www.dw-1.com

Russian Oilfield Services “a $23 billion market by 2011”

London Home Counties Branch – 25th June 2007

Steve RobertsonAssistant Director, Manager Oil & Gas

Rod WestwoodAnalyst, Oil & Gas

www.dw-1.com

Douglas-Westwood Overview

Macro-economic trends

Russian regional overview

The Russian OFS Market

Conclusions

www.dw-1.com

Douglas-Westwood Limited

• Market research, analysis & strategy

• Global customer perception surveys

• Investor presentations

• Business strategy work

• M&A due diligence

• Market forecasts

• Customer perception surveys

• Published market studies

Recent/ongoing project locations include:

London

AberdeenOslo

Nigeria

China

Singapore

Perth

Houston

New York Moscow

St Petersburg

Rio de Janeiro

The Russian Onshore Oilfield Services Market ReportThe Russian Onshore Oilfield Services Market Report

prospects

technologies

markets

2007-2011

www.dw-1.com

Arcapita completes acquisition of Roxar

Inflexion Private Equity Backs £22m MBO of

Viking Moorings

$280m acquisition of KBR Production

Services

Serimer Holdings acquisition of the

UMAX group

UMAX Ltd

£535m finance facility

Songa Drilling

Expro Group $675m acquisition of Powerwell

Services

£15 million MBO of Motherwell Bridge

Epcon Offshore AS acquisition by M-I

SWACO.

£34.5 million Rovtech acquired by Fugro

Acquisition, Growth and Working Capital

Facilities

£50 million credit facility for Sovereign's acquisition of Forfab

£29 million Refinancing

Recapitalisation

Perry Slingsby Systems capital acquired by

Triton Group Holdings.

£130m debt facility to finance the

construction of two specialist vessels

$768 million IPO

Investor syndicate $925m acquisition of ABB Oil & Gas

£319 million IPO Acquisition by SCF

PartnersAcquisition by Cable Solutions Group Inc.

Douglas-Westwood Limited

Over $6 billion of transactions completed since 2006

www.dw-1.com

Douglas-Westwood Overview

Macro-economic trends

Russian regional overview

The Russian OFS Market

Conclusions

www.dw-1.com

Data Source: - BP Statistical View of World Energy, June 2006

“Worldwide energy demand to grow by 71% by 2030” EIA, 20 June 2006

China – An additional $180bn will need to be

spent on new power generation by 2020 FT, 12 April 2006

4.0%

2.0%

26.6%

10.6%

7.8%

5.8%

33.6%

14.8%

Western Europe

North America

Middle East

Latin America

FSU & Eastern Europe

Australasia

Asia

Africa

Demand Growth 2000-2005

0

2

4

6

8

10

12

1965 1971 1977 1983 1989 1995 2001

billi

on t

ons

of o

il eq

uiva

lent

.

Africa

Asia

Australasia

FSU & Eastern Europe

Latin America

Middle East

North America

Western Europe

World Energy Consumption – Developing Countries Drive Demand

www.dw-1.com

Source: ENI/BP Barrels / person/ per annum. Cars per 1,000 people

“oil demand to increase from 80 million b/d in 2003 to 98 million b/d in 2015 and to 118 million b/d in 2030” EIA, 20 June 2006

Oil – The Fuel of Transportation

0.8730.77

25.99

8681.84

13

11.13

680

www.dw-1.com

The past ……in 1999 the view was very different

www.dw-1.com

Ghana (1980)Tunisia (1980)Chile (1981) Croatia/Bosnia/Serbia (1981)Morocco (1981) Indonesia (1991)Peru (1981) Pakistan (1991)Albania (1982) Turkey (1991) Oman (2000)Spain (1983) Japan (1992) South Africa (2000)Cameroon (1984) Egypt (1993) Canada - conventional (2002)Greece (1984) Papua New Guinea (1993) Denmark (2002)Hungary (1984) Kyrgyzstan (1995) Norway (2002)Benin (1985) Syria (1995) Bangladesh (20??) Netherlands (1986) Czech/Slovakia (1996) China (20??)Taiwan (1987) Gabon (1996) Thailand (20??)Congo- Kinshasa (1987) India (1997) Algeria (20??)Jordan (1987) Italy (1997) Yemen (20??)Belarus (1987, Soviet) New Zealand (1997) Australia (20??)

