Global Subsea Market Outlook

from an Asia Pacific Perspective

4th Asian Subsea Conference and Exhibition

Prepared by

Kian Zi Chew

Douglas-Westwood Singapore

www.dw-1.com

LNG

offshore

onshore

downstream

power

LNG

renewables

Established 1990

Aberdeen, Canterbury, London, Singapore & Houston

Activity & Service Lines

Business strategy & consulting

Commercial due-diligence

Market research & analysis

Published market studies

Large, Diversified Client Base

1000 projects, 600 clients, 80 countries

Leading global corporates

Energy majors and their suppliers

Investment banks & PE firms

Government agencies

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Transaction Support:

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(M&A and LBOs)

Financing Facilities

(inc. MBOs)

Initial Public Offerings

(IPOs)

Douglas-Westwood Research

Macro-Economic Environment Offshore Market Outlook

Subsea Market Review

Conclusions

Global Energy Demand Outlook

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Primary energy demand is the prinicple indicator for all oil & gas related expenditure.

Global demand is expected to grow by 41% between 2012 & 2035.

Population growth projected at 24% for the same period.

Energy intensity per capita is growing...

8.1btoe

12.5btoe

17.6btoe

Global Primary Energy Demand BP Energy Outlook 2035

Global Energy Demand Outlook Asian Import Dependence

Asian % Share of Global Demand

22%

47%

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Gas Balance Oil Balance

Asia China India Japan S. Korea

Asian Import Dependency

40% 22% 5% 4% 2%

% of global energy demand (2013)

Asian population and economic the major driver behind projected global energy demand surge.

Asia will account for 47% of global demand by 2035 compared to 22% in 1990.

However, Asia is major importer of oil & gas, in particular oil which has a regional import/export

balance of -71%. Chinas oil imbalance is currently estimated at -58%.

Major global economies such as Japan and S.Korea are almost exclusively reliant on external oil

& gas.

Global Energy Demand Outlook Growing Importance of Gas

Global Energy Demand by Sector

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 2035

Power Transport Industry

-

1,000

2,000

3,000

4,000

5,000

6,000

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Global Energy Demand by Fuel

Gas 2012-2035 Increase 55%

Oil 2012-2035 Increase 20%

The combination of increased energy efficiency throughout OECD states and growing

economies in Asia is driving demand for power generation at the expense of transportation.

Natural gas is becoming an increasingly popular fuel for power generation offering a relatively

safe (compared to nuclear); cheap (compared to oil); and clean (compared to coal) energy

source.

Demand for natural gas to increase by 55% over the next 20 years...

42% 51%

mtoe

Oil Supply Outlook Prices & Sanctioning

Papa Terra

Egina Lucapa

Block 18 West

Cepu Mars B

Prirazlom

Duvernay Shale

$0

$20

$40

$60

$80

$100

$120

$140

$160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Bre

nt

$/b

bl

Europe Brent Spot Price FOB (Dollars per Barrel)

EIA High Case

EIA Low Case

Approval threshold Based on anticipated oil price levels

Papa Terra

Egina

Lucapa

Block 18 West

CepuMars B

$0

$20

$40

$60

$80

$100

$120

$140

$160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Bre

nt $/b

bl

Europe Brent Spot Price FOB (Dollars per Barrel)

EIA High Case

EIA Low Case

Breakeven Price ($/bbl)

DW expects oil prices to straddle the $90-$100/bbl mark for the next five

years.

The majority of major projects will be viable at these levels.

Only arctic and some shale

projects will be threatened.

Oil Price Outlook and Impact on Offshore Project Sanctioning

Gas Supply Outlook Prices & Sanctioning

0

2

4

6

8

10

12

14

16

18

2000 2002 2004 2006 2008 2010 2012

$/m

mb

tu US

Japan (LNG)

UK

Europe

Regional Gas Prices

Unlike oil the gas market has a more regional pricing

structure due to historical geographical supply

limitations.

Up to 2008 regional prices typically trended together

however the flooding of US shale gas between 2009-11

and rapid demand growth in North Asia post Fukoshima

have created massive price disparity globally.

With the US poised to become a major exporter of

natural gas via LNG over the next ten years most

analysts expect a gradual convergence of regional

pricing.

Significant short-mid term arbitrage opportunities for

North American gas producers.

Influx of US exports is creating uncertainty in project

sanctioning for gas projects in exporting nations such

as Australia (see Browse).

