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© 2016 Gaffney, Cline & Associates. All rights reserved. Terms and conditions of use: by accepting this document, the recipient agrees that the document together with all information included therein is the confidential and proprietary property of Gaffney, Cline & Associates and includes valuable trade secrets and/or proprietary

information of Gaffney, Cline & Associates (collectively "information"). Gaffney, Cline & Associates retains all rights under copyright laws and trade secret laws of the United States of America and other countries. The recipient further agrees that the document may not be distributed, transmitted, copied or reproduced in whole or in part

by any means, electronic, mechanical, or otherwise, without the express prior written consent of Gaffney, Cline & Associates, and may not be used directly or indirectly in any way detrimental to Gaffney, Cline & Associates’ interest.

St. John’s 23 November 2016

NOIA - Presentation

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Confidentiality and Disclaimer Statement

This document is confidential and has been prepared for the exclusive use of the Client or parties

named herein. It may not be distributed or made available, in whole or in part, to any other

company or person without the prior knowledge and written consent of GCA. No person or

company other than those for whom it is intended may directly or indirectly rely upon its contents.

GCA is acting in an advisory capacity only and, to the fullest extent permitted by law, disclaims all

liability for actions or losses derived from any actual or purported reliance on this document (or

any other statements or opinions of GCA) by the Client or by any other person or entity.

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Report Approvals

This report was approved by the following Gaffney, Cline & Associates

personnel:

Project Manager: Charles Goedhals

Project Reviewer: Chris Rachwal

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Basis of Opinion

This document must be considered in its entirety. It reflects GCA’s informed professional judgment based on accepted

standards of professional investigation and, as applicable, the data and information provided by the Client and/or

obtained from other sources e.g. public domain, the limited scope of engagement, and the time permitted to conduct the

evaluation.

In line with those accepted standards, this document does not in any way constitute or make a guarantee or prediction

of results, and no warranty is implied or expressed that actual outcomes will conform to the outcomes presented herein.

GCA has not independently verified any information provided by or at the direction of the Client and/or obtained from

other sources e.g. public domain, and has accepted the accuracy and completeness of these data. GCA has no reason

to believe that any material facts have been withheld from it, but does not warrant that its inquiries have revealed all of

the matters that a more extensive examination might otherwise disclose.

In carrying out this study, GCA is not aware that any conflict of interest has existed. As an independent consultancy,

GCA is providing impartial technical, commercial and strategic advice within the energy sector. GCA’s remuneration

was not in any way contingent on the contents of this report. In the preparation of this document, GCA has maintained,

and continues to maintain, a strict independent consultant-client relationship with the Client. Furthermore, the

management and employees of GCA have no interest in any of the assets evaluated or related with the analysis carried

out as part of this report.

Staff members who prepared this report are professionally-qualified with appropriate educational qualifications and

levels of experience and expertise to perform the scope of work set out in the Proposal for Services.

GCA has not undertaken a site visit and inspection because [state reasons]. As such, GCA is not in a position to

comment on the operations or facilities in place, their appropriateness and condition and whether they are in

compliance with the regulations pertaining to such operations. Further, GCA is not in a position to comment on any

aspect of health, safety or environment of such operation.

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▪Overview of Project Objectives

▪Activity Levels that may Develop

▪Evolution of the Industry

▪Contracting Strategies that have Evolved

▪Key Contractors

▪ Implications for Atlantic Canada

▪Questions

Agenda

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Provide:

▪ Guidance as to the levels of activity that may be expected from the current

licence rounds

▪ Insight into the Deepwater production contracting, engineering, construction

and operations industry

▪ Recommendations on the way forward for Atlantic Canada industry

Project Objectives

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What is Different about Deepwater?

