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2 Contents Introduction 2 Summary 3 Dutch OFS industry five-year historical comparison 6 OFS company presence 8 Opportunities for the Dutch OFS industry 9 Comparison with Norwegian and UK OFS sectors 1 About EY 12 Thought leadership 13 Assurance jeff.sluijter@nl.ey.com rene.coenradie@nl.ey.com Advisory wouter.van.gelderen@nl.ey.com Tax cyrille.prevaes@nl.ey.com guillaume.petit@nl.ey.com dolf.bruins.slot@nl.ey.com

3 Introduction Summary Welcome to the 217 Dutch oilfield services (OFS) industry analysis. In this report, we quantify the size of this diverse industry and analyze its dynamics. EY conducts regular analysis of the various North Sea OFS segments. We also issue annual reports covering the UK- and Norwegian-based OFS industries. We have analyzed annual financial information published by the companies in our sample from 212 to 216. As such, the analysis does not reflect any recent developments in the industry. However, to complement this research, we also take a moment to look ahead and discuss opportunities and challenges facing the industry now and in the future. Please note that the completeness of our data depends on the financial information disclosed in companies annual accounts submitted to the Dutch Chamber of Commerce. Our sample of companies comprises those we deemed to be relevant. The number of companies included in our analysis varies from year to year, due to availability of financial information. This means that 215 figures mentioned in our 216 report might deviate from the 215 figures mentioned in this year s report, on an aggregated level (although not on a company-bycompany level). A company is defined as a Dutch OFS company if: At least 5% of its activities is deemed to be related to the oil and gas sector It is a Dutch-registered company Accounting information is publicly available from the Dutch Chamber of Commerce. The companies registered business addresses have been used to reflect their geographic location. The number of companies included in the analysis varies somewhat, due to variation in availability of financial information. We have used the stand-alone financial statements for each legal entity in our analysis. As a result, large corporations have been analyzed as a series of individual companies and not as a consolidated group, where possible, to get a more detailed demographic view of location and activities across the supply chain. The implication is that intercompany transactions are not eliminated when financial figures are aggregated. the drop in 214. This status quo resulted in a further drop in revenue and headcount for the Dutch OFS industry across all four segments. The EPC segment saw the smallest drop. In the short term, revenue increase will have to come from these new activities, and activities abroad, since the Dutch Continental Shelf (DCS) mostly hosts end of lifetime fields that are less profitable in an era of sustained low oil prices, with limited potential for the development of new plays % -18.9% This decrease in revenue had an impact on the number of people employed by the industry. Compared with 215, more than 6,2 people lost their jobs in the Dutch OFS industry, a decrease of 8.8% Each company in the OFS portfolio has been reviewed individually, and an assessment has been made of its position in the value and supply chain. The value chain has the following segments: Reservoir and seismic (RS) Exploration and production drilling (drilling) Engineering, procurement and construction (EPC) Operations (OPS) -24.8% The RS segment saw a decrease of nearly a quarter in 216, dropping from 3.1b. to 2.3b, due to a further decrease in exploration spending. The number of employees in this sector decreased by 8.7% to about 15, people % The smaller drilling segment also saw a drop in revenue in 216, due to less productivity on the DCS, a very cost-intensive production area. The number of employees in this segment reflected the revenue with a 17.% drop % -21.6% The EPC segment saw a decrease in 216 revenue of 15.6%. In 216, more projects that were sanctioned before the drop in oil price reached completion. The number of employees dropped significantly by 1.6%. OPS followed suit with a decrease in revenue, from 6.3b to 5.b. OPS is the last link in the supply chain, and order books started emptying in 216. The number of employees in this sector stayed relatively stable with a decrease of just 3.3%. 3

