ECM Presentation 2012

Energy Capital Management

December 2011


ECM Summary

Background

• Statoil (www.statoil.com)

� International oil & gas and renewable energy company, market cap USD 70bn

� Global leader in technology adoption, not an owner of technologies

� Alignment with independent venture capital firm provides significant benefits

• ECM Fund I

� Managing Statoil’s legacy portfolio (currently 11 companies)� Managing Statoil’s legacy portfolio (currently 11 companies)

� Established in 2008

� Technology agreement with Statoil

• ECM Growth Fund I

• Investing in European oil service companies

• Fund size $200m (8-10 investments)

• ECM offices in Oslo (Norway) and Aberdeen (UK)


ECM is an independent venture capital firm focused on

technology investments in the oil & gas and renewable energy sectors

ECM will deliver superior returns by leveraging the team’s

experience, international network and unique access to Statoil

Current Portfolio Overview

EXPLORATION

RESERVOIR

OIL & GAS

DRILLLING & WELL

OPERATION

OTHER

Team profiles

Arne Frøiland

• 8 years venture capital experience

• 9 years experience in the energy sector

• Played a key role in Spectraseis, Multifield Geo, Energreen, Geomodelling and Octio

• MSc in Physics from NTNU (Norway) , MBA from London Business School (UK)



• Played a key role in Petrofac, RGIT, Revus Energy, Spring Energy and SPS

• Bachelor of Science (Hons) Accountancy & Computer Science from Dundee (UK)

Mike HillPartner

DNV, Hydro, Statoil , ECM

3i, Hitecvision, ECM

Hans MiddelthonPartner

Arne FrøilandPartner



• Played a key role in Dockwise, Noreco, DES, RXT and Epcon

• Masters in Economics from Fribourg (Switzerland), MBA from London Business School (UK)

3i, ECM

• 4 years venture capital experience in the energy sector (ECM, Statoil, Hydro)

• 3 years operational experience (Hydro oil & gas, Kongsberg Automotive)

• MSc Physics INSA, Toulouse (France)

Caroline Slind SvaeAssociate


ECM Growth Fund I

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Opportunity highlights

ECM Growth Fund I

• Investing in European oil service companies

• Fund size $200m (8-10 investments)

Investment team

• Strong money making track record

• Deep sector understanding and network

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• Deep sector understanding and network

Sector characteristics

• Compelling market fundamentals

Returns potential

• Robust deal flow with limited competition

• Focused value creation model

• Differentiated access to end customers

• Established exit routes and strong buyer appetite

ECM Growth Fund I

Mandate

Sector Oil & gas service (upstream)

Geography European headquartered companies

Product Growth capital and small Buyouts

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Product Growth capital and small Buyouts

Company stage Positive EBITDA

Deal size Average commitment $20m per company

Equity stakes >25% and “controlling” rights


Team

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Team

Key attributes

Investment track record • 39 years of VC/PE experience

• 46 VC/PE deals completed

• 3.1x on 23 exited investments in the energy sector

• Involvement in full VC/PE value chain

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Sector depth • 39 years of relevant oil & gas sector experience

• Involvement in full oil & gas value chain

Market position • Excellent sector network

• Differentiated access to end users

• Offices covering Europe’s leading oil & gas hubs

Team

Investment team

VC/PE Energy Prior positions

Mike Hill Partner Aberdeen 14 yrs 14 yrs HitecVision; 3i; Coopers & Lybrand

Hans Middelthon Partner Aberdeen 11 yrs 9 yrs 3i; Commerzbank

Arne Froiland Partner Oslo 10 yrs 11 yrs Statoil; Hydro; DNV; Private Investor

Caroline S. Svae Associate Oslo 4 yrs 5 yrs Statoil; Hydro; Kongsberg Automotive

[No-name] [TBC] [TBC] [TBC] [TBC] [TBC]

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Advisory board

Prior positions

[No-name] Chairman UK [TBC]

[No-name] Member UK [TBC]

[No-name] Member Norway [TBC]

