Monetising Natural Gas with the LNG Producer

Monetising Natural Gas with the LNG Producer Floating Production Seminar, NFF Wouter Pastoor, Vice President Business Development September 30 th, 2010

Contents FLEX LNG in brief The LNG Producer The Market for FLNG Minimise risks and maximise attractiveness

FLEX LNG a brief introduction FLEX LNG Ltd was founded in 2006 to commercialize floating LNG liquefaction vessels Currently four LNG Producer hulls on order at Samsung Heavy Industries in Korea All units targeted with a liquefaction capacity of up to 2.0 mtpa Lumpsum, turnkey EPCIC contract for LNGP no.1 A strong organisation in London, Oslo, Singapore, Australia and Korea with broad competence and experience Great support from SHI and numerous contractors and suppliers Strong support from our shareholders, with K -Line as the largest shareholder An advanced generic FLNG design has been developed with great adaptability for many different field-specific requirements 3

Contents FLEX LNG in brief The LNG Producer The Market for FLNG Minimise risks and maximise attractiveness

FLEX LNG Producer Key facts Classification DNV 1A1, Floating Offshore LNG Liquefaction Terminal Overall (riser to offloading) Fuel Shrinkage: Approx. 10 % (lean feedgas) Maintenance 20 years on-station maintenance Turret Internal Submerged Turret Production system (STP) from APL Liquefaction Capacity: 1.7-2.0 mtpa LNG Accomodation 120+30 POB (regular + temporary) LNG Storage Capacity : 170-185 000 m 3 Condensate/LPG Storage: 50 000 m 3 Feed Gas: Approx. 250 310 mmscf/day Image courtesy to Samsung Heavy Industries 5

FLEX LNG Producer - Topsides and production systems Generic Modules Field Specific Modules LNG to storage Treated gas Feedgas Cycle-compressors & Utilities 2 x LM 6000 gas turbines Nitrogen cycle compressors Seawater heat exchangers Electric power generated from dual-fuel engines within hull Liquefaction Two liquefaction trains Main heat exchangers/cold boxes Turbo expanders Generic gas treatment plant (CO 2, water & mercury) Field Specifics Inlet separation (condensate /water) Acid gas bulk removal LPG handling MEG Reclamation Nitrogen rejection Turret & Inlet Systems Gas inlet systems Metering and test separation Pigging Other required systems 6

Submerged Turret Production System (STP) - A flexible, robust turret mooring system APL Submerged Turret Production (STP) 360 deg weathervaning System Operating waterdepth; 20m to 2,600m Disconnectable Improved Safety (Harsh Weather/ Offloading) At-site installation benefits (Independent Phases) Redeployable/ Reusable (Minimises Downtime) Disconnection experience >1,100 operations (North Sea ) Disconnection/ Connection (to/ from Production < 24hrs) 15 STP systems in operation (worldwide) 11 STL systems in operation (worldwide) Experience with LNGC Turret Systems (regas vessels) 7

Nitrogen Expansion Proven in Applications and Size - Successfull application of large nitrogen expansion system paves the way for FLNG Reasons to select N2 for offshore application Low weight, equipment count, footprint Insensitive to ship motions Large feedgas variations Quick start-up/shut-down Inert, non-hazardous (and cheap) refrigerant Simple controllability High reliability Modularisation Low costs Proven technology in size The AP-X TM sub-cooling cycle uses N 2 expansion Largest N 2 expansion system in use Selected for QatarGas train 4,5,6,7 & RasGas 6,7 The N 2 cycle compressor is directly driven by a GE frame 9 gasturbine (100MW rated at 49 deg C) The system uses 4 cold and 1 warm expander A BAHX is used as nitrogen cold box Proven technology for a range of applications Nitrogen liquefiers, air separation Peak shaving plants Re-liquefaction onboard LNG carriers Sub-cooling of mega trains (AP-X TM ) Courtesy: APCI The N 2 part of the AP-X TM system is equivalent to a 1.5-2 mtpa stand-alone system...... twice the size of an LNG Producer liquefaction train 8

LNG Containment Technology SPB tank technology the only safe and reliable option for FLNG Excellent track record since 1993 in North Pacific Maximized flat deck space for topside Self supporting tanks allows for in-situ inspection and maint. without dry-docking Only containment system with all features required for safe and reliable offshore LNG Production Sloshing Free Tank System SPB Containment Inspection and Maintenance Access SPB Tank Technology Superior for LNG Production Spherical No filling restrictions On-site inspection & Maintenance Extensive marine track record Limited deck-space Membrane Filling restrictions On-site inspection & Maintenance Extensive marine track record Flat deck-space 2-Row Membrane Filling restrictions On-site inspection & Maintenance Marine track record Flat deck-space SPB No filling restrictions On-site inspection & Maintenance Marine track record Flat deck-space 9