4 Summary Summary We find ourselves living in a world with structurally low oil prices. Historically, they were quite stable, around the US$11 mark from 211 to 214. Market dynamics have fundamentally changed since then, predominantly due to the rise of unconventional sources such as tight oil and shale oil. Before this rise, OPEC was able to keep oil prices high by restricting its own output. As no other country or producer was able to offset these restrictions, they lowered total global supply Brent daily spot price in US$/barrel Europe Jan 7 Jul 7 Jan 8 Jul 8 Jan 9 Jul 9 Jan 1 Jul 1 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Jan 18 Source: US Energy Information Administration/Federal Reserve Economic Data. Now, with the rise of unconventional oils, this dynamic has been disrupted. Where it used to take more than seven years to move large-scale developments from investment decision to peak production, for shale oil it only takes nine months. Restrictions by OPEC can now be offset by increases in US unconventional oils. Worrying about the advent of unconventional oils, OPEC tried to push them out of the market by letting the oil price drop in 214. This seemed successful initially, as many investors needed to write off significant amounts, and key players left the market. However, the tight and shale oil industry responded by lowering costs. Key shale producers now have wellhead competitive at current price levels. As one industry expert commented: OPEC has lost the war on shale. Shale is here to stay. becomes more attractive and is increased, lowering prices. This price level is positively influenced by other factors (such as global economic growth and political unrest in Iran), but without the current OPEC supply cuts, the global oil market would still be oversupplied. The fact that US producers of unconventional oils are expanding capacity on top of this all leaves little room for other producers to expand production. The result of all these developments is that the Dutch OFS industry remains in decline. The industry has taken significant steps over the past years to align its cost structure with the new oil price level, yet the fact remains that profit margins have been eaten away. Now, with a forecast that revenues will not rebound quickly, it is becoming apparent that costs will continue to be an important theme in 218. Despite the fact that almost all of the Dutch OFS companies are globally active, many have significant exposure to the North Sea area. Even when global investments rise, the North Sea area will pick up somewhat later, as the fields in the North Sea area are typically not as profitable. Where investments in the US oil industry have already rebounded, driven by the rise of unconventional oils, investments in the North Sea area are expected to remain level or even decline slightly further in 217 and 218. In this area, no unconventional oils are to be found on a similar scale or at breakeven prices. Consequently, in addition to a continued focus on costs, developing sustainable business models is especially relevant for Dutch OFS companies. EPC fleet is being used to build and service offshore wind farms. Digital technology enables the industry to collect, process and analyze data, driving optimization, cost efficiency and safety. The pace at which decommissioning projects commence will depend heavily on the recovery of the oil price. Alternatives for reusing nonoperational platforms are being investigated. Collaborations within the industry are increasing, primarily in large and complex project developments, driven by a need to spread risks. Due to the significant reduction in oil prices, it is clear that many companies in the Dutch OFS sector have been suffering in the past few years. Most companies have seen their revenues and margins reduced, and have responded by cutting costs in order to limit losses, although some weathered the storm better than others. We observe that, from 214 to 217, many companies focused on shortterm cost efficiencies with immediate cash results, such as canceling projects, reducing the workforce and delaying nonessential maintenance and capital expenditures. Companies have also been looking at alternative deployment for their assets, such as offshore wind and decommissioning activities. However, in order to sustainably (out-)perform in this new world of lower oil prices, structural changes are needed. The entire organization needs to be engaged to realize those changes. Processes will have to be re-engineered and digitalized. Cooperation needs to be extended, both across siloed departments and with other companies across the value chain. An interesting example is an initiative in which North Sea oil companies share spare parts, improving uptime and reducing costs. With squeezed margins, every cent counts. Leading companies are also trying to transform or diversify themselves by moving within the value chain and by breaking into new markets, such as offshore renewables and decommissioning. The Dutch OFS sector is known for its high-tech and innovative solutions, and upholds a long-term reputation in this area. There is confidence that the sector can come out stronger, but only by structurally adapting to this new world of lower oil prices, will companies be able to win. bbl may well be the new normal, and the market has a new dynamic. OPEC is no longer able to set the prices singlehandedly and a negative feedback loop exists in the market: when oil prices rise, unconventional oil production René Coenradie Partner EY The Netherlands 4

5 Dutch OFS industry five-year historical comparison Total Five-year revenue split Five-year headcount total 8, 6, 4, 2, The RS segment includes Dutch legal entities that operate the vessels and equipment used for seismic surveys, and companies that analyze and interpret the geophysical and petrophysical data acquired by these surveys. With the market for the RS segment in the Netherlands remaining relatively small, companies need to operate on projects across the globe to create revenue. This results in a segment with a few small local companies and some large international companies EPC Reservoir and seismic Drilling EPC Operations , 15, 1, 5, 5, 4, 3, 2, 1, , 1.5 1,5 1. 1, , 12, 9, 6, 3, Drilling is a multifaceted segment of the OFS industry. It is a mature market from a Dutch perspective, including companies that own or operate drilling rigs, as well as the more traditional companies that deliver products and services to these rigs. Companies in this segment typically provide a wide range of services. The potential for the drilling segment on the DCS going forward keeps declining, so drilling activities will remain rather limited, with just a few Netherlands-based companies involved. EPC This segment comprises Dutch legal entities involved in EPC of production platforms, vessels or equipment and components. In terms of revenue, it is the largest segment of the OFS market. Traditionally, Dutch contractors have a good reputation and strong track record in EPC, thanks to their high standards of quality, innovation and safety. The segment is a global market, and Dutch contractors have been involved in many oil, gas and offshore wind energy projects all over the world. Dutch engineering firms are recognized worldwide, designing numerous mobile offshore units, drillship or jack-up drilling rigs, FPSOs and offshore support vessels. The OPS segment includes entities that support oil companies and operators with production modification, maintenance and inspection, but also provide logistical services such as helicopter transport and onshore bases.

