Company Confidential and Proprietary. Do Not Distribute or Copy. Methodology To Cost Effectively Accelerate Local Value Creation Jim Walton Fluor Director, Corporate Strategy and Local Content 1 AV pptx World Bank Conference on Reconciling Trade and Local Content Development Mexico City, January 27-28, 2016 Session 3: Extractive companies perspective on local value creation Company Confidential and Proprietary. Do Not Distribute or Copy. Agenda 2 A How Do You Create the Optimal Balance Between Local Content and Project Cost? C How Do You Perform A Transparent Evaluation of a Project in Multiple Areas? D How Do You Evaluate The Local Content Impact On A Project vs Cost? B What Kind of Team Work Will Be Required Between Key Stakeholders To Be Successful? Kazakhstan Oil & Gas Botswana - Mining Company Confidential and Proprietary. Do Not Distribute or Copy. Fluor Overview One of the worlds largest Engineering, Procurement, Fabrication, Construction & Maintenance companies Oil, gas, chemicals, mining, metals, power, infrastructure, industrial and government Over 1,000 projects annually Workforce of over 40,000 3 December 31, 2014 Revenues:$21.5 B New awards: $28.8 B Backlog: $42.5 B Operates in 81 Countries for 600 Clients Company Confidential and Proprietary. Do Not Distribute or Copy. Mexico JV with ICA started in ,300 personnel in Office 99.7% Local, Construction 7,000 persons 100% Local, Equip & Material 40% Local Kazakhstan Began in JV with 2 Kazakh Design Institutes, 400 person office. Qualified 100s Kazakh suppliers & contractors. Work w/ Univs Philippines Began in in Manila and Cebu. 97%+ Local. FEED, EPCM and JV for Fab Yard India Began in ,100 personnel 98% local. Performing FEED and EPCM South Africa Began in personnel. Trained 35,000 craft. About 95% Local. FEED, EPCM & Self Perform Construct Fluors Local Content Activities 4 Thailand Began in Team with local firm China Started in persons. About 85% Local Russia Began in Achieved 80% Russian Personnel for Sakhalin- 1 construction. Russian JV for EPCM and O&M. Training Center Indonesia Began in Trained 10,000+ craft. Own 20% of 500 person firm Philippines Began in ,400 in Manila and Cebu. 97%+ Local. FEED, EPCM and JV for Fab Yard India Began in ,000 personnel 98% local. Performing FEED and EPCM Argentina Began in Trained 3,000 craft. Have 110 personnel in Buenos Aires Brazil CFPS JV with Construcap 75 personnel in Sao Paulo Trinidad & Tobago Began In FEED and EPCM 120 personnel 80% Local Saudi Arabia Began in personnel in Kingdom. FEED and EPCM South Africa Began in personnel. Trained 35,000 craft. About 95% Local. FEED, EPCM & Self Perform Construct Chile Began In Local Content. Mining Projects Mexico JV with ICA started in ,300 personnel in Office 99.7% Local, Construction 7,000 persons 100% Local, Equip & Material 40% Local Kazakhstan Began in JV with 2 Kazakh Design Institutes, 400 person office. Qualified 100s Kazakh suppliers & contractors. Work w/ Univs Poland Began in personnel and 96%+Local. FEED and EPCM Legend Other Local Content activities Company Confidential and Proprietary. Do Not Distribute or Copy. Many People Benefit from Projects Optimized for Local Content 5 AV pptx Project Optimized for Local Content Governments NOCs / Mining Cos Local Engineering Local Matl Supply Local Equip. Fab Local Construction Local Oper. & Maint. Training Centers Universities Small & Med. Enterprises Community Development IOCs / Mining Cos EPC Firms Company Confidential and Proprietary. Do Not Distribute or Copy. Project Must Also Be Cost and Schedule Optimized 6 AV pptx Project Optimized for Cost and Schedule Project Optimized for Local Content Optimal Balance Governments NOCs / Mining Cos Local Engineering Local Matl Supply Local Equip. Fab Local Construction Local Oper. & Maint. Training Centers Universities Small & Med. Enterprises Community Development IOCs / Mining Cos EPC Firms Technology Selection Process Configuration Modular Fabrication Low Cost Country Sourcing of Equipment Industry Standard Equipment & Specs Integrated EPFC Advanced Workface Planning Constructability in Design Company Confidential and Proprietary. Do Not Distribute or Copy. Owners: NOCs, IOCs or