Industry Overview

8. INDUSTRY OVERVIEW 8. INDUSTRY OVERVIEW o[fl)~D@~(Q]
PRIVATE & CONFIDENTIAL THE ENERGY ANALYSTS Date: 3 May 2012 SapuraKencana Petroleum Berhad (formerly known as Sspura-Kencana Petroleum Berhad) Lot 6.08, 6th Floor Plaza First Nationwide 161 Jalan Tun H.S. Lee 50000 Kuala Lumpur Attention: Board of Directors Dear Sirs, SAPURAKENCANA PETROLEUM BERHAD (FORMERLY KNOWN AS SAPURA-KENCANA PETROLEUM BERHAD) (“SKPB”) INDEPENDENT MARKET RESEARCH REPORT ASSESSING THE CORE MARKETS IN WHICH SKPB OPERATES AND THE PROSPECTS OF SKPB PURSUANT TO THE MERGER OF THE ENTIRE BUSINESSES AND UNDERTAKINGS. INCLUDING ALL ASSETS AND LIABILmES OF SAPURACREST PETROLEUM BERHAD AND KENCANA PETROLEUM BERHAD UNDER SKPB (“MERGER”) We. Infield Systems Limited (“ISL”), have prepared the Independent Market Research Report C”Report”) on the assessment of the core markets in which SKPB operates and the prospects of the SKPB pursuant to the Merger for inclusion in SKPB’s Prospectus dated 16 May 2012 in relation to the listing ot SKPB on the Main Market of Bursa Malaysia Securities Berhad. We acknowledge that this Report will be included in the Prospectus and we further confirm that we are aware of our responsibilities under Section 214 of the Capital Markets and Services Act, 2007. We acknowledged that if we are aware of any significant changes to the accuracy of the information contained in this Report between the date of this Report and the issue date of this Prospectus, or after the issue of this Prospectus and before the issue of the securities, we have an on-going obligation to either cause this Report to be updated so as to correct any inaccuracies, and, where applicable. cause SKPB to issue a supplementary prospectus, or, should they fail to do so, withdraw our consent to the inclusion of this Report in the Prospectus. ISl has prepared this Report in an independent and objective manner and has taken adequate care to ensure the accuracy and completeness ot this Report. We believe that his Report presents a true and fair view of the industry within the limitations of among others, secondary statistics and primary research. Our research has been conducted with an Moverall industry perspectiveMand may not necessarily reflect the performance of individual companies in this industry. We are not responsible for the decisions and/or actions of the readers of this Report. This Report should also not be considered as recommendation to bUy or not to bUy the securities ot any company or companies. y U~~~fUL LJ~
Quentin Whitfield Director -Business Strategy and Analysis Infield Systems Limited SUite 502 IAlic Street L,:mdon EI 8DE. UK T: +’14 (0)2074235000 F: +44 (0)207423 5050 E: d.1ta@infield.com \V: www.infield.com P.~glsl~r·ed Office .IS above w,e:;”st”,red In Engl~nd No 02′)96087 VA; I’-Jo. GB :’21181 46,’ IIJMa.laysia  ~HegJonal  :o;Neighhouring  70,000  E60,OOO§ 50,000  3.t%  -Ml,ODO  ~ 30,000  () 20,000  10,000·­ o  ,  ,  2006 20.07 2008  2009 2010  2011  2012 2013 2014 2015  Year of Spend  Figure 1.1: Total offshore Oil and Gas infrastructure Capex by  Figure 1.2: Offshore Oil & Gas Capex by region,  region, 2006-2015 [Source: ISL]  2011-2015) [Source: ISL]
8. INDUSTRY OVERVIEW (cont’d) 1 EXECUTIVE OVERVIEW
1.1 Global Offshore Industry Trends & Prospects The O&G industry is one of the most important mainstays for today’s increasingly globalised economy. It provides the energy required for manufacturing and industry, the petrol required for transportation and trading, the packaging and plastics which enable products to come to market in good order whilst also providing the fuel for heating and cooling our homes and offices. Indeed, hydrocarbons are of pivotal importance in the modern world, and they pervade all levels of the global economy. Today the offshore industry is an increasingly important part of global O&G production. Indeed, as onshore production has levelled-out, and in some cases declined, it has been new offshore developments that have sustained the level of production required to meet increasing global demand for O&G. However, like the onshore industry, the offshore industry is also maturing and ISL has observed a marked decline in the number of large shallow water discoveries in recent years. As this process of maturing continues, an increasing proportion of exploration and production (“E&P”) activity will continue to take place in deeper waters, more remote locations and increasingly harsh climates. For many oil companies, these ‘frontier’ plays form the cornerstone of their offshore operations as the era of ‘easy oil’, where elephant field discoveries in shallow waters, come to a close. For the international large oil companies which typically cover the upstream and downstream O&G value chain, the importance of deepwater frontiers is compounded by their technical competitive advantage in these difficult operational environments, and the continued nationalisation of traditional onshore and shallow water reserves. Today, as demand for O&G strengthens and onshore oil production growth struggles to keep pace, the macro environment for the continued development and evolution of the offshore industry remains positive. ISL forecasts total offshore Capex to increase from an estimated USD336 billion between 2006 and 2010 to nearly USD500 billion between 2011 and 2015. This rise in Capex is not only driven by the increasingly sophisticated nature of offshore projects but also by the growing number of field developments. Indeed, between 2011 and 2015, ISL forecasts that a total 1,310 offshore fields will be bought into production, representing an increase of 43% over the previous five-year period. For the Group’s target markets consisting of Malaysia, Regional (Asia), Neighbouring (Australasia & the Middle East), Brazil and the North American markets following the completion of the merger of SapuraCrest and Kencana Petroleum, ISL forecasts a total offshore infrastructure Capex of USD298 billion over the next five years -representing a market growth of over 42% compared to the previous five year period. d © Infield Syslerns Limiter} 2012 126 8. INDUSTRY OVERVIEW (cont’d) Local Market -Malaysia: Much like the wider global market. ISL expects growth within the Integral Key Group’s local geographical area. During the next five years, total offshore infrastructure Capex in Malaysia is forecast to increase from USD11.6 billion (2006-2010) to nearly USD20 billion (2011-2015). This growth in Capex is being driven by a significant increase in the number of fields being brought into production. Indeed, over the next five years ISL forecasts a total of 73 project developments, representing a 121 % increase compared to the previous five year period. At the same time field developments are becoming increasingly complex as operators explore and develop deepwater reserves with projects such as Gumusut Kakap and Kikeh being key drivers of this trend. Within Malaysia, ISL continues to see the importance of the steady guiding hand of the Malaysian government and PETRONAS, who are looking to develop domestic O&G reserves with as much participation from local companies as possible. Initiatives such as the PETRONAS licenses for services such as fabrication, should mean that a handful of Malaysian based companies have maximum exposure to the Capex that ISL forecasts to be invested. Regional Market -Asia: The level of offshore Capex in the Asia region (not including Malaysia) is expected to peak in the short-term at an estimated USD16 billion during 2012. Thereafter the level of spending is expected to remain relatively steady with an annual average Capex of USD14.6 billion between 2012 and 2015. If this level of spending is realised over the next five years the market would have increased by 52% compared to the previous five year period. One of the real growth opportunities in the Asia region lies within the development of the subsea production market. Indeed, though growing from a relatively limited base, subsea spending is forecast to increase dramatically in Asia with annual demand expected to peak during 2013. Neighbouring Market -Middle East & Caspian Sea and Australasia: The Australasian offshore O&G industry primarily comprises projects and prospects based off the coast of Western Australia and the Northern Territory. Over the next five years, total offshore field development Capex is forecast to increase from an estimated USD3.6 billion in 2011 to USD9.7 billion by 2015. The majority of Australasian Capex is expected to be directed towards projects in water depths of less than 500 metres. However, in the longer term, Australia is expected to have significant deepwater potential, with activity expected to peak in 2015 at almost USD2.’1 billion. The second neighbouring market, the Middle East, is very much a traditional shallow water region that is characterised by large reserve discoveries in benign operating environments. ISL forecasts regional Capex to remain at a high but steady level within the Middle East over the next five years. Indeed, Capex is expected to increase from USD7.7 billion in 2011 to USD10 billion in 2012, where it is expected to remain at this level through to 2015. Given the traditional nature of field developments in the Persian Gulf and Caspian Sea, ISL will see a much higher Capex on fixed platforms and shallow water pipelines rather than the SURF and floating platform markets. Brazil: Driven by the prolific deepwater frontiers and pre-salt plays, Brazil’s offshore market has entered a significant and prolonged growth phase. Total infrastructure Capex is now expected to increase year-on-year from a base of USD10.3 billion in 2011 to USD13.7 billion by 2015. The Brazilian deepwater market is forecast to account for nearly 90% of national offshore Capex, with a high proportion of this investment directed towards floating production systems and all the ancillary equipment required for such projects. North America: Despite enduring a difficult three years due to the combined impacts of global economic recession, the Macondo disaster, and a period of depressed gas prices, the North American market, dominated by the Gulf of Mexico (“GoM”), still holds considerable potential for offshore E&P activity. However, this growth is forecast to become increasingly focused on deeper waters. Overall, North American offshore Capex is forecasted to increase from USD9 billion in 2011 to over USD12.5 billion by 2015. Deepwater (more than 500 metres) activity is expected to account for over 76% of total North American offshore infrastructure investment to 2015, with pipelines, subsea equipment, and floating platforms forecasted to assume 94% of this spending. 3 I 7-!nf;eie} Systems LIiWidcJ 201./
8. INDUSTRY OVERVIEW (cont’d) 2 GLOBAL ENERGY OUTLOOK
2.1 Recent global market performance The last five years have seen a turbulent mix of sustained and often rapid economic growth, followed by a period of global economic recession and the financial crisis, which has more recently been followed by an uneasy time of market recovery. This uneasy time of market recovery seems all too fragile in the light of the questionable stability of the Eurozone, the saliency of America’s debt repayment plans, and the unknown outcome of the Arab spring. 160  140  ……. Brent Spot  :0 .0 ~  120 100 80 60 40 20  .’ …………… …..* …•… ..~..•… …•… ……..  . . …..  .’ .;+., .  ••  o .j……………….•……………………,………… ….••.  ,……………………………………  ·T·············· ···T···············  -r……………..•…………………..,  T····················,·························.······………………•……………………,  ,  Figure 2-1: Brent Spot price 2004 -Mid 2011 [Source: BPStatistical Review of World Energy July 2011, ISL]

 

The price of oil is a good way of gauging economic development and demand for energy. Using the graph above, we can observe the price of oil -and implicitly demand for oil based products, back to 2004. The story is relatively straightforward until 2007; between 2004 and the end of 2007 the price of oil increased steadily and consistently. This reflected a steadily growing global economy, and created a positive environment for oil companies to invest in the development of hydrocarbon reserves. We subsequently saw more fields coming on­stream, and more production brought to market. In early 2008 the price of oil started moving with more volatility. This started with a price run, where the price of oil started to accelerate rapidly, symptomatic of a global economy which was overheating, and arguably exaggerated by financial institutions ‘gambling’ within commodities classes. The price of oil reached a record peak of $147 a barrel in July 2008, the next step from here was a price crash. Although the causes of this crash are multiple and varied, it is often simplified as a financial crisis, attributable to financial institutions having over stretched in terms of lending capacity, and having been too optimistic of those whom money was leant to. The period then from 2008 through to early 2010 is one characterised by a number of factors which undermine investment and development within the oil and gas sector. These include; volatile oil prices and lack of forward visibility over oil consumption. Lack of capital available to those looking to invest in delivering new sources of hydrocarbons to market. Flight to quality of what available capital there is. Ultimately these factors led to a dynamic of project deferral and delay. 4i inField ‘… ·,r.·r’c’ 128
8. INDUSTRY OVERVIEW (cont’d) –North America -Sourtl & Central America 5,000
The graph above helps illustrate how demand for energy fell at the end of 2008 and into 2009 in key markets of Europe and North America. However, the chart also highlights another key trend in world energy, the emergence of demand from Asia. This is a trend which is very much expected to continue. energy consumption quadrillion Btu • Non-OECD 687
2007 2015 2020 2025 2030 2035 5 I in,/i”E”id .Syste(u::: Llln;ted ;-~'()1:? 8. INDUSTRY OVERVIEW (cont’d) The chart above shows the EIA’s energy consumption forecast. Two key trends are apparent, the first, is that in the longer-term, global energy demand is expected to increase from 495 quadrillion Btu’s in 2007, to 739 quadrillion Btu’s in 2035. This is a significant trend in itself, and suggests that those companies involved with developing and delivering energy resource to market will have a sustainable future ahead of them. Second, is that the source of the majority of this growth is forecast to be from countries who are not members of the Organisation for Economic Co-operation and Development (“DECO”) economies, with the economies of the U.S., and other OECD nations expected to produce static energy demand over the coming years. A second core aspect is also becoming apparent. We require a more diversified energy production basis in the future. Often cited as one of the contributing factors to the recent global economic recession are high commodity prices and the impact which inflationary pressures had on consumers spending decisions. In recognition of this, and also factors such as global warming and the impact of extensive carbon burning, we are much more likely to see a more diversified energy production portfolio in the future. This means we are likely to see more alternative energy and more nuclear energy. We are also however likely to see more diversification within hydrocarbon energy, as alternative category resources, such as Coal bed methane and Shale oil and gas become more popular. Even within the oil category, as the chart below helps illustrate, we will need to see new sources of oil identified. This is likely to drive the oil industry into looking at more complex projects, or reassessing the feasibility of marginal fields, or opening up new areas for exploration and production activities. 110 110 ‘··!#44 Non-Petroleum UnconvelttionaI100 100 Liquids C:=l Non.oPEC9090 UncolwentloM\ 80  Unidentified  80  Petroleum Projeet& 1″‘I’4Non.oPEC  g70 ~ .: 60 e.i 50  Projects L3  70 60 50  _Non.oPEC Conven”onaIProjec~ Unconventional Petrohtum L1quld$_OPEC Unconventional Petroleum liquids  40  ImiEOPEC Conventional  30  Projecb  ~Non.oPECExisting  20  20  Convention.I  10  10  _OPEC Existing
Total COlltlUmption~<o oS> ~~ ,,<0 ,1:0 ~~ n..!).. ~~ n,’O ‘:’:>~ ‘{,’S ~ ,..,C) r& ~ r& r& ~ ‘l,.,\) fJ.,\) ~~ Source: E1A. AE02009 !3 Figure 2-4: Projected world liquids supply [Source: U.S. Energy Information Administration (EIA) Annual Energy Outlook 2009j 61″ If) Int/etc! S;/stems Limriecj 2012 130