LNG Offloading Side-by-side or Tandem configuration - A brief summary Side-by-side offloading Use standard LNGCs in existing fleet Operable in benign waters Hs=<~3m Marinised loading arms Tandem offloading Dedicated LNGCs (newbuild or conversion) Operable in Hs=<~5.5m Variety of systems designed and qualified Key activities by FLEX LNG Extensive modelbasin tests Approach and berthing simulations Mooring and equipment design Detail design underway of loading arms Key activities by FLEX LNG Technology appraisals and workshops System assessment and selection Concept design for LNGP ongoing 10

Private and Confidential A Mature LNG FPSO design - Designed, engineered, contracted, procured Engineering and Design Class Approval and Safety Generic FEED completed 1Q 2009 Over 300.000 hours invested in the development of the generic LNGP concept 5 x Field Specific FEED/Pre-FEEDs performed for various FLNG projects HAZIDs, HAZOPs, RAM, FMECA, SIL, etc Approval in Principle obtained from class in August 2007 Detailed plan approval nearly completed Formal Safety Assessment completed Risks well below acceptance criteria of DNV ALARP design documented SIMULATION Equipment Design and Fabrication Major topside equipment for topside has been procured Main Compressors, incl. gas turbine drivers Turbo Expanders Cold Boxes BOG compressors Majority of hull equipment has been ordered! Technology Qualification 3 rd party verification of engineering and novel technology Motion sensitive equipment verification program Full string testing of major rotating equipment Side by side model testing program SPB mock-up construction At shore liquefaction test prior to sail away

Contents FLEX LNG in brief The LNG Producer The Market for FLNG Minimise risks and maximise attractiveness

FLNG Becoming a Reality - Potential FLNG projects in the public domain Company: Shell Field: Gabon gas reserves Location: Gabon Company: Anadarko Field: Windjammer Location: Mozambique Company: Peak Field: OML 122 Location: Offshore Nigeria Company: Shell Field: NEMed Location: Offshore Egypt Company: Delek / Noble Field: Tamar Location: Offshore Israel Company: Shell/MC Field: Flare gas Location: Iraq Company: Petronas Location: Offshore Malaysia Company: Shell Field: Prelude Location: Browse Basin, Australia Company: Shell/Statoil Field: Nnwa Doro Location: Offshore Nigeria Company: BG Field: Block 5c Location: Offshore Trinidad Company: Petrobras Field: pipeline gas Location: Guanabara Bay Company: Petrobras Field: Tupi / Guara / Iara Location: Pre-salt discoveries, offshore Brazil Company: Ophir Field: Lykos and Fortuna Size: 1.5 TCF- 3TCF Location: Offshore Equatorial Guinea Company: Tullow Oil Field: Kudu Location: Offshore Namibia Company: PTTEP Field: Coogee, Cash, Maple Location: Timor Sea, Australia Company: Nexus Energy / Shell Field: Crux Location: Timor Sea, Australia Company: GDF Suez and Santos Field: Petrel, Tern and Frigate Location: Bonaparte Basin, Australia Company: Hess Field: Semai V Location: Indonesia Company: Inpex Field: Abadi Location: Offshore Indonesia Company: Talisman Field: Pandora, Rift Location: PNG Company: Woodside, Shell, ConocoPhillips Field: Sunrise Location: Timor Sea Company: FLEX LNG Field: Chuditch, Bilby, Wombat Location: Timor Sea Company: Interoil Field: Elk, Antilope Location: PNG

FLNG targets more than stranded and associated gas - Competitive and attractive for various development schemes Market and applications for FLNG Monetising Stranded & Associated Gas Monetisation of gas that otherwise would not be produced, re-injected or flared Offering competition to existing monetisation schemes Onshore/offshore gas fields Pipeline gas Deepwater gas fields EPS for large field developments Staged development of large fields Strategic tool to gain market acces and a competitive advantage Use FLNG technology as a competitive advantage to: o Gain access to gas reserves (NOCs) o Farmin on gas reserves o Circumvent construction / labour concerns in Australia Medium-size FLNG offers smaller players an LNG entrance 14

