Industry Overview

7. INDUSTRY OVERVIEW 7. INDUSTRY OVERVIEW
Q VITAL FACTOR CONSULTING Vital Factor Consulting Sdn BhdCreating Winning Business Solutions (Company No.: 266797-T) V Square @ PJ City Centre (VSQ) Block 6 Level 6, Jalan Utara 46200 Petaling Jaya Selangor, Malaysia Tel (603) 7931 3188The Board of Directors Fax (603) 7931 2188 Carimin Petroleum Berhad www.vilalfaclor.com Unit B-1-6, Megan Avenue 1 189 Jalan Tun Razak 50400 Kuala Lumpur Dear Sirs and Madam Independent Assessment of the Oil and Gas Supporting Services Industry in Malaysia The following is an Independent Assessment of the Oil and Gas Supporting Services Industry in Malaysia prepared by Vital Factor Consulting Sdn Bhd for inclusion in the prospectus of Carimin Petroleum Berhad (herein together with all or anyone or more of its subsidiaries will be referred to as “Carimin Petroleum Group” or the “Group”) in relation to its proposed listing on the Main Market of Bursa Malaysia Securities Berhad. 1. BACKGROUND AND INTRODUCTION • Carimin Petroleum Group is engaged in the provision of oil and gas supporting services focusing on the following activities: Offshore hook up and commissioning, and production platform system maintenance and upgrading services. The Group usually carries out offshore hook up and commissioning on production platforms typically involving the final installation, testing and commissioning of the facilities’ structures, machinery and equipment. The Group also provides production platform system maintenance and upgrading services where the Group rectifies faults that affect production platform systems, and increase the capability of production platforms; Manpower supply services, where the Group assists its customers in sourcing suitable personnel to fulfil specified functions; Minor fabrication services, where the Group produces piping systems, skids and other minor steel structures for its external customers and to support its offshore hook up and commissioning, and production platform system maintenance and upgrading service business. Carimin Petroleum Berhad Page 10/38 Industry Assessment 135
7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • Carimin Petroleum Group’s business actIVItIes are focused on the upstream segment of the Oil and Gas Industry. The Group’s offshore hook-up and commissioning, and production platform system maintenance and upgrading services, and minor fabrication services serve the development and production segments, while the Group’s manpower supply services serve the exploration, development and production segments.
• As the Group primarily provides supporting services to other operators in the upstream segment of the Oil and Gas Industry, this report shall focus on the Oil and Gas Supporting Services Industry. In terms of geographic focus this report focuses on Malaysia, which is the Group’s main market.
• Within the context of this report, the term “oil and gas” is used interchangeably with “hydrocarbons”.

2. MACROECONOMIC INDICATORS 2.1 Key Macroeconomic Indicators for Malaysia • In general, a favourable macroeconomic environment provides a conducive platform to sustain businesses as well as provide opportunities for growth.
• Overall, Malaysia’s key economic indicators in terms of real GDP grew at an average annual growth rate (AAGR) of 5.7% between 2009 and 2013. An exception to the growth during this period was in 2009, when the economy contracted by 1.5% amidst the slowdown in the
global economy.

• In 2013, the Malaysian economy grew at 4.7% driven by continued strong growth in domestic demand, underpinned by robust private sector activity. Private consumption was supported mainly by favourable employment conditions and wage growth while private investment was supported by capital spending in the mining, services and manufacturing sectors.

 

Malaysia’s Real GDP Growth Actual Forecast ,,­
9% 6%~ e.. J::. ~ e Cl 3% Q. 0 Cl ~ QI0:: 0% -1.5%
-3%
f= Forecast (Source: Bank Negara Malaysia)
Carimin Petroleum Berhad Page 2 of38 Industry Assessment 136

7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • During the first quarter of 2014, the Malaysian economy grew by 6.2% where growth was fuelled by stronger expansion in domestic demand as well as turnaround in net exports. Net exports recorded growth as exports of goods and services outpaced the growth of imports.
• Additionally, in the second quarter of 2014, the Malaysian economy registered a stronger growth of 6.4% supported by higher exports and continued strength in private domestic demand. Real exports of goods and services grew at a faster pace while growth of real imports of goods and services moderated, resulting to a significant improvement in net exports. Furthermore, positive growth from construction, manufacturing, services, agricultural and mining sectors attributed to the growth in the second quarter of2014.
• With strong growth evident in the first half of 2014, Bank Negara Malaysia (BNM) expects the Malaysian economy to exceed the earlier projection of 4.5% to 5.5% for the full year of 2014. Nevertheless, BNM also expects growth in the second half of 2014 to moderate slightly compared to the previous first half of 2014. The growth in the second half of 2014 will likely be supported by private sector activity and exports growth however at a more moderate pace.

3. INDUSTRY OVERVIEW 3.1 The Oil and Gas Industry in Malaysia • Petroliarn Nasional Berhad (PETRONAS), the national petroleum corporation, is the primary regulator and licensing body for the Oil and Gas Industry in Malaysia. It is responsible for managing the industry’s long-term development.
• The majority of the upstream exploration, development and production activities of the Oil and Gas Industry in Malaysia are carried out offshore. Historically, activities have been focused in shallow waters (informally defined as water depth of less than 200 metres) offshore of the East Coast of Peninsular Malaysia, Sabah and Sarawak.
• Deepwater areas are becoming increasingly important and are expected to drive future growth and development of the Malaysian Oil and Gas Industry. PETRONAS has also implemented measures to promote marginal oil field development in Malaysia.
• The Oil and Gas Industry plays a significant role in the growth and development of the Malaysian economy, contributing in terms of producing oil and gas and as a major generator of export earnings.

Carimin Petroleum Berhad Page 3 0/38 Industry Assessment 137 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 3.2 Overall Oil and Gas Industry • The Oil and Gas Supporting Services Industry is part of the overall Oil and Gas Industry, which is depicted in the diagram below: Structure of the Oil and Gas Industry
IB Carimin Petroleum Group is engaged in the provision of oil and gas supporting services for the upstream sector -• In general, the overall Oil and Gas Industry may be segmented into the upstream, midstream and downstream sectors.
• Carimin Petroleum Group’s business is focused on the upstream sector of the Oil and Gas Industry. The Upstream sector comprises the exploration, development and production segments:

Exploration activities are those that are related to investigating a specific area to determine ifthere are hydrocarbon deposits in that area, and to quantify the potential characteristics and size of these deposits. Exploration activities include collecting and interpreting seismic survey data, geoscience and petroleum engineering, drilling exploratory wells, core and fluid sample analysis. Exploration activities also include appraisal, which is concerned with determining the economic and technical viability of discovered hydrocarbon deposits. Deposits that are deemed to be viable are usually described as reserves. Carimin Petroleum Berhad Page 4 0/38 Industry Assessment 138 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions Development refers to activities that are undertaken to bring an economically viable but previously untapped hydrocarbon reserve into production, and to activities undertaken to significantly expand production capacity at an existing production facility. Development activities include development well drilling, and engineering, designing, fabricating, installing and commissioning production facilities. Production activities are those that are related to extracting hydrocarbons from identified and developed hydrocarbon reserves. Production activities include operating production facilities, field management and field planning. • The Midstream sector comprises the transportation segment:
Transportation activities are related to the transportation of extracted hydrocarbons from production facilities to storage, refining and processing facilities. Transportation includes the operation of onshore and offshore hydrocarbon pipelines, and the operation of hydrocarbon transport vessels and vehicles.
• The Downstream sector comprises the refining and processing, and distribution segments:

