Industry Overview

 

7. INDUSTRY OVERVIEW o VITAL FACTOR CONSULTING Creating Winning Business Solutions Vital Factor Consulting Sdn Bhd (Company No.: 266797-T) V Square @ PJ City Centre (VSQ) 3 November 2014 Block 6 Level 6, Jalan Utara 46200 Petaling Jaya Selangor, Malaysia The Board of Directors Tel (603) 7931 3188 E.A. Technique (1\11) Berhad Fax (603) 79312188 Setiawangsa Business Suites Email: enquiries@vitalfactor.com Unit C-3A-3A Website: www.vitalfactor.com NO.2 Jalan Setiawangsa 11 Taman Setiawangsa 54200 Kuala Lumpur Dear Sirs Independent Assessment of the Marine Transportation and Support Services of the Oil and Gas Industry in Malaysia
The following is an Independent Assessment of the marine transportation and support services of the oil and gas industry in Malaysia prepared by Vital Factor Consulting Sdn Bhd (Vital Factor Consulting) for inclusion in the prospectus of E.A. Technique (M) Berhad (herein together with all or anyone or more of its subsidiaries will be referred to as “E.A. Technique Group” or the “Group”) in relation to its initial public offering of the entire issued and paid-up share capital of E.A. Technique (M) Berhad on the Main Market of Bursa Malaysia Securities Berhad. This report will focus on product tankers, offshore support vessels and port marine services within the marine transportation and support services segment for the oil and gas industry to reflect E.A. Technique Group’s main business activities. All references to tankers in this report refer to marine based tankers unless specified otherwise. All references to ports and terminals refer to sea ports and terminals. 1. OVERVIEW OF THE OIL AND GAS INDUSTRY 1.1 Industry Structure Oil and Gas Industry
; , Exploration • Platform and rig operations • Appraisal :’: ‘Accommodation and catering ; Development • {~eologicarand reservoir related services • Production ,’Maintenance services ,.—_.. ———…, —————————­::’Milrihe transportation and support services : L:’ _: .. .. _:.. .. …: .. I .’ Safety applications and systems • Transportation , Information technology and communications , Engineefing; design and architectural • Drilling services ” OffShore construction activities • Refining and Processing , Underwater services • Distribution , Others E.A. Technique (M) Berhad Page 1 of 52 Industry Assessment 98
7. INDUSTRY OVERVIEW (Cant’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • The overall oil and gas industry is segmented into upstream, midstream and downstream sectors. (i) Activities commonly undertaken within the upstream sector include the following: Exploration activities are those that are related to the investigation of a specific area to determine if there are hydrocarbon deposits in that area. Appraisal activities incorporate a number of geological and engineering activities to quantify the size of hydrocarbon deposits and to determine characteristics of the reservoirs and hydrocarbon. Development activities are undertaken to bring economically viable but previously untapped hydrocarbon reserves into production, as well as activities undertaken to significantly expand production capacity at an existing production facility. Production activities relate to the extraction of hydrocarbons, from identified and developed reserves. Extracted hydrocarbons are either in liquid or gaseous form, where the liquid form refers to petroleum while the gaseous form refers to natural gas. Note: The term “hydrocarbon” used in this report refers to oil and gas. (ii) The midstream sector comprises activities relating to the transportation of the extracted hydrocarbons from production facilities to distant storage, refining and processing facilities. Transportation includes installation, maintenance and operation of onshore and offshore hydrocarbon pipelines, and operation of transport vessels. (iii) The downstream sector comprises activities relating to the refining, processing and distribution of hydrocarbons: Refining and processing activities are related to transforming the 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 from the crude petroleum, while natural gas refining primarily involves the purification and liquefaction of natural gas to facilitate transportation, storage and usage. Distribution comprises activities that are related to the transportation, storage and distribution of refined and treated hydrocarbons to users. • Supporting services comprise a diverse range of services that facilitate operations and to support oil and gas companies and contractors in the upstream, mid-stream and downstream sectors of the oil and gas industry. They include, among many others, drilling, geological studies, extraction, fabrication, marine transportation, hook-up and commissioning services, platform maintenance and manpower supply. EA. Technique (M) Berhad Page 20f52 Industry Assessment 99
7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • The marine transportation and support services cover the transportation of personnel, equipment and supplies as well as extracted oil and gas, and refined petroleum products over water. Marine transportation and support services are used in the upstream, midstream and downstream sectors of the oil and gas industry.
• E.A. Technique Group operates within the marine transportation and support services segment where their customers operate primarily in the upstream and downstream segments of the oil and gas industry. This includes the following:
(i) The provision of product tankers to transport refined petroleum products.
(ii) The provision of offshore support vessels (OSV) through the use of fast crew boat for the transportation of personnel.

(iii) The provision of port marine services through the use of tugboats for towing and mooring of vessels and other floating structures within port areas.
• Within the oil and gas industry, a small proportion of the Group’s activities is also involved in the provision of floating storage unit (FSU), and liquefied petroleum gas (LPG) tankers.

1.2 Marine Transportation and Support Services 1.2.1 Overview • Marine transportation for the oil and gas industry is primarily focussed on tankers and offshore support vessels (OSV).
• Tankers are used for transportation of oil and gas from one location to another. Tankers are used when it is not economically viable to construct oil and gas pipelines, or it is more economical compared to using land transportation.
• OSV on the other hand is used for the transportation of goods and people, as
well as to support a wide range of offshore activities including the following: towage, positioning and mooring of structures and barges; installation, maintenance and repair of structures including rigs, platforms, FPSO, mooring systems, pipelines and subsea structures; hook-up and commissioning; operation of exploration, appraisal, development and production facilities; seismic surveys and subsea works.
• Other marine vessels whose primary functions are not transportation include floating storage unit (FSU), floating production storage and offloading (FPSO), mobile offshore production unit (MOPU) and drillship. However, in some situations, FSU and FPSO are modified from either crude oil tankers or product tankers.

E.A. Technique (M) Berhad Page 3 0’52 Industry Assessment 100 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 1.2.2 Product Tankers • Typically, tankers are used to transport bulk oil and gas comprising crude oil, refined petroleum products, Liquefied Natural GCjs (LNG) and Liquefied Petroleum Gas (LPG). Crude Oil Tankers

 

o Types of tankers operated by E.A. Technique Group • Product tankers are used for the transportation of refined petroleum products from oil refineries to end-user markets or to another refinery for further processing. This is in contrast to crude oil tankers, which carry unrefined petroleum products and are typically very much larger in size.
• There are essentially two types of product tankers:

Clean petroleum product (CPP) tankers are designed to carry refined petroleum products such as jet fuel, gasoline and naphtha. CPP tankers have specially coated tanks to prevent corrosion from refined oil products and to facilitate ease of cleaning of tanks. Dirty petroleum product (OPP) tankers refer to vessels that are designed to carry heavy fuel oils or sometimes also crude oil. While CPP tankers may be used to transport OPP, it is not a simple process for OPP tankers to transport CPP. This is because OPP tankers will need to go through a thorough process of cleaning, and will also need to have a special coating before they can transport CPP. • Chemical tankers are mainly used for transportation of petrochemicals within the oil and gas industry, and other types of organic and inorganic chemicals, as well as liquid food products like fruit juices, vegetable oils and molasses. Chemical tankers have coated or stainless steel or other types of metal tanks to prevent corrosion as well as for food hygiene and safety purposes. Coatings on chemical tankers are commonly equal or higher specifications compared to product tankers. As such, chemical tankers with coatings may be used to carry CPP. EA. Technique (M) Berhad Page 4 of 52 Industry Assessment 101 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • In Malaysia, some product tankers are registered as oil tankers or chemical tankers.
• Tankers are measured mainly by their carrying capacity of deadweight tonne (OWT), which is the maximum capacity weight it can carry. Product tankers are typically smaller in size compared to crude oil tankers. In Malaysia, many of the product tankers that ply the coastal sea are typically within the 10,000 OWT range compared to ultra large crude carriers (ULCC) at about 350,000 OWT.
• According to requirements issued by the International Maritime Organisation (IMO), all oil tankers of 5,000 OWT or more are required to be fitted with double hulls or alternative designs that are approved by IMO.

1.2.3 Offshore Support Vessels • OSV play an important role in supporting offshore oil and gas activities in upstream exploration, appraisal, development and production activities, as well as midstream activity of pipeline transportation of hydrocarbons. The types of OSV commonly used are listed in the diagram below:
Note: Crew boats are used by E.A. Technique Group. Tugboats are used by E.A. Technique Group to provide port marine services. • A significant proportion of OSV used in the offshore oil and gas industry is focussed on anchor handling tllg and supply (AHT/S) vessels. This is because AHT/S are versatile vessels and are used to provide supporting services to the offshore oil and gas industry including towing and positioning of floating structures, as well as transportation of equipment, goods and supplies between land and offshore structures or between offshore structures.
• Crew boats are used primarily to transport personnel and light cargoes between onshore and offshore structures. Commonly crew boats are equipped with high powered engines for speedy transportation.

E.A. Technique (M) Berhad Page 5 of 52 Industry Assessment 102 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR COI\lSULTING Creating Winning Business Solutions
• Tugboats are part of the family of OSV. Tugboats are commonly used to manoeuvre other vessels or offshore structures in harbours, over the open sea or through rivers and canals, by towing or pushing. There are three kinds of tugboats, seagoing tug, harbour tug and river tug. Tugboats are measured by their brake horse power (bhp), whereby their engines typically produce between 700 bhp and 3,400 bhp. However, larger tugboats used in deep water have power ratings up to 25,000 bhp.
1.2.4 Port Marine Services • Port marine services are conducted to ensure safe and expeditious flow of traffic as vessels approached the berth. Towage, pilotage and mooring services are the main marine services conducted at ports. Harbour tugs are used for the provision of towing services at port. They are used to move vessels within the port areas due to crowding (in this context it means too many ships calling at one port simultaneously) and the shallower water depth in port areas. 2. GLOBAL AND REGIONAL MARINE TRANSPORTATION AND SUPPORT SERVICES
2.1 Tankers • Tankers are mobile structures that may be deployed to any offshore locations in the world. As such, subject to individual country’s regulations, the world’s capacity of tankers would have some impact on tankers, especially their charter rates, that are used in Malaysia. 2.1.1 Tanker Capacity World Fleet of Selected Vessels AAGR 2009-13 2009 2010 2011 2012 2013 % Oil Tankers ………….. 418 450 440 470 491 4.1
Chemical Tankers ‘” 19 212223235.1 Note: (1) Beginning ofyear figures
(2) All units in million DWT except percentages
(3) Oil tankers comprise crude oil and product tankers (Source: Secondary research by Vital Factor Consulting)

• As at beginning of 2013, the global capacity of oil tankers reached 491 million OWT. This tonnage includes oil tankers used for storage facilities and transportation of oil. In 1980, oil tankers represented approximately half of the world’s tonnage of vessels. In 2013, oil tankers represented 30% of the world’s tonnage of vessels. This was due to the significantly higher growth of other types of vessels, especially container ships, which has the effect of reducing the percentage of oil tankers against the total world’s tonnage of vessels. E.A. Technique (M) Berhad Page 6 of 52 Industry Assessment 103
7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • The general growth in oil tankers of 4.5% in 2013 in terms of DWT, and world oil demand which increased by 1.2% in 2013, will continue to provide opportunities for operators in the marine transportation and support services segment of the oil and gas industry. (Source: Secondary research by Vital Factor Consulting) 2.1.2 Age of Tankers Age Distribution of World Oil Tankers 45% 40%j 37% {! c 35% 34%33%(5 ‘0 30% j 25% 25% E:z z ! ~ 15%’0 8, ~ ., e 8? 0% 2009 2010 2011 2012 2013
11I0-4 years 05-9 years m10-14 years .15·19 years lID 20 years and above Note: (1) Beginningofyearfigures
(2) Oil tankers comprise crude oil and product tankers (Source: Secondary research by Vital Factor Consulting)

• The age of an oil tanker is an important factor from the demand side perspective as younger oil tankers are operationally more cost effective and incorporate more technological advances to increase efficiency and safety. In 2013, the average age of scrapping was approximately 17 years of age for oil tankers. Approximately 34% of the oil tankers in the world were 20 years of age and above in 2013. These old oil tankers (20 years or above) are likely to be laid-Up to undergo a special survey to determine if they are suitable for continuing commercial usage or scrap. The proportion of these old aged vessels of 20 years and above has been decreasing from 40% in 2009 to 34% in 2013. These were mainly due to the increase in scrapping as vessels become uneconomical, as they get older.
• Over the years, the proportion of young oil tankers (from 0 to 9 years) has been increasing from 37% in 2009 to 44% in 2013. The increase in younger vessels is attributed to an increase in newbuilding (newly constructed vessels), to either replace older vessels that were scrapped or single hull oil tankers taken out of service because of new maritime legislations. While the increase in young vessels indicate continuing opportunities for oil tankers, it also implies that competition is intensifying with more young vessels equipped with modern machinery and technology which are operationally more efficient compared to older vessels.