FLNG targets more than stranded and associated gas - Competitive and attractive for various development schemes Market and applications for FLNG Monetising Stranded & Associated Gas Monetisation of gas that otherwise would not be produced, re-injected or flared Offering competition to existing monetisation schemes Onshore/offshore gas fields Pipeline gas Deepwater gas fields EPS for large field developments Staged development of large fields Strategic tool to gain market acces and a competitive advantage Use FLNG technology as a competitive advantage to: o Gain access to gas reserves (NOCs) o Farmin on gas reserves o Circumvent construction / labour concerns in Australia Medium-size FLNG offers smaller players an LNG entrance 15

FLNG Bundles Facilities and Infrastructure Into 1 Unit - A significant cost saving opportunity Product Storage 5% Offshore facilities 12% Delivery trunkline 12% LNG plant 37% Marine facilities 6% Subsea infrastructure 5% Wells 12% Onshore site preparations 5% Site civil works 6% An onshore LNG development involves logistical complexities not present with FLNG An FLNG yard utilises existing infrastructure, eliminating dedicated investments Data source: Worley Parsons 16

Economies of Scale Are Not Working - New land-based LNG plants are more expensive than FLNG Onshore EPC costs remain very high without signs to reduce Project Production CAPEX Liquefaction costs CAPEX USD/ ton (mtpa) (billion USD) (71% of CAPEX) (1) liquefaction Wheatstone 8.6 17.8 12.6 1470 Gorgon 15 37 26.3 1751 PNG LNG 6.6 15 10.7 1614 QC LNG 7.5 12 8.5 1136 GLNG 3.5 6.7 4.8 1359 Browse 14 24.6 17.5 1248 APLNG 7 13.8 9.8 1400 Angola LNG 5.2 9 6.4 1229 FLEX LNG 1.85 1.3 703 Onshore LNG projects are significantly more costly than medium-scale FLNG Building in a controlled environment greatly reduces CAPEX and complexity (1) 29% capex reduction for wells, subsea, offshore facilities Source: Company Reports, J.P.Morgan estimates 17

Liquefaction CAPEX Service Costs ($/mmbtu) - Medium scale FLNG can offer a cost saving of 1.5 2.5 $/mmbtu CAPEX service costs for new land-based liquefaction requires 3.5 4.5 $/mmbtu FLEX LNG QCLNG Wheatstone Angola LNG Browse GLNG APLNG PNG LNG Gorgon 0.0 1.0 2.0 3.0 4.0 5.0 Liquefaction Cost/CAPEX Service (USD/MMBTU) Tolling fee is calculated to obtain equal NPV of the capital expenditures and the tolling revenues. Assumptions: 25 years of operations, 11% discount factor 18

FLNG targets more than stranded and associated gas - Competitive and attractive for various development schemes Market and applications for FLNG Monetising Stranded & Associated Gas Monetisation of gas that otherwise would not be produced, re-injected or flared Offering competition to existing monetisation schemes Onshore/offshore gas fields Pipeline gas Deepwater gas fields EPS for large field developments Staged development of large fields Strategic tool to gain market acces and a competitive advantage Use FLNG technology as a competitive advantage to: o gain access to gas reserves (NOCs) o Farmin on gas reserves o Circumvent construction / labour concerns in Australia Medium-size FLNG offers smaller players an LNG entrance 19

Monetising large gas fields with FLNG - Can huge FLNG barges provide economy of scale? 1 x large FLNG barge Or Multiple medium sized LNG Producers 20

Vessel beam (m) Maximise Existing Ship Yard Facilities and Knowledge Bigger is not always better 120 100 80 60 40 20 0 Vessel size comparison Existing FPSOs LNG Producer Large FLNG barges 0 100 200 300 400 500 600 Vessel length (m) Stretching yard limits Large FLNG barge concepts do not fit within existing construction practices, Overall topsides weight Module size and weight Lifting and handling Yard slot Time in dock Equipment sizes Complexity Larger risks: Construction Integration Completion Performance Cost & schedule An LNGP represents ~2 equivalent yard slots compared to 8-10 for a large FLNG barge 21

Topside Weight ('000 tons) Medium-scale FLNG topside weight within proven range Comparison of topside weights 110 100 90 80 70? Unproven Range 60 50 40 30 20 10 Proven Range 0 Bonga Kizomba A/B N'Kossa Dalia LNGP Girassol Belanak Pazflor Large FLNG Concept 22

