Industry Overview

Recent high energy demand and associated high O&G prices have encouraged oil companies to look into developing and delivering as much hydrocarbon resources to the market as possible. The companies offering support services to oil companies have been some of the main beneficiaries of these recent developments, witnessing both an increase in business volumes, and also benefitting from a period of price escalation. This dynamic was somewhat interrupted by the global economic recession that began in the latter months of 2008. At this time, oil prices became volatile, and energy demand diminished. This created uncertainty around the future levels of demand for hydrocarbon products, and oil companies reacted by delaying projects. Now, in 2011, the broader economic outlook is much more positive, and this has created a market conducive for investment. Two notable early examples of this include The General Electric Company’s purchase of Wellstream Holdings pic, and the further acquisition of Converteam Inc in the first quarter of 2011. WIth the price of oil rising steadily, and indicators suggesting that energy demand is sustainably increasing also; should these conditions continue, then the oilfield services market is likely to remain highly attractive for investment. Indeed, on the back of positive macro fundamentals, we are seeing, and can expect to see, many oil companies announcing substantially higher capital expenditure (Ucapexn) budgets in 2011. This in turn, is likely to lead to higher activity levels in the offshore support services sector, and more opportunities for companies active in this sphere to generate revenue. Although the signs of recovery and a return to increasing investment are positive signs for the offshore industry, there are deeper rooted developments which must also be considered. One of these is the developing influence and role of national oil companies (“NOC), who are looking to increase the amount of national revenue derived from hydrocarbons, and retain mare of this locally. Recent periods of high oil prices have allowed some of these NOCs to develop strong cash positions, and this has led to them expanding their influence, taking on more complex projects, and in some cases moving outside oftheir indigenous markets. This in turn has led to more competition for international acreage. This characteristic has placed strain on international oil companies (“IOCn ), and in particular the super-majors which have business models geared around developing large fields. Increased competition with .cash rich, often government backed competitors, or the necessity of partnering up with a NOC as often stipulated in local petroleum law, has incentivised IOCs to pursue technological advantages. The most important technological advantages have come in deeper, more operationally challenging waters, and in investment made into increasing the amount of oil recovered from existing fields. Whilst the rise of NOCs is important in dictating the development of IOCs, we must also consider other key factors dictating the shape of the oil and gas industry today. In particular; national fears over energy security -note moves by the United Kingdom (“UKn ) energy utility companies to secure reserves in the North Sea; the rise of energy demand from the Brazil, Russia, India, China and South Africa (“BRICn ) countries, and the increased strain there development places on global energy markets; the maturing of existing mature hydrocarbon basins; the rapid depletion of existing operational fields. ”
© Infieid Systems Umited 2011 8. INDUSTRY OVERVIEW (conl’d) It is the combination of all the above factors, both short term oil price and energy demand trends, and the longer term deeper rooted contextual developments, that mean that we are currently undergoing an unprecedented search for all forms of hydrocarbon energy. This search is pushing the offshore oil and gas industry into ever deeper, more remote, and operationally challenging areas. Each drop of oil is important, and we need to increase the amount recovered from existing and future fields. Companies which in this respect are deepwater capable, offer solutions such as the FPSO ~ which allows for remote extraction and exportation of hydrocarbons, or provide services aimed at enhanced oil recovery (~EOR~), have business models which very closely match the likely future dynamics of the market. (The rest of this page has been intentionally left blank) 31 © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d) 2 GLOBAL INDUSTRY OVERVIEW
2.1 Identifying core business drivers The O&G industry provides a key source of energy for the global economy. The performance of the industry is therefore inextricably linked with the broader economic context. At present, a consensus has emerged around our current economic context. Firstly, although we have not fully emerged from a period of acute market recession, the outlook is now much more positive than it has been in recent times. Secondly, the emerging economies of the BRIC countries in tandem with other countries in Asia, are currently providing the engine for growth in the world economy. This positive consensus around future energy demand provides the context from which companies providing support services to the offshore O&G industry can expect to grow. The prospect of rising energy demand, and potentially associated increasing O&G prices, encourages oil companies to look into developing and delivering more hydrocarbon resources. In order to do that, they require assistance from the offshore O&G support services industry. To understand then, how a company providing support services within the D&G industry is likely to perform, it is important to include a view on future energy demand and potential oil prices, as these in turn drive the level of capex which will be available to be tumed into revenue.
2.2 World O&G Consumption Data from the International Energy Agency (“IEA~), Energy Information Administration (“EIA”) and Organization of the Petroleum Exporting Countries (“OPEC”) shows that after weakness in 2008 and 2009, global oil consumption showed fairly strong growth in 2010. These agencies also forecast that this growth will continue in the next five years. The average estimate for oil demand growth is slightly less than 2 million barrels per day rbpdn ) in 2010, slowing to an average forecast of growth of just over 1.33 million bpd. Thus, there is a consensus among these agencies that oil demand throughout 2010 to 2011 will be restored to the broad range of incremental growth seen in the years prior to the global economic recession which started during the latter part of 2008. The lEA estimates that global oil demand grew by 2.4 million bpd in 2010 (or by 2.8%), with one-third of this coming from China alone (or 800,000 bpd). Latin America and the Middle East are regions that are also expected to have shown strong oil consumption growth. The outlook is similar for natural gas demand, with non-DECO countries including China, India and the Middle Eastern countries, forecast to be the key regions from 2010 onwards. Following a similar trend to oil consumption, the lEA forecasts that natural gas demand prospects in the mature OECD economies to be generally much weaker. Whilst the forecasts for future global O&G consumption are largely positive, it is possible to argue that pricing for these commodities has moved away from its true fundamentals, and that we are now seeing a premium added on top of these prices. This premium is arguably derived from those willing to pay more to achieve security of supply, and those who use commodity classes for speculation. These premiums can distort the true strength or significance of a recovery trend. or equally mask the true depths of a recession. However the premiums and any associated price volatility should not detract from the fact that as the global economy continues to grow, we require more O&G to feed this growth. A point emphasised by the lack of any real alternative energy sources, and the likely negative impact which the Fukushima Daiichi nuclear incident will have on the development of nuclear energy as a hydrocarbon alternative. 4 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d)
2.3 O&G Infrastructure Spending Increasing expectations of energy demand trigger higher levels of capex investment, as 011 companies seek to develop hydrocarbon resources and bring them to the market. By way of quantifying this increase, ~The Original E&P Spending Surveyn, published by Barclays Capital in December 2010, forecasts an 11% increase in capex from oil companies for 2011 relative to 2010. USD441,76B million USD4B9,510million
_U,S, Sp..-.:l”’lI CC1lro:llM SpM::lin9 _1nI.”””‘lion;1l”ll
2010E 2011 E Figure 2-1:Summary ofO&G expJorat;on and production expenditure 2010 & 2011 (USD millions) [Source: Barclays Capital ‘The Original E&P Spending Survey’] We believe that in the future, more oil companies’ capex will be focused on deeper waters, more remote fields, and in improving the amount of oil or gas recovered from existing fields, The trend towards deepwater production is illustrated in Figure 2-2, which shows the fields that are coming on-stream by water depth, The size of the bubble denotes the size of the reserves.

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I~COJ “‘” t ·:·,·::·.c:: :.::.:..: .:.:.:…:.:…:., • •u Fieldsonstream by reserves & walerdeplh ,= F;gure 2-2:Fiefds on-stream by reserves (barrels of oU equ;vaJent (“BOE’~ and water depth (metres) [Source: ISl] 5 I © Infield Systems Umited 2011 8. INDUSTRY OVERVIEW (cont’d) 2.4 Oil Price outlook Both the actual change in oil demand and supply dynamics, and/or expectations of changes in these dynamics can cause the price of oil to fluctuate. Oil price fluctuation and volatility can create uncertainty with operators on field development plans. Each field has a sanction price (a calculation of cost per barrel rbbl”) of any oil produced) and should the price of oil drop below a field’s economic feasibility threshold, development plans may be deferred or delayed. This in turn has an impact on the offshore O&G support service sector, as oil companies withhold capex, and less field development contracts are awarded. Figure 2-3 gives estimate sanction price ranges for different field types. Typically, deepwater and EOR require higher oil prices than conventional offshore oil fields due to the complexity of operations and technical requirements of these projects.
1000 2000 3000 4000 5000 6000 7000 8000 Figure 2~3: Economic sanction price range for fields [Source: EIA World Energy Outlook 2008] Currently, we have three forward views on oil prices. In our short-term view, unrest in the Middle East and North Africa has significantly contributed to pushing up the price of Brent oil futures by nearly 20% since January 2011. The trajectory of the oil price increase which we are currently undergoing forms a parallel with the oil price bUll run which led to oil hitting USD147 per bbl in July 2008. This process brought inflationary pressures, and is largely unsustainable. Our mid-term View is based on the rate Of oil price escalation in line with the trend which we have seen develop following the oil price crash in 2008. This is reflective of the economic recovery and the continued development of non-OECD economies. Finally. our long-term view is based upon the longer term historical trend. It views the price bull run of 2008 and the following price crash as an anomaly on a broader upwards and sustainable trend. These views are illustrated in Figure 2-4. 6 I © Infield Systems Limited 2011 B. INDUSTRY OVERVIEW (conrd)
Whilst all these forecasts are positive, in line with our expectations about the development of the global economy, it is necessary to state that should economic recovery falter, this is likely to undermine oil price stability and lead to more difficult market conditions for those companies providing support services to the offshore O&G industry.
2.5 Gas Outlook Gas markets, and the price of a unit of gas, have historically moved broadly in line with oil markets and oil prices. This threatened to change in 2007, when over 4,000 shale gas wells were sunk in the United States of America rUSn ). Shale gas refers to natural gas stored in organic rich rocks such as dark coloured shale, interbedded with layers of shaley siltstone and sandstone. The gas is contained in difficult-to-produce reservoirs that require special completion, stimulation and/or production techniques to achieve economic production. It is only very recently that the technology has been developed, allowing for the wide scale commercial development of shale gas prospects [Source: ISL]. With the realisation that shale gas could be profitably produced on a broad scale, gas markets slumped. LNG markets in particular were extremely hard hit. The US had, until the discovery of shale gas, been known as the ‘LNG dustbin’ of the world; an energy hungry market which would always take an LNG shipment. This changed completely with shale gas. Within the space of a year the US went from being a net gas importer, to being completely self-sufficient for gas. The impact on the global gas market was significant. Gas prices hit a glass ceilin’g’, and several high profile projects were delayed. [Source: ISL] Now, prompted by an improvement in broader macro-economic conditions, gas markets have recovered, and this is having a positive impact on project scheduling and capex allocation. Looking longer-term, gas looks likely to be increasingly important in the future global energy supply picture. In Europe, recent energy supply scares involving both Russia and Libya, have highlighted once more the dangers of having too much reliance on a limited number of sources for a significant part of a countries energy requirements. This is something which both countries and utility providers are seeking to change, by diversifying their energy supply basket, and in turn incentivising gas production and transportation from a more diverse geographic area. One example of this being UK gas giant Centrica pic, and the move by their upstream branch into Trinidad and Tobago to secure future UK energy supplies. [Source: ISL]. ”
© Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d) Environmental concerns and a shifting desire to reduce carbon emissions also favour gas based energy. Gas is cleaner burning than either oil or coal, and is likely to be increasingly used in energy generation. In Nigeria for example, the ‘Gas Master’ plan, calls for less gas to be bumt off when produced offshore, and instead for it to be delivered to the Nigerian market and turned into energy to help encourage economic gro’Nth.
2.6 Offshore O&G Support Services Overview The O&G industry is a global industry. Hydrocarbon products are required in every country which has a competitive economy, and hydrocarbon reserves are found in nearly every country worldwide. The supply chain which has evolved to cater for this complex global industry is broadly split into three areas: • Upstream -covering exploration and production
• Midstream -covering transport and trading
• Downstream -covering refining and distribution

This Report covers the offshore aspect of the upstream portion of the O&G industry. This aspect alone will include activities such as: • Seismic survey activity
• Exploration drilling
• Appraisal drilling
• Engineering
• Procurement
• Project management
• Construction services
• Installation services
• Heavy transport services
• Maintenance and modifications
• Transportation
• Production platforms
• Drilling rigs
• Subsea trees
• Decommissioning and abandonment services