E.A. Technique (M) Berhad Page 7 of 52 Industry Assessment 104 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 2.1.3 Incoming Supply of Tankers • The incoming supply of oil tankers is represented by the world tonnage on order. The world tonnage on order indicates the total tonnage that has been ordered or commissioned but has yet to be delivered, for each respective years. World Tonnage on Order 200
c ~ 150 ~ til ~ c 100 -~.s:; 1Cl50 ~ o –_…._.———_..–_..-_ …-_…..-…. _….–_……—–…._………—–………._…_._-…—–.._-­o 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -Oil Tankers (AAGR: -2,0%) -···Other Ships (AAGR: 7.8%) Notes: (1) Beginning of year figures; (2) Tankers comprise crude oil and product tankers; (3) Other Ships comprise mainly liquefied petroleum gas carriers, liquefied natural gas carriers, parcel (chemical) tankers, specialized tankers, reefers, offshore supply, tugs, dredgers, cruise and ferries. (Source: Secondary research by Vital Factor Consulting)
• Orders for oil tankers have been declining since its peak in 2008, due to the global financial crisis. In early 2013, approximately 98.2% of the tonnage was in service, 0.5% used for long term storage, and the remainder being laid off or not in service for other reasons (Source: Secondary research by Vital Factor Consulting). E.A. Technique (M) Berhad Page 8 of 52 Industry Assessment 105 7. INDUSTRY OVERVIEW (Cont’d) (} VITAL FACTOR CONSULTING Creating Winning Business Solutions
2.1.4 Regional Oil Tankers Asia* Oil Tanker Capacity 120 113 “2 ~ i 80 Ul Gl C {!.-C ‘§, 40 ~ :g Q o 2011 2012 2013 raASEAN (AAGR: 4.7%)
* Comprised developing and developed economies in Asia. Notes: (1) Beginning ofyear figures
(2) Oil tankers comprise crude oil and product tankers (Source: Secondary research by Vital Factor Consulting)

• Oil tanker capacity in Asia has been increasing over the years having recorded an AAGR of 5.9% between 2009 and 2013. In 2013, oil tanker capacity reached 113 million DWT. The growth in capacity was in tandem with the growth in crude oil production and petroleum consumption in the Asian region over the years.
• Between 2009 and 2013, total number of oil tankers registered in Malaysia grew at an AAGR of 0.1 % to reach 206 oil tankers in 2013, while the total chemical tankers registered in Malaysia recorded a higher AAGR of 0.5% between 2009 and 2013. In 2013, there were 53 chemical tankers registered in Malaysia.
• The increase in crude oil production and demand in Asia for refined petroleum products would continue to spur demand for the marine transportation and support services segment of the oil and gas industry, including product tankers.

E.A. Technique (M) Berhad Page 9 of 52 Industry Assessment 106
7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 2.1.5 Charter Rates of Tankers 1-Year Time Charter Rates 3-Year Time Charter Rates VLCC = Very Large Crude Carriers (200,000-349,999 OWT): Suezmax (125,000-199,999 OWT); Panamax (50,000·79,999 OWT); Handy Size «50,000 OWT) Notes: 1) Most ofMalaysia’s product tankers fall within the Handy Size category of less than 50,000 OWT,’
2) 1-year time charter rate is the charter rate for a contract to use a tanker for 1 year. (Source: Secondary research by Vital Factor Consulting) • All sizes of oil tankers saw their rates fell as a result of the global financial crisis of 2009. Between 2009 and 2013, larger oil tankers experienced a significant downward trend in charter rates while smaller sized oil tankers like Handy Size oil tankers have been able to stabilise their charter rates from 2010 onwards. By 2013, charter rates of larger vessels have dropped from its height in 2009 to be at a level only slightly higher than the Handy Size oil tankers. This is despite the significantly larger capacity of the larger sized oil tankers compared to Handy Size oil tankers.
• Generally, charterers of vessels prefer long-term contracts when tanker charter rates are low, while ship owners prefer short term arrangements. However, in recent years, the charter rates of 1-year compared to 3-year time charter contracts saw very little difference.

Baltic Clean Tanker Index
60,000 45,000 ~ r·d l30,OOO .. CI ‘…. ‘\ ~ …………
15,000 0+—-.—….—-.—-.–­2009 2010 2011 2012 2013 -VLCC ..··..Suezmax -Panamax —Handy size .-..-.\._……,..,~~~~ 60,000 45,000 ~ .!: 30,000 a ……………………………………………………………….’.
CIJ ::> -_ — .. 15,000 —~~—–._ ..–:;; _ •,. 0+—,—-,—-..—-,—­2009 2010 2011 2012 2013 -VLCC ……Suezmax -Panamax “‘Handysize ….._” 1 “‘ • (Source: Secondary research and computed by Vital Factor Consulting) E.A. Technique (M) Berhad Page 10 of 52 Industry Assessment 107 7. INDUSTRY OVERVIEW (Cont’d)
o VITAL FACTOR CONSULTING Creating Winning Business Solutions
• The Baltic Clean Tanker Index (BCTI) provides an indication of the changes in the cost of transporting refined petroleum products based on per tonne basis and daily hire basis.
• The BCTI declined from 1,454 points in July 2008 to a low of 371 points in April 2009, mainly due to the entry of newly built vessels and a drop in demand for clean product tankers during the global economic crisis.
• Moving forward, the demand for tankers is expected to grow which can be attributed to expected growth in oil consumption in Asian countries such as China, and the projected growth in production from Middle Eastern countries. This is supported by the fact that long term world oil demand is expected to increase by close to 20 million barrels of oil per day (mb/d) from 88.9 mb/d in 2012 to an estimated 108.5 mb/d by 2035. The developing Asian countries including China and India is expected to account for approximately 88% of the 20 mb/d (Source: Secondary research by Vital Factor Consulting). However, many of these oil producing and consuming countries have invested in their own fleets of tankers, which would place competitive pressure on tanker operators.
• The outlook of the tanker charter rates are dependent on oil demand, production and industry developments, and thus, the expected growth in demand for tankers will have a positive flow on effect to the tanker charter rates. However, in the longer term, several factors such as changes in consumption patterns, the shifting of refineries from Western countries to Eastern countries and introduction of new energy efficiency measures may influence the tanker market.
• As such, operators including EA Technique Group, who have long term contracts would be insulated from competitive pressure until such time when their contract expires.

2.2 Gas Tankers • As EA Technique Group is involved in the provision of LPG tankers for the transportation of LPG, this section will examine the supply and demand for gas (including LNG and LPG) tankers, and the performance of some of the LPG products to provide an indication. 2.2.1 Gas Tanker Capacity World Fleet of Gas Tankers AAGR  2009-13  2009  2010  2011  2012  2013  %  LNG Tankers  .  22  26  28  29  29  6.9  LPG Tankers  ..  14  14  15  15  15  2.5
Note: (1) Beginning ofyear figures
(2) All units in million DWT except percentages (Source: Secondary research by Vital Factor Consulting)

EA. Technique (M) Berhad Page 11 of 52 Industry Assessment 108 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • As at beginning of 2013, the global capacity of gas tankers reached 44 million DWr. This tonnage includes LNG and LPG tankers. 2.2.2 Charter Rates of LPG Tankers • Charter rates of LPG tankers are dependent on the supply and demand of LPG tankers for the transportation of LPG products. The folloWing charts on monthly time charter rates for handysize and small pressurised LPG tankers within the 7,500 cubic metre (cbm), 5,000 cbm and 3,500 cbm categories, and Baltic LPG index provide an indication of world demand conditions. (Note: E.A. Technique Group operates handysize pressurised LPG tankers in the 3,500 cbm category) Monthly Time Charter Rates of Pressurized LPG Tankers
400,000 350,000 +—../
~ ~ Qi 300,000 a. o ~ 250,000 Dec-09 -7.500cbm(MGR: 0.7%) —·5.000cbm(MGR: 3.8%) –3.500cbm(MGR: 2.7%) Size of Vessels
cbm = cubic metre (Source: Secondary research by Vital Factor Consulting)
Baltic LPG Index 100 80 ~ 60 ‘0 a. >< Gl ~ 40 20 0+—–,—–.——,,.—–, Dec-2009 Dec-2010 Dec-2011 Dec-2012 Dec-2013
• Between December 2009 and December 2013, the monthly time charter rates for pressurised LPG tankers grew at an AAGR of 0.7%, 3.8% and 2.7% for 7,500cbm, 5,OOOcbm and 3,500cbm categories respectively.
• Overall the Baltic LPG Index, which maps the freight cost for the transportation of LPG, grew by an AAGR of 20.4% between December 2009 and December 2013. This positive growth augurs well for operators of LPG tankers as freight rates generally experience growth.

2.3 Offshore Support Vessels World Fleet of Offshore Support Vessels 2009  2010  2011  2012  2013  AAGR 2009·13 %  OSV…………………….  57  61  67  71  70  5.2  Note: (1) Beginning ofyear figures (2) All units in million OWT except percentages (Source: Secondary research by Vital Factor Consulting)
E.A. Technique (M) Berhad Page 12 of 52 Industry Assessment 109 7. INDUSTRY OVERVIEW (Cont’d) o
VITAL FACTOR CONSULTING Creating Winning Business Solutions
• In the beginning of 2013, the global capacity of OSV was approximately 70 million DWT, whereby Malaysia accounted for approximately 3% of the total capacity of offshore vessels in the world (Source: Secondary research by Vital Factor Consulting).
• The marginal decline ·of the global capacity of OSV of 1.1 % in 2013 was possibly due to the scrapping of older vessels that are no longer economical to operate.
• The performance of the OSV market is dependent on the level of offshore upstream activities of exploration, appraisal, development and production, as well as midstream activities pertaining to transportation using Iinepipes. There has been increasing offshore upstream oil and gas activities in Malaysia as indicated by the level of investments which recorded an AAGR of 16.8% between 2008 and 2012. Midstream activities for example Iinepipes are expected to record growth resulting from the proposed subsea pipeline project in the North Malay Basin. PETRONAS is committed to invest in a bUdgeted CAPEX of RM60 billion annually from 2011 until 2015, culminating in a total of RM300 billion budgeted CAPEX in the oil and gas industry in Malaysia, which includes, among others, a pipeline replacement programme. It is expected that any growth in upstream and midstream oil and gas activities is expected to increase the demand for offshore supporting services including OSV.
• The global expenditure on oil and gas exploration and production activities registered an AAGR of 8.5% between 2008 and 2013, and is forecasted to grow by 6.1% in 2014 to reach USD723 billion (Source: Secondary research by Vital Factor Consulting). Any increases in oil and gas exploration and production activities would stimulate the demand for offshore supporting services including OSV. As such, this will provide opportunities for operators in the marine transportation and support services segment of the oil and gas industry, including E.A Technique Group.

3. THE OIL AND GAS INDUSTRY IN MALAYSIA 3.1 Oil and Gas Reserves and Production • Growth in hydrocarbon reserves and production indicates a continuing effort in carrying out exploration, appraisal, development and production activities, which should provide opportunities for offshore oil and gas supporting service prOViders including the marine transportation and support services segment. Oil and Gas Reserves in Malaysia AAGR 1 Jan 1 Jan 1 Jan 1 Jan 1 Jan 2010-14 2010 2011 2012 2013 2014 % Total Reserves………………. 20.6 20.9 21.31\ 22.21\ 22.6 2.4 Crude Oil and Condensates ………….. 5.8 5.9 6.0 5.9 5.8 0.0 Natural Gas …………….. 14.8 15.0 15.4 16.4 16.8 2.8
1\ Total does not add-up due to rounding; Note: All units in billion barrels of oil equivalent (BOE), except for percentages. (Source: PETRONAS)
E.A. Technique (M) Berhad Page 13 of 52 Industry Assessment 110 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions
• The increase in Malaysia’s oil and gas reserves between 1 January 2010 and 1 January 2014 indicated sustained exploration activities that are able to more than replace the depletion of reserves through production. A high level of reserves would also mean an overall sustainable oil and gas industry in Malaysia. Notably, the discovery of gas reserves in 2009 from Malaysia’s first High Pressure High Temperature (HPHT) well at the Kinabalu field in offshore Sabah is expected to open up new exploration prospects for deeper reserves in lVIalaysia.
• As at 1 January 2014, Malaysia’s oil and gas reserves increased by 1.8% to reach 22.6 billion BOE (SoUrce: PETRONAS).