Mining Companies Owners: NOCs, IOCs or Mining Companies Government and Regulators Strong Team Work Required to be Successful 7 AV pptx Project Optimized for Cost and Schedule Project Optimized for Local Content Optimal Balance EPC Firms Local Engineering, Equip., Materials & Construction Approved Investment Company Confidential and Proprietary. Do Not Distribute or Copy. Build Trust By Performing A Transparent Evaluation of Local Content and Project Cost 8 Determine the Projects Design, Material & Construction Requirements STEP #1 Company Confidential and Proprietary. Do Not Distribute or Copy. Demand Oil Production Power Infrastructure Determine the Projects Demand vs Local Supply and Develop Growth Plan 9 Demand for Equipment and Materials Profile Local Equipment & Material Suppliers Benchmark The Local Firms Inspect & Pre- Qualify Stronger Local Firms Match Some Local Firms with Global Firms Local SupplyGrowth Plan Project Country Detailed Facility Evaluation & Enhancement Plan Company Confidential and Proprietary. Do Not Distribute or Copy. Modify Design To Include More "Local Equipment and Use Local Firms 10 Material & Equipment Piping Valves Vessels and Internals Pumps Drivers Heat Exchangers Structural Materials Instrumentation Electrical Storage Tanks Insulation/Refractories Paints/Coatings Must Not Compromise Plant Operations Increased Local Equipment & Material Company Confidential and Proprietary. Do Not Distribute or Copy. Strengthen Local Suppliers in Areas of Greatest Spend 11 Material & Equipment Requirements For Next 5 Years Type of Equip. & Material Cost $Millions Piping$440 Valves$200 Vessels and Internals$240 Pumps$200 Compressors$ 160 Mixers/Agitators$ 40 Drivers$240 Heat Exchangers$440 Structurals$120 Instrumentation$760 Electrical$360 Furnaces/Boilers$240 Storage Tanks$ 160 Insulation/Refractories$ 160 Paints/Coatings$40 Buildings$40 Other Equipment$160 Total $4,000 Existing Local Suppliers Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Enhanced Local Suppliers Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Increase # of Qualified Suppliers Supplier 2 = Qualified Supplier Supplier 3 = Unqualified Supplier Increased Local Equipment & Material Company Confidential and Proprietary. Do Not Distribute or Copy. Identify Roles for Small and Medium Enterprises (SMEs) 12 Advertise Project Opportunities for SMEs on Website or in Newspaper Identify SME Opportunities Provide Training for SMEs Increased Local Content Company Confidential and Proprietary. Do Not Distribute or Copy. Evaluate Modular Construction Options Oil & Gas Processing Unit Fabricate Smaller Modules In Country with Local Firms Large Modular Units for Cost & Schedule Large Modular Units for Cost & Schedule 3 rd Gen Modular Units for Local Content 3 rd Gen Modular Units for Local Content Company Confidential and Proprietary. Do Not Distribute or Copy. Evaluate Each Piece of the Local Content Plan Based on LC Impact vs Cost Impact 14 Company Confidential and Proprietary. Do Not Distribute or Copy. Construction Procurement Engineering Enhanced Local Content Current Local Content 40% 46% 80% 70% 60% 50% 40% 30% 20% 10% 0% Estimate The Cost and Schedule Impact of Achieving Higher Local Content Levels 15 Company Confidential and Proprietary. Do Not Distribute or Copy. Start Local Content Planning Earlier In The Project 16 Modular Fabrication? Benchmark Local Engineers JV with Local Firm Benchmark Local Firms Pre-qualify Suppliers Supplier Forums & Match Making Benchmark Local Firms JV with Local Firm Craft Training & Mod Fabrication Work with Universities Use Local Equipment? Evaluate Local Training Benchmark Local Firms Develop SME Enterprise Center Company Confidential and Proprietary. Do Not Distribute or Copy. Conclusion: You Can Cost Effectively Accelerate Local Content Implementation Everyone benefits if Local Content and project costs are optimized. Key stakeholders need to work as a team A transparent evaluation of a project should be performed Local Content actions can be prioritized Local Content planning must start earlier in the project lifecycle Optimized Local Content and project costs can be achieved 17 AV pptx Copper Mine in Mongolia