Offshore Floating Asset Decommissioning Market …

1 Offshore Floating AssetDecommissioning Market StudyJanuary 2018 Offshore Floating Asset DecommissioningFinal Report January 20181)Executive Summary2)Macro Economic Analysis3)Drivers of Decommissioning4) Decommissioning Processes & Considerations5)Western Europe Market Outlook6)Competitive Analysis of Scottish Ports7)Acronyms & Abbreviations8)Appendix1)Executive Summary [click to add text] [click to add text] [click to add text] [click to add text] [click to add text] [click to add text]Source : Westwood Analysis, Rig LogixExecutive SummaryKey points and conclusions from our report4 Macro Economic AnalysisDrivers of DecommissioningDecommissioning Processes & ConsiderationsWestern Europe Market OutlookCompetitive Analysis of Scottish PortsVessel Decommissioning Oil will continue to be a primary source of energy over the long-term, with production increasingly sourced from deepwater. Investment in deepwater will inevitably drive the requirement for Floating production solutions in the long-term.

2 However, projects sanctioned prior to the downturn will compound global oversupply of oil in 2018. As such, oil prices will remained supressed in the near-term with volatility expected to continue which could translate into increasing numbers of assets being considered for stacking ordecommissioning. The decision to decommission an Asset or field is typically driven by a number of key drivers, including commodity price fluctuations, basin maturity, operational cost overheads, and/or whether an Asset could be used as a production hub. MMO spend is not expected to recover to pre-downturn to levels as E&P companies seek to prolong reductions in pricing, as well as delay non-essential maintenance. MMO cost pressures will inevitably factor into the decision to Decommissioning an Asset Owners are faced with a decision when their assets are proving to be uneconomical. They can Warm or Cold Stack them in portsacross the globe or they can look to fully decommission them to save on ongoing OPEX costs.

3 Stacking has been the historic option of choice in the region. There is a significant number of considerations when planning a Decommissioning programme, beginning with regulator of field Production is closely followed by the decision on the assets future. If the Asset is to be decommissioned, there is a great deal of onshore as well as Offshore preparatory work required to ensure a smooth project from start to finish. There are a number of ageing assets in the North Sea region that are potential candidates for Decommissioning in the next 10 years. If the current oil price environment persists then it is likely owners will be looking to make decisions on stacking and or Decommissioning of these which could present opportunity for the Scottish ports. Decisions to decommission Floating assets have been taken by the likes of Transocean who do own a numberofthe stacked rigs in the North Sea region at present and therefore discussion with the Asset owners would be encouraged of the Port operators to investigatepossible workloads.

4 The most important key award factor when an owner is assessing a facility to decommission an Asset is the presence, or otherwise, of a Tier 1 contractor who can manage the programme for them. Having a reputable contractor in place allows the Asset owner to concentrate on what it is they do best. Westwood believes there are a number of Scottish ports who in time could become competitive in tendering for work in the Floating Asset and MODU Decommissioning Market . However at present Dales Voe, Greenhead Base and Dundee stand out as being most prepared to service themarket immediately. The levels of ship breaking / Decommissioning activity that has taken in place in the UK over the last 5 years is minimal considering the global levels. The Market is clearly dominated by 5 countries, India, Bangladesh, Turkey, China and Pakistan. Westwood believe the Scottish ports do not currently represent a competitive offering when considering this Market . There exists chronic oversupply in global OSV provision and without brave decisions by vessel owners on Decommissioning , thiswill continue into the of a Dry Dock When considering whether or not the presence of a Dry Dock offers a commercial advantage with regards Floating Asset Decommissioning , our consultation and opinion suggests that if a Dry Dock exists already at a facility then it will offer an advantage.

5 It is unlikely to represent an immediate investment opportunity for an existing facility which does not have a Dry Dock as the level of activity forecast at this stage would perhaps not sustainthe level of required The basis for this being the bespoke nature of every Decommissioning project and the presence of the Dry Dock allows an increased number of project engineering options in terms of access, machinery used and flow back contamination protection. 2)Macro-Economic AnalysisSource: Westwood Analysis, EIA, AnalysisGlobal Outlook Long-Term Energy DemandGlobal energy demand is the principal indicator of all Oil & Gas (O&G) related investments, driving support for hydrocarbon exploration and consequently oilfield services over the long-term6 Global Energy Demand OutlookMmboe/d (LHS), Billions (RHS)Global Energy Demand by RegionMmboe/dGlobal Energy Demand by FuelMmboe/d Energy demand is expected to increase by c. 31% between 2015 and 2035, driven by growth in population and rising GDP per capita across developing countries.

6 Almost all of the growth in energy consumption will come from emerging non-OECD economies -primarily China and India. Outside of Asia, strong growth in demand is expected in Africa (c. +77%), Middle East (c. +49%) and South & Central America (c. +32%). Energy demand within developed nations is expected to stagnate, with the combined European and North American share of global energy demand falling from c. 36% in 2015 to in 2035. Whilst hydrocarbons will continue to dominate the energy mix, renewables demand is expected to play an increasingly significant role as nations look to fulfil the COP21 GHG emissions commitment, supported by increased energy diversification and independence Demand01,0002,0003,0004,0005,0006,0007,0 008,0009,0001990199520002005201020152020 202520302035 APACA mericasEurope & EurasiaMiddle EastAfrica020406080100120199019952000200 5201020152020202520302035 CoalNatural GasRenewablesNuclearLiquidsGlobal Population Growth in oil supply during the past 10 years has principally come from the onshore sector.