6 OFS company presence Opportunities for the Dutch OFS industry The sample for our analysis consists of legal entities located across the Netherlands. The Dutch OFS industry is mainly found in three clusters in the western part of the Netherlands: Rotterdam Amsterdam and IJmuiden Den Helder Besides its significant presence in these clusters, the Dutch OFS industry provides employment opportunities and contributes to infrastructure across the whole country. Rotterdam is the largest and most important cluster in the Netherlands. The city harbors several of the largest OFS companies active in the Netherlands for two reasons. First, the Port of Rotterdam provides an access point for the offshore industry. Second, the Rotterdam region is home to a wide array of storage, refining and transport assets for the oil and gas sector. The refineries of integrated oil and gas companies are situated in the Port of Rotterdam and surrounded by the oil storage infrastructure, which means that Rotterdam harbors a large part of the downstream oil and gas infrastructure. Number of OFS companies per province Zuid-Holland and Rotterdam Employees 23,215 FTE Revenue 8.6b Noord-Holland Employees 32,885 FTE Revenue 7.8b 138 Employees 5,67 FTE Revenue 1.5b Noord-Brabant In recent years, the development of wind energy farms largely relied on government subsidies, with limited future investment prospects. Nowadays, the industry is depending less on government subsidies, as development costs of wind farms declined steeply during 216 and 217. In December 217, the first zero subsidy tender for offshore wind farms in the Netherlands was held, following successful subsidy-free tenders in Germany. As a result of these lower costs, and less governmental involvement, offshore wind is increasingly becoming a long-term opportunity for the Dutch OFS industry, instead of a short-term solution to park assets. However, it is uncertain if OFS companies still consider the offshore wind industry as an alternative source for fleet usage. In the case of an oil market recovery, attention might turn back on margins in oil and gas offshore activities, rather than the cost efficiencies that are the current focus and include diversification. There has been a recent focus on cost savings and optimization of return on assets, as a result of decreasing margins. This has led to an increased adaptation of tech and digital innovations throughout the sector. Oil majors are determined to preserve dividends and increasingly adapt new technologies in order to remain competitive. Technology enables the oil and gas sector to collect, process and analyze data, driving optimization of asset utilization, cost efficiency and safety. The internet of things connects critical assets and systems. Innovative software allows us to manage, store and analyze massive amounts of business sensitive data. With the help of robotic process automation, systems can collect and respond to data in real time without the need for human intervention. Decommissioning & Re-use, as a joint initiative by government and industry to streamline the decommissioning process. As well as decommissioning, the masterplan also investigates opportunities for reusing the existing infrastructure. Furthermore, 11 companies started collaborating in 217 to investigate the possibilities of using nonoperational oil platforms for green energy. These opportunities include storing offshore wind current and using the infrastructure to generate and store hydrogen. The OFS industry is challenged by changing customer behavior, fundamentally impacting companies relationships with their customers and their business models. Some OFS companies are adapting to the new environment by embracing new technologies and contract models, and increased collaborations. The industry needs to develop new technologies to reduce costs, mitigate risks, and improve reliability, often on a shared risk-reward basis. Collaborations within the industry are primarily increasing in large and complex project developments, driven by a need to spread risks. As collaborations throughout the sector and their impact on operations create new opportunities for all players, the boundaries between (sub)sectors become more blurry and the segmentation of the OFS industry starts to change. Around half of the 155 production sites on the DCS are currently nonoperational and the number of operational platforms is expected to decrease even further in the coming years. There have been limited signs of increasing decommissioning activity in the short term, as many operators deploy initiatives to preserve cash as a result of the lower-for-longer oil price environment. Energie Beheer Nederland launched the Netherlands Masterplan for

