Leading Commercial Advisor for OFS M&A, Financing. 250k investment in 3D underwater technology for oil and gas markets

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1 2/9/211 Global Energy Outlook & Prospects for the LNG Sector Steve Robertson LNG Fuel Forum 2th September com Our Business Established 199 Aberdeen, London, Canterbury, New York & Singapore Activity & Service Lines offshore Business strategy & advisory power Commercial due-diligence Market research & analysis Published market studies Large, Diversified Client Base 7 projects, 4 clients, 7 onshore downstream countries Leading global corporates Energy majors and their suppliers Investment banks & PE firms Government agencies Douglas-Westwood Limited 211 LNG LNG renewables 1

2 2/9/211 Leading Commercial Advisor for OFS M&A, Financing 16 million euro acquisition of 65% stake in GEMS International by Rutland Partners LLP Acquisition of ASEP by NOV Acquisition of Anson by NOV NOK 4.3 billion joint acquisition by First Reserve & DOF Sale of Motherwell Bridge to Kuwait Finance House Acquisition of APAC division by Champ Ventures 25k investment in 3D underwater technology for oil and gas markets MBO backed by HSBC Private Equity Borets Group $15 million debt facility, led by EBRD AGT Energy acquisition of 5% share of Oilflow Solutions from Vienco $719 million IPO 75.5 million MBO $18 million project financing of FSO 'Cidade de Macae MV15 67 acquisition by Ferd Private Equity Acquisition by SCF Partners Acquisition by Cable Solutions Group Inc. 319 million IPO $768 million IPO 535m finance facility Perry Slingsby Systems capital acquired by Triton Group Holdings Arcapita completes acquisition of Roxar 29 million Refinancing Inflexion Private Equity Backs 22m MBO of Viking Moorings Expro Group $675m acquisition of Powerwell Services 15 million MBO of Motherwell Bridge Management buyout of ESS Steel Holdings Fund-raising for rig newbuild programme Nautronix acquisition by SCF Partners Equity investments in Advantec 34.5 million Rovtech acquired by Fugro Acquisition, Growth and Working Capital Facilities 13m debt facility to finance the construction of two specialist vessels Epcon Offshore AS acquisition by M-I SWACO. Songa Drilling Acquisition by Inflexion Private Equity $35 million project financing of FPSO RJS-49 (Espadarte Sul) Candover s Acquisition of Wellstream Merger of CRP Holdings Limited and Balmoral Group International $28m acquisition of KBR Production Services Serimer Holdings acquisition of the UMAX group UMAX Ltd 142m acquisition by Close Brothers Private Equity Recapitalisation 5 million credit facility for Sovereign's acquisition of Forfab Investor syndicate $925m acquisition of ABB Oil & Gas Douglas-Westwood Limited 211 Industry-Leading Published Research An amazing and comprehensive report Riverside (USA) Excellent report, very comprehensive and well laid out Vestas (Denmark) Douglas Westwood are the sector study experts Woodside (Australia) Douglas-Westwood Limited 211 2

3 Energy Sector Outlook LNG Market Review Risk Factors Conclusions What will happen as developing economies grow? What will be the impact on energy demand & prices? Developing economies will increasingly bid away the OECD s energy supplies 3 2 Average annual electricity consumption 29 (twh) Average annual oil consumption 29 (barrels) Data sources: BP Statistical Review and the United Nations 6 LNG Fuel Forum 6 3

4 Global energy sources Nuclear 5% NIMBY concerns Long plant build time 5x gas plant Capex? Renewables 7% Hydro environmental concerns over large dams Wind, solar etc high costs Oil 35% Preferred transportation fuel Supply concerns Emissions concerns Coal 29% Abundant supplies Highly polluting CCS very expensive and unproven at scale Gas 24% Abundant but local shortages Expensive to transport Off-the-shelf powergen plant Emits half CO 2 of coal No energy source is ideal 7 Sigma 14/9/211 source: BP Gas Will Play A Key Role in Meeting Energy Demand Energy demand growth outpaces population growth (95% v 55%) Recently driven by growth in China and India Gas supply is dominated by E Europe & FSU but others to see significant growth All areas to see growth in consumption, particularly l Asian markets Gas is abundant, clean and efficient choice relative to oil, nuclear, coal, etc. oil equivalent billion barrels of o Africa Asia Australasia Eastern Europe & FSU Latin America Middle East North America Western Europe Global Primary Energy Consumption (Source: BP) Global Natural Gas Production & Consumption (BP 211) 8 4