Oil and Gas Average Production in Malaysia AAGR 2009·13 2009 2010 2011 2012 2013 % Crude Oil and Condensates (1)………………. 659 638 570 586 570 -3.6 Natural Gas (2) ‘” ……………… 5,806 5,930 5,931 6,007 6,291 2.0
(1) thousand BOE per day; (2) million standard cubic feet per day (Source: Bank Negara Malaysia) • The decline in the average production of crude oil and condensates between 2009 and 2013 was mainly attributed to maturing fields. In addition, poor reservoir performance and scheduled shutdowns of facilities for maintenance and reservoir management also affected production during this period. MOVing forward, the continuing addition of new oil and gas fields as well as those collectively from small and marginal fields, should serve well in sustaining hydrocarbon production in the country. (Source: PETRONAS; Bank Negara Malaysia) 3.2 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, among others, the marine transportation and support services sectors. This is because part of the investment is channelled to the engagement of services rendered by supporting services providers. E.A. Technique (M) Berhad Page 14 of 52 Industry Assessment 111 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions Level of Investment in the Upstream Sector of the Oil and Gas Industry
25 22.9 20 17.1 16.4 Mar-07 Mar-OB Mar-09 Mar-10 Mar-11 Dec-11* Dec-12 11I\ Expenditure for Exploration (AAGR: 24.0%) o Expenditure for Development & Production (AAGR: 13.5%) liII Operational Expenditure AAGR: -29.5% * Based on 9 months period; Note: AAGR between March 2007 and March 2011. (Source: PETRONAS)
• In Malaysia, the overall cumulative level of investment made in the upstream sector increased at an AAGR of 4.9% between 31 March 2007 and 31 March 2011. The 50% decline in the level of expenditure for exploration activities between March and .December 2011 were due to investments being channelled towards the development and production activities after the successful drilling of two exploratory wells, namely NC3 and Spaoh-1, which led to new oil and gas discoveries in Malaysia.
• In 2012, the overall cumulative level of investment 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 discoveries from 21.3 billion BOE in 2011 to 22.2 billion BOE in 2012.

(Source: PETRONAS) E.A. Technique (M) Berhad Page 15 of 52 Industry Assessment 112 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 3.3 Oil and Gas Fields in Malaysia Number of Oil and Gas Fields in Operation 200 CI>u: ‘0.. 100 CI> .c E :::f Z 50 o AAGR:8.3% 1/1 150 :2
85  88 18.2% : > ~0.4%13.5% 1 9% : 6.0% 6.5% /’ • ~I» : 124 132 117 : 104 106  0.0% -­132  30% -30% 0%  -60%  -90%
Mar-O? Mar-De Mar-09 Mar-10 Mar-11 Dec-11 Dec-12 Dec-13 ..Fields -Growth Rate Note: AAGR between March 2007 and March 2011. (Source: PETRONAS) • The number of oil and gas fields in Malaysia has a direct bearing on demand for marine transportation and support services. A high number of operating oil and gas fields would mean a sustainable level of hydrocarbons would need to be refined and processed. This would create demand for refined products to be transported and shipped to various locations. Similarly, OSV are required to service the needs of rigs, platforms and other offshore structures, therefore any increases in operational oil and gas fields would mean a higher demand for OSV.
• The number of oil and gas fields in operation grew at an AAGR of 8.3% between 31 March 2007 and 31 March 2011. As at 31 December 2013, there were 132 oil and gas fields operating in Malaysia. In 2013, 12 greenfield projects achieved their first hydrocarbon production, including two RSC fields, namely Balai and Kapal.

(Source: PETRONAS) 3.4 Recent Oil and Gas Discoveries in Malaysia • Recent discoveries of oil and gas in Malaysia are positive developments for the industry. Development work to bring these fields into production would result in an increase in demand for, among others, marine transportation and support services. E.A. Technique (M) Berhad Page 16 of 52 Industry Assessment 113 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • The recent oil and gas discoveries made in Malaysia are summarised in the table below: Date of Discovery Field Block & Location Hydrocarbons Discovered April 2014* Rosmari-1 Block SK318, • Encountered a gas column of 450 metres. offshore Sarawak –o-ecember——-sintok~:rweii——-·–BTock–sK320~—————~·Eiicountered-a-gas-column-of292-rrieires:——­2013* offshore Sarawak further assessment was carried out to indicate . . . .__\!’.9!~~_~.g1.!~_9! ~£Q.y_~.!Y.: .. •._ October Pegaga-1 well Block SK320, • Encountered a gas column of 247 metres. 2013* offshore Sarawak ·-May-20-f3-;——Ceiido-r-G-rabeii~—–·Bi(jck–PM304~-·—-·——-~–Esiimaied-; ..ecove-rabl~-resource-oTove;:-200—­2 appraisal well offshore Peninsular million barrels of oil. ._———————-_._————-.—————–~~!~y~!!’!._———_._———————_._——_.—————._——_.———–_.———-­January Adong Kecil Block SK333, • Net hydrocarbon thickness of approximately 2013* West-1 well onshore Sarawak 349 metres. • Two drill-stem tests achieved flow rates of about 440 barrels of crude oil per day and 11.5 million standard cubic feet of gas per ———-_.—————_.————————-_._—————–_._—————–~-~y:_———-_._——_._-_ ….-.._—————_.__.._———–­November Tukau Timur Block SK307, • Preliminary assessments indicated that gas­2012 Deep-1 well offshore Sarawak in-place for this well is approximately 2.1 trillion standard cubic feet. ·–i\iovember——Tembakau~T———Biock–PM307~—————-;-Preiiminary-ass~ssments·iiidicatedthai-ijas-~–­2012* well offshore Peninsular in-place of 600 billion standard cubic feet. … .. ~~l~y~!!’! ._. . … .. . _ October Kuang North Block SK316, • Preliminary assessments indicated that gas­2012 field offshore Sarawak in-place for this field is approximately 2.3 trillion standard cubic feet. ·-October·———·Bentara:i-weTI——-Baiaf”<5iuster-RSC-.——-;–ln-itiaTr~-s-uTts-indicated-a-n-estfm-a-ie(i”1-00———­2012 Offshore Sarawak metres of hydrocarbon net pay in stacked reservoirs. -·N-ovember——-·Kasawari~1-weii—–Biock–sK3-f6—————–;–Preiiminary-ass~ssments-;nd;cated·tiiat-£ias-~–­2011 in-place of over 5 trillion standard cubic feet. • Estimated recoverable hydrocarbon resource of over 3 trillion standard cubic feet . … .. g!.9.~_~_: . … .. _ September NC8SW-1 well Block SK316 • Estimated recoverable hydrocarbon 2011 resource of over 450 billion standard cubic .. . !_~_~!.Q.!_9.~~: .__.. .. ._ July 2011 Zuhal East-1 Samarang Asam • Preliminary assessments indicated that gas-well Paya Block, in-place of approximately 550 billion Offshore Sabah standard cubic feet. -Juiy-iOH——–Men-ggatai~-f—·-·—-BTcjck·-S8-31-2.—————–~-Preiim;nary-assessments-iiid;caie(TtiiaT£ias~–­well offshore Sabah in-place of approximately 650 billion standard cubic feet. –Juiy-iOTi——–Wakid~Tweii-·——–Biock–2-G-:iJ:—————–;-Prei;minary-asses~ments-iiid;caied-that———·-­offshore Sabah hydrocarbon-in-place of 227 million barrels . .. .. .c.>_~.Q.~_~_ql}j_Y~!~D.t· ._ December Spaoh-1 well Block306, offshore • Preliminary assessments indicated 2010 Sarawak approximately 100 million barrels of oil and 0.2 trillion standard cubic feet of gas in­.. .P~~.c:~: _ March 2010 NC3 well Block SK316, • An estimated 2.6 trillion standard cubic feet offshore Sarawak of net gas-in-place. * Announcement date, as the date of the discovery was not disclosed. Note: This is not an exhaustive list. (Source: PETRONAS; secondary research by Vital Factor Consulting)
E.A. Technique (M) Berhad Page 17 of 52 Industry Assessment 114 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
3.5 Production Sharing Contract and Risk Service Contract • A production sharing contract (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. A total of 151 PSC have been awarded since it was first introduced in 1976. As at 31 December 2013, there were 100 active PSC.
• A risk service contract (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 focussed on development of small or marginal fields, defined as fields with reserves of 30 million BOE or less.
• The following are some of the developments on RSC in Malaysia: As at 31 October 2014, six RSC have been awarded, including one Small Field Risk Service Contract (SFRSC) awarded in June 2014 ; On 25 January 2013, PETRONAS announced that it would not proceed with the award of a RSC for the development of the Tembikai and Chenang cluster fields, which was opened for bidding in 2012; PETRONAS currently has a total of approximately 100 marginal oil fields. (Source: PETRONAS)
• PSC and RSC contractors and operators are target customers of offshore oil and gas supporting services providers. As such, a growth in the number of PSC and RSC in operation and the award of new PSC and RSC indicates an expanding potential customer base for offshore oil and gas supporting services providers.

3.6 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 offshore oil and gas supporting services. 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 ._~?’R<;?rt ~~!l!~_.~:.~ :.~:.~:.~:. ?:.~:~ _. __ ~1:Q __ .~~:4 __” __ .~?:~ .. _ _~?~? ~._~. Refined Petroleum Products _. ~?’R<;?rt ~~!l!~ ..~:.~:.~:.~:.~:._ .. _..1.~:4 _…. _?:.~:~. __ ….~~:Q.. __ …~?:~_.._.._~~ :~_ ….. ?’~”~_ Residual Petroleum Products & Related Materials _.~?’R<;?rt ~~!l!~.·~:·~:·~:·~:·~:-_ .. _ 1:Q 1:~._ .. _.. .1:~ .__ ?:? _. _?~~ ..__.. ?Q}. Natural Gas (Whether or Not Liquefied) __ ~?’R<;?rt ~~!l!~ ..~:.~:.~:.~:.~: ~1:? ~~L .. _ ~?:Q .. ._~~:~ __ _~~~? ._ .. _.1L~. Liquefied Propane and Butane ._f:.:?’R<;?rt ~~!l!~ .’~ :.~ :’~:’ ~ :’~:’ ._.1:~ _….._.1:?. __._..?:~ __. ..1:? ….9~~. .. _…~.~ ..Q. E.A. Technique (M) Berhad Page 18 of 52 Industry Assessment 115 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions AAGR 2009-13 2009 2010 2011 2012 2013 %) Petroleum Gases & Other Gaseous Hydrocarbons Export Value . 2.7 3.2 3.5 3.8 4.1 Note: All units in RM billion except percentages; Propane and butane are LPG. (Source: Department of Statistics Malaysia)
• Between 2009 and 2013, the export value of liquefied propane and butane in Malaysia declined at an average annual rate of 16.0%. This could possibly be due to a decrease in the production quantity of LPG in Malaysia which declined at an average annual rate of 6.1 % between 2009 and 2013.
• The continuing development of the oil and gas industry through the growth in exports of hydrocarbons would create and stimulate demand for offshore oil and gas supporting services.

4. MACROECONOMIC INDICATORS 4.1 Economic Growth in Malaysia Malaysia’s Real GOP Growth 9% , -:.A_c-:.f-‘ua-:.’ FO_I1_9C_8_St_
e =estimate; f =forecast (Source: Bank Negara Malaysia; Ministry of Finance Malaysia)
• Overall, Malaysia’s key economic indicator 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 of the global economy. In 2013, the Malaysian economy grew by 4.7% driven by domestic demand, underpinned by steady private sector spending in both consumption and investment activities. E.A. Technique (M) Berhad Page 19 of 52 Industry Assessment 116 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • While domestic demand in Malaysia has remained strong during the first and second quarter of 2013, the prolonged weakness in the external sector has affected the overall growth performance of the economy, which resulted to an expansion by 4.1 % and 4.4% respectively. In the second half of 2013, exports showed improvements and coupled with the stable domestic demand, the Malaysian economy was boosted with growth recorded at 5.0% and 5.1 % in the third and fourth quarter of 2013 respectively.
• In tandem with the improved global economic outlook, the Malaysian economy in 2014 is expected to grow at a stronger pace of between 5.5% and 6.0%. The growth will be backed by private investment and private consumption as well as better external demand.
• Moving forward, the Malaysian economy is forecasted to grow between 5.0% and 6.0%, driven by the sustained growth in domestic demand, as well as expected growth in the services and manufacturing sectors.

