Deepwater Trends and Implications for the Drilling Market

Strategic Advisors in Global Energy Deepwater Trends and Implications for the Drilling Market Swiber Deepwater Open Forum PFC Energy June 12, 28

Table of Contents Overview of Fundamentals Long Term Supply and Price Implications Significance of Deepwater Oil and Gas in Upstream Portfolios Deepwater Rig Supply and Demand Implications for Future Day Rates Drilling Activity Forecasts Page 2

Key Messages In spite of high oil prices, Non-OPEC conventional production has been flat to declining with the exception of the FSU. Oil exploration in the last 1 years (with a few exceptions like Angola, Sudan, Mauritania, Brazil) has been much less successful than in previous decades. Since 199 reserve replacement in non-opec has been less that 35 percent. Every year, in every region (including OPEC), the world produces more oil than it finds. It is only logical to conclude that inevitably this will lead to supply and daily rate issues. Our current view is that absent significant improvements in recovery technologies or exploration results global non- OPEC liquid hydrocarbon production will struggle to grow beyond 21 and may in fact start to decline. Non-OPEC production growth between now and the end of this decade will rely heavily on production growth in Kazakhstan, Azerbaijan, Russia, Brazil, and several smaller producing countries. If demand continues to grow beyond 21 and if Non-OPEC production capacity plateaus or falls, OPEC will have to make up the difference resulting in an inevitable increase in dependency on OPEC sources. Page 3

Global Non-OPEC & OPEC Non-Quota Total Liquids Forecast with Exploration Global Non-OPEC Liquids & OPEC Non-Quota Liquids Supply Forecast (With Exploration) 7, 6, 5, Daily Production (mb/d) 4, 3, 2, 1, 1985 199 1995 2 Europe USA Middle East Africa Canada AustralAsia Latin America FSU/EE Canada Unconventional Heavy OPEC & Non-OPEC NGL Biofuels GTL Oil Shale A combined forecast of Non-OPEC liquids and OPEC non-quota liquids suggests that production will grow to just around 6 million barrels per day by 215. 25 21 215 22 Page 4

Non-OPEC Countries in Decline or in Plateau Turkmenistan China India Malaysia Brunei Canada Chad Mexico Denmark Yemen Australia Colombia Congo Argentina New Zealand Oman Norway Uzbekistan Gabon UK Syria Papua New Guinea Pakistan Egypt Other Europe Cameroon Dem Rep Congo Peru Tunisia Romania USA Countries in the plateau phase Countries in the decline phase Duration of Plateau Onset of Plateau Onset of Decline 1965 197 1975 198 1985 199 1995 2 25 The above bars show the onset and duration of documented production peaks or plateaus tracking country life cycle shows an acceleration of the number of countries passing from peak to decline Page 5

Why Has Traditional Exploration Been Slow to React to High Prices? 2 18 16 14 12 1 8 6 4 Mean Field Size Country History Mean Field Size Post-199 Mean Field Size (mmbo) 2 Argentina Pakistan Thailand Indonesia India Colombia Oman Peru Gabon Egypt Congo Ecuador China Yemen Kazakhstan Malaysia Syria Denmark Algeria UK Libya Norway Mexico Vietnam Azerbaijan Venezuela Comparison of Mean Sizes for All Basin History Versus the Post 199 Period Page 6

Annual Non-OPEC Crude Production Balance (excluding FSU, USA, and Uncon. Heavy Oil) Annual Reserves Disc - Annual Reserves Prod 4 per. Mov. Avg. (Annual Reserves Disc - Annual Reserves Prod) Differential Between Annu ual Volumes Produced and Annual Vloumes Discovered (mmbo) 12, 1, 8, 6, 4, 2, -2, -4, -6, -8, 12 Consecutive Years Where Annual Production Volumes Have Exceeded Annual Volumes Discovered 1965 197 1975 198 1985 199 1995 2 25 PFC Energy s analysis indicates that countries within this group have, in aggregate, been producing 4-5 billion barrels each year more than they have been finding through exploration since the mid-199s. Page 7