Economy of Scale for LNG FPSO Bigger is not always better Case study 1 x LNGP 2 x LNGP Large FLNG Production (mtpa) 1.7 3.4 3.5 CAPEX EPCIC (mill USD) 1300 2600 5000 Shrinkage (%) 10.5 10.5 8 OPEX (USD p.d.) 110,000 220,000 220,000 Start 2014 2014 2014 Two fields are evaluated of 2.0 and 5.0 TCF CAPEX service costs are calculated as a tolling structure where the NPV of the tolling fees equals the NPV of the CAPEX costs The time to downpay the CAPEX is taken equal as the field life (i.e. no residual value) Discount factor is 11% Analysis is based on lean feedgas, although both can produce LPG and condensate for rich feedgas. A basic OPEX figure is used, which will vary per project and it will most likely not be double for a dual vessel or a large barge solution. 23

Liquefaction costs ($/mmbtu) NPV(11%) of project cashflow (billion USD) Economy of Scale for LNG FPSO Bigger is not always better Liquefaction costs NPV project cash flow 8 7 6 5 4 3 2 OPEX Efficiency sales loss (15 $/mmbtu) CAPEX service 7.0 6.0 5.0 4.0 3.0 2.0 LNG 7 $/mmbtu LNG 12 $/mmbtu 1 1.0 0 0.0 1 x LNGP 2 x LNGP FLNG barge 2 x LNGP FLNG barge -1.0 1 x LNGP 2 x LNGP FLNG barge 2 x LNGP FLNG barge 2 TCF 5 TCF -2.0 2 TCF 5 TCF 21 yrs 10.5 yrs 26 yrs 21 yrs 10.5 yrs 26 yrs At 12 $/mmbtu the CAPEX of the Large FLNG should reduce to ~3000 mmusd for an equal NPV at 26 yrs production Note: A lower efficiency implies the use of more feedgas, which cannot be sold as LNG. The efficiency difference is thus included as a cost charged with the LNG market price. Tolling fee is calculated to obtain equal NPV of the capital expenditures and the tolling revenues. Cashflow calculation includes a 2 $/mmbtu feedgas cost. 24

FLNG targets more than stranded and associated gas - Competitive and attractive for various development schemes Market and applications for FLNG Monetising Stranded & Associated Gas Monetisation of gas that otherwise would not be produced, re-injected or flared Offering competition to existing monetisation schemes Onshore/offshore gas fields Pipeline gas Deepwater gas fields EPS for large field developments Staged development of large fields Strategic tool to gain market acces and a competitive advantage Use FLNG technology as a competitive advantage to: o Gain access to gas reserves (NOCs) o Farmin on gas reserves o Circumvent construction / labour concerns in Australia Medium-size FLNG offers smaller players an LNG entrance 26

How Many Projects Can Succeed in Australia? - The Asian market is the driver with Australia the prime supply candidate Asia prime future market Demand - China and India lead the way Price oil parity pricing Growth growing consumption of natural gas with more importing countries Australia prime supply candidate Large proven gas reserves Close to the market Politically stable (although ref. recent tax issues) Well established oil & gas industry LNG experienced and skilled But not all projects can succeed... ~14 projects under development New production equals today s Asian consumption Concerns on locals/natives wrt plant site Concerns on labour/skills shortage Concerns on labour costs Concerns about the Unions Selecting FLNG and building at an efficient Korean yard circumvents the specific Australian risks for cost, schedule, labour skills and the Unions 27

Majors can Secure Reserves by offering Technology An offensive strategy towards NOCs and Independents Gain access to national reserves NOC s control the lion share of world reserves The days of easy oil are over and IOCs will depend increasingly on NOCs to grow their reserves The NOC-IOC relationship has always been a delicate cooperation based on mutual needs Technology Solutions, offered by the IOC, have always been an important part of the cooperation Farm-in on smaller players Independents are constrained on capital, technology, competence and resources Independents seem to appreciate an IOC partnering to jointly develop their gas field by LNG Technology Solutions, offered by the IOC, are important criteria for partner selection Offer FLNG technology to NOCs and authorities to gain reserve access Offer FLNG technology to farm-in on reserves Prelude is well-known and discussed a lot, however, many more FLNG applications are being considered where FLNG technology is used as a competitive advantage 28

FLNG targets more than stranded and associated gas - Competitive and attractive for various development schemes Market and applications for FLNG Monetising Stranded & Associated Gas Monetisation of gas that otherwise would not be produced, re-injected or flared Offering competition to existing monetisation schemes Onshore/offshore gas fields Pipeline gas Deepwater gas fields EPS for large field developments Staged development of large fields Strategic tool to gain market acces and a competitive advantage Use FLNG technology as a competitive advantage to: o gain access to gas reserves (NOCs) o Farmin on gas reserves o Circumvent construction / labour concerns in Australia Medium-size FLNG offers smaller players an LNG entrance 29