8. INDUSTRY OVERVIEW (cont’d) 2.2 Recovery Prospects and Nature of Recovery The report has so far illustrated the impact which global economic recession had on the development of energy demand over the last few years. More recently, data from the International Energy Agency (“lEA”), U.S. Energy Information Administration (“EIA”) and Organization of the Petroleum Exporting Countries (“OPEC”) shows that after weakness in 2008 and 2009, global oil consumption showed fairly strong growth in 2010. These agencies also forecast that this growth will continue in the next five years. The average estimate for oil demand growth is slightly less than 2 million barrels per day (“bpd”) in 2010, slowing to an average forecast of growth of just over 1.33 million bpd. Thus, there is a consensus among these agencies that oil demand throughout 2010 to 2011 will be restored to the broad range of incremental growth seen in the years prior to the global economic recession which started during the latter part of 2008.
:;t./4/..f>f f#,ffl¢~.t41#l#/t¥i:I#b’; ;·1′..141′.14 ‘N’4f$~#/41-.# 4 fJ~< 4 #.14 <tli##” ~ ~.~~ ..~ ;~~ ~, ~~~ ~.~~ .~~ .~ ~……. S””,.”..,lllfioJd Figure 2-5: Historical Brent oil price and forward looking scenarios [Source: ISLj Assuming that these leading energy agencies have got their forecasts correct, and putting to one side for now any doubts over the stability Eurozone, America’s debt repayment schedule, and the Arab spring, the question of the nature of any potential recovery is important. The first aspect to consider is rate of recovery. The above chart shows three different recovery scenarios, and associated forecast oil prices. In the Short run momentum trend, the very recent oil price bounce back is extrapolated into the future. Whilst we generally associate high oil prices with high activity levels within the oil and gas industry, in this scenario, we see worrying parallels with the great oil price Bull Run of early 2008, and believe that those sanctioning oil and gas projects would be cautious if they were to see this type of pricing trend. In the Mid Run trend, we see a more moderate price trend which reflects the increases seen in the period after the price lows experienced in 2008. In the Long Run trend, future oil price increases at a similar rate to that which we saw between 2002 and 2007. After a relatively long period of price volatility and market uncertainty, achieving consistent price increase (and implicitly incrementally increasing demand and supply pressure) would allow the oil and gas industry to develop and expand. d (C Inflelcl ‘<\/’.:·i”‘I1)’~ Llioiiecj 20 i 2 131 8. INDUSTRY OVERVIEW (cant’d) After considering rate of recovery, the next aspect to cover is where we are likely to see this recovery come from. The lEA estimates that global oil demand grew by 2.4 million bpd in 2010 (or by 2.8%), with one-third of this coming from China alone (or 800,000 bpd). Latin America and the Middle East are regions that are also expected to have shown strong oil consumption growth. The outlook is similar for natural gas demand, with non-OECD countries including China, India and the Middle Eastern countries, forecast to be the key regions from 2010 onwards. Following a similar trend to oil consumption, the lEA forecasts that natural gas demand prospects in the mature OECD economies to be generally much weaker. Whilst the forecasts for future global O&G consumption are largely positive, it is possible to argue that pricing for these commodities has moved away from its true fundamentals, and that we are now seeing a premium added on top of these prices. This premium is arguably derived from those willing to pay more to achieve security of supply, and those who use commodity classes for speculation. These premiums can distort the true strength or significance of a recovery trend, or equally mask the true depths of a recession. However the premiums and any associated price volatility should not detract from the fact that as the global economy continues to grow, we require more O&G to feed this growth.

2.3 Role of Oil and Gas within global energy industry The oil and gas industry is one of the most important energy sources for today’s increasingly global economy. It provides the energy which is required for manufacturing and industry; it provides the petrol required for transportation and trading; it provides the packaging and plastics which enable products to come to market in good order; and it provides the fuel for heating or cooling our homes so that we can live comfortably in different climates. The figure below helps illustrate the importance of oil and gas within our primary energy consumption. Only 41% of energy consumed is not oil and gas related, and of this, only 12% is non-carbon based nuclear or hydro electric energy. Nuclea,
24°AJ Hydrocarbon energy then is of pivotal importance in day to day life, and it pervades all levels of the global economy. Naturally, one consequence of this relationship is that when the global economy goes through a period of recession, demand for energy constricts. Conversely, when the global economy is growing rapidly,· demand for oil, in particular, increases quickly. This gives the oil and gas industry a broadly cyclical investment dynamic. 8 I ~(:l InfiefcJ Systef71S Lin lifec! 201.2′ 8. INDUSTRY OVERVIEW (cont’d) 2.4 Structure of industry The O&G industry is a global industry. Hydrocarbon products are required in every country which has a competitive economy, and hydrocarbon reserves are found in nearly every country worldwide. The supply chain which has evolved to cater for this complex global industry is broadly split into three areas: • Upstream -covering exploration and production
• Midstream -covering transport and trading
• Downstream -covering refining and distribution