▪ Drilling– Longer distance logistics

– Longer mobilisation and rig-up times

▪ Floating solutions:– Deep ocean swell

– Long export/shuttle distances – storage

▪ Subsea– Flow assurance

– Proprietary solutions

– Deep ocean swell in installation / intervention

– Limited installation fleet

– High installation cost and intervention cost

▪ Operations– Greater distances – logistics and maintenance implications

– Higher cost

– Challenging economics

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Potential Development Solutions for NL

▪ Subsea is a fundamental

▪ Solutions will require ~10 days storage;

▪ Will need to be bankable;

Likely solutions:

▪ GBS and long distance tie-back;

▪ FPSO, disconnectable turret

▪ Other solutions (TLP, concrete spar)

possible, but not yet proven, storage

issue?

▪ Ultimately, the opportunities for NL lie in

subsea and modules/module integration

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Potential Activity Levels – Exploration and Appraisal Wells

Low CaseHigh Case

0

2

4

6

8

10

12

2018 2019 2020 2021 2022 2023 2024 2025 2026

Nu

mb

er o

f W

ells

2014 -2015 2016 - 2019 Appraisal

0

2

4

6

8

10

12

2018 2019 2020 2021 2022 2023 2024

Nu

mb

er o

f W

ells

2014 -2015 2016 - 2019 Appraisal

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Potential Activity Levels – Capex and Opex Spend

Low CaseHigh Case

0

2000

4000

6000

8000

10000

12000

14000

16000

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Pote

nti

al S

pen

d (

US$

MM

)

Well Capex Facilities + Subsea Capex Potential Capex Opex Potential Opex

0

2000

4000

6000

8000

10000

12000

14000

16000

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Po

ten

tia

l Sp

en

d (

US

$M

M)

Well Capex Facilities + Subsea Capex Potential Capex Opex Potential Opex

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Contracting Strategies

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Trends in Contracting - Subsea

▪ History of contracting strategies for the Subsea component shows a trend based on

project type, and the expanding skills and capabilities of the Contractors.

▪ The Subsea market has become dominated by a reducing number of SPS vendors,

Installation Contractors or a combination.

▪ This is driven by the investment that these companies have made in SPS technology

and installation vessels – hence emphasis on proprietary solutions.

▪ Further consolidation is likely as activity levels reduce due to lower numbers of project

sanctions.

▪ Recently this consolidated contracting has been resisted by some operators who seek

best-in-class for each segment.

▪ Subsea is likely to feature in all of the potential future developments, but the impact on

NL will be determined by its skill sets and, critically, the subcontracting plans of the

Prime Subsea Contractors.

Note: Local subsea engineering and fabrication work has been a matter of public

policy and may influence subcontracting plans.

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Trends in Contracting - FPSOs (applicable to all surface facilities)

▪ The FPSO market has become dominated by two types of Prime FPSO

Contractor:

– The first are the longer established FPSO owner / technology provider, such as

SBM, MODEC, who typically subcontract fabrication of the vessel and topsides, and

the integration;

– The second are the major shipyards of South East Asia, such as Samsung &

Hyundai, who where possible, undertake the majority of the work in-house.

▪ The extent to which Newfoundland industry will be able to compete is likely to

be driven by the size and technical complexity of the FPSO, and the nature and

location of the Prime FPSO contractor.

▪ More complex and larger FPSOs likely to be contracted to the SE Asian

contractors

Note: Local engineering and fabrication work re FPSO topsides has been a

matter of public policy and may influence prime contractor subcontracting plans.

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Typical Contracting Strategy that Has Evolved

▪ Deepwater pre-FEED frequently

done in-house by Operator, with

limited engineering support

▪ FEED tends to be done by

specialist or EPC contractor

▪ Two major EPC contracts (but

recent exceptions on subsea

scope)

▪ Integration in near-shore or on

location

Development Studies

Conceptual Design

Basic Engineering

FPSO

FEED

Subsea

FEED

EPC

Vessel Turret Topsides Umbilical

FPSO

Integration

SPS R&F

Subsea

Integration

Installation &

Commissioning

EPC EPC

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Examples

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GoliatProject Name Goliath

First Oil 2016

Location 85km Northwest of Hammerfest, Norway

Water Depth 400 m

Facilities Type Sevan FPSO (100kbopd), Eight subsea templates. Oil export via shuttle tankers

