High integrity assets

Consistent and effective performance