USA (1970) Georgia (1987, Soviet) Argentina (1998) Ecuador (20??)Bahrain (1971) Russia (1987, Soviet) Barbados (1998) Guatemala (20??)

Poland (1909) Israel (1971) Tajikistan (1987, Soviet) Malaysia (1998) Mexico (20??)Austria (1955) Romania (1976) Ukraine (1987, Soviet) Uzbekistan (1998) Surinam (20??)Germany (1968) Trinidad & Tobago (1977) France (1988) Colombia (1999) Cote d'Ivoire (20??)Bulgaria (1969) Myanmar (1979) Senegal (1988) UK (1999) Cuba (20??)

Pre-1970 1970's 1980's 1990's 2000's

Source: BP & “The World Oil Supply Report” – Douglas-Westwood

The USA’s oil production peaked in 1970 and has never recovered

Since then so have another 52 countries

And a further 12 could soon go over the edge

0

2

4

6

8

10

12

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

mill

ion

barr

els

per

day

Source: BP Statistical View of World Energy, June 2006

2007 – The Prospect of “Peak Oil” Looms

www.dw-1.com

A major problem is that offshore shallow water

production is in long-term decline

Source: Energyfiles

WESTERN EUROPE: Offshore oil forecast

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

6500

7000

7500

1985 1990 1995 2000 2005 2010 2015 2020 2025

Year

Th

ou

san

ds

of

bb

ls o

il p

er

da

y

Southern Europe

Other NW Europe

Norway

United Kingdom

© Energyfiles Ltd

ESTIMATE | FORECAST

Source: “The World Offshore Oil & Gas Forecast”, Douglas-Westwood Limited

NORTH AMERICA: Offshore oil forecast

0

250

500

750

1000

1250

1500

1750

2000

2250

2500

2750

3000

3250

3500

1985 1990 1995 2000 2005 2010 2015 2020 2025

Year

Th

ou

san

ds

of

bb

ls o

il p

er

da

y

Canada

Deep Gulf of Mexico

Alaska and California

Shallow Gulf of Mexico

© Energyfiles Ltd

ESTIMATE | FORECAST

Deepwater production

Will Global Oil Production Peak?

www.dw-1.com

All oil sources

Will Global Oil Production Peak?

Demand – EIA forecast 118 million barrels per day by 2030

www.dw-1.com

• “The peak oil theory is flawed…..production is more likely to trace an undulating plateau that will last for a decade or more beyond 2030” Review of CERA report, Oil & Gas Journal Nov 27th, 2006

• “production will plateau at above 118 million b/d…..in 2031” Prof. H. R. Linden, Oil & Gas Journal Nov 27 th, 2006

• “CERA’s report contends that it is not reservoir constraints but aboveground factors such as geopolitics, conflict, economics, and

technology that will dictate future oil supply.” Review of CERA report, Oil & Gas Journal Nov 27th, 2006

Global oil reserves are not the issue. The key issue is our ability to produce them.

….. “the aboveground factors”.

Peak Oil – The Establishment View

www.dw-1.com

Source: Douglas-Westwood / Baker Hughes

High Oil Prices Drive Industry Activity

0

1

2

3

4

5

6

1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

Rig

Cou

nt (

thou

sand

s of

rig

s)

0

10

20

30

40

50

60

70

80

90

Oil

Pric

e ($

/bbl

)

AfricaCanadaEuropeFar EastLatin America.U.SMiddle EastOil Price Inflation AdjustedOil Price Nominal

www.dw-1.com

Oil & Gas Demand

Energy Demand

Production decline

from existing wells

Available Rigs

Attrition (Old Rigs Scrapped)

NewbuildRigs

Product Prices Exploration, Appraisal &

Development Drilling

EOR in mature areas

‘Easy ‘ drilling opportunities diminishing

Available Crews

Local content requirements

Rig

SupplyRig

Demand

Production additions to meet

incremental demand

Labour

Key Drivers for Drilling Activity

• Energy demand

• Energy supply – easy oil has

been found, greater activity

required to extract each barrel,

need to offset decline from

existing wells

• Product prices – current high

levels encouraging drilling

activity

• Rig availability – utilisation rates

are high, shortages of labour and

local content requirements all

putting upward pressure on

dayrates

www.dw-1.com

The Future for oil prices?

