NKT Flexibles

NKT Flexibles Flexib les Highly Engineered Subsea Solutions

Ag A g end en d a • •

Global Energy Energy Outlo ok ex

es a a g an c e

•

Products & Solutions

•

Financial Review

•

Proprietary information by NKT Flexibles I/S

2

Ag A g end en d a • •

Global Energy Energy Outlo ok ex

es a a g an c e

•

Products & Solutions

•

Financial Review

•


2

Glo lobal bal Energy Energy Outloo Outl ook k

Oil and gas a primary fut ure ene energy rgy source sou rce


4

Growth driven by non-OECD countries


5

Long term demand for oil and gas


6

Conventional Petroleum remains dominant


7

Oil price forecasts

Source: Bloomberg, BofAML Global Commodity Research (February 2010)


Source: Short-Term Energy Outlook, August 2011

8

Market Dynamics Support Healthy Growth A Few Facts about the Global Flexible Pipe Market •

e ex e p pe mar et, w c orms part o t e g o a theoretical length of standard 8” pipe

mar et, s est mate at ~ ,

m per annum measure

n

• In value terms, this corresponds to approx. DKK 8.0bn (USD ~1.5bn) per annum • Brazil is the single-largest market with Petrobras accounting for ~50% of global consumption • Other important markets are North Sea, West Africa and the Far East including India and Australia

Long-term Demand Drivers • The investment in ut that drives the SURF market is stron l de endent on the antici ations of the future oil rice

• Traditionally, the number of viable projects depends very much on the expect ed oil price • A majority of future SURF projects are planned with break-even oil prices of some USD 30-50 per bbl. • While the short term oil price is difficult to predict, the longer-term outlook appear positive

• Increasing world demand for energy driven by non-OECD countries and general economic recovery in

Western Economies • General consensus in the oil industry that we are in the midst of the Peak Oil supply period • If sustained the current oil rice of USD +100 er bbl. should su


ort a flow of new ro ects for the comin

ears

9

NKT Flexibles at a glance

NKT Flexibles I/S

NKT Flexibles Headquarters in Brøndby, Denmark.

NKT Flexibles I/S was es a s e n an as today some 650 devoted employees.

The plant is situated in Kalundborg, Denmark. .


11

Introduction to NKT Flexibles Introduction •

Since 1968 NKT Flexibles has supplied flexible pipe systems to the global market

•

Today NKT Flexibles offers total riser and flowline system design, engineering, procurement, manufacture, testing,

•

The Company is the third largest player in the market for flexible pipe systems estimated at DKK 8bn (USD 1.5bn) annually with a global market share of app. 15%

•

, established and has a yearly capacity of close to 175 km of pipes depending on size and design

•

The HQ and the main R&D facility is located in Brøndby, DK , sales representation in Rio de Janeiro, Brazil (Houston & Perth in progress)

•

Total employee base of app. 650 primarily based in Denmark

•

n ay , ex es won a . n . n four-year framework agreement with Petrobras covering the supply of flexible pipes during 2012-2015


Legal Stru ctu re and Ownership NKT Holding A/S

Subsea 7

100%

100%

SubSeaFlex Holding A/S

Danco AS

51%

49%

NKT Flexibles I/S

Pipes produc t mix Jum ers 3% Risers 17%

Customer mi x Others 40%

Static Flowlines 80%

Petrobras 50% Subsea 7 10%

12

Stand-alone Organisation Operating Independently NKT Flexibles Organisatio n

Organisational Structure

• NKT Flexibles is run as a stand alone

CEO

company with its own management team, production and R&D facilities

Michael C. Hjorth

CFO

• Separate IT and reporting structure

COO

Keld Ringgaard

Reidar Kleven

• No overlapping functions or employees with

NKT Holding or other companies in NKT Holding or Subsea 7 Group

HR

Legal

HSEQ

LEAN

14 employees

4 employees

31 employees

4 employees

Sales

Risk A ssessment

Plant

Engineering

18 employees

1 employees

340 employees

93 employees

• Projects are run by one of NKT Flexibles’

four project units which have a combined capacity of up to approx. 40 simultaneous projects