Concerns With OPEC Reserves The real issue here is that we really do not know what several key OPEC countries reserves really are because there is no way to independently verify them as we can in most non-opec countries where you have foreign companies doing the exploration and development. The shape and style of these country s remaining reserve profiles in the face of disappointing exploration results over the last 2 years and the fact that they almost exactly offset production with reserves through book keeping has to raise suspicions - A comparison of actual new discoveries and production volumes indicates that OPEC has been running a negative crude oil balance since the early 198s with production volumes exceeding new volumes discovered by approximately 6.-8. billion barrels per annum Our analysis suggests that OPEC overall has depleted approximately 4 percent of its reserve base with annual depletion levels running at 1 %/year (OPEC would argue that it is their policy to have % depletion).. If PFC s estimated rate of depletion is correct then OPEC will reach the critical level of 6% in the later part of the next decade. Page 8

OPEC Historical Annual Crude Production Balance (OPEC) C h a rt T itle An n u a l R e s e r v e s D is c o v e r e d - An n u a l R e s e r v e s P r o d u c e d 3 p e r. M o v. Avg. (An n u a l R e s e r v es D is c o v e r e d - An n u a l R e s e r v e s P r o d u c e d ) 1, 8, Differential Betw een Annual Volum es Produced and Annual Vloum es Dis covered (m m bo) 6, 4, 2, -2, -4, -6, -8, -1, 1965 197 1975 198 1985 199 1995 2 25 Like all other areas of the world, PFC Energy s data analysis indicates that Global OPEC crude production is currently exceeding volumes discovered. Page 9

The Dilemma - The Expected Growing Gap Between Global Demand and Global Non-OPEC Supply in the Next Decade 12, Non-OPEC Crude Non-OPEC Oil Sands Non-OPEC NGL & Condensate OPEC NGL 1.1% Growth 1.7% Growth 2.4% Growth 12, 1, Call on OPEC Crude 1, Daily Productio on (mb/d) 8, 6, 4, OPEC Crude 33-36 mmb/d 37-45 mmb/d 8, 46-58 mmb/d 6, 4, 2, 2, 1995 2 25 21 215 22 Page 1

Table of Contents Overview of Fundamentals Long Term Supply and Price Implications Significance of Deepwater Oil and Gas in Upstream Portfolios Deepwater Rig Supply and Demand Implications for Future Day Rates Drilling Activity Forecasts Page 11

Growth: Where will it Come From? Production growth will come from 5 major categories Unconventional heavy oil (Canada and Venezuela) Monetizing large gas reserves through LNG Deepwater E&P Caspian/FSU E&P All other New shallow water or onshore discoveries Older shallow water or onshore discoveries now commercially viable because of oil and gas prices Large gas projects developed for pipeline Projects gained thru improved access Unconventional natural gas Others Page 12

Where Are the Large Producers Adding New Production? Entitleme ent Production (mboe/day) 9 8 7 6 5 4 3 2 1 All Other Russia/Caspian Deepwater LNG Unc Heavy Oil 2 22 24 26 28 21 212 214 216 218 22 222 224 226 228 23 The above profile shows the breakout of entitlement production (barrels equivalent) for: XOM, BP, Shell, Chevron, CoP, Total, ENI. Production additions from more conventional onshore and shallow water plays (outside of the FSU) accounts for only about 25% of new production Page 13

Global Deepwater Competition Service Location of Global Deepwater Projects North Atlantic Total Projects: 24 Mediterranean Total Projects: 5 Gulf of Mexico Total Projects: 13 Latin America Total Projects: 21 West Africa Total Projects: 54 Asia-Pacific Total Projects: 17 Total Projects: 217 Minimum Water Depth 1, feet Page 14

Global Deepwater Who are the players? Who are the players? Deepwater Participants By Region (Minimum 1 Net mmboe Global Deepwater) Asia-Pacific Gulf of Mexico Latin America Mediterranean North Atlantic West Africa BHP Billiton Anadarko Chevron BG BP BP Chevron ATP Oil & Gas Petrobras BP ConocoPhillips Chevron ConocoPhillips BHP Billiton Repsol YPF Hess Eni CNR Eni BP Shell Petronas ExxonMobil Devon Mitsui Chevron RWE-Dea Gaz de France Eni Murphy ConocoPhillips Hess ExxonMobil Niko Devon Idemitsu Hardman Petronas Eni Marathon Hess Reliance ExxonMobil Murphy Petrobras Shell Helix RWE-Dea Petronas Woodside Hess Shell Shell Marathon StatoilHydro StatoilHydro Marubeni Total Total Murphy UK Nexen Petrobras Shell StatoilHydro Total Woodside Page 15