Daily Production 100,000 bopd

Storage Capacity 950,000 barrels

Distance to Supply/Heli Base 85km

Number of Wells 22 (12 producers, 7 water injectors and 3 gas injectors)

Activity

Facilities Subsea SURF

Substructure Topsides SPS Trees Controls Umbilicals Risers Flowlines

Concept Design

FEED/Basic Engineering Sevan Marine Aker

Detailed Engineering

Hyundai

Aker Aker / ABB TechnipEquipment and Material Procurement

Fabrication

Onshore Integration &

CommissioningTechnip

Offshore Installation

Offshore Hook-up & CommissioningAibel

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Project Name Stones (SHELL)

First Oil 2016

Location 320km offshore New Orleans

Water Depth 2926m

Facilities Type Leased FPSO (50 kbopd)

Daily Production 60,000 bopd gas

Storage Capacity 800,000 Bbls

Distance to Supply/Heli Base 320km

Number of Wells 8

ActivityFacilities Subsea SURF

Substructure Topsides SPS Trees Controls Umbilicals Risers Flowlines

Concept Design

FEED/Basic Engineering Shell/SBM

Detailed Engineering SBM

FMC

Technip

Equipment and Material

ProcurementKEPPEL DYNA

Fabrication MAC

Onshore Integration &

Commissioning KEPPEL

Offshore Installation

TechnipOffshore Hook-up &

Commissioning

Operations SupportSBM

Stones (Shell)

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Engineering

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Deepwater Engineering Trends

▪ Pre-FEED is frequently done by Operators, with specialised support from

consultants – limited revenue opportunity (US$2-5MM per development)

▪ FEED now mainly by EPC contractors (US$10-30MM)

▪ Detailed Engineering is part of EPC supplier scope

▪ Fabrication support engineering is conducted at fab yard

▪ Operations Support engineering covers full spectrum of technical

requirements, provides opportunity for operational experience in the

engineering process

▪ Operational experience is best deployed in interface management, integration

and commissioning support

▪ NL has a real advantage in this area – currently providing operations

engineering support, fabrication engineering.

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Major Players and Principal Business Areas

▪ Most of the major contractors are capable of both facilities and subsea engineering

▪ Increasing integration of development and ops support capabilities

▪ Consolidation has seen engineering brought in-house by EPC contractors

Facilities Subsea Facilities Subsea Facilities Subsea

AmecFW

CBI

Exodus/Saipem

Genesis/Technip

Granherne/KBR/Subsea 7

Kvaerner

PetroFac

Saipem

Wood Group

Worley Parsons

Pre-FEED Basic/FEED Ops SupportContractors

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Fabrication

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Key Contractors in Deepwater FPSOs

Source: SBM

FPSO Contractors

Traditional

FPSO

"Owners"

EPC

Contractors -

Newbuild

EPC

Contractors -

Conversion

Facilities /

ModulesIntegration

SBM

MODEC

BUMI ARMADA

YINSON

BLUEWATER

BW OFFSHORE

SAMSUNG

HYUNDAI

COSCO

KEPPEL

SEMBCORP

KEIWIT

McDERMOTT

DYNAMAC

DOMESTIC

BULL ARM

COWHEAD

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Key Contractors in Deepwater Subsea

Prime Contractor

Sub Contractor

Legend:

Subsea ContractorsPrime EPC

ContractorsSPS Vendors

Umbilical,

Flowlines &

Risers

Vendors

Integration /

Installation

Contractors

TECHNIP / FMC

GE / McDERMOTT

AKER

SAIPEM

EMAS / CHIYODA

SUBSEA 7

DRILL-QUIP

CAMERON

NEXANS

DUCO

NOV

OCEANEERING

ALLSEAS

HEEREMA

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A Facilities Solution that would favour the NL Industry

▪ Conversion vessel or concrete

substructure.

▪ Small modules (300-1500t),

fabrication local/international.

