CLARITY • INSIGHT • VISION
KPMG’s M&A Oil & Gas Symposium
Wednesday, January 20, 2016Windsor Court Hotel • New Orleans, LA
Paul H. HillegeistPresident & COO
Quest Offshore Resources
CLARITY • INSIGHT • VISION
CLARITY • INSIGHT • VISION
Forward-Looking StatementsStatements in this presentation regarding Quest Offshore Resources or its management'sintentions, beliefs or expectations, or that otherwise speak to future events, are "forward-lookingstatements.” Future results and developments discussed in these statements August be affectedby numerous factors and risks, such as the accuracy of the assumptions that underlie thestatements, the success of the oil and gas exploration and production industry, drilling results,uncertainties in interpreting market data, changes in laws and regulations, the ability to respondto challenges in international markets, including changes in currency exchange rates, political oreconomic conditions, trade and regulatory matters, general economic conditions, and other factorsand risks. Actual results and developments August differ materially from those expressed orimplied in this presentation.
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CLARITY • INSIGHT • VISION
Table of Contents Degenerating Landscape
Threats & Challenges
Industry Response
Deepwater Sector Review
Current State
LNG Bright Spot
Analysis of Project Costs
Industry Reset
Market Forecast
Mexico Opportunity
Regional Opportunities 4
CLARITY • INSIGHT • VISION
Threats & Challenges Sustained lower commodity prices
Surging crude inventories
Lackluster global demand growth
“Double-Dip” declines in E&P Capex
Lead to…Opaque near-term visibility
Market Overview
Source: Wall Street Journal Christophe Vorlet
CLARITY • INSIGHT • VISION
Industry ResponseM&A and consolidation across segments
250,000 & growing industry job losses
Continue to leverage technology
Move towards integrated delivery of services & equipment
Standardization efforts to drive lower costs through: Scale Efficiencies & Optimization Operational Excellence
Shifting contracting model
Market Overview
Source: Helix Energy Solutions
CLARITY • INSIGHT • VISION
Global E&P Spending OutlookAverage of E&P Spending Forecasts, Brent Mean Case & History, Brent Low Case & High Case
Source: Quest Offshore, Evercore ISI, Cowen & Co., Barclays
$-
$20
$40
$60
$80
$100
$120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
Bren
t Cru
de O
il Sp
ot P
rice
($Re
al)
Tota
l CAP
EX ($
mill
ions
)
AVERAGE of E&P Spending Forecasts Brent Mean Case and History
Brent Low Case Brent Mean Case and History
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CLARITY • INSIGHT • VISION
Global Subsea Trees by DecadeAverage Water Depth
0
500
1000
1500
2000
2500
3000
3500
0
1000
2000
3000
4000
5000
6000
7000
8000
1960's 1970's 1980's 1990's 2000's 2010's
Aver
age
Wat
er D
epth
(Fee
t)
# Su
bsea
Tre
es (M
ean
Case
)
Startup Decade
Number of New Subsea Wells Average Water Depth (Feet)
Proxy for Deepwater Drilling & Development Activity
Subsea & Related Hardware Components
Production Umbilicals
ROV Services & MarCon (URF Install)
Subsea Workover & Intervention Opportunities
Source: Quest Offshore Resources8
CLARITY • INSIGHT • VISION
0
2
4
6
8
10
12
14
Tota
l Dee
pwat
er P
rodu
ctio
n (M
MBO
E/D)
Deepwater Oil Productionby Year
Source: Kosmos Energy
Source: ExxonMobil Energy Outlook to 20409
CLARITY • INSIGHT • VISION
Regional Deepwater Oil Production by Decade
0
1
2
3
4
5
NAM SAM AFR NSEA Russ/Casp ASP
MM
BOE/
D
2010s 2020s 2030s 2040s
Source: ExxonMobil Energy Outlook to 2040
Source: Royal Dutch Shell Management Day Investor Handout November 2015
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CLARITY • INSIGHT • VISION
Global Natural Gas Demand & Supply
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CLARITY • INSIGHT • VISION
Source: BP Energy Outlook 2035
Fossil Fuels Will Continue to be the World’s Primary Energy Source
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CLARITY • INSIGHT • VISION
LNG Supply is Poised for a Growth SpurtAs an analog we can look at the newly combined Shell & BG future project landscape!!