Within this area we see three key layers of market players; the oil company (or field operator) the primary contractor, and the sub-contractor. The oil company is at the head of the supply chain, and, as owner of the field, has responsibility for raising finance for its development. Oil companies include BP pic. (gsP”), Petroliam Nasional Berhad (“PETRONAS”), Royal Dutch Shell pic ”’Shell”) and ExxonMobil Corporation (“ExxonMobW). Oil companies typically fall within four different brackets; super majors, mid­cap laCs, NOC, and privately-held independent operators (“Independent”). 8 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’cf) Companies within each of these brackets have different operational capabilities and different -organisational aims. A super major for example is typically pUblicly held, and has a duty to derive the best return on investment for its investors. They usually have a business model which covers upstream to downstream, and as such, super majors tend to be very large companies in terms of revenue and number of employees. The super majors use their financial strength and highly-trained workforces to target projects which are typically larger, in terms of reserves and production, than other brackets of oil companies. Super majors have been pivotal in pushing forward deepwater production. Due to their publically held nat.ure, we tend to see super majors awarding contracts to companies with established track records in the areas within which they are bidding, and those which fulfil strict health and safety criteria [Source: ISL]. The IOCs are typically nimble companies that have a cost effective structure but are still commerdally driven. These companies have typically witnessed fast growth in terms of company size, regions of operation, values, production and proven reserves. Examples of operators within this category are Addax Petroleum, Tullow Oil pic, Anadarko Petroleum Corporation, Apache Corporation, Murphy Oil Corporation and Talisman Energy Inc. NOCs have become increasingly important as the offshore O&G industry has matured away from the traditional production zones found in the US and the UK, and moved towards developing countries. The NOCs primary role is to maximise the revenue generated for a country by its natural resources. A NOC may take into non commercial considerations when acting, and is likely to prioritise indigenous companies, or companies with operations in the NaG’s country, when developing its resources. This procurement practice can be viewed both as a threat and as an opportunity. Companies established in countries which have a strong NOC presence, such as Malaysia, Brazil, Nigeria, Angola and Saudi Arabia, would be well placed to capitalise on any future opportunities which materialise in those countries, and continue expanding within the country. Conversely, for those companies not within the country, we believe that the entry costs can be prohibitive and a deterring factor [Source: ISL]. . Independents are typically smaller oil companies. They mayor may not be publicly listed. They may have no producing reserves and purchase acreage to sell later, or they may have a number of fields already in production. Generally an independent oil company is well placed to save. costs when need~d, a~ it will typically have little in-house capacity to project manage or execute projects, and will often rely on external investment for exploration or production activity. Within this category there are an increasing amount of companies that are purely financially driven and playa crucial role in EaR, local content and marginal fields. Beneath the oil companies are those businesses providing support services, known in this Report as “contractorsft A primary contractor will typically take a project, or a key part of the • project, and manage this for an operator. Typically, primary contractors are experts in their field, and have a better understanding of the supply chain and delivery requirements around the products they supply or services they provide. For example, a company such as S8M Offshore N.Y. (“S8M”) or Mitsui Ocean Development & Engineering Inc. rModec”) could be awarded a contract by an oil company to deliver an FPSO. S8M or Modec may undertake certain portions of this project themselves, for example the specialised engineering, however they would also play a key role in overseeing all project management, ensuring the construction process is executed properly, and being responsible for the timely procurement of specific equipment. The final layer would then be the sub-contractor, whose role is to provide specific equipment, or particular services or products [Source: ISL]. 9 I © Infield Systems Limited 2011 8, INDUSTRY OVERVIEW (conl’d) Two major trends are becoming apparent in the contracting sector of the offshore O&G industry. The first is a move towards ‘local content’. Local content is the term used to describe the requirement for a certain proportion of the workload of a future project to be undertaken by entities or persons from the country in which the project is happening, rather than being provided from the global market. This relates directly back to the concept of NOGs becoming increasing influential as the offshore industry expands into new frontier areas. We believe companies which are able to comply with local content criteria, or which have demonstrated an ability to work in countries with NOes are at a competitive advantage in comparison to those who cannot, and have not {Source: ISL]. The second trend is a move by lOGs and Independents towards larger engineering, procurement, installation and construction (~EPIC”) or turnkey contracts. A turnkey contract is one where a product is ordered, such as an FPSO. and it is then delivered upon completion to the oil company who will operate it. Both forms of contract, and the myriad of different potential contracting options in between, lead to a similar result; oil companies would like their contractors to manage more of the project themselves, and to take on more risk for project delivery and execution. We have witnessed that companies which have internal project management and procurement capabilities are likely to be at an advantage compared to companies that do not have such capabilities {Source:.ISL]. (The rest of this page has been intentionally left blank) 10 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (conl’d) 3 REGIONAL MACRO OVERVIEW
3.1 South East Asia and Malaysia Non-OECD economies have been cited earlier in this Report as being a pivotal driver of the current global economy. While this generally leads to a consideration of the economies of Brazil, Russia, India and China, we also need to contemplate the rapidly developing economies of South East Asia. This latter region includes the member stales of the Association of South East Asian Nations (Le. Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam). These countries are industrialising quickly, and require more energy to support them through this process. Currently imports, typically from the Middle East, provide most of South East Asia’s oil demand. Significant investment is underway to increase South East Asia’s oil production capacity to decrease its dependence on imports. The gas outlook however, is slightly different. South East Asia is one of the major LNG exporting regions in the world and is well positioned to supply the broader Asian region’s two largest economies, China and India, with natural gas. This is in addition to supplying the developed but resource poor economies of Japan, South Korea and Taiwan. The vast majority of natural gas that is liquefied for export from South East Asia to the broader Asian region is sourced from offshore reserves. [Source: LNG World News]. With regard to Malaysia, it is not only the largest O&G producer in South East Asia, but is also the second largest global exporter of LNG, behind only Qatar. In 2009, Malaysia exported 22.2 million tonnes of LNG, representing a 13% global market share. Currently, Japan is coming to terms with the aftermath of one the most powerful tsunamis ever recorded. The country is faced with a humanitarian disaster and coping with an increasingly dangerous atomic incident at Tokyo Electric’s Fukushima Daiichi nuclear facility. The nuclear plant suffered catastrophic damage in the tsunami and it is highly likely that following containment, the facility will be decommissioned [Source: Reuters). Consequently, LNG demand from Japan, which accounts for 60% of Malaysia’s total LNG exports, could potentially surge as the country seeks to reconstruct and SUbstitute the nuclear power output that was lost. The long term outlook for Japan’s energy mix has also been cast into doubt following the incident as it has been suggested that the nation may scale back the amount of energy sourced from nuclear power [Source: Reuters}. We believe that this would lead to a large increase in oil and gas imports in the immediate term, which would primarily benefit those Asian countries which export them. Other major LNG markets include South Korea and Taiwan. Unlike neighbouring O&G producer Indonesia (Which recently became a net oil importer and which withdrew from the OPEC), Malaysia is a net exporter of crude oil in addition to also being a net exporter of LNG. Oil production in Malaysia has been gradually decreasing since its peak in 2004 and in 2009, total oil production amounted to 693,000 barrels (“bblsn ) of oil equivalent per day (“boepdn). Total domestic oil consumption in 2009 was 536,000 boepd, with the remaining 157,000 boepd to be exported. Natural gas production has been rising steadily over the last decade, reaching 2.1 trillion cubic feet rrcF) in 2009 whilst total consumption in the same year was 1.0 Tcf. [Source: EIA] In an attempt to maintain production levels, Malaysia has been forced to move into increasingly deeper waters exploration. At present, it is forecast that Malaysia will shift from being a net exporter of oil, to being a net importer of oil in 2013. This has prompted the Malaysian government to offer a series of tax breaks which will encourage the further development of existing fields, and increase production from them utilising EOR techniques. 11 I © Infield Systems LimNed 2011 8. INDUSTRY OVERVIEW (conl’d) This is likely to give the Malaysian market a dual focus of greenfield deepwater investment, and brownfield shallow water life-extension investment, which is estimated at around USD4 billion. We believe that this translates to an increase in opportunities for the Malaysian oilfield services market, in particular those companies involved in OSVs, T&I and also engineering services [Source: ISL]. ISL forecast nine deepwater fields will come on-stream in India over the next five years, compared with seven in Malaysia and six in Indonesia. This represents a big increase over the period from 2006 to 2010, where a total of five deepwater fields came on-stream across the region. Of the five fields, three were in India whilst two were in Malaysia. Although there is no direct comparison over the same period, the deepwater growth in the US’ side of the Gulf of Mexico prior to 2000 demonstrated how quickly deep and ultra-deepwater discoveries can move into large scale production over a short period of time. PETRONAS is the main offshore player in Malaysia’s O&G industry and produced over 1.75 million boepd of crude oil and natural gas in 2010. In Malaysia, PETRONAS’ O&G reserves stood at 27.12 billion bbls of oil equivalent Cboe”) at the end of 2010. On the same date, PETRONAS’ disclosed O&G reserves outside Malaysia stood at 6.56 billion boe. Firms which are able to build a long standing and successful relationship with PETRONAS within Malaysia are likely to be well placed to win contracts and future work with the NOC outside of Malaysia. Furthermore, PETRONAS operates in 32 countries, and if offshore O&G support services companies have an eXistin”g relationship with the NOC within Malaysia they may be able to benefit and gain access to new regions [Source: PETRONASl
3.2 West Africa and Nigeria While South East Asia represents one of the fastest growing regions in terms of energy demand, the picture in West Africa is somewhat different, as local O&G demand is low due to the under-developed state of economies in the region. Angola is an exception as the country witnessed double digit economic growth through much of the 2000’s. However, we maintain that West African O&G producers are primarily export-oriented and thus are playing an increasing role in supplying the global O&G market [Source: ISLJ. Given a lack of domestic infrastructure and security concerns, much of the growth in West Africa’s O&G production has been from offshore developments and more recently from deepwater projects. In 2009, West Africa exported 4.373 million boepd of crude oil, or 8.3% of the total amount of crude oil exported globally in that year (i.e. 52.930 million boepd). The US is West Africa’s largest market, followed. by Europe, China and India. In terms of production, the West African energy scene is heavily dominated by Nigeria and Angola, both of which are members of OPEC and which produced close to 2.1 million boepd and 1.6 million boepd, respectively, in February 2011. [Source: OPEC] Based on ISL databases, Nigeria has the largest amount of crude oil reserves in West Africa, followed closely by Angola. Both countries are generally associated with having relatively difficult business environments. Companies that have the tools to be successful in this region are likely to have the resources to be successful in most other countries worldwide. Nigeria’s onshore production potential for example has been eroded by separatist violence in the oil-rich Niger Delta region of the country. This violence has often involved attacks on energy infrastructure, such as pipelines, and kidnapping of oil industry employees. 121 © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d) Potential onshore security concerns, in tandem with a favourable tax scheme, have encouraged the IOCs active in Nigeria to focus on deeper water prospects. For these deeper water prospects, the FPSO is swiftly becoming the production platfonn of choice. We consider that the FPSO is a concept which is likely to be selected where any, or a combination of the following factors is found: [Source: ISLJ. • Limited deep to shallow pipeline infrastructure
• Limited onshore refining capacity Low domestic energy consumption Potential political instability and threats to pipeline infrastructure


Nigeria’s oil industry has arguably become largely inefficient, hampered by militancy, and growingly unattractive for external investment. At the time of writing (June 2011) a piece of legislation is currently being debated in the Nigeria government. This legislation is referred to as the Nigerian Petroleum Industry Bill CPIB”). The PIB has broad aims to reform nearly all aspects of the hydrocarbon industry in Nigeria and its key outputs can be summarised as: • Increasing government stake in deep-water production
• Treating oil and gas separately by establishing different tax structures and incentives
• Restructuring industry and creating separate regulatory and production bodies
• Allowing the Nigerian National Petroleum Corporation, Nigeria’s NOC, to raise finance privately, become a limited company and an IOC
• Introducing an use it or lose it policy for 10 year old licenses

A further key area of change within Nigeria has been the codification of its local content laws, with the passing of the National Industry Content Bill rNICft in 2010. The NIC) stipulates that a certain proportion of all work conducted for an offshore O&G field must be done in the country. We believe these laws greatly favour companies which are Nigerian, or companies which have operations in Nigeria, and should see less work available for companies which do not have a local footprint [Source: ISL]. Reform of the Nigerian O&G industry is crucial. Nigeria is blessed with an abundance of natural resources, and could be one of the largest O&G producers globally. Currently an estimated 50% of Nigerian oil production is shut-in, due to either militant actions destroying transportation infrastructure, or threat of militant action hindering operations. Nigeria’s gas predicament is even worse. Nigeria has the largest proven gas reserves in West Africa and has the 7th largest reserves worldwide [Source: BP Statistical Review_2010). However, most of its gas production is burnt off at source. Yet within Nigeria there remains great potential. New legislation, as outlined above, is aimed at increasing the investment made into destroyed and off-line oil facilities. The current ‘gas masterplan’ places gas at the heart of Nigeria’s future economic growth, and paves the way for more gas to be brought to the domestic market. In short, if these legislative proposals are passed and enforced, then Nigeria is likely to see significant growth within its O&G sector. Given the local content rules which are in place, it is probable that those companies which are already physically established in country, will be best placed to capitalise on this. 13 I @Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (conf’d)
3.3 Latin America Latin America is emerging as a major offshore O&G frontier, driven mainly by substantial Brazilian pre-salt O&G discoveries in the Santos basin, and Petr61eo Brasileiro S.A. (~Petrobrasn)’s ambitious production growth targets. Mexico also reportedly has untapped deepwater reserves, while Venezuela is seeking to develop offshore shallow water gas deposits. Venezuela’s offshore natural gas sector is governed by separate laws to the oil sector. To produce oil, a non-Venezuelan oil company must partner with the NOC Petr61eos de Venezuela S.A. CPDVSAn ). To produce gas on the other hand, the legislation is more relaxed. Capex on Venezuelan offshore gas projects is expected to be focused on developments at the Plataforma Deltana and Mariscal Sucre development blocks. The Venezuelan government views offshore gas as a potential source of feedstock for the development of an LNG export sector as well as a source of energy for the development of local industries such as petrochemicals, and to provide power for the proposed expansion of Venezuela’s onshore heavy oil projects. PDVSA is understandably looking to promote the development of its gas resources and has highlighted this in its business plan through to 2015 [Source: PDVSA]. Venezuela’s offshore industry is still youthful and under-explored. If anything can be inferred from recent successes in deepwater plays in neighbouring Mexico and Trinidad & Tobago, then Venezuela may hold significant future potential, and could emerge to be a deepwater market of tomorrow. ­Meanwhile, Mexico’s oil sector is currently facing tough challenges including declining production, falling exports to its largest market, the US, and rising domestic consumption. Compounding these problems is the constitutional limit placed on foreign investment in Mexico’s O&G sector which prevents any direct operatorship of O&G fields by firms other than Mexico’s NOC, Petr61eos Mexicanos CPEMEX”). Currently, PEMEX can only contract out services to assist it in field exploration and development. Given that the Mexican government is heavily reliant on oil revenue to finance its spending PEMEX is taxed heavily and this, combined with the limits on foreign participation in the oil and gas sector, hinders the ability of the Mexican oil sector to deal with the challenges highlighted above. For example, a range of industry sources have stated that PEMEX lacks the technical expertise and experience to explore and. develop the estimated 30 billion bbls of deepwater oil reserves located in the Mexican side of the Gulf of Mexico [Source: OilOnlinel Despite these constraints PEMEX has devised a business plan to invest an average of approximately USD20 billion per year between 2010 and 2024, targeting a production level of 2.7 million bpd by 2012 and 3.3 million bpd by 2024. The majority of investment will be directed towards shallow water fields including Ayin, Akal (Cantarell) and Sihil. Should this business plan be adopted, we argue that this investment will be essential for PEMEX to realise its objective of reversing its production decline, which in the longer term threatens Mexico’s oil export revenue [Source: ISL). Brazil has become one of the leading countries in the offshore O&G industry. Brazil is currently the third-largest crude oil producer in Latin America behind Venezuela and Mexico. However, if Petrobras’ expected production growth targets are realised then Brazil may become the leading oil producer in the region by the end of this decade [Source: ISL]. ,.q © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (conf’d) Brazil’s NOC, Petrobras, is the centre piece for significant production growth plans. Petrobras is more commercially driven in comparison to some other NOCs, largely due to the Brazilian Petroleum Law introduced in 1997, which partially privatised Petrobras. These reforms also gave Petrobras a more corporate orientation and opened up competition for O&G exploration. However, the NOC still controls 95% of Brazilian crude production today. Just over a decade after the introduction of the Brazilian Petroleum Law, Petrobras adopted an ambitious investment plan which includes a five year USD224 billion spending target over 2010 to 2014. This five-year plan forms a major part of Brazil’s strategy to become one of the major 0;1 producers and exporters in the world by the end of this decade [Source: Petrobras]. With such a broad five year plan, and such a large capex commitment, Petrobras will require the support of a multitude of contractors providing different services. The majority of the yet to be produced reserves in Brazil are located in deeper waters in pre-salt geographical formations. We reason that these deeper water projects will tend to favour FPSOs, and will require contractors who are able to leverage on deepwater expertise, or show ingenuity in the face of technical challenges [Source: ISLJ.
3.4 Caspian The Caspian region includes the former Soviet Union {“F5U”} states of Azerbaijan, Kazakhstan, and Turkmenistan, as well as the Caspian Sea territory belonging to Russia and an area belonging to Iran. Prospects for the region are dominated by two major field developments: Azerbaijan’s Shah Deniz gas field and Kazakhstan’s Kashagan field. In addition to this, ISL forecast that a significant amount of investment will be driven by operators PETRONAS and Dragon Oil PIc, who have plans to enhance the recovery rates of older Soviet~era discoveries [Source: ISL]. Activity in the Caspian region is largely aimed at developing hydrocarbon resources for export to the large neighbouring ecori”6mies of Europe, Russia or China. The Caspian is a predominantly landlocked region and hence, exporting hydrocarbons will require large export pipelines. In recent years, Europe, Russia, and China have initiated competing pipeline projects to get access to the reserves of the countries positioned around the Caspian. The key to these pipeline projects is to command enough reserves to justify their capex. This means that much of the focus on the Caspian is around larger fields. However, once these export pipelines are in place, the cost of developing fields will decrease, and smaller fields will become more attractive. This gives the market long-term appeal. BP’s Shah Deniz field was discovered in 1999 and began producing gas and condensate in 2006. The coming on-stream of this major field (Phase 1) has enabled Azerbaijan to become a net gas exporter in the last three years and more development is expected with further Phases expected to come on-stream in 2016 and 2017. Total reserves for the field’s combined Phases are estimated to be in the vicinity of 34 Tcf. To put this into perspective, the UK’s West of Shetland region, which has the potential to be one of the most productive frontier areas of the North Sea, holds only an estimated 5 -8 Tcf of identified reserves [Source: rSL]. The Shah Deniz field has been seen as a viable supplier for the proposed Nabucco natural gas pipeline, a project stretching from Turkey into the heart of Europe which aims to ease Europe’s dependence on gas supplies from Russia [Source:]. 15 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’cf) Other significant Caspian Sea developments include Kazakhstan’s Kashagan oil field, one of the largest oil fields discovered in recent times. ISL estimates that Kashagan’s total O&G reserves amount to 14.4 billion boe. The Caspian region remains largely unexplored since the Soviet era, and could potentially hold more discoveries yet. PETRONAS has been active in the Caspian region for some time. In 1996, PETRONAS signed a 25-year production sharing contract with Turkmenistan for the exploration and development of the Magtymguly, Ovez and Diyarbekir fields found in block 1, giving the oil company a long-term presence in the Caspian region. Since then, PETRONAS has invested an estimated USD2 billion into developing these reserves and has actively sought to encourage Malaysian companies into the Caspian to support the development of its Caspian assets by providing the support services required to bring these fields into production [Source: PETRONAS). 3,5 Australia Australia is likely to continue its emergence as a major player in the global O&G market over the next five years and beyond. The country has a unique combination of small to medium sized light crude oil accumulations underlying massive gas reservoirs. A domestic predisposition to coal based energy consumption, and close proximity to the rapidly growing and energy hungry, means that the vast majority of Australia’s O&G is to be produced for export. This trend, and the cyclonic operational characteristics found in the country, strongly favours the FPSO as a development solution for oil, and the enticing prospect of FLNG solutions for gas. Such is the prospects of Australia’s new resources boom that the country has, been dubbed as the potential “Saudi Arabia of natural gasn [Source:] to the rapidly growing gas-consuming economies of Asia, especially China. Following recent discoveries, Australia’s conventional natural gas reserves have more than doubled. According to the BP Statistical Review of World Energy, Australia’s proven reserves of natural gas have grown from 32.7Tcf in 1990 to 77.7Tcf in 2000, and further still to 110Tcf in 2010. Such is the significance of this recent discoveries that Australia is now estimated to be the second-largest holder of proven reserves of natural gas in the Asia­Pacific region, behind Indonesia [Source: EIA and BP Statistical Review of World Energy 2010]. The vast majority of Australia’s natural gas reserves are located offshore in the country’s north~western and northern regions, in the Carnavon, Browse and Bonaparte basins. These three basins collectively contain more than 91 % of Australia’s natural gas reserves. According to the Australian Bureau of Agricultural and Resource Economics (“ABARE”) projections for the market share of total gross output from the north western and northern regions -most of which will be converted into LNG for export -will be maintained over the next two decades [Source: ABARE]. Australia is expected to rival leading LNG exporters in the medium term due to several LNG projects -either planned or proposed, which will provide export outlets for its abundant offshore and unconventional gas reserves such as Coal Seam Gas (CSG) -given that production is expected to exceed domestic consumption requirements. [Source: ABARE). ABARE forecasted in 2010 that Australia’s LNG exports will reach 41.4 million tonnes per year rtpy~) by 2015/2016, reflecting an expectation of exceptionally strong growth in LNG export volumes given the fact that the ABARE also reported in 2010 that Australian exports of LNG totalled 15 million tpy in 2008109 [Source: ABARE). 161 © Infield Systems Limited 2011 a. INDUSTRY OVERVIEW (cont’d) Should they proceed, we believe these projects will confirm Australia’s growing role in the global LNG market, supported mainly by the expected rapid development of its offshore gas reserves. Furthermore, multi-billion dollar long-term supply deals have been signed between the operators of these proposed LNG projects and power and energy companies located in China, India and Japan -and in some cases, acquisitions of equity share in LNG-related projects have been made by Asian energy interests as well, most notably CNOOC Limited, China’s offshore national oil company. [Source: ABARE]. The Asian region will be a fast­growing region in terms of natural gas demand, and Australia is well-placed to meet this region’s growing need. (The rest of this page has been intentionally left blank) 171 © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d) 4 FPSO MARKET