Refining and processing comprises activities that are related to processing extracted hydrocarbons into forms and products that can be used by intermediate and final users. Refining crude petroleum primarily involves fractional distillation to separate the different petroleum fractions that make up crude petroleum. Natural gas processing primarily involves the purification and liquefaction of natural gas to facilitate storage, transport and usage. Distribution comprises activities that are related to the transportation and distribution of refined and treated hydrocarbons to end-users. Distribution activities include the operation of tankers, domestic gas networks, and retail outlets such as petrol stations. • Supporting services comprise a diverse range of services that facilitate operations in the exploration, development, production, transportation, refining and processing, and distribution segments. Examples of supporting services include, among others: Exploration: Chartering and operating ships, and supplying manpower. Carimin Petroleum Berhad Page 50/38 Industry Assessment 139
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions Development: Chartering and operating drilling rigs, workover rigs and ships, hook up and commissioning, engineering and fabricating facilities, and supplying manpower. Production: Maintaining and upgrading production platforms, chartering and operating ships, hook up and commissioning, engineering and fabricating facilities, and supplying manpower. Transportation: Maintaining hydrocarbon pipelines and storage facilities, chartering and operating transportation vessels, and supplying manpower. Refining and processing: Engineering and fabricating facilities, maintaining refining and processing facilities, and supplying manpower. Distribution: Chartering and operating ships, maintaining domestic gas networks; providing logistics services, and supplying manpower. • Carimin Petroleum Group is primarily involved in the provision of the following oil and gas supporting services to other operators in the upstream sector: Offshore hook up and commissioning, and production platform system maintenance and upgrading, which supports operators in the development and production segments; Manpower supply to operators in the exploration, development and production segments; Minor fabrication, which supports operators in the development and production segments. 3.3 Hook Up and Commissioning • Carimin Petroleum Group is engaged in providing offshore hook-up and commissioning services, which is part of offshore construction activities segment within the upstream sector of the Oil and Gas Industry.
• Once a structure, such as an offshore oil and gas platform, is established at the desired location, and all the required equipment, machinery and other systems are on the structure, these equipment, machinery and other systems will be required to be interconnected or hooked up, such that they work together effectively, efficiently and safely. Once they are hooked-up, they will need to be commissioned, which entails inspection and testing, and ensuring that all the equipment, machinery and systems are operating effectively, efficiently and safely on the structure.

Carimin Petroleum Berhad Page 60/38 Industry Assessment 140
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Offshore construction activities undertaken in Malaysia are depicted as follows: Transportation & Installation of Structures/Pipelines

1..11 Carimin Petroleum Group is involvedin this category • There are four main categories of offshore construction activities
undertaken in Malaysia’s Oil and Gas Industry: Transportation and installation of structures/pipelines; Maintenance and repairs of pipelines/subsea structures; Hook up and commissioning; Pipeline dewatering.
• One of Carimin Petroleum Group’s business activities is the provision of offshore hook up and commissioning services.

 

 

3.4 Production Platform System Maintenance • One of Carimin Petroleum Group’s business activities is the provision of production platform system maintenance and upgrading services to operators in the upstream sector ofthe Oil and Gas Industry.
• Production platform system maintenance is focused on ensuring that all the equipment, machinery and other systems on the platform continue to function effectively, efficiently and safely to prevent downtime for unscheduled repairs or emergencies. Upgrading mainly involves adding new or replacing existing systems or structures on the platform. Carimin Petroleum Group is involved in the maintenance of piping, electrical and instrument system maintenance on production platforms.
• In general, a production platform is a structure installed in the marine environment (i.e. offshore) that houses the equipment and systems that are required to produce hydrocarbons.

Carimin Petroleum Berhad Page 70f38 Industry Assessment 141 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • A production platform typically consists of a topside and jacket: The topside is the portion of the production platform that is permanently above the surface. It typically houses, among others, wellheads and Christmas trees, gas compressors, piping systems, power systems, production separators, and injection pumps. The topside of a manned production platform may incorporate accommodation facilities for permanently stationed workers. An automated production platform may have only basic accommodation facilities, or lack them entirely. The jacket supports the topside. Jackets may be rigid and permanently installed to the sea floor, or may be floating structures that are held in place by anchors fixed to the sea floor. • The structure, equipment and systems that are installed on a production platform normally require maintenance to ensure safe and efficient operations. Maintenance services may be provided on a scheduled basis or on an ad hoc basis. Production platforms may also be upgraded from time to time.
• Some of the major production platform system maintenance activities that are carried out on production platforms in Malaysia can be segmented into the following categories:

 

Others Carimin Petroleum Berhad Page 8 0/38 Industry Assessment 142
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Mechanical maintenance involves equipment and systems such as a production platform’s topside structure, piping system, heat processing system, and Christmas trees and wellheads.
• Electrical maintenance involves maintaining the production platform’s electrical systems, which may include generators, control systems, wiring and lighting.
• Instrumental maintenance comprises maintenance services on pneumatic or hydraulic instrument system, electronic or digital instrument systems, and fire detection, alarm and protection systems.
• Other maintenance services for production platforms include maintenance activities such as abrasion blasting and painting, insulation work, on-line under pressure maintenance, and other maintenance works such as risk-based inspection and heating, ventilation and air conditioning system maintenance.
• In some cases, Production Sharing Contract (PSC) contractors and operators, and Risk Service Contract (RSC) contractors and operators will award offshore hook up and commissioning, and production platform maintenance service in the same contract.
• Within the production platform system maintenance services sector, Carimin Petroleum Group is primarily involved in providing maintenance services for piping systems. The Group also provides maintenance services for electrical systems and instrumentation that are related to a production platform’s piping system.

3.5 Fabrication • The Group is involved in providing minor fabrication services to operators in the development and production segments of the upstream Oil and Gas Industry.
• Fabrication is the term generally applied to the value-added process of constructing machines and structures out of various raw materials, primarily metal. The Group is involved in minor fabrication which is focused on constructing minor steel structures such as skids and piping systems that are then installed on offshore structures such as production platforms.

Carimin Petroleum Berhad Page 9 of38 Industry Assessment 143
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • The fabrication of facilities for the Oil and Gas Industry may be depicted as follows:
••• Carimin Petroleum Group is involvedin this category • Engineering and design activities encompass the application of various engineering disciplines in fabricating production facilities or oil and gas platforms. These disciplines include mechanical engineering, corrosion protection engineering, electrical engineering and instrumentation engineering.
• Complete facilities refer to the fabrication of drilling and production facilities including oil and gas platforms that are substantially complete, which can be brought to operational status once installed on­site.
• Modules and process skid systems involve the fabrication of process equipment systems that are intended for use in production facilities. Examples include oil and gas separation systems and chemical injection skids. These systems may be engineered and fabricated away from the production facility but must eventually be integrated with the latter to become fully functional.
• Others refer to the fabrication of other structures and equipment, such as piping systems, cranes and vessel landing structures.
• Carimin Petroleum Group is involved in the provision of minor fabrication services focusing on the fabrication of other structures and piping systems.