Board of directors •

Thomas Hofman-Bang, CoB (CEO - NKT Holding)

•

Stephen G. Wisely (EVP Commercial - Subsea 7)

•

Søren Isaksen (CTO - NKT Holding)

•

Jan W. van der Graaf (VP Strategy - Subsea 7)


R&D

Projects

Purchase

65 employees

45 employees

22 employees

Corporate governance •

NKT Flexibles was spun-off from NKT Cables in 1999 and has since then operated as a JV

• A shareholder agreement governs the relationship between NKT Holding and

Subsea 7 vis-à-vis NKT Flexibles •

From a shareholder perspective the JV is governed at the board of directors level where both NKT Holding and Subsea 7 participates

13

Knowledge and Services

• NKT Flexibles Inte rit Mana ement and Services is based on more than four decades of ex ertise workin with

design, development and production of flexible pipe solutions • Within this field NKT Flexibles deliver a variety of consultancy services as listed below

En ineerin Services

Pre Installation Services

Post Installation Services

•

FEED studies

•

Flow rate test to verify venting system

•

•

Flow assurance studies

•

•

Upheaval buckling analysis

Outer sheath leak test to demonstrate intact outer sheath sealing mechanism

Flow rate test to verify the venting system

•

Offshore annulus vacuum test

•

Input to Design Competitions

• Annulus vacuum test to confirm no outer

•

•

Delivery of software monitoring and analysis systems

Calibration of fiber-optic monitoring systems Retrofitting of gas analysis equipment on any flexibles including umbilical's

•

Samples of polymer/carcass coupons for referencing

•

•

Mounting of fiber-optic monitoring system for fatigue life assessment

• Ad-hoc repair work

operational parameters

•

Mounting of fiber optic monitoring system for temperature measurement

monitoring systems

•

Mounting of annulus gas monitoring systems

•

Preparation of input for Client specs

•

Re-evaluation of flexible pipe service life

• Assessment effects of change in • •

sheath damage and to estimate volume

Prepare, review and assessment of regular integrity reports


14

State of The Art and Flexible Production Facility Kalundborg Site

Key Facts • Located at the harbour of Kalundborg (~100km west of Copenhagen) • Employs around 370 people • Manufacturing facilities occupy a total site of 150,000 m²

y x

•

y

v

2010: • Total Capex expenditure of DKK 300m • Increased capacity from 120km to 175km of pipes p.a. (increase of

+40%) • Completed within budget • Production capacity can be increased by add. 20-25% at modest • Factory equipped with dual production lines allowing the simultaneous

manufacture of both long continuous lengths and shorter reel based products • Own quayside with water depths ranging from 7 m to 10 m allowing

virtually any installation vessel or heavy lifter access to handle all sizes and lengths of flexible pipe


15

NKT Flexibles’ Markets for Flexible Pipes Offsho re Oil & Gas Reference Projects

Project characteristics •

• Current average project size is

1

3

ex es as comp ete + projects worldwide since 2000 approximately DKK 55m, on par with

• This represents a mix of a few large

3

projects and a wide range of medium and small project sizes

2 1 1

2

2

NKT expected to be shared #2 after

Average si ze of pr ojec ts 3

Brazilian facility

51 47

3

37 26 Main markets

10

23

56

49

56

13 15 17

Water & Chemical Oil & Gas

x


NKTF regional market positions

9 0 1 2 3 4 5 6 7 8 9 0 B 9 0 0 0 0 0 0 0 0 0 0 1 1 9 0 0 0 0 0 0 0 0 0 0 0 1 1 2 2 2 2 2 2 2 2 2 2 2 0 2

16

Customer Base Reflecting Global Market Structure • NKT Flexibles is a project-oriented company whose

business is based on bidding for customer tenders •

industry • Through partnership with Subsea 7

Average Cus tomer Mix 2009-2011E e ec e o

ers: Others 40%

• Petrobras Brazil’s lar est oil com an

is the lar est customer accounting for approx. 50% of revenues

Petrobras

• The current frame agreement will expire by end-

2011 agreement to 2015 entered into earlier this year

Subsea 7

Deepwater capex by op erator 2010-20 (USDbn)