4.1 FPSO Markel A FPSO system is a crucial enabling technology of the modern offshore O&G industry, which allows oil to be produced from the sea floor, stored and then offloaded to a waiting shuttle tanker which will deliver it to the market. FPSOs have become important in the offshore O&G industry as production has moved into more remote areas, deeper waters, further away from export pipelines and often in countries which have no domestic oil refining capacity. Two business models exist for the provision of FPSOs. They are either rented from a ‘leased FPSO provider’ for a number of years, or they are purchased and owned directly by the oil company responsible for developing the field. This decision is usually driven by: • The size of a fields’ reselVes -whether total potential revenue would cover total potential cost of the FPSO
• The length of time the field is likely to be in production for -a field with a 20-year lifetime is more attractive for a purchase solution versus a field with an a-year life time
• The type of oil company developing the field -whether they have enough capital to be able to purchase their own FPSO, or whether they would have to lease and therefore avoid the initial capital requirement

Leased FPSO providers are targeted based on production uptime and an ability to maximise the production levels of a field. In terms of their business model, leased FPSO providers are able to retain tighter control over the procurement process and are also able to deliver on pre-agreed schedules and thus are more likely to generate greater revenue and incur less risk of activating penalty clauses in their contracts. During the perio~ of economic recession, the FPSO market as a whole suffered for the extended period without any new orders. This placed pressure on many of the leased FPSO providers, in particular some providers of speculative FPSO became bankrupt as they were unable to secure contracts for units under construction. During this time we also saw some market consolidation, most notably BW Offshore ASA’s (~BW Offshore~) acquisition of Prosafe Production Services Pte Ltd (~Prosafe~). We see good potenti’al for future market consolidation between FPSO providers. An FPSO can either be a ‘newbuild’ or a ‘conversion’ solution. A newbuild is typically favoured by IOCs who are developing large fields which are likely to be in production for a period of around 20 years. In these instances the projected life time of the field justifies the decision to build a specified unit to match the field’s exact characteristics. A newbuild solution is almost always owned by the oil company developing the field. A converted solution takes an existing oil tanker hull, and converts it into an FPSO. Typically this conversion process will include the strengthening of the deck and the addition of oil separation and processing modules on the topsides. It is typically cheaper to convert an existing hull into an FPSO than choosing a newbuild option. Historically, companies which lease FPSOs tend to convert tanker hulls [Source: ISL]. 18 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (conrd) Given the FPSOs drivers, it looks to be a technology which is set to be at the epicentre of the offshore O&G industry for many years to come. Nonetheless, the FPSO market, like many other offshore O&G markets, was acutely affected by the slowdown in the global economy. This slowdown was attributable to the uncertainty surrounding the future price of oil, and the future energy requirements of the global economy. FPSOs tend to be long-term and high capex projects. They therefore need stable market conditions to be awarded contracts. Figure 4-1 illustrates how the number of large FPSO contracts being awarded increased in tandem with increasing oil prices, which includes Hyundai Heavy Industries Co., Ltd. being awarded the newbuild contract for the Usan FPSO, and Modec being awarded a contract to lease an FPSO to Tullow Oil pIc for deployment offshore Ghana. However, when the price of oil crashed and market conditions became Jess stable, we saw a number of project cancellations and deferrals. More recently, market conditions have improved, and the number of contract awards has increased; SBM for example were awarded the contract for the Aseng FPSO in August 2009. Teekay Corporation signed a contract with Petrobras in 2010 for the provision of an FPSO for the Tiro and Sidon field in Brazil. In 2011, the Bonga SW FPSO project offshore Nigeria, which was shelved, has now been revived and is likely to be pushed ahead [Source: Shell]. \6I>.!XI rF~~~~~~~~ M””,IO..,. 0…10,….”‘ II. (.~ …’I’ICO. U~ …..’~.d l”bll«
1<000 M””;;;”;;’~;;;;~;;;;~~:=; IIQno<~otf””or< ….’olrd Bil.>bd ‘0,0 ~==c===”R’1’__H•…,Itru.d.1 WI””,,” ….,d.d u…
£fIro_IoE”I,nh.,,, ~ ,. co ••tru<,B fP50 h.lI> ‘0 bt .>ad In 5>.”‘. BoW.. 0\iJl PUr”,o …… >crud lO ……… Ie.”‘. “‘.1…… fP50
00 0,0 L::======’-‘.~ Hgure 4-1: Select FPSO market events since 2007 to 2011 vs oilprice [Source: ISLJ 19 I © Infield Systems Limited 2011
8. INDUSTRY OVERVIEW (conrd) A further area which is increasingly important within the FPSO market is in relation to ‘redeployments’. FPSO redeployment only applies to those companies who are providing leased FPSO solutions. It refers to the multiple use of one FPSO on several different fields during its life-time. FPSOs were originally conceived to be multi-field assets, moving continually from one oil field to the next. However, as the industry has improved production capacity from existing discoveries, FPSOs have moved far less than anticipated. As each field is unique and requires a tailored solution, redeployment options are more complex than originally thought. However, we are now coming to a stage where we have a significant amount of FPSOs working on fields which are coming to the end of their productive lives. For companies who lease FPSOs, being able to redeploy these on to a second contract will be an extremely valuable process. One example of this valuable redeployment is the Armada Perkasa, the first full-fledge FPSO to be relocated to three different fields on two different continents. Companies which have demonstrated a proven track record of redeploying FPSOs, of which there are few, we understand to be at a competitive advantage in understanding how this market works, and how value can be maximised from this process [Source: ISL].
FPS FPS 7% 6%semi-Sub 10% Other Other FloaterFloater,% ,% FSU _ 2% FSU _ ,%FPSO 46% FSO ,SO ,,% 25% Figure 4-2: Global floating platform installations (units) by floater type (2003-2010) [Source: ISL] Figures 4-2 and 4-3 show how the floating production market has been dominated by FPSOs during the period 2003 to 2010, and how we expect to see FPSOs become even more dominant from 2011 to 2020. 4.2 Forecasting FPSO Market Performance With short-term factors becoming more suitable for investment and both medium and long­term drivers for the FPSO market remaining strong, the fundamentals for the market are positive as illustrated in Figures 4-4 and 4-5. [Source: ISL] 20 I @Infield Systems Limited 2011 ICompany No. 37039B-X I 8, INDUSTRY OVERVIEW (cont’d)
Ausllalasia ~ Installations -+-Capital Expenditure EastAsia12% 0% 18,000 30 ~~ c•16.000 Eastern”. c 250 _—Europe/14,000
, ~ 4%Southernd 12,000 20 , Europe~ ~ 10,000 15 E 1% ~ 8,000
“, ’01″1 go 6,000 ~-r­10 •South East i.J .. •Asiau 4,000 E _Latin~~”lf~ 11 ~ 5 12%.2,000 .Americazfi! ft-f~ ,1 ” WI 29%o 0 ~~ro ~~ ~~’O ~~~ ~….~ ……..~ ….q,,~ /1′ ~~ ….’?~ South Asia ­’); ~ ‘); ‘); ‘); of> of> of> q,,’\:> q,,~ 1% –__MiddIeEas( North 2%Yearof Install/Spend NWECS America North Africa 100/0 0% 1% Figure 4-4: Global FPSO demand by capex (USD million) Figure 4-5: Global FPSO estimated capex demand by and number of installations (2006-2015) [Source: ISL] region (%) (2011-2015) [Source: ISL] We expect growth in the market over the next five years with peak levels of investment as well as the number of FPSOs entering operations to peak towards 2014 and 2015. We believe the key regions for capex to be Latin America, West Africa, South East Asia and Australasia from 2011 to 2015 as illustrated in Figure 4-5, whilst deepwater locations such as offshore Brazil, Angola and Nigeria should require the largest amount of FPSO investment over the period. Despite the expected demand for FPSOs from Latin America and West Africa, regions that have been well established within the market for a considerable time, the demand growth in the South East Asia and Australasia regions are far more recent additions to global FPSO demand dynamics. We expect the Northwest of Australia to be a key area for new FPSO developments over the next five years, especially with the possibility of the new floating LNG (“FLNGD platforms to ) begin fabrication before 2015 [Source: tSL], as well as more marginal fields forecast to be brought on stream in the next five years. However for South East Asia, the increase in investment and operator preference for FPSOs has been mainly attributable to the large growth in energy demand from the greater Asia area, the lack of existing offshore pipeline infrastructure, and the proximity of the world’s largest FPSO fabrication facilities. We forecast Indonesia and Malaysia to account for more FPSO installations and capex over the next five years. Vietnam should witness similar levels of investment as it has done in recent years [Source: ISL]. South Asia (i.e. India) is not currently expected to be a major region for the FPSO market, however this could quickly change with a number of fields in the region have no announced development scheme yet have field characteristics not so dissimilar to fields proposed as FPSO developments offshore Australia. This coupled with the recent success of the D1 tender could lead the region to be a FPSO focus within the decade. Driving the development of FPSO demand in Malaysia and Indonesia is the development of deepwater prospects, such as Kikeh in Malaysia, and Gendalo -Gehem in Indonesia. These projects utilise a ‘hub and spoke’ technology approach, whereby the FPSO stands at the centre, or hub of the development, and subsea wells are installed around the FPSO and tied-back into the FPSO. Oil is then processed and stored, until it is offloaded to a shuttle 21 I © Infield Systems Limited 2011
8. INDUSTRY OVERVIEW (conl’d) tanker, and taken to a refinery. I!!:IEilII Under Construction -:’:’:~–: Under Conversion Pelrobras 22%
‘.·-FirmPlan …….. Possible Others
42% “”‘-Probable Total ~9’10 ..,-“-•• -“.­
-‘.~­~ Shell Woodside Energyl\d_~ _ 6% BP
2011 2012 2013 2014 20152% OAO 3% Year of Install 3% 3% 4% Gazprom ExxonWClbil Eni S.pA Figure 4-6: Global FPSO estimated capex by operator (%) Figure 4-7: Global FPSO estimated installations by ISL (2011-2015) [Source: ISL] project status (2011~2015) [Source: ISL] Figure 4-6 illustrates the oil companies with the largest amount of FPSO expenditure over the next five years. Petrobras is expected to be the main operator for FPSO capex over the next five years, with Total S.A. (“Total”), Shell and Chevron Corporation CChevron”), the next key players in terms of overall investment. In addition to the role of the Majors in this market, we are starting to notice an increase of Independents, such as Woodside Petroleum Limited. A greater mix of Independents in the FPSO market is deemed likely to create more opportunities for companies which lease FPSOs, as Independents typically do not have the funding required to build and own their own FPSOs. Figure 4-7 sets out the forecast of FPSO installations. By tracking news and contract information regarding FPSO projects we assign a status on the likelihood of a project being installed in that year. A large part of installation is expected to occur in 2014 and ‘2015 with projects th,at have a firm plan, possible and probable status. It is a positive sign within the market that we believe that probable and firm pial) projects will be installed in 2014 and 20J5 despite the year of installation not being forecast until a later date as it shows the market has long term demand. FPSO projects that are currently at yard locations receiving work are categorised as ‘under construction’ or ‘under conversion’. 221 © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont”d)
co…. _Leas<><!
., ” ” • ,l­•,~20 ~ 15 –I­I­o , ,” c ” ‘,­• ~ 10 –f-f­-I-­, , ~-I­-I­L,L..­-L..-~ L..­oo –2006 2007 2008 MOg 2010 2011E 2012E 201JE 201~E 201SE Figures 4-e and 4-9 illustrate our projection that in the future more converted, rather than newbuild FPSOs will be required. Again, companies which are able to manage the FPSO conversion process are likely to be the beneficiaries of this dynamic.
4.3 Key Regional FPSO Markels 4.3.1 South East Asia The FPSO market looks very robust within South East Asia, which is expected to be driven primarily by Malaysia, Vietnam and Indonesia as Majors, Independents and NOC oil companies are expected to look to develop reserves with FPSO platforms over the next ten years. There is a healthy outlook for the region in terms of both the number of installations and capex for FPSOs from 2011-2015 [Source: ISL]. We believe that Malaysia in particular is likely to’ increase its market share of FPSO installations from 2011-2015 compared to 2006-2010, as Petrofac Limited (“Petrofac”), Murphy Oil Corporation (“Murphy”), Hess Corporation, Shell and Talisman Energy Inc. (“Talisman”), as well as PETRONAS are anticipated to develop both deepwater and shallow water fields. 23 I © Infield Systems Limited 2011
B. INDUSTRY OVERVIEW (conl’d) Vietnam 20% Vietnam 35% Indonesia 40% Thailan ~__–Malaysia20% ~ 15%e:-__~alaysia l 10% Thailand 5% Ph iJippines Philippines 10% 15% Figure 4-10: FPSO installations by country (2005­Figure 4-11: Estimated FPSO installations by country 2010) [Source: ISL] (2011-2015) [Source: ISLj Table 4-1: Summary ofSouth East Asian FPSO installati.ons [Source: ISL] Coun 2006·2010 2011·2015 estimated Grand Tolal illij!I~s’lil~IJ1£.W.””‘j;$’Wit~~~·.: ~ ” .'< ….~’.·W ‘.”.{ 1?i~’:~@’~LJf.i;:.,J1r ‘ Malaysia 13 -4 :CPJliI!AAin_es~i;~’61I!S;.r~~~”,,,¥m;’4t’W!f~KWmi~jR~E*”:(‘};~;;{ Thailand 213 f-:vre:::In=-arn~;r~1f=;~~jr3~,}:!~R””~h~ViZ~t·,@lf;~f:M·;t~tm~,~1§2’:;::;fi~~~1r;r;’§fr:1r;;;~1 Grand Total 10 20 30 One demand dynamic within the South East Asian FPSO market that we believe will change over the next five years is within Thailand. Thailand’s market share for FPSO installations and capex is anticipated to decline drastically as the country looks to more traditional fixed platforms to develop offshore fields whilst other countries opt for floating production platform solutions. With Thailand having a large amount of fractured reserves offshore, utilising small low cost piled platforms looks to be a more viable option for operators in the country instead of leasing or purchasing FPSOs which can have high lead times for delivery. Historically, FPSO operations in the region have been primarily undertaken by Independent operators, however, we expect to see more Major and NOe operators enter the FPSO market within South East Asia over the next five years. This diversification of operators in the FPSO market is primarily attributable to Indonesian deepwater fields that are planned to be developed by FPSO solutions. Within Malaysia, there is a similar diversity but on a lower scale with Talisman, PETRONAS and Petrofac expected to use FPSO solutions over the next five years adding to the one current FPSO which has been operating for Murphy offshore Malaysia since 2007 [Source: ISL], 24 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d) “‘=:5 Installations =.~~Capex
2006 2007 2008 200′ 2010 2011E 2012E 2013E 2014E 2015E Yearof InstallfSpend ISLj