5 Oil Production The Limits Are Clear per day million barrels of oil p Bitumen and Oil Sands Offshore Deep Offshore Shallow Conventional Onshore Global Oil Production There is an increasing reliance on offshore and deepwater production: Offshore oil: 25% of global production in 199, 31% in 2, 33% in 21 and 34% by 22. Deepwater: % in 199, 2% in 2, 9% in 21, 13% by 22 Oil supply: 8 out of 1 oil majors passed peak production? Production (mbbl/d) Exxon Mobil 2,496 2,516 2,571 2,523 2,681 2,616 2,45 2,387 2,422 BP 2,18 2,121 2,531 2,562 2,475 2,414 2,41 2,535 2,375 Petrochina 2,19 2,119 2,265 2,27 2,276 2,299 2,38 2,311 n/a Royal Dutch Shell 2,359 2,379 2, ,93 2,3 1,899 1,771 1,68 1,79 Petrobras 1,533 1,71 1,661 1,847 1,92 1,918 1,978 2,13 2,156 Chevron 1,897 1,823 1,737 1,71 1,759 1,783 1,676 1,872 1,923 Total 1,589 1,661 1,695 1,621 1,56 1,59 1,456 1,381 1,34 ConocoPhillips ,129 1, , Statoil 1,112 1,132 1,135 1,12 1,58 1,7 1,55 1,67 1,112 Eni ,34 1,111 1,79 1,2 1,26 1,7 n/a Data: Petroleum Review, May 21 Peak Year? 1 Peak oil is a reality, not just for the majority of the producing countries but perhaps for the majority of the top producers Gas has a role to play as a substitute The failure of governments and the International Energy Agency to promote transparency over key data and analysis about oil production and supply is leading the world blindly into a looming energy crisis. The Missing Chapter - Global Witness 16 th July 211 LNG Fuel Forum 2 th September 211 5

6 Recent stock market falls, Eurozone crisis and worries over economic growth Spring 8 Spring 9 dramatic drop in consumption of 5 mbpd from 88 mbpd to mbpd in May 29 Recovery to the same level took only 1 year! Jan 211 up 1.2 mbpd compared to Jan. 21 forecast Aug 211 demand up.78 mbpd on Jan 211 expectations Million Ba arrels per Day Short-term Outlook STEO Jan 21 STEO Jan 211 STEO Aug Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 EIA World Oil Consumption, Actual and Forecast, million barrels per day Source: EIA STEO Jan. 21, Jan 211 and Aug 211 Global consumption up 6.2 mbpd (to 89 mbpd) since lows of the recession and 2.25 mbpd in the first 8 months of this year. China up 22% to 1 mbpd since May 29. Natural gas production and use to soar million barrels of oil equ uivalent per day Africa Asia Australasia Eastern Europe & FSU Latin America Middle East North America Western Europe Source: Energyfiles Large resource but costly to transport Deepwater gas, LNG & FLNG to be of growing importance But local supply issues e.g. EU to import >73% by 22? Increased Japanese demand? Impact of unconventional gas on North America (& other markets) FSU ME NA 6

7 The Gas Story is Very Different United States Russia 1 years US supply Btu ratio Oil to Gas Avg. ratio Feb. 21 Dec. 218 Avg. ratio Iran Qatar 1.5 Other OPEC Rest of World Proved Gas Reserves: 6,3 trillion cubic feet (6 years) Source: EIA Oil-to-Gas Price Ratio on a BTU Parity Basis Source: EIA, NYMEX futures Gas shales have revolutionized US outlook 1 years supply in US resources: 2 quadrillion cf resources on 23 tcf consumption Some questions about economics, but $7-8 mmbtu gas looks plausible indefinitely Other shale initiatives beginning (BP in China) Major LNG projects continue to come on line Right now, the world looks to have plenty of natural gas 13 Gas lowest Capex for power plants Capex ($ mllion / mw W) Source: EIA Nov 21 Deepwater Production Tech 9 th March

8 New Approaches To Developing Stranded Gas - FLNG World s largest offshore floating structure Will produce 3.6 mmtpa of LNG 1.3 mmtpa of LPG.4 mmtpa of condensate Storage Capacity 22, m 3 Source: Rigzone Shell has awarded a contract to Samsung and Technip to design, construct and install multiple FLNG vessels over a 15 year period Each vessel is expected to cost approximately $3 bn The first will be used on the Prelude field in Australia 211 E&P Spend Sensitivity to Oil Prices Cumulative Percent of Respondents Percent of Respondents Decreasing Capex at a Given Oil Price $35 $4 $45 $5 $55 $6 $65 $7 $75 Cumulative Percent of Respondents Percent of Respondents Increasing Capex at a Given Oil Price $7 $75 $8 $85 $9 $95 $1 Oil Price Threshold for Reducing Capex Source: Barclays Capital E&P Spending Survey, Dec.21 Oil Price Threshold for Increasing Capex Source: Barclays Capital E&P Spending Survey, Dec.21 E&P companies prepared budgets assuming $77 oil on average, up from $7 last year Expect capex to materially decrease in the industry if oil prices fall much below $6 Expect capex to increase materially if oil prices sustain above $9, up from $85 last year LNG Fuel Forum 2 th September