Carimin Petroleum Berhad Page 100/38 Industry Assessment 144
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions

 

3.6 Operators in the Upstream Oil and Gas Industry • Operators in the upstream sector of the Oil and Gas Industry in Malaysia may be segmented into several different tiers as depicted in the following diagram: Authorising Body FirstTier Production Sharing Contract Risk Service Contract Contractor and Operator Contractor and Operator Second Tier International Provider of Supporting Products and Services

Third Tier I11III Carimln Petroleum Group Is a third tier operator. • Operators in the upstream Oil and Gas Industry in Malaysia may be segmented in the following manner: The first tier operator, comprising an authorising body, which is PETRONAS; Second tier operators, comprising PSC contractors and operators, and RSC contractors and operators; Third tier operators, comprising local and international providers of supporting products and services. 3.6.1 First Tier • PETRONAS, the national petroleum corporation, is the authorising body and the first tier operator in the Oil and Gas Industry in Malaysia. PETRONAS is the primary regulator and licensing body for the Oil and Gas Industry in Malaysia, and is the organisation responsible for the industry’s long-term development. Carimin Petroleum Berhad Page 11 0/38 Industry Assessment 145 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • Through its subsidiaries, PETRONAS is also involved in a wide range of Oil and Gas Industry activities, including: exploration, development, production and refining of hydrocarbons; marketing and distributing ofpetroleum products; trading; gas processing and liquefaction; gas transmission pipeline network operations; marketing liquefied natural gas. 3.6.2 Second Tier • The second tier operators in the Oil and Gas Industry in Malaysia are the PSC and RSC contractors and operators.
• PSC contractors are oil and gas companies that have entered into a PSC with PETRONAS. These companies have the financial and technical ability to bear the cost and risk of undertaking hydrocarbon exploration, development and production.
• PETRONAS Carigali Sdn Bhd, a wholly owned subsidiary of PETRONAS, is a PSC contractor. Examples of large multinational oil and gas companies that are PSC contractors currently operating in Malaysia include ExxonMobil Exploration and Production Malaysia Inc, Sabah Shell Petroleum Company Limited and Sarawak· Shell Berhad, while examples of smaller independent PSC contractors include Murphy Sarawak Oil Co Ltd, Petrofac (Malaysia PM304) Limited, and Talisman Malaysia Limited.
• The PSC contractor is given the right to explore, develop and produce hydrocarbons in a specified area (commonly referred to as a “block”) for a specified period oftime. The PSC contractor bears all ofthe risks and initial costs involved in discovering hydrocarbons and initiating hydrocarbon production. Revenue from the sale of any produced hydrocarbons first goes towards covering a specified proportion of the costs involved (including exploration, development and production costs). Any revenue in excess of this is shared between the PSC contractor and PETRONAS.
• In addition to their involvement in the upstream sector of the Oil and Gas Industry, some PSC contractors are also involved in transportation, refining and distribution.

Carimin Petroleum Berhad Page 12 0/38 Industry Assessment 146
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • It should be noted that in some cases, several oil and gas companies will jointly enter into a PSC with PETRONAS for an individual block. This is normally done to share the cost and risk associated with exploration, development and production activities in that Block. In this case, there will be more than one PSC contractor for that Block. One PSC contractor, typically the PSC contractor with the largest equity stake, will be nominated as the PSC operator with overall responsibility for the development of the Block. In situations where the PSC is awarded to a sole PSC contractor, the PSC contractor is also the PSC operator.
• PETRONAS introduced RSC as a means of developing and producing small or marginal fields in Malaysia. In a RSC, PETRONAS assumes the role of project manager, while the RSC contractor is paid a fixed fee for services rendered in relation to hydrocarbon development and production.
• PETRONAS’ current policy is to appoint Malaysian oil and gas companies that are listed on Bursa Malaysia Securities Berhad as RSC contractors in order to promote the development of Malaysian operators. As at end August 2014, PETRONAS has awarded six RSC to consortiums/company comprising:

SapuraKencana Petroleum Bhd and Petrofac Ltd; Dialog Group Bhd and ROC Oil Co. Ltd; Petra Energy Bhd and Coastal Energy Co.; Vestigo Petroleum Sdn Bhd (a fully owned subsidiary of PETRONAS); Uzma Bhd and EnQuest PIc; Octanex Pte Ltd, Scomi D&P Sdn Bhd and Vestigo Petroleum SdnBhd.
3.6.3 Third Tier • Companies in the third tier of the Oil and Gas Industry in Malaysia comprise local and international companies that provide supporting products and services to PETRONAS, PSC and RSC contractors and operators.
• Both local and international companies of supporting products and services are required to obtain the appropriate licence or registration for a particular product or service from PETRONAS before they are allowed to supply the first and second tier operators.

Carimin Petroleum Berhad Page 13 of38 Industry Assessment 147
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • International providers of supporting products and services are usually required to establish partnership arrangements with a Malaysian party before they are allowed to provide supporting products and services to first tier and second tier operators in Malaysia.
• Carimin Petroleum Group is third tier operator in the Oil and Gas Industry in Malaysia. The Group is licensed by PETRONAS. to provide products and services related to offshore hook up and commissioning, and production platform system maintenance and upgrading, manpower supply, and minor fabrication.

4. DEMAND AND SUPPLY CONDITIONS 4.1 Oil and Gas Fields • Growth in the number of oil and gas fields in operation would create demand for oil and gas supporting services such as offshore hook up and commissioning, and production platform system maintenance and upgrading, and manpower supply services. Number of Oil and Gas Fields March  December  IAAGR  2007  2008  2009  2010  2011  2011  2012  ~  Oil and Gas Fields in Operation ….  85  88  104  106  117  124  132  8.3
Note:
PETRONAShas changedtheirfinancialyearendfrom 31 March to 31 December, starting in 2012; AAGR between March 2007 and March 2011. (Source: PETRONASj
• The number of oil and gas fields in operation grew by an AAGR of 8.3% between March 2007 and March 2011.
• The number of oil and gas fields operating in Malaysia increased to 132 as at December 2012, which included 77 oil fields and 55 gas fields.

(Source: PETRONASj • The continuing increase in the number of oil and gas fields in operation would provide the impetus for on-going demand for oil and gas supporting services. Carimin Petroleum Berhad Page 14 of38 Industry Assessment 148
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions

 

4.2 Investment in Exploration, Development and Production of Oil and Gas • The level of investment made in the upstream sector is one of the factors used to assess the demand for oil and gas supporting services. This is because part of the investment is channelled to the engagement of services rendered by oil and gas supporting services providers. Investment in Exploration, Development and Production of Oil and Gas March December AAGR 2007 2008 2009 2010 2011 2011 2012 (% Expenditure for Exploration 2.2 1.5 2.5 10.4 5.2 2.4 3.7 24.0 Expenditure for Development and Production………………………… 10.3 12.0 12.0 14.7 17.1 16.4 22.9 13.5 Operational Expenditure 7.3 8.0 7.8 3.6 1.8 11.3 13.4 -29.5 Total……………………………………… 19.8 21.5 22.3 28.7 24.0″ 30.1 40.0 4.9 Note: ” Total does not add-up due to rounding; Allunits inRMbillion, exceptpercentages; PETRONAS has changed theirfinancial year endfrom 31 March to 31 December, starting in 2012; AAGR between March 2007 and March 2011. (Source: PETRONASj • The overall level of investment made in the upstream sector increased at an AAGR of 4.9% between March 2007 and March 2011. The 50% decline in the level of expenditure for exploration activities between March 2011 and December 2011 were due to investments being channelled towards development and production activities after the successful drilling of two exploratory wells, namely NC3 and Spaoh-l, which led to new oil and gas discoveries in Malaysia.
• For the whole of 2012, the overall level of investment made in the upstream sector grew by 32.9% to RM40.0 billion. This was due to improved exploration efforts, which led to an increase in oil and gas discovered resources from 21.3 billion barrels of oil equivalent (BOE) in 2011 to 22.2 billion BOE in 2012.