7 Comparison with Norwegian and UK OFS sectors (All data for 216 in billion unless stated otherwise) UK* Number of companies Number of employees 12, 88, 64, Turnover Turnover decline, % -26% -19% Exports as a percentage of turnover (estimated) 41% 35% not available EBITDA not available EBITDA margin 9% 8% not available * The exchange rate used to convert the UK data is.82 per ** The exchange rate used to convert the Norwegian data is NOK9.3 per 36% 38% 26% Netherlands Norway UK UK Norway Netherlands The downturn in the Norwegian OFS industry has been significant, and both deeper and more prolonged than anyone, including the industry itself, predicted. The strong growth in the period from 211 to 214 has now been reversed, as the industry is currently back at the 21-level aggregate in terms of revenue. We note a total Norwegian OFS industry revenue decline of 36% since 214. Most of the companies have gone through challenging and complex processes, adjusting assets, manufacturing and human resources capacities to meet the expected lower-for-longer market demand. Since 214, we have observed a net job reduction of 3, employees. The industry has now very likely put the worst challenges behind it, but is preparing short-term for still-muted market scenarios as it is probable that E&P spending on the Norwegian Continental Shelf will only grow gradually and modestly toward 22. Despite the likelihood of the domestic and international markets not showing growth in the short to medium term, Norwegian OFS is still the largest industry compared with the UK and the Netherlands and a significant value creation contributor to Norway. And we do believe we are past the worst. Our analyses of 217 and 218 indicates a leveling of activity, in line with market KPls, indicating increasing optimism in the industry as E&P investments are modestly increasing toward 219. We do not believe the industry will come back to 214 levels, but it will continue to be the main value creator for Norway. We need to remind ourselves that companies will still struggle with lower margins, overcapacity in certain segments and further restructuring negotiations over the coming years. At the same time, we know that Norwegian offshore technology is still competitive and highly attractive. There are many exciting technologies that are now being developed and commercialized over the coming years, which will ensure that Norwegian OFS will remain competitive and be crucial to a secure global energy supply in the future. The expression cautious optimism continues to dominate the oil and gas sector and, over the course of the past 12 months, the pendulum has swung back and forth between these two words. The decline in revenue and margins since the peak in 214 demonstrates the extent of the challenges the UK OFS industry has been facing. Although significant cost and capacity have been taken out of the system, the UK OFS supply chain remains firmly focused on cost discipline, including managing headcount, creating more integrated offerings, and innovating both in technology and commercial arrangements. Headwinds remain, particularly in relation to domestic activity as the development pipeline continues to run off, and, despite a 5% decrease since 214, the relatively high operating costs of the UK Continental Shelf compared with other basins. In addition, there continues to be concern that significant cost escalation could return alongside any material upturn in demand, as the supply chain has been pared back to a minimum, with little capacity to meet increased demand. On a more micro level, 218 is likely to be another challenging year for management as they balance dayto-day operational efficiency, liquidity management and stakeholder relationships, while addressing structural changes to the industry, as large integrated companies move from consolidation to portfolio optimization and digital technologies are increasingly adopted. Yet there are signs that sentiment is turning. Many observers expect the price of crude to remain in the band in which it has been trading for the foreseeable future, and opportunities are increasing for UK OFS companies able to differentiate themselves, especially in international markets. Alongside price, other critical success factors will include relationships, proximity to markets and customers, flexibility and, above all, innovation. Espen Norheim Partner EY Norway Derek Leith Partner International Tax Services EY UK

8 About EY Thought leadership Scale 2 professionals in the Netherlands working in the oil and gas sector. North Sea teams for seamless support to clients operating across the area. An established global network of more than 1, experienced professionals supported by 15 Global Oil & Gas locations for the industry. Oil and gas skills EY has been advising the oil and gas sector for more than 1 years. EY is a leading auditor of oil and gas companies identified on the Forbes Global 2, 216 Fortune 1 largest US corporations and 216 Russell 3 lists. Our capabilities are focused around energy excellence, and include: Transaction advisory Assurance Advisory Tax EY Global Oil & Gas keep you updated with regular thought leadership publications, exploring the latest developments within the sector. Our deep industry knowledge can help you anticipate trends, manage regulatory changes, drive down costs and compete more effectively. Digitization and cyber disruption in oil and gas In the changing world of the oil and gas sector and the expanding role of the internet of things, the need for better cybersecurity is immediate. Review of the UK oilfield services industry The annual review of the UK OFS industry. We discuss the impact the changing oil market has had on the performance in both the UK and internationally. 5,4 professionals The end of the LNG megaproject? Discover liquid natural gas relevance in a low-carbon future. The Norwegian oilfield services analysis 217 Overview of the situation and development of the OFS industry in Norway, based on actual performance. 1,7 professionals 3,4 professionals Global Oil & Gas location Satellite location Is the future of your workforce ready now? February 217 Is the future of your workforce ready now? Discover what the future of work may look like for companies in the oil and gas industry. Outlook of oil and gas analyst themes 218 Get insight into the themes we expect to see shape 218 based on insight from oil and gas company earnings calls. Are you prepared?

9 EY About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of a separate Legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. How EY s Global Oil & Gas sector can help your business The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and sector supports a global network of more than 1, oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant sector issues. With our deep sector focus, we can help your organization drive down costs and compete more effectively. 218 EYGM Limited. All Rights Reserved. EYG no: GBL ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other