4.3.2 West Africa Deepwater projects located offshore West Africa, and primarily Angola and Nigeria have acted as catalysts for offshore oil and gas investment into the region over the last few years and the same can be said with the FPSO market in the region. Although the recession dampened overall capex, investment continued to flow into the FPSO market and we believe that this will continue over the next few years before increasing substantially as Majors as well as a growing number of Independent operators develop offshore fields with FPSOs. Angola 36% Nigeria _ 43% Cameroon 0% Congo(Brazzaville) ,.. Equatorial Congo 6% Guinea Guinea (Brazzaville) 7% 7%0% B% 0% Country 2006·2010 2011-2015jestimated) Grand Total

25 I © Infield Systems Limited 2011
8. INDUSTRY OVERVIEW (cont’d) Over the last five years, we have seen increasing number of Independent operators ent,?r the West African market whilst major operators also continue with operations showing that despite some concerns over security and stability in the region, the benefits for operators are there and worth the risk for these companies. We have also witnessed a similar trend with FPSO lease owners as whilst established players such as Modec, BW Offshore and SBM have been present in the region, there is an increasing diversification of lease owners, for example Fred Olsen Production ASA and Bumi Armada (who were the first Malaysian owner and operator of an FPSO in West Africa). Whilst the trend of Independent operators diversifying into markets is expected to continue moving forward, the diversification into regions is also expected to occur [Source: ISL]. We believe that emerging hydrocarbon nations such as Cameroon and Equatorial Guinea will see continued growth within the FPSO market through to 2015 compared to 2006-2010 as new operators in the region look to develop new acreage in West Africa, creating niche markets for the operators. Whilst these new emerging countries will bolster the FPSO market in West Africa, long standing nations Angola and Nigeria are expected to continue as the primary drivers for the FPSO market in the region. r=-rn Installations • . Capex
200’ 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E Y~arof Install/Spend Figure 4-15: West Africa FPSO installations and capex (USD million) (2006-2015) [Source: lSL] 4,3.3 Latin America Table 4-3 Summary of Latin American FPSO installations [Source: ISLJ
Count  2006-2010  2011-2015 (estimated)  Grand Total  r..8f.WIW~$:t:~;~,~gf::.f:.n.­ ‘G”‘~  ·\,;~’;.::{~:2’3….!§:’-:i;2.·;.<.:-~;_  ..’.’.  .<~’  .~. ‘::);~::,:::’28 ;:’;.:; ‘_ :”;.~’:~”-~~;’:-;;~: ;.:,:’:·,:,:’~~’1″-:’·1  Mexjco  2  1  3
Table 4-3 illustrates the importance of Brazil in the FPSO market of Latin America. Brazil’s high FPSO requirement is driven by a string of recent discoveries in its deep and ultra deepwater plays. Of these deep and ultra deepwater plays, the most prospective are Petrobras’ pre-salt projects, which have attracted a great deal of media attention recently. According to ISL databases, deepwater Brazil now holds the world’s largest accumulation of undeveloped deepwater reserves, making this region one of the most strategically important regions for companies providing services in the deepwater spectrum. 26 I ©Infield Systems Limited 2011 165 C ~ E ~ ‘”
2­•x ~ u• 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1.500 1.000 500 0 ..,….., , .’ , •
7 ,•c 0 5 .. ~ 4 oS ”
<; 3 “•D E,2 2 0 8. INDUSTRY OVERVIEW (conf’d) The term ‘pre-salt’ makes reference to an aggregation of rocks located offshore Brazil which were formed under a large and extensive layer of salt, which, in certain areas of the coast, can be as much as 2,000 metres thick. The ‘pre’ expression is used because, through time, these rocks were deposited before the salt layer. The total depth of these rocks, Le. the distance between the surface of the sea and the oil reservoirs under the salt layer, can be as much as 7,000 metres [Source: Pre-salt offers impressive hydrocarbon potential, but also poses some extremely difficult questions. At depths of up to 7,000 metres, oil is under extremely high pressure and high temperature. The technology which is required to deliver safely from its source rocks to market must therefore be very strong and immensely durable. Pre-salt deposits are also typically found quite some distance away from the shore. The combination of hot and highly pressurised oil, in tandem with it being located a long way from the shore, means that export pipelines are not the best solution for developing these reserves. Instead, FPSOs have been adopted as the favoured development solution of choice [Source: lSL}. Mexico Peru Mexico 8% 4%
___Brazil 88% Figure 4-16: FPSO installations by country (2006­Figure 4-17: FPSO estimated installations by country 2010) [Source: ISL] (2011-2015 [Source: ISL] With Petrobras expected to be the predominant player in the regior’) with plans to increase production and proven reserves through to 2020 [Source: Petrobras], Brazil is expected to witness the largest amount of FPSO capex and installations over the next five years. Other countries offshore Latin America are more focussed on shallow water fixed platform developments as a solution for production than FPSOs which is why Brazil continues to have the largest market share within the region for FPSO installations. The number of installations during 2011 and 2012 is expected to be lower than 2013 through to 2015 as the investment for these projects took place during the economic recession [Source: lSLl­271 © Infield Systems Limited 2011 B. INDUSTRY OVERVIEW (cont’d) ……. Installations __Capex
‘.~ ” ‘.~ •
I •’.~ .. 0, • · ~J,::.oo i~~­’I’i_~ J,OIXI c-~~ ,• •• ~ g 2,::.00 –f—1 ,, :;–­-;;•2,OIXI :L C-‘ • ,c-r­:: c­, •,–:: 1.::.00 C­-C­C­,, -== ,~ c­-z–f­r-f­-C­-c-­f-c­~ ,”.o 0 2005 2007 200B 2OIJ9 2010 2011E 201JE 201JE 2014E 2O\5E y….rof In,t.llISp<tnd Figure 4-18: Latin America FPSO installations and capex (USD miJlion) (2006-2015) [Source: ISLJ 4.3.4 FPSO Market Place Tankef PacifIC orrsl’lcxe Terminals Pte Lid Sev”n “”’rine ASA Rubicon OIrshlXe Intemalio”,,1 BumiArmada Fled Olsen ProduClion ASA A.P. “‘oIler-“”’l!fsk. Group Teek.ay Pl!\roja.r1 ProduClion AS 8lu…….aler Energy Services 8.V
“” 8worrshol’l! o24 681012 14 Figure 4-19; Number of operational FPSO by selected FPSO lease owners (as of 14/0412011) [Source: ISL] 281 © Infield Systems Limited 2011 167 8. INDUSTRY OVERVIEW (conl’d) The FPSO market place is made up of both leased FPSO providers and oil companies which own their own FPSOs. The market is quite fractured, with a large number of smaller companies owning one or two assets. In Figure 4-19, we have listed some select FPSO lease owners that we believe represent a good cross section of the global providers. Within the leased FPSO market we perceive there to be three layers of competition [Source: ISL]. The first layer would relate to companies such as Modec, BW Offshore and SBM. These companies have the largest fleets, and are able to leverage these revenue generating assets to take on the bigger projects which require larger FPSOs. Below these players is the second tier of leased FPSO providers who have two or more FPSOs, and have been able to win additional contracts due for installation in 2011 to 2015. These companies include Bluewater Energy Services BV., Rubicon Offshore International, and Bumi Armada. For these companies, there is a good possibility for inorganic growth, targeting smaller companies with fewer assets, or companies with similar sized assets without any new contracts. This tier predominantly targets the medium to small projects for operations. The final layer of leased FPSO providers has typically one asset currently deployed with no recent contract success. 4.4 Market Threats and Concerns Alternative Development Concepts One of the recent emerging trends within the FPSO market is a move away from ship­shaped FPSOs towards cylindrical designs. Cylindrical designs, such as that recently chosen for use on Eni S.p.A.’s Goliat field in Norway by Sevan Marine ASA, as well as designs promoted by SSP Offshore, could impact the leased FPSO market, as providers of leased FPSOs tend to use converted tanker hulls as the basis of the FPSO. Although there has not been a large amount of demand for these new design types, there has been an increase in interest. These designs are however, largely viewed as niche concepts, applicable as development solutions only in certain market products. The supply chain around them is less established, and generally we would expect delivery schedules to be greater relative to a conversion design. Accounting Change The Financial Accounting Standards Board is currently reviewing its practices in relation to leasing. It has submitted a draft outline of proposed changes, and consulted with the industry until December 2010 [Source:]. Whilst the board is still currently accumulating all comments and may change accounting practice for leased assets in the future, there are a number of leased FPSO providers that have pre-empted the board’s decision and adopted these proposed changes. Although the changes are not yet a fully required practice, those leased FPSO providers which have moved early to adopt these new standards are likely to be well placed relative to competitors that have yet to take on these practices. 29 I © Infield Systems Limifed 2011 8. INDUSTRY OVERVIEW (conl’d) Local content NOCs are becoming more influential and powerful in today’s offshore O&G industry. They have a dual role of overseeing hydrocarbon production and maximising their countries return on its hydrocarbon resources. Recently in places such as Nigeria, we have seen stringent regulations being introduced which means that a significant part of any project must be undertaken in the country in which the project is due to be installed. Whilst this could be advantageous for any companies which already have operations in countries with increasing local content requirements, when procuring a large and complex asset such as an FPSO, there is some uncertainty as to whether countries which have local content requirements actually have the capacity to carry out this work [Source: ISL]. Environmental Legislation The issue of reducing carbon emissions has impacted all types of business across the globe and the offshore industry is no exception to this. In recent years, major operators and large Independents have been very public in stating their intentions on carbon emission reductions throughout their entire supply chain but their focus remains on producing assets. Although operators have taken the first step towards lowering emissions such as reducing the amount of flaring, when gas which cannot be taken to market is burnt at the platform, there could be increased regulations from governments across the globe that would be forced upon the industry [Source: ISL]. Industry reliance andvulnerability to imports According to ISL databases, over 90% of FPSOs are fabricated in Asia and exported to their country of operation. The supply chain for an FPSO is global. Engineering is often done in Houston, Aberdeen, London, Tokyo or Monaco, whilst fabrication is usually then done in Singapore or Korea. As such, the FPSO is deemed as not vulnerable to risks associated with imports. Substitute Products/Services Whilst there are no direct sUbstitute products or services to the FPSO market there are alternative solutions for operators to choose from for floating platform production. Drivers for alternative floating platform solutions can vary and include legislation not allowing FPSO deployment, harsh metocean conditions that would usually support a semi-submersible platform over an FPSO and major gas production fields. However, evaluation of these field and regional characteristics would require a project-by-project approach in order for an operator to decide upon the right solution for them. FPSOs have the advantage of being capable of disconnection from a field in the event of bad weather conditions such as in the hurricane season as well as having a large storage capacity. There can also be less capex required as FPSOs can be converted from existing transport tankers; which is again dependent on a project-by-project basis [Source: ISL]. 30 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont”d) 5 OSVMARKET
For this Report, the OSV market has been defined as vessels either associated with anchor handling duties rAHTs~), which are used for towing rigs and platforms onto location, platform support vessels (~PSVs~), which are primarily used to supply existing platforms and assist with construction duties as well, and accommodation vessels, which offer offshore accommodations services during the construction and installation phase of offshore infrastructure and also during periods that require inspection, repair and maintenance (“IRM”). All three types of vessels have similar but slightly different market drivers. Demand for AHTs is driven by the number of rigs that are actively drilling, which is in turn driven by the need to drill wells, which is in turn driven by the price of oil and future expectations about the price of oil. PSV demand is driven by the number of operational platforms. More platform installations will occur if the price of oil is high, and if expectations over future energy demand are also high. Further, a high oil price context may also mean that existing platforms remain economically feasible and remain operational for a longer period of time. Demand for accommodation vessels is driven by offshore construction and installation, and also through IRM activities for shallow water infrastructure. Although under the same umbrella as OSVs, AHTs, and PSVs, accommodation vessels have different capabilities and therefore there are some different dynamics when looking at the drivers between the two sectors. –E&P SperKling –AHTS Chaner Rall!$
2004 2005 2006 2007 200B 2009 2010 Figure 5-1: Exploration andproduction (.”E&P”) spending indexed with AHTS charter rates 2004 -20101[Source: ISLj An AHT is traditionally deployed to tow offshore rigs from one location to another and to deploy their anchors in order for them to maintain a specific position during the drilling process. AHTs are also utilised to support the asset during the drilling process in terms of supply runs and safety assurances. Given that the primary function of an AHT is to support offshore drilling, we note that the main driver for this market is activity in the drilling market. The drilling market is in turn driven by a number of factors: • Global energy consumption patterns
• Seismic surveying activity
• Newly available license block acreage
• Compulsory drilling requirements on old license block acreage