▪ Module assembly in NL

▪ Integration in NL

NL has proven module fabrication

and integration skills

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Subsea Solution that would favour the NL Industry

▪ Structure and foundations

fabrication in NL

▪ Complete manifold/flow

base/guide base etc. structure

assembly

▪ Jumper fabrication

▪ Bundle fabrication

Building on proven capability

Potential JVs with key SPS

vendors?

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Operations

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Operational Challenges

Longer distances:

▪ Lower load capacity on existing aircraft – more or different aircraft

▪ Longer shipping routes – more vessels.

Environmental conditions:

▪ Ice-breaking capacity

▪ Crew transfer by both helicopter and support vessel

▪ Oil spill response

▪ Campaign maintenance

New Northern supply base:

▪ Vessel or air supply

▪ Vessel or air crew transfer

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Helicopter Load Capacity

▪ Recent support for Statoil drilling

campaign has seen transfers of

4-5 personnel per trip.

▪ Increased activity implies larger

crew changes, more frequent

flights.

▪ Longer flights raise issue of flight

crew fatigue.

▪ Two solutions:

– Refuelling at destination with

crew swaps. Some industry

resistance, will need investment.

– Heavier-duty aircraft. Will need

investment in decks.

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Specialised Supply/Emergency/Oil Spill Response Vessels

Dual roles are common with standby vessels capable of limited spill response, for example Goliat.

Also, interchangeable supply and standby vessels

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Supply Bases and Logistics

▪ St Johns likely to remain a major supply base, due to largely ice-free conditions

– Expansion of facilities may be required to meet increased exploration and development activities, ops support.

▪ Advance supply base likely for areas in 2017/2019 licence rounds:

– Airfield for airfreight and helicopter ops,

– Road access,

– Water depth and ice conditions may necessitate seasonal solutions

▪ Investment will be required:

– Heavier duty, longer runways,

– Road load and traffic capacity,

– Heliport and refuelling,

– Accommodation,

– Quayside loading capacity

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Implications for NL

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Building on Current NL Strengths

▪ Proven capability in subsea systems design and engineering

▪ Local Operational Engineering support available

▪ Local capability in environmental and regulatory compliance support available

▪ Extensive knowledge of local environmental conditions and appropriate solutions

▪ Proven ability in fabrication of modules of larger capacity than lilkely needed

▪ Proven module load-out and integration capability

▪ Proven near shore commissioning capability

▪ Proven fabrication support logistics capability

▪ Proven GBS/deck mating capability

Leverage these proven capabilities, to create a niche in:

▪ Operational support for complex, high-value, high maintenance items

▪ High value, high maintenance equipment items

▪ Construction, commissioning the modules containing these technologies

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Roadmap for Engineering and Fabrication

Focus on a strategy that combines:

▪ Accommodation modules with control room and control and digital oilfield/integrated operations support systems;

▪ Electrical control room modules, as an extension of the control system;

▪ Power generation modules as an extension of the electrical system;

▪ Gas compression modules, as high value, high maintenance items which are similar in type to generators (the turbines dominate);

▪ Subsea control system modules, as an extension of the control system;

▪ Topsides integration of vessel (perhaps delivered partially complete), or importation, installation and integration of all topsides modules;

▪ Subsea module engineering and fabrication;

▪ Integration testing of topsides and subsea controls;

▪ Pre-commissioning and commissioning prior to sail-away, and

▪ Commissioning support during sail-away, hook-up and offshore commissioning.

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Roadmap for Operational Support

▪ Ongoing engineering support for high value, high maintenance items

▪ Focus on support of long distance logistics for exploration phases in licence

areas

▪ Industry and Operators to cooperate to ensure compatibility of longer range,

higher capacity aircraft and helidecks on drilling vessels and /or refuelling and

crew change-out?

▪ Ice-hardened supply vessels will be needed in the long term (if this takes off),

and are long lead items

▪ Combine solutions for crew transfer helicopter/fast vessel/advanced transfer

▪ R&D Opportunities in personnel transport solutions.

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End