Deepwater Gulf Infrastructure …A Reliable Proposition?

Rory Miller, Vice President Gulf Coast

October 26, 2006

Deepwater

Midstream 2005 Tutorial Nov. 30, 20052 © 2005 The Williams Companies, Inc.

Changing nature of Gulf productionDeepwater aggregation theoryWorsening weather patternsDeepwater pipeline architectureRepair, DesignReliability Considerations

Overview of Major SectionsDeepwater

Midstream 2005 Tutorial Nov. 30, 20053 © 2005 The Williams Companies, Inc.

Gulf of Mexico Annual Gas ProductionDeepwater

*2004 – Some production lost due to Hurricane Ivan*2005 – Significant production lost due to Hurricanes Katrina & Rita

0

1,000

2,000

3,000

4,000

5,000

6,00019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

ShelfDeepwater

BC

F

-51%

+18%

Midstream 2005 Tutorial Nov. 30, 20054 © 2005 The Williams Companies, Inc.

Gulf of Mexico Annual Oil Production

*2004 – Some production lost due to Hurricane Ivan*2005 – Significant production lost due to Hurricanes Katrina & Rita

Deepwater

0

100

200

300

400

500

600

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

ShelfDeepwater

MM

BO

+20%

-44%

Midstream 2005 Tutorial Nov. 30, 20055 © 2005 The Williams Companies, Inc.

Estimated UndiscoveredTechnically Recoverable

Oil & Gas Resources*Federal OCS Areas

26.6 BBO +132.1 TCF

3.8 BBO +37.0 TCF

44.9 BBO +232.5 TCF

10.5 BBO +18.3 TCF

* MMS 2005 Assessment, Pmean values

Estimated Undiscovered Oil & Gas ReservesDeepwater

Midstream 2005 Tutorial Nov. 30, 20056 © 2005 The Williams Companies, Inc.

Gulf of Mexico – Eastern Gulf AreaDeepwater

Midstream 2005 Tutorial Nov. 30, 20057 © 2005 The Williams Companies, Inc.

The Architecture of AggregationDeepwater

Midstream 2005 Tutorial Nov. 30, 20058 © 2005 The Williams Companies, Inc.

Aggregation: Reducing Risk for Everyone

Floating Production System Processing Capacity vs Time

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Year

Proc

essi

ng C

apac

ity (B

OE/

Day

)

Expanded Processing Capacity

Initial Processing CapacityTop End Risk

Back End Risk

Production Forecast

Producers toll across floating production systems and export systemsLower tolls due to economies of scaleWilliams assumes aggregation risks; lower than sum of individual risksReduces cycle time and economic threshold for marginal prospects

Deepwater

Midstream 2005 Tutorial Nov. 30, 20059 © 2005 The Williams Companies, Inc.

East Breaks: Initial Justification

East Breaks PV of Revenue - Initial

38%

62%

Contracted 3rd Party

• 4 discoveries at time of sanctioning

• Original P50 reserves provide return of capital (to small single digit returns on capital)

• Initial justification: 1999 - 2000

Deepwater

Midstream 2005 Tutorial Nov. 30, 200510 © 2005 The Williams Companies, Inc.

East Break PV of Revenue - Today

77%

23%

Contracted 3rd Party

12 discoveries in dedicated area today

• Additional undedicated discovery in area

• 3 - 5 additional exploration wells planned next year

• Pipeline well situated for Alaminos Canyon development

• Earning a return in excess of cost of capital

East Breaks: Today and the FutureDeepwater

Midstream 2005 Tutorial Nov. 30, 200511 © 2005 The Williams Companies, Inc.

Cyclical Hurricane Trend?Deepwater

Midstream 2005 Tutorial Nov. 30, 200512 © 2005 The Williams Companies, Inc.

Midstream 2005 Tutorial Nov. 30, 200513 © 2005 The Williams Companies, Inc.

Global Temperature TrendDeepwater

Midstream 2005 Tutorial Nov. 30, 200514 © 2005 The Williams Companies, Inc.

Recent Severe WeatherDeepwater

Midstream 2005 Tutorial Nov. 30, 200515 © 2005 The Williams Companies, Inc.

Wave VocabularyDeepwater

Midstream 2005 Tutorial Nov. 30, 200516 © 2005 The Williams Companies, Inc.

“Maximum” vs. “Significant” Wave Height

Significant wave height, Hs, is approximately equal to the average of the highest one-third of the waves.

Deepwater

Midstream 2005 Tutorial Nov. 30, 200517 © 2005 The Williams Companies, Inc.

Historical Snapshots

Recent Hurricanes (NOAA Buoy Data)

15

2528

2126

30

1118

52 55

-

10

20

30

40

50

60E

rin

Felix

Opa

l

Ber

tha

Edo

uard

Fran

Dan

ny

Floy

d

Ivan

Kat

rina

1995 1995 1995 1996 1996 1996 1997 1999 2004 2005

Sign

ifica

nt W

ave

Hei

ght,

Hs

[ft]

TypicalCriteria:45 ft

Deepwater

Midstream 2005 Tutorial Nov. 30, 200518 © 2005 The Williams Companies, Inc.

