Offshore opportunities and challenges 28th of May 2015 Bruno Ferreol Challenges are at the heart of our industry

3-Jun-15 Page 2 US shales are threatening the economics of Ultra Deepwater projects

US shales are the The price of oil in US$ new swing producers per barrel 120

Industry effort -30% 100

Onshore 80 Deepwater Rest of World American Mid term market price? Shale

60

Onshore Oil Middle East Sands 40 Onshore Ultra Russia Deepwater Extra 20 Heavy Oil Offshore shallow water 0 0 20 40 60 80 100 Barrels of oil produced per day Source: IHS Energy

3-Jun-15 Page 3 Over the past decade, project costs have more than doubled

GOM project development cost comparison, 2000 vs. 2012*

SURF 2020 FOCUS 10-15% 45-55%

30-40%

Deepwater Supply chain / Complexity and Deepwater Project - 2000 market spec. choice Regulations Project - 2012

Cost drivers Rig rate Facility and Post-Macondo Material cost Well equipment and regulations Technical/Construction technical design Labour Water and well depth Supply Chain supply / demand • Main drivers of the inflation in project costs are complexity and technological choices

* Source: Shell OTC 2015, McKinsey & Co.

3-Jun-15 Page 4

“Never let a good crisis go to waste” Winston Churchill

3-Jun-15 Page 5 Reducing our cost base

3-Jun-15 Page 6 Typical Deep Offshore EPCI cost breakdown structure

TYPICAL LARGE EPCI

PMT 5% Internal 30% 10%

PROCUREMENT 40% External 70% FABRICATION 10%

OFFSHORE OPS 35%

The cost challenge goes well beyond the 1st ring of offshore contractors

3-Jun-15 Page 7 Curbing the inflation of PMT & Engineering manhours

• LEAN Engineering Louisiana Offshore Oil Port Porject Abandonment procedure – Developed by the automotive and ETPM 1601, 1979 aerospace industries in the late 70’s – Two main concepts: avoid waste

(redo, iterations, …) and focus on

« value for client »

• Maintain high while cutting in “non value” adding

tasks

• Maintain high end expertise

• In progress with some clients on a project by project basis

– Need a more systematic approach

3-Jun-15 Page 8 Accelerating the path of innovation: Electrical Traced Heated PIP example

• Electrical Traced Heated PIP combines ITP high performance thermal insulation with a resistive electrical heating system laid between the insulation and inner pipe.

• Technology enabling recovery of “complex” fluids, long reach tie-backs, simplified field architecture, enhanced fluid preservation, reduced footprint on topside

 CAPEX and OPEX reduction

3-Jun-15 Page 9 Bringing North technology to other regions: BUNDLES

• Towed pipeline bundles are multi flowline, control and injection lines encased within a larger carrier pipe between two manifold (towhead) structures. The manifold structures range from simple valve structures to complex subsea processing structures. • Concept develop in 80’s and continuously upgraded over the 70 Projects carried out, predominantly in the • Technology providing cost efficient alternative for Field Development and Architecture, ability to include monitoring and subsea Processing, High thermal performance, limited offshore installation spread

 Deeper waters, other areas

3-Jun -15 Page 10

Subsea 7 live projects – Leveraging on experience to bring value at concept stage

3-Jun-15 Page 11 Restructuring Client/Supplier relationship

3-Jun-15 Page 12 contracting model is unable to converge towards the cheapest • Supply chain process aims at minimising costs through:

Concept FEED by Competitive FID selection 3rd party Eng Tender

– Maximise commonality to maximise competition – Package “standard” interfaces – Competitive bidding per package

• Process does not work anymore:

Concept FEED by Competitive Tender FID selection 3rd party Eng – Unrealistic project costs and schedules – Under-optimised concepts – Long & costly post tender clarifications (>12months) – Major modifications to concepts required during tender process – Unable to capture full range of opportunities because of rigid packages

3-Jun-15 Page 13 Current trend: involve SURF contractor at the earliest and open door to most innovative concepts

Concept FEED by Competitive FID selection 3rd party Eng Tender

• Major shift over the past 12 months: Clients engaging with SURF contractor at concept stage

SURF Contractor input

Concept Design FID selection competition – Fully optimised solutions (advanced technology, expertise, best combination of design/asset capabilities, …) – Shorter time to 1st oil – Cheaper projects

3-Jun -15 Page 14 HSE: how will it look like in 20 years?

3-Jun-15 Page 15 Safety perception and Safety standards

3-Jun-15 Page 16 The Famous

Isambard Kingdom Brunel – the most famous of all British Engineers

The famous tunnel at Box, on the GWR

100+ people killed during construction, but it hasn’t caved in – Brunel is famous.

3-Jun-15 Page 17 Pipeline Installation – Safety

3-Jun-15 Page 18 Pipeline Installation – Safety

3-Jun-15 Page 19 Safety standards 30 years after

• What will be our safety standards in 10, 20, 30 years? • What are the implications in terms of risk identification, quantification and acceptability? • What technology will we develop?

3-Jun-15 Page 20 3-Jun-15 Page 21