(Source: PETRONAS)
4.3 Manpower Resources • The statistics depicted below are used to represent the demand for manpower resources, which include those that are provided by oil and gas supporting services providers. Carimin Petroleum Berhad Page 15 of38 Industry Assessment 149 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions Number of Workers Employed in the Oil and Gas Mining Sector AAGR  2008-12  2008  2009  2010  2011  2012  (%  Total Workers Employed*  10,458  12,184  12,919  13,304  15,015  9.5
Note: *Includefull-time andpart-timeemployees, workingproprietors, activebusinesspartners, and unpaidfamily workers. (Source: Department ofStatistics) • Between 2008 and 2012, the total number of workers employed in the oil and gas mining sector increased at an AAGR of 9.5%. Breakdown of Workers Employed in the Oil and Gas Mining Sector in 2012 Persons Managerial and Professional .. 7,590 Technical and Supervisory . 4,352 Clerical and Related Occupations . 997 Production/Operative Workers Directly Employed . 1,321 Production/Operative Workers Employed Through Labour Contractors .. 421 General Workers . 334 Total. . 15,015 (Source: Department ofStatistics) 5. DEMAND DEPENDENCIES • In general, demand for oil and gas supporting services is dependent on the performance ofthe overall Oil and Gas Industry. 5.1 Production Sharing Contract and Risk Service Contract • A PSC is a contractual agreement between a company, referred to as PSC contractor or operator, and the Malaysian Government. PSC contractors and operators have the financial and technical ability to bear the cost and risk of undertaking hydrocarbon exploration, development and production. Carimin Petroleum Berhad Page 16 of38 Industry Assessment 150
7. INDUSTRY OVERVIEW (Cont’d) Q
VITAL FACTOR CONSULTING Creating Winning Business Solutions  •  A RSC is a contract between PETRONAS and appointed contractors, where PETRONAS assumes the role of project manager while the contractors are paid a fixed fee for services rendered with regards to hydrocarbon development and production. In general, RSC are focused on the devdopment of small or marginal fields, which are fields with reserves totalling 30 million barrels of oil equivalent (BOE) or less.  (Source: PETRONAS)  •  PSC and RSC contractors and operators are target customers of oil and gas supporting services providers.  Number of Production Sharing Contracts (pSC)  PSC in Operation……………., New PSC Awarded…………. ,  2008 67 4  March 2009 2010 71 72 6 4  2011 82 11  December 2012 95 9  AAGR (% 7.0 40.1  Note: PSC = Production Sharing Contract; PETRONAS has changed their financial year endfrom 31 March to 31 December,starting in 2012; AAGR between March 2008 and March 2011. (Source: PETRONAS)  •  Growth in the number of PSC in operation and new PSC awarded indicates an expanding potential customer base for oil and gas supporting services providers.  •  In addition to the PSC discussed above, six RSC have been awarded as at August 2014. The first RSC was awarded in January 2011 for the development and production of the Berantai field. In August 2011, a second RSC was awarded to develop and produce from the Balai Cluster. In June 2012, a third RSC was awarded for a cluster of three marginal fields, namely Kapal, Banang and Meranti. The fourth and fifth RSC were awarded in March 2014 for the Tembikai and Tanjung Baram marginal fields while the sixth RSC was awarded in June 2014 for the Ophir small field. (Source: PETRONAS)  •  The development of marginal fields is intended to sustain the local upstream sector, which is expected to have a positive impact on the Oil and Gas Supporting Services Industry.
Carimin Petroleum Berhad Page 17 0/38 Industry Assessment 151 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 5.2 Oil and Gas Reserves and Production • Growth in hydrocarbon reserves and production indicates a continuing effort by PETRONAS and PSC operators and contractors to carry out exploration, development and production activities, which should continue to provide opportunities for oil and gas supporting services providers that serve the upstream sector.  Oil and Gas Reserves in Malaysia  1 Jan 2009  1 Jan 2010  1 Jan 2011  1 Jan 2012  1 Jan 2013
Total Reserves . 20.2 20.6 20.9 21.3 22.2 -Crude Oil and Condensates .. 5.5 5.8 5.9 6.0 5.9 -Natural Gas . 14.7 14.8 15.0 15.4 16.4 Note: BOE = Barrels ofOil Equivalent; All units in billion BOE, exceptpercentages. (Source: PETRONAS) AAGR 2009-13 (% 2.5 1.5 2.8 • The increase in Malaysia’s oil and gas reserves during this period indicates that the sustained exploration effort by operators in the upstream sector have been fruitful. In particular, the discovery of gas reserves from Malaysia’s first High Pressure High Temperature (HPHT) well during the financial year ended 31 March 2009 in the Kinabalu field offshore Sabah is expected to open up new exploration prospects for deeper reserves in Malaysia.  Oil and Gas Production in Malaysia  Average Production…………….. -Crude Oil and Condensates… -Natural Gas ………………………  2007 1,611 661 950  2008 1,673 691 982  March 2009 1,659 679 980  2010 1,631 657 974  2011 1,614 627 987
AAGR  December  2007-11  2011  2012  (%)  1,558  1,587  #  569  586  -1.3  989  1,001  1.0
Notes: BOE = BarrelsofOilEquivalent;Allunits inthousandBOE perday, exceptpercentages; # Less than 0.1%; PETRONAS has changed their financial year end from 31 March to 31 December, starting in 2012; AAGR between March 2007 and March 2011. (Source: PETRONAS)
Carimin Petroleum Berhad Page 18 of38 Industry Assessment 152 7. INDUSTRY OVERVIEW (Cont’d) Q
VITAL FACTOR CONSULTING Creating Winning Business Solutions • The decline in the average production of hydrocarbons between 31 March 2008 and 31 March 2011 was mainly attributed to maturing fields, poor reservoir performance and scheduled shutdowns of facilities for maintenance and reservoir management. However, the average production of hydrocarbons grew by 1.9% during the full year of 2012 compared to 2011. Growth was led by optimisation of production activities, acceleration of new hydrocarbon development projects, and addition of new resources via aggressive exploration and enhanced hydrocarbon recovery efforts.
• The continuing addition of new oil and gas fields into operation by PETRONAS and PSC operators and contractors should serve to sustain hydrocarbon production moving forward. In addition, the production of hydrocarbons by RSC operators from small and marginal fields should also help to sustain production.

