34 th Annual Marine/Offshore Industry Outlook Conference Offshore Construction Jim Osborn Chief Marketing Officer Global Industries 24 March 2011 1
The New Energy at Global Industries 2500 people 11 offices 14 vessels Ave $800M+ Annual Rev last 3 Years DLBs MSVs DSVs 2
Offshore Construction Things We Do Engineering Manufacturing Fabrication Installation ti & Commissioning i i Operations / Maintenance Decommissioning 3
Offshore Construction Products Wellhead Platforms Flowlines Surface Production Facilities Fixed Platforms Floating Spars TLP s Semis FPSO s FLNG Subsea Production Facilities SS Trees Manifolds Control Systems Subsea Separation Subsea Compression Subsea Pumping Export Systems Offloading Systems Pipelines Tankers LNG 4
Market Indicators Overall Offshore Spending Subsea Trees Flowlines / Umbilical Installation Export tpipeline Floating Production Fixed Platforms Decommissioning The view of the future is very different depending on which segment you re in and where you operate 5
Worldwide Offshore Spending Capex & Opex ) Exp penditure ($ billions) 200 180 160 140 120 100 80 60 40 20 Africa Asia Australasia Eastern Europe and FSU Latin America Middle East North America Western Europe Source: Datamonitor/Douglas-Westwood 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Global Capex fell in 09/10 but Opex grew Both Capex & Opex to grow strongly in the years ahead 28 new rigs ordered since October + 8 options. 10-15 more in 2011? $828 billion spend forecast over next five years Deepwater Capex to exceed $205 billion over forecast period 6
Worldwide Subsea Trees Awards Mean Case 700 Source: 2011Quest Offshore Resources, Inc. # of Subse ea Trees (Mean Cas se) 600 500 400 300 200 100 0 Award Year Africa/Medit. Ai/P Asia/Pacificifi N. Sea N. America SA S. America 40% growth rates pa 2003 to 2006 then sharp slump 08/09 Resumed high growth rates next 4+ years Good visibility of future projects and long project cycles 7
Worldwide Flowline and Umbilical Installation West Africa, Australia, GOM, North Sea and Brazil are the top markets SURF market to grow from 2015 onward Installation representing 23% of CAPEX spend after 2015 Flowline / Umbilical installation accounts for over 40% of the SURF market Deepwater to lead the growth Source: PFC 8
Worldwide Export Pipeline Demand 4000 3500 3000 2500 Kilometers 2000 1500 1000 500 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Install Year Source: 2011Quest Offshore Resources, Inc. 9
Worldwide Export Pipeline Demand By Region 4000 Source: 2011Quest Offshore Resources, Inc. 3500 3000 Africa / Med. North Sea South America Asia Pacific North America 2500 Kilome eters 2000 1500 1000 500 0 2010 2011 2012 2013 2014 2015 Installation Year Big impact from single large projects (Nordstream, Walker Ridge, Ichthys) Big geographic shifts, deepwater vessels more mobile than shallow water Australia is a major contributor in the near future, (unions and all) 10
Worldwide Floating Production Expenditure Expenditur re ($ billions) 18 16 14 12 10 8 6 4 Africa Asia Australasia EE & FSU Latin America Middle East North America Western Europe 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 High volatility in annual awards, steep decline due to recession FPSOs still dominate the sector, increasing market share are leased Increasing TLPs in Asia Pacific in the future Long term > 200 prospects, $16 billion market by 2014 11 Source: Douglas - Westwood
Worldwide Fixed Platform Installations Fixed Platform ms Number of 450 400 350 300 250 200 150 100 50 0 2011 2012 2013 2014 2015 Installation Year North America Middle East & Caspian Sea Latin America Europe Australasia Ai Asia Africa Represents all platforms, tripods to large floatovers Forecasts steady growth in the 5 to 6% range in number of platforms Over capacity in mature markets Impacted by increasing local content expectations 12 Source: Infield Systems
GOM Platform Installations & Removals Estimated 6,500 structures exist worldwide, more than 50% in the GOM BOEMRE Idle Iron guidance, is expected to increase demand Fewer than 200 structures are removed in a given year 13 Source: BOEMRE