Global Deepwater Reserves in Known Discoveries Deepwater Reserves: All Companies mmboe 15, 12, 9, 6, 3, Mean Net Deepwater Reserves by Region (Minimum 1 Million BOE) West Africa Asia-Pacific North Atlantic Mediterranean Brazil Gulf of Mexico Petrobras StatHydro BP Shell ExxMob Chevron TOTAL Eni Reliance Petronas Hess Anadarko Woodside BG ConPhil Marathon Murphy Sinopec BHP RWE-Dea Devon CNOOC NNPC GdF DONG Idemitsu ATP Oil Marubeni Nexen Helix Niko Repsol E.ON Petrogal SAPCO CNR Famfa While nearly 4 companies have net deepwater reserves exceeding 1 mmboe (originally recoverable) Page 16

Global Deepwater Major Players Deepwater Reserves: Tier 1 Competitors mmboe 15, 12, 9, 6, 3, Mean Net Deepwater Reserves by Region: Tier One Competitors (Over 1. Billion BOE) West Africa Asia-Pacific North Atlantic Mediterranean Brazil Gulf of Mexico Petrobras StatHydro BP Shell ExxMob Chevron TOTAL Eni Reliance Petronas only ten have net deepwater reserves exceeding 1 billion boe (originally recoverable); these competitors tend to have deepwater reserves in more than one geographic region, although a single region is typically dominant. Page 17

Global Deepwater Remaining Reserves Deepwater Reserves: Tier 1 Competitors Ranking By Portion of Remaining Portfolio Mean Net Deepwater Reserves: Remaining vs Produced mmboe 15, 1% 12, 9% 9, 8% 6, 7% 3, 6% 5% Petrobras StatHydro BP ExxMob Chevron Shell TOTAL Reliance Eni Petronas Remaining Produced % Remaining While net volumes vary considerably across the sample of ten Tier 1 companies, for each company, remaining (yet-to-be produced) reserves account for the bulk (6% or more) of total original volumes. Page 18

Global Deepwater Production From Known Discoveries m boe/d 1, 8, 6, 4, 2, Mean Net Deepwater Production: Tier 1 Competitors On an annual basis, Tier 1 production typically accounts for about 75% of global deepwater volumes. Reliance Petronas Chevron ExxMob Eni Shell BP TOTAL StatHydro Petrobras 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 218 22 222 224 226 228 23 232 234 Tier One companies deepwater production is expected to peak at nearly 9 million boe/d in the 211 to 212 period. This represents a 46% increase over 26 volumes and a four-fold increase over 2 production levels. Near- through medium-term output will be dominated by Petrobras, ExxonMobil, Shell, and BP. Longer-term volumes become more evenly distributed between these companies and Chevron, Total, and StatoilHydro. The contribution from other companies is relatively modest. Page 19

Global Deepwater Competition Service Deepwater Reserves & Capex: Tier 1 Competitors 5, 4, Net Capex vs Net Oil & Gas Reserves StatoilHydro Petrobras Net Cap pex ($mm) 3, BP Shell Total ExxMob 2, Chevron Eni 1, Petronas Reliance 3, 6, 9, 12, 15, Net Reserves (mmboe) Comparative spending is commensurate with relative volumetric positioning. Page 2

Global Deepwater Net Cash Flow Net Cash Flow: Tier 1 Competitors Mean Net Cash Flow by Region ($5 Oil) $mm 18, 15, 12, 9, 6, West Africa Asia-Pacific North Atlantic Mediterranean Latin America Gulf of Mexico 3, Petrobras BP Shell ExxMob Chevron StatHydro TOTAL Eni Reliance Petronas Deepwater Portfolio Net Cash Flow Global NCF Range ($5 Oil): $11.4 billion to $177.2 billion Note: Results are based on full cycle data (includes exploration and appraisal spending). As is the case with reserves, for Tier 1 competitors a single region is often dominant with respect to Net Cash Flow. Page 21

