Douglas Westwood Presentation

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John Westwood Thom Payne

London Business School Energy Club

8 Feb 2010

1

About usEstablished 1990 Aberdeen, Canterbury & New York

Activities & service lines

offshore

Market research & analysis Commercial due-diligence Business strategy & advisory Published market studiespower

Industry sector coverageOil & Gas Power Renewable EnergyLNG LNG

onshore

400 clients in 60 countries

>600 projects completed for: government agencies energy majors and their suppliers investment banks & PE firms the leading independent provider of commercial DD to OFS investors

downstream

renewables

22

Published reports include

3

Brazil huge blackout. Half the country left without electricity g y y South Africa fear of return of power cuts UK peak d k demand could exceed capacity b 2017 d ld d it by Australia Victoriaelectricitydemandnearedarecordpeak China cold weather electricity rationing continues UK gas supplies for businesses turned off gas off Venezuela key industries halted by hydroelectric crisisPress reports since November 2009

4

4

Energy Market Drivers Sustainable Energy UK Power Generation The Future 5

Energy sources & issuesHydro 2% Environmental concerns E i t l over large dams CRW 10% Combustible renewables & waste Important in some countries p Growth potential

Nuclear 6% NIMBY concerns Long plant build time 5x gas powergen Capex

Coal 27% Abundant supplies Highly polluting CCS very expensive i

Gas 21% Abundant but local shortages Expensive to transport Off-the-shelf powergen plant Emits half CO2 of coalWorld Energy ConsumptionSource: Douglas-Westwood /IEA 2009

Oil 34% Preferred transportation fuel Supply concerns Emissions concerns

6

Energy two linked concerns; one driver

Population growth Energy supplies Global warming

7

Energy demand outpaces population growth193%sources: DWL,UN, BP

95% 55%

oil demand growth

energy demand growth Global Growth 1965-2008

population growth

Consider oil, the fuel of transportation:

1 billion cars worldwide. Production capacity 86 million p.a. (2008) Electric cars will help efficiency (eventually) But how long to change the world car fleet (>20 years?) Meantime China and Indias growing populations will motorise And cause a huge growth in oil demand and prices Can the global economy handle this?8

Energy demand and climate change

Security of energy supplies is amore i immediate problem th di t bl than global warming (and somegovernments are now realising this!)

US Russia Germany p Japan UK France China India

3.0 30 1.4 0.8 1.3 13 0.6 0.6 1.5 15 1.1 0.4 4.9 3.8 4.0 3.5 4.0 4.3 6

7.6 11.1 10 9.5 8.9 CO2 (t.p.a.)

19

The big political driver is climatechange

US consumes 5x more energyp per capita than China and p produces 4.4x CO2 per capita

energy (toe p.a.) population (hundred million) 13.3 11.5

But China has 5x the population What might happen as suchdeveloping economies grow?

Douglas-Westwood analysis using multiple data sources

9

Chinas oil demand could double in a decade

Chinadoubles China doubles USin2025

Chinareaches USin2018

Were China to follow Koreas path of development - as it largely has to date its oil demand would more than double in the next decade. By 2030, Chinese consumption could exceed 50 mbpdsource: Douglas-Westwood analysis using EIA, IMF, and US Census Bureau data

China is the key driver of global oil demand growth China oil consumption up 4.9% y on y , 7.3% in December p p year year, Vehicles sold: China 13.6 m vs. US 10 m in 200910

China leads a return to growth

Exports +17.7% YOY, (4.0% forecast) Imports +55.9% ( p (31% expected) p ) Industrial output +25% YOY (Dec) GDP growth in Q4 exceeded 11% The world's biggest car market in 2009. 13.6 million sold compared with 10 million in the US Car sales forecast to rise 15% in 2010 Imports from Asia soar. S Korea +94%, Taiwan +91%, Malaysia +53% (Nov) China to move from 5th to 2nd largest economy overtaking Japan Oil imports +14% i D i t 14% in December, up 4 9% YOY b 4.9%

DWL expect oil consumption to run1-2% ahead of GDP

Other Asia oil consumption +12% Dec Other Asia Dec.And Other Asia has more consumption than China

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China invests in future energy supplies

Canada: $1.7bn Oil sands USA: $2.2 bn Windpower

Russia: $300 bn. 300kbd UK: windpower bid

Venezuela: $8 bn

Nigeria: 1/6th O&G reserves

Brazil: $10 bn. 160kbd

Australia: 20 year LNG Australia: $5 2 bn Coal $5.2

January 2010: S Korea to buy 10 oil companies

energy security a priority

Data: Major investments in 2009. Douglas-Westwood

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They got it wrong before will they again?