1 AHTS are an acceptable proxy for general OSV market in Asia 31 I © Infield Systems Limiled 2011 8. INDUSTRY OVERVIEW (cont’d) • Number of rigs in the market ,.  Depletion of existing fields  ,.  Growth of subsea market and movement away from platform drilling  ,.  Growth of subsea operational market and requirement for subsea intervention
A PSV is employed to transport supplies to offshore platforms and return any other cargoes to shore. PSVs typically have cargo tanks for a variety of goods, however fuel, water and chemicals are the primary supplies required by platforms. A PSV will typically have less horsepower than its AHT counterpart, as its role is more supply focussed, rather than having .to move heavy anchors [Source: ISL]. As with AHTs, we do see quite some variation in design and capability; we also see a difference in performance characteristics between vessels built more than 25 years ago compared to those of today. With the trend of exploring and producing from more remote offshore locations continuing to characterise the offshore industry, more sophisticated and younger PSVs with greater drive capacity, load capabilities, and better fuel efficiency are well placed within the market to win charters. G.iven that the PSV’s primary role is to support offshore platforms, the main driver for this market is the size of the installed and operational platform market. Offshore pl.atforms are a crucial part of offshore O&G production and as the global demand for oil and gas increases, more offshore platforms are proposed, awarded and installed. Whilst the number of new platforms increases as energy demand increases, existing platforms typically witness reinvestment in the asset or field in order to prolong production or tap into reserves that were once deemed not economically viable. The reverse is also true that with a market slowdown, new platform installations decrease and operators are less-likely to reinvest in assets whilst global commodity prices are low [Source: ISL]. For accommodation vessels, the market is driven by new platform installations as well as the number of existing platforms. For new offshore installations, accommodation vessels will be required to provide accommodation for engineers, contractors and other personnel involved in the project as shuttles via helicopter and boats are typically less efficient than the chartering of a purpose built accommodation vessel on-site. The same is true for IRM, where long shutdowns or maintenance to offshore installations may require personnel to be on site for a length of time without staying on the platform itself for HSE reasons.
5.1 OSV Market Recent Performance Given the strong relationship between OSVs and the offshore drilling and platform markets, which are in turn primarily driven by energy demand patterns, with the recent economic slowdown we have noticed a consequential cooling of activity in the OSV sector. However, this occurred after a period of almost frenetic activity, strong utilisation, and record charter rates. Figure 5-2 shows that up to late 2008 OSV utilisation was increasing and demand for OSV services was also increasing. Beyond the second half of 2008 a combination of plateauing OSV demand, and the influx of a number of new builds, caused utilisation and charter rates to fall. 32 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d) Demand for OSVs grew strongly through the last business cycle (i.e. from 2005 to 2008), driven by rapidly increasing energy demand and lucrative commodity prices which encouraged oil companies to look into delivering more hydrocarbon energy to the market. As competition to develop offshore fields increased, so did the core support services required by field operators to bring fields into production, which experienced significant revenue inflation. Looking at AHTs, day-rates for drilling rigs sky rocketed, fuelled by utilisation, which in some markets was more than 90%. With increased utilisation and day-rates for rigs, utilisation and day-rates for AHTs increased in tandem, with global utilisation recording figures of 83% to 85% through 2008 and average day-rates peaking towards the end of 2008 at a level approximately three times greater than in 2000 [Source: ISL]. Through 2009 the market began to see newbuild OSVs, sanctioned during the boom years prior to the economic downturn, enter the global market. This addition to overall supply was witnessed predominately during the second and third quarters of 2009 and caused utilisation rates to fall even further as demand continued to remain flat until the second half of 2009 when demand began to decline incrementally leading to overall OSV utilisation rates for 2009 to sit at around 77% [Source: ISL]. 2010 began to show signs of recovery across the entire offshore industry, however oilfield services were the last sector within the overall supply chain to feel the benefits of recovery. ;————-.–.. -… ._-~­
~i!~~iliiliiiiiJI1iiii~~fiiRiil~iljiiili’~ “”‘” “””” “‘,a Within the PSV market, a significant step forward in the number of installed platforms in tandem with a concerted effort to keep existing units in production, led to increasing demand for PSVs. Whilst the period commencing from 2005 to 2008 was undoubtedly a very positive one for the OSV industry, the economic downturn and a corresponding decrease in offshore activity adversely affected the OSV market. This was compounded by the large number of higher specification vessels which were ordered pre-downturn, but not delivered until post­downturn. Prior to the global recession, the OSV market was generally oversupplied on a global scale, especially in regions such as the North Sea and South East Asia. This oversupply could still affect day-rates and impact the service sector recovery witnessed over the last year. Although there is oversupply in West Africa, the region has witnessed a more robust recovery compared to other regions due to the Major operators that are currently in operation there [Source: ISL]. 33 l © Infield Syslems Limited 2011 B, INDUSTRY OVERVIEW (conl’d) Looking to the future, the OSV market has gone through a modernisation process to equip them for an offshore O&G industry which is moving into deeper waters and into more remote locations. To meet this challenge, leading OSV providers have sought to modernise their fleets and deliver vessels which are capable of supplying missions over longer-ranges, and which have greater torque for positioning anchors and chains into deeper waters. Companies which have made these kinds of investments are likely to be able to generate higher day-rates for their assets than their shallow water competitors [Source: ISL].
5.2 Forecasting OSV Market Performance We believe that the global OSV market will witness growth over the next five years as key performance indicators such as offshore capex, the number of wells to be drilled, and the number of neN platform installations scheduled, are all set to increase incrementally through to 2013 before peaking in 2014 as mustrated in Figure 5-3. Towards 2015, we expect an increasing amount of subsea wells to be installed which will drive demand for drilling rigs and subsequent AHTs to support them. Likewise, the increase of platform installations will encourage demand for PSVs to supply the cumulative base. 1,200 1,000 •c 0 800 E :;;;• 600 ..S 0 ’00 Z ’00 0 -Platforms :,J’:.>t:l Subsea Wells -Combined Capex 90,000 gm 80,000 ,rr~£””,,, 70,000.~,:
{ 60,000 E.$ c ” ;,;,~ ~
50,000 =>
‘~’:’;”1 . 1″” ” •x40,000.,.,: M-~~ ~<i ., 30,000 u• tJ :~ ef_ 20,000 10,000 0 2006 2007 2008 2009 2010 2011£ 2012E 2013E 2014E 2015E Yearof Install Figure 5-3: Global installations by platforms/subsea wells andglobal combined platform and subsea capex (USD million) (2006-2015) [Source: ISL] Figures 5-4 to 5·7 show key regions for platform capex and subsea well capex. West Africa, South East Asia, and Latin America are key contributors to platform capex. From a subsea perspective, South East Asia is less sizeable than other regions; however it is growing at an extremely quick rate. Meanwhite, although the platform capex global market share within South East Asia is expected to be less over the next five years, there is still growth expected in the region in the next two to five years. :>41 © Infield Systems Limited 2011
8. INDUSTRY OVERVIEW (cont”d) Austral<lsia Aus1,r.llasiaWeslAfrica WeslAfrica4% ,%EastAsia13% 15% EaslAsiaSo… lh~m 7% Southern 4%EUrOpe–……..
Europe ___Easlern,% ‘”‘” ‘%~ __Easlern Europe Europe0% 1%South East La~nSouth East America -“” Asia16%


2″‘. 16% SoulhAsia 3% ~ South &MjddleEas( ~., MiddleEaslEast Africa \ 11% South & 0%”‘ 13% Ea:>lAlrita LNornlNorth Africa LNOrth ~Or1h Africa 0% Amenta 1% America 2% 12% 13%” Figure 5–4: Global platform capex by region (2006­Figure 5-5: Global platform estimated capex by region 2010) [Source: ISLI (2011-2015) [Source: ISLj East Asia Eastern EaslJlsia Eastern 0% Europe 1% Europe West Africa 0% 0%
W~t”i”\c-LatinSouthern \ -latinEurope .<‘:,” America America0% :,:,’.;’::’, ,:;.’ 23% 28% ,:,J”…. , Middle East . Middle Easl 1%Southern,%South East EuropeAsia 2%
1%North Africa North Africa2% Soulh Easl __-, 2%AsiaSouth Asia 5%2% Soulh Asia South /I, 1%EastNrica NWECS Alnerica 0% 12″~ 23″10 Figure 5–6: Global subsea weJl capex by region Figure 5-7: Global subsea wel1 estimated capex by (2006-2010) [Source: ISL] region (2011-2015) ISource: ISL] Figure 5-8 shows that the cumulative volume of operational platforms is expected to increase significantly over the next five ye<:!rs. Whilst South East Asia, Latin America and West Africa only represent a small amount of global cumulative installations, this is skewed by the large number of very small wellhead only platfonn installations found in shallow waters in the Gulf of Mexico. Nevertheless, in terms of platform installations over the next five years, South East Asia is on par with North America which highlights the growth in E&P spending within the South East Asia region, in particular offshore Malaysia and Indonesia. 35 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d) 70lWl Soulh East Asia  -­West Africa  – Latin America  -Total  20,000,————————-­ ~  16,000 18,000 t=~~~~~~~~~~====::~~=======’4.000  o  ~  12,000 t————————–­  10,000  t————————–­ “0 c  8.000 t———————-­

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E YearoflnslalJ Figure 5-8: Cumulative platform installations by sl?lected region (2006-2015) [Source: ISLl ,,, 100 o,
:”‘ ,,, ” ………..•…
, 20 ,­
120c:::::::::J Jackup _ Semisub ~ Driltship —-. Oil Price 100I, o’ •1 I–, 80El , ,”,0 ~ ‘” ,/ ~ ..'”, —,, .. Soe,, 1’­406 20 0 1970 1074 1976 1982 198.6 HIOO 1994 1998 2002 2006 2010 20’4£ The global rig market is also expected to improve its performance in 2011 as more exploration programmes go forward. Figure 5-9 shows historic rig building activity versus oil price. In the past, when we have seen a period of high oil prices this has been followed by a period of high rig bUilding activity. The current oil price scenario is likely to trigger such a building cycle. This in turn will drive a requirement for more AHTs. Furthering the requirement for more AHTs is the low level of scrapping in the rig market [Source: ISL]. 5_2.1 Malaysian OSV Market Due to cabotage laws prioritising local OSV service providers and the presence of financially strong Majors and NOGs in Malaysia, the OSV market has witnessed a stable period over the last few years, Whilst charter rates became depressed in other global regions, the rates in the Malaysian market remained comparatively buoyant [Source: ISL]. 36 I © Infield Systems Limited 2011

8. INDUSTRY OVERVIEW (cont’d) One of the key drivers for the Malaysian OSV market continues to be PETRONAS, and its plans to develop hydrocarbons offshore Malaysia. During 2010, 69% of PETRONAS’ E&P spending was within the domestic market (Source: PETRONAS Annual Report 2010). This is expected to increase in 2011 as the operator moves away from its international focus and looks to address declining production from its shallow water fields. PETRONAS’ expenditure plans at this stage are two pronged; the development of deep water reserves, which will require deep water capable PSVs, and also the re-development of fields which are experiencing declining production. This will require additional drilling, which will in turn require greater support from AHTs. We believe that the O&G industry in the country will continue to provide opportunities within the OSV market [Source: ISL]. 5.3 Key Regional Overview 5.3.1 South East Asia Within South East Asia, the two countries with the greatest forecast investment in their offshore O&G industry, in terms of platforms and subsea, are expected to be Malaysia and Indonesia. These two countries are developing both their shallow water plays, whilst also moving towards the deeper waters. The process of moving into deeper waters creates demand for more modem, deepwater capable vessels. VietnamBrunei PhilippinesCambodia 3%3% Brunei7%1% Myanmar 0% 3% Indonesia 26% Thailand 12% Philippines I5% Malaysia Malaysia 27% 55%Myanmar 5%
Figure 5·10: South East Asian platform estimated Figure 5-11: South East Asian subsea well estimated capex by region (2011-2015) [Source: ISL] capex by region (2011-2015) [Source: ISL] Apart from Indonesia and Malaysia, we believe other countries such as Vietnam and Thailand will complement platform investment in the region and provide opportunities for PSVs as well as AHTs over the next five years. However, these platform projects are expected to be primarily shallow water projects. 3d © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (conl’d) I213DCambodia -Myanmar ~Philippines-Brunei ::.-,ciC..:Vietnam …….Indonesia “”,,*-Malaysia ~Thailand
2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E Year of Install Figure 5-12: Cumulative platforms (2006-2015) ISource: ISL] The amount of operational platfonn installations in the region is expected to increase incrementally over the next. five years with Malaysia, Indonesia and Thailand likely to provide the most opportunities for PSVs in the region. Indeed Malaysia and Indonesia should witness the greatest growth in platform installations in South East Asia. It should also be noted that although the majority of installations are currently in shallow water locations offshore these countries, the region is reflective of the global offshore industry in that it is moving increasingly towards deep and ultra-deepwater fields, in particular offshore Malaysia. OSV owners that are aware of this trend and have invested in a fleet capable of supporting these deepwater projects should be best placed in the market looking forwards. Table 5·1 summarises the key demand metribs for OSVs in South East Asia. Table 5-1: South East Asia key demand metrics [Source: ISL] S.E. Asia 2011E 2012E 2013E 2014E 2015E CAGR ~eBiratip.iraH;~.i~t::~\;~DJJ.i~f?\i)}£:-‘t;,A:~g~e;5~0″1~9J:t~f4~:__ :::~_’;~:;_~1:a22-.-.:-~~~:4~~t~~&~ Operational Floaters 129 138 146 156 164 6% iQ’PIfr1timmIEl5iitd€i:fBmiQ%?2~±’iW~~:~:::~I§~l6fp~mQ9E~21~-~;~i1}ap:6f2~;K~Q~I-~~:~ITh~:~ Operational Construction Vessels 78 80 80 81 821% Notes: E estimate CAGR compound annual growth rate Whilst we have good visibility over the factors which contribute demand for OSVs, IT is harder to gauge future supply conditions, as vessels can be brought into the region, or ordered and built with short timelines_ We currently believe that there are somewhere in the region of 500 OSVs in South East Asia, which are active in a sphere similar to Bumi Annada. What is harder to forecast is how many we will find in the market in the future. 381 © Infield Systems Limited 2011 177 8. INDUSTRY OVERVIEW (conl’d) 5.3.2 West Africa The offshore oil and gas market in West Africa is expected to represent good growth over the next five years as deep and ultra-deepwater developments continue to drive the platform and subsea investment.
With continued investment in both platforms and subsea wells, we believe that West Africa will provide increased opportunities to the OSV market. Cumulative operational platform numbers in the region should increase from 922 to 1,088 over the next five years, many of these will be in Nigeria, as illustrated in Figure 5-15. • Nigeria l~ Angola • Others (Benin, Cameroon, Congo, D.R. Congo, Equatorial Guinea, Gabon,
2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E Yearof Install Figure 5-15: West African cumulative platforms (2006-2015) [Source: ISL] 391 © Infield Systems Limited 2011 178 8. INDUSTRY OVERVIEW (cont’d) We currently believe that there are around 64 rigs within the West African market, of which 37 are operational. Although there are rigs in the region which are ‘cold stacked’ (meaning rigs without a contract, with no workforce, but theoretically ready for a quick turnaround if a contract was awarded), there is still a good proportion of non-operational rigs ‘ready stacked’, available for contracts, which can be deployed very quickly should they be required. This excess drilling capacity is likely to be utilised if market conditions continue to improve. UnderlRM
Operational 58% Figure 5·16; West African rigs by status (as at 29/03/2011) [SDurce: ISL] With cumulative platfonns increasing over the next five years through new platfonn installations, primarily offshore major countries such as Angola and Nigeria as well as emerging countries such as Gabon and Ghana, coupled with good utilisation rates of rigs and an increase in capex anticipated for both platforms and subsea wells, we believe the West African market will hold a great deal of positive news for OSV players in the market, in particular companies with high class AHTs. High class AHTs refers to AHTs with large drive capability as well as being more fuel efficient, younger and a more sophisticated vessel within the market. These high class vessels are expected to witness the higher dayrates and utilisation throughout the market. 40 I © Infield Systems limited 2011 B. INDUSTRY OVERVIEW (cont’d)
5.3.3 Latin America Similar to the West African market, there is expected growth in O&G investment for platfonns and subsea assets in Latin America over the next five years. We believe that Brazil, in particular, will be the key country for platfonn and subsea platfonn capex and installations, especially within the FPSO market that was addressed in the previous section.
Venezuela Trinidad 1% 0% Peru 1%
Mexico 11% Chile 1%

Other than Brazil, Mexico and Venezuela should contribute towards the PSV market with new platform installations as well as the increase in the cumulative base of existing operational platforms as PDVSA and PEMEX increase shallow water platform investment over the next five years in order to replenish falling production rates. ll:8Eil Arg entina -Chile  _  Colombia Ij’:T’:::; Ecuador  -Jamaica  r=m Peru  …..-BrazH  -+-Mexico  -Trinidad  -+-Venezuela  400  350  • 300c 0 B 250
2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E Yearoflnstall Figure 5-19: Latin America cumulative platforms by region (2006-2015) [Source: ISL] In relation to the AHT market, the rig market in Latin America should proVide strong utilisation levels in the years ahead, as 99 rigs in the region are currently operational, with only 3 rigs currently cold stacked. A strong commitment to drill pre-salt reserves in Brazil 41 I © Infield Systems LimIted 2011
8. INDUSTRY OVERVIEW (oont’e!) looks likely to underpin drilling, and therefore AHT activity in this region for some time.
5.3.4 Offshore Accommodation Market It should be noted that whilst the above forecast has looked at the overall performance of the OSV market, this section will go into more detail regarding the accommodation vessel market and the supply/demand dynamics within it. Since 2005, accommodation vessel supply has witnessed significant expansion, as new market entrants alongside existing players took advantage of the significant demand, rising day-rates, and good utilisation within this specialist market. This expansion has seen 107 accommodation vessels in 2005, grow to 162 vessels in 2010, the bulk of which have been focussed primarily on more multifunctional assets in direct response to operator requirements for a more rounded service provision Barge accommodation vessels are expected to continue to dominate the market in terms of number of vessels, and although there has been a swathe of dynamically positioned deepwater newbuild barges that have entered the market in the last frve years, the majority of barges are relatively old and competitive only really in shallow and benign waters. Semi­submersible hull designs are generally preferred by many operators in the North Sea and US Gulf of Mexico, due to the high safety performance of these types of assets. However, these vessels typically require large investment, have a lengthy construction timeframe, and also command high day-rates. In some regional markets they would not be appropriate. _Africa IIilAsia _Aus\ralasia _ Brazil -Europe “Global • Barge ” Jackup • Semisub • Ship -latin America (;l Middle East and Caspian Sea 208 North America• ~ ~150 +——..:-h~~~-~~-~-l’i’g­’> 15 ~ 100 -g  “” r=zr_’:(..’iii  lOII:J ~ ‘~,eo ~ if! l’f”  ‘J’  i~” ,-., .!, r-~~  ….  __ff,  ril.’:1­ E 50  ~  o  ~  0