(Source: Bank Negara Malaysia; Ministry of Finance Malaysia) 4.2 Economic Comparisons Real GOP Growth 15% 10.4% ~ 10% e.., ~ Cl 5% ~ Cl ~ 0% -5%
mWorid o European Union mASEAN-5 o China III USA • Malaysia ASEAN-5 =Malaysia, Indonesia, Philippines, Thailand and Vietnam. (Source: Bank Negara Malaysia; secondary research by Vital Factor Consulting) • Malaysia and the ASEAN-5 countries have continued to experience robust real GDP growth between 2009 and 2013. In 2013, both Malaysia and the ASEAN-5 countries recorded higher growth rates of 4.7% and 5.2% respectively compared to advanced economies such as the United States of America (USA) and the European Union (EU). E.A. Technique (M) Berhad Page 20 of 52 Industry Assessment 117 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 5. SUPPLY AND DEMAND FOR MARINE VESSELS 5.1 Number of Selected Ships Registered in Malaysia • Growth in the number of vessels registered in Malaysia provides an indication on the demand and supply for vessel chartering services. Number of Selected Vessels Registered in Malaysia 2009  2010  2011  2012  2013  Oil Tankers(1)  .  205  193  209  215  206  LNG and LPG Carriers  ..  47  45  43  41  40  Chemical/Product Tankers  ..  52  51  66  63  53  OSV  ..  218  207  251  249  256  Tugboats  .  966  904  1,042  1,077  1,058  Note:
AAGR 2009-13 % 0.1 -4.0 0.5 4.1 2.3 (1) While the majority are for crude oil tankers, some product tankers are also registered under this category (Source: Ministry of Transport Malaysia)
• With the exception of LNG and LPG carriers, the number of vessels commonly used in the oil and gas industry grew between 2009 and 2013. This indicates a continuing demand for such vessels. Some of the drivers for the demand of such vessels including oil tankers, chemical/product tankers, OSV and other vessels are as follows: Sustained market prices of hydrocarbons is likely to drive oil and gas exploration, development, and production activities which will, in turn create demand for oil and gas supporting services including the use of vessels for marine transportation and supporting services. (For further details on market price please refer to Subsection 13.2.2 of Section 7) The continuing initiatives by the Malaysian Government in promoting the development and activities within the oil and gas industry such as ETP, the development of the oil and gas hub in Southern Johor would also create demand for oil and gas supporting services including the use of vessels for marine transportation and supporting services. • Between 2009 and 2013, the number of registered LNG and LPG carriers declined by an average annual rate of 4.0%. Some of the possible reasons for the decline in the number of registered LNG and LPG carriers in Malaysia or non-renewal of registration may be due to, among others, the scrapping of older vessels that are no longer economical to operate or the registration of some of these vessels overseas for commercial purposes.
• With the exception of OSV, the number of registered oil tankers, LNG and LPG carriers, chemical/product tankers and tugboats registered a decline in 2013. Some of the possible reasons for the decline in the number of registered said vessels in Malaysia or non-renewal of registration may be due to, among others, the scrapping of older vessels that are no longer economical to operate or the registration of some of these vessels overseas for commercial purposes.

E.A. Technique (M) Berhad Page 21 of 52 Industry Assessment 118 7. INDUSTRY OVERVIEW (Cont’d) o
VITAL FACTOR CONSULTING Creating Winning Business Solutions
• As at October 2014, more than 90% of the selected ships registered in Malaysia, including oil tankers, gas carriers, chemical/product tankers, OSV and tugboats were contracted, which indicated high utilisation of these vessels. The high utilisation represents strong demand for the vessels, with growth opportunities to the providers of the selected vessels. 5.2 Domestic Shipping Licence • Licences from the Domestic Shipping Licensing Board are required for the shipping of goods, unless exempted. Listed below are statistics on the number of domestic shipping licences issued to Malaysian and foreign registered vessels for selected types of cargo that are common in the oil and gas industry: Licences Issued by the Domestic Shipping Licensing Board for Selected Types of Cargo to Malaysian and Foreign Registered Vessels AAGR 2009·13 2009 2010 2011 2012 2013 % Petroleum/Diesel Malaysian Registered ………. 195 200 214 211 204 1.1 Foreign Registered ………….. 370 470 542 686 731 18.6 Towing Services Malaysian Registered ……… 507 547 587 622 634 5.7 Foreign Registered …………. 590 578 496 601 561 -1.3
Exploration Work Equipment Malaysian Registered ………. 100 153 161 172 191 17.6 Foreign Registered ………….. 417 557 585 902 908
21.5 (Source: Ministry of Transport Ma/aysia) • The number of licences issued to foreign registered vessels for the towing services recorded an AAGR of -1.3%. Some of the possible reasons for the minor decline in the number of licences may be due to, among others, the non-renewal of licences for the said services and the likely completion of the charter contract for these foreign registered vessels. Generally, provision of towing services can also be carried out by various types of boats such as AHT/S, utility vessels and harbour tugs.
• Between 2009 and 2013, the number of licences issued to Malaysian and foreign registered vessels for the selected types of cargo above, with the exception of foreign registered towing services vessels, has registered growth in terms of AAGR. The consistent growth in the number of domestic shipping licences indicates a robust marine transportation segment servicing the oil and gas industry in Malaysia.

5.3 Ships Reporting under STRAITREP • The Mandatory Ship Reporting System in the Straits of Malacca and Singapore (STRAITREP) was proposed by Indonesia, Malaysia and Singapore. Masters of vessels passing by the Straits of Malacca and Singapore are required to report to the relevant authorities. E.A. Technique (M) Berhad Page 22 of 52 Industry Assessment 119 7. INDUSTRY OVERVIEW (Cont’d) o
VITAL FACTOR CONSULTING Creating Winning Business Solutions Selected Ships Reporting under STRAITREP AAGR  2009-13  2009  2010  2011  2012  2013  %  VLCC/Deep Draft  .  4,221  4,333  4,539  4,732  4,825  3.4  Tanker Vessel  ..  16,398  16,247  16,233  17,345  18,296  2.8  LNG and LPG Carrier  .  3,330  3,579  3,830  .4,014  4,248  . 6.3  TugfTow  .  598  545  414  529  563  -0.8
(Source: Marine Department of Malaysia) • Between 2009 and 2013, the number of tug/tow boats recorded a minor decline of an average annual rate of 0.8%, which was mainly attributed to the decline in numbers in 2011. Some of the possible reasons for the minor decline could be due to the lower volume of towing activities carried out along the Straits of Malacca and Singapore.
• Between 2009 and 2013, the number of selected ships reporting under STRAITREP has increased, with the exception of tug/tow boat. The continuing growth indicates increasing demand for such ships in the Straits of Malacca and Singapore.

6. DEIVIAND DEPENDENCIES OF MARINE TRANSPORTATION AND PORT MARINE SERVICES 6.1 Liquid Bulk Cargo Throughput at Malaysian Ports • Liquid bulk cargo includes crude oil, petroleum (including clean and dirty products), LNG, LPG, crude palm oil, palm oil-based products, and chemicals in liquid form. As such, the following statistics on liquid bulk cargo throughput Malaysian ports are used to assess the demand dependencies for liquid bulk carriers such as petroleum tankers (including CPP tankers) and LPG tankers, as well as provision of port marine services focusing on towage of vessels in and out of ports. Liquid Bulk Cargo Throughput at Malaysian Ports AAGR 2009-13 2009 2010 2011 2012 2013 % Foreign Trade … 55.1 58.4 60.4 46.9 48.8 -3.0 Local Trade ……. 17.3 17.1 19.0 19.6 20.3 4.1
Note: All units are in million freight weight tonnes (FWT) except percentages. (Source: Ministry of Transport Malaysia) • The decline in foreign trade of liquid bulk cargo between 2009 and 2013 implies a fall in import and export of liquid bulk cargo from Malaysian ports. Nevertheless, 2013 experienced growth of 4.1% compared to 2012. In addition, despite the decline in foreign trade of liquid bulk cargo, Malaysia continued to record a positive AAGR for the export of hydrocarbons during the same period from 2009 to 2013 (Source: Department of Statistics Malaysia). E.A. Technique (M) Berhad Page 23 of 52 Industry Assessment 120 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
• The increasing growth in local trade throughput of liquid bulk cargo is a positive indication for the continuing demand for product tankers, LPG and other oil and gas related carriers. This growth would increase the demand for operators of oil and gas tankers to carry the hydrocarbons from one port to another port in Malaysia. 6.2 Selected Oil and Gas Products Loaded and Unloaded at Malaysian Ports • The loading and unloading of petroleum and fuel oil provides an indication of the demand for product tankers for transportation purposes as well as provision of port marine services focusing on towage of vessels in and out of ports. Petroleum and Fuel Oil Loaded and Unloaded at Malaysian Ports AAGR 2009·13 2009 2010 2011 2012 2013 % Petroleum and Fuel Oil Loaded ………………….. 11.7 11.4 10.5 10.2 11.3 -0.9
Unloaded……………….. 18.0 15.4 17.9 19.3 19.1
1.5 Total 29.7 26.8 28.4 29.5 30.4 0.6 Note: All units are in million FWT except percentages. (Source: Ministry of Transport Malaysia) • Between 2009 and 2013, the amount of petroleum and fuel oil loaded and unloaded in Malaysian ports grew by an AAGR of 0.6%. This growth will continue to sustain product tankers plying coastal as well as international waters. 6.3 Number of Ships Calling by Ports • E.A. Technique Group’s port marine services, particularly towing services, are
focused at the following ports in Malaysia: Northport in Klang, Selangor, which is a bulk and containerised goods port; Sungai Udang Port in Malacca, which is mainly an oil and gas port; Kertih Port in Terengganu, which is mainly an oil and gas terminal.
• The number of ships calling in various ports in Malaysia will provide an indication on the demand for port marine services particularly for towage.

E.A. Technique (M) Berhad Page 24 0’52 Industry Assessment 121 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions
Number of Ships Calling by Selected Ports AAGR 2009·13 2009 2010 2011 2012 2013 % All Ports in Malaysia ……………… 60,393 63,942 64,607 66,848 62,669 0.9 Klang ………………….. 15,356 17,910 18,117 17,808 16,724 2.2
Notes: (1) Northport is categorised under Klang Port which also include Westport
(2) There are no separate statistics for Sungai Udang and Kertih Port as they ara private ports (Source: Ministry of Transport Malaysia)

• The number of ships calling by selected ports above registered positive growth in terms of AAGR between 2009 and 2013. The continuing growth will drive the demand for port marine services including towing services. 6.4 Oil Refineries in Malaysia • Growth in the capacity of oil refineries in Malaysia will have a direct and positive flow-on effect on demand for product tankers. A list of the oil refineries in Malaysia is provided below.
bbl/day =barrels of oil per day (Source: Vital Factor Consulting)
• Refinery and Petrochemical Integrated Development (RAPID) developed by PETROI\JAS, is part of the Pengerang Integrated Petroleum Complex (PIPC). RAPID is the largest green field investment in Asia Pacific for the supply of feedstock for highly specialised chemicals, with an estimated cost of RM60 billion. The development will have a refining capacity of 300,000 barrels of oil per day, naphtha cracker, and approximately 22 mini petrochemical plants. E.A. Technique (M) Berhad Page 25 of 52 Industry Assessment 122 7. INDUSTRY OVERVIEW (Cont’d) .~———~-_…!…-_—————–­Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Growth in the capacity of oil refineries in Malaysia is mainly derived from RAPID. Upon commencement of operation, capacity of RAPID will represent 56% of existing capacity. As such, RAPID coming on-stream would be the main drivers of growth. 6.5 Production of Refined Petroleum Products Sales Value of the Manufacture of Refined Petroleum Products AAGR: 15.7% 250 50%38.0% 200
0% ‘2 -31.9% 155 152 ~ 150 ~
-50% ~ 100 -100% 50 o -150% 2009 2010 2011 2012 2013 .RM (Billion) -Growth Rate (Source: Department of Statistics Malaysia) • Growth rates of sales value of manufactured refined petroleum products have shown a declining trend since 2011. This is mainly attributed to the decrease in production of crude oil and condensates, which registered a negative AAGR of 3.6% between 2009 and 2013, as crude oil and condensates are the main raw materials used for the manufacturing of refined petroleum products.
• However, the total oil and gas reserves which registered an AAGR of 2.4% between 2009 and 2013, as well as implemented development and initiatives as described in section 13 of this report, will ensure continuing supply of raw materials for the manufacturing of refined petroleum products.
• Import and export values of refined petroleum products registered AAGR of 48.2% and 33.3% respectively between 2009 and 2013. The growth in external trade of refined petroleum products will continue to provide growth opportunities for operators of product and LPG tankers.
• The level and growth of the output of refined petroleum products have a direct impact on the demand for product and LPG tankers as they all will need to be transported to various ports in Malaysia as well as overseas. The overall growth in sales value of manufactured refined petroleum products between 2009 and 2013 would provide a strong support base for product and LPG tankers.