Source: BP Energy Outlook 203513
CLARITY • INSIGHT • VISION
Overview of Floating LNG Projects
19
46
1413
5
8
.5 1
5
6.3
XNumber of Proposed FLNG Projects
Planned Capacity (MTPA)X Under Construction
Capacity (MTPA)XSource: Quest Offshore Resources
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CLARITY • INSIGHT • VISION
Image courtesy of: Total
Project Cost Challenges
CLARITY • INSIGHT • VISION
The Economics of Global Oil MarketsStylized Oil Production Cost Curve
Shale has become shock absorber
Source: BP Spencer Dale “New Economics of Oil”, Oct. 2015
CLARITY • INSIGHT • VISION
Source: Y Charts, Quest Offshore Resources Inc.
Oil Price vs IOC Return on Capital EmployedInflation Adjusted Average Brent Oil Price In Sanction Year
0%
5%
10%
15%
20%
25%
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013 2014 2015
Pric
e pe
r Bar
rel
YearAvg. Inflation Adjust Brent Price IOC Avg. Return on Capital Employed
CLARITY • INSIGHT • VISION
Major Project Awards by Oil PriceInflation Adjusted (2014) Average Brent Oil Price In Sanction Year
<$20 <$30 <$40 <$50 <$60 <$70
Total Girassol -98
Statoil Snorre B -98
PB Marlim - 99
XOM Hoover Diana -97
CVX Petronious -97
BP Na Kika – 00
BP Atlantis – 01
XOM Kizomba A-C– 01-03
PB Marlim Leste- 2003
CVX Agbami – 04
BP Greater Plutonio - 04
Anadarko Constitution – 04
Murphy Kikeh -04
Maersk Culzean– 15
Shell Appomatox -15
Statoil Johann Sverdrup – 15
ENI OCTP -15
GDF Gjoa– 05
ENI Goliat -09
Total Akpo – 05
CVX Tahiti – 09
BHP Neptune
PB Roncador 3&4, 05&09
Long-term Opportunities:• Increased/stable oil & natural gas price• More efficient development executions
• Growing natural gas demand • Phased projects & shorter cycle times
• IOC’s operating in Brazil
Long-term Challenges:• Larger scale projects
• More complicated projects• Most of the “easy” reserves are found
• Less capacity/people to execute higher project volumes• Low 2013-2016 exploration leading to
reduced inventories of discoveries
Source: Quest Offshore Resources
CLARITY • INSIGHT • VISION
Deepwater Drilling Market
Deepwater Drilling Market
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CLARITY • INSIGHT • VISION
Current Contracted Units (44) U.S. Gulf of Mexico Floating Rigs
0
2
4
6
8
10
12
14
16
18
2016 2017 2018 2019+
Rig
Coun
t
Year Available
<$350,000 $350,000-$500,000 >$500,000
Leading Edge contracts on DW-UDW rigs in U.S. Gulf
Noble Danny Adkins Semi: $208 for 90 days firm
Ensco 8506 Semi: $210 for 120 days firm
Ensco 8505 Semi: $180 for two years firm
Noble Paul Romano Semi: $302 for one year firm
Deepwater Champion Drillship: $395 for 90 day ext.