9 Onshore & Offshore E&P Spend $6 Outside North America +1% 15% +11% US Dollar Billions $5 $4 $3 $2 Canada United States WTI $/bbl $1 4 2 $ Jan-7 Nov-7 Sep-8 Jul-9 May-1 Mar-11 Global E&P Spend WTI Spot Prices Source: Jim Crandell, Barclay s E&P Spending Survey, December 21 Source: EIA August 211 Oil prices nearly double between Jan 29 and Jan 21 Recovery in spend 21, up 1% to $442 bn Continued growth in 211 to $49 bn, up 11%, a new peak 82% of future spend is outside N America Big focus on offshore Leading Indicators Offshore Rig Orders No of Rigs Orde red Semisub Jackup Drillship Drill Barge Annual Brent Oil Prices ($ 21) $/bbl Annual Rig Orders & Oil Prices Source: Riglogix / Douglas Westwood Recovery is evident 71 rigs ordered in 211 Deepwater push: 36 Semis & Drillships ordered best-ever year Backlog - 52 Drillships and 18 Semi-submersibles under construction at present 4 th Sept 11 Fleet renewal and expectations of strong utilisation driving orders Fleet to grow to over 95 rigs??? 2 9

10 Energy Sector Outlook LNG Market Review Risk Factors Conclusions Definition The LNG & FLNG Chain PRODUCTION LIQUEFACTION TRANSPORTATION REGASIFICATION Onshore Reserves Onshore Production Facility GAS LNG Distribution Pipelines Onshore Terminal Onshore Terminal ONSHORE Offshore Reserves Offshore Production Platform LNG CARRIER FSRU OFFSHORE LNG FPSO RV 2 1

11 Puerto Rico Dominican Republic Greece Canada Argentina Kuwait Brazil Portugal Chile Mexico Belgium Turkey Italy USA India China France Taiwan UK Spain South Korea Japan % demand growth in 21 (BP) Highest growth rate in 4 years! LNG Demand is difficult to forecast bcm LNG Demand Based on Gas demand Availability of alternative sources of gas Politics LNG prices no global pricing structure Unforeseen events Japanese earthquake LNG Importers 29 & LNG Supply Africa Asia Australasia Eastern Europe & FSU Latin America Middle East North America Western Europe a mmtpa Recent years growth driven by Middle East Qatar and Yemen Few additions expected /215 first Australian trains expected to commence production Potential future supply from Arctic Russia US Shale West & East Africa 22 11

12 Carrier Deliveries 6 World 5 4 Units Units by year of delivery Massive increase in deliveries Qatari fleet 29/21 Downturn in orders in 29/21, oversupply & recession new orders. Due for delivery in 214/215 driven by Australian LNG terminals & Asian demand 23 LNG Carrier Trends Carrier size has dramatically increased in recent years Flexibility of use addition of regasification topsides Spot trading chartering by companies such as Morgan Stanley Growth in Chinese shipbuilders Hudong has 5 units on order Future entry from Russian shipyards? Speculative builds new orders with no contracts New orders from Awilco Chevron Dynagas GasLog Golar Höegh Maran Gas Maritime Sovcomflot 24 12

13 Floating regasification several in service, becoming increasingly popular Why? Relatively cheap compared to onshore Short lead times (18 months) Ease of construction ti Seasonal/temporary fix Key regions Asia, Latin America, Western Europe Outlook for FLNG Floating Liquefaction emerging industry Why? Enables production from stranded gas fields no long pipelines to shore Combined production & liquefaction Possible cost advantages compared to onshore plants? Key regions Australia & Papua New Guinea, to a lesser extent SE Asia, Brazil, Canada & W. Africa Still considered a niche technology for specific applications Prelude only one in build backed by supermajor can smaller operators handle these projects? 25 British Colombia Unconventional gas production Western Europe and the Mediterranean Rim Diversification of supply away from Russian piped gas FLNG Focus Areas South East Asia Stranded gas and rapidly growing consumption in cities Latin American Cities Rapidly growing seasonal consumption West Africa Stranded gas and gas flaring Parts of the Middle East Rapidly growing seasonal consumption Timor Sea Stranded gas 26 13

