An Overview of Where Bidding is Thriving

Energy Construction Project Outlook:

An Overview of Where Bidding Is Thriving

Contacts:Walter Pesenti

Managing Director

wpesenti@thinkbrg.com

An Overview of Where Bidding is Thriving

Content

• Current Conditions for Capital Projects in Oil and

Gas

• Investment Drivers in the Energy Space

• Contracting Strategies for the Current Business

Environment

• Q&A

An Overview of Where Bidding is Thriving

Current Conditions for Capital Projects in

O&G

• Return on Capital Employed (ROCE) has declined steadily since

2011. The recent drop in oil prices compounded the challenge, with

the Exploration and Production (E&P) sector posting some of the

most significant decline.

• The Oil and Gas (O&G) industry is at an inflection point, due to

growing demand for energy and more complex operations in a

challenging production environment.

What are Owners doing?– Improving ROCE and closely monitoring its performance.

– Reducing cost and improve operational efficiency – Difficult transformation to focus on costs.

– Taking a close look at the entire portfolio to improve efficiency, including pulling back from some regions with

uncompetitive performance, disposing of assets, and improving acquisition performance.

– Investing in new infrastructure and equipment, and reducing inventory.

– Diligent and effective reviews at project development, design, and construction milestones.

– Sharing risk models with partners and suppliers.

Challenging Environment

An Overview of Where Bidding is Thriving

Capital Projects Outlook

Short Term

– North America focusing on increasing production and

streamlining operations to maximize ROCE

– Middle East increasing investments to diversify

Downstream operations

– Europe focus in increasing throughput and optimize

portfolios

Long Term

– The International Energy Agency (IEA) forecasts that the

energy industry will invest $38 trillion to 2035:

– $16.9 trillion in power

– $10 trillion in oil

– $9.5 trillion in gas

– Nearly two-thirds will be invested in countries outside the

Organization for Economic Cooperation and Development

(OECD).

– This represents a significant challenge for the industry.

In the short term, capital projects will continue to progress as long as they

can deliver on ROCE. For the long term, there will be unprecedented scale of

capital investment in the Energy industry to 2035; effective project delivery

will be increasingly important.

Source: World Energy Outlook and OECD/IEA

Opportunities

An Overview of Where Bidding is Thriving

Capital Projects Benchmarking

• The track record is mixed—some successes but many projects with notable

issues

• Adhering to the set timeline (+5% best practice) and budget (+10% industry

average) is a key challengeAccording to IPA,1 one in eight projects is a disaster, averaging in:

1 Independent Project Analysis

Challenges

An Overview of Where Bidding is Thriving

Macro trends indicate significant population and energy demand

growth by 2035, which set growth strategies for companies

Investment Drivers in the Energy Space

Source: BP Global Energy Report

At the current pace (base case), the growth in energy demand

by 2035 would increase by nearly 34%.Gas is be the fastest-growing fuel. Renewables are growing to

have 9% of the energy share by 2035.

1.5B to

reach 8.5B34%

An Overview of Where Bidding is Thriving

Crude Oil Market

$52.00

$54.00

$56.00

$58.00

$60.00

$62.00

2017 2018 2019 2020 2021 2022 2023 2024

Chicago Mercantile Futures Prices (12/19/16)

WTI Brent

Crude Oil Supply Growth

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Mb/d

Historical Oil Production and Consumption

Total North America Total S. & Cent. America

Total Europe & Eurasia Total Middle East

Total Africa Total Asia Pacific

Oil ConsumptionSource:BP

There are expectations of tighter oil markets in the next few years

An Overview of Where Bidding is Thriving

Natural Gas Market

Source:BP

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Historical Natural Gas Production and Consumption

Total North America Total S. & Cent. America

Total Europe & Eurasia Total Middle East

Total Africa Total Asia Pacific

Natural Gas Consumption

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Natural Gas Pipelines and Storage Projects

Construction Begun Early Development

Advanced Development Announced

Estimated Construction Cost

• 82 projects at different phases from announced through commencement of

construction

• Expands take-away midstream and storage capacity for unconventional gas plays

• Estimated aggregate construction value thru 2020 is approximately $60 billion

• 40% of the projects that are in earlier stages and are at risk due to surplus

natural gas supply

Source: Platts/SNL

Surplus production if driving near-term projects

An Overview of Where Bidding is Thriving

Power Projects 2016 to 2019

• Total planned capacity of approximately 220,000 MW, with 86% in the United

States

• Expands use of Renewable and Non-Renewable Fuels

• Estimated aggregate construction value is approximately $740 billion,

with >60% planned for post-2019

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Power Plant Projects - U.S. and Canada

Total Under Construction Capacity

Total Announced Capacity

Estimated Construction Cost

Source: Platts/SNL

Power projects have an estimated aggregate construction value of

~$740 billion

An Overview of Where Bidding is Thriving

LNG Projects 2017 to 2021

• 41 projects at different phases from announced through commencement

of construction

• Key take-away for natural gas surplus from unconventional gas plays in

U.S. and Canada

• 60% of the projects that are in earlier stages have no cost estimates

yet

Source: Platts/SNL

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LNG Projects

Construction Begun Early Development

Advanced Development Announced

Estimated Construction Cost

LNG projects estimated aggregate construction value through

2020 is ~$140 billion

An Overview of Where Bidding is Thriving

• Approximately 600 projects totaling ~42,000 miles of transmission lines

• Different phases from announced through commencement of construction

(new and upgrades)

• Expands and upgrades the electricity grid to provide more reliable service

• ~$50+ billion estimated construction value between 2017 and 2022

Source: Platts/SNL

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Tota

l P

lanned

Mile

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Transmission Projects by Region/Year

SPP WECC RFC

SERC MRO NPCC

TRE Planned $ Spend

Transmission Projects

Transmission projects have an estimated aggregate construction

value of ~$72 billion

An Overview of Where Bidding is Thriving

Energy M&A

• 400+ deals completed and pending over trailing 12 months (12/1/15

to 12/28/16)

• $200+ billion in aggregate transaction value

• Includes entire company deals, asset deals, and private equity

deals

Source: Platts/SNL

Energy M&A have a $200+ billion in aggregate transaction value

with Midstream segment representing near half of the aggregated

value, followed by power with majority of the deals

An Overview of Where Bidding is Thriving

Construction to Drive Organic Growth and

Deals across Entire Energy Supply Chain

Deals across the entire energy supply chain will overwhelm

suppliers

An Overview of Where Bidding is Thriving

Contracting Strategies for the Current

Business Environment

Considerations for Selecting a Style of Contract

Type ReimbursableManagement

FeeTarget Cost Unit Rates Lump Sum

Pricing Competitive Highly

Competitive

Competitive Very Competitive Highly

Competitive

Contracting Time Required Short Long Medium Long Long

Scope of Work Definition General

Definition,

Variable Scope

Detailed

Definition, Fixed

Scope

Semi-Detailed

Definition,

Variable Scope

Semi-Detailed

Definition,

Variable Scope

Detailed

Definition, Fixed

Scope

Risk of Cost Overrun High Low Moderate Low Low

Potential for Claims Low High Moderate High High

Market Conditions Required None Competitive Moderately

Competitive

Competitive Competitive

Negotiation Effort Low High Moderate High High

Control and Administration

Effort

High Low Moderate to

High

Moderate Low

Risk of Schedule Overrun High Moderate Low Moderate Low

Contracting strategies in the U.S. and Canada are shifting to Lump Sum, but

there are still many Reimbursable type of contracts

An Overview of Where Bidding is Thriving

Questions and Answers