Team

Track record – example of exited deals

IPOLondon Stock Exchange

5,3X

2002-2005

Trade saleCooper Cameron

2,5X

2003-2007

IPOOslo Stock Exchange

4,9X

2003-2005

Trade salePetrofac

2,2X

2003-2004


2,1X

2007-2009

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2,6X

2004-2005


2,5X

2005-2007

Trade SaleMI Swaco

2,5X

2004-2006

Trade SaleTGC Nopec

2,2X

2006-2010

Trade /SecondaryGE/Ferd

4,4X

2004-2007


Market

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Tight oil supply and demand balance

20

40

60

80

100

120

Oil flows (mln bbl pd)

Biofuels, other

NGLs declining at 2% pa

Crude declining at 7% pa

Flat demand

2010 demand level, 88 mln bpd

47 mmbbl/d39 mmbbl/d

Current decline rate from existing fields

Urgent need for increased production capacity

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0

20

2010 2012 2014 2016 2018 2020

Oil flows (mln bbl pd)

Flat demand

IEA Demand forecast WEO2010 (Nov '10)

• 6% annual depletion and 1,2% annual increase in demand required more than 50% of daily production in 2020 from new capacity

• Saudi Arabia’s current output capacity of close to 10m bbl needs to get on stream every second year until 2020 in order to meet expected demand growth

Source: Lambert Energy Advisory

Focused Investment Approach

The Oil & Gas industry value chain

Upstream DownstreamMidstream

Exploration

• Investing only in the upstream part of the oil & gas value chain

• Focus on Exploration and Production

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Development

Production

• Focus on Exploration and Production

• Key investment themes to support :

• Increased exploration success

• Improved production rates

• Reducing the cost of exploration and production

• Extending the life of producing fields

• Governments energy policies (tax) will most likely support these themes goingforward and be ECM ‘sweet spots’ for investingAbandonment

Strong underlying drivers

• Increasingly complex and deeper reservoirs. E&P companies seek into deeper and more complex sediments. Thus, there is an urgent need of technologies and services that can handle extreme temperatures, pressures, “enlighten” the reservoirs and increase drilling reach.

• Smaller discoveries. The “Elephant Discoveries” made in the second half of the last century have matured and are being replaced by smaller fields. This trend is driving an ever increasing drilling activity search for solutions that decreases the drilling cost and makes these discoveries commercially viable.

• Rapid cost inflation. The need to drill deeper in harsher environments with more geological uncertainty has significantly increased the cost per well. To address this this challenge the

Upstream trends and challenges

Exploration

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• Low recovery rates. Today the oil & gas industry only manages to recover on average 35% of the oil in place in producing fields. A one percentage point increase in recovery equates to approximately three years global consumption.

• Harsher environments. As the oil & gas industry matures it has had to move production to more hostile terrains such as the Arctic. Close to 25% of total remaining reserves are expected to be found in these areas, but the industry needs to overcome substantial technological and environmental challenges to access these prospects.

• Mature basins. The industry as a whole is experiencing an output decline in the region of 6% from its producing fields. It is vital for industry players as well as regulators in mature basins to address the sharp decline with the view to extend field life.

uncertainty has significantly increased the cost per well. To address this this challenge the industry is putting substantial resources into solutions that can drive down costs and increase the probability of success.

Production

Significant target universe

Urgent need for new solutions and services

More complex and deeper reservoirs

Smaller discoveries

Cost inflation

Improved Prospect definition

Fast Track Development

G&G workflow integration

Low cost exploration drilling

Reservoir Imaging

Subsea monitoring and processing

Reservoir Characterization

“Light” drilling, Subsea drilling

4D/4C Seismic, EM, Graviometry

Modelling of “shale plays”

Business Needs Service Areas (examples)E&P Challenges

Exploration

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Cost inflation

“Smarter” exploration drilling

Low recovery rates

Mature basins

Water treatment solutions

Integrity monitoring

Subsea water treatment

Deeper Reservoirs

Improve reservoir permeability

Monitoring cap rock and seabed

Longer step outs and tie backs Flow assurance, Inspection

Steering, LWD

Risers, HP/HT solutions, materials

Stimulation, fracturing and flooding

Intervention, MWD, CommunicationSmart drilling

Production

Harsher environment


Return potential

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>250*

c75*

Equity “need”No. of opportunities*

$40m-$100m ($10m+ EBITDA)