Figure 5-20: CtJmulative global accommodation fleet by region (2006-2015) {Source: ISL] Accommodation vessels are capable of working across a number of different operational markets. Movements between regions are rare for barge type accommodation vessels; however the higher-end semi-submersible design may be relocated to serve high value contracts. In terms of vessels operating in specific regions, currently Asia has the most accommodation vessels operating in the region. These tend to be of barge type design. 421 © Infield Systems Limited 2011
8. INDUSTRY OVERVIEW (conf’d) Prosare Gulf Marine Prosare Bibby GurfMarine Intershiplil Produ[:oon Services Production MarilimeLt:l Services 5% Services 6% Services 5% 5% Pleltd Intership lit Pte Ltd Bumi6%6% 6% Nmada
Bibby 5% Maritime L’d 6% Millennium Others Bumi Offshore53% _____Armada Services -5% Others 4% 59% –__–.Millennium . perdana Offshore -Marine __Sea Trucks Offshore Services 5% Gr~up Pte Ltd Perdana Marine Marine Sea Trucks Offshore Marine 4 Yo 4% Subsea AS Group Pte Ltd SubseaAS 3% 4%4% 3% Figure 5-22: Global accommodation fleet % by vessel Figure 5-23: Estimated global accommodation fleet % owner (2010) [Source: ISL] by vessel owner (2015) [Source: ISL] The age of the global fleet is varied with a great number of vessels built over 25 years ago; however there have been recent additions to the fleet over the last ten years. In line with other OSV markets, we have witnessed a move towards more sophisticated and environmentally friendly accommodation vessels in the market over the last four years, driven by new legislation as well as operator preferences. The majority of accommodation newbuild barges are expected to come into the market in Asia where a number of small firms are converting barges into accommodation vessels. 30+ 25-3020-2415-1910-14 5-9 1-4 0 NB In terms of expected demand, North America is forecasted to be the main regional driver behind global demand, with IRM work projected to be carried out on ageing existing infrastructure in the Gulf of Mexico a major factor behind the region’s demand. There are also the deep and ultra-deepwater projects in the lower third tertiary trend that we expect will require an additional accommodation support during the installation of ttie various Spars, tension leg platforms and other floating platforms which are currently planned. There is also potential upside for accommodation vessel owners from new HSE legislations that are expected to be implemented as part of the learning from the Deepwater Horizon disaster. 43 I © Infield Systems Limited 2011 45 •.. 40 ~ 35 ~ 30 iii -g””20 E 15 iii ~ 10 “5 o -Barge 11 Jackup -Semisub -Ship –



:E -Ct:

8. INDUSTRY OVERVIEW (conl’d) -Africa –Asia -Australasia -Europe _ Latin America I!:lil!EI:J Middle Easl& Caspian Sea 2006 2007 200B 2009 20’0 20″E 2012E 2013E 2014E 2015E Longer term, we expect to see growth for the accommodation market within offshore Brazil, where ultra-deepwater work should require high end accommodation vessels. One region expected to remain buoyant in the medium term is Asia, where the development of the Soulh China Sea and Bohai Bay, by Chinese NOCs and their international partners, is likely to underpin activity levels. Also within Asia, South East Asia in particular is expected to be one of the key emerging markets not only within Asia but throughout the globe. The key countries that should require the services of accommodation vessels are expected to continue to be Indonesia. Malaysia and India. The majority of forecast demand is likely to be attributable to IRM services, however platform installations are stiJJ expected to boom in the region, especially in South East Asia due to increased demand for domestic hydrocarbon production, which should drive vessel demand towards the end of the forecast period. Demand for platform removal accommodation services is also anticipated to increase towards the latter years as decommissioning gathers steam in the region _IRM = Platformlnsta!l _ Platform Removal –Supply

2006 2007 2006 2009 2010 2011E 2012E 2013E 2014E 2015E 44 I © Infield Systems Limited 2011 183 8” INDUSTRY OVERVIEW (conr”d)
Although the snapshot in Figure 5-27 suggests under-supply in the market there are alternative accommodation solutions such as helicopters, boats and other types of vessels (discussed in section 5.4 in greater detail) that are expected to impact upon this dynamic. Within the industry there is also the trend of JRM work being subject to delays and deferrals due to weather, costing or other variables such as asset divestment that can push the work if not deemed operationally mandatory. This was witnessed in some regions during the economic recession in late 2008 and early 2009 and this could again impact the supply/demand dynamic looking forward. Nevertheless, the outlook for accommodation vessel owners is positive as demand is expected to increase whilst supply is forecast to plateau, in particular the next five years. • Benign II. Harsh .Intermediate _Deep DShaliow -UllraDeep BO,OOO r————–BO.OOO 70,000 t———–,–70,000
(II 1;’
~g50.000 CI 50,000 “l) 50,000 -g 50.000:;; •E 40.000~ 40,000 •CI 30,000~ 30,000 .. ~ 20,000 10,000
~ 20.000 10,000 O_-.—.—.–~’_<J~~'”_r_..,._..,.–., o _””~ _”,,’0 !S-ri:J’O _””C!I …t::> * ~ ,,:>’v *’ 4-!>::I~ _”,,’0 ~ _(\’0 &’ …t::> …’v + ,;’v *’ ,,((, ……’J” ……’J” tfl ‘t” ……-v-……t::> rfl'” rfl'” rfl'” rfl'” ~’ tfl ……’J” tfl ……-v-tfl ……t::> rfl'” rfl'” ……t::>… rfl'” rf” Figure 5-28: Global accommodation demand days by Figure 5-29: Global accommodation demand days by environmental condition (2005-2015) [Source: ISL] water depth group (2005-2015) [Source: ISL] We expect the majority of accommodation service demand to be required in shallow waters and in benign to intermediate environmental conditions driven by aging infrastructure requiring IRM services. High end vessels capable of wDrking in intermediate and harsh environments should see some growth in demand in the latter years, however we believe that as more and more DP2 and DP3 high end vessels enter the market looking to capture this niche market the more competition will arise, In the harsher waters accommodation semi-submersibles are more likely to be used as alternatives solutions (such as crew­shuttling) which are ill-equipped to undertake the work. The accommodatiDn vessel market is anticipated to be driven by shallow water projects, in particular the large amount of IRM required for eXisting infrastructure. This is deemed to be a favourable market dynamic for companies which provide accommodation barges, -45 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont”d) 5.3.5 Competitive Market Place ISL estimates that there are about 500 vessels (including future newbuilds) in South East Asia in the competitive sphere. Due to increasingly strict cabotage laws, these vessels are becoming more segmented within their national markets. However, the South East Asian market can still be considered as relatively open, with many OSV providers based out of Singapore, which itself has limited OSV demand [Source: ISL]. We believe the South East Asian competitive market place looks as such: NOR Offshore Ltd Otlo MarineUmited ASLShipyard PIe Ltd Slfalo Maritime Services Pte Ltd Mermaid Marine Austraija Ltd ..”., Chuan Hup HoldingsLimited TrinityOffshore Pte Ltd Tanjung Offshore Sdb Bhd ,A,jang Shipping Sdn Bhd
Vielsovpetro J.V. Pelican Offshore Services Pte Ltd “”””‘”
-·’.~~;’v, .” Pacific RadianceGroup Perdana Marine Offshore Pie Ltd Bl’itoil Offshore services Pte Ltd Easlern Offshore Supplies and Services..
>o.i’-lJ!<;:£->’:,X\ ” Sealink Inlemaoonal SdnBhd ;)..’t’…..~:’,/ CH Offshore Limited Swiber HoldingsLimite::l Scomi Marine Sdn Bhd Jaya Offshore Pte Ltd Pacific Richfield Marine Grot.p
SwisscoHoldings Limited RK Offshore Management Pte Ltd AJam Marum Resources Berhad Ezra Holdings Ltd BumiArmada PACC Offshore Services Holdings Pte LId
SWire Pacific Offshae -‘….,,’
o 2040 6080 Each of the companies providing OSV services to the offshore O&G industry around South East Asia has a different fleet makeup. Some companies have invested in fleet modernisation and prepared themselves for the developing deepwater market. Others have not made this investment and have comparatively older fleets. With the industry moving into deeper waters, those companies which have invested in vessels w’lth deepwater capabilities are likely to be at a long-term advantage. They are also likely to be able to command higher charter rates. 46 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont”d) 1 &nil Atma:la 23 l’;)d~cRlcMdd M;w1ne Gr~ 2. ~,e Pa::i~c OlI’oh:re 24 CDlM;w1ne Umlle:l 90 80 70 ‘”..  80  ~  ‘” z• 50
” 40 , ~ ~ • 30 OJ 20 10 o 3 PACC OlI’st1crc ~= Hudngl Pla lid Z’i NC P\I! Ud 4 J3r;l OlfsI’r.:re P\I! lid :lli Dun Ii”” Hd<l”il’ IJmiled 5 TriritrOlfsl’r.:re PIe lid 71 SIr>ilI:lMa1~meS<nO=f’II!lId 6 I’;)d~c RocfirlCll! Gr~ :lli ~<rQ Stil:P”iI sa. Bhd 1 RKOOsI’o’e t.t>mgemert PIe lid 29 PlI!llc:J’l Oflstac Se-v;ccs f’II! Ud B EzJaHtldngsUd XI VoetseHpelra J.V, 9 SlDi'” k1<m<1li..-..l Soil BId 10 Gr<HsHp Glctal O!Istae ~= Pte Ud 11 SamI M”;ne &tI Bhd 12. Pe’1;l;:ro M”;neOflstae PleUd ” 13 T….lTIg OOsI’o’e S& lhl ,.14 Mem’l:lid M.YlneAu5tralla Ud 15 NOR OlI’oIl::re Ud 16 ASL StiP’fi'””d PIe lid II B11o’1 Oflstae Ser.olCl!S Pte Ud 1B GrmtOflstae Ud 19 Swi=Htld”‘ilsUmitc<l :i!O CH Oflstae Umll!’d Z1 ~te” Hddngs Umil!’d 22 £astErn Oflstae ~Ics <rd Ser.ol= PIe lid

.” .,23• •19.”.,11. .:i!O .~,. 22-·12. ·17 .,”. •.” .”.” ” Market Presence Score Figure 5-31: Competitive landscape of South East Asia based OSV operators [Source: Adapted from Pareto research] Figure 5-31 illustrates a qualitative assessment of the South East Asian OSV market. Jaya Holdings Limited (uJaya”), Swire Pacific Limited (USwire”), PACC Offshore Services Holdings Pie -Ltd (UPACC”), Bumi Armada and Ezra Holdings (“Ezraft are the five largest OSV) providers in terms of both size of fleet and market presence. Defining actual fleet sizes is quite difficult, as different companies define their assets in different ways, and where possible, we have sought to exclude any tug boats or barges. We feel that within South East Asia there are three tiers for the OSV market. The first tier includes the larger OSV companies that have large fleets and are capable of targeting larger operators and projects. These companies include Jaya, Swire, PACC, Ezra and Bumi Armada. This tier has been reinvesting in its OSV fleet over recent years in order to create a younger and more sophisticated fleet. The second tier within the OSV market comprises companies with competitive fleets, although slightly smaller than the top Lier. These companies have a track record of medium size projects and have had success in charters in the region over the last few years. The third tier are companies who own very small fleets and have not witnessed charter success recently. 5.4 Market Threats and Potential Regulation Concerns Growing Cabotage Legislation The past 10 years has witnessed a growth in the ‘nationalisation’ of energy producing countries’ O&G reserves. If this trend continues, it is highly likely we will continue to see growing cabotage legislation in emerging markets. If OSV providers are able to meet legislative requirements, and have a geographically wide distribution of vessels, ISL perceive good opportunities will arise in these increasingly protected markels. Conversely, this could constrain growth and competitiveness by restricting market entry, with fewer opportunilies to work across international borders. 471 ::;: Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (conl’d) New Environmental LegislaUon Whilst the challenges of an industry moving into deeper, harsher and more remote waters is fuelling increasing demand for more modern and operationally capable OSVs, we are also starting to see a movement, driven primarily by Ihe oil majors, towards a preference for ‘greener’ OSVs. This preference comes as a result of public pressure on the large oil companies to present a greener image, however it is starting to impact on procurement preferences as well [Source: ISLl Whilst operational capabilities, availability and price are the core considerations for oil companies when looking to recruit OSV selVices, it is likely that in the future, especially for the Majors, we will see more contracts being awarded to OSV owners who have invested in greener technology. Industry reliance and vulnerability to imporls Given the fluid nature of the OSV market, especially around Asia, we have no overt concerns over this industry’s reliance or vulnerability to imports. In fact, one of the perceived strengths of this market is the ability to work in new regions and countries. Substitute Products/Services Although not a direct substitute, the drillship market could be an alternative to the AHT market. Drillships typically do not require vessel support in order to move and thus would not require an AHT or its selVices. Whilst this should be noted, the majority of drilling rigs are semi-submersibles or jack-ups and drillships only represent a small proportion of the global market and in South East Asia; ISL currently track nine drillships operational in South East Asia. Offshore AccommodaUon SubsUtutes Alternative solutions to purpose built accommodation vessels currently include the contracting of helicopters, dive support vessels and in some instances drilling rigs. While these alternative solutions usually require far less investment than securing the selVices of an accommodation vessel they can carry the opportunity cost of lost efficiency provided by an onsile asset. One market trend that has become apparent is the increased utilisation of drilling rigs for accommodation selVices, due to the reduced activity in the drilling market. We have witnessed jack-up drilling rigs such as the Noble Gene House, Saipem 10000 and Alaskan Star awarded contracts in 2010 for accommodation selVices. Although alternatives are an essential part of the offshore accommodation market the majority of alternative solutions can only be implemented very benign regions as solutions for harsh environments such as crane vessels can become very expensive. 48 I @ IIJr.l’~/ci SY,”ielil~ Liwited 2011 8. INDUSTRY OVERVIEW (conl’d) 6 T&I MARKET
The T&I market has evolved to transport infrastructure which has been constructed to its location in the ocean, and then mount it safely in the correct place. The core aspect of this market is pipelay and heavy lift vessels. A pipelay vessel is used to transport and install pipeline offshore, whilst a heavy lift vessel has a crane which is capable of lifting and installing on the sea bed a variety of offshore equipment. The main focus for this section will be the derrick lay barge (UDLBD market, which comprises vessels that are versatile enough ) to be involved with both pipelay and installation work. 6.1 OLB market A DLB is used to support offshore construction and installation. DLBs are typically able to perform heavy lifts, install pipelines, various subsea equipment, umbilicals, risers, and flowlines. A DLB is a multi-functional vessel, able to support oil companies with a wide variety of tasks. Bumi Armada’s ‘Armada Installer’ is an example of a DLB which specifically has pipelay capabilities, but which also has some crane capacity. Given its broad capabilities, competition in the DLB market comes both from other DLBs, and also from more specialised heavy lift and pipelay capable vessels. The DLB market is clearly delineated between the higher and lower vessel specifications, which are characterised by water depth and technical specifications (for example crane size). We perceive that vessels at the high end of technical configuration and ability are able to work in deepwater, lift equipment in excess of 4,000 tonnes, and install trunk-lines. The lower end vessels comprise assets designed for shallow-water, with short-line installation devices [Source: ISL].