0

10

20

30

40

50

60

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46

Sign

ifica

nt W

ave

Hei

ght (

Hs)

, ft

Hours

45ftDesignCriteria

Hurricane Katrina (27-30, Aug. 2005)Significant Wave Height (Hs)

Deepwater

Midstream 2005 Tutorial Nov. 30, 200519 © 2005 The Williams Companies, Inc.

0

10

20

30

40

50

60

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46

Hurricane Ivan (15-16, Sept. 2004)Significant Wave Height

45 ftDesignCriteria

Sign

ifica

nt W

ave

Hei

ght (

Hs)

, ft

Hours

Deepwater

Midstream 2005 Tutorial Nov. 30, 200520 © 2005 The Williams Companies, Inc.

Offshore Booster & Spec-change StationsDeepwater

Midstream 2005 Tutorial Nov. 30, 200521 © 2005 The Williams Companies, Inc.

Seafloor Tie-ins

OIL

GAS

JUMPER

Deepwater

Midstream 2005 Tutorial Nov. 30, 200522 © 2005 The Williams Companies, Inc.

Trunk Line Extension & Lateral Tie-ins

FUTURE TIE-IN

10,000' R.

CHEVRON MP313FIXED PLATFORM300'

WILLIAMS "MOUNTAINEER"

(OIL)

62 M

I.

18X16 TAPER JOINT

18" -DSAW

14Ø10,000' R.

18" JUMPER

WYE

-DSAW18"

WYE

WYE (-5200')

18"

14Ø

WILLIAMS "CANYON CHIEF"

(GAS)

WYE

18X18X14" LAT.

WYE (-5200')

TO MP 261A PLATFORM

FROM FUTURE PLATFORM

FROM BLIND FAITH PLATFORM(-6,000')

CANYON

Deepwater

Midstream 2005 Tutorial Nov. 30, 200523 © 2005 The Williams Companies, Inc.

SCR

FLEXIBLE JOINT BEING LOWERED INTO “BASKET”

RISER

PORCH SUPPORT SCR (TYP.)

5-15 DEG. (TYP.)

MOORING / RISER ELEVATION (SHOWN FROM 3000’)

MOORING LINE (TYP.)

Deepwater

Midstream 2005 Tutorial Nov. 30, 200524 © 2005 The Williams Companies, Inc.

Preferred Deepwater Pipeline Repair

OII/Grayloc ConnectorsWith Alignment Sleds

Deepwater

Midstream 2005 Tutorial Nov. 30, 200525 © 2005 The Williams Companies, Inc.

Pipeline Repair -- Top View of Jumper

Compliant Jumper

Bowstring Cylinder

Deepwater

Midstream 2005 Tutorial Nov. 30, 200526 © 2005 The Williams Companies, Inc.

Reliability-Driven Design

Codes and regulations represent minimum criteriaSelectively increase minimums & add capability where:

Inputs / criteria are approximated – Metocean data seems to be trending higher – 20 years ahead?– Hydrocarbon characteristics of future line contents can vary widely

Redundancy is low– SCR structure has zero redundancy

Consequence of failure is high – Pipeline shut in for any reason affects all who are connected

Flexibility to recover is valuable – Ability to isolate a problem area and keep the main system online

Increased reliability often can come at low marginal cost

Deepwater

Midstream 2005 Tutorial Nov. 30, 200527 © 2005 The Williams Companies, Inc.

Other Keys to Reliability

Standardized and systematized:Design criteriaEquipment and Material SpecificationsExecution processes (PLC, etc.)

Limited menu of line sizesIn-stock valves, pipe, connectors and specialty toolsRepair plan execution readinessUp to date systems models for real time, line operationsExperience and continuity of our peopleA culture of trust that intrinsically encourages introspection & pro-actively drives change (there’s a mouthful)

Deepwater

Midstream 2005 Tutorial Nov. 30, 200528 © 2005 The Williams Companies, Inc.

Upshot of Trends in Gulf Coast

Weather increasingly more severeOil supply increasingly scarceEnergy demand growing globallyMidstream services increasingly in demandConstruction costs will be volatileIndustry’s discipline will be testedHigh barrier to entry, low barrier to failureReturns must be commensurate

Deepwater

Midstream 2005 Tutorial Nov. 30, 200529 © 2005 The Williams Companies, Inc.

Leadership

Structural EngineeringSCR Design/Verification

Topsides

Hull & Mooring

Hydraulics

Cost Estimating

Project Management

Commercial Expertise

Deepwater Operations

Building Our Deepwater CompetenciesDeepwater

Midstream 2005 Tutorial Nov. 30, 200530 © 2005 The Williams Companies, Inc.

Lessons Leaned from Katrina and Rita

Incident Command System Timely pre and post storm assistance for employees and their families Alternative and backup communications, power and transportation systems Critical material and supply inventories and staging areas Execute agreements for nontraditional services and supplies before handSecure dive boats early for post event offshore inspections Liaison with local, state & federal government agencies to expedite permits, variances waivers, etc

Deepwater

Midstream 2005 Tutorial Nov. 30, 200531 © 2005 The Williams Companies, Inc.

Questions?Deepwater