0

10

20

30

40

50

60

70

80

Ap

r-0

1

Au

g-0

1

De

c-0

1

Ap

r-0

2

Au

g-0

2

De

c-0

2

Ap

r-0

3

Au

g-0

3

De

c-0

3

Ap

r-0

4

Au

g-0

4

De

c-0

4

Ap

r-0

5

Au

g-0

5

De

c-0

5

Ap

r-0

6

Au

g-0

6

De

c-0

6

Ap

r-0

7

Bre

nt

Oil

Pri

ce (

$/b

bl)

Longer term….limits of supply could come into play

• An oil supply peak? • Massive increases in oil prices could

result until alternatives are found• How long might that take? Some

think 20 years!

Near term…. Political influences could support prices

• OPEC gains influence over another 1.4 mm bpd via Angola

• Underpinning? The Saudi Arabian economy needs $45 oil

• OPEC would like $60 target price?• Oil supplies look set to remain

tight, supporting prices

www.dw-1.com

• A global problem

• Large numbers nearing retirement

• A 20 year recruitment void to fill

• Can industry replace these

people in time?

• Mobile offshore rigs on order

need 10-20,000 people to man!

• Plus 50 more offshore

construction vessels ……

• Cost implications for employers

Source: Oil & Gas Journal

Finding Skilled People – An Industry-wide Challenge

www.dw-1.com

•Arctic

•HPHT

•H2S

•Deepwater

•Politically unstable

The Easy Oil has been Found – the future?...Harsh Environments

www.dw-1.com

Oil & Gas Industry Cost Escalation

www.dw-1.com

Source: Lehman Brothers survey of 325 oil & gas companies E&P spend, 2006

0

50

100

150

200

250

300

350

Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 07e

E&

P S

pend

($b

illion

s)

Oil Producers’ Equipment Expenditure

• Worldwide expenditure increasing year on year, $267 billion expenditure in 2006• Survey excludes some big spending state NOCs (e.g. Saudi Aramco)• Oil co. budgets based on oil price of $55.50 & gas $6.70 • “Companies would only reduce spend if oil prices fell to $42”• Investment decision threshold “in $20’s range”

www.dw-1.com

• A major power shift is underway

• 75% of oil reserves now held by NOCs

• Only 4% now controlled by the oil majors

• NOCs need technology & need the know-how

(But do they need / trust the oil majors?)

• NOCs are cooperating with each other

• NOCs governments want local content

“National oil companies will lead the 2007 increase in international spending with the largest spending growth among the Russian oil companies” Lehman Bros. Dec ’06 Survey

The Rise of the NOCs

www.dw-1.com

• Gazprom holds 16% of the world’s

gas reserves

• 2/3rd of Gazprom revenues are

from gas exports ($39 billion)

• Jan 1, 2006, supplies cut to

Ukraine (and parts of Europe)

• Jan 1 2007, doubles gas price to

Belarus & Georgia

• Wants to set up a “gas OPEC”?

• Jan 8 2007, Russia halts oil

exports via Belarus (to Europe!)

• “A giant aware of its power”

Sources: ISN Security Watch, 10 July 2006

Financial Times, 14 & 15 December 2006

Houston Chronicle, 8 Jan 2006

The Russian NOCs

www.dw-1.com

Source: Douglas-Westwood

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

Kazakhstan

Algeria

Mexico

Nigeria

India

Iran

Venezuela

China

Canada

Russia

USA

Index Relative to USA

2005

2010

Russia ranks third overall in the world for onshore expenditure throughout 2001-2005 and will continue to hold this position until 2010.

Although not included in this analysis, Saudi Arabia ranks second in the world for total onshore expenditure.

Onshore expenditure in Russia is increasing year on year compared with the US index.

Strong growth can be expected in Kazakhstan as this country continues to develop.