Nearly half rigs currently working at rates above $500,000/day are nearing
the end of their firm contracts
Source: Quest Offshore Resources
CLARITY • INSIGHT • VISION
Cumulative Floating Rigs Stacked/Scrapped2009-2015
54
27
44 Warm Stacked
Cold Stacked
Scrapped
0
20
40
60
80
100
120
140
2009 2010 2011 2012 2013 2014 2015
Cum
ulat
ive
Coun
t
Stacked Year
Over 75% of inactive floating rigs have been taken out of service in the past nine months
Source: Quest Offshore Resources21
CLARITY • INSIGHT • VISION
Changing Deepwater Project EconomicsDrivers for Step-Change
Capex Allocation
0%
100%
SPS & SURF35%
FAB & FAC25%
DRLG40%
Current Cost Structure
8%
12%24%
The New Net
Potential Net Savings
Step-Change to Reduced Cost, Risk & Inefficiency
35%
30%
60%
Deflation, Replication, Efficiency, Standardization
44%
Source: Quest Offshore Resources
CLARITY • INSIGHT • VISION
Deepwater Value Creation
Source: Royal Dutch Shell Management Day Investor Handout – November 201523
CLARITY • INSIGHT • VISION
Market Trends & Forecast
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CLARITY • INSIGHT • VISION
Global Deepwater Exploration ActivityOpening up new reserves for long-term development
0%
5%
10%
15%
20%
25%
0
50
100
150
200
250
300
350
400
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% F
ront
ier
Spud
s
All
Expl
orat
ion
Spud
s
Spud Year
<5000fsw >5000fsw Frontier
Source: Quest Offshore Resources25
CLARITY • INSIGHT • VISION
0
10
20
30
40
50
60
70
80
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Gre
enfie
ld P
roje
ct C
t
Execution Year
Africa/Medit. (Mean Case) Asia Pacific/Middle East (Mean Case)North America (Mean Case) North Sea (Mean Case)South America (Mean Case) Global (High Case)Global (Base Case)
Global Deepwater Project Executions - Greenfield
2016-2020 vs 2011-15+3%
2021-2025 vs 2016-20 +49%
Source: Quest Offshore Resources26
CLARITY • INSIGHT • VISION Global Activity TrendsFacilities & SURF Market
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CLARITY • INSIGHT • VISION
Offshore Construction Vessel Day Rate Trends2013 – 2018
0.75
0.80
0.85
0.90
0.95
1.00
1.05
2013 2014 2015 2016 2017 2018
Day
Rate
Inde
x
Contracting Year
Deepwater Pipelay Derrick Pipelay Heavy LiftMSV ROV DSV
Source: Quest Offshore Resources Inc.
CLARITY • INSIGHT • VISION
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Africa/Medit.
Asia Pacific/Middle East
N. America
N. Sea
S. America
Vessel Demand Days
2017e 2016e 2015e 2014
Global Marine Construction Total DemandWorldwide Pipeline & Umbilical (Days) 2014-2017
Source: Quest Offshore Resources29
CLARITY • INSIGHT • VISION
North AmericaIndicators for Onshore & Shallow Water
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CLARITY • INSIGHT • VISION
0
500
1000
1500
2000
2500
0
10
20
30
40
50
60
70
2008 2009 2010 2011 2012 2013 2014 2015 2016
BHI U
S La
nd R
ig C
ount
GoM
Jack
-Ups
Con
trac
ted
Contracted Year
U.S. Gulf of Mexico Jack-Up RigsCurrent Contracted Units (6)
Source: Quest Offshore Resources
CLARITY • INSIGHT • VISION
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Num
ber o
f Str
uctu
res
Installation Year
Fixed PF 0-100ft Fixed PF 101-400ft Fixed PF 401-650ft
Fixed PF 651-1000ft Cais/WP 0-100ft Cais/WP 101-400ft
U.S. Gulf of Mexico Fixed Platform InstallationsNumber of Structures by Install Year, Type, and Water Depth
Source: Bureau of Ocean Energy Mgmt (BOEM), Quest Offshore Resources32
CLARITY • INSIGHT • VISION
0
50
100
150
200
250
300
350
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Num
ber o
f Str
uctu
res
Removal Year
Fixed PF 0-100ft Fixed PF 101-400ft Fixed PF 401-650ft
Fixed PF 651-1000ft Cais/WP 0-100ft Cais/WP 101-400ft
U.S. Gulf of Mexico Fixed Platform DecommissioningNumber of Structures by Removal Year, Type, and Water Depth
Source: Bureau of Ocean Energy Mgmt (BOEM), Quest Offshore Resources33
CLARITY • INSIGHT • VISION
Regional ForecastDeepwater Opportunities in North
America
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CLARITY • INSIGHT • VISION
Source: Quest Offshore Resources
Central GoM Lease Sale ComparisonHigh Bids in Millions USD
$0.0
$500.0
$1,000.0
$1,500.0
$2,000.0
$2,500.0
$3,000.0
$3,500.0
0-300 ft.