EA. Technique (M) Berhad Page 260’52 Industry Assessment 123 7. INDUSTRY OVERVIEW (Cont’d) o
VITAL FACTOR CONSULTING Creating Winning Business Solutions Production Quantity of Selected Refined Petroleum Products AAGR  2009-13  2009  2010  2011  2012  2013  %  Kerosene  .  3,403  3,350  3,560  3,504  3,270  -1.0  Liquefied Petroleum Gas  .  3,265  3,055  3,036  2,804  2,539  -6.1  Fuel Oil  ..  2,269  2,087  2,790  3,226  2,399  1.4  Diesel/Gas Oil  ..  9,495  8,585  10,000  11,755  11,234  4.3  Gasoline (motor spirit)  ..  4,375  4,175  5,510  5,543  5,331  5.1  · Blended Lubricating Oil  ..  101  109  148  148  154  11.2  Naptha  .  4,190  3,936  3,397  4,163  3,969  -1.3  Liquefied Natural Gas  .  22,452  24,363  25,822  23,986  25,957  3.7
Note: All units in thousand tonnes except percentages. (Source: Department of Statistics Malaysia)
• Between 2009 and 2013, the production quantities of selected refined petroleum products above recorded overall positive average annual growth rates, with the exception of kerosene, LPG and naptha. Continuing growth will sustain growth of product and LNG tankers in Malaysia
• Kerosene and naptha are classified as CPP and any increase or decrease in production could impact on operators of product tankers. However, the decrease in production quantities of kerosene and naptha were marginal at average annual rates of -1.0% and -1.3% respectively between 2009 and 2013. However, diesel/gas oil and gasoline, which in 2013 represented approximately 2.29 times the combined production quantity of kerosene and naptha, are also CPP, and they had been growing at an AAGR of 4.3% and
5.1 % respectively between 2009 and 2013. As such, the marginal decline of kerosene and naptha between 2009 and 2013 would be compensated by the increase in diesel/gas oil and gasoline. Thus, the overall outlook of the product tanker sector, which E.A. Technique Group operates in, would not be materially affected.
• The decline in the production quantity of LPG could impact on operators of LPG tankers. However, LPG may be substituted by other types of energy sources including LNG, diesel and gasoline. Thus, operators including E.A. Technique Group, that have a various types of vessels, for example product tankers and LPG tankers would be in a better position to balance decline in one area with increase in other areas.

6.6 Consumption Of Automotive Fuel • As E.A. Technique Group’s product tanker operations are focused on the carriage of refined petroleum products including automotive fuel in Malaysia, demand for their product tankers is dependent on the consumption of automotive fuel in Malaysia. E.A. Technique (M) Berhad Page 27 of 52 Industry Assessment 124 7. INDUSTRY OVERVIEW (Cont’d) o
VITAL FACTOR CONSULTING Creating Winning Business Solutions Retail Sales of Automotive Fuel Sales Value  .  2009 16.4  2010 17.0  2011 19.9  2012 21.5  2013 23.6  AAGR 2009·13 % 9.6  Note: All units in RM billion except percentages (Source: Department of Statistics Malaysia)  •  Overall, the retail sales value of automotive fuel grew by an AAGR of 9.6% between 2009 and 2013, which augurs well for operators of product tankers that ply coastal waters of Malaysia.  •  As vehicles are the main users of automotive fuel, the growth in the number of vehicles in Malaysia will place an increasing demand for automotive fuel and subsequently for product tankers and LPG tankers.  Indicators of New Vehicles in Malaysia
AAGR  2009-13  2009  2010  2011  2012  2013  %  Number of Vehicles  Registered ……………………………. 536,905  605,156  600,123  627,753  655,793  5.1  Number of Vehicles Produced  and Assembled ……………….:…… 489,269  567,715  533,515  569,620  601,407  5.3
(Source: Malaysian Automotive Association) • Malaysia recorded a growth in the number of registered vehicles as well as vehicles produced and assembled between 2009 and 2013. This would continue to generate demand for petroleum products and service providers associated with the transportation of these products. 7. DEMAND DEPENDENCIES OF OSV • Demand for OSV is primarily dependent on the level of activities associated with the offshore upstream and midstream sectors of the oil and gas industry, which includes exploration, appraisal, development, product and pipelines. Such demand dependencies would include, among others: Oil and gas reserves and production; Investment in exploration, development and production; Operational oil and gas fields; Oil and gas discoveries; Production sharing and risk service contracts; Exports of oil and gas products.
Details are discussed in Section 3 of this report. • As Malaysia’s oil and gas industry is mainly offshore, the above demand dependency factors would have direct relevance to the OSV sector. E.A. Technique (M) Berhad Page 28 of 52 Industry Assessment 125 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 8. COMPETITIVE ANALYSIS 8.1 Nature of Competition in the Industry • Operators wishing to participate in the oil and gas industry are subjected to certain conditions imposed by PETRONAS where only operators that are licenced or registered by PETRONAS are allowed to bid directly for work provided by PETRONAS, PSC and RSC operators and contractors in the oil and gas industry in Malaysia. 8.2 Operators in the Industry • In 2013, there were approximately 100 OSV contractors and 200 marine vessel (mainly tankers) service providers to the oil and gas industry in lVlalaysia (Source: Malaysia Petroleum Resources Corporation; Malaysian Investment Development Authority). With the relatively large number of operators in the industry, no single operator or group of operators currently dominate the industry, or is in a position to dictate pricing.
• The major operators that own and/or operate product tankers in Malaysia coastal waters include the following (listed in alphabetical order):

E.A. Technique Group; Gagasan Carriers Sdn Bhd; Global Carriers Berhad; Grolite Shipping Sdn Bhd; Hong Lam Marine Pte Ltd; Malaysian Bulk Carriers Berhad; Orkim Sdn Bhd; Semua Shipping Sdn Bhd.
Note: This is not an exhaustive list. (Source: Vital Factor Consulting) • The major operators of the provision of towing services at ports in Malaysia include the following (listed in alphabetical order): Alam Maritim (M) Sdn Bhd; KBH Marine Industry Sdn Bhd; E.A. Technique Group; Fast Meridian Sdn Bhd; Malaysia Towage and Transport Sdn Bhd.
Note: This is not an exhaustive list. This list does not include port operators that provide towing services within their respective ports. This list include operators that use various types of vessels, for example AHTIS, utility vessels and harbour tugs. (Source: Vital Factor Consulting) E.A. Technique (M) Berhad Page 29 of 52 Industry Assessment 126 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 9. MARKETS~EANDSHARE 9.1 Market Operator Segmentation Product Tankers • There are two tiers of Malaysian-based operators that own andlor operate product tankers that carry third party products based on number of product tankers chartered out. As at October 2014, they were as follows: 1st tier: Top four operators where each operator has five product tankers or more, chartered out are as follows: Rankina  Top 4 Operators of Product Tankers  1  Orkim Sdn Bhd  2  Semua Shipping Sdn Bhd  3  GaQasan Carriers Sdn Bhd  4  E.A. Technique Group
2nd tier: All other operators, each with less than five product tankers chartered out. (Source: Vital Factor Consulting) Towing Services • The towage service in port areas in Malaysia are segmented into two groups:
towage service providers engaged directly by port operators; towage service providers engaged directly by individual ships.
• As at October 2014, there were two major local players engaged directly by port operators to provide towing services within port areas. They are EA Technique Group and Malaysia Towage and Transport Sdn Bhd, ranked based on number of vessels used for towing services. However, there are many other operators of towing services that are engaged directly by individual ship operators to tow ships within port areas. (Source: Vital Factor Consulting)

Note: The basis of arriving at the statement of the “two major operators” involved primary market research which includes the collection of information directly from the major competitors of towage service providers. E.A. Technique (M) Berhad Page 30 of 52 Industry Assessment 127 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 9.2 Market Size Product Tankers • As at October 2014, the market size for product tankers registered in Malaysia that carry third party products was estimated at 65 product tankers (Source: Vital Factor Consulting). Note: The market size does not include foreign registered product tankers because foreign registered product tankers are normally not allowed to operate in Malaysian waters, unless there are no Malaysian registered product tankers available to perform the required service. In this case, the foreign registered product tankers will be given temporary licences for a maximum of three months from the Domestic Shipping Licensing Board to operate in Malaysian waters. Nevertheless, there are no readily available data on the number of licences issued to foreign registered product tankers operating in Malaysian waters. • As at October 2014, product tankers that were registered in Malaysia were fully utilised (Source: Vital Factor Consulting). Towing Services • In 2013, the market size for towing services in Malaysia based on number of licences issued by Domestic Shipping Licensing Board for the provision of towing services was approximately 1,200 licences (Source: Ministry of Transport Malaysia). Note: The market size for towing services includes any Malaysian and foreign registered vessels that provide towing services, such as AHTIS, utility vessels, harbour tugs and mooring boats. 9.3 Market Share Product Tankers • As at October 2014, E.A. Technique Group had an estimated market share of 8% of product tankers registered in Malaysia based on the number of vessels owned and operated by the Group (Source: Vital Factor Consulting).
• As at October 2014, EA Technique Group’s market share based on contracted product tankers was estimated at 8% (Source: Vital Factor Consulting).
• As at October 2014, no one single operator has more than 20% market share of product tankers in Malaysia based on the number of product tankers registered in Malaysia (Source: Vital Factor Consulting).
• As at October 2014, there were an estimated 25 operators of locally registered product tankers. The top four operators of locally registered product tankers accounted for approximately half the market share of product tankers in Malaysia based on the number of product tankers registered in Malaysia, of which EA Technique Group is one of these top four operators

(Source: Vital Factor Consulting). E.A. Technique (M) Berhad Page 31 of 52 Industry Assessment 128 7. INDUSTRY OVERVIEW (Cont’d) o
VITAL FACTOR CONSULTING Creating Winning Business Solutions
Note: Market share computation does not include foreign registered product tankers because foreign registered product tankers are normally not allowed to operate in Malaysian waters, unless there are no Malaysian registered product tankers available to perform the required service. In this case, the foreign registered product tankers will be given temporary licences from the Domestic Shipping Licensing Board to operate in Malaysian waters. Towing Services • As at October 2014, E.A. Technique Group had an estimated market share of 2% of towing services in Malaysia based on the number of tugboats and mooring boats used for towing, that are owned and operated by the Group (Source: Vital Factor Consulting). Note: The market share is derived based on the number of E.A. Technique Group’s licensed vessels used for the provision of towing services (including tugboats and mooring boats) divided by the total number of 1,200 licensed vessels issued by Domestic Shipping Licensing Board for the provision of towing services. (Source: Ministry of Transport Malaysia). The 1,200 licensed vessels are used by towing service providers that are engaged directly by ports, shipping and other operators, or for the vessel owners’ own use. 10. GOVERNMENT REGULATIONS AND LICENCES • The following are some of the licences, registrations and regulations relating to the Offshore Oil and Gas Supporting Services Industry relating to marine transportation and supporting services:
• 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. Applicants are required to specify the scope of work for which the licence or registration is being applied for, based on a set of Standardised Work and Equipment Categories (SWEC).
• According to the Ministry of Transport Malaysia, companies applying for shipping licences must have at least 51 % of directors and shareholdings held by Malaysians. Additional conditions for the award of shipping licences include the following:

2-year licence without restriction: minimum 30% bumiputra (indigenous Malaysian) equity, directors and office staff; and minimum 75% of crew must be Malaysians; and age of ship must be less than 10 years. 1-year licence without restriction: minimum 30% bumiputra (indigenous Malaysian) equity, directors and office staff; and minimum 75% of crew must be Malaysians; and age of ship must be more than 10′ years and less than 19 years. 1-year licence with restriction: unable to fulfil anyone or more of the 2-year or 1-year without restriction licence; or age of ship must be more than 20 years. 6-month licence with restriction: Malaysian ship with less than 75% Malaysian crew. E.A. Technique (M) Berhad Page 32 of 52 Industry Assessment 129 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • According to the Merchant Shipping Ordinance 1952, every Malaysian vessel has to be registered with the Registrar at the Port of Registry unless exempted under the following conditions:
Any ship not exceeding 15 tonnes net used for navigation on the rivers and coastal waters of Malaysia; Any vessel licenced under section 475 of the Merchant Shipping Ordinance 1952, which is a vessel that has obtained a boat licence from the Port Officer of the nearest port where it operates..
• According to the Merchant Shipping Ordinance 1952, any ship that engages in domestic shipping must obtain a licence from the Domestic Shipping Licensing Board unless exempted under the following conditions:
Any ship under 15 tonnes net; Any vessel licenced under section 475 of the Merchant Shipping Ordinance 1952, which is a vessel that has obtained a boat licence from the Port Officer of the nearest port where it operates.; In relation to the State of Sabah, any vessel licenced under the Merchant Shipping Ordinance 1960 of Sabah; In relation to the State of Sarawak, any vessel licenced under the Merchant Shipping Ordinance 1960 of Sarawak; Any ship belonging to or in the employment of the Government of Malaysia or any State thereof or any Port Authority therein.

