© 2012 Fluor Corporation. All Rights Reserved. Fluor Procurement Overview China Sourcing Petroleum Equipment Summit 2012

© 2012 Fluor Corporation. All Rights Reserved.

Fluor Procurement OverviewChina Sourcing Petroleum Equipment Summit 2012

Fluor China Sourcing Petroleum Equipment Summit 2012

Global Petrochemical Project Execution

Discussion Topics

Fluor

Petrochemical Project Sourcing Trends

Procurement Execution Strategies

Fluor Prospect Update

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Fluor CorporationFluor Corporation

Executive Overview

One of the world’s leading publicly traded EPCM companies

Over 1,000 projects annually, serving more than 600 clients in 66 different countries

More than 42,000 employees– 1,900 Procurement

professionals

Offices in 28 countrieson 6 continents

100 years of experience

Fluor China E&C CompanyFluor China E&C Company

Office Profile

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Executing projects in China since 1978

More than 250 projects completed in China

Strong FSR/FEED/PMC/EPCM/EPC execution capabilities

9 Mega Projects executed during the last decade

Fluor has worked with more than:– 20 Class A China Engineering

Companies– Several Super Class / 1st Class

construction companies

Current staff ~ 876 Office Locations:

– Head Quarters, Shanghai Dawning Center

– Beijing Lido Plaza

Beijing

Shanghai

Fluor China E&C CompanyFluor China E&C Company

Customer Value Proposition

Dependability and Reputation: Proven track record of successful project execution in China - minimizing clients’ risk exposure, world-class reputation in project management, systems and tools.

Depth and capability of resources, including access to world wide expertise

Unmatched capability with very large projects but also with small and medium sized projects.

Full range of services from FSR, conceptual, self-perform design, procurement, construction, start-up, commissioning to O&M.

Our world class and leading track record in Safety in China

Class A Design and Pressure Piping QC and Class 1 Construction License

Large and highly capable China Sourcing center allowing customers to maximize China content whilst meeting safety and quality criteria

Extensive fabrication management experience – over US$ 1 billion in the last 3~4 years.

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Current Sourcing and Procurement Trends

Capital Project Market Development of Local Supply Content Capabilities Best Country Sourcing (BCS) Modularization Execution Strategies

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Fluor Procurement Sourcing and Procurement TrendsFluor Procurement Sourcing and Procurement Trends

Petrochemical Capital Project Market Impacts Petrochemical Capital Project Markets

– High Growth Markets - Asia and Middle East – Constrained Capital Project Funding

Driving more moderate design margins, industry specifications, High Value and best country sourcing trends

– Increased Local Content and Social Regulatory Requirements – Remote Project Sites, Constrained Resource Base

Client Market Profile– Rise of National Oil Companies– Total Cost of Ownership Focus

Competitor Market Profile– Established Asian Competitor Base – Expanded Global Market Reach

Commercial Contracting Structures– Increased competition base– Increased Risk to Contractor– Lump Sum Turn Key Market – Execution Partnerships critical to pursuit and award opportunities

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Fluor Procurement

Current Sourcing and Procurement TrendsFluor Procurement


Local Content Requirements

Local content is rising to the top of developing country political agendas impacting oil, gas, and mineral development capital projects

Local Content Requirements will be increasingly used as means to strategically develop national industries and generate employment

– Countries will utilize procurement and contracting instruments to creatively build national competitiveness through capital investment, technology transfer, and skills development.

The regulations, compliance requirements, business development, project delivery, and social performance policies have to be formulated with great care and aligned to the domestic suppliers ability to win contracts on the basis of an international competitive tender

– Instead of creating new jobs and filling local order books the result can be harmful impact on the country or region’s long term growth

– Introduction of new risks and higher costs to investment projects– Reduce the volume or timeliness of government revenues from the project investments

Project Execution Risks and Opportunities– Capital Project Execution Framework Flexibility– Ability to optimize Local Labor and Supply Market Capability – Western and Local Supply Integration Programs (Craft Training, Supply Integration)

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Fluor Procurement Current Sourcing and Procurement TrendsFluor Procurement Current Sourcing and Procurement Trends

Best Country Sourcing (BCS) and Market Intelligence Capabilities Owner inquiries specific to BCS capabilities continue to increase

– Owners are interested in cost and schedule comparison across multiple emerging market s – Specific to the China, India, South East Asia, Brazil, and Russia supply markets

Source from the best competitive market location based on job site location and project execution strategy

– Landed costs – logistics– Customs Clearance Costs– Leverage/Optimization of International Country Trade Agreements– Optimized Cost, Schedule, Landed Costs, Customs, Trade Agreements