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

Within this area we see three key layers of market players; the Oil Company (or field operator) the primary contractor, and the sub-contractor. The oil company is at the head of the supply chain, and, as owner of the field, has responsibility for raising finance for its development. Oil companies include BP pic., PETRONAS, Royal Dutch Shell pic (“Shell”) and ExxonMobii Corporation (“ExxonMobil”). Oil companies typically fall within four different brackets; super majors, mid-cap International Oil Companies (“IOCs”), National Oil Companies (“NOCs”), and privately-held independent operators (“Independent”). Companies within each of these brackets have different operational capabilities and different organisational aims. A super major for example is typically publicly held, and has a duty to derive the best return on investment for its investors. They usually have a business model which covers upstream to downstream, and as such, super majors tend to be very large companies in terms of revenue and number of employees. The super majors use their financial strength and highly-trained workforces to target projects which are typically larger, in terms of reserves and production, than other brackets of oil companies. Super majors have been pivotal in pushing forward deepwater production. Due to their publically held nature, we tend to see super majors awarding contracts to companies with established track records in the areas within which they are bidding, and those which fulfil strict health and safety criteria [Source: ISL]. 9I I~~} Infield Li/ i !I((-}(/ ,’?()’i 2 8. INDUSTRY OVERVIEW (cont’d) The IOCs are typically nimble companies that have a cost effective structure but are still commercially driven. These companies have typically witnessed fast growth in terms of company size, regions of operation, values, production and proven reserves. Examples of operators within this category are Addax Petroleum, Tullow Oil pic, Anadarko Petroleum Corporation, Apache Corporation, Murphy Oil Corporation (“Murphy Oil”) and Talisman Energy Inc. NOCs have become increasingly important as the offshore O&G industry has matured away from the traditional production zones found in the USA and the UK, and moved towards developing countries. The NOCs primary role is to maximise the revenue generated for a country by its natural resources. A NOC may take into account ‘non-commercial’ considerations when acting, and is likely to prioritise indigenous companies, or companies with operations in the NOC’s country, when developing its resources. This procurement practice can be viewed both as a threat and as an opportunity. Companies established in countries which have a strong !’JOC presence, such as Malaysia, Brazil, Nigeria, Angola and Saudi Arabia, would be well placed to capitalise on any future opportunities which materialise in those countries, and continue expanding within the country. Conversely, for those companies not within the country, we believe that the entry costs can be prohibitive and a deterring factor [Source: ISL]. Independents are typically smaller oil companies. They mayor may not be publicly listed. They may have no producing reserves and purchase acreage to sell later, or they may have a number of fields already in production. Generally an independent oil company is well placed to save costs when needed, as it will typically have little in-house capacity to project manage or execute projects, and will often rely on external investment for exploration or production activity. Within this category there are an increasing amount of companies that are purely financially driven and playa crucial role in enhanced oil recovery (“EaR”), local content and marginal fields. Beneath the oil companies are those businesses providing support services, known in this Report as “contractors”. A primary contractor will typically take a project, or a key part of the project, and manage this for an operator. Typically, primary contractors are experts in their field, and have a better understanding of the supply chain and delivery requirements around the products they supply or services they provide. For example, a company such as SBM Offshore NV. (“S8M”) or Mitsui Ocean Development & Engineering Inc. (“Modec”) could be awarded a contract by an oil company to deliver an FPSO. SBM or Modec may undertake certain portions of this project themselves, for example the specialised engineering, however they would also play a key role in overseeing all project management, ensuring the construction process is executed properly, and being responsible for the timely procurement of specific equipment. The final layer would then be the sub-contractor, whose role is to provide specific equipment, or particular services or products [Source: ISL]. Two major trends are becoming apparent in the contracting sector of the offshore O&G industry. The first is a move towards ‘local content’. Local content is the term used to describe the requirement for a certain proportion of the workload of a future project to be undertaken by entities or persons from the country in which the project is happening, rather than being provided from the global market. This relates directly back to the concept of NOCs becoming increasing influential as the offshore industry expands into new frontier areas. We believe companies which are able to comply with local content criteria, or which have demonstrated an ability to work in countries with !’JOCs are at a competitive advantage in comparison to those who cannot, and have not. [Source: ISL]. 10 I (~) Inlleld ,17:; Lirnlieci 20),~: 8. INDUSTRY OVERVIEW (cont’d) The second trend is a move by laCs and Independents towards larger engineering, procurement, installation and construction (“EPIC”) or turnkey contracts. A turnkey contract is one where a product is ordered, such as an FPSO, and it is then delivered upon completion to the oil company who will operate it. Both forms of contract, and the myriad of different potential contracting options in between, lead to a similar result; oil companies would like their contractors to manage more of the project themselves, and to take on more risk for project delivery and execution. 2.5 Industry Capital and Labour Intensity The oil and gas industry is particularly capital and labour intensive; this becomes even more the case when looking at the offshore oil and gas industry, where projects are typically larger and more complex in terms of engineering, design, installation and construction. 80 :g …
~ 60 § c: g .g 40 e 0.. 20
1000 2000 3000 4000 5000 6000 7000 8000 Billion Barrels of Oil Equivalent In terms of capital which must be committed to developing oil and gas reserves, the above chart, produced by the EIA, shows the economic sanction price range for different types of oil and gas fields. For oil which has been produced historically, this would have only been profitable if the price was greater than $10/bbl to $30/bbl. For deepwater, or enhanced oil recovery based production, the capital costs of accessing these reservoirs are significantly higher, and so the price of oil would need to be consistently above $40/bbl to make these fields economical. It is factors such as these which lead us to believe that the offshore oil and gas industry as being a >$100bn per annum industry consistently over the next five years. 11 I ,( Infield Systems LI/17iferl 2012 8. INDUSTRY OVERVIEW (cont’d) The industry is also extremely labour intensive and requires significant human input at each stage of the supply chain. Starting with drilling, a drilling rig will require a crew to operate it; it will need to be positioned by anchor handling tugs which will also need to be crewed. Its moorings will need to be individually designed and engineered. The results of drilling will need to be analysed by a team of geologists and reservoir specialists. Conceptual stage engineering will then be undertaken to ascertain whether the field is economical, and which type of development solution should be used to bring production to market. After this, front­end engineering and design is undertaken to more accurately plan out how the project would be developed. 1\1ext stage is procurement and construction, involving labour and more engineering· man-hours, as aspects of the project are taken from concepts through to detailed, designed items. Installation phases require significant volumes of vessels, specialist lifting equipment and man power to coordinate these. Finally, the operational platform requires a permanent crew, and will have to be regularly maintained and repaired. 2.6 Role of offshore oil and gas within oil and gas industry It is estimated that currently around 30% of the world’s oil production comes from offshore areas. However a number of factors suggest that this is likely to increase in the future. The offshore industry is less mature relative to its onshore counterpart. The first offshore oil and gas platform was installed in 1947 in the Gulf of Mexico (“GoM”). Onshore production in the most crude of manners has been practised for decades before this. Offshore has more acreage which has yet to be explored, and has significant regions, such as the Arctic and deepwater frontiers, which are only starting to be drilled. In addition, the offshore industry continues to develop rapidly in terms of production technology. Subsea production has in particular been a crucial enabling technology allowing the industry to move into deeper waters, and operate in more remote and operationally challenging areas. The advancement of subsea technology, coupled with improved manufacturing techniques, means that the cost associated with developing certain types of fields has decreased, and this has enabled a number of smaller, previously uneconomical fields to be tied-back into existing infrastructure. Also driving the development of offshore relative to onshore, is the argument that oil and gas reserves are now increasingly the domain of NOCs, with today less than 25% of reserves either fully or partially open to participation from IOCs. Where the NOCs have been particularly successful is developing onshore and shallow water reserves, where production techniques and technology is fairly well established. This has incentivised IOCs to look to increasingly deeper waters to source hydrocarbon reserves which they can develop with more favourable production sharing agreements. Finally, security of supply concern is increasingly important in driving the move towards offshore production. In the UK, for example, we have noted a trend by downstream energy providers -such as Centrica, to move into the upstream market segment. This is done primarily to gain independent control of gas reserves, and to decrease reliance on imports from foreign countries where the UK based company has little ability to control pricing or import volumes. 121 _ 10(:(0/0 LiFo/ree} 2012 8. INDUSTRY OVERVIEW (cont’d) 2.7 Offshore Oil and Gas Industry Outlook
2UOS 20m 2008 2U09 20 H) 201’1 2012 2013 2014 2015 Year of Spend Overall, global capex within the offshore oil and gas industry is expected to peak at over $110bn in 2015. This is a significant increase in activity levels from 2008/ 2009’s recent low of $60bn. Driving this increase is the forecasted development of the offshore industry within Asia, Africa and Australasia; three regions which have excellent development prospects. Latin America is also anticipated to see continual growth, driven in most part by the development of Petr61eo Brasileiro S.A. (“PETROBRAS”)’ huge pre-salt oil reserves. Markets which are expected to remain more static include the North Sea, and the US GoM; the latter of which is still recovering from the impacts of the BP Macondo well oil spill and coming to terms with a new regulatory environment. 25,000 20,000 .. ~ 15,000 ::!: 10.000
(NB: Aus -Australasia; E.Asia -East Asia; E. Europe -Eastern Europe; LAM -Latin America; M/E -Middle East; NAF ­North Africa; GoMex -Gulf of Mexico; NWECS -North West Europe Continental Shelf; S&E Africa -South & East Africa; S.Asia -South Asia; SE Asia -South East Asia; S.Europe -South Europe; WAF -West Africa.) Key in opening up increased capital investment in the offshore oil and gas industry is the development of deep water exploration and production. The above figure helps illustrate how we are now approaching a situation where regions such as Latin America, West Africa, and the GoM now have more deepwater reserves waiting to be brought on-stream than they do shallow. 13 I (C /nfie/cJ Systems Limited 2012 8. INDUSTRY OVERVIEW (cont’d) This sets an important note as to the future nature of the offshore oil and gas industry. Even in Asia, which is a predominantly shallow water region, we are starting to note a move towards deeper water developments. These deeper water developments tend to be quite complex, usually involve floating production systems, and typically have subsea wells associated with them. Very often, given the size, scale and complexity of these projects, the oil companies which are operating the fields will award EPIC contracts. Very often, given the size, scale and complexity of these projects, the oil companies which are operating the fields will award EPIC contracts, or similar. However companies looking to be awarded these contracts will need to have the right combination of track record, assets, and financial weighting to be successful at bid stage. 2.8 Role of South East Asia and Malaysia within offshore oil and gas industry Non-OECD economies have been cited earlier in this Report as being a pivotal driver of the current global economy. While this generally leads to a consideration of the economies of Brazil, Russia, India and China, we also need to contemplate the rapidly developing economies of South East Asia. This latter region includes the member states of the Association of South East Asian Nations (i.e. Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam). These countries are industrialising quickly, and require more energy to support them through this process. Currently imports, typically from the Middle East, provide most of South East Asia’s oil demand. However significant investment is underway to increase South East Asia’s oil production capacity to decrease its dependence on imports. The outlook for gas on the other hand, is slightly different. South East Asia is one of the major liquefied natural gas (“LNG”) exporting regions in the world and is well positioned to supply the broader Asian region’s two largest economies, China and India, with natural gas. This is in addition to supplying the developed but resource poor economies of Japan, South Korea and Taiwan. Much of the liquefied natural gas that is exported from South East Asia is sourced from offshore reserves. With regard to Malaysia, it is not only the largest O&G producer in South East Asia, but is also the third largest global exporter of LNG, behind only Qatar and Indonesia. In 2010, Malaysia exported 23.1 million tonnes of LNG, representing a 10% global market share, compared to the 26% share for Qatar and 11 % share for Indonesia. Currently, Japan is coming to terms with the aftermath of one the most powerful tsunamis ever recorded. The country is faced with a humanitarian disaster and coping with an increasingly dangerous atomic incident at Tokyo Electric’s Fukushima Daiichi nuclear facility. The nuclear plant suffered catastrophic damage in the tsunami and it is highly likely that following containment, the facility will be decommissioned. Consequently, LNG demand from Japan, which accounts for 60% of Malaysia’s total LNG exports, could potentially surge as the country seeks to reconstruct and substitute the nuclear power output that was lost. It is likely that the long term outlook for Japan’s energy mix will move more towards gas, as the country looks to alternative forms of electricity generation. ISL believes that this would lead to a large increase in oil and gas imports in the immediate term, which would primarily benefit those Asian countries with established hydrocarbon trade relations with Japan. 14 I (0 !nii2i(J Systems i_lirJ/ierJ 2012 8. INDUSTRY OVERVIEW (cont’d) Other major LNG markets include South Korea and Taiwan. Unlike neighbouring O&G producer Indonesia (which in 2008 became a net oil importer and led to its withdrawal from OPEC), Malaysia is a net exporter of crude oil in addition to also being a net exporter of LNG. However oil production in Malaysia has been gradually decreasing since its peak in 2004 and maintaining a production surplus to export creates a strong driver for the development of Malaysian oil reserves. In 2010, total oil production amounted to 716,000 barrels (“bbls”) of oil equivalent per day (“boepd”). Total domestic oil consumption in 2010 was 556,000 boepd, with the remaining 160,000 boepd to be exported. Natural gas production has been rising steadily over the last decade, reaching 66.5 billion cubic metres (“Bcm”) in 2009 whilst total consumption in the same year was 35.7 Bcm [Source: BP Statistical Review of World Energy July 2011]. In an attempt to maintain production levels, Malaysia has been forced to move into increasingly deeper waters exploration. At present, if current declining production rates continue, then conservative estimates suggest that Malaysia will shift from being a net exporter of oil, to being a net importer of oil during 2014, however if consumption rates increase further coupled with reductions in production this will likely occur during 2013. This has prompted the Malaysian government to offer a series of tax breaks which will encourage the further development of existing fields, and increase production from them utilising EOR techniques. This is likely to give the Malaysian market a dual focus of greenfielddeepwater investment, and brownfield shallow water life-extension investment, which is estimated at around USD4 billion per annum. We believe that this translates to an increase in opportunities for the Malaysian oilfield services market, in particular those companies involved in the Offshore Support Vessel (“OSV”) market, the Transportation and Installation (“T&I”) market and also engineering services [Source: ISL]. Given the reduction in production rates, the Malaysian government has started to take a longer-term look at the role which hydrocarbons will play in the future economy of Malaysia. The government recently created a steering group called the ‘Economic Transformation Programme’ (“ETP”) which has released a ‘Roadmap for Malaysia’ targeting key initiatives and projects among all aspects of the Malaysian economy and infrastructure, including its oil, gas and energy industries. One of the key facets of the report was to develop the country into a leading hub for oilfield services within the Asia Pacific region. In order to achieve this, the ETP suggested a consolidation of domestic fabrication yards as well as developing the EPIC capabilities and capacity within the country through strategic partnerships and joint ventures. The release of the report was one of the catalysts behind the race amongst Malaysian contractors to build a full competitive suite of EPIC capabilities, which started when Malaysia Marine and Heavy Engineering Holdings Berhad took in Technip as a minority shareholder in October 2010. SapuraCrest also joined into this race for consolidation by acquiring a 50% stake in the Labuan Shipyard in Borneo in June 2011. SapuraCrest has further cemented its move into engineering and fabrication by merging with Kencana Petroleum, with Kencana Petroleum owning a 240 acres(including rented yard space of 20 acres) yard in Peninsular Malaysia that has been reported as under expansion. Another country within South East Asia trying to add value to its offshore oil and gas industry is Indonesia. The government has realised that deep rooted production decline, coupled with a lack of recent hydrocarbon discoveries has led to an unsustainable situation. As a result, the government is attempting to make Indonesia a more attractive investment opportunity by incentivising operators to explore and produce it is acreage. However, operators are still concerned over regulations and structure of Indonesians current offshore industry and it is likely that concessions from the government over some of the cabotage and red tape issues is necessary to regain investment confidence in the country’s industry. © In/je!e! Sysfen·,s Lilnit(9cJ 201? 8. INDUSTRY OVERVIEW (coni’d) ISL forecast seven deepwater fields should come on-stream offshore Malaysia over the next five years, representing a large increase compared to the period from 2006 to 2010, where a total of two deepwater fields came on-stream offshore Malaysia. Although there is no direct comparison over the same period, the deepwater growth in the U.S.’ side of the GoM prior to 2000 demonstrated how quickly deep and ultra-deepwater discoveries can move into large scale production over a short period of time. PETRONAS is the main offshore player in Malaysia’s O&G industry and produced over 1.75 million boepd of crude oil and natural gas in 2010. In Malaysia, PETRONAS’ O&G reserves stood at 27.12 billion bbls of oil equivalent (“boe”) at the end of 2010. On the same date, PETRONAS’ disclosed O&G reserves outside Malaysia stood at 6.56 billion boe. Firms which are able to build a long standing and successful relationship with PETRONAS within Malaysia are likely to be well placed to win contracts and future work with the NOC outside of Malaysia. Furthermore, PETRONAS operates in 32 countries, and if offshore O&G support services companies have an existing relationship with the NOC within Malaysia they may be able to benefit by gaining access to new regions [Source: ISL]. 2.9 Developments within local markets Overall, South East Asia’s offshore oil and gas industry is expected to show robust growth over the next five years compared to that of years during 2006-2010. Capex within South East Asia is expected to represent over USD43bn during 2011 through to 2015 compared to the USD25.5bn witnessed for the five year period prior. Operators contributing towards this substantial growth in Capex are PETRONAS, Chevron Corporation (“Chevron”), Shell, PTT pic (‘PTT’), Vietnam Oil and Gas Group(“PetroVietnam”) and Murphy Oil with the six operators representing 54% of regional Capex within South East Asia over the next five years. The increase is primarily driven by the pipeline sector and, to a lesser extent, the platform sector; indeed, conventional single tubular pipelines and traditional fixed platforms are expected to bolster overall Capex throughout the region over the next five years. Similar to regional dynamics, Malaysia is expected to witness substantial investment amongst its pipeline and platform sectors within its offshore oil and gas industry. Indeed, within South East Asia, Malaysia is forecast to witness the largest amount of capex across the region over the next five years culminating in over USD14bn, representing a 33% regional share. Although PETRONAS is forecast to have the greatest amount of capex across South East Asia, within Malaysia, super major Shell is anticipated to invest the largest amount with just over USD4bn, compared to USD3.9bn from PETRONAS. Independent Murphy is another operator forecast to be one of the largest operators offshore Malaysia, in terms of Capex, from 2011 throughout to 2015. 2.10 Threats to forecasts 2.10.1 Alternative energy Alternative energy poses a threat to oil prices, both from rising oil prices (making oil less price competitive) and from changing legislation from governments (particularly in Europe and North America). Many governments already have tough emissions targets to meet though, and whilst the global recession slowed down industrial energy demand in Europe and the U.S., the pace of energy demand growth in China and other rapidly developing non­OECD countries has remained robust. However, with oil prices now supported by stronger fundamentals, coupled with increased production in politically unstable and volatile regions, the effect of oil supply shocks on price has the potential to be far greater. In the long term, countries which are net importers of oil may wish to minimise the impact from turbulent changes in the oil price by expanding their national renewable energy supplies.
8. INDUSTRY OVERVIEW (cont’d) However, as forecasts from BP’s Statistical Review 2011 show, oil demand is set to remain robust over the next 30 years with liquids remaining in the top spot for energy consumption. While renewable energy is forecasted to make up almost 18% of production growth over the next 30 years, BP expects renewable energy to make up around 2.75% of total production by 2015 (from 1.78% in 2010). 2.10.2 Licensing and regulatory environment The regulatory environment surrounding the GoM, once the major growth area for deep water production has changed dramatically since the Macondo blowout which occurred in April 2010. What was once the Minerals Management Service is now the Bureau of Ocean Energy Management, Regulation and Enforcement (“BOEMRE”), which has three different sections that cover ocean energy management, safety and environmental enforcement and natural resource revenue separately. The BOEMRE also issued a suspension of deepwater drilling activity in the US Outer Continental Shelf in a series of decisions which were challenged in US courts, but which lasted until October 2010, significantly impacting the industry. The reasoning behind the “moratorium” of drilling was that “adequate safety measures to reduce the risks associated with deepwater drilling operations” were needed to prevent further blowouts and spills. The moratorium was lifted in October 2010 amid frustration from the offshore energy sector that the delay was unnecessary and placed an undue burden on the broader sector as a whole, resulting in retarded development and lower production growth in the future, as well as job losses and a leakage of floating drilling units to deepwater exploration areas elsewhere in the world. In Asia and Malaysia, robust economic growth is forecasted to support long term liquids demand. For this reason alone, the principal aim of policy makers across the region is likely to be trying to maximise domestic oil and gas production, reducing imports and minimising the impact of price shocks on the regional economies. However, if a serious spill or accident occurred offshore Asia, this sentiment may well change as it did so quickly last year in the GoM. For now, it is expected that policy makers in Asia and Malaysia are unlikely to make moves to tighten drilling regulations. 2.10.3 Barriers to entry The Malaysian oil and gas market contains several barriers to entry which means that business within this sector is only likely to be awarded to external contractors in the most specific of circumstances. The primary driver behind this situation is the Petroleum Development Act of 1974, which established PETRONAS as the owner and developer of all hydrocarbon resources in Malaysia. PETRONAS was given the remit of developing these reserves with as much of the value being retained within Malaysia as possible, and, due to its mineral ownership rights, all companies wishing to work within Malaysia must partner with PETRONAS in some form. This means that whilst companies such as Murphy and Shell are active within Malaysia, they are working in strict partnership with PETRONAS. The same thinking applies when looking away from the reservoir and into how the hydrocarbons will be produced and delivered to market. Only companies with valid PETRONAS licenses can provide products and services to the upstream, downstream and maritime markets within Malaysia’s oil and gas sector. This makes the licenses extremely valuable. Only 7 fabrication licenses, for example, are currently active in the market place ­of which Kencana Petroleum holds one. This creates a significant barrier to entry for competitors, and creates a system whereby the NOC is able to prioritise awarding contracts to nationally based contractors. 171 © Infield Systems Lllmted 2012 141
8. INDUSTRY OVERVIEW (cont’d) Whilst the number of licenses is controlled, the conditions for winning licenses are also strictly monitored, and companies which are looking to apply must typically be Malaysian owned, or have Malaysian operations. Again, this restricts how easily competitors can enter the Malaysian market. Further restrictions, which are not regulatory or legal, come from the capital requirements necessary for taking on the project work which is typical of the offshore oil and gas industry, the requirement to have assets which are appropriate for particular jobs, and the necessity of having an experienced team with the right operational track record. 18 I .( !nTie!c) ‘!/<:;,c,nF: I.milleel :::012 8. INDUSTRY OVERVIEW (cont’d) 3 PROSPECTS FOR THE MERGED ENTITY
3.1 Benefits of merger The merger of SapuraCrest and Kencana Petroleum will create a company with capabilities across the value chain of the oil and gas sector. The merger will result in the creation of an integrated EPCIC player with a fully-fledged O&G value chain offering. Benefits that will be realised from such capabilities includes: integrated end-to-end value proposition; enhanced capabilities by leveraging on expertise to win more premium projects; strong asset base to compete internationally; and, operational and procurement synergies. On the one hand SapuraCrest will provide experience in offshore installations, and on the other hand Kencana Petroleum will provide engineering and fabrication capability. Given that the current trend within the industry is for projects becoming increasingly complex, it is expected that turnkey EPIC contracts will become increasingly prevalent. This, in turn, means that companies who can provide such services are well placed to take advantage of growth opportunities. Having these in-house capabilities will move the company into a space in the market which is currently only occupied by a select group of offshore service providers, who typically compete for offshore turnkey EPIC contracts on a global basis. The ability to perform the full range of activities involved in an offshore construction EPIC contract creates a number of significant benefits that lead to enhanced competitive advantage, centred on economies of scale and reduced exposure to risk. The integration of the two entities will create competencies across the offshore supply chain. At present, both companies will typically be involved as a sub-contractor in turnkey supply contracts, or have to employ sub-contractors in order to complete such a contract. Generally, EPC and EPIC turnkey contracts result in almost all risk being transferred from the operator to the contractor. When dealing with sub-contractors, the companies have to ensure that these entities comply with the conditions stipulated and adhere to the delivery times and requirements. When the company does not have to deal with such an arrangement, the process of meeting deliverables is easier to control, and therefore carries less risk. Ultimately, this should contribute towards higher margins being generated on many contracts. The merged entity will also be in a position to bid for larger contracts because of its enhanced capabilities. There has been a noticeable trend over the last decade towards operators favouring full service turnkey contracts for field development. This has seen the creation of a number of large-scale EPIC contractors with the ability to deal with nearly all aspects of such projects in-house. Such companies prove an attractive proposition for operators, and are often able to offer more competitive tenders due to economies of scale, while still being able to generate healthy margins. Operating as a full-service EPIC contractor will provide the ideal platform to grow the business into new areas. The scale of the new company will provide a good platform for targeting new markets across the globe, particularly in neighbouring and emerging markets. The enhanced capabilities across the supply chain will also provide a solid base from which to target the acquisition of experience in unconventional offshore construction, such as deep-water and SURF EPIC contracts. The range of assets at the company’s disposal also offers the potential to enter new markets as a leasing agent, further increasing utilisation and margins. 19 I © Infield Systems Limited 2012 143