7 Between 2005 and 2016, global onshore oil supply grew by c. mmbbl/d, driven primarily by growth in output from US unconventionals. Over the same period, the Offshore sector has seen moderate growth in supply of mmbbl/d. Offshore shallow water supply contracted by c. mmbbl/d. Offshore deepwater supply however grew by c. mmbbl/d. Westwood anticipates that oil supply growth from 2017 to 2023 will be as follows: Onshore Offshore shallow water Offshore deepwater Strongest growth anticipated from the Offshore deepwater sector. However, onshore oil production is expected to remain the dominant source of global oil supply to : Westwood Analysis, BP, EIA, AnalysisOil will continue to be a primary source of energy over the long-term, with production increasingly sourced from deepwater. Investment in deepwater will inevitably drive the requirement for Floating production solutions in the long-term7 Oil Supply Outlook to 2030 Mmbbl/dIndexed Oil Supply Growth by SourceIndex 2000 Global Outlook Long-Term Oil Supply0123452000200220042006200820102012 20142016201820202022 Offshore mmbbl/d(2017) mmbbl/d ( 2017 to 2023) mmbbl/d (2017) mmbbl/d ( 2017 to 2023) Offshore Shallow mmbbl/d (2017) mmbbl/d ( 2017 to 2023)02040608010012019701973197619791982 1985198819911994199720002003200620092012 201520182021 Source: Westwood Analysis, AnalysisNear Term Oil Supply & Demand TrendsProjects sanctioned prior to the downturn will compound oversupply in 2018.

8 As such, oil prices are expected to remain supressed in the near-term with volatility expected to continue8 Currently estimated at mmbl/d, global liquids consumption is at unprecedented levels, driven in part by lower spot prices for crude oil. There is general consensus that growth rates will be sustained over the next few years with both the IEA and EIA expecting liquids consumption to top 100 mmbl/d 2H 2018. However, despite this growth, the global economy has been unable to absorb recent supply additions. Between 2014-15, global liquids output increased by mmbl/d, 70% greater than consumption, and resulting in overcapacity and an oil price crash. US Shale has been well documented as the principal culprit for this supply surge, and accounted for 43% of incremental output with OPEC and major Offshore projects accounting for 21% and 35% respectively. Since the industry downturn supply has increased by a further mmbl/d despite net losses from the US and China.

9 These gains have mainly come from OPEC and Russia who have added a net 2 mmboe/d despite mmboe/d production cuts in place since November 2016. Over the next few years, overcapacity is likely to be exacerbated by the start-up of numerous high profile oil projects sanctioned during 2013-14. Westwood estimates that an additional mmbl/d of new capacity will enter the Market by 2018 in addition to mmboe/d from resumption of production from Libya and Liquids Consumption and Stock Change BalanceConsumption mmbbl/d (LHS), Stock Change & Balance Mmbbl/d (RHS)Recent Oil Supply Trendsmmbbl/dMajor New Oil Capacity by Country (Top 30 Oil Fields)Incremental Increase 2017-18 mmbbl/dMajor New Oil Capacity by Operator Type (Top 30 Oil Fields)Incremental Increase 2017-18 mmbbl/d9091929394959697982014Q1US CrudeRussiaChinaOPEC others2015Q1US CrudeRussiaChinaOPEC others2017Q1-3-2-10123456848688909294969 8100102Q1'12Q3'12Q1'13Q3'13Q1'14Q3'14Q1' 15Q3'15Q1'16Q3'16Q1'17Q3'17Q1'18Q3'18 Implied Stock BalanceWorld Consumption+++++ + ++0100200300400500600700800900 AngolaBrazilCanadaEcuadorIranIraqKazakhs tanKuwiat/KSAM exicoNigeriaRussiaKSAUAEUKO nshoreOffshore05001,0001,5002,0002,5003, 0003,5004,0004,500 NOC '17 OnshoreOffshoreNOC '18 IOC '17 OnshoreOffshoreIOC '18 IND '17 OnshoreOffshoreIND '18 In November 2016, OPEC members agreed to cut supply by as long as non-OPEC countries, such as Russia, cut production as well by a further ,000bbl/d.

10 Compliance is a key issue to the success of the cuts. Although some non-OPEC nations have missed targets, OPEC nations (primarily Saudi Arabia and Angola) collectively surpassed targets in March-May 2017. The deal has recently been extended by a further nine months to March 2018. As a result, Westwood expects Market rebalancing to continue in 2017 with c. mmbbl/d undersupply expected as the Market adjusts to the supply reduction. Oversupply returns in 2018 and if the current levels of under investment continue in the sector, coupled with the decline rates in production then there is an undersupply position that exists until the end of the AnalysisGlobal Outlook Near to Medium Term Oil Supply-Demand BalanceWestwood identified some oil price stabilisation in 2017 as OPEC Market leavers reduce oversupply; however, the Market could be poised for another decline as projects sanctioned pre-downturn contribute between 2018-20209 Net Supply-Demand Change vs Oversupplymmbbl/dSource: Westwood Additions (Chart)Supply AdditionsImplied OversupplyImpact of Opec CutsKey Offshore Projects based on Production AdditionsTop 5 Offshore projects represent of additions.