$10m-$40m equity(Positive EBITDA)

Return potential

Robust deal flow

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>1,500*

(Positive EBITDA)

$1m-$10m equity(Negative EBITDA)

*ECM estimates

HighReplenishment

Start-ups/Seed

Low• Target larger deals• Buyout focus• US & ME weighting

Low• Target larger deals• Buyout focus• Norway centric

Low• Target larger deals • Growth & buyout offerings• Reduced sector focus

• Target larger deals

Limited competition

Return potential

Competitivethreat

Comments

Low• Target larger deals• Buyout focus• US centric

N/A • Limited deal size overlap

Medium• Smaller deals • Venture focus

Low• Smaller deals• Venture focus

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0 10 20 30 40 >50

Investment sweet spot MUSD

Return potential

Value driver Example

Board Vetco: Strengthened board through introduction of Egil Myklebust as Director

Management Epcon: Strengthened management through introduction of Arne Aune as new CEO

Corporate governance Geomodeling: Introduced best in class corporate governance procedures (with strongfocus on Chinese operations)

Focused value creation model

ECM’s value creation activities is built on the team’s deep sector knowledge combined with its extensive investing experience:

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focus on Chinese operations)

Business strategy Energreen: Spun out Energreen Waste Heat Recovery and refocused core business

Organic growth Petrofac: Introduced Petrofac to UK clients and partners

International expansion Verdande: Secured Baker as strategic partner for international growth strategy

Mergers & Acquisitions Dockwise: Merged company with Sealift to establish clear market leader

Cost management Trac ID: Worked extensively with management to address cash flow challenges

Funding structure Octio: Asset sale (seismic vessel) and restructuring of debt

Exit planning DES: Positioned DES early vis a vis subsea companies (most likely acquirers)

Return potential

• ECM currently actively manages 7 oil & gas technology investments for Statoil (www.Statoil.com)

• ECM is a preferred venture capital partner for Statoil which facilitates:

• Information sharing on sector trends

• Opportunity sharing

• Technology and commercial reviews of investment opportunities

• Discussions regarding product testing and/or commercial purchases

• Customer support in exit discussions

Differentiated access to end user

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Proprietary dealflow

Acceleratemarket adoption

Enhance credibility

De-risk investment case

Origination Execution Asset management Exit

• This relationship has the potential to enhance returns of ECM Growth Fund I:

Return potential

Acquired by strategic buyer 2009

Acquired by MI Swaco 2009

Acquired by PGS 2007

Acquired by Schlumberger 2010

Acquired by FMC 2009


IPO London 2005

Acquired by Cooper Cameron 2007


Acquired by Watherford 2007

NOVA Technology Corp

Acquired by Baker Hughes 2006

Acquired 45% by FMC 2008

Acquired by GE 2010

Acquired by Siemens 2011


Established exit routes and strong buyer appetite

Acquired by Halliburton 2009


Acquired by FMC 2009

Acquired by Petrofac 2008

IPO Oslo 2005

Acquired by Halliburton 2008

Acquired by RECS Ltd 2007

Applied Geophysical Services

Acquired by PGS 2007IPO Oslo 2005

IPO Oslo 2007


10% stake acquired by Schlumberger 2009


InnerLogix


V.I.P.S



Zeroth Technology Ltd

Acquired by Baker Hughes 2005

Acquired by Torr 2007

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Acquired 45% by FMC 2008

Acquired by Seawell 2010

Universal Wireline

Acquired by Seawell 2010

Acquired by TGS Nopec 2011

Conclusion

Compelling market fundamentals

Excellent team

Compelling market fundamentals

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High returns potential

Contact Details

Energy Capital Management AS

Bankplassen 1a, N-0151 Oslo, Norway70 Queens Road, AB15 4YE, Aberdeen, UK

Arne FrøilandPartner+47 90 74 86 [email protected]

Caroline SvaeAssociate+47 97 00 82 [email protected]

Hans MiddelthonPartner+44 77 78 81 77 [email protected]

Mike HillPartner+44 77 01 07 53 [email protected]

Kristin P. SolvangOffice Manager/Finance+47 41 21 45 [email protected]

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ECM Presentation 2012

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