8. INDUSTRY OVERVIEW (cont’d) 3.2 Retrospective performance of SapuraCrest and Kencana Petroleum 3.2.1 SapuraCrest
Marine servicesRevenue -Profit (after taxation) 12% 400 -,——————, 4,000 350 3,500 300 3,000 E E 250 2,500 :E :E oc ~-200 2,000 -; ~
e150 1,500 ~ Offshore ~ ~ drilling100 –;;\0&-+ 1,000 0::
25% IPF 6f}%50 500 o o 2005 2006 2007 2008 2009 2010 2011 Year Figure 3-1: SapuraCrest revenue vs profit after tax Figure 3-2: SapuraCrest revenue by business segment (2005-2011) [Source: SapuraCrest] (2011) [Source: SapuraCrest] SapuraCrest operates in four segments: • IPF

o Offshore platforms
o Marine pipelines

• Offshore oil and gas drilling
o Drilling
o Chartering of rigs

• Marine services
o Offshore geotechnical and geophysical services
o Underwater diving services
o Hook-up, commissioning and topsides maintenance services
o Chartering of accommodation workbarges and workboats
o ROVs

• Operations and maintenance
o Repairs and refurbishment of industrial gas turbines
o Supply, installation, commissioning and maintenance of point-of-sale systems for petrol stations
o Asset management services for offshore installations, and corporate and others

• Development and production of petroleum resources o Facilities development and operations SapuraCrest’s performance in recent years has been strong. Revenues grew strongly in the period between 2005 and 2009, before reaching a plateau at robust levels in 2010 and 2011. Corresponding profit after tax has risen year-on-year from 2007 to 2011, with the company demonstrating the ability to grow profits through a difficult period for the oil and gas industry. The company’s main source of revenue in 2011 was the installation of pipelines and facilities, which generated 60% of the company’s total revenue. 20 I ([)!nfteld SYStem)’ Limiteef 2012

3.2.2 Kencana Petroleum
iguP p Figure 3-4: Kencanaigu y bu
21 © Infield Systems Limited 2012 8. INDUSTRY OVERVIEW (cont’d) Kencana Petroleum has produced strong performance in recent years, with profit after tax growing consistently year-on-year since 2004. This record has continued in 2008 and 2009, in what was a difficult year for the oil and gas industry in general. Corresponding revenues grew strongly to 2008, while 2009 and 2010 have seen a fall then plateau from a high peak in 2008, albeit at a levels which exceed revenues seen in 2007. The performance in 2011 has demonstrated a strong recovery, with revenues exceeding the high seen in 2008. In 2011, the majority of the company’s revenues were generated in EPCIC, marine engineering, design engineering and project management with 74% of the total turnover attributed to this division. 221 1;0 Infield Systems L/lwteel 2012 8. INDUSTRY OVERVIEW (cont’d) 4 MARKET FORECASTS
The new entity, the Group, will be involved in a number of markets spread across the offshore oil and gas supply chain. In this section we have presented forecasts for each of these markets at a global level and a local, Malaysian market, level. These markets include the following: • Development and production of petroleum resources
• Offshore drilling services
• EPCIC
o EPC
• EPCC, design and engineering of offshore and onshore production facilities, modules and process systems
• Construction, conversion, refurbishment of marine vessels, rigs and barges

 

o IPF
• Installation of offshore platforms, marine pipelines and facilities
• HUC
• Decommissioning and removal of production facilities

 

 

• Marine services
o Offshore diving and underwater related services including ROVs
o Provision of offshore accommodation and support vessels
o Provision of topside maintenance services
o Provision of specialised geotechnical and geophysical services

 

• Operations and maintenance
o Maintenance and refurbishment of industrial gas turbines
o Repair and refurbishment of SSIVI and valves

 

The market forecasts are structured according to the activities listed above. 4.1 Development & production In January this year it was announced that PETRONAS had awarded its first risk service contract for the development and production of the Serantai gas field offshore Peninsular Malaysia. The contract was awarded to PED, KESS (a subsidiary of Kencana Petroleum) and SEV (a subsidiary of SapuraCrest). This move is designed to kick start development of the country’s marginal oil and gas fields. The new arrangement facilitates direct participation of Malaysian companies in the country’s upstream oil and gas activities, in line with PETRONAS’ efforts to leverage on their existing capacity while fast-tracking their capability in development and production in a structured manner.. According to the PETRONAS President and CEO, Shamsul Azhar Abbas, the company reportedly have plans to develop 25% of these fields to shore up its oil reserves and generate new revenue streams. These efforts have been bolstered by measures announced by the Malaysian government in late 2010 to cut the tax rate from 38% to 25% for marginal field development, and also waived the export duty on oil produced and exported from marginal fields. Furthermore, each marginal development will have to provide at least 30% equity participation from Malaysian companies. 231 fnfleid 1/”/”’/17<:; Umilecf 2012 8. INDUSTRY OVERVIEW (cont’d) Given the impetus participation in this growing segment of the market, we expect that there will be significant activity from players willing to exploit this opportunity. We believe that Malaysia has a large volume of oil reserves that would be classified as marginal, leading to a high number of opportunities for the right companies, especially given the expectation that the price of oil will remain high. The definition of marginal fields varies, with the key factor normally being the ability to make a profit from production after development costs have been considered. Further key indicators of the viability of a field are the daily production rate and size of reserves. Various estimates put the number of marginal fields in Malaysian waters in excess of 100.

In terms of currently producing fields that could be categorised as marginal, we estimate that there are currently eight fields offshore Malaysia with production rates of less than 5,000 barrels of oil equivalent per day, and a further 12 with a production rate of between 5,000 and 10,000 barrels of oil equivalent per day. We expect that by 2015 the number of operational fields in the latter category will remain constant, while the number of fields in the former category will rise to 19. Our analysis indicates that there are currently 18 producing fields with less than 20 million barrels of oil equivalent, which could rise to 22 by 2015. Similarly, we expect that the number of producing fields with production of between 20 and 50 million barrels of oil equivalent currently stands at 23, with the expectation that this will rise to 34 by 2015. Given the added incentives to develop marginal fields, it could be expected that these forecasts may be exceeded as further investments are made to take advantage of high oil prices. 24 I (C,’ Infielcl Systems LIi/Jiied 2012
8. INDUSTRY OVERVIEW (cont’d) 4.2 Offshore drilling 4.2.1 Global The offshore drilling market is driven by the number of development and exploration and appraisal(“E&A”) wells that are to be drilled by mobile drilling units, which in turn is predominantly driven by oil prices and the availability of potential prospects. The number of development wells forecast is a good leading indicator of activity in the wider drilling market, including E&A well activity. The more development and E&A wells that are drilled, the more offshore drilling assets are required to meet demand. Development wells make up a significant proportion of offshore wells drilled annually. The drilling of development wells often indicates a significant level of E&A well activity. Since it is very difficult to accurately predict E&A well drilling, it is therefore more useful to use more accurate development well forecasts to anticipate wider demand. We anticipate that the drilling market will grow robustly over the next five years, after several years of falling activity due to factors such as the fall in oil prices and the corresponding slump in offshore activity. Our expectation is that offshore development well activity will increase by almost 40% over the next five years in comparison to the previous five year period. We expect that development well drilling will rise incrementally to a peak in 2014 of over 2,100 wells. We anticipate that we will see a similar upswing in E&A drilling activity, largely driven by activity in areas such as Brazil, West Africa and the Gulf of Mexico. This level of growth in activity is a good indicator that the drilling market as a whole will rise, leading to increased demand for offshore drilling rigs worldwide. ~Nort.’1 America . /////h ),Hjd!e East & Caspia~ Sea North Africa_latillAmaica “‘.<V.<V.tv EuropeAmerica 15%_Australasia _,Asia _”.fr~ EMW~ 2,5{)ij-~~~-~., …..”‘.’-“–“-“””-“” “””~” .··..nh ••Ahn ….
_ •• ~ •••• ~~ ~ Cl) ~ Latin America 12%O+-“‘”‘-r—,-“”‘–,-JllL ‘””—,-”””-,-”'””-….L,—–,-mL.., ,4iJ ~~’b ~t-~: ‘” “…. “rv .”~A”” ….~ ¥ ¥ 0/ ¥ ~ ~~~~~ / Year of Activity Europe J Australasia 14% 2%
251 (G Inrie/c) Systerns LIJ77itecJ 20-12 8. INDUSTRY OVERVIEW (cont’d) High oil prices will boost IOCs with producing assets, significantly improving cash flows and encouraging growth in their exploration programmes and subsequent E&A activity. In addition, non-producing oil juniors will more easily attract institutional and private investment for wildcat exploration plans. Thus, as oil prices continue to rise, we expect E&P activity to increase concurrently, both in mature regions (e.g. North Sea) and in frontier areas (e.g. the Arctic, deepwater, etc.). Of course, any major ‘black swan’ events across the world, such as a double-dip recession, civil unrest etc, will have an adverse effect on oil prices and subsequently E&P activity. Asia is forecast to be the key driver of activity in the drilling market, with around 31 % of the development well total between 2011 and 2015. This is followed by the Middle East & Caspian, where we anticipate that around 18% of wells will be drilled. Latin America remains a key growth market for drilling activity -driven in large part by Brazil, and specifically PETROBRAS’, development of the large pre-salt deepwater plays. We also forecast significant growth within the EAC market. Offshore West Africa is a world class deepwater development region where IOCs and NOCs alike have focused a great deal of attention. The North Sea remains a key region too -high oil prices will sustain E&P activity and encourage the development of smaller discoveries. The Australasian market, which has performed well over the last two years, even in spite of the remote operating environment, remains strong with significant development activity expected to continue. 4.2.2 Local We expect that activity in the Malaysian offshore drilling market will see considerable growth over the period between 2011 and 2015. Historic activity over the last five years has been somewhat variable, having been affected particularly badly in 2009 where only 25 development wells were drilled. Looking forward, however, we anticipate that in excess of 104 development wells will be drilled in 2012 alone, followed by even higher totals of 129 and 124 in 2014 and 2015 respectively. This predicted level of activity would result in an increase of 120% between 2011 and 2015, in comparison to the previous five year period. This level of growth clearly indicates that the country will provide an ample and growing market for offshore drilling contractors. 140 120 ~ 100 s:Q)80C Q) E a. 600 “iii :> Q) 400 20 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year of Activity Figure 4-5: Malaysian development wells (2006 to 2015)[Source: ISL] 261 D !n[fe!c! S\/slerns Limilecl 2012 8. INDUSTRY OVERVIEW (cont’d) 4.3 EPCIC Forecasts for the EPCIC segment of the of the oil and gas value chain have been split into EPC and IPF, according to the structure of the new entity. The EPC forecasts include Capex estimates related directly to the EPCC, design and engineering of offshore platforms and pipelines, modules and skid systems. The EPC forecasts included are leading indicators of the segment of the market relating to conversion, refurbishment of marine vessels, rigs and barges. The IPF forecasts relate directly to vessel demand related directly to the installation of offshore platforms, marine pipelines and facilities, HUC and decommissioning and removal of production facilities. Please note that HUC is included within installation vessel demand. 4.3.1 EPC Global We expect that the global EPC market will see significantly higher levels of capital expenditure over the next five years than has been seen in the previous five year period. It is our expectation that we will see an increase in Capex of 54% between 2011 and 2015, with high levels of growth experienced in 2011, 2012 and 2014 in particular. This spending is principally driven by the recent return to high oil prices, as well as the sanctioning of numerous projects that had been put on hold during the downturn experienced post-200B. This will help drive spending to over USD160bn between 2011 and 2015. The largest region in terms of capex is forecast to be Asia with 24% of the global total, which equates to around USD40bn to 2015. Engineering spending in the region is expected to be dominated by activity in Indonesia, driven by projects such as Abadi FLNG, East Natuna FPSO A and Eni’s AsterlTulip FPSO. Large engineering capex is also expected for the Dhirubhai D3-ACRP project offshore India. The Asian market is characterised by the majority of activity being located in shallower waters, although the region is moving towards the development of more complex infrastructure. We expect that Asia will be the largest contributor globally to fixed platform demand, as SE Asia and India are expected to focus heavily upon piled platforms in their shallow waters. FPSO projects such as Gendalo, AsterlTulip and Bumerah indicate the movement towards more complex deepwater developments. Australasia, with 7% of the global ECP Capex total, is expected to see strong growth during the forecast period, with spending rising to over USD12bn which is an increase of over 360% over the previous five years. This robust growth is driven by the development in areas such as the Browse and Prelude basins, where capex intensive projects such as Gorgon and Wheatstone are driving spending. Fixed platform activity post 2012 will see uplift from planned development of LNG recovery in the Western gas fields, which will also drive floating platform spending. Engineering spending will likely be dominated by floating projects, with large developments in the pipeline such as Woodside’s Sunrise FLNG FPSO, lchtys FPS for Inpex and Poseidon FPS for ConocoPhilips.
is L!I!If!eej 20 i ? 8. INDUSTRY OVERVIEW (cont’d)
!!!N011h America A.tiddp-East & Ca..~ sea ..latin America vB.tfopE! l*AustraJasia • Asia
IIAfrica Ml,O{)O
35,000 ~ . _ 30,00{},——~.~-.——_.. ~~.. ~~ ~ 25,000 ~-_.~_ ..~ ~…………. ..
i~:::_._! …~~~—JIIlIl-~ t’II _._-­_._..­-o 10,000 5,000 o ~~~ .~e-,.<O .’~ “Cl …” ,,’1-‘;:’:l .~~ <fl” ‘-f-i-‘” ‘1-{J ~~~ riY ~ ‘},~ Yearof Spend
The Middle East is forecast to account for 14% of global EPC spending to 2015, with a corresponding expected growth in spending of around 50%. Capex is forecast to be over USD22bn between 2011 and 2015, up from around USD15bn over the previous five years. This will be driven by the conventional developments in countries such as Iran, Azerbeijan, Saudi Arabia and Abu Dhabi. Unconventional floating demand from this region will be concentrated in Kazakhstan and Israel. In Kazakhstan, we expect to see the Kashagan and Akote field developments drive spending. In Israel, the Leviathan development will form the majority of activity, being the country’s first deepwater development. Latin America is expected to be another source of considerable growth in EPC capital expenditure over the next five years, with an anticipated increase of over 40% to almost USD22bn, 13% of the global total. Latin American Capex is primarily driven by Brazilian demand for FPSOs, which suit the deepwater and relatively undeveloped infrastructure in this area. High levels of activity can be attributed to the development of fields such as Lula (ex-Tupi) and Peregrina. Significant, albeit lower, demand for fixed platforms is also expected from countries such as Venezuela and Mexico. Detailed En!fineerin!l 1m Procurement And Construction • Detailed En!lin·eerin!l 4O,OiJO ~ . 35,000 +.-… . _ 30,OaO ~ 25,{HHj +……………….. .. .
~ 2O,OiJO +1[5 :oc ~ 15,{){)0 +0000· t’II o 10,{)OO 5,{)OO +fflW-······ fIl,’lI J. iIili··mrm·· . !is • 1.. . {) -,.–.-“””‘-r—-,-,-,–,-,—-,-..”‘-,—-,-“…, ~@ ~e;.. .Jl’b~o:::,~ ~…’0 0;:::,,,,'” ~”‘), ..s:c,”‘~ .~~~….~ ~ ~~~ ~~ ~ ·v ~~
Year of Spend C{lnstruction 83% 28 I (c: 111[1<9lc/ Sys:ems LllmtecJ 2012