EPCIC Contract with Samsung Heavy Industries - Unique guarantees provided by SHI enabling strong commercial structure Single EPCIC contract, Lumpsum, turnkey delivery of the LNG Producer Includes all works from FEED through detailed engineering, procurement, construction and integration, to commissioning (at-shore and offshore) Minimised integration risk Includes full-scale liquefaction test prior to sail-away Clear legal responsibilities Extensive performance guarantees and LDs Production capacity Fuel efficiency Plant reliability Defect rectification liabilities Close collaboration together with financial and legal advisors in order to ensure commercial structures that together with the EPCIC framework will result in alignment and bankable projects Samsung guarantees performance up to the level required by the project finance debt providers 30

Commercial Structuring for FLNG - New players and new LNG will emerge with the success of medium-scale FLNG Upstream GSA LNG Marketing JV LNG SPA Off-taker Lenders PHA Lump-sum turnkey EPCIC FLEX LNG Producer SHI Single, lump-sum, turnkey EPCIC with exceptional guarantees and risk acceptance by EPC contractor can secure robust and attractive financing, satisfying lenders requirements and interests 31

Commercial Structuring for FLNG - New players and new LNG will emerge with the success of medium-scale FLNG Upstream GSA LNG Marketing JV LNG SPA Off-taker Lenders PHA Lump-sum turnkey EPCIC FLEX LNG Producer SHI Technology risk acceptance and performance guarantees by contractor provide necessary comfort for the Off-taker to underpin the project 32

Commercial Structuring for FLNG - New players and new LNG will emerge with the success of medium-scale FLNG Upstream GSA LNG Marketing JV LNG SPA Off-taker Lenders PHA Lump-sum turnkey EPCIC FLEX LNG Producer SHI Smaller companies, new to LNG, can be become substantial LNG suppliers! Successful structuring of first projects Expansion of portfolio and players New LNG on stream quickly and cheap 33

Contents FLEX LNG in brief The LNG Producer The Market for FLNG Minimise risks and maximise attractiveness

The FPSO - We know them very well.... but still challenging! Strong experience basis Many vessels in operation Many different applications Many years of experience Re-deployments Many operators Still challenging! Technical Construction Costs Schedule Financing How to go about FLNG? Some key FLNG differences Novel technology Capital intensive Different commercial/market /contract structure (off-taker, pricing formulas, project finance,...) Different competitions/co-operations (providers, joining industries, competing with land-based LNG) Longer project life/lease duration 35

How to go about FLNG? - Minimise risks and maximise attractiveness Some key development principles from FLEX LNG Keep it simple Robust and proven technologies Use existing construction facilities, practice and procedures Maximum flexibility/adaptability Purposely developed contract structure Low cost Quick-to-market High availability Maximise production (but with cost balance) Extensive test and qualification work Standardisation Intensive dialog with off-takers and financiers Education and promotion Upstream reserve owners Off-takers Provide comfort and demonstrate attractiveness of FLNG Regulators Local community Sponsors & lenders 36

Create comfort and attractiveness to sponsors/lenders - Minimise risks and maximise attractiveness to enable robust financing schemes Commercial, contractual and financial key points of the FLEX LNG solution Capital was raised and invested in orders Firm contracts placed Strong shareholder base Large flexibility for commercial structuring Proven equipment and systems selected Minimise complexity, keep it simple Extensive test and qualification programme Low cost solution and short lead-time Purposely developed contract structure Principles of insurance scheme worked out Maintaining strong relations with ECA s and investor communities > Limit equity needed in new IPOs > Clarity on cost, schedule, guarantees and liabilities > Comfort to new investors, expectation of new investments by current shareholders > Maximise alignment and address favourably the stakeholders interests and risk appetite > Minimise technology risk (cost, schedule, performance) > Minimise technology risk (cost, schedule, performance) > Minimise technology risk (cost, schedule, performance) > Enhance commercial attractiveness and demonstrate robust cashflow for debt service and equity return > Mitigate FLNG specific risks and concerns and allocate risks to enhance project strength (i.e. Lump-sum, turnkey EPCIC) > Risk minimisation and enhance financing scheme > Broad reach in debt and equity markets 37

A familiar sight in the future