Global Deepwater Value Net NPV1: Tier 1 Competitors $mm 35, 3, 25, 2, 15, 1, 5, Mean Net NPV1 by Region ($5 Oil) West Africa Asia-Pacific North Atlantic Mediterranean Latin America Gulf of Mexico Petrobras BP Shell ExxMob Chevron StatHydro TOTAL Eni Reliance Petronas Deepwater Portfolio NPV1 Global NPV1 Range ($5 Oil): $3.6 billion to $31. billion Note: Results are based on full cycle data (includes exploration and appraisal spending). As is the case with reserves, for Tier 1 competitors a single region is typically dominant with respect to NPV1. Page 22

Global Deepwater Competition Service Comparative Net Cash Flow: Tier 1 Competitors $mm 5, 4, 3, 2, 1, -1, Maximum Negative CNFC 1986 1988 8 28 26 24 22 2 1998 1996 Global Deepwater Portfolio Net Cash Flow: Tier One Competitors Reliance Eni Petronas Chevron TOTAL StatoilHydro Petrobras ExxMob Shell BP 199 1992 1994 1996 1998 2 22 2 24 26 28 Maximum Cumulative Development Portfolio Net Cash Flow vs Payout Timing Shell BP Pbras Median Petronas Eni 21 ExxMob 212 2 214 Chevron 2 22 24 26 28 21 212 Payout (Year) 216 218 22 TOTAL StatoilHydro 222 2 224 226 228 Reliance 23 232 2 234 Total NCF for Tier One companies deepwater developments is projected to reach $42 billion in 212. On a cumulative basis, the group likely reached payout (positive cumulative NCF) in 23. For the typical Tier One company (as measured on a median basis), cumulative NCF associated with deepwater projects reached a negative $1.1 billion in 1998, with payout likely occurring in 24. Among all Tier One competitors, only Reliance (with a relatively new deepwater portfolio) has yet to reach both maximum negative NCF and payout. Note: Assumes $5 oil Page 23

Table of Contents Overview of Fundamentals Long Term Supply and Price Implications Significance of Deepwater Oil and Gas in Upstream Portfolios Deepwater Rig Supply and Demand Implications for Future Day Rates Drilling Activity Forecasts Page 24

Rig Fleet Status New Builds 28-211 Page 25

PFC Energy s Unique Solution: Integrated Supply Demand Model for Offshore Drilling Rigs Rig Demand Oil and Gas E&P Spending Supply Forecasts Forecast Exploration Well Forecast IOC/NOC Portfolios and Strategies New Source Project Models Development Well Forecast PFC Energy s Added Value Actual Contracted Rigs and Contracted Rates DAY RATE FORECAST BY WATER DEPTH AND REGION Historical utilization and day rate algorithms Actual/Forecast Rig Count by Water Depth and Location Relocation and switching: Arbitrage algorithms Readily Available Upgrades New Build Programs Rig Supply Retirements Page 26

Historic Build Cycles (Ordered vs. Base Case Forecast) 12 1 Historical and Base Case Rig Deliveries 19 rigs in 8 yrs ~24/yr 8 2 rigs in 4 yrs ~5/yr 6 4 38 rigs in 7 yrs ~54/yr Actual / Ordered Forecast 2 18 rigs in 5 yrs ~36/yr +4 yrs 18 rigs retire 213-218? 1965 197 1975 198 1985 199 1995 2 25 21 215 22 Page 27

Table of Contents Overview of Fundamentals Long Term Supply and Price Implications Significance of Deepwater Oil and Gas in Upstream Portfolios Deepwater Rig Supply and Demand Implications for Future Day Rates Drilling Activity Forecasts Page 28

Projected Well Counts: West Africa Page 29

Projected Well Counts: Asia 35 Well Count 2-218 Indonesia 35 Well Count 2-218 India 3 Deep Shallow 3 Deep Shallow 25 25 Number of Wells 2 15 Number of Wells 2 15 1 1 5 5 2 22 24 26 28 21 212 214 216 218 2 22 24 26 28 21 212 214 216 218 35 Well Count 2-218 Malaysia 3 25 Deep Shallow Number of Wells 2 15 1 5 2 22 24 26 28 21 212 214 216 218 Page 3

Projected Well Counts: Brazil Page 31

Murphy Deepwater Wells w/o Contracted Rigs, 21-214 16 14 12 1 8 6 4 2 Page 32 Santos Chevron Shell BP TOTAL ExxonMobil ONGC Petronas Petrobras ConocoPhillips Hess Reliance Asia Pacific West & South Africa Brazil

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