8. INDUSTRY OVERVIEW (cont’d)
In terms of EPC activities, procurement and construction activities are responsible for the majority of Capex between 2011 and 2015, with an expectation that it will make up 83% of the global total during this period, leaving 17% attributed to detailed engineering. We believe that procurement and construction growth will be driven predominantly from floating installations in regions such as Brazil, Australasia and West Africa, as well as fixed platform activity in the Middle East and Asia. Engineering demand will mirror this activity, with the highest growth expected from offshore Australasia and Africa, with significant demand also seen in Asia. • P]atform I!! Pipeline 40′,00’0 _.. _··_·_·· ~·_’ A’.~_~~ __~. __~~ __._.__•. —-••–•• -~———-“—-•. -•.—­35.000 + …………………………………………………………………………………•……………………….._ PJatform
32% .-30.00-0 ,_.. _ -……..•.•….•..•~ ~··I.
B25.00-0 +…………………………………………….• ~ 20..000 I~ ~ 15,@O t’II o 10,000 .• 5,000 PipeJine 68%o -j–“””–;–=-­~~ .30,,<0 ~ “‘\) ~'” ~’1,. “,,=, ….t>.. “,<-:> ~~~~~~~~ ~~
Year of Spend EPC spending will likely be dominated by pipelines with 68% of the global total, leaving 32% attributed to platforms. Pipeline spending is expected to be predominantly driven by activity in Europe and Asia. In Europe, activity will focus on export/trunk and SURF installations offshore UK and Norway. Asian activity will focus on conventional pipelines, with growth being seen in the export/trunk sector as well. The most capital intensive pipeline project globally in terms of engineering is expected to be located in Asia, namely the Natuna Island to West Java trunk/export line for Pertamina LLC offshore Indonesia. >1499 • >1499 ID 10{JO-1499 a 500-999 • 100-499 ~/ 0-9’9 12% 40.{JO{l T············ . 35.00<J ….___ . .-3D.OO{J -j.. ‘. 111II B25,OO{l
500-999 ~ 20,{JO{l

4% ‘llJ~,Ioi 15.00{J10,OOD ~ 5,DO{l SS; ~ G{) -” • …..-“-‘-‘–l 1U0-499…./@ _~ .J..~ _r:-.C>.J ,,(C) ~” …~~ “,”‘-,,~ 23%~ f f f ~~~ ~ ~ ~ Year of Spend
29 I @ InfielcJ Systems LimilecJ 2012 153

8. INDUSTRY OVERVIEW (cont’d) Shallow water developments are expected to continue to account for the majority of EPC Capex between 2011 and 2015, with spending in developments in less than 100m of water making up 52% of the global total. This is driven by shallow water developments in the Middle East and Australia, where there are still significant sources of oil and gas which are located in areas with shallow water characteristics. It is interesting to note, however, that the highest anticipated growth in Capex spending relates to developments in water over 1,499 metres. Capex on such developments is expected to grow 120%,from under USD9bn between 2006 and 2010 to over USD19bn between 2011 and 2015. Spending in this ultra­deepwater segment will predominantly be driven by activity in areas such as Brazil, West Africa and the US GoM. 4.3.2 EPC Local Malaysia will be one of the key areas of spending in Asia as we move forward to 2015. It is our expectation that there will be considerable growth in the Malaysian EPC market over the next five years to 2015. Capex during this period is expected to total around USD7bn, which would represent growth of 45% in comparison to the previous five year period. Peak years on our forecast include 2011, 2012 and 2015, driven by significant platform and pipeline activities in shallow water, with a definable trend of increasing Capex associated with deeper water developments. This expected growth in the Malaysian EPC market is driven, in part, by the Malaysian government’s recent efforts to counter future declines in production. The government recently created a steering group coined the ‘Economic Transformation Programme’ which has released a ‘Roadmap for Malaysia’ targeting key initiatives and projects among all aspects of the Malaysian economy and infrastructure, including its oil, gas and energy industries. This plan is expected to positively influence EPC Capex, as spending plans are raised in order to target increased production from existing and yet to be developed fields. In line with the global trend, we expect that the majority of EPC spending in Malaysia will be attributable to pipelines, with approximately 61 % of the total. Indeed, Malaysia is expected to be the largest single pipeline market in Asia during the 2011 to 2015 period. Significant pipeline developments driving spending include the Petronas Kebabangan KBB-PDUQ to Kimanis Shore Terminal pipeline in 2011 and the Petronas Cakerawala RC to Lawit AR in 2012. Deta.i1ed Engineering
‘14%lli Procurement And ConstructiDn -De:ta.iJe.d Engineering 1,600—————~~—~.~-.-~—­1,400 -1 _-. …. 1,20081,01]0 -I-il1Iiil­~ 800 + {U­:< al Q. &00 !’II U 400 20D D +—“-r—.-“””‘-r—-,-Pm cure:mant And COflstru ctiDn 86%
Figure 4-14: Malaysian EPC market capital expenditure Figure 4-15: Malaysian EPC market capital expenditure by activity (2006-2015) [Source: ISL] . by activity (2011-2015) [Source: ISL] ~~ !::J’b .r§’ ~ ….””), ,,”;} ~ !”-.<.:J ~~~~~~~~ ~.~ Yearof Spend 30 I :.D InFielcJ Svstems Llll7ltec/ 2012
8. INDUSTRY OVERVIEW (cont’d) The remaining 39% of EPC Capex will be associated with platform developments, largely driven by a large number of fixed platform projects over the forecast period. This will be in evidence with significant installation activity at Malaysia’s Sarawak block in 2013, with nine piled platforms expected to be installed in that year alone. Growth will be bolstered in 2014 with the installation of Shell’s Beryl (SK-310) platform, and further Capex is anticipated in 2015 in the Sarawak NC03 (SK-316) field for PETRONAS. Indeed, the Sarawak region is expected to be Malaysia’s most significant offshore gas region in future, with further development expected throughout the forecast period and beyond. Platform 39% :< ~ 6DO t!Il o Pipeline400 61% 2tH! …. {) * .~ ~ ~~ f ~~~~~~ Year of Spend The overwhelming majority of EPC Capex in Malaysia between 2011 and 2015 will be in developments in a water depth of less than 99m. This reflects Malaysia’s position as a mature producing province, with many developments taking place in existing producing areas. Notably, around 6% of EPC Capex will be directed towards activity in deep waters between 1,000 metres and 1,499 metres. It is our expectation that this trend towards investment in deepwater developments will continue beyond the forecast period. lCl1000-1499 .,50D.oo9 II H10-499 1,6DO ,.. . 100-499 14%1,400 ~ 1,200+ ,. .
~ 1,OOD 11J­. ~ SOD :< -~l~7 ~~~ ~-=-I~, ..;;»’ ­~ 6DO t!Il ·······:<k············~(G 3~···········92···········~(S·············~·········~(Go 400 (0200 +::1′:c:< ~ Y,1′>~V ~ Y,l0:…. ,~. {} -t-“-“”-r-=-.—“=-,.–“-“‘–r-=,—“”‘-.-=<-r=’–,-“””‘—~., .~ A.. ,{b _~’?> ,,~ ………..’1–,,”:I ..~ ,,~
~ ¥ ~~~~ ~~~ ~ Year of Spend 31 I ‘f) infield Systerns Lil77l!ecl 2012 155
A A .~~~ .~.~ .~

 