301-1,500 ft.
1,501-3000 ft.
> 3,000 ft.
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CLARITY • INSIGHT • VISION
Western GoM Lease Sale ComparisonSum of High Bids
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
$450.0
$500.0
8/1998HighBids
8/1999HighBids
8/2000HighBids
8/2001HighBids
08/2002HighBids
08/2003HighBids
08/2004HighBids
8/2005HighBids
8/2006HighBids
8/2007HighBids
8/2008HighBids
8/2009HighBids
12/2011HighBids
11/2012HighBids
8/2013HighBids
8/2014HighBids
8/2015HighBids
0-300 ft.301-1,500 ft.1,501-3000 ft.> 3,000 ft.
Source: Quest Offshore Resources36
CLARITY • INSIGHT • VISION
North America Deepwater Exploration Activity
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Spud
Cou
nt
Spud Year
0-1000 FSW 1001-5000 FSW >5000 FSW
175 E&A wells spud 2010-2014 216 E&A wells forecast to spud 2015-2019
The U.S. Gulf of Mexico accounts for 75% of North America deep water exploration drilling. Increased activity outside of U.S. Gulf will be led by results of current Newfoundland and Nova Scotia programs and future IOC activity in upcoming Mexico deepwater licensing.
Source: Quest Offshore Resources37
CLARITY • INSIGHT • VISION
Contracted Supply (44 units)U.S. Gulf Operators with Floating Rig Contracts
0 1 2 3 4 5 6 7 8
BHP-IND
Cobalt-IND
ConocoPhillips-IND
Eni-MAJ
Marubeni-IND
Noble Energy-IND
Repsol-IND
Statoil-NOC
Stone Energy-IND
Talos Energy-IND
ExxonMobil-MAJ
LLOG-IND
Murphy-IND
Freeport McMoRan-IND
Hess-IND
Anadarko-IND
BP-MAJ
Chevron-MAJ
Shell-MAJ
Rigs contracted past 2016 Rigs ending contract in 2016
13 rigs roll off current contract in 2016
Source: Quest Offshore Resources
CLARITY • INSIGHT • VISIONN. America Forecast Opportunities – Stand Alone DevelopmentsBy Country and Startup Year
5 Projects
Projects in engineering or procurement bidding stages
Stage Concept, FEED or Bidding
0-1000 fsw20%
1001-5000 fsw80%
0
1
2
3
2017 2018 2019 2020 2021
Canada NE GOM-US
Source: Quest Offshore Resources39
CLARITY • INSIGHT • VISION
Regional ForecastMexico Opportunities
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CLARITY • INSIGHT • VISION
• 10 total blocks in Perdido Fold Belt (4) & Salina del Itsmo Basin (6)
• Est. 10.8bn bbl reserves
• Final Presentation Q3 ‘16 Q4 ‘16 / Q1 ’17 Bid Round
• Requires Deepwater Experience
• License Model instead of Prod. Sharing Contract
Mexico Deepwater Bid Round 1.4
Source: Quest Offshore Resources41
CLARITY • INSIGHT • VISION
Paul H. Hillegeist President and COO
Caitlin ShawSr. Director Market Data & Research
Sean Shafer Manager of Consulting
Quest Offshore Resources, Inc. 77 Sugar Creek Center Blvd. Suite 500
Sugar Land Texas, 77478 USA
Tel: 281-491-5900Fax: 281-491-5902
www.questoffshore.com
Josh DouglasSales Manager
Contact Us
Inquiries:[email protected]