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E&I Comparative Analysis

Opportunity Categories

China Price Advantage vs. Traditional Supply

India Price Advantage vs. Traditional Supply

Electrical Equipment

Switchgear ( LV & MV) 5-10% 20% – 25%

Transformer ( LV & MV) 5-20% 20% – 35%

Transformer ( HV) 5-20% 10% –15%

Motors 15-25% 10 - 20 %

Battery Chargers - 15% – 20%

Instrumentation

Field Instrumentation & bulks 10-25% 25% – 35%

Fiber Optic Cable - 30% – 40%

Control Valve - 20% – 35%

E&I Comparative Analysis

Opportunity Categories

China Price Advantage vs. Traditional Supply

India Price Advantage vs. Traditional Supply

Electrical Equipment

Switchgear ( LV & MV) 5-10% 20% – 25%

Transformer ( LV & MV) 5-20% 20% – 35%

Transformer ( HV) 5-20% 10% –15%

Motors 15-25% 10 - 20 %

Battery Chargers - 15% – 20%

Instrumentation

Field Instrumentation & bulks 10-25% 25% – 35%

Fiber Optic Cable - 30% – 40%

Control Valve - 20% – 35%

Enables – Supplier Integration Initiatives– Front End Supply Partner Brokering– Competitive Price Based Agreements that support capital projects, MRO, and total cost

of ownership– Cost Baseline knowledge that supports

more effective Negotiations – Expanded Sourcing Strategy Capabilities

Modularization Design and Construction Strategies

Increased Number Capital Projects with Remote Location Sites

– Lack Available Trained Labor– Increased Policy Costs– Increased Schedule with stick build execution,

personnel rotations, and land locked transportation requirements

Benefits to Project/Owner:– Reduction in direct onsite labour hours,

minimising exposure to safety incidents and reduction of site infrastructure

– Higher productivity and better quality management due to centralised construction workshops, with a permanent and trained workforce

– Parallel construction rather than sequential

– Early identification of assembly conflicts, allowing for corrective action without impacting onsite progress

Fluor Procurement

Current Sourcing and Procurement TrendsFluor Procurement


Stick Built Costs

Modularisation Costs

Tradeworker Productivity Higher Shop environment more productive

Tradeworker Hours Reduced Higher productivity

Tradesworker All-In Labour Cost Reduced Lower overheads; low cost labor resources

Field Indirect Costs (Camps & Catering)

Higher Fewer Tradesman on site

Scaffolding Costs Higher More work above grade

Engineering Costs Higher More structural design; added project management

Transportation Costs Higher Heavy haul/heavy lift costs

Material Costs Higher More structural steel

Project Contingency Higher Less risk factors in shop environment

Execution Flexibility Reduced Design and procurement frozen earlier

Material Surplus Neutral Neutral May be less with modular approach

Cost of Cash Higher Earlier spending


Procurement Execution Strategies include the

following which are being driven and fueled by Best

Country Sourcing, Local Content, and

modularization trends

Sustainable Supply Chain Focus Procurement Outsoucing Procurement Offshoring

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Fluor Procurement

Procurement Execution StrategiesFluor Procurement


Sustainable Global Supply Chains Supply Chain disruptions can be devastating for capital project operations and client

relationships.

Globalization has changed how companies manage the supply chain– Production of goods have shifted to developing and transitional economies

Cost and Schedule Advantages Increased Capital Project Activities in developing markets (Mining, LNG,

Petrochemical) Local content requirements

– This has brought new Challenges and Risks Inconsistent or Poor Quality Equipment and Material Supply Disruptions – Schedule Impacts Cultural, legal, administrative, language, and political issues Environmental – waste and emissions reduction, recycling, product design,

recovery Social Issues – child labor, working conditions, bribery, corruption

Companies that fail to manage these issues expose themselves to execution failures and reputational risks

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Sustainable Global Supply Chains

Critical Success Factors for developing and maintaining sustainable supply chains in developing and emerging markets include

– Identification and Qualification of top tier performers – Relationship Management – Building / Maintaining– China Commercial Terms and Conditions– Continuous Alignment on technical, quality, and commercial

requirements– Procedures Development Assistance– Production / Schedule Planning Support & Assistance– QA/QC/Supplier Quality Surveillance– Final Inspection for Release of shipment– In-Country Presence

Procurement Outsourcing/Offshore Execution

Client Drivers include Capital Project Cost, Schedule, Funding,

Total Cost of Ownership Focus, and lack of presence or

expertise in high value supply locations. Lack of Presence and capabilities in high value supply markets – China, SEA, India,

Brazil, Russia– Cost and Effort to establish presence in cost competitive markets– Ability to implement sustainable supply chain critical success enablers in these

markets

Asia and Middle East Capital Project Growth– Capital Project Funding– Local Content Requirements– High Value and Best Country Sourcing Drivers

Operations Cost – MRO Spend– Best Country Sourcing– Local Content Requirements– Supply Chain disruptions can impact project schedules, client relationships, plant

operations

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Fluor Procurement

Procurement Execution StrategiesFluor Procurement


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Market Prospect Update

Global EPCM Market Size ForecastGlobal EPCM Market Size ForecastNext 5 yearsNext 5 years

Fluor EPCM Market Forecast Fluor EPCM Market Forecast

The AmericasThe Americas

miningmining

shale gasshale gas

oil sandsoil sands

upstreamupstream

upstreamupstream

biofuelsbiofuels

miningmining

chemicalschemicals


Europe, Africa, Middle EastEurope, Africa, Middle East

upstreamupstreamchemicalschemicals

renewablesrenewablesinfrastructureinfrastructure

powerpowerinfrastructureinfrastructureupstreamupstream

infrastructureinfrastructure

powerpower


Asia PacificAsia Pacific

powerpowerpharmaceuticalspharmaceuticalsminingmining

LNGLNGupstream/downstreamupstream/downstream

powerpowerphotovoltaicphotovoltaicnuclearnuclear

miningmining



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Q & A

Documents

© 2012 Fluor Corporation. All Rights Reserved. Fluor Procurement Overview China Sourcing Petroleum Equipment Summit 2012