8. INDUSTRY OVERVIEW (cont’d) 4.3.3 IPF Global We expect the global IPF market to experience robust growth over the next five years, with year-on-year rises in vessel demand expected through to 2014, and continued high demand beyond this point. Our forecasts indicate that global IPF vessel demand between 2011 and 2015 could exceed 360,000 vessel days, which would represent an increase of almost 70% over the previous corresponding period. The single greatest source of IPF demand is expected to be Europe with 22% of demand, followed by Asia with 17% of the global total. The predominant drivers of growth during this period include Australasia, the Middle East & Caspian, Europe, Africa and Latin America. II North Americ3. ~Middp-East & Caspian sP-a North .. latin America “EmOjle America l8! Austrahsia • Asia 16%IlIA~ W,OOO ,——-.-..—..———.——-.-.—..—-­Middle East &Casp’ian ~::: =–=–====–=jfl-=! Sea ~ ~. 11% ~ ::: £: ,~=-..==:== 20,000 10,000 -‘—1—­O+–…….—-,-“””–r-“””…………..,,…’-r—…………………………­Australasia 6%,4) ~ .~’b.n,C!:J ~”…….’}.. . ,,<>:> ~~
~~~~~~~~~ ~ Year ofInstaIlation Figure 4-20: GloballPF market vessel demand (days)by region (2006-2015) [Source: ISL] The European market, which we forecast to account for demand of almost 80,000 IPF vessel days between 2011 and 2015, will be the largest IPF market globally over this period. We believe that the market will see an upturn in 2011 and note the increased diversification in terms of platform types in Norway and the UK. Recent years have seen the installation of floating production systems across the region, and Statoil have recently announced its intention to use the Spar on the Luva gas and condensate discovery. This would represent the largest development in the region throughout the forecast period, with supplementary activity including the Clair Ridge platform, Schiehallion replacements and the Draupner South towards the end of the forecast period. As previously mentioned, we expect that Asia will be the source of 17% of global IPF vessel demand between 2011 and 2015, which would represent demand of around 60,000 days over this period. Within this context, Asian platform demand is likely to be a key underlying trend in the IPF market going forward to 2015. The largest platform installation projects throughout the period of analysis include the Tapis CPP, Kim Long CPP and the Liwan developments in Malaysia, Vietnam and China, with much of the work consisting of large piled developments. The Asian activity is split between floating platforms, which require considerably higher levels of Capex, and the more conventional fixed installations. A range of operators are driving activity, the largest of which include China National Offshore Oil Corporation Limited (“CNOOC”), Chevron, PETRONAS, PTT and ONGC. IPF pipeline activity in Asia will also be driven by local NOCs, with each looking to increase international and domestic production portfolios in the near future. Significant drivers of demand include installations in the Liwan LW 03-1-1 field in China and the Galoc field in the Philippines. 321 @ Infield Systems 1_lm/fe(! 2012 156
Euro~ 22% 8. INDUSTRY OVERVIEW (cont’d) The proposed Trans-ASEAN Gas Pipeline (“TAGP”) project is expected to be a source of considerable pipelay demand over the forecast period and beyond. This network envisages a trans-national pipeline network linking ASEAN’s gas production and utilisation centres. The project would make cross-border interconnections between Myanmar, Thailand, Indonesia and Singapore; Indonesia and Malaysia and the Malaysia-Thailand Joint Development Area; and to peninsular Malaysia. The project aims to greatly improve the security of gas supplies in a region with a number of unutilised gas reserves. The development of a trans-border gas pipeline network is thought to be a good way to encourage greater political stability and more competitive gas prices within the region. It should be noted, however, that there are,a number of issues delaying the progression of the TAGP project. Most of these issues are associated with economic and political reasons. For example, the· proposed gas pipelines could impact prospects for the LNG industry which is already operational in Indonesia. We also expect that there will be considerable growth within the Australasian IPF market, with our forecast that vessel demand will grow over 300% to in excess of USD21 bn between 2011 and 2015. The market has seen a number of high profile installations such as Gorgon and Wheatstone go ahead and we expect further growth to be driven by Ichthys, Petrel and Tern. There have been positive moves in regards the Ichthys FPS and FPSO. In the short to medium term we see activity being highlighted by North Rankin B, Montara Venture and Oliver developments. In the longer term, we expect that activity could centre on projects such as the Scarborough platform installation and the development of LNG work in a variety of other fields across the Browse and Itchys basins. Pipelay activity will be similarly focused around developments in these areas. The Middle East & Caspian IPF market is forecast to account for around 11 % of global demand. This activity is largely driven by mid-end platform installation activity in countries such as Iran and Abu Dhabi. Key projects going ahead within the forecast time frame include Umm Shaif IGD-HAP, Mubarraz MUB-PRD and the Upper Zakum in Abu Dhabi, as well as the Chirag West Satellite, Azeri (Balakhany) and Shah Deniz platforms to be installed in Azerbaijan. Pipelay activity, while less significant, will nevertheless present significant opportunities. Key projects will drive demand, such as South Pars and North Pars in Iran, as well as the export line that will link Iran with Qatar and Dubai. The Latin American market is expected to be one of the key stories in the global installation market over the forecast period and beyond. This market is expected to account for around 12% of global demand between 2011 and 2015, with in the region of 44,000 vessel days required. This demand is driven by projects such as the Guara TLP, Azula, Wahoo and France FPSO’s, which will see significant installation vessel requirements in Brazil. In line with platform installations, the market for pipeline installations with Latin America continues to be weighted towards activity within Brazil. The development of the country’s pre-salt fields is expected to drive activity in this market, with fields such as on Cernambi, Guara, lara and Lula anticipated to come on-stream before 2015. European pipelay activity is expected to characterised by strong growth characteristics, with activity in the first half of the forecast period being weighted towards the UK and Norwegian sectors of the North Sea. Post 2012 we expect to see developments in other areas account for high levels of activity. This includes a number of trunk line developments in the Russian Baltic and Black Seas, as well as other developments in Denmark and Italy. 33 I ,<: fnfie/cJ’ Systems LIIJ7iieCf 2012 8. INDUSTRY OVERVIEW (cont’d) P]atform Platform Removal Insta’l) • PlatliJrm .Removal ~Platfurm lnsta’ll III Line Install 13%w,oon .,—–.–­80 ,(Jon ………………………………-..
70 ,OOQ ——-.–.-..-..——–.-.–..——-. ~ 60,OOQ ~ 50;000 ——-­:: 40,Q'{)O +-iiIih–Jiflll :: 30,OOQ 20,00Q 1′{),{l00 .,-“,..—-___ o +-“””‘–,–.-, @ ~ r>t;:;’tJ f::}~”~. ……….!’.’1″ .. ~ .~ ,,~ ~. ~ 0/ ~~~~~~~ Yearof Installation
Figure 4-22: G/oballPF market vessel demand (days)by Figure 4-23: G/oballPF market vessel demand (days)by market segment (2006-2015) [Source: ISL] market segment(2011-2015) [Source: ISL] It is our expectation that line installation will account for the overwhelming majority of IPF vessel demand between 2011 and 2015, with our forecast indicating that it will be the source of approximately 83% of global demand. Platform installations are expected to account for 13% of demand, with platform removals 4%. We view platform removals sector as representing a long term opportunity across the supply chain. In the short to medium term, however, we believe that this market will be relatively slow, with only smaller platforms being removed. Larger developments benefit from second and third stage production being tied back into existing infrastructure as well as technology such as EOR. Platform removal demand is closely correlated to field age, and is therefore dominated by mature basins where many developments are approaching the end of their economic lives. The global market is driven by activity in the Gulf of Mexico, with North America being the source of in the region of 70% of such demand between 2011 and 2015. Shallow water installations will continue to be the source of the majority of IPF vessel demand between 2011 and 2015, however we note that the highest proportion of growth will come from activity in deeper waters. Developments in water of over 1,499 metres depth are forecast to account for around 20% of demand over the next five years, characterised by growth in excess of 140% in comparison to the previous five year period. This demand is mostly driven by activity in the ‘deepwater triangle’ of Brazil, West African and the Gulf of Mexico. Such installations are typically more capital intensive than shallower counterparts, representing ripe opportunities within the IPF market segment. More mature regions such as Asia are also contributing towards deepwater demand, with activity expected in areas such as the South China Sea and offshore Borneo over the next five years. 341 CS'”) infielcf Systems Limited 2012
8. INDUSTRY OVERVIEW (cont’d) >1499
0-99 20% 90,000 -.—–.–..—.–..–.—.-..——–.-_ -..–_ –.. 40%!::::: ====~~fl-I t 2l 50,000 —-… -.. ——-.%.——–­a; : 40,000 _. :: 3O,OO{l 2O,{]OO 10,00{l
500-999../ ~~ “,&-_c§l ~~ t:J”‘<J >:),,”-~”‘J,, ..r-.”~ …()~ ~~? 8%
n ~~ <t-‘ ‘V ‘V ‘V ~ ·v ·v ‘V 100-499Yearoffnstallation 20% Figure 4-24: GloballPF market vessel demand (days)by Figure 4-25: GloballPF market vessel demand (days)by water depth (2006-2015) [Source: ISL] water depth(2011-2015) [Source: ISL] 4.3.4 IPF Local In terms of water depth, Malaysia’ shallow waters are forecast to be the focus of IPF vessel activity between 2011 and 2015. We believe that around 82% of demand will come from developments in water of less than 500m, with developments in less than 100m along accounting for over 46% of the total. Shallow water demand is expected to come from projects such as PETRONAS’ Cakerawala RC -Lawit AR (MTJDA) and Helang CPP -Miri conventional installations. Due to their nature, deeper water developments account for a higher proportion of Capex than shallow water developments. It is therefore perhaps significant that 17% of vessel demand is forecast to come from developments in water of between 1,000 metres and 1,499 metres. Aside from the SURF projects already mentioned previously, this activity will include installations associated with Shell’s Malikai TLWP -Ubah Manifold offshore Sabah and installations associated with Murphy’s Gumusut Kakap FPU ­Kakap Manifold, also offshore Sabah. Platform Platform Removal.Platform Removal r,Platform Insta.ll mLine Install Install 1% °18%4,500 4,o-DO 3,S-1l0 +………….. . .
g3,000 _ 2,5OD : ~ 2,0-00 :: 1,SDO 1,-000 500 o +-“‘”,-;–~….-“””–T…L””–r #ro ‘J,,# ef’tJ rfl\)~ rfi”‘<J ~”,,-<f-“”J” “‘\)~ ~”~ rfi”-0, Line Install 81% Year ofI.nstalIation Figure 4-26: Malaysian IPF market vessel demand Figure 4-27: Malaysian IPF market vessel demand (days)by market segment (2006-2015) [Source: ISL] (days)by market segment(2011-2015) [Source: ISL] 351 i!lil(-!( “”‘·,,,-‘c-Lin7lteo’ 2012
8. INDUSTRY OVERVIEW (cont’d)
The Malaysian IPF market is forecast to grow strongly from 2012 onwards. We expect that there will be demand for nearly 15,000 IPF vessel days over the period 2011 to 2015, which would exceed a growth rate of 140% in comparison to the previous five year period. Peak years are expected to be 2012 and 2014, largely driven by pipeline installations. Indeed, pipeline installations are the principle driver behind the anticipated growth in this market, with our expectation being this segment of the market will account for over 81 % of demand. 11100-499 4,500-···· . 4,O{){} 0—” 500-999~ 3,5DO _ _ _.._ __ _ _ -._…. _ .._ 1%*._ .. 0-9’9~ ~:::~ .~=.== ..=====..=.~======: ._;: _-..~ 46% =2,ODO ~ . :: 1,SOO 1,DOO 5D0 {), ,1{)D-499 36%
~fO .’ ~ .~r-.’O .cr-.o,. ,,~ . ,” .’.” ~ .. ~ ,,0 ~~ 0/ f ~ ~~~~~ Year ofInstallation
We expect that the proposed TAGP project will drive demand for IPF pipelay vessels, barring any further delays, with the Sarawak to Peninsular Malaysia leg of the project expected to drive demand in 2012 and 2014 in particular. We believe that the Sabah to Palawan Island portion of the project is also likely to drive demand in 2015 and beyond. Other significant projects include the Petronas Kebabangan KBB-PDUQ -Kimanis Shore Terminal conventional pipeline, the Petronas Rotan TLP -Erb West EWG-A conventional pipeline and the Petronas Helang CPP -Miri conventional pipeline. Within the wider Asian region, Malaysia is expected to represent the largest single source of SURF capex spend in the Asia region through the 2011-2015 period. This trend mirrors a dynamic of a growing, though currently small, market for deeper water floating developments in the country’s seas. Spending is expected to be driven by SURF projects such as the Murphy’s Rotan TLP -Erb West EWG-A line, Newfield’s Paus Manifold -Jintan JNDR-A installation, Shell’s Malikai TLWP -Kebabangan A installation and the Hess Belud South FPSO -Erb West EWG-A installation. 4.4 Marine services Forecasts for the Marine Services segment of the of the oil and gas value chain have been split into the following, according to the new entity structure: The ROV forecasts are a direct forecast of the demand for large inspection and work class ROVs in the offshore O&G industry. This is a leading indicator of demand for offshore diving and other underwater related services. The OSV forecasts are a direct forecast of the demand for OSVs from the offshore oil and gas sector: This demand would typically be met by vessels associated with AHTss, which are used for towing rigs and platforms onto location, platform support vessels (“PSVs”), which are primarily used to supply existing platforms and assist with construction duties. 361 © Infield Systems Limited 2012 160
8. INDUSTRY OVERVIEW (cont’d) The Seismic forecasts relate directly to the provIsion of specialised geotechnical and geophysical services to the offshore oil and gas industry. 4.4.1 ROVs Global After suppressed demand throUgh 2009 and 2010, our forecast predicts that there will be steady growth between 2011 and 2015, aside from a slight plateau in 2013. We believe that from 2012 onwards demand levels will even exceed the high levels seen throughout the pre­credit crunch boom until 2008. We forecast that the demand for ROVs between 2011 and 2015 will be in approximately 1.2m days, which would represent an increase of over 40% in comparison to the period 2006 to 2010. It is forecast that around 79% of this demand will be accounted for by work class ROVs, with inspection class units making up the smaller portion of the market. Jl! Noon Arne rica IM!..a1in …..meoc.a*…..!ls1:fala…~ lUAl’OCa 35G,Dl}G .—­3{)O ,D00 +–_-_ 250,000! 200,OOD 150,OO{l 10{},OiH} 50,000 -{}+-“””’–r—,…………,.—,–‘–..,r”””-,—-,…-‘–r—-………..,
~ ..>.~ ~~Cb …,”-“‘,,”.> .,,-~.r$f ,,(:) …~ ~ v¥ ~~~ ~~~~ Year Figure 4-30: Global ROV market demand (days)by region (2006-2015) [Source: ISL] ~ Middiie Ea:St &. Caspian S=-…a ….. EUlro;:€ • Asia — ~ –_—-._.-. _…………… _. .._ ··IIlI····
Middle East & Caspia.n Se<l 6%
4% America 19% Australasia Latin Eurnpe 18% Figure 4-31: Global ROV market demand (days)by region(2011-2015) [Source: ISL] We forecast that the largest rates of growth in ROV demand will be seen in the Asian and Australasian markets. Within Asia, we predict demand of over 157,000 ROV days, which represents a 79% increase on demand seen in the previous five years. This will be driven by drilling, installation and inspection, repair and maintenance (“IRM”) activity in Malaysia, Indonesia, China and India. Latin American growth will be driven by high levels of drilling and development activity offshore Brazil. 4.4.2 ROVs Malaysia Demand for all ROV types within the local market is expected to reach nearly 43,000 demand days over the next five years, driven by the significant spike in required services forecast to occur in 2012 offshore Malaysia, primarily from NOC PETRONAS supporting substantial drilling activities, as well as an increasing number of installation projects. Whilst PETRONAS is the largest operator within the region, international E&P companies are also anticipated to increase their share for ROV demand over the next five years. Overall, work class ROVs are forecast to be the most required type of ROV within the region with 79% of the market share. 3d @ flJi/efei Systems LlmiterJ 2012