March 1999

April 2009

13

Europe oil production in decline, gas to follow7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 35 3.0 2.5 2.0 1.5 15 1.0 0.5 0.0

Offshore OilSouthern Europe Other NW Europe Norway United Kingdom

Source: Energyfiles

Offshore gasSouthern Europe Other NW Europe Norway United Kingdom

UK

300 275 250 225 200 175 150 125 100 75 50 25 0

Mil lions of bbls oil per day s

Bcm per yea ar

UK

1985 1990 1995 2000 2005 2010 2015 2020 2025

1985 1990 1995 2000 2005 2010 2015 2020 2025

Offshore Europe has lost 50% of its oil production in a decade Massive dependency on Norwegian gas14

Global oil supplies cannot continue to grow120 100millio barrels pe day on er200 prospects exist and growth will recover24

Subsea recovers from a tough 20093,500 3,000Order Val lue $ millions

2,500 2,000 1,500 1,000 500 0

Aker Solutions Cameron Dril-Quip FMC GE Oil & Gas

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

Subsea Production and Processing OrdersSource: S bsea So rce Subsea Market Share Assessment December 2009 Do glas West ood Assessment, Douglas-Westwood

Subsea processing orders were hard hit in with the recession Pl Players revenues reasonably stable due to backlog bl t bl d t b kl Orders bottomed in Q4 2008 Trend suggests 2010 will recover to normal levels normal FMC is subsea market leader 2009 Q1-3 by order value25

Offshore ops & maint spend to see good growth$80 $70 $60$billions

$50 $40 $30 $20 $10 $0

Africa Asia-Pacific Eastern Europe & FSU Latin America Middle East North America Norway UK Rest of Europe

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: The World Offshore Operations & Maintenance Market Report 2010-14 Douglas-Westwood

>7,000 fixed & >200 floating platforms 7 000 fi d 200 fl ti l tf Spend to exceed $330 billion over the next five years Plus demand for major modifications Subsea IRM 10% CAGR as subsea installations increase26

Natural gas production to soarmillion barrels of o il equivalent per day n p

100 90 80 70 60 50 40 30 20 10 0

Africa Asia Australasia Eastern Europe & FSU Latin America Middle East North America Western Europe

Middle East

1930 1937 1944 1951 1958 1965 1972 1979 1986 1993 2000 2007 2014 2021Source: Energyfiles

Natural gas production currently dominated by E Europe & Russia Middle East, Latin America, Africa & Asia to see significant growth But local supply issues e.g. in Europe Deepwater gas and LNG to be of growing importance And unconventional gas US shale gas, coal bed methane, etc

27

Continuing growth in global LNG capacity400 350Liquefaction Capacity (mmtp pa)

300 250 200 150 100 50 0

Africa Asia-Pacific FSU Middle East South America North America Western Europe

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Large expansions to Qatargas and Rasgas plants to come onstream in2009/2010. 2009/2010 Will add 46.8 million tpa of new capacity to the market 46 8

33 additional installations forecast, incuding19 new facilities 53 new LNG import terminals and a number of expansions to expected p p pto be completed in the next five years28

Escalating costs are a major concern for future developments200 190 180 Oil Price Actuals (Brent) $100

Offshore Cost Inflation Index (CERA)

$120

Offhsore Cost Index C

170 160 150 140 130 120 110 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

$80

Brent Oil Price (Forecast) Brent Oil Price (Actuals)

$60

$40

$20 $

$0

Cost Inflation has tracked oil prices closely over the past 10 years. Costs cooled somewhat in 2009 but remain high. BUT Oil prices are on the move again. BUT i th i Another flurry of offshore activity may well trigger a similar cost inflation scenario. Major challenge for the industry to manage costs in the supply chain over the next five years.29

$/bb bl

Oil & Gas The Post-Recession World

Technology-driven IOCs will be under increasing pressure for new discoveries and expanded production mostly from deepwater OECD countries are unlikely to sustain oil prices much above $80 Threat of recurring recession, sluggish growth, possibly stagflation China and other emerging economies will tend to absorb incremental oil production p If w