• According to the Merchant Shipping Ordinance 1952, no cargo ships registered in Malaysia shall proceed to sea without the appropriate safety certificates.
• The Malaysian Government is a contracting party of the conventions adopted by the International Maritime Organization and, as such, certain international certificates are a pre-requisite for all Malaysian ships operating in local and international waters. Some of the International Maritime Organization conventions including certifications that are applicable to vessel operators in Malaysia are as follows:

The International Convention for the Safety of Life at Sea (SOlAS) specifies minimum standards for the construction, equipment and operation of ships to ensure adherence to safety requirements. The International Ship and Port Facility Security Code (ISPS Code), a set of measures that are implemented to enhance maritime security is mandatory for all SOlAS contracting· parties. A vessel that is compliant should have an International Ship Security Certificate. According to the International Convention on Tonnage Measurement of Ships adopted by the International Maritime Organization, all ships built on or after 18 July 1982 shall adopt this universal tonnage measurement system, which includes the issuance of an International Tonnage Certificate. According to the International Convention on load Lines adopted by the International Maritime Organization, no ship shall proceed to sea on an international voyage unless it has been surveyed, marked and issued with an International load Line Certificate or where appropriate, an International load Line Exemption Certificate in accordance with the provisions of the present Convention. The Convention puts a limitation on the draught to which a ship may be loaded to ensure its safety. E.A. Technique (M) Berhad Page 33 of 52 Industry Assessment 130 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions The International Convention for the Prevention of Pollution from Ships (MARPOL) Convention is the main international convention covering prevention of pollution of the marine environment by ships from operational or accidental cases. In accordance to the MARPOL Convention, an International Oil Pollution Prevention Certificate shall be issued to the following ships which are engaged in voyages to ports or offshore terminals under the jurisdiction of other parties to MARPOL: Any oil tanker with gross tonnage of 150 and above; Any other ship with gross tonnage of 400 and above. • According to IMO, STRAITREP is a mandatory ship reporting system in the Straits of Malacca and Singapore, for the following categories of ships: All vessels with gross tonnage of 300 tonnes or more; All vessels of 50 meters and above in length; All vessels involved in towing or pushing, with total gross tonnage of at least 300 tonnes, or with total length of 50 metres and above; All passenger vessels with Very High Frequency (VHF); Any vessels with less than 50 meters in length or gross tonnage of less than 300 tonnes, fitted with VHF and uses appropriate traffic lane or separation zone during emergency. 11. THREAT OF SUBSTITUTES 11.1 Product Tankers • Pipelines are substitutes for all types of tankers including product tankers. However, it is not a practical substitute for product tankers as the cost of building a network of refined petroleum product pipelines to connect mUltiple sources and destinations is economically prohibitive. The volume of refined petroleum products going to each destination is not sufficiently large enough to justify the cost of constructing a network of pipelines for refined petroleum products.
• Land based product tankers using roads and rail are substitutes for marine based product tankers. Land based product tankers, especially road based product tankers are able to transport small amounts of refined petroleum products to various end-user premises and retail petrol stations in many locations which are not possible for marine based product tankers. However, marine based product tankers have economies of scale advantage as the volume of refined petroleum products carried by marine based product tankers is significantly larger compared to those carried by land based product tankers, especially road based product tankers. As such, land based product tankers coexist with marine based product tankers, and each serve different purposes and market segments.

EA. Technique (M) Berhad Page 34 of 52 Industry Assessment 131 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions
11.2 Offshore Support Vessels • There are not many practical substitutes for the use of OSV to support the offshore oil and gas industry as OSV provides the most cost effective means of transportation and towage to support various offshore activities. One possible substitute is the use of non-scheduled aviation services, in particular helicopter services. However this form of transportation is only restricted for the transportation of limited personnel and goods only. Using aviation services is significantly more expensive compared to the use of OSV, and would normally only be used for emergency, urgent matters or for key personnel. 11.3 Port Marine Services • There are no substitutes for the provision of port marine services in the form of towage, pilotage and mooring of large vessels in port areas. This is because tugboats are required to manoeuvre large vessels in ports that are commonly crowded with various types of vessels moving in and out of the port area. 12. RELIANCE ON AND VULNERABILITY TO IMPORTS • Operators that are involved in the provision of vessel related services are not reliant or vulnerable to imports of vessels constructed overseas as there are approximately 70 shipyards in Malaysia. Many of these shipyards have the capability to construct, maintain and repair many types of OSV, while a small proportion has the capability to construct, maintain and repair small sized tankers typical of product tankers.
• However, Malaysia is dependent on LNG tankers constructed overseas as there are no Malaysian shipyards with the capability to construct LNG tankers.

(Source: Vital Factor Consulting) 13. INDUSTRY PROSPECTS AND OUTLOOK 13.1 Prospects of the Marine Transportation and Support Services Segment of the Oil and Gas Industry • The prospects of the marine transportation and support services segment of the oil and gas industry are closely tied to the overall prospects of the local as well as the global oil and gas industry.
• Since end of June 2014, crude oil prices had started to decline. By late October 2014 the price of crude oil had fallen to approximately USD85 per barrel for Brent Crude Oil and USD80 per barrel for West Texas Intermediate Crude Oil. Among others, the decline in the price of crude oil was attributed to the increase in supply from the US from its production of shale oil, combined with continuing subdued demand from the European Union and China. If the price of crude oil continues to decline and is sustained at a depressed price, operators and supporting service providers to the upstream exploration and production sectors of the oil and gas industry may find that it is not economical to either explore or produce oil and gas.

E.A. Technique (M) Berhad Page 35 of 52 Industry Assessment 132 7. INDUSTRY OVERVIEW Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • A drop in activities in the upstream of the oil and gas industry would have a cascading effect on all other sectors of the oil and gas industry including, among others, the marine transportation and supporting services segment of the oil and gas industry. However, marine transportation that are focused on product tankers plying coastal waters including operators such as E.A. Technique Group, may be less affected as its product tankers are mainly carrying refined petroleum products for domestic consumption. In addition, marine services that are serving non-oil and gas related sectors, for example port operations, would be less affected by the drop in activities in the oil and gas industry.
• Nevertheless, the prospects and outlook of the marine transportation and support services in the longer term are expected to be favourable based on the following factors:

Global economic conditions are forecasted to continue growing, which would contribute positively to the oil and gas industry, including the marine transportation and support services segment; Petroleum prices are forecasted to grow in the longer term, whereby increases in petroleum prices are likely to drive oil exploration, development and production activities which would create demand for marine transportation and support services segment of the oil and gas industry; World supply and demand, as well as level of oil and gas reserves, where growth on these dependency factors will drive the demand for marine transportation and support services segment of the oil and gas industry. • Within the overall global oil and gas industry, Malaysia as an oil and gas producing country has implemented developments and initiatives that would drive the growth of the oil and gas industry within the country. These developments and initiatives include, among others: Malaysia’s exploration and production expenditure, represented by PETRONAS’ capital expenditure registered an AAGR of 8.5% between 2008 and 2013; development of marginal fields through innovative solutions, which is part of the Economic Transformation Programme (ETP) for the oil and gas sector, aimed at achieving an AAGR of 5% annually from 2010 to 2020; the development of an oil and gas hub in Southern Johor within Iskandar Malaysia including: Pengerang Deepwater Petroleum Terminal; Tanjung Langsat Petroleum Terminal (TLPT); Tanjung Bin Petroleum Terminal (TBPT); Pengerang Integrated Petroleum Complex (PIPC); Tanjung Langsat Petroleum Support Services. the increase in the refining capacity and storage capacity would continue to provide opportunities to oil and gas supporting services providers. E.A. Technique (M) Berhad Page 36 0’52 Industry Assessment 133 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 13.2  External Factors  13.2.1  Global Economic Conditions  Real GOP Growth
12% 1 –…..:A’-“c””‘tu””lIl—-.:_.__-….:F-:::o:.:::f8;:::ca=:st’–__ I /……………. I
… -.~ ………. :
9% ,I1–….-~ ..c 6% ~ Cl a.. 3% Q Cl iii 0:: ‘” 0% -3%
I I-6% I f =forecast (Source: Bank Negara Malaysia; Ministry of Finance Malaysia; secondary research by Vital Factor Consulting)
• World macroeconomics playa significant role in determining the prospects and outlook of the oil and gas industry. The premise of the projected improvement in the future is based on stabilising economic activities in advanced economies with increasing activities in emerging and developing economies.
• Overall, the global economic growth has strengthened from 3.3% in 2013 to a projected 3.3% in 2014 and 3.5% by 2015. Advanced economies has contributed to the strengthening of the global economy particularly the United States where the economy grew in the second half of 2013 as a result of stronger export growth. Within the EU area, there is growth but it is varied whereby core countries such as Germany with supportive monetary conditions and a robust labour market, has contributed to a stronger domestic demand. However, weaker countries within the EU, such as Portugal, Ireland, Italy, Greece, Spain and Cyprus are expected to face a tougher route to economic recovery due to social and economic factors such as the high debt levels and high unemployment rates. Should the social and economic problems persist in these weaker countries, they would have a negative impact on the performance of the overall EU due to the interdependencies of their economies, which would SUbsequently impact on global economic growth.
• Economic growth in emerging and developing economies, including those in Asia, is expected to be driven by favourable macroeconomic conditions and recovering demand from advanced economies.
• The strengthening of the global economy is expected to contribute favourably to the prospects of the oil and gas industry.

E.A. Technique (M) Berhad Page 37 of 52 Industry Assessment 134 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
13.2.2 Market Price of Petroleum • The market price of petroleum is dependent on world supply and demand where a situation of an increase in demand due to disruption in supply will push prices on an upward trend and similarly, an oversupply situation due to high production and lower economic activities will place downward pressure on prices. Some of the circumstances that would give rise to high production include the following:
high petroleum prices which encourages an increase in oil exploration activities and ultimately, oil production, and increasing efforts in the revival of previously uneconomical fields back to production; numerous significant oil and gas discoveries resulting in an increase in production; increase in the output quota of OPEC members; continuing production from countries that strive to earn foreign currencies from their oil and gas reserves.

• West Texas Intermediate (WTI) is a type of crude oil produced in the United States. Due to its low viscosity and sulphur content, it is rated as a higher quality crude oil and is primarily used in the production of petrol. It is commonly used as a benchmark grade of crude oil as it is an underlying commodity of the New York Mercantile Exchange’s oil futures contracts. In addition, crude oil produced in Malaysia has a closer match to WrI, compared to say, Brent crude oil. The following chart shows the West Texas Intermediate (WTI) spot price between January 2008 and September 2014:

West Texas Intermediate (WTI) Spot Price 150 Jun-08: USD 133.88
Feb~09: usa 39.09 O-t—–,—,—,.—–,.–…..,.—.,–­Jan-Oa Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 (Source: Secondary research by Vital Factor Consulting) • The WTI spot price reached a low of USD39.09 per barrel in February 2009, from a peak of USD 133.88 per barrel in June 2008. The sharp decline was due to the global economic crisis. Since then, the WTI spot price has recovered to USD 93.21 as at September 2014, attributed to supply concems caused by unrests in the Middle Eastern region and the global economic recovery, which resulted in a boost in oil demand. However, the WTI spot price as at September 2014 was still below USD133.88 as experienced in June 2008. EA. Technique (M) Berhad Page 38 of 52 Industry Assessment 135 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR COI\lSULTING Creating Winning Business Solutions
• A sustained high market price for petroleum for a period of one to two years, is likely to drive oil exploration, development and production activities which will in turn, create demand for marine transportation and support services segment of the oil and gas industry. Any increases in oil exploration, development and production activities would increase the demand for OSV, which would benefit operators of such vessels including E.A. Technique Group.
• The key demand drivers of the price of petroleum and gas include, but are not limited to, the economic conditions of major energy consumer countries such as the United States, Europe, China and India, and the use of alternative energy sources such as hydropower, solar, wind and nuclear energy. The key supply drivers of the price of petroleum and gas include, but are not limited to, the production of shale oil and gas, amount of oil reserves, and production quota from producing countries for example members of Organisation of the Petroleum Exporting Countries (OPEC).
• Nevertheless, petroleum prices are dependent on many supply and demand factors as mentioned above. In addition, like any other commodities, petroleum prices are relatively more volatile as compared to other asset classes such as equities, bonds and real estate.

13.2.3 Future Petroleum Prices • Despite the fluctuations of crude oil stock in the USA as at 31 December of each year, world petroleum prices have gradually risen since 2002. West Texas Intermediate (WTI) Spot Price 250 200 4i ~ 150 !Xl … IV Do ~ 100 ::l 50 Actual ,Forecast—..,;….;.;…–,———-­I I I I I •••·High Price : ••••••••• Scenario i ···················
eference: ~./ ,: Case ‘:
‘I _________ Low Price ————–Srena~o O+-r-…–.–,—r-l—r—,—,-,…-,—-,–,—r-r–.–,–..,.–, 2002 2014f 2040f f= forecast Note: Reference Case assumes annual economic growth of 2.4% and takes into consideration of technology and other possible factors. High Price Scenario assumes from a combination ofhigher demand for petroleum and other liquid fuels and lower global supply. Low Price Scenario assumes a combination of low demand for petroleum and other liquid fuels and higher global supply. (Source: Secondary research by Vital Factor Consulting) E.A. Technique (M) Berhad Page 39 of52 Industry Assessment 136 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 13.3 13.3.1 1.0 0.8 c ~ ~ 0.8 iO’ 0 8: 0.4 In ~ to al 0.2 0.0 • As depicted in the diagram above, the reference case for WTI spot price is forecasted to drop in the short term, before it continues to grow between 2016 and 2040. However, in the situation of higher demand and lower global supply, the WTI spot price is expected to register higher growth (represented by the High Price Scenario line) during the forecasted period. Growth in petroleum prices is likely to drive oil exploration, development and production activities which will in turn, create demand for marine transportation and support services provider in the oil and gas industry, including E.A. Technique
Group. .
• Conversely, in the situation of lower demand and higher global supply, the WTI spot price is expected to decline (represented by the Low Price Scenario line) during the forecasted period. In such situation, oil exploration, development and production activities may slow down, resulting in an undersupply situation, which may in turn stimulate growth in the WTI spot price. As such, operators including E.A. Technique Group, who have long term contracts would be insulated from short term price fluctuations.
• The High Price Scenario and Low Price Scenario would represent the upper limit of a best case scenario and a lower limit of a worst case scenario respectively. The likely scenario during the forecasted period would be fluctuations within these upper and lower limits.