8. INDUSTRY OVERVIEW (cont’d) • Work Class 1Ii1l1nspedion Class Inspection Class 16,000
14,DOl} -~~~–,.-,—-.-~–~–~”~~.-~ ,, 12,000 —-.-~..—-._-­10,DOO _..,.”.–,-,,–,—,.–‘–‘-‘~-.. _..-~~._-_ _., .._~ ­..””~—-_._ .. ~ B,DOO 6,DOD” ——–.——-.—.­
4,DOO ­2,000 O+-“””-r—-,-”–.–e-,–J–”-“–r—..–II-r—-,-”””-, ~.. ~ .S’-Q’b ~01~ ,,~. ,,'” .,.. “,’b ~~
1’\..’f ~~~~ ~~~~~
Year 4.4.3 OSVs Global We believe that the global OSV market will witness growth over the next five years, as our forecast indicates a strong market performance, underlined by key market drivers. We anticipate that the market will be particularly strong in 2011, before a slight drop followed by incremental growth through to 2015. This market is driven by factors such as the number of new platform installations scheduled and the number of wells set to be drilled, which are all set to increase through to 2015. IfII Nerth A.nErica ~ M~:ldle lEaSl & Ca:::-F.ian Sea _C\’O >:::J’\ .~’C _&> ,,{} ….” .. ,,’I–!\”:> ….1>< ,,’:l Australasiaf ~~ ¥ ~~ ~~ ~ ~ Latin…./'” 3% Year America Europe 15% 11% .. La1iill.~ar…a  ~Europe  lS! Australasia  • Asia  1Ift-.mea
SOO,OOD soo,noo 60{},000 !l=. SOO,DOn d 400,{lOO 3-{)O,OOO 200,OO{) .. 100,000
{} -t-“””–r–”””-.–””'”,-;-­Middle East & Casp.ian Sea 12% 38 I (l) In/is!e} ‘.”e·’n,’.,,· LirnitecJ 2012 8. INDUSTRY OVERVIEW (cont’d) Our forecasts indicate that OSV market demand between 2011 and 2015 will be in the region of 3.7m days, which would represent an increase of 8% over the previous corresponding period. It is our belief that Asia will be the largest single market for OSVs, with an expectation that this region will account for around 23% of the global total over the next five years. OSV activity in this region will be driven by a number of factors, including a high number of platform installations and associated drilling activity in Indonesia and China, as well as Malaysia. Deepwater development is beginning to move ahead in Asia, although it is still in its infancy in comparison to some other regions. Developments in deep water drive demand for OSVs by increasing the need for vessels to support drilling rigs and, later, construction vessels engaged in installation activities, before the subsequent need for OSVs to support the resulting operational platforms. Outside Asia, the next largest source of OSV demand is expected to be North America with 21 % of the global total. This is driven by the expected resumption in deepwater drilling activity in the Gulf of Mexico, as well as a high number of small wellhead platform installations in shallower waters in the same region. Elsewhere, there is likely to be significant demand in Latin America and Africa, with 15% of the global total respectively, and the Middle East and Caspian with 12%. We expect that the largest growth markets will be Latin American and the Middle East. In Latin America, we expect this will largely be driven by drilling and development activity in Brazil, while in the Middle East this will be largely the result of a rise in conventional fixed platform numbers increasing in countries such as Iran, Saudi Arabia and Abu Dhabi. 4.4.4 OSVs Malaysia We expect that the Malaysian OSV market will experience strong growth between 2011 and 2015, with a possible increase of over 40% in comparison to the previous five year period. We expect that the growth trend will be characterised by incremental growth over the five years to 2015, culminating in a peak of over 40,000 vessel days. Due to cabotage laws prioritising local OSV service providers and the presence of financially strong Majors and NOCs in Malaysia, the OSV market has witnessed a stable period over the last few years. Whilst charter rates became depressed in other global regions, the rates in the Malaysian market remained comparatively buoyant [Source: ISL]. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year ISL] 39 I CD In(‘8/c/ Systems Lirmted 2012 163
8. INDUSTRY OVERVIEW (cont’d) One of the key drivers for the Malaysian OSV market continues to be PETRONAS, and its plans to develop hydrocarbons offshore Malaysia. During 2010, 69% of PETRONAS’ E&P spending was within the domestic market (Source: PETRONAS Annual Report 2010). This is expected to increase in 2011 as the operator moves away from its international focus and looks to address declining production from its shallow water fields. PETROI\lAS’ expenditure plans at this stage are two pronged; the development of deep water reserves, which will require deep water capable PSVs, and also the re-development of fields which are experiencing declining production. This will require additional drilling, which will in turn require greater support from AHTs. We believe that the O&G industry in the country will continue to provide opportunities within the OSV market [Source: ISL]. 4.4.5 Seismic Global The seismic market has a strong outlook over the short and medium term, with strong year­on-year growth expected as we move forward to 20’15. We estimate that seismic vessel demand will grow from approximately 43,000 days between 2006 and 2010 to upwards of 60,000 days between 2011 and 2015, a rise of 28%. Our expectation is that there will be a relatively even split between geotechnical and geophysical demand, with 53% and 47% respectively. iii North Am=OOi “Midd~ East &. Caspian Sea .. Latin ftomerica “EUfOj:€
38’AuStraAaS3 .A–c,ia _Africa 16.0{)OI—————­14,OO{) +.. .—. —-‘-‘————–..—….-…——–­12,{)OJ) t ~’-H­10 O{)O ~
1—–­~ s:O{){). ··–I–·-!–~·–“.-~—–. “. .”. . 6,{)0{) t.–.—~-~ ‘-­4,{}{){)­2,O{){) _. O+-“‘……——.-“……—–,–””’—-,,–””’L,—L-,—… .,,.8:0 ~ .r;::,~ ~~Cb,,~ …..” .”-“‘ ‘” .~~ ~~~~~~~~~ ~
Year of Spend The geotechnical survey market is driven primarily by the drill market for fixed and floating platforms, although there is growth expected within the Seabed System CPT Sampling sector as more and more developments move towards deeper waters. The geophysical survey market is driven by E&A well activity and is a smaller market than the geotechnical one in terms of revenue spent, however with companies looking towards increasing exploration programme expenditure; this market retains a healthy outlook post 2015. 40 I @ !nfreici Systems Lllmtecl 2012

8. INDUSTRY OVERVIEW (cont’d) • Geotechnical
16,0{){} 14,000 12,000 10,0{)O —-.———.-­
Geophysical (I)47%1-­-B’ a,non -Geotechnical ‘-­6,000 +-11.-….-­53% 4,OO{} ~-II!!IIf-‘_.’­2,000 {} -J–“””-r–”””’-,­#’ .n~’\ .~~ .~C!> R)….r:::. t:;,….” /::>,,’\-.n,,”3t:;,”””‘/::>”t.:, ~ ‘v ~.~ ~~ ~ ‘v ~. ~ YearofActivity Figure 4-39: Global seismic market vessel demand Figure 4-40: Global seismic market vessel demand (days) by market segment (2006-2015) [Source: ISL] (days) by market segment(2011-2015) [Source: ISL]
4.4.6 Seismic Malaysia Within the local market of Malaysia, the outlook for the seismic market is very positive with both geophysical and geotechnical demand expected to increase substantially during 2012 and continue to do so through to 2015. Indeed, demand days should average 665 days for the period between 2012 to 2015, an increase from an average of 328 days for 2006 to 2011. Total revenue for seismic activity offshore Malaysia is forecast to reach nearly USD250m over the next five years, a significant increase from the USD145m witnessed during 2006-2010; one of the primary drivers behind this is spike in activity during 2013 that should bolster revenues within the local market. Overall, demand for geophysical demand is anticipated to be slightly greater than that for geotechnical with a market share of 52% and 48%, respectively.
Year of Activity Figure 4-41: Malaysian seismic market vessel demand (days) by region (2006-2015) [Source:
ISL]  41 (~) Infield  I Systems Limited 201 2  165
8. INDUSTRY OVERVIEW (cont’d) • Geotechnical SOO 70i} ….-..-..—.——–­6{){} ——..—-­5-00 _ .. .._._._.._ _.__. 00S4QiJ -..–…….——–.-…
30«) 200 100 o +,–…,–‘–,……,.”‘-,–“””‘–,-‘–r-“””‘-,—-…..,.,–,……,.”‘-,—“”‘L.-,
~~ * ~ .~.~.~ ~ ~ ~ ~~~~ ~~~~~~ YearofActivity Figure 4-42: Malaysian seismic market vessel demand (days) by market segment (2006-2015) [Source: ISL] 4.5 Operations & maintenance 4.5.1 Global II North Am=riea ~Midd!e East!’. Cas..~ Sea 1M Lam America ….. Europe *.AaJ:Stralasia • Asia • Africa 20000 1–··.. ·· ..·..··..····· , –,.. ,.. ,..——.. f~ :~~~ ~=,~~~::::..:::=..~::.. .-: c 1400{) +-j C””””‘–c~ -.-.­~ 12,){)0 -r—~­.g 1000il t'” I·.. ~ 8000-“-­a. ~ 6’00001-“­-E 4000 +­~ 2[){)O ~”-.-”’·I!II·”·”I!!!I ‘,… Q +-!.JOIIIL…-“””-r–“””-,…….-,-…………. _~’O A ~’b ~~….O:J ,,’0 “‘….. ¥ ~~ ¥ ~~ -_—“!~~ ~. “1-= -·-I-~-~–~–~ ,……­c., -‘” …. ….’l.-……”.1 ~ ….c:;, ~~~~ ProductionYear Figure 4-44: Global annual offshore oil and gas production (million barrels ofoil equivalent) by region (2006-2015) [Source: ISL] Geotechnical
Geophysical48% 52%. Figure 4-43: Malaysian seismic market vessel demand (days) by market segment(2011-2015) [Source: ISL] Mkldle East &Caspian Sea
18~~· Latin America 13%

Australasia 4% Europe-‘ 19% The operations and maintenance market is generally derived from the installed base of infrastructure and the requirement to service and maintain offshore equipment to maintain production. The market is weighted towards the presence of conventional structures such as fixed platforms in shallow waters and surface laid lines. Historically, the sector has been typified by operators taking a reactive rather than proactive approach, and projects have often been deferred in order to direct cash resources towards more profitable activities. 421 @) /niJe/cJ Sysiems Limit(,-,cJ 20 i 2 8. INDUSTRY OVERVIEW (cont’d) Useful leading indicators of operations and maintenance market, therefore, include production rates globally and the extent of installed infrastructure supporting this production. Global offshore oil and gas production, shown in the figure above, indicates that there will be incremental growth in the operations and maintenance market over the forecast period, culminating in a production rate in excess of 18.5 billion barrels of oil equivalent annually. 17,500 .., . 300,000 , . 17,000 ··f··················································· “W”” . 250,000 + “””””””: . 16,500 -t ···c·,..””,··········································· 16,000 + “””””: . E 200,000 ; =<ii’–~”‘!”::”.= . II>E15,500 -t………………… ,..-“‘,..
==­.g :E 150,000
OJ1ii 15.000 c Q)ii: …J 100,000 ” .14.500 14,000 -t .
50,00013,500 +. 13 ,000 +—-,—,—–,—,,—–,–,—,——-,—.,..–~ ~~~~ ~ ~~~ ~ ~ ~~~~~ ~~~~~ ~~~~~~~~~~ ~~~~~ ~~~~~ YearYear Figure 4-47: Global offshore installed pipelines byFigure 4-46: Global offshore installed platforms length (cumulative total) (2006-2015) [Source: ISL] (cumulative total) (2006-2015) [Source: ISL] This growth profile is supported by the number of installed platforms, shown in the figure below, which shows that the number of installed offshore platforms is likely to grow by around 8% between 2011 and 2015. Similarly, growth in the installed length of offshore pipelines is expected to grow markedly, with our expectation that there will be an increase of over 22% between 2011 and 2015. With the combined expectation that both platform numbers and installed pipelines will grow over the next five years, this sets a clear expectation that the global operations and maintenance market could increase over the same timeframe, creating good opportunities for well-placed contractors. The established hydrocarbon basins are likely to drive much of demand (Europe and North America) and we expect to see substantial growth in Asia, Africa and Latin America. In addition, it is likely that demand will be heavily weighted towards shallow water installations as a result of the bulk of installed equipment dating back a number of years. In the long term we expect to see a movement towards deeper demand, but for the foreseeable future we note that installations in water depths of less than 500 metres will require the largest proportion of operations and maintenance activity. 4.5.2 Malaysia Leading indicators for the Malaysian operations and maintenance market are similarly positive with regards to anticipated growth. We estimate that Malaysian offshore oil and gas production, shown in the figure below, could increase by over 7% between 2011 and 2015, as the government efforts to increase production drive development. We anticipate a corresponding increase in the number of installed platforms, shown in the figure below, with our estimates indicating that this number will increase by over 20%. Finally, we expect that the installed offshore pipeline infrastructure, shown in the figure below, will also increase. Our estimates lead us to believe that this figure will increase by almost 25% over the next five years. The positive growth expectations set by these leading indicators are a good sign that this market will offer increased opportunities for Malaysian based contractors over the forecast period and beyond. 431 @ Infield Systems Li!77Itec/ 2012 167

8. INDUSTRY OVERVIEW (cont’d) 800 ~.. . __-_—_.._ _ -__ -.__. I I 700 +–….–.–.–.–.. 1 -I }::;.~.
g 400 j “tJ i o I  li: 300 ~.  “iii  I  ::J \E 200 +« .  100 .~  I  0-:  …………,  ··························-·-T····h..H -········–···rHHH…..  ············f·__···H.H.H”  -··········T····H H  , _._  ,  2006  2007  2008  2009  2010  2011  2012  2013  2014  2015  Production Year  Figure 4-48: Malaysian annual oil and gas production (million barrels oil equivalent) by region (2006-2015) [Source: ISLJ

500 12,000 450 +. 10,000 .j……………………………………….. …………………………………………………………………………………..,-“””””: .
400 +…………. .:.•;;;;#’.”‘: .
350 E 8,000E300 2S.e 250 :5 6,000 + 1iiii: 200 +. mc Q) –I 4,000 .j .150 +. 100 .+ . 2,000 50 o +—-,-……,–..,—-,–,–,.——-,–,—-,—, 0+-……..–,–,-……..–.–,—.–.—,—, ~~~~ ~~~~ ~ ~ ~~~~ ~~~~~~ ~~~~~~~~~ ~ ~~~~~ ~~~ ~~ Year Year Figure 4-49: Malaysian installed offshore platforms Figure 4-50: Malaysian installed offshore pipelines by (cumulative total) (2006-2015) [Source: ISLI length (cumUlative total) (2006-2015) [Source: ISLI 4.6 Reliance on imports The main areas that could be affected adversely by the reliance on imports would be for the supply of materials for fabrication, such as steel, and possibly specialist equipment used for the provision of services across the field service value chain. Such equipment might include specialist units or parts for equipment such as ROVs or installation vessels. We do not anticipate any major threats to the supply of such materials and equipment, however we acknowledge that provision of services may be affected in the extreme event of a restriction on imports. 44 I CD Infiefc! Systems Limiteej 2012 8. INDUSTRY OVERVIEW (cont’d) 4.7 Risks to business, operational and financial The company would be exposed to risks from a number of sources: Market barriers to entry: some technologically advanced areas of the offshore construction market are highly sensitive to previous experience and track record, due to the risk profile and high expense that operators can be exposed to. This can lead to difficulty in gaining entry to certain areas of the market without having successfully demonstrated the ability to deliver particular infrastructure or facilities. Areas such as deepwater and floater EPIC contracts may be more susceptible to such risks than other more conventional market segments. The same risk can come from lack of track record in the delivery of large scale contracts at the top end of the market. Material construction risk: lump-sum turnkey contracts, under which the merged entity would design, engineer, build and deliver ready to operate facilities for a fixed price. The actual expenses incurred in executing such a contract can vary substantially from those originally anticipated. Losses on individual contracts: if the company fails to achieve expected margins or incurs losses on one of more of its key contracts, it may experience a decrease in income or incur a loss. Unforeseen additional costs: the company’s EPC projects could encounter difficulties that could lead to additional costs, lower revenues, litigation or disputes. National or international terrorist acts, uprisings, wars or revolution: the company could be adversely affected by the consequences of such events, given the proximity of many offshore industry activities to relatively unstable areas. Maritime security risks: piracy in areas such as the Gulf of Aden, Gulf of Guinea and, to a lesser extent, the Malacca Straits, has significantly increased in recent years. This represents a risk for all maritime fleets. New government regulations could potentially be unfavourable to the company: operations of the company are governed by the international, regional, transnational and national laws and regulations of countries worldwide. A change in laws such as export control or health and safety could necessitate financial or technological investment, or withdrawal from the market affected. Financial risks: the company operates in an international environment, and could therefore be exposed to a variety of financial risks. These include market risk (foreign currency exchange rates, interest rates and commodity/equity prices), credit risk and liquidity risk. 4.8 Discussion of any alternative products or services There are no alternative products or services to those which are offered by the company. The main difference between similar service offerings would be that they might be alternatively offered by contractors who provide only smaller elements of the field services value chain, for example on a sub-contractor basis. 45 I ‘l~ Infield Systems Limileel 2012 8. INDUSTRY OVERVIEW (cont’d) 5 COMPETITIVE MARKET SPACE