(Source: PETRONAS)
5.3 Local Production of Oil and Gas Products • The demand for refined petroleum products has an impact on upstream activities. As demand for refined petroleum products increases, demand for upstream activities will grow. In return, this will provide opportunities for oil and gas supporting services providers servicing the upstream sector. Refined Petroleum Product Indicator AAGR 2009-13  2009  2010  2011  2012  2013  (%  Sales Value ofthe Manufacture of  Refined Petroleum Products…………  84.7  99.9  137.9  155.4  151.8  15.7
Note: All units in RMbillion, except percentage. (Source: Department ofStatistics) • Generally, local production of refined petroleum products in terms of sales value grew between 2009 and 2013, with an AAGR of 15.7%.
5.4 Exports of Oil and Gas Products • External demand, via exports, for oil and gas products would also have an impact on the demand for upstream activities, which in turn would affect the demand for oil and gas supporting services. Carimin Petroleum Berhad Page 19 of38 1ndustry Assessment 153 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions Export Value of Selected Oil and Gas Products AAGR 2009-13 2009 2010 2011 2012 2013 % Petroleum Crude Oils and Crude Oils Obtained from Bituminous Minerals ………………………………….. Refined Petroleum Products ………. Residual Petroleum Products (Not Elsewhere Specified) and Related Materials …………………………………. Natural Gas (Whether or Not Liquefied) ……………………………….. Petroleum Gases and Other Gaseous Hydrocarbons (Not Elsewhere Specified) ………………… 25.6 31.0 32.9 32.3 32.2 5.9 19.4 25.5 33.0 47.6 61.3 33.3 1.0 1.6 1.3 2.2 2.1 20.7 31.2 38.7 50.0 56.1 59.2 17.4 2.7 3.2 3.5 3.9 4.1 11.3 Note: Allunits inRMbillion, exceptpercentages. (Source: Department ofStatistics) • The continuing development of the Oil and Gas Industry through the growth in exports of hydrocarbons will create and stimulate demand for oil and gas supporting services.

 

5.5 Market Price of Crude Oil • Crude oil is a globally traded commodity whose price is determined by the market. The market price of crude oil would, among others, affect the level of exploration, development and production activity, which would in turn affect demand for oil and gas supporting services. Global Monthly Crude Oil Spot Price Index (January 2008 = 100) Jun-08 = 144.0150 100 50 Feb-09 ‘= 42.0 O+—..—–,—,—-r—-r—r-­Jan-OB Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
(Source: United States (U.s.) Energy Information Administration, computed by Vital Factor Consulting Sdn Bhd) Carimin Petroleum Berhad Page 20 of38 Industry Assessment 154 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • The global monthly crude oil spot price index reached a peak of 144.0 points in June 2008. The index then declined sharply, driven by the global economic crisis, and reached a low of 42.0 points in February 2009. The global monthly crude oil spot price index has since recovered somewhat, attributed mainly to supply concerns stemming from crises in Libya and Ukraine, and fear of disruption in exports from the Middle East region. The index stood at 111.4 points as at July 2014.
• Sustained high market price for crude oil should continue to drive hydrocarbon producers in Malaysia and other producing countries to maintain production by developing new fields, including marginal oil fields. Efforts to maintain and increase production are also likely to encourage continued exploration activity and the development of new fields. This increase in activity is likely to sustain demand for oil and gas supporting services.
• Conversely, a sustained drop in market prices may lead to a decline in exploration, development and production activities, which is likely to reduce demand for oil and gas supporting services.

5.6 Oil and Gas Mining Activity • The gross output value of the oil and gas mining sector measures the value of crude oil and condensates, and natural gas extracted, which may be used to assess the level of upstream activities. Gross Output Value of the Oil and Gas Mining Sector AAGR 2008-12 2008 2009 2010 2011 2012 (% Gross Output Value (RM billion) .. 130.4 91.2 ·98.1 109.2 109.4 -4.3 (Source: Department ofStatistics) • Between 2008 and 2012, gross output value declined at an average annual rate of 4.3%, from RM130.4 billion in 2008 to RM109.4 billion in 2012.
• The gross output value of the oil and gas mining sector is reflective of the performance of the average production of hydrocarbons (as depicted in Section 5.2 of this report) and market price of crude oil (as depicted in Section 5.5 of this report). For instance, the significant increase in gross output value of the oil and gas mining sector in 2008 was in line with the growth in average production of hydrocarbons and market price of crude oil during the year.

Carimin Petroleum Berhad Page 21 of38 Industry Assessment 155
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 6. COMPETITIVE ANALYSIS

6.1 Nature of Competition in the Industry • In general, operators in the Oil and Gas Supporting Services Industry in Malaysia face nonnal competitive conditions, which is similar to a free enterprise environment characterised by the following:
There are no undue Government regulations or licensing requirements; The industry is not dominated by a single or small number of operators; Operators may enter and leave the industry freely; No single or small group of operators is large enough to dictate pricing.

• However, operators in the Oil and Gas Supporting Services Industry

are subjected to the following conditions: Only operators that are licensed or registered by PETRONAS are allowed to bid directly for work provided by PETRONAS and PSC operators and contractors in the Oil and Gas Industry; Operators that wish to carry out any construction work in Malaysia must be registered with the· Construction Industry Development Board (CIDB).
6.2 Factors of Competition • As with most free enterprise environment, the factors that are used to compete and to differentiate one operator from another include the following:
PETRONAS licensing and registration; Access to qualified personnel; Technical expertise; Product and service quality; Compliance with customers’ specifications and requirements; Market reputation and track record.

• PETRONAS Licensing and Registration

Companies wishing to participate in the Oil and Gas Industry in Malaysia are required to obtain PETRONAS licences, or to be successfully registered with PETRONAS, as providers of specified products and services. The possession of these licences or registrations is a fundamental requirement for direct entry and participation. Carimin Petroleum Berhad Page 22 oj38 Industry Assessment 156 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions •  Access to Qualified Personnel  Oil and gas supporting services providers with an extensive database of qualified personnel including engineers and technicians have an advantage over other operators. The provision of oil and gas supporting services such as offshore hook up and commissioning, and production platform system maintenance services, and the fabrication of structures and equipment require personnel with the relevant technical expertise, experience and qualifications.  •  Technical Expertise  The provision of oil and gas supporting services such as offshore hook up and commissioning, production platform system maintenance and upgrading services, and fabrication of structures and equipment require a certain level of technical knowledge and skill. Having the necessary technical knowledge and skills is essential and they include product design and development, and quality inspection to ensure compliance to customers’ requirements.  •  Product and Service Quality  Product and service quality is an important factor of competition, which affects the reputation of oil and gas supporting services providers. The quality of the work is assessed based on factors such as timely delivery of the project, absence of faults or defects in the work carried out, adherence to safety requirements, and the reliability and competency of the qualified engineers, technicians and other personnel.  •  Compliance with Customers’ Specifications and Requirements  Operators must comply with their customers’ specifications and requirements in supplying supporting products and services to fulfil a particular contract. Participation in projects within the Oil and Gas Industry in Malaysia is generally based on tenders. A tender bid must firstly comply with the technical specifications and requirements ofthe project before its commercial bid is considered.  •  Market Reputation and Track Record  Track record and market reputation are important for operators in the Oil and Gas Supporting Services Industry. Customers need assurance of service quality, and would normally select operators with an established market reputation and track record.
Carimin Petroleum Berhad Page 23 of38 Industry Assessment 157
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 6.3 Operators in the Industry 6.3.1 Offshore Hook Up and Commissioning • The main operators engaged in the provision of offshore hook up and commissioning services for the Oil and Gas Industry in Malaysia are listed in the following table and segmented by tier ranked by their total company/group revenue. The table also summarises their capabilities. Main Operators in the Provision of Offshore Hook up and Commissioning Services Segmented by Tier and Ranked by Total Revenue