Internal Factors Production of Oil and Gas Products • An increase in the production of oil and gas products will continue to drive upstream activities, which will have a positive flow-on effect for the marine transportation and support services segment including the product tanker and OSV sectors of the offshore oil and gas industry. Liquids· Production in Malaysia ,  Actual  ,I,  Forocast  ,  AAGR (2009 -2013)  =-3.6%  MGR (2013 -2017) =8.8%  I  I  I  I
J­2009 2010 2011 2012 2013 20141 20151 20161 20171 f= forecast • Liquids comprise a/l petroleum products, natural gas liquids,  biofuel,  and  liquids  derived  from  other  hydrocarbon sources  (Source: Bank Negara Malaysia for 2009  to  2013;
secondary research by Vital Factor Consulting for 2014 to 2017) 8 I
e 6…..
0 ~ Q. <l 4..
u. :su :0 (J 1′! 2..
.., c &l o r­–.­’-r­-……­-.-­
~ 2009 2010 2011 2012 2013 20141 20151 20161 20171
f= forecast (Source: Bank Negara Malaysia; Economic Transfonnation Programme) Natural Gas Production in Malaysia Actual Forecast, ,I, , MGR (2009 -2013) =2.0% I MGR (2013 -2017) “-5.1% I I I E.A. Technique (M) Berhad Page 40 of 52 Industry Assessment 137 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
• Between 2013 and 2017, the production of liquids is expected to grow at an AAGR of 8.8% while natural gas production is expected to decline at an average annual rate of 5.1 %.
• Under the Economic Transformation Programme (ETP), the Malaysia Government has introduced several Entry Point Projects (EPPs) in order to sustain the production of oil and gas products. These EPP include implementation of enhanced oil recovery in existing oil fields, and intensifying exploration activities. Furthermore, PETRONAS has committed to a RM300 billion CAPEX allocation for a 5-year period between 2011 and 2015. This CAPEX allocation will have a spill over effect in driving demand for upstream oil and gas activities including explorations and appraisal segments to expand on oil and gas reserves in Malaysia. The recent new discoveries have been encouraging, indicating that recent and on-going exploration efforts are bearing fruit where in 2013, there were 15 new discoveries, of which 10 were discovered in Malaysia and five were overseas (Source: PETRONAS).

13.3.2 Exploration and Production Spending • The level of investment made by oil and gas industry operators and PSC contractors in the upstream sector would have a positive effect on the level of demand for offshore oil and gas supporting services. Typically, part of the investment is channelled to engagement of services rendered by offshore oil and gas supporting service providers.
• As PETRONAS is Malaysia’s national oil and gas major, its allocation and utilisation of capital expenditure will provide growth for offshore supporting activities of the oil and gas industry in Malaysia. PETRONAS’ capital expenditure (CAPEX) is mainly channelled towards upstream activities.

PETRONAS’ Capital Expenditure Actual ‘ Forecast80,—————:. AAGR (2008-2013) ‘” 8.5% : , I I I I
I I I I I I I I I I I I I I I I I I I I I 2008a 2009a 2010a 2011a 2011b 2012b 2013b 2014f 2015f 60
20 o a=Full year up to 31 March ;b =Full year up to 31 December; f = Forecast for full year up to 31 December (Source: PETRONAS)
• Over the years, PETRONAS’ CAPEX has been increasing at an AAGR of 8.5% between 2008 and 2013. The returns on the utilisation of this CAPEX are reflected in PETRONAS’ strong balance sheets, which recorded a total asset value of RM488.3 billion as at 31 December 2012. E.A. Technique (M) Berhad Page 41 of 52 Industry Assessment 138 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
• PETRONAS is committed to invest in a budgeted CAPEX of RM60 billion annually from 2011 until 2015, cUlminating in a total of RM300 billion budgeted CAPEX in the oil and gas industry in Malaysia. The continuing CAPEX allocations from PETRONAS will stimulate the demand of offshore supporting activities including marine transportation and support services segment within the oil and gas industry. 13.3.3 Economic Transformation Programme (ETP) • Under the ETP, the Government of Malaysia and the Oil, Gas and Energy
industry will focus on four main thrusts: sustaining oil and gas production; enhancing downstream growth; making Malaysia the Asian hub for oilfield services; building a sustainable energy platform for growth.
• The Oil, Gas and Energy segment is one of the 12 National Key Economic Areas (NKEAs), aimed at achieving an AAGR of 5% annually from 2010 to 2020. This segment is projected to deliver a gross national income (GNI) impact of RM131.4 billion by 2020. Some of the relevant entry point projects (EPPs) in relation to oil and gas industry are:

EPP 1: The Enhanced Oil Recovery (EOR) uses external energy such Rejuvenating as gas, chemical injection or thermal flooding to increase the existing fields amount of oil recovered from underground reservoirs from 20­through enhanced 35% to 30-50%. PETRONAS intends to promote and oil recovery (EOR) encourage the use of EOR technique with the right economic incentives. EPP 2: Small fields are fields with remaining resources of less than 30 Developing Small million barrels of recoverable oil. Expected revenue streams Fields through of small fields are smaller due to the expensive cost of Innovative infrastructure. PETRONAS will attract specialists in small field Solutions development and ensure operators receive enough economic incentives. In order to improve the economics of small field development, PETRONAS will facilitate collaboration between players to encourage sharing of facilities. EPP3: New and sizeable discoveries will need to be made to ensure Intensify the timely development of resources and sustaining Malaysia’s Exploration position as one of Asia’s large oil and gas producers. As such, Activities PETRONAS is reviewing PSG terms and introducing new petroleum arrangements, as well as improve and expedite future exploration work. EPP4: With Johor’s strategic port locations, close proximity to Building a Singapore, land availability and deep-water accessibility, the Regional Oil Malaysian Government intends to build a regional oil storage Storage and and trading hub in the Southern parts of Johor. This is in view Trading Hub of the expected growth in consumption of petroleum products in Asia countries and imports of crude oil from Africa, Middle East and Latin America which will create demand for storage of crude oil and petroleum products. EPP5: With the view of meeting the continuing demand for liquefied Unlocking natural gas (LNG) in Malaysia, the Malaysian Government has Premium Gas identified EPP aimed at bUilding the facilities to store and trade Demand in LNG to meet the increasing industrial demand in lVIalaysia. Peninsular Malaysia (Source: Economic Transformation Programme) EA. Technique (M) Berhad Page 42 of 52 Industry Assessment 139 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • These relevant EPPs above are likely to have a spill over effect to stimulate the demand of upstream oil and gas activities and creating business opportunities for operators within the marine transportation and support services. 13.3.4 Development of Oil and Gas Hub in Southern Johor • One of the Malaysian Government initiatives for Iskandar Malaysia is to develop Southern Johor into an Oil and Gas hub including among others, the development of oil refineries, LNG storage and regasification plant, petrochemical refineries and oil storage facilities. In view of this, the following developments that have been identified in Iskandar Malaysia are as follows: (i) The Pengerang Deepwater Petroleum Terminal, with a total proposed investment of RM5 billion, aims to have six berths offering tankage facilities for the handling, storage, processing and distribution of crude oil, petroleum, petrochemicals and chemical products. The first phase of the project, housing a total tankage capacity of 1.3 million cubic metres, commenced operation in April 2014 with an initial capacity of 432,000 cubic metres. Construction for the first phase will carry on until a storage capacity of 1.3 million cubic metres is achieved. By 2020, the terminal is expected to house a total storage capacity of approximately 5 million cubic metres with the potential of an additional 2 million cubic metres. (Source: Iskandar Regional Development Authority and secondary research by Vital Factor Consulting)
(ii) The Tanjung Langsat Petroleum Terminal (TLPT), with a total proposed investment of RM1.54 billion, is an established port and industrial park. It currently has 5 liquid berths with storage facility of about 740,000 cubic metres. TLPT is expected to have two new liquid berths with storage facility housing 600,000 cubic metres with the aim to reach 2 million cubic metres of storage capacity by 2020.

(Source: Iskandar Regional Development Authority and secondary research by Vital Factor Consulting) (iii) The Tanjung Bin Petroleum Terminal (TBPT), a total proposed investment of RM4.5 billion, currently has 5 berths, four 30-inch fuel oil pipelines with another six smaller pipelines for clean products. It currently has storage capacity of approximately 890,000 cubic metres and is able to handle all sizes of tankers. TBPT is expected to create an additional capacity of 220,000 cubic metres. (Source: Iskandar Regional Development Authority and secondary research by Vital Factor Consulting) (iv) The total investment of the development in the Pengerang Integrated Petroleum Complex (PIPC) is RM74.9 billion. The development of PIPC in Johor will house oil refineries, naphtha crackers, petrochemical plants, an LNG import terminal and a regasification plant. (Source: Iskandar Regional Development Authority)
(v) Tanjung Langsat Petroleum Support Services Hub offers land bank with potential for extension of approximately 1,000 acres. (Source: Iskandar Regional Development Authority)

E.A. Technique (M) Berhad Page 43 of 52 Industry Assessment 140 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions (vi) The development of a petroleum trading hub is part of the Malaysian Government’s programme to encourage and attract global petroleum trading companies to use Malaysia as a platform to enter the Asia­Pacific region. (Source: Iskandar Regional Development Authority) 14. CHALLENGES AND OPPORTUNITIES IN MALAYSIA • Although the oil and gas industry in Malaysia is currently robust, it faces a number of challenges that need to be addressed to ensure its long-term sustainability.
• The current challenges faced by the oil and gas industry in Malaysia include maturing oil and gas fields, development of marginal fields and other resources, the need to discover new oil and gas reserves and technical complexity of operating in deepwater environment.
• The implementation of PETRONAS related and Malaysian Government initiatives in promoting the sustainability of the oil and gas industry in Malaysia will provide opportunities for oil and gas operators and supporting service providers including the marine transportation and support services segment.
• The following section is a discussion on each of these challenges and associated opportunities for business development for operators with the appropriate skills and capabilities.

14.1 Maturing Oil and Gas Fields Challenge • According to PETRONAS, Malaysia has a total of 132 oil and gas fields as at 31 December 2013. As many of these fields came on-stream in the 1980’s and 1990’s, they are now considered mature fields whose output is plateauing or even declining. Although new oil and gas fields are steadily being brought into production, the incremental output of these new fields has not been sufficient to overcome the declining output of the mature fields. As a result, the average daily production rate of crude oil and condensates between 2009 and 2013 declined at an MGR of 3.6%, with fluctuations on a year-to-year basis. In contrast, the average daily natural gas production was more consistent and increased at an MGR of 2.0% between 2009 and 2013. Opportunities • PETRONAS is actively promoting the application of enhanced oil recovery (EOR) to maintain or enhance output from Malaysia’s maturing oil and gas fields. To achieve this strategic goal, PETRONAS sanctioned two EOR projects during 2011, namely for the Tapis and Guntong fields offshore of Peninsular Malaysia where production is expected from these fields within three years (Source: PETRONAS). E.A. Technique (M) Berhad Page 44 of 52 Industry Assessment 141 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
• As part of the strategy to promote EOR, PETRONAS also introduced new fiscal terms to provide incentives for development and production from mature oil and gas fields. In May 2012, PETRONAS awarded a new PSC to Talisman Malaysia Ltd and PETRONAS Carigali Sdn Bhd for continuing production, further development and improved recovery of crude oil from the Kinabalu Fields, where there are a number of fields with mature reservoirs located in offshore Sabah. This PSC was awarded under the new Progressive Volume-Based (PVB) fiscal terms with incentives for the development and production of mature oil and gas fields taking· into consideration the increasing risks associated with mature fields over the lifetime of the field. The incentives include progressive profit sharing to encourage improvements in oil recovery and increases in output. (Source: PETRONAS) 14.2 Marginal Fields and Stranded Reserves Challenges • The Malaysian Government had identified the development of small or marginal oilfields, which are fields that contain reserves of 30 million BOE or less, as one of the strategies for addressing plateauing or declining output at mature oil and gas fields. As at December 2013, there were approximately 100 marginal fields in Malaysia (Source: PETRONAS).
• There are also a number of stranded reserves that are located far from onshore oil and gas facilities that have been identified in Malaysia. Stranded reserves are usually not developed for production as their remoteness increases the investment required to install facilities to transport crude oil and natural gas to onshore facilities.
• The ability to successfully develop marginal and stranded reserves into productive oil and gas fields would have the two-fold benefits of increasing Malaysia’s crude oil and natural gas output, and adding to the country’s reserves.