5.1.1 South East Asian fabrication market The market that Kencana Petroleum are currently competing in is characterised by the presence of a large number of competitors. We estimate that there are in excess of 40 yards in South East Asia that cater for the offshore construction market, that is with the ability to fabricate fixed platforms, floating platforms or offshore drilling rigs. FMC Technologies ! VME Process I ST Synthesis Pte Lid } Transerve Engineering o.
Adinin Group • larTl’rell Energy Urrdled .,. PT Technics Olshore .. H & H Utarra International • Nasco-Hiap Seng Engineering Co !­Brooke Dockyard & Engineering V\br1<s Coporation .. Global Process Systems ..
profab.1-­Clough :_ Dyna-Mac J­Aker Solutions …­Gunanusa Utama .i:­EZRA Holdings -Triyards .,a-­Rarrunia Hoidlngs 0-“-Keppel Offshore and Marine _
iI’ Petronas _~ Malaysia Marine and Heavy Engineering Holdings ~ _ Petrovietnam : ~
Sime Darby Engineering ~ .. B.T. Engineering ~__…. Nippon Steel Corporation ~__~_ Kencana Hl : ~__ STP&I …__~ PT saipemlndonesia ~__~ ~_ McDenrott I—-~ SenbCorpMarine . ~~~~~~~~~__ =j o 400,000 800,000 1,200,000 1,600,000 Yard Area 1m’) Figure 5-1: South East Asian offshore fabrication companies byyard area (m2) [Source: ISL] Companies within this market can differentiate themselves by cost, quality and technology. In order to be able to differentiate by technology, many of these yards have developed particular expertise in areas such as deepwater floating platforms or FPSOs. Such differentiation can also be achieved by the fabrication of topsides containing complex processing equipment. Cost and quality differentiation can be achieved by factors such efficient operation, experience and staff. Within Malaysia itself, the market is similarly crowded, with a number of companies offering offshore fabrication inclUding Boustead, MMHE, Ramunia and Kencana Petroleum. The market has changed somewhat in recent months, with Ramunia completing the purchase of the troubled Oilfab fabrication yard. This places further emphasis on the ability to differentiate by factors such as cost, quality, timely delivery and/or technology. 461 © Infield Systems Limited 2012 8. INDUSTRY OVERVIEW (cont’d) The offshore installation market is a similarly crowded market place in which there are numerous companies competing for business. The figure below shows the top 30 offshore vessel operators who provide offshore construction services globally, ranked by the number of vessels we believe that they have in operation in this geographical sphere. This chart includes accommodation vessels and barges, construction vessels, dive support vessels, lay vessels, multi-service vessels and survey vessels. Global Marine Systems Ltd . Millennium Offshore China Oilfield Services United Buni Annada Lewek Shipping Toisa Ltd Sv.;re Pacific Offshore COOEC Ltd Solstad O’fshore Intership Bisso Marine HANSA Heavy LifT GmbH Offshore Marine Contractors Prosafe Production Services Sea Trucks Group AriesMarine Corporation Saipem Subsea 7 Bourbon Offshore DOF Subsea Elevating Boats Llc
The Group _~ Cal Dive International Fugro Helix Energy Solutions Technip Superior Energy Services Hercules Offshore. LLC
o10 20 30 4050 60 70 Vessels Figure 5-2: Global top 30 offshore construction contractors ranked by number of vessels [Sources: ISL Offshore Vessel Database, Company Sources] Our analysis leads us to believe that there are in excess of 1,400 vessels operational within this market place worldwide. Players within this market are typically able to compete on a r-lumber of factors such the technical ability of their vessels for specific tasks, cost, or through the use of joint ventures with companies involved in complimentary activities. Many companies are also able to take advantage of a strong presence .in particular regions or countries, typically through historic market presence or throl1gh regulation that protects indigenous contractors from international competition. “471 if; li7fielc/ Systems Limiterl 2012 8. INDUSTRY OVERVIEW (cont’d) The merged entity will operate firmly within the offshore oilfield services sector. This is an arena which contains some of the largest companies in the world, such as Schlumberger and Halliburton. The sector provides the assets and/or staff across various points of the life cycle of oil and gas operations. Clients include the integrated oil companies, national oil companies and the independents. The figure below shows the top global offshore oilfield services companies according to estimated offshore revenue. Whilst much of the revenue generated by these companies falls out with the core activities in which the merged entity will be involved, the sheer scale of operations within the offshore oilfield contracting space is clear from the turnover-generated in the last financial year. Trico Marine Services Petrofac DOF Jacobs Engineering COOEC Tidewater AP Moller Superior energy China Oilfield Services Fluor Kawasaki Heavy The Group Oceaneering Modec Tenaris

)::%ffi!’fX!!W* Hyundai Heavy ””XM’;·”””’!l1 Badger Explorer )”””,¥ow””C/””’,”
Samsung Heavy i::z,”,,,,,!!’;”‘¥”” Subsea 7 ‘”,z””‘!”‘,””;:’! Mcdermott Int }’::~~=:, Wood Group ‘\IT DSME
f:;GiJM<XW'”cMT”Mm SBM Offshore SemCorp Marine y:~:~=::~= KBR 1m FMC Tech
i%i!ThMlT0!”!Y0U”‘!”‘!W’WCi National Oilwell j:::”’:::;:;::~=:’::1!!i!Technip I'” Keppei ,~!ZGXW”’t’,:!”ZA:WW!!:<!W_ Aker Solutions ‘”w:””””‘;'”iI&””‘.”‘:”‘_”””””””’%O CameronSaipemInt J:::::::;::’:::~:::::=:’t:!W% Halliburton ~;~;;;~;;;;;.;;;;;;;;;;;;;~,.._. Schiumberger ~ o 2,000 4,000 6,000 8,000 10,000 12,000 Est. Offshore Revenue (USD m) Figure 5-3: Top offshore oilfield services ranked by est. offshore revenue in 2010 [Source: ISL, Company Annual Reports] O&G projects have become increasingly characterised by project complexity, greater variation in field sizes, and intensified international involvement. Operators have recently moved towards contracting for a full service provision in order to gain savings and to control project risk. This has led to a trend of increasing prevalence of the use of turnkey contracts, such as EPIC or similar variants such as EPCIC. Under an EPIC or EPCIC contract, the contractor will design the structure(s), procure the necessary materials, undertake construction and transportation, and set it up at the offshore site. The contractor does this either through own labour or by subcontracting part of the work. The contractor carries the project risk for schedule as well as budget in return for a fixed price, often called Lump sum. The market for EPIC contracts is most likely to materialise in the larger offshore developments, which favours companies who are able to offer the full range of services in­house, thus making savings across the supply chain. 48 I
8. INDUSTRY OVERVIEW (conf’d) There are significant advantages to the operator which relate to the EPIC contract process. Firstly it covers the full installation process and allows for dialogue between two parties asopposed to many, a dynamic that increases efficiency. The process is rigorous and formal and guarantees a defined budget and completion time. Also, in EPIC contracts, the contractor rarely carries the project risk unconditionally. Rather, contractor and customer have detailed discussions on the division of the risk. Risk of delays and cost overruns due to lacking weather windows is an example of a typical risk that may be borne by the customer rather than the contractor. Company  Offshore Revenue  Conventional  Unconventional
(USDm)  EPC Installation  EPC Installation  Schlurrberger  10,761  Halliburton  9,997  Saipem  6,939  Cameron Int  6,135  Aker Solutions  5,079  Keppel  4,924  Technip  4,645  National Oilw ell  4,182  FMC Tech  4,131  KBR  3,613  SemCorp Marine  3,527  SBM Offshore  3,056  DSME  2,729  Wood Group  2,587  Mcdermott Int  2,404  Subsea 7  2,369  Sarnsung Heavy  2,216  Badger Explorer  2,042  HyundaiHeavy  1,939  Tenaris  1,889  Modec  1,799  Oceaneering  1,670  The Group  1,491  Kawasaki Heavy  1,457  Fluor  1,417  China Oillield Services  1,245  Superior energy  1,207  APMolier  1,127  Tidewater  1,055  COOEC  997  Jacobs Engineering  994  DOF  925  Petrofac  722  Trico Marine Services  642  Global Industries  568  EZRA  354  Swiber  466  Swire  391  Figure 5-4: Top offshore oilfield service providers by EPIC capability [Sources: ISL, Company Annual Reports, Company Sources]

‘Ext denotes the reliance on external companies for activity 49 f .?:::: Inr/elcf Systerns Lirr!lteci 2012 8. INDUSTRY OVERVIEW (cont’d) The offshore oil services sector spans the entire oil and gas supply chain. Companies will often sub-contract to each other various parts of projects, whether it be engineering, procurement, installation and/or construction. The following figure shows the offshore EPC and installation capabilities of each of the top offshore oilfield service companies, by conventional and unconventional markets. Capability in the conventional market relates to the EPC and installation activities involving fixed platforms, conventional pipelines or export pipelines. Capability in the unconventional market relates to EPC and installation activities involving floating platforms or SURF pipelines. This table shows that of the companies involved in the offshore services sector, there are only a select few who have the capability to perform the full suite offshore construction EPCIC services. While many of the largest players in the sector do not have capabilities in this arena, many of those who are involved in offshore construction do not have the ability to provide services across the full value chain. Some companies fall into the category of being able to provide many of the services in­house, while relying on external sub-contractors to provide the remainder of services, for example having the capability for EPC services and not installation services, or vice versa. Comparative analysis We have identified seven companies which we deem primarily competitive with the Group. We believe that these companies are unique in their ability to deliver full in-house EPCIC services to the global offshore industry. The figure below shows these companies ranked by market capitalisation. From our analysis we have determined that the Group would be ranked fifth by market capitalisation out of this select group of EPCIC competitors, behind only Saipem, Technip, Subsea 7 and Aker Solutions. Out of this group, it should be noted that competitors such as Saipem and Technip also offer services beyond the scope of the Group’s activities, and much of their market capitalisation could therefore be considered as not directly comparable with that of the Group. Such non-core activities could include, for example, significant revenue streams coming from onshore or refining activities. Competitors who we believe fall into this category are marked by asterisks in the figure below. Ezra iii Mcdermott In! _ COOEC ~ The Group Aker Solutions Subsea7 ••••••• Technip’ Saipem’  L-­ -+­ —-;  –+­ ;  -,  o  5  1510  20  25  Market Capitalisation (USD bn)  Figure 5-5: Merged entity’s competitors by market capitalisation(24/04/2012)(billion USD) [Source: ISL]

This exclusive group of companies are uniquely placed in their ability to deliver full in-house EPCle services to the global offshore industry. This group contains companies with a mixture of abilities. There are a very small group of top tier offshore construction contractors who have a full in-house capability to deliver offshore unconventional and conventional EPCIC projects, and have a significant track record of doing so. There are also a number of companies who have the capability to deliver both conventional and unconventional projects, but have a more limited track record in areas such as deepwater. 50 I . ,:.”, ..:,.-, t’_ ‘. j .’ .~ 174
8. INDUSTRY OVERVIEW (cont’d) We would consider that the merged entity, the Group, would fall into the latter category. Furthermore, it would be expected that with the benefits that will be realised through the merger, the company will be able to begin the process of acquiring experience in areas that will allow them to compete at the very top end of this exclusive market. Given the expected unconventional activity in the company’s core markets such as Asia, Australasia and Brazil, it would be reasonable to assume that the company might be able to find opportunity to make the move into this market in the short to medium term. 5. 1.4 Offshore Drilling The global offshore drilling arena is a fragmented marketplace with a large number of drilling managers controlling the global fleet. At the top end, companies such as Transocean, Noble drilling, Diamond Offshore and ENSCO International manage a large number of both leading-edge and lower-end assets and as such control a significant proportion of the market. The middle tier of rig managers often operate smaller but higher specification fleets. These companies, including Rowan, Seadrill and Frontier, manage rigs that are capable of operating in ultra-deepwater harsh conditions or are powerful and able to drill quickly and efficiently.
51 I infield Svslems LinlltecJ 20″12 8. INDUSTRY OVERVIEW (cont’d) 5.1.5 Marine services Offshore Seismic The offshore seismic market contains a variety of contractors including largely diverse contractors through to marine specialists. The majority of the market consists of large contractors including PGS, WesternGeco and eGG Veritas. Other contractors include Fugro, Polarcus and Bergen Oilfield Services. Fugro is a smaller but established player, and Polarcus and Bergen Oilfield Services are considered market entrants. It is expected that the three largest players will continue to represent the largest market shares in the forecast period. At the lower end of the market, the smaller players and new market entrants are expected to face strong competition from established players. others Petroleum Goo­Services 10% 23% CGGVeritas 23%
Figure 5-7: Offshore seismic estimated market share [Source: 151-] 521 /i-)i’!e/c:’ Lirrut8c/2012
8. INDUSTRY OVERVIEW (cont’d) ROVs Global supply of ROVs, however, is dominated by a small group of operator companies, most of whom are active in all of the main geographical areas of activity for the oil and gas industry. In recent years operators such as Oceaneering, Fugro, Subsea 7, Acergy (now part of Subsea 7) and Saipem have supplied the vast majority of the market. These companies continue to do so, however there is a group of smaller operators such as Helix, OOF Subsea and Hallin Marine who have made significant investments in new ROV technology. This has seen these companies increase their share of the market, albeit to a level which is still much smaller than the major service providers. Others Oceaneering 26% DeepOcean 2’% DOf Subsea 4%
Fugro Helix Energy 15% Solutions 4% 17% 53 I <:C’ InT/G/c! Sysierns !.irmtecj 2012

 

 

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