..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j  ..j
..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j ..j Notes: OSV = Offshore Support Vessel; *Now part ofthe Barakah Offihore Petroleum Berhad; ” Formerly known as Ramunia Holdings Berhad. The table above provides a list of the main operators that are engaged in the provision of offshore hook up and commissioning services for the Oil and Gas Industry in Malaysia, and is not an exhaustive list of all operators. Carimin Petroleum Berhad Page 24 of38 Industry Assessment 158 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions All the operators listed above also undertake other activities in addition to hook up and commissioning. Tier I operators are the leading operators in the sector, and Tier 2 operators are other main operators. The ranking of operators within each tier is based on the latest available total company or group revenue. Total revenue comprises revenue derived from the provision of offshore hook up and commissioning services, as well as revenue from other activities. The tiers and ranking by total revenue provides an indication of the relative size of Carimin Petroleum Group compared to other operators in the sample. 6.3.2 Production Platform System Maintenance • The main operators engaged in the provision of production platform system maintenance services for the Oil and Gas Industry in Malaysia are listed in the following table and segmented by tier ranked by their total company/group revenue. The table also summarises their capabilities. Main Operators in the Provision of Production Platform System Maintenance Services Segmented by Tier and Ranked by Total Revenue Production Platform System Maintenance Services SapuraKencana Petroleum Berhad Dayang Enterprise Holdin s Bhd Petra Energy Berhad

Notes: * Now part of the Barakah Offshore Petroleum Berhad; 1\ Formerly known as Ramunia Holdings Berhad. Carimin Petroleum Berhad Page 25 of38 Industry Assessment 159 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions The table above provides a list of the main operators that are engaged in the provision of production platform system maintenance services for the Oil and Gas Industry in Malaysia, and is not an exhaustive list of all operators. All the operators listed above also undertake other activities in addition to production platform system maintenance services. Tier 1 operators are the leading operators in the sector, and Tier 2 operators are other main operators. The ranking of operators within each tier is based on the latest available total company or group revenue. Total revenue comprises revenue derived from the provision of production platform system maintenance services, as well as revenue from other activities. The tiers and ranking by total revenue provides an indication of the relative size of Carimin Petroleum Group compared to other operators in the sample. 6.3.3 Manpower Supply • The main operators engaged in the provision of manpower supply services for the Oil and Gas Industry in Malaysia are listed in the following table and segmented by tier ranked by their total company/group revenue. The table also summarises their capabilities. Main Operators in the Provision of Manpower Supply Services Segmented by Tier and Ranked by Total Revenue
..j ..j ..j ..j ..j ..j ..j ..j ..j ..j 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions The table above provides a list of the main operators that are engaged in the provision of manpower supply services for the Oil and Gas Industry in Malaysia, and is not an exhaustive list of all operators. Some the operators listed above also undertake other activities in addition to manpower supply services. Tier 1 operators are the leading operators in the sector, and Tier 2 operators are other main operators. The ranking of operators within each tier is based on the latest available total company or group revenue. Total revenue comprises revenue derived from the provision of manpower supply services, as well as revenue from other activities. The tiers and ranking by total revenue provides an indication of the relative size of Carimin Petroleum Group compared to other operators in the sample.

6.3.4 Minor Fabrication • The fabrication sector of the Oil and Gas Industry in Malaysia is segmented into two tiers, namely major and minor fabricators. Major fabricators are operators that are licensed by PETRONAS to carry out Major Offshore Fabrication -Offshore Facilities. The major fabricators in Malaysia include the following (listed in alphabetical order):
Boustead Heavy Industries Corporation Bhd (through subsidiary Boustead Penang Shipyard Sdn Bhd); Brooke Dockyard and Engineering Works Corporation; Malaysia Marine and Heavy Engineering Sdn Bhd; Muhibah Engineering (M) Bhd; SapuraKencana Petroleum Berhad (through subsidiary HL Engineering (M) Sdn Bhd); Sime Darby Berhad (through subsidiary Sime Darby Engineering Sdn Bhd); TH Heavy Engineering Berhad (formerly known as Ramunia Holdings Berhad).

• There are many minor fabricators for the Oil and Gas Industry, and many of them also undertake fabrication for non-oil and gas applications such as fabricating palm oil processing plants.
• Carimin Petroleum Group is a small player in the minor fabrication sector. Many of its fabrication works are to support its own in-house services especially in the provision of production platform system maintenance services.

7. GOVERNMENT REGULATIONS 7.1 Government Legislations and Policies • Some of the regulations and policies applicable to oil and gas supporting services providers are as follows: Carimin Petroleum Berhad Page 27 of38 Industry Assessment 161 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 7.1.1 PETRONAS Licensing and Registration • All rights related to the exploration and extraction of petroleum in Malaysia is vested in PETRONAS under the Petroleum Development Act 1974. PETRONAS was also granted control over the carrying on of downstream activities and development relating to petroleum and its products under the Petroleum Development Act 1974.
• All companies wishing to participate in the Oil and Gas Industry in Malaysia are required to obtain the necessary licences or successfully register with PETRONAS before they are allowed to participate in any oil and gas activities.
• Companies that have obtained a licence to supply any products or services specified under the Standardised Work and Equipment Categories (SWEC) are allowed to participate in the upstream sector, downstream sector and maritime sector ofthe Oil and Gas Industry.
• Companies that are registered in a SWEC are only allowed to participate in the downstream sector and maritime sector of the Oil and Gas Industry. Registered companies are not allowed to participate in the upstream sector.

(Source: PETRONAS) 7.1.2 Registration with the Construction Industry Development Board • It is mandatory under the Act of Parliament Act 520 (Act 520) for all builders, contractors and sub-contractors, whether local or foreign, to be registered with the Construction Industry Development Board Malaysia (CIDB) before undertaking or executing any construction work in Malaysia. (Source: Construction Industry Development Board) 7.2 Environmental Regulations • The fabrication activities carried out by Carimin Petroleum Group do not result in any material environmental impact in terms of generating effluent.
• The Group generates bulk waste in the form of scrap steel during the normal course of its fabrication activities. This does not result in any material environmental impact, as scrap steel may be collected and sold to scrap dealers for eventual recycling.

Carimin Petroleum Berhad Page 280/38 Industry Assessment 162 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 8. THREAT OF SUBSTITUTES 8.1 Offshore Hook Up and Commissioning, Production Platform System Maintenance and Upgrading Services • In general, there are no practical substitutes for offshore hook up and commissioning, production platform system maintenance and upgrading services. Offshore production platforms are installed on­site, and hook up and commissioning services are required before they can become operational.
• The structure, machinery and equipment found on production platforms require maintenance to ensure safe and efficient operations, and to minimise the risk of failure. Operators may also upgrade production platform systems from time to time to maintain or enhance production.