Market Demand - Summary Sustained high but volatile commodity prices, oil trend slightly up, gas trend slightly down Asia Pacific leads in project activity, GOM lags Deepwater production is expected to grow by 99% over the next five years, shallow water only 20% After 2015, deepwater sector will be the only growing segment Resumed spending growth for the near future in most but not all sectors 14 Source: Douglas Westwood, Global Industries
Regulatory Problems and Trends International Increasing requirement for local content in all regions Brazilian government taking back operatorship of pre-salt Mexico needs outside investment and incentive contracts to develop offshore reserves Tax uncertainty offshore China Local Aftermath of Macondo, permitorium, lost revenue, continuing development and operator uncertainty, shallow and deepwater delayed Loss of 20% of the world market increased competition on the remainder Coastal drilling bans continue (Florida, Virginia, i Alaska) California carbon footprint regulations reduce offshore activity Tight gas limitation onshore may lead to increasing demand for offshore gas Visa restraints on international talent pool 15 McClatchy, Global Industries
Technological Problems, Developments & Trends Pre-salt Boom Oil Spill Containment More Reeled Pipelines Fewer Hubs & Longer Tiebacks Stranded Gas Solutions Advanced Subsea Production Technologies Increased Vessel Capacities & Depths Advances in Laser Welding 16
Financial Problems, Constraints and Trends For the foreseeable future, there is excess vessel capacity vs. vessel demand Tender margins are well below levels from 2 and 3 years ago Market segments with shorter cycles still hurting for backlog Long term continuing consolidation Cost squeeze between rising material costs and price pressure Competing with the US Government for capital, increasing the cost of money High commodity prices along with lid on contractor pricing should encourage operators to sanction more projects Oil companies are making money, budgeting for +/- $77 oil on average. Projects could actually move to the left for a change 17
Worldwide Pipelay Vessel Supply and Demand 18
Financial Problems, Constraints and Trends For the foreseeable future, there is excess vessel capacity vs. vessel demand Tender margins are well below levels from 2 and 3 years ago Market segments with shorter cycles still hurting for backlog Long term continuing consolidation Cost squeeze between rising material costs and price pressure Competing with the US Government for capital, increasing the cost of money High commodity prices along with lid on contractor pricing should encourage operators to sanction more projects Oil companies are making money, budgeting for +/- $77 oil on average. Projects could actually move to the left for a change 19
Personnel and Training Needs Aging workforce and experienced talent base dwindling Not enough middle management to fill the void and the competition for young talent is fierce Offshore industry has a reputation for hiring and firing, polluting and after Macondo is more dangerous The offshore sector is getting more complex and universities can t afford or find experienced professors to keep up with developing technology (we have to grow our own talent) Most companies are more serious about training up their new recruits and new technical advances are making offshore more attractive Many trainees are residents of host countries for local content Set up mentoring programs to leverage experience 20
Most Serious Threats and Solutions The increasing complexity and urgency of projects may not be well managed by constrained and less experienced resources That limited experience in a competitive environment could lead to another major environmental disaster Political upheaval in producing countries reducing opportunity or causing damaging commodity spike in prices Oil & Gas price rise sufficient to levels damaging the recovery and consequently drop demand China fiat to reduce growth and upset rising demand Peak Oil is closer than we think or wish 21
Summary Overall, the balance is positive for demand Return to reasonable growth in most sectors, deepwater better than shallow Lingering excess capacity in some sectors will affect margins Projects are increasing with complexity, size, risk and value We still don t have enough people Don t forget to buckle your seat belt Thanks to Douglas-Westwood, Quest, PFC, Infield, Petrodata, and BOEMRE for data sources 22