6.1.1 Expected DLB Day Rates The DLB market can be simplified into two classifications, high end vessels (“Class A~) and low end vessels (UClass B~). The high end vessels are dynamically positioned deepwater vessels capable of performing large lifts and large pipelay, whilst the low end vessels are usually barge vessels with lower specifications and capable of only operating in shallow and conventional waters. ’00 ,—————-­

“” “”
~ ./ ­•• ~ ,•• “” , ’00 ~ \————-­
’00 j–,~-“”‘===:======___


2007  20011  2009  2010 2011E 2012£ 201~E 2014£ 2015E 2016E  2007  2006  2009  2010 2011£ 2012£ 2013E 201~E 2015E 2016£  Figure 6-1; Class A DLB vessel dayrates by range (2007-2016) [Source: ISL]  Figure 6-2: Class B DLB vessel dayrates by range (2007-2016) [Source: ISL]  49 i © Inffeld Systems Limited 2011
8. INDUSTRY OVERVIEW (cont”d) Day-rates for the high end vessels witnessed a small decline during the recession. However, since average day-rates are relatively flat, as demand returns to the market, this should increase the average day-rates from 2014 onwards. The low end vessels have also witnessed a flat period of average day-rates and is expected to increase from 2014. 6.2 Forecast OLB Market Performance There are several metrics used to ascertain both heavy lift and pipelay demand. For the purposes of this Report, demand is supplied as vessels days and as such can be directly compared to vessel supply. The amount of days in demand is driven by the characteristics of the items of infrastructure being installed. Heavy lift and pipelay demand originates from the installation of pipelines, platforms, subsea equipment, single point moorings and the removal of platforms. The largest and most valuable of these markets is the installation of pipelines used to export recovered hydrocarbons. The pipelay market continues to attract the highest dayrates for vessels operating around the world. It should be noted that in terms of market demand, pipeline installation is expected to require the most vessels compared to heavy lift. Demand for heavy lift and pipelay witnessed a decline in recent years primarily due to the global recession but the recovery in 2010 marked a return to growth in the market and we believe this will increase SUbstantially during 2011 through to 2013 before demand plateaus towards 2015. The largest regions within the DLB market for demand are expected to be the mature regions of North America and Europe where large pipelines are projected to be installed before 2015, in particular in the North Western Europe Continental Shelf where pipelines such as Nord Stream are driving demand. West Africa, South East Asia and Brazil are also expected to contribute towards demand over the next five years. • Heavy Lift Tolal II Lay Tolal North America Africa 90,000 17% 17% 80,000
­.­~ 70,000 MiddleEasto &Caspian’0 60,000 cSeaE 50,000 10% -o 40,000 a; 30,000 .• Asia~­~ 20,000 Lalin 16%10,000 I-America 11%o AustralasiaVearof Installation Europe 6% 23% Figure 6-3: Global DLB vessel demand by region (2006­Figure 6-4: Global DLB vessel estimated demand by 2015) [Source: ISL] region (2011-2015) [Source: ISL] 50 I © Infield Systems Limited 2011
6.2.1 South East Asia Demand Developments within shallow waters are expected to continue to drive demand for the T&l market over the next five years within South East Asia despite the emergence of deepwater projects In recent years as we believe NaGs will prioritise shallow water plays for the next five years. The operations of PETRONAS and PTT Public Company Limited are the key examples of this and Figures 6~5 and 6-6 show the forecast demand share that these NOCs will require through to 2015. Although majors such as Chevron and Shell are also expected to have a large share of the demand for construction vessels, the emergence of Independents such as Murphy is also expected to continue in the region. Brunei
2% Cambodia 1% Others 37% Thailand
Indonesia12% 21% Shell Philippines 7% • Total3% -2% Myanmar 6%
Figure 6-5: Estimated DLB vessel demand by country (2011-2015) [Source: ISL] Despite the historic performance of Indonesia in terms of installations and capex, we believe Malaysia will require the largest amount of construction vessels which is attributable to the growing subsea market as well as the continuation of platform installations. Given the anticipated demand from PETRONAS, companies that create strong links with the NOC would be well positioned for winning contracts over the next five years. VielnamOil PT J “‘” and Gas Pertamina ~MurphY Group (Persero) 4%
6% 2% Figure 6-6: Estimated DLB vessel demand by operator (2011-2015) {Source: rSL] 51 I © Infield Systems Limfled 2011


8. INDUSTRY OVERVIEW (cont’d) D.R.cong~ \ Congo (ExZaire) (Brazzaville) 0% 7% 6.2.2 West Africa Demand Sierra Tolal Leone Shell 18%
Chevron4%1% 15% Nigeria West African Gas II/ory Coast 25% Pipeline Company Lid
2% Ghana 6% 4% Gabon__-­3% Benin Total Gab:ln :—0% SA 1%Equaloria Sonango TullowOilGuinea Cameroon E.P. Ph; BP 10% 3% 1% 40/. 15% Figure 6-7: Estimated OLB vessel demand by country Figure 6-8: Estimated OLB vessel demand by operator (2011-2015) {Source: ISL] (2011-2015) {Source: ISLJ Although West African demand for construction vessels is primarily attributable to key countries such as Nigeria and Angola, there is an emerging diversity throughout the region in tenns of countries and, more importantly, operators. Long-standing Major operators such as Total and Chevron are expected to require the most vessels for construction and pipeJay over the next five years although the increase in projects operated by independents and NOGs are starting to change this picture [Source: ISL]. 6.2.3 Caspian Sea Demand Although there is a heavy lift market in the region, the majority of demand is expected to be for pipelay vessels, in particular the interlinking cluster developments in Kazakhstan and Azerbaijan, more specifically those associated with the Kashagan and Azeri projects respectively. [Source: ISL]. SI:.leQjl Bahar Enetgy Turkmenistan Comf'<lny Limit”d(fSU) ,.13%
Azerbaijan (FSU) 54% Azerbaijan North Inlemalloo~Russia (FSU\ ~sheran _OPCQl’T1pany(CaspianOperating ,,%…) Cl>mf'<ln22% ,. I Kazakhstan (FSU) KazMunaiGaz 11″‘” Limil”d ,,% Figure 6·9: Estimated OLB vessel demand by country Figure 6·10: Estimated OLB vessel demand by (2011-2015) {Source: ISL] operator (2011-2015) {Source: ISLJ
52 I © Infield Systems Limited 2011
8. INDUSTRY OVERVIEW (conl’d) Given that the Caspian Sea is almost a closed off market with harsh winters essentially making the region landlocked for much of the year, having a vessel within the market is a key competitive advantage for ship owners and operators. Long-term contracts in this region are also considered important as we believe demand to be long-term in this region and that pipelay vessels are likely to command large day-rates and utilisation over the next five years.

6.2.4 Latin America Empresa Nacional Chevron Peru Trinidad VenezuelaHgentina Panama 1% 2% 7% 1% OelPetroleo 1%
0% Mexico 1% ~POGX 1%8% P”roO” G” COlombia _ Participacoes 1%0% Petro-Tech
Jamaic PeruanaSA 0% 1% Chile 1% PDVSA Ecuador 1% 0%
PEMEX Pelrobras 8% 77% Construction and pipelay demand in Latin America should be primarily within Brazil over the next five years with Petrobras’ deep and ultra deepwater projects in the pre and post-salt fields. The flexible pipelines as well as the subsea infrastructure that will be required to ·develop these lucrative projects will likely attract a lot of DLB vessels and command large day-rates and utilisation in the region. Other than Brazil, we believe there will be demand from Venezuela and Mexico as the two NOCs, PDVSA and Pemex, respectively, look to reinvigorate the falling production rates the countries have witnessed over the last five years.
6.2.5 Supply Market Overview Although ISL currently view the heavy lift ~eet as 359 vessels, risiIJ9 to 375 vessels by 2015, a large amount of this fleet are vessels with light lift capabilities that are mainly operational within the .Gulf of Mexico and are not major threats in the global competitive market or the South East Asian region. 531 © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d) • Heavy Lift IIlLAY .SOOOTonnes+ ~Heavy _Light _Medium DVeryHeavy 700 600 500 •.. ’00• 300~ 200 ’00 o
-‘­=t= I-­I-­~ I-­-I-­
90 …” 70

LI;J_ 80 I-­:’I • 60 -I–­l-e-.. 50 t:l 40I–­I-­~ 30I–­I-­20 -I-­I-­’0 o Yearof Installation Yearof Installation ~  I-­ I-­ I-­ f-­~  –
I-­ I-­ f-­ – – I-­ I-­ f-­ – – I-­ I-­ f-­ – I-­ I-­ I-­ f-­ – l-.­ – – l- I- 1-.,.r  ~  L,..

Figure 6-13: Global heavy lift and pipelay fleet by vessel Hgure 6·14: Global heavy lift and pipelay fleet by lift function (2006-2015) [Source: ISL] capability (2006-2015) [Source: ISL] Although the global fleet of heavy lift and pipelay vessels is large there is a relatively small amount of dual function vessels capable of both heavy lift and pipelay. The last five years witnessed a period of growth within dual function vessels as these high end sophisticated vessels are expected to command higher day rates and utilisation, thus with the boom in the offshore industry before the recession there was a large intake of orders for these dual function vessels. Given market conditions over the last two years, new orders have slowed down, yet we do expect eight vessels to enter the market post-2011 [Source: ISL].
6.2.6 Heavy Lift & Pipelay New build Dynamics Similar to the dual function vessels, there has been growth within the individual sectors for the heavy lift and pipelay fleets over the last five years. However, with the economic climate, new orders in this market for single function vessels have been very low and unless market conditions improve dramatically, there are unlikely to be new vessels entering the market during the latter years of the forecast period. 541 © Infield Systems Limited 2011 I Company No. 37039B-X I  8.  INDUSTRY OVERVIEW (cont’d)  .50ooTonnes+  BHeavy  _Ught _Medium liVery Heavy  _Large t1Medlum _Small
12 10

,. 16 III12 8 1 “:_j• 10 f—-­I–I-­•…. ~ -•6
I–I–I-­I-­f—­-~ : ~ >•I–I–I–I-­• ~I–I-­I-­I-­2~2 I-­I-­I-­I-­~ =::t: oo

Year or Installation Year of Installation Figure 6-15: Heavy lift newbuilds by lift group (2006­Figure 6·16: Pipelay newbuiJds by lay diameter group 2015) [Source: ISL] (2006-2015) [Source: ISLj For the pipelay market there have been 35 newbuilds entering the market from 2006·2010, 27 of which have been large diameter pipelay vessels. For the heavy lift market, the majority of vessels that have entered the market have light lift capabilities as owners looked to exploit booming conditions with smaller vessels in an attempt to take advantage of high dayrates. However, due to the global recession, the newbuild vessels expected to enter the market over the next five years are predominantly above 5,000 mT lift vessels, which highlights the industry caution and that only high end vessels have been worth the investment over recent years. Due to concems over the current market conditions and expectations within supply, no heavy lift and pipelay newbuilds have been announced for 2014 and 2015. 6.2.7 Global Demand vs. Supply Overall, both markets on a combined scale have witnessed a period of oversupply as demand over the last few years has been a great deal lower than prior to the recession. However, this oversupply will be mitigated by the predisposition of the heavy lift vessels capable of lifting greater than 5,000 tonnes working in a higher value specialist market. Furtherskewingtheforecastisahighnumberofheavylift ve.ssels inthe·USsideofthe ·Gulf of Mexico which are old and have very limited crane capacjty [Source: ISL]. ~ Heavy Lift Demand -Heavy LiftSupply IElIlD Heavy Lift Demand -Heavy Lift Supply
35,000 30,000 25,000• Q20,000.. ~ 15,000•
!: 10,000 5.000 0 Year of Installation ./”
l?-l’ i<i .~l~;E~ l·;~ B t!~T.tL -‘_. ;-‘-J:.’ ,_.. ~ ­~ ,,”–jl; ,;,-i”, H’ ,”. !;~ Ii,,, !T; !:.S;” 1-:1 \l:

Year of Installation Figure 6·17 Global heavy lift demand vs. supply (2006­2015) [Source: ISL]  Figure 6-18: Global heavy lift demand vs. supply (light lift vessels excluded from supply) [Source: ISL]  55 I © Infield Systems Limited 2011
8. INDUSTRY OVERVIEW (cont’d) Whilst figure 6-17 shows the overall global supply and demand dynamics in the heavy lift market, figure 6-18 shows the global market with vessels capable of only light lifts removed from supply. The reason behind doing so is to achieve a more focussed picture of the overall market given that a great deal of these light Ifft. vessels only operate within specific regions and do not typically move to other regions for work. Whilst we have excluded light lift vessels from supply the figure includes demand that would require lift lifts as we expect the other vessels in the global fleet to be capable of perfonning these lifts. C$::=Ilay Demand -lay Supply 70,000 60,000 …, 50,000 i:’ o 40,000 ~ 30,000 ;:. 20,000
-a _(‘\’0 _~ J’\’t> ~ “J«” ~ “‘«,. ~~~ f ~~ ~ ~~~ 10,000 ‘l: ‘l: ‘l:’ ‘l:’ ‘l:’ Year of Installation Figure 6-19: Global pipe/ay demand vs. supply (2006~2015J [Source: ISL] The pipelay demand and supply outlook is more robust than its heavy lift counterpart. Due to the global recession there has been a dip in demand over the last three years which has caused a period of oversupply in the market. However, looking forward, we believe this will change and the p\pelay market will witness undersupply towards the latter years of the forecast. This would likely increq;se day-rates and utilisation as well as the migration of vessels looking to the larger markets in order to gain contracts, such as South East Asia, West Africa and offshore Brazil. 6.2.8 Regional Supply vs Demand The following section aims to higHlight the demand and supply dynamics between the heavy lift and pipelay markets in key regions such as Asia, Africa, Latin America and the Caspian Sea. Although given the fluid nature of the vessels, market supply is a current snapshot only and is likely to change in the future as vessels migrate due to supply issues or greater opportunities available to owners. Asia The heavy lift market in Asia is expected to be in a state of general oversupply; however the supply snapshot includes Class B vessels which are not as competitive as the high end vessels. Indeed, we believe that the Class A vessels will witness good day-rates and utilisation in Asia despite the overall oversupply in the market. The pipelay market in Asia is expected to follow similar global trends in which a period of large oversupply until the latter years of the forecast where the gap is anticipated to narrow creating opportunities for pipelay vessels in the region, in particular 2012 and 2014. Similar to the heavy lift market, we believe that the high end vessels will continue to see better opportunities despite the oversupply currently forecast in 2011. 56 I © Infield Sysfems Limiled 2011 B. INDUSTRY OVERVIEW (conl’d)
Regional demand has been described in greater depth earlier in this Report. However, we believe that South East Asia and in particular Malaysia and Indonesia will be the key drivers behind heavy lift and pipelay demand in the region as the Majors and NOCs continue to develop fields ahead of ambitious strategic plans. E=:a Heavy Uft Demand -Heavy Lift Supp Iy ~layDemand -laySupply 12,000 9,000
10,000 10,0008,000 ~ 7,000
•~8,000 o 6,000 •c.. 6.000 > • 4,000 CD 5,000 3,000 2,000
1.000 o …5:l A-!;)’O !;)O:I “t::! ,,«” ~ 4-*’ ~«., ‘l,,(j-‘ ~-<& <fl ‘l”t::! ~”~” ~” ‘l”t::!'” ~”
Yearof Installation Yearof Installation The’ Asian market is deemed to be heavily dependent on client relationships. However, unlike other regions, competition (especially in the predominant shallow water areas) will likely be strong, particularly from those contractors already well established in the installation market. Africa The heavy lift market is expected to be oversupplied throughout the next 5 years following historic trends. Overall, there has been only an incremental increase of supply in the region where investment was made during the boom years before the recession, The positive sign for DLB$ in this region is that there is a forecast increase in demand which should create opportunities for vessel owners operating in the region. Further good news In the region is that the deep and ultra-deepwater projects offshore West Africa will require sophisticated and large vessels towards the high end of the vessel spectrum in order to inslall platforms and subsea infrastructure. These opportunities will favour the Class A vessels working in the region, whilst also attracting some of the global vessels capable of working in these waters. 57 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (conrei) ==> HeavyLiRDemand -HeavyliftSupply aIIIll Lay Demand -LaySupply 5,000 4,500 4.000 III 3,500E 3,000 a; 2,500 1,500 1,000 500 o
16,000 14,000
~ 12,000
• ~ 10.000 a..8,000 ~ • f-.6,000 f-­~ 4,000 2,000 o -!.’o’O &–!.’o’O -r\0:> …0;;) ~ -$-~o(” ~~~~~~ ~ ~~ ~ ~ ‘li ‘li ‘li ‘li Year of Installation Yearof Installation .f­f-f-i­; ~trl !il In….,-!!’L,. f1 L, 4-*’ Figure 6·22; African heavy lift demand vs. supply (2006­Figure 6-23: African pipe/ay demand vs. supply (2006­2015) [Source: ISL] 2015) [Source: ISL] Supply within the African pipelay market is in a large state of undersupply with substantial increase in demand expected to be witnessed from 2011 onwards in the region as more pipeline infrastructure is required to bring some of these large production fields, in particular offshore West Africa, on-stream. However, we do believe that some of the high end vessels that can operate across regions within the global sphere will be attracted to the region due to the large amount of demand, especially towards 2013 to 2015, which will make the market slightly tighter than the current forecast. Demand continues to be driven by West African nations primarily, however, there are large projects offshore North Africa for long and complex pipeline installations as well as large fixed platforms that we believe will complement West Africa’s demand and bolster conditions within Africa moving forward [Source: ISL]. Latin America With the ambitious plans that Petrobras and Brazil have for field development over the next ten years, offshore Brazil. is expected to be a key growth region for heavy lift and pipelay services. Both markets are expected to witness undersupply over the next five years, in particular in the pipelay market as flexible pJpelines are likely to feature prominently at Petrobras developments. With both markets expected to witness undersupply for offshore construction, we believe that high class vessels and owners will look to Brazil as an opportunity to strengthen either existing operations or gain a foothold in the region. There is also a high likelihood that new vessels with large flexible pipelay capabilities will be attracted to Brazil given the pipeline characteristics where Petrobras has a track record of using FPSO and subsea developments [Source: ISL]. On a more cautious note, the Brazilian government are pushing towards a large amount of local content requiremenUor offshore projects, especially the more lucrative pre-salt plays, and thus there could be a drive towards Brazilian built vessels being contracted for offshore construction rather than look to international vessels. 581 © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (conl’d) ailBlII Hl:!avy lift Demand -Heavy liflSupply = Lay Demand -laySupply 2,500
9,000 6,000 2.000 7,000[~I r~ -•~ 6,000 I-­I-­I-­..”~ ,”.­• 1,500 –Cl 5,000 ‘­I-­I-­I-­.. (II 4,000 !;;;1,000 !-” ~ -‘”­
~/~\ 3,000 ~ .~~ .1 :;’J>>•
,2,000 ~;500 l-I­,”1,000 -t~ i’J I..•.,o