8.2 Manpower Supply • A potential substitute for the provision of manpower supply services exists, whereby operators in the Oil and Gas Industry source and hire the manpower resources on their own without engaging the services of third party manpower suppliers.
• However, operators that engage third parties for the prOVlSlon of manpower supply may be able to benefit from the following advantages:

These service providers usually have access to a large database, and can identify the relevant personnel required for a particular project; Cost effective as relevant personnel are engaged on a project to project basis, and not employed on a permanent basis; Provides flexibility to operators that require manpower resources on a short-term basis; Minimise deviation from the operator’s core competencies as the search for manpower resources is undertaken by the service provider; Minimise delays in completing a particular project due to lack of manpower resources as these service providers are usually able to provide fast hiring capabilities. Carimin Petroleum Berhad Page 29 0/38 Industry Assessment 163 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 8.3 Minor Fabrication • In general, there are no practical substitutes for minor fabrication services. In many instances, the structures and equipment used in the Oil and Gas Industry have to be designed and fabricated as they have to meet specific requirements in terms of, for example, dimensions, function and performance characteristics. 9. RELIANCE ON AND VULNERABILITY TO IMPORTS 9.1 Offshore Hook Up and Commissioning, and Production Platform System Maintenance and Upgrading Services • The main materials used in the provision of offshore hook up and commissioning mainly comprise iron and steel products, and tools and equipment. Although most of these items are locally available, there are certain iron and steel products for which grades and specifications are not produced locally. As a result, operators in the Oil and Gas Supporting Services Industry are reliant on imports for the supply of specialised steel products that are not available locally. Nevertheless, these products can usually be obtained from a number of overseas suppliers, which reduces the risk of a supply disruption.
• In general, production platform system maintenance and upgrading services are not vulnerable to competition from imports or overseas suppliers as the provision of these services are tied to a specific location. It is typically not practical to send machinery, equipment or components that require maintenance to overseas service providers due to the time involved. These items are usually only sent to overseas service providers if there are no facilities to maintain them in Malaysia. Production platform system upgrading usually involves the installation of equipment or components at the production platform, which reduces the practicability of sending items to overseas service providers.
• Operators involved in providing production platform system maintenance and upgrading services are, to a certain extent, reliant on imports, particularly for the supply of machinery, equipment, parts and components that are not manufactured in Malaysia.
• In some cases, the origin of replacement parts and components for some machinery and equipment are specified by the machinery and equipment’s original manufacturer. Equipment and components used in upgrading may also be specified by the production platform operator. In some cases, these equipment, parts and components are not manufactured in Malaysia.

Carimin Petroleum Berhad Page 30 0/38 Industry Assessment 164 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Local operators who have long business relationships with international suppliers can mitigate their vulnerability to a disruption in imports. 9.2 Manpower Supply • In general, the Oil and Gas Industry requires professionals with specialised technical expertise, knowledge, skills and experience that are able to perform specific tasks such as geoscience and petroleum engineering, core and fluid sample analysis, engineering design and offshore installation.
• Currently, Malaysia does not have a large pool of locally trained professionals to undertake these specialised tasks. As such, a large proportion of the manpower resources employed by local oil and gas companies are foreign nationals. Thus, oil and· gas operators in Malaysia are dependent on specialised skilled foreign workers.
• Nevertheless, due to the diversity of skills required for the full spectrum of the Oil and Gas Industry, it is common for oil and gas companies to source specialised skilled personnel from other countries to complement their local workforce. Thus, there are pools of skilled workers who are available to work virtually anywhere in the world.

9.3 Minor Fabrication • Steel products are the main materials used by providers of minor fabrication services for the Oil and Gas Industry. Although many steel products are produced locally, there are certain grades and specifications that are not produced locally. As such, operators have to rely on imports for the supply of these grades and specifications.
• These steel products are generally available for a number of different countries and suppliers, which reduces the risk of a supply disruption and reliance on a single supplier or country.

10. INDUSTRY PROSPECTS AND OUTLOOK • The prospects and outlook of the Oil and Gas Supporting Services Industry is expected to be generally favourable. This is based on the following factors: Performance ofthe Oil and Gas Industry; Economic conditions; Development of marginal oil fields; Global market price ofhydrocarbons.
Carimin Petroleum Berhad Page 310/38 Industry Assessment 165 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 10.1 Performance of the Oil and Gas Industry • The overall performance of the Oil and Gas Industry will have a direct impact on operators providing supporting services to the Oil and Gas Industry.
• The performance of the Oil and Gas Industry in recent years was as follows:

Growth Rate of Selected Oil and Gas Industry Indicators Growth (%) Oil and Gas Fields in Operation(l) . 6.5 Total Investment in Upstream Activities(l) . 32.9 Average Production of Oil and Gas(l) .. 1.9 Oil and Gas Reserves(2) . 4.4 Notes: (1) As at 31 December 2012; (2) As at 1 January 2013. (Source: PETRONAS) 10.2 Economic Conditions • A growing economy provides the impetus for private and public spending, which will have a positive flow-on effect to the Oil and Gas Supporting Services Industry. Between 2009 and 2013, real GDP of the Malaysian economy grew by an AAGR of 5.7%; In 2013, the Malaysian economy registered a real GDP growth of4.7%; As for 2014, real GDP for Malaysia is forecasted to grow between 4.5% and 5.5%.
(Source: Bank Negara Malaysia) 10.3 Development of Marginal Oil Fields • The development of marginal oil fields would spur the growth in upstream activities. In tum, this would have a positive impact on the Oil and Gas Supporting Services Industry.
• Under the Economic Transformation Programme (ETP), the Government had identified the development of small or marginal oil fields, which are fields that contain reserves of 30 million BOE or less, as one of the strategies for combating the decline in oil and gas production in Malaysia.

Carimin Petroleum Berhad Page 320/38 Industry Assessment 166 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Some of the measures that PETRONAS plans to implement to promote marginal oil field development include: Introducing new petroleum agreements such as RSC to provide economic incentives to the contracted party; Attracting exploration and production operators that specialise in marginal oil fields. (Source: Economic Transformation Programme) • As at August 2014, six RSC have been awarded for the development and production of the Berantai field, Balai Cluster, the Kapal, Banang and Meranti cluster, Tembikai marginal field, Tanjung Baram marginal field, and Ophir small field. 10.4 Global Market Price of Hydrocarbons • In general, the level of exploration, development and production activity in the Oil and Gas Industry are affected by the global market price of hydrocarbons. This in turn will affect the level of demand for oil and gas supporting services.
• Between January 2009 and July 2014, the global monthly crude oil spot price index had increased by 148.4%, to 111.4 points. During this period the global monthly crude oil spot price index reached a high of
117.8 points in April 2011. (Source: Us. Energy lriformation Administration, computed by Vital Factor Consulting Sdn Bhd)
• Global market prices for hydrocarbons that are sustained at a relatively high level are likely to encourage exploration, development and production activities. Consequently, this will help to drive demand for oil and gas supporting services such as offshore hook up and commissioning, and production platform system maintenance and upgrading, manpower supply services, and minor fabrication services.

11. THREATS AND RISK ANALYSIS 11.1 Global Economic Slowdown • Any widespread and/or prolonged economic slowdown would affect consumer and business confidence, and subsequently their propensity to spend. The uncertainty over the global economies, particularly resulting from the euro zone debt problem, may also impact on the local economy. This slowdown would ultimately affect the demand for oil and gas supporting services. Carimin Petroleum Berhad Page 33 0/38 Industry Assessment 167 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions Mitigating Factors • Various initiatives introduced by the Government such as the ETP, particularly the implementation of various entry point projects (EPP) under the oil, gas and energy banner, will continue to provide opportunities for the Oil and Gas Supporting Services Industry.
• These initiatives are expected to generate domestic business activities and domestic consumption, which will in turn help counter the slowdown in the local economy.