Industry Challenges Cost Inflation

$0

$20

$40

$60

$80

$100

$120

0

50

100

150

200

250

2000 2002 2004 2006 2008 2010 2012

$/b

bl

Upstr

eam

Cost

Index

Upstream Capital Costs

Oil Price

Upstream Capital Cost Index vs Oil Price BP, CERA

Upstream capital costs have increased by over 200% since 2000.

Whilst costs rose rapidly in line with oil prices during 2005-08 they remained high during the oil

price crash of 2009-10.

High industry costs are an increasing concern for oil & gas companies and the profitability of their

new projects.

Macro-Economic Environment

Offshore Market Outlook Subsea Market Review

Conclusions

Global Supply Outlook The Role of Offshore

Offshore Gas

Offshore Oil

20mn boepd

30mn

40mn

50mn

60mn

70mn boepd

100mn boepd

120mn

140mn

160mn

180mn

200mn boepd

Offshore

Onshore

Deep

Shallow

20mn boepd

30mn

40mn

50mn

60mn

70mn boepd

Global Oil & Gas Production Global Offshore Production Global Offshore Production

Offshore and natural gas becoming increasing important to global hydrocarbon supply over the next ten years.

Offshore E&P Spend

$0

$50

$100

$150

$200

$250

$300

$350

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Offshore E&P Expenditure Outlook ($billions)

$211.9

$306.8

$211.9 billion spent in 2011 unprecendented levels of expenditure. An additional $1.4

trillion to be spent over the next five years at a CAGR of 7.7%.

76% of anticipated expenditure to be associated with shallow water over 2014-18.

Offshore E&P Spend by Segment

$1.4 trillion

Offshore E&P Expenditure 2014-18 by Segment

Offshore E&P Spend Regional Breakout

Offshore E&P Expenditure 2014-18 by Region

Africa 14%

South - East Asia 17%

Rest of Asia 7%

Australasia 3%

Middle East 5%

Latin America 13%

North America 20%

Western Europe

19%

Others 2%

$1.4 trillion

Asia-Pacific

0

10

20

30

40

50

60 India25%

China19%

Malaysia13%

Indonesia12%

Viet nam10%

Thailand7%

Australia6%

Brunei Darussalam

2%

Russian Federation

2%

New Zealand1%

Sri Lanka1%

East Timor1%

Myanmar1%

APAC Drilling Rig Demand by Country

Oth

ers

APAC Drilling Rig Demand by Operator

APAC is a large, mature and

predominantely shallow water area

controlled by NOCs.

58% of demand accounted for by three

largest countries (India, China & Malaysia).

The region will account for 30% of fixed

platform expenditure more than any

other.

APAC Offshore E&P Spend

$0

$20

$40

$60

$80

$100

$b

illio

ns

Shallow

Deep

Middle-East

Middle East Drilling Rig Demand by Country

The Middle East is a mature, shallow water

market.

Activity is concentrated in the Persian Gulf,

particulary throughout Saudi Arabia and

the UAE.

Despite limited growth in E&P expenditure

strong drilling growth will drive demand for

OSVs.

Middle East Offshore E&P Spend

$0

$5

$10

$15

$20

$b

illio

ns

Shallow

Deep

Saudi Arabia45%

UAE20%

Iran14%

Qatar11%

Egypt7%

Saudi-Kuwait Neutral Zone

2% Oman1%

0

10

20

30

40

50

Oth

ers

Middle East Offshore Drilling by Contractor

$0

$10

$20

$30

$40

$50

$b

illio

ns

Shallow

Deep

Latin America

Latin American Offshore E&P Spend

Brazil58%

Mexico36%

Venezuela3%

Trin. & Tobago2%

Ecuador1%

Latin America Drilling Rig Demand by Country

The Latin American E&P landscape is

dominated by NOCs such as Petrobras in

Brazil and Pemex in Mexico.

Deepwater rig requirements are expected to

grow at a CAGR of 14.8% over the next five

years to support ultra-deep pre-salt

developments offshore Brazil.

01020304050607080

Latin America Drilling Rig Demand by Operator

05

10

15

20

25

30

North America

North America Offshore E&P Spend

The US Gulf of Mexico is the worlds largest

shallow water basin by installed infrastructure.

Over the next five years both shallow and

deepwater drilling are expected to pick up

with Jack-ups experiencing a CAGR of 3.2%.

The deepwater industry is dominated by

major IOCs whereas the shallow water

market is highly fragmented.