14 LNG Industry Capex by Segment 3 25 Liquefaction Import Carriers ($ billions) Expenditure ( Capex for facility only no upstream facilities $93bn forecast over period Liquefaction (export) terminals are more expensive than other LNG facilities 45% Capex Liquefaction (export), 4% Import, 15% Carriers 27 LNG Industry Capex by Region e ($ billions) Expenditure Africa Asia Australasia Eastern Europe & FSU Latin America Middle East North America Western Europe Asia largest region with 4% mostly import terminals Australasia to rival towards the end of the period Australasia driven by Australian & Papua New Guinean projects Offshore fields Gorgon, Wheatstone, Browse CBM centred round Gladstone, Queensland FLNG Prelude Papua New Guinea PNG LNG, Gulf LNG 28 14

15 Energy Sector Outlook LNG Market Review Risk Factors Conclusions Risk Considerations What could de-rail the LNG business? Significant risk of widespread recession and associated fall in gas demand and prices. Political instability and discontinuity Competing sources of natural gas Growth constrained by bottlenecks in the supply chain 3 15

16 Oil and the Recession Without incremental supply, oil prices spiked Historically, when crude oil expenditure has reached 4% of GDP, the US has fallen into recession Equals $85-9 oil WTI today: $95 Brent: $111 Oil: What Price can America Afford? 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% US Recession On July 1, 211 US Oil Purchase/GDP US Crude Oil Expenditure as a Percent of GDP Source: EIA STEO, Monthly data, through March LNG Fuel Forum 2 th September Unconventional Gas Production & LNG Two key areas Unconventional gas production as competing gas supply source Currently North thamerica Future China, Europe? Unconventional gas as potential feed source for LNG terminals Onshore terminals FLNG 32 16

17 Global Unconventional Resource Base Is Staggering Tight 7,46 9,51 CBM 16,13 Shale World Total: 33, TCF (Source: Kawata & Fujita) 33 Unconventional Gas vs. LNG Massive growth in unconventional gas production in North America Impact on LNG LNG imports diverted elsewhere Utilization of existing import terminals has dropped to 8% Many LNG import terminal projects have been scrapped Operators considering adding liquefaction trains Future Outlook Lots of uncertainty on future unconventional production outside North America Current North America, Australia 5-1 years China 1 years+ - Europe, India, SEA? Latin America, Africa

18 Unconventional gas as feed source for LNG Plant Name/Location Country Source mmtpa Queensland Curtis Australia CBM 8.5 GLNG Australia CBM 7.8 APLNG Australia CBM 9. Curtis Landing Australia CBM 7.5 Gladstone LNG Australia CBM 1.5 Southern Cross LNG Australia CBM 2.1 Sun LNG Australia CBM.5 Newcastle Australia CBM 1. Port Bonython Australia CBM n/a Spencer Gulf LNG Australia CBM 1. Kitimat LNG Canada Shale 5. BC LNG - Douglas Channel Canada Shale 1.8 Petronas BC LNG Canada Shale n/a Japanese Consortium Canada Shale n/a Shell BC LNG Canada Shale n/a Freeport USA Shale 8. Sabine Pass USA Shale 14. Lake Charles USA Shale 15. Three main areas Queensland, Australia British Colombia, Canada Gulf Coast, USA 16.3 mmtpa already under construction A further 14 mmtpa approved Predominantly targeting Asia & Europe 35 Politics & LNG Bolivia USA Australia Papua New Guinea 36 18

19 2/9/211 People: Skills Shortages Middle East facing a shortage of talent in the energy and utilities sector with the average age of key technical staff being over 5 (Trade Arabia) A massive global problem is developing worldwide as the baby boomer generation retires Investment in attracting, training and retaining skilled people will be money well spent Knowledge-based companies with highly skilled people are key elements of long long-term term success 37 Energy gy Sector Outlook LNG Market Review Risk Factors Conclusions 19

20 Conclusions Current macro economic situation is troubling but any downside likely to be short-lived. At present, overall energy industry activity is buoyant. Long-term industry fundamentals are sound. Fundamental push to develop offshore hydrocarbons has not changed. Gas has a major role to play in power generation and as a substitute for oil. FLNG is becoming an increasingly adopted regas option and liquefaction is on the way. LNG spend to increase substantially over the next five years - $93 billion spend forecast. Unconventional gas is both a competing and complementary source Industry needs to consider supply-side constraints and plan accordingly 39 Thank you steve.robertson@douglaswestwood.com 4 2