11.2 Sustained Fall in the Market Price of Hydrocarbons • Hydrocarbons, including crude petroleum and natural gas, are internationally traded commodities that are subject to price fluctuations. Geopolitical factors, economic conditions and unforeseen supply disruptions may also influence the market price of hydrocarbons.
• Activities in the Oil and Gas Industry are, to some degree, affected by
fluctuations in the market price of hydrocarbons, for instance: Activities tend to increase during periods of sustained high hydrocarbon prices. This is due to elevated production activity, as well as increased activity in exploration and development; Activities tend to decline during periods of sustained low hydrocarbon prices. This is due to lower production activity, as well as temporarily reducing or shutting down production from reserves that are no longer commercially viable. Exploration activity, however, will still continue.
• There is a risk that sustained low price of hydrocarbons will negatively affect activities in the Oil and Gas Industry, leading to lower demand for oil and gas supporting services.

Mitigating Factor • The Organization of the Petroleum Exporting Countries (OPEC), a grouping that includes many of the world’s largest oil producing nations, has some influence on the price of oil through their control of a sizeable proportion ofthe world’s production capacity and reserves.
• Although the influence of OPEC over the market price of oil is not absolute, the grouping has a vested interest in ensuring that oil prices do not collapse, and as such are likely to actively attempt to sustain oil prices at an “acceptable” level.

Carimin Petroleum Berhad Page 340/38 Industry Assessment 168 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 11.3 Depletion of Hydrocarbon Resources • All hydrocarbon deposits are non-renewable where it is not possible to regenerate hydrocarbons within a reasonable timeframe once they have been extracted. As such, hydrocarbon resources in all hydrocarbon­producing regions, including Malaysia, will eventually be depleted.
• It is likely that demand for oil and gas supporting services in Malaysia will be affected should there be a decline in upstream activities brought about by the depletion of hydrocarbon resources.

Mitigating Factors • The National Depletion Policy in Malaysia, which was introduced in 1980 to conserve oil and gas resources by imposing production limits, will ensure that extraction is carefully managed and sustainable over the long term.
• The relatively long period of time before current reserves of hydrocarbons in Malaysia are expected to be completely depleted enables operators in the Oil and Gas Industry, including oil and gas supporting services providers, to continue to provide their services locally and pursue new areas of growth including other industries and overseas markets.
• In addition, current reserve estimates generally tend to be conservative and may underestimate the actual amount of hydrocarbons that are ultimately extracted, as they do not take into account the following:
The existence ofcurrently undiscovered hydrocarbon reserves; Technological advances that increases the amount of hydrocarbons that may be commercially extracted from existing reserves; Technological advances that enable production from previously inaccessible regions.

• As such, activities in the overall Oil and Gas Industry may very well continue beyond the current estimated date of complete hydrocarbon reserve depletion.

11.4 Change in PETRONAS’ Policy • A fundamental change in PETRONAS’ policy with regards to regulating the Oil and Gas Industry in Malaysia may come about through the liberalisation ofthe Oil and Gas Industry. Carimin Petroleum Berhad Page 35 0/38 Industry Assessment 169 7. INDUSTRY OVERVIEW (Cont’d) Q
12.
VITAL FACTOR CONSULTING Creating Winning Business Solutions • PETRONAS may liberalise the Oil and Gas Industry in Malaysia by: Removing licensing requirements for the provision of supporting products and services; Loosening licensing requirements such that it becomes easier to obtain a licence; Allowing foreign suppliers to operate in Malaysia without the need to operate with a local partner and other restrictions.
• Liberalising the Oil and Gas Industry in this manner will negatively impact incumbent service providers by increasing competition in the industry.

Mitigating Factors • Currently, operators that meet the licensing and registration requirements compete with other operators based on commercial, technological and other factors. In the event of any liberalisation, existing service providers would not be significantly worse off as they are already operating in a competitive environment. DRIVERS OF GROWTH • Some of the drivers of growth for the Oil and Gas Supporting Services Industry are as follows: PETRONAS’ policy of promoting and encouraging the participation of local operators in the Oil and Gas Industry in Malaysia and overseas markets, where PETRONAS has exploration and production ventures, would provide opportunities to these operators to service the local market and support PETRONAS’ foreign operations. Government initiatives such as the development of marginal oil fields and rejuvenation of existing fields through enhanced oil recovery (EaR) techniques as reflected in the ETP will continue to provide growth opportunities for operators within the Oil and Gas Supporting Services Industry. Technological advances that contribute to the discovery of new reserves, enhance and optimise production efficiency, improve hydrocarbon recovery from marginal fields, or enable production to take place in previously inaccessible areas are likely to increase demand for oil and gas supporting services. Carimin Petroleum Berhad Page 36 0/38 Industry Assessment 170 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions On-going discovery of new reserves including the development of deepwater resources will stimulate demand for products and services to support exploration, development and production activities. Sustained good market price for hydrocarbons would encourage hydrocarbon producers to maintain production at a high level, or even to increase production by developing new fields. Consequently, these efforts are likely to drive growth in the demand for oil and gas supporting services. 13. CRITICAL SUCCESS FACTORS • PETRONAS licensing and registration: Companies that wish to operate in the Oil and Gas Industry in Malaysia are required to obtain PETRONAS licences, or to be successfully registered with PETRONAS, as providers of specified products and services.
• Quality of products and services: To ensure business sustainability, operators must be able to continually meet and deliver quality products and services to their customers. Operators that have obtained formal quality accreditations are able to provide proof of product or service quality, which would provide assurance to their customers.
• Range of supporting services: Operators that are able to provide various supporting services to the Oil and Gas Industry such as offshore hook up and commissioning, and production platform system maintenance and upgrading services, manpower supply, and fabrication services are in a better position to cater to diverse customer requirements.
• Health, safety and environment (HSE) management: HSE management is one of the key factors for operating in the Oil and Gas Industry in general. Oil and gas supporting services providers that possess a good HSE record in terms of low occurrence of work-related accidents, injuries and lost-time incidents are more likely to secure projects from their customers.
• Track record and market reputation: Operators with an established track record and market reputation would be in a better position to win the confidence and trust of potential customers and, at the same time, create customer loyalty to sustain and grow their business.

Carimin Petroleum Berhad Page 37 of38 Industry Assessment 171 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 14. MARKET SIZE AND SHARE 14.1 Market Size • In 2012, the overall level of investment made in exploration, development and production activities in Malaysia was RM40.0 billion. The breakdown of the investment is as follows: RM22.9 billion for development and production activities; RM3.7 billion for exploration activities; RM13.4 billion as operational expenditure.
(Source: PETRONAS) • In 2013, the overall level of investment made in exploration, development and production activities in Malaysia was estimated at RM42.5 billion. (Source: Estimated by Vital Factor Consulting Sdn Bhd) 14.2 Market Share • In 2013, Carimin Petroleum Group had an estimated market share of approximately one percent of the total investment made in exploration, development and production activities in Malaysia. The Group’s market share was estimated by dividing the Group’s total revenue for the financial year ended 30 June 2014 (which amounted to RM245.6 million) by the estimated overall investment of RM42.5 billion. (Source: Computed by Vital Factor Consulting Sdn Bhd) We, Vital Factor Consulting Sdn Bhd, have prepared this report in an independent and objective manner and have taken all reasonable consideration and care to ensure the accuracy and completeness of the report. It is our opinion that the report represents a true and fair assessment of the industry within the limitations of, among others, secondary statistics and information, and primary market research. Our assessment is for the overall industry and may not necessarily reflect the individual performance of any company. We do not take any responsibilities for the decisions or actions of readers of this document. This report should not be taken as a recommendation to buy or not to buy the shares of any company. Yours sincerely
Wooi Tan Managing Director Carimin Petroleum Berhad Page 38 of38 Industry Assessment 172

 

 

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