Year of Installation Yearof Installation Figure 6-24: Latin American heavy lift demand vs. supply Figure 6-25: Latin American pipe/ay demand VS. supply (2006-2015) [Source: ISLI (2006-2015) [Source: ISL] Caspian Sea’ ­The Caspian region has very different supply and demand dynamics than the three other regions analysed in this section such as Asia, Africa and Latin America, and is much more insular given its geographic location. ‘”= Heavy Lift Demand -Heavy liftSupply = lay Demand -laySupply 600 ,—————1,600 1,600
500 t—–,——–­1(­1,0100I ‘:”L• 400 ~ 1,200 Cl 1,000
. ~ ­..”i:’ -, I ‘” 300 ,
I­~ 800

‘. =t=;;:::!l• 200 -=i=~===j’t ~ ~ 600 , !;;;F~~ -f-400 l-f-­:=100 -­.21 . .. —‘H,'”11­cH,’1- ,c.200 c-I-­L..,…!”-IOJ ~I .-. hI’~ ~1o ~ ~ ~o #’ ..s-*’b # ….0;::. ~ .,,<& ~<& ~ ‘J<& .,; ‘t” ‘l,: ‘l,; .”r;:;, ‘),()…. ‘),~… ‘),()” “,1;::,” ‘),()” Yearof Installatron Year of Installation Figure 6-26: Caspian heavy lift demand vs. supply (2006· Figure 6-27: Caspian pipelay demand vs. supply (2006­2015) [Source: ISL] 2015) [Source: ISL] The DLBs and crane vessels of the Caspian region are mostly flat bottomed shaped barges with water depth limitations but good manoeuvrability and stability to operate through the harsh weather conditions of the Caspian Sea [Source: ISL}. Longer term prospects in the region (e.g. beyond 2014) are driven by a number of large developments, including Kashagan, Kurmangazy, Akote and Kairan [Source: ISL). 59 I © Infield Systems Limited 2011
8. INDUSTRY OVERVIEW (cont’d) The current snapshot suggests only two vessels on current contracts in the region, however due to the insular nature of the region; this could change rapidly as there are vessels in the Caspian without any contracts. Furthermore, there are vessels in the Middle East with good track records which can be mobilised to the Caspian if demand !ncreases rapidly_ The vessels currently under contract in the region are operated by Saipem S.p.A. and Bumi Armada, the latter being the first Malaysian asset owner and operator in the Caspian region. Saipem S.p.A. owns and operate a large heavy lift and pipelay fleet and is considered one of the largest players in the global market, along with J Ray McDermott. In the Caspian Sea, the Armada Installer is Bumi Armada’s only asset operating in this market. Nevertheless, Bumi Armada look well positioned in this region due to a long charter for the DLB with Petronas 6.2.9 Global SURF and IRM Market Although demand for SURF heavy lift and lay installation has been included in the overall DLB market forecast above, the SURF market is an increasingly growing sector that we feel should be highlighted. IRM has also been included in this section as although the focus for the majority of these vessels are large installation contracts, there is potential upside for the DLB market from the IRM operations that can utilise idle vessels in between installation contracts. SURF Market II Subsea Install ~ Shallow· Oeep • UltraOeep 45,000 40,000 35,000 ~ 30.000
–r-r­’—l­o 25.000 f—-­.. —-: 20,000 e-r-I­~ 15,000 -f-
I–­——10,000 f-I­-5,000 —-a

Year of Installation Figure 6-28: Global SURF demand by sector (2006-2015) ISource: ISL] 45,000 ,————–­40,000 +————–­35,000 +———-_._-..–­~ O•
~ 20,000 ~ 15,000 10,000 The SURF market includes Subsea installations (S), Umbilicals, Risers and Flowlines (URF) and has been separated in this Report as Subsea installations and URF to differentiate the requirements of heavy lift and lay vessels respectively. Overall, demand for SURF infrastructure is driven by floating production solutions such as FPSOs and the associated infrastructure. As Figure 6-28 shows, demand within the SURF market is heavily driven by the URF sector, which will require DLB vessels with lay capabilities. We expect the SURF market to grow over the next five years with a greater focus on deep and ultra-deepwater operations, indicative of the industry looking towards more remote locations for hydrocarbon production. 60 I © Infield Systems Limited 2011 I Company No. 370398-X I 8. INDUSTRY OVERVIEW (conl’d) SURF installation demand has historically taken place in intermediate environmental conditions, and whilst this trend is expected to continue, we believe that more benign and harsh environments will require SURF installation over the next five years. For benign waters, this is driven by secondary brownfield developments, as well as at greenfields offshore South East and East Asia. Whereas the increase in demand within harsh environments is driven primarily from Norway, and the anticipated large power lines and umbilicals expected to be installed over the next five years in the North and Barents Seas. Pelrobras “Benign -Intermediate. Harsh 16″10 45,000 Others BP 40,000
6%44% 35.000 ~ 30,000 f-­Chevrono 25,000 ­–f-­7% ~ 20,000
–f-­—–~ 15,000 f-f-­f-­~~__Shell10,000 t–.~t­~ ‘~fk. 5″10~.;~ -li~­5,000 t­·:.:·~j;l.;.. Tolal~~~ : [ffi !:’:j f.3i.. Noble …..,. 5″10′-ro Energy Inc ~’O #’ ~’b ‘i.)O:J ,,~ ,,<c-~ f>;,<C-$; “;)<c­~~ tV ~ <& <&” <&” <&” <&”.: ‘f”’


‘” \~Slaloil Exxontv’obil Petroleum Petroleum Yearof Installation 4% Corporation AS 3″10 5% Hgure 6·30: Global SURF demand by environment Figure 6-31: Global SURF estimated demand by condition (2006·2015) [Source: ISL] operator (2011-2015) [Source: ISL] Within the SURF market. Brazilian NOC Petrobras is expected to require the largest operator share of demand over the next five years reflecting the company’s drive towards developing the lucrative pre-salt fields with FPSOs and associated subsea solutions that we believe require large amounts of SURF infrastructure. Other large operator share is anticipated to come from the Super majors such as Chevron, Total and Shell, with some of the larger laCs also expected to require a large amount of SURF installations through to 2015. No,,” AmericaAfrica 14%
17% Africa Asia 24%Middle East 7%No,,” America &CaSPian”” Se,37% 5% “~ lIslralasia Asia ___B% 2% Latin America _ 18% Middle EaSI-……:::, &Caspian Se,
stralasiaLatin1% America 23% ~Europe 7% 21% Figure 6-32: Global SURF demand by region (2006-2010) Figure 6-33: Global SURF estimated demand by region [Source: ISL] (2011-2015) [Source: ISL] 61 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’ct) Given the drive towards deep and ultra-deepwater floating solutions in the lower tertiary trend in the Gulf of Mexico in the last decade, it is not surprising that North America was the main regional driver for SURF demand in the last five years. Whilst the Deepwater Horizon disaster is one of the factors for the region losing market share for SURF demand over the next five years, the growth of the SURF market in regions such as Europe, Africa and Australasia is also a large factor. Indeed, the growth of the floating production market offshore West Africa and Australasia is one of the key drivers for this change. t1lndonesia _Malaysia • Ph itippines -Thailand _Vietnam II Brunei 3,500 3,000
~ 2,500• 0• 2,000..~~• 1,500•
> 1,000 ,, e­””500 ~-“1 ~ !~ • ‘t-t
Year of Installation Although not historically a large region for SURF demand, the South East Asian market is expected to grow over the next five years, especially in the latter years as a swathe of floating production solutions are expected to be installed offshore Indonesia and Malaysia. Indeed we believe Malaysia to be the predominant country for SURF demand over the next five years within South East Asia. IRM market It should be noted that within this section the figures presented show the total demand market for IRM, some of which will be supplied by multi service vessels (MSVs) as well as_ some OSVs, Nevertheless, the IRM -market should provide upside to DLBs that ‘are not contracted to perform heavy lift or lay operations. . 621 © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (cont’d) Africa Africa 13% 15% Asia North 15% Asia Amerjl:a 16% 33% Australasia 1% Australasia 1% ” 11% Europe Se, Pmerica ,A,merica 13% 12% 15’Y” 15% &Caspian”‘-latin Figure 6-35: GloballRM demand by Region (2006-2010) Figure 6-36: GloballRM estimated demand by Region [Source: ISL] (2011-2015) [Source: ISL] We believe that the key regions for IRM demand over the next five years will continue to be North America, Asia, Africa and Latin America. For the Americas, the Gulf of Mexico (both Mexico and US) is expected to be the major location for IRM demand, especially in the shallow and benign waters. II Shallow _Deep 80.000 ,—————-­
70,000 t—–­~ 80,000 h.—–~~ 8 50,000 ~’._’!’. _~. i. a; 40,000 -d (‘f !: “1 ~ 30,000 M:-1’;S–_t”l ‘. ‘ >to: ‘ 20,000 ~~~ 10,000 o 1-“‘-,-.”””-.-”’-,–”’-”’£-‘-,­• Ultra Deep ” Benign -Inlermediate -Harsh 80.000 -70.000
c­-I–I-­…. BO.OOO -~ 50,000 I-­om 40,000 -I-­~ ~30,000 I-­~ 20,000 -10,000


~~-{HH4 ~ tPiJ=t~~ -­.. ..• _ …. •. I.. t’3o
Year of Installation Yearor Installation Figure 6·37: Global IRM demand by water depth group Figure 6-38: Global IRM demand by environment (2006-2015) [Source: ISL] condition (2006-2015) [Source: ISLl Shallow water operations are expected to contribute the most towards IRM demand globally, as the majority of existing offshore infrastructure installed is located in these shallow waters; for example in the Persian Gulf, Gulf of Mexico, and in shallow waters offshore Asia. Over time, as more and more deep and ultra-deepwater fields are brought on stream, demand for IRM related services is also likely to move deeper. Looking forward this should proVide more upside for sophisticated and operationally capable vessels, much of this however is expected to be realised beyond 2015. 63 I © Infield Systems Limited 2011 202
8. INDUSTRY OVERVIEW (cont’if) t:llndonesia • Malaysia. Philippines. Thailand -Vietnam” Brunei 12,000 10,000 ~8,000″ •c.. 6,000 ” ~ 4,000> 2,000 0
Yearof Installation FigtJre 6-39: South East Asia JRM demand by country (2006-2015) [Source: JSLJ Within Asia, South East Asia is expected to contribute a large amount towards IRM demand over the next five years, driven predominantly by infrastructure offshore Indonesia and Malaysia. Overall the region should see more demand for IRM over the next five years as countries such as Vietnam and Thailand are forecast to install a large amount of shallow water fixed platforms. This is in addition to the large amount of developments planned offshore the key countries of Malaysia and Indonesia. 6.2.10 Competitive Market Place The DLB marketplace is an extremely competitive one, across all regions, however it should present opportunities to high end vessels during the next five years. Although we believe that the high specification, more sophisticated construction vessels are more capable of winning high day-rates and witnessing good utilisation, there is still stiff competition within the high end vessels for these contracts. One trend that has been witnessed is a move from these high end operators offering only transportation and installation services to repackaging this within larger contracts with scope for engineering, procurement, construction and installation, which command greater contract values and allow the operator to have only one contractqr to work with for a project rather than working with multiple companies which in some instances can cause delayS: and cost overruns. Whilst there is competition for the larger projects and contracts values within the high end vessels, there is still competition between vessels at the lower end of the spectrum. Towards the lower end of the DLB market, predominantly low lift capable barges that operate mainly in shallow waters, vessel owners are more attracted to utilisation rates rather than high contract values and as such compete for contracts by lowering rates, a trend that has occurred in South East Asia. Overall, the highest amount of competition for DLB contracts are expected to be witnessed in the deep and ultra deepwater plays where more lucrative contracts can be won, for example offshore Brazil and West Africa, where high end vessels are likely to migrate to these areas in order to address the undersupply for the large projects in particular, the pipelay market. South East Asia and other regions that have traditionally shallow water and benign met ocean conditions should witness both high and low end vessels competing for contracts for DLBs as countries such as Malaysia and Indonesia look to developments that will require a variety of large and medium size construction vessels over the next five years. 641 © Infield Systems Limited 2011 B. INDUSTRY OVERVIEW (confd) 7 CONCLUSION
The global economy is now starting to show signs of recovery after a period of recession. Non-DECO economies look set to continue as the engine of economic growth, and their rapid industrialisation and rising energy demand is placing a strain on energy resources. The pace of this growth is likely to drive the price of oil and gas upwards; this in turn will encourage oil companies to invest on finding and developing new reserves, and then delivering them to the market. Higher energy demand and associated high oil and gas prices also provides the incentives for the offshore D&G industry to move into deeper waters, more remote operational locations, and harsher environments. This is an important development as we are starting to see more maturing shallow water exploration and production regions and depletion of shallow water fields as they age. The theme of maturing oil provinces plays through to the regional distribution of activity in the offshore oil and gas industry. Historically the industry has had a large exposure to shallow water areas in the US side of the Gulf of Mexico, and in the North Sea. In the future we expect Asia, Latin America, and West Africa to be at the heart of the offshore industry. These are the regions which are showing some of the best growth potential; Latin America and West Africa in particular are notable for the sheer volume of their deepwater reserves, whilst Asia is only beginning to explore and unlock its deepwater potential. FPSO solutions play an essential role within the offshore O&G industry’s move into new exploration and production frontiers. The FPSO also enables production from deepwater areas. The FPSO allows oil to be produced from the sea floor, then stored and offloaded to a waiting shuttle tanker to be delivered to any international market. This system means that oil companies no longer have to invest in costly pipelines to transport oil from a field to shore, and it also means that any potential security concerns associated with bringing the oil onshore are mitigated. We see the FPSO as a field development solution which is of integral importance to the future offshore oil and gas industry, and note considerable demand for FPSOs in West Africa, Latin America and Asia. The global OSV market is set to benefit from a period of sustained growth and increased activity if energy demand and oil prices remain strong. Within the OSV market, two types of vessel are found, the AHT and the PSv. Each has slightly different drivers. AHTs support drilling activity; when the price of oil is high we tend to see a lot of drilling activity, conversely, when the price of oil drops and there is uncertainty surrounding the future energy demand, drilling activity decreases. Accordingly, during the period of global economic recession, we witness lower AHT charter rates and utilisation. Looking forward, if we continue to see rising oil prices then we can expect to see higher AHT charter rates. Whilst AHTs support drilling activity, PSVs provide services primarily to production platforms. Production platforms tend to be less prone to short-term volatility and as such have not been as severely impacted by the global economic recession. The longer-term drivers for both AHTs and PSVs, and OSVs in general appear to be strong. Again, this is an industry which is moving towards deeper waters, and in this sense, companies which are able to provide OSV services with deepwater capable assets are likely to be at an advantage. 65 I © Infield Systems Limited 2011 8. INDUSTRY OVERVIEW (conl’d) Finally, looking towards the global OLB market, this is a market which was also impacted by a slowdown in general activity caused by the global economic recession. With the prospects of economic recovery, the OLB market also has strong drivers for growth. We would note however that this is a market which is in a state of global oversupply. This oversupply though is complex given that there are three tiers of vessels within this market. Firstly, high end vessels capable of lifting greater than 5,000 tonnes; these are likely to be used within specific specialised markets. Secondly, general DLB vessels which compete for the core range of installation business. Thirdly, a large number of older vessels exist with very limited crane capacity which are still theoretically active in the market, yet which are not really in competition with the previous two categories of DlB. So whilst the supply versus demand outlook does not appear to be promising, this is caveated by the requirement to consider how competitive all of the vessels in the market actually are. Newer, higher specification vessels are likely to be in high demand by oil companies, and are expected to achieve higher day rates and utmsation. (The rest of this page has been intentionally left blank) 66 I © Infield Systems Limited 2011

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