North America Drilling Rig Demand by Country North America Drilling Rig Demand by Operator

US97%

Canada3%

AR

EN

A

Ta

na

Ca

rdo

n

Oth

ers

$0

$10

$20

$30

$40

$50

$60

$70

$b

illio

ns

Shallow

Deep

North Sea

Given the maturity of the basin, shallow water

drilling is expected to decline at a compound

rate of 4.6%.

Increased exploration in deeper areas will

drive floating rig demand at a CAGR of 2.8%

These deepwater campaigns will be

dominated by larger oil companies such as

Statoil, BP and Shell.

North Sea Drilling Rig Demand by Country

Oth

ers

0

5

10

15

20

25

30

Talis

man

Norway45%

UK38%

Netherlands11%

Denmark6%

$0

$10

$20

$30

$40

$50

$60

$b

illio

ns

Shallow

Deep

North Sea Offshore E&P Spend

North Sea Drilling Rig Demand by Operator

Macro-Economic Environment

Offshore Market Outlook

Subsea Market Review Conclusions

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

20

08

2009

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20182007 2009 2011 2013 2015 2017

Deepwater Drilling (Indexed to 2007)

Shallow Water Drilling (Indexed to 2007)

Global Subsea Expenditure Outlook

Offshore Drilling Trends Fixed Platform Installations Floating Platform Installations

2013 usher in a stepchange in subsea expenditure - $213 bn of investment over the next five years compared to $122 bn over the previous period.

1

This change is largely driven by the increasing reliance on deepwater developments.

Subsea hardware is expected to account for 55% while vessel operations account for the remaining 45%

27.1bn

2008

20

09

2010

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

28.5bn

Strong growth in subsea hardware spend

Worldwide expenditure to total $117bn over the 2014-2018 period. (83% growth on the previous five years)

49% Subsea production hardware 36% SURF (subsea umbilicals, risers & flowlines) 15% Trunk pipelines

Picture: FMC

Africa

$21bn

S America

$19bn

N America

$17bn

UK &

Norway

$24bn Asia

$16bn

World Subsea Hardware 2014-2018

40% Subsea production hardware 32% SURF (subsea umbilicals,

risers & flowlines)

26% Trunk pipelines

Subsea vessel deliveries

0

5

10

15

20

25

30

35

40

45

50

197

5

197

6

197

7

197

8

197

9

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

1991

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

2006

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

Deliv

erie

s PipeLay

ReelLay

FlexLay

DSV

MSV

Subsea Vessel Deliveries

The build cycle is undoubtedly cooling off now Strong demand demand for larger, technically advanced vessels Potential orderbook of $5-6 billion over the next few years

05

10

15

20

25

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$bill

ions

Subsea vessel operations market outlook

Global market to see a CAGR of 10% to exceed $22 billion by 2018.

Largest growth from vessels supporting deepwater developments.

L. America to grow from 27% & Africa to 38% of demand between now & 2018.

$13.8

$22.4

Africa15%

Asia16%

Australasia4%Latin

America19%

North America

21%

Western Europe

19%

others6%

Subsea Vessel Demand Outlook

Regional Subsea Profiles Asia

Asian subsea expenditure to total $32bn over the next five years 15% of global demand.

Investment is trending away from conventional shallow water infrastructure and towards subsea and deep waters.

Subsea Expenditure Subsea Tree Installation Vessel Demand Analysis

The future of the subsea industry is top-heavy with 65% of forecast demand accounted for by the top five E&P cos.

Subsea Hardware accounts for 52%, vessel operations for 48%

Major investment in manufacturing capacity already occuring in the Asian region to ready for growing deepwater demand.

64%

4% 16%

16%

Field Development Trunklines

IRM Subsea Intervention

20132014

20152016

2017

>2000

1500-2000

800-1499

500-799

250-499

Macro-Economic Environment

Offshore Market Outlook

Subsea Market Review

Conclusions

Conclusions

Macro-economic Environment:

1. Long term fundamentals of the oil & gas industry remain highly robust.

2. Key industry risks include rising costs and manpower.

Offshore Market

1. $1.4 trillion of anticipated spend on the offshore E&P industry over the next five years.

2. Continued trends towards deepwater developments, while shallow water continue to

account for the majority of expenditure.

Subsea Market:

1. Long-term growth potential, particularly in Africa, Asia-Pacific and Brazil.

2. At a price, and as a result our study shows the sector has become a very sizable

opportunity for the oilfield service and equipment community.

Questions?

Kianzi.chew@douglaswestwood.com