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1 If you have a client logo or other co-branding to include, this should go here. It should never be larger than the Deloitte logo. Winning in Oilfield Services Dutch Oil & Gas Conference Vincent Oomes, Rotterdam 1 July

2 Five topics Market outlook Financial performance in the Oil & Gas sector Strategies for Logistics companies Strategies for Engineering & Construction companies Priorities for International Oil Companies 2

3 Market outlook Lots of uncertainty now International Oil Companies (IOCs) have to cut CapEx to protect dividends Distribution Operating Cash Flow for nine IOCs ( bn) Working Capital Investments Dividends and Debt Service Note: Combined data from Shell, ExxonMobil, BP, Chevron, ConocoPhilips, Total, ENI, Statoil and Petrobras Source: OneSource; Forms 10-K; Deloitte analysis

4 Market outlook But the future is still bright Global Annual Energy CapEx ($bn in 2012 prices) 21% Gas Oil Source: IEA (June 2014)

5 Market outlook Lots of money to be spent everywhere Average annual offshore O&G spend per region over ($bn) Exploration Capex Capex Opex Europe North America Middle East 1 40 Latin America Africa Asia Source: Rystad Energy, Deloitte analysis

6 Market outlook Spend on platform installations will still be strong Fixed platforms installation spend by topside weight ($m) <5kt kt-12kt 250 >12kt Source: Infield, Deloitte analysis:

7 Market outlook And, with the market shifting to deep water, the outlook for SURF and subsea infrastructure looks even better Heavy subsea installation spend by water depth ($bn) Current, Firm Plan, Probable, Possible 10,5 9,8 10, ,2 3,7 4,5 4,2 5,8 6,6 4,5 1000m m m m Note: SURF: Subsea Umbilical, Risers and Flowlines; this comprises all the flexible pipes and cables connecting a surface platform with sea bottom wells Source: Infield 2013

8 Market outlook As is the case for FPSOs Number of F(P)SO Deliveries * Projects of which unknown whether the are newbuilds or converted oil tankers Source: Infield, Deloitte analysis

9 Market to Book Ratio Financial performance But capital markets are not so sure and put highly diverse valuations on Oil & Gas companies Oil & Gas companies financial performance (2013) 6 Fluor Better prospects = higher valuation 2 KBR 1 Higher performance = higher valuation 1 Solstad 0-20% -10% 0% 10% 20% 30% 40% 50% Post-tax ROCE Market to Book = Enterprise Value / Capital Employed; ROCE = ( 1- tax Rate ) * EBIT / Capital Employed Source: CapitalIQ; OneSource; Bloomberg; Deloitte analysis

10 Market to Book Ratio Logistics Transport & Supply companies trade close to book value, no matter how they perform Logistics companies financial performance Other 2 1 Air France KLM Tidewater DOF Solstad Swiber Maersk 0-2% 0% 2% 4% 6% 8% 10% 12% Post-tax ROCE Source: CapitalIQ; OneSource; Bloomberg; Deloitte analysis

11 Price Price Logistics They suffer from the Airline Syndrome : competition with similar, easy to acquire, assets Logistic vessels supply and demand - CONCEPTUAL Good times Demand Demand Bad times Supply Supply Industry Profit Industry Profit Quantity Quantity

12 Logistics Airlines strategies won t work, but financial engineering or niche strategies are better ways to escape low margin businesses Airline strategy Volume Niche Where to Play Almost everywhere Large portfolio of assets Presence in hot spots Small portfolio of (locally) unique assets How to Win Get bigger and hope for discounts on assets Continue to buy the newest assets Lower cost of capital Leverage Financial engineering Superior market intelligence Buying vessels in times of overcapacity Selling them in times of under capacity Small group of loyal customers Cost focus Signalling a credible threat to create overcapacity

13 Market to Book Ratio Engineering & Construction E&C companies get quite good, though more diverse, valuations E&C company financial performance 6 5 Fluor Oceaneering 3 Schlumberger KBR Halliburton 2 McDermott Seacor Technip 1 Caldive Subsea7 0-20% -10% 0% 10% 20% 30% 40% 50% Post-tax ROCE Source: CapitalIQ; OneSource; Bloomberg; Deloitte analysis

14 Price Engineering & Construction With specialised skills, E&C companies can make a difference and hence tend to be much more profitable E&C supply and demand - CONCEPTUAL Demand Supply Equilibrium Industry Profit Quantity

15 Engineering & Construction But with specialisation comes risk, even the largest players struggle with earnings volatility ROCE selected E&C companies ( ) 100% 80% 60% 40% 20% 0% -20% -40% Saipem Technip Subsea7 McDermott Source: CapitalIQ; OneSource; Bloomberg; Deloitte analysis

16 Engineering & Construction These risks are likely to increase with the shift to large and complex deep water projects Offshore Oil & Gas production (m BOE/day) Ultra deepwater (1500+ meter) 40 Deep water ( meter) Shallow (to 125 meter) Source: IEA (June 2014); Deloitte analysis

17 Engineering & Construction Furthermore, the threat of overcapacity continues to loom for E&C companies at the lower end Number of topside installations per vessel per year <5kt 5kt-12kt >12kt Source: Infield; Deloitte analysis

18 Engineering & Construction Broad differentiation strategies make the most sense for listed E&C companies Where to Play Create a portfolio of powerful niches Each large and growing (e.g. exposure to deep water and gas) Differentiated technologies and solutions How to Win Build on unique Assets, Capacities and Enablers Leverage power to shift risk to other players in the value chain Better contract terms with operators (reimbursement rather than lump-sum) Better contract terms with commoditised subcontractors (lump-sum rather than reimbursement) Diversify the project portfolio Size reduces risk (somewhat ) Acquisitions and organic growth

19 Market to Book Ratio International Oil Companies IOC get lower valuations than E&C companies, though capital markets already price in effects of better CapEx discipline IOC financial performance 2,5 Exxon ,0 Exxon 1,5 Petrobras Total Chevron ConocoPhilips Chevron 1,0 0,5 Petrobras 0,0 2% 4% 6% 8% 10% 12% 14% 16% 18% Post-tax ROCE Source: OneSource; Bloomberg; Annual Reports; Deloitte analysis

20 Winning in Oil & Gas Lots of work to be done, even as long term growth prospects are good Long term profitability Strategic potential Operational effectiveness Industry growth Industry attractiveness Industry structure Relative position in the industry E&C companies IOCs E&C companies Where to Play Logistics companies E&C companies How to Win

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