Opportunities .. • PETRONAS introduced RSC to facilitate the development of, and production from marginal fields. As at 31 October 2014, PETRONAS has awarded six . RSC. The first RSC was awarded in January 2011 for the development and production of the Berantai field, followed by a second RSC in August 2011 for the Balai Cluster, and a third RSC in June 2012 for a cluster of three marginal fields, namely Kapal, Banang and Meranti. The fourth RSC was awarded in October 2013 for Tembikai-Chenang cluster. In March 2014, PETRONAS awarded its fifth RSC for a small field known as Tanjong Baram field. The sixth RSC, also known as a SFRSC, was awarded in June 2014 for the development and production of petroleum from the Ophir field, offshore Peninsular Malaysia. (Source: PETRONAS) E.A. Technique (M) Berhad Page 450152 Industry Assessment 142 7. INDUSTRY OVERVIEW (Cont’d) a VITAL FACTOR CONSULTING Creating Winning Business Solutions
• In June 2012, PETRONAS awarded three new PSC to carry out the development and commercialisation of nine stranded gas fields located in the North Malay Basin in offshore Peninsular Malaysia. The project will include the development of a new gas gathering, processing and transport hub including 300 km of subsea pipeline and a new onshore gas receiving station with membrane technology acid gas removal system. The successful implementation of this project will commercialise reserves in the nine stranded fields amounting to a total of 1.7 trillion standard cubic feet of natural gas.
• In 2013, PETRONAS Carigali Sdn Bhd incorporated a new sUbsidiary, VESTIGO Petroleum Sdn Bhd, which is focused on development and production from small, marginal and mature fields. One of the goals of VESTIGO Petroleum Sdn Bhd is to build niche technical and executional capabilities in the development and production of these fields, which can also be applied in other countries. On-going marginal field development will result in the installation of new offshore production platforms, which is expected to create opportunities for providers of marine transportation and support services segment of the oil and gas industry.

14.3 Need to Discover New Oil and Gas Reserves Challenge • In order to maintain the sustainability of the oil and gas industry in Malaysia, PETRONAS and PSC contractors have to continuously carry out exploration activities with the aim of discovering new reserves. In addition, the cost of exploration is likely to increase as unexplored areas are now further from shore, and are in deeper waters. The level of uncertainty may also increase due to the geological characteristics of these areas as compared to areas that have already been explored especially in shallow waters. Opportunity • Some of the significant recent discoveries include the Drilling of Cendor Graben-2 appraisal wells in offshore Peninsular Malaysia which indicated estimated recoverable resources of over 200 million BOE. Other discoveries include a preliminary assessment of the Kuang North field offshore Sarawak which indicated gas-in-place of approximately 2.3 trillion standard cubic feet and a preliminary assessment of the Tukau Timur Deep-1 well offshore Sarawak which indicated gas-in-place of approximately 2.1 trillion standard cubic feet.
• PETRONAS continued to award PSC to open up new areas for exploration with nine new PSC awarded in 2012, including two PSC specifically for deepwater blocks. As at December 2013, there were 100 active PSC.

(Source: PETRONAS) EA. Technique (M) Berhad Page 46 of52 Industry Assessment 143 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR COI\lSULTING Creating Winning Business Solutions
14.4 Technical Complexity of Operating in Deepwater Environment Challenge • The future of the offshore oil and gas industry in Malaysia lies in the country’s unexplored deepwater. areas where many of the recent discoveries of new reserves, such as the discovery of natural gas reserves at Menggatal-1 well in offshore Sabah, are located in deepwaters. Exploration, development and production operations in deepwater areas are generally more expensive and challenging compared to those in shallow waters. Jack-up drilling rigs cannot operate in deepwaters, thus requiring the use of semi-submersible drilling rigs and drillships. Different types of production platforms, such as truss spar floating platforms, tension leg platforms or floating platforms are used in deepwater environments. Deepwater areas are also usually located further from the shore. In that respect, PSC and RSC operators will have to overcome these challenges if they are to economically develop and produce from deepwater reserves. Opportunity • As at December 2013, PSC operators in Malaysia have successfully developed and produced from two deepwater fields in offshore Sabah, namely Kikeh field and Gumusut-Kakap field. The first production of crude oil at Kikeh field and Gumusut-Kakap field were achieved in August 2007 and November 2012 respectively. Both the Kikeh and Gumusut-Kakap fields are sizable producers of crude oil. Peak production at the Kikeh field is estimated at 120,000 BOE per day. The initial production capacity of the Gumusut-Kakap field is estimated at 25,000 BOE per day and projected to achieve peak production capacity of 120,000 BOE per day once it is fully developed. 15. THREATS AND RISK ANALYSIS OF MARINE TRANSPORTATION AND SUPPORT SERVICES 15.1 Global Economic Slowdown • Growth rates of the global economy had shown a declining trend from 5.4% in 2010 to 3.3% in 2013. Economies of some of the major countries and region had also experienced lower growth rates as demonstrated by their GDP growth rates as follows: EU 2010 = 2.0%; 2013 = 0.2%; USA 2010 =2.5%; 2013 =2.2%; Japan : 2010 =4.7%; 2013 =1.5%. In addition, China’s economy had also shown sign of slowing with GDP growth of 10.4% in 2010, and 7.7% in 2013. (Source: Secondary research by Vital Factor Consulting) • Any widespread andlor prolonged economic slowdown would affect consumer and business confidence, and subsequently their propensity to spend. The uncertainty over the global economies may also impact on the local economy. This slowdown would ultimately affect the demand for oil and gas supporting services. E.A. Technique (M) Berhad Page 47 of 52 Industry Assessment 144 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
Mitigating Factors • A prolonged global economic slowdown andlor uncertainty would only have an impact on dampening upstream oil and gas activities namely exploration and development activities, however production activities are likely to be less affected as production is continuous until such time the well is exhausted of extractable oil and gas. Marine transportation and support service providers who have long term contracts are, to a certain extent, insulated from the effects of a global economic slowdown while other service providers without long-term contracts are more exposed to the impact of a global economic slowdown.
• In addition, Malaysia as an oil and gas producing country, has in place, all the Government initiatives and PETRONAS’ long term strategies for the development of the oil and gas industry in Malaysia, which would still continue to provide opportunities for oil and gas operators and service providers alike.

15.2 Pirate Attacks • lVIerchant ships or vessels run the risk of being targeted by pirates during a voyage, especially for ships that carry large quantities of high-value goods including product tankers. Mitigating Factors • According to the International Maritime Bureau, global piracy and armed robbery decreased from 297 incidents to 264 incidents from 2012 and 2013 respectively. This was mainly attributed to improved anti-piracy operations and security measures undertaken by the relevant authorities and vessel operators.
• Operators that operate outside the piracy prone areas can minimise the risks of being attacked. In the case of a pirate attack, operators that have shipping insurance policy may be compensated for some of their losses. In addition, vessel operators that have a security team on board and adopt the necessary anti-piracy measures are more likely to be able to fend off a pirate attack, should one occur.

15.3 Oil Spill from Tankers • Oil spills from tankers due to improper storage or handling run the risk of polluting the environment. An operator may be subjected to administrative action imposed by the relevant authorities, which may have an adverse impact on the operator’s market reputation, financial performance and future prospects. Mitigating Factors • Operators that continually ensure the safe and proper handling of petroleum products are likely to be able to minimise the risk of oil spills. This includes complying with international pollution prevention standards and providing oil spill prevention training. Furthermore, operators of double-hull tankers are better equipped to minimise the risk of oil spills compared to operators of single-hull tankers. This is because double-hull tankers have two layers in which the second layer acts as a back-up barrier in case the first layer is damaged. E.A. Technique (M) Berhad Page 48 0’52 Industry Assessment 145 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
15.4 Sustained Fall in 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 activities, as well as increased activities in exploration and development to take advantage of high hydrocarbon prices. 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.
• 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 including those in the marine transportation and support services segment.

Mitigating Factors • The Organization of the Petroleum Exporting Countries (OPEC), a grouping of many of the world’s largest oil producing nations, has some influence on the price of oil through their control of a sizeable proportion of the world’s production capacity and reserves. Although the influence of OPEC over the market price of oil is not absolute, it has a vested interest in ensuring that oil prices do not collapse, and as a result are likely to actively attempt to sustain oil prices at an “acceptable” level.
• Operators that have secured long-term contracts are less likely to be affected by fluctuations in the prices of hydrocarbons.

15.5 Depletion of Hydrocarbon Reserves • All hydrocarbon deposits are non-renewable as it is not possible to regenerate extracted hydrocarbons within a practical timeframe. As such, hydrocarbon resources in all hydrocarbon-producing regions will eventually be depleted. It is likely that demand for offshore·· oil· and gas supporting services will be affected should there be a decline in upstream activities brought about by the depletion of hydrocarbon resources. Mitigating Factors • PETRONAS has implemented various measures and initiatives to increase Malaysia’s crude oil and natural gas reserves, with new discoveries contributing to the hydrocarbon reserves in the country. In addition, current reserve estimates generally do not take into account the following: existence of currently undiscovered hydrocarbon reserves; technological advances that increase the amount of hydrocarbons that may be commercially extracted from existing reserves; technological advances that enable production from previously inaccessible regions. E.A. Technique (M) Berhad Page 49 0’52 Industry Assessment 146 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
15.6 Liberalisation of the Cabotage Policy • The Cabotage Policy was implemented by the Malaysian Government in 1980 to allow only vessels flying the Malaysian flag to transport goods for domestic trade. However, the liberalisation of the Cabotage Policy in 2009 has allowed vessels with foreign flags to transport containerised transhipment cargo between Sepanggar Port, Bintulu Port, Kuching Port and Port of Tanjung Pelepas and Port Klang. This may lead to increased competition for domestic vessel operators including product tanker operators. . Mitigating Factors • Vessel operators that are cost competitive, capable of providing quality services and practice safe shipping would be in a better position to mitigate against competition from foreign vessel operators. Vessel operators that transport mainly dry bulk, liquid bulk and general cargo are not affected by the liberalisation of the Cabotage Policy. 15.7 Implementation of Goods and Services Tax • In the Budget 2014, the Government announced that the existing sales tax and service tax will be abolished and will be replaced by the Goods and Services Tax (GST), which will be effective from 1 April 2015 onwards. The Malaysian Goods and Services Tax Act 2014 was gazetted on 19 June 2014. The GST will be applied to all goods and services unless they are not within the scope of GST. GST is to be charged and levied on supply of goods or services made or provided in Malaysia, such as marine transportation and supporting services. Mitigating Factors • The GST is a broad base tax and all providers of marine transportation and support services will be equally affected. 16. CRITICAL SUCCESS FACTORS • Providers of marine transportation and support services operate within a competitive environment where there are a large number of operators. While there are many factors affecting business operations, some factors that are critical to the long-term sustainability and growth of businesses within the segment are discussed below. 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. E.A. Technique (M) Berhad Page 50 of 52 Industry Assessment 147 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
Compliance with International Standards • Vessel operators that have obtained international certifications from the International Maritime Organization are able to provide assurance of quality to their customers. Operators must also adopt the necessary safety requirements to minimise or eradicate any potential threat to their business operations. In addition, all vessels meant for international voyage must also comply with the International Maritime Organization conventions and obtain the necessary certifications. . Good Health, Safety and Environment (HSE) Management Track Record • HSE management is generally a key factor in operating in the oil and gas industry. Offshore 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 new and existing customers. Effective Management of Fleet of Vessels • Operators that are able to manage their fleet of vessels effectively including the ability to continually evaluate the value of their assets against maintenance costs, asset disposal, acquisition of newer vessels, and optimising between vessel ownership and chartering are in a stronger position to be profitable and sustain their business in the longer term. Established 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.
Strong Financial Position
• Operators that are in a healthy financial position are more likely to retain and attract new customers. Potential customers commonly emphasise financial stability as a key criterion in the evaluation of a prospective vessel operator or service provider as they would not want any disruption in their shipment and supply of products and services, particUlarly in long-term contracts. A financially strong operator may also be able to acquire, maintain and repair new and eXisting vessels.

E.A. Technique (M) Berhad Page 51 of 52 Industry Assessment 148 7. INDUSTRY OVERVIEW (Cont’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions We, Vital Factor Consulting, 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. Potential subscribers of the shares offered by E.A. Technique Group are advised to read and understand the contents of the entire prospectus. If in doubt, please seek professional advice. 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 E.A. Technique (M) Berhad Page 52 of 52 Industry Assessment 149

 

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