Russian Expenditure Comparison

www.dw-1.com

Douglas-Westwood Overview

Macro-economic trends

Russian regional overview

The Russian OFS Market

Conclusions

www.dw-1.com

Russian Oil Production

0

1

2

3

4

5

6

7

8

9

1019

30

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

Ann

ual O

il &

Gas

Pro

duct

ion

(billi

on b

oe)

Gas

Oil

• Production recovered since post-Soviet trough

• Major drilling & workover efforts – recent gains in production forecast to continue through to 2035

• Gas to play increasingly prominent role

www.dw-1.com

Russian Oil & Gas Production

Western Siberia

0

1

2

3

4

5

6

7

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Tot

al O

nsho

re P

rodu

ctio

n (b

nboe

)

Gas

Oil

• Mature region• Accounts for 60% of production• Samotlor (Russia’s largest oilfield)

peaked at 3.5 mboe/day and is now in decline

www.dw-1.com

Russian Oil Production

0

100

200

300

400

500

600

700

800

900

1,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Tot

al O

nsho

re P

rodu

ctio

n (m

mbo

e)

Gas

Oil

Volga Urals

• Most mature Russian region• Major EOR efforts underway• Romashkino oilfield now in decline

www.dw-1.com

Russian Oil Production

0

50

100

150

200

250

300

350

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Tot

al O

nsho

re P

rodu

ctio

n (m

mbo

e)

Gas

Oil

Timan-Pechora• Mainly a post-Soviet region• Strong growth forecast• Holds 8% of Russian reserves

www.dw-1.com

Russian Oil Production

0

50

100

150

200

250

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Tot

al O

nsho

re P

rodu

ctio

n (m

mbo

e)

Gas

Oil

Eastern Siberia

• A region in its infancy• Strong growth forecast• Lack of infrastructure in place• ‘Difficult’ geology – impact on cost• A major future OFS opportunity

www.dw-1.com

Douglas-Westwood Overview

Macro-economic trends

Russian regional overview

The Russian OFS Market

Conclusions

www.dw-1.com

Methodology – Challenges relating to Data Access

• Very little public-domain data• Small independent companies have very little public visibility• Few requirements to record information, companies now moving to western

business practices (but slowly!)• Reluctance of operators to release data, particularly with regards pricing• No rig count exists for Russia• Inactive rig cannibalisation

• Face-to-face meetings with major operators and drilling contractors• Evaluation and appraisal of Russian sources (e.g. Ministry information)• Sense-checking on multiple levels• Input and feedback from DWL’s due-diligence experience

Ch

alle

ng

esW

ork

aro

un

ds

www.dw-1.com

.

In-House Service Company

Oil Major

SpecialistSubsidiary

SpecialistSubsidiary

SpecialistSubsidiary

State Bodies

Service Teams

Development of the Russian OFS Industry

Soviet Post-Soviet

IndependentIndependentIndependent

www.dw-1.com

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Indigenous

Western

In-House

Source: Douglas-Westwood

Development of the Russian OFS Industry

Development of the Russian OFS Industry

www.dw-1.com

SSK2.6%

Integra3.9%

Schlumberger7.6%

PetroAlliance (Schlumberger)

1.8%SGK (Schlumberger)1.3%

BK Eurasia7.9%

Halliburton1.5%

Baker1.0%

Weatherford0.4%

Others (small/mid independents)

22.7%

Oil Company In-house49.2%

Key Competitor Categories

www.dw-1.com

Qua

lity,

Tec

hno

logy

Price

Russian independent service providers

Russian oil company in-house & affiliates

International service providers

SSK

Key Competitor Categories

www.dw-1.com

Decrease in Downhole Pressure

Maturing Regions

Increase inSand Production

Increase inWater-Cut

ProductionDecrease

TechnologyPush

3D

Se

ism

ic

Art

ifici

al L

ift

San

d C

ontr

ol

Inte

llig

en

t C

om

ple

tions

Dire

ctio

nal

Dri

lling

Hyd

rau

lic F

ract

urin

g

Wat

er

Co

ntr

ol

Res

erv

oir

En

gin

ee

rin

g

Production Increase

Increasing Technology Requirements

• Russian technology is fit-for-purpose• Westerners bring advanced tooling,

downhole technology, EOR methods and project management

• Challenging frontier environments• Increased technology needs

www.dw-1.com

Source: Douglas-Westwood

$0

$5

$10

$15

$20

$25

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Rig

& C

rew

Mar

ket (

$billi

ons)

Eastern Siberia

Timan-Pechora

Volga-UralsWestern Siberia

Other

The Russian OFS Market

• $23 billion by 2011 – a doubling of the market• The market will see 14% CAGR to 2011• Major growth in Eastern Siberia as a frontier region

www.dw-1.com

Douglas-Westwood Overview

Macro-economic trends

Russian regional overview

The Russian OFS Market

Conclusions