• The share of revenue generated through Subsea 7 has

gradually decreased over the years • In the beginning of the JV, Subsea 7 (formally

Acergy) accounted for as much as 60% of revenues • – average share of revenue from Subsea 7 is approx. 10%

Petrobras Total BP Statoil Shell ExxonMobil Chevron ConocoPhilips

Current NKT Flexibles customers

• Today, NKT Flexibles is considered a fully independent

solutions provider in the market Proprietary information by NKT Flexibles I/S

17

Petrobras - a dominant source of future demand Petr obr as Capex 2011-2015 (USDbn)

Comments Petrobras represents a unique anchor customer: • •

Unmatched investment profile going forward

250 200

Shown strong sign of confidence in NKT Flexibles’ offering

13.2

45.4%

13.4

Pre salt 54.6%

70.6

150

Post salt

9.8

•

100

• Attractive downside demand protection in coming years •

Investment profile expected to drive demand going forward

•

Lever for deep water technology development

G&P

Petrobras product ion (‘000 boe/day)

1,120

5,000

618

2,535

2,000 1,000

Development nt . 65%

Other

E&P equi pment and s ervices demand estimates Critical resources

situation (Dec/10)

Del iver Pl an to b e co ntracte d Accum ul at ed va lue By 2013

By 2015

By 2020

15

39

37

65

Production platforms SS & FPSO

44

54

61

94

Others (Jacket and TLWP)

78

80

81

83

3,688

4,000 3,000

Exploration

,

6,000

18%

0 raz

7,000

17%

117.7

50

3,070 2,100

4,910

re-sa

543

Drilling rigs water depth above 2km upp y an spec a vesse

1,148

0 2011 Oil production

2015 Gas production

2020

Source: Petrobras


18

New DKK 9.7bn Petrobras Frame Agreement

• On 30 Ma 2011 NKT Flexibles si ned a DKK 9.7bn four ear frame a reement with Petrobras “FA-II” coverin su

l

of flexible pipes during 2012 – 2015 • Covers pipes at water depths of 1,500m to 2,000m • Includes up to 694km of flexible pipe structures with a total potential value of DKK 9.7bn •

n mum o ga on o value per annum

.

o

e o a va ue per annum correspon ng o

m o p pes an

.

n n

• The agreement marks a significant expansion of the existing three-year frame agreement to 2011 (“FA-I), which has a

.

-

• FA-II has an assumed EBITDA margin that is supportive of the target 20-25% EBITDA margin by 2015 • An input price inflation indexation mechanism is built into the agreement w hich should serve to protect the margins • As part of FA-II, NKT Flexibles will establish a new dedicated flexible pipes plant in Brazil expected to come into

operation by mid-2013 • In the period 2012 – first half 2013 flexible pipes related to the agreement will be manufactured at the plant in Kalundborg

w c w ensure


g capac y u za on a

e p an

19

Competitor Overview Competitive Landscape

Competitor Overview

• The flexible pipes market is split between 3 players

• Factories in France, Brazil, Malaysia

• Key competitive advantages are related to:

• Focus on large/complex all-in-one solutions

• R&D and innovation capabilities

• Main geographic focus: Global

•

• Product offering: 2” – 19”

• Quality

• Listed on Euronext Paris

• Partnering strategy •

•

position when the new factory in Brazil is ready

• Focus on projects with standard products

Market Shares Based on Capacity (km) 2010

2010PF 5%

12%

26% 36%

52%


Technip Wellstream NKT Flexibles

28%

• Product offering: 2” – 16” • Acquired by General Electric in Dec 2010

41%

• Main geographic focus: Brazil & Australia

Prysmian

• Building a factory in Brazil • • Main geographic focus: Brazil • Listed on Milan Stock Exchange

20

ro uc s an

o u ons

Product portfolio

Dynamic Risers

: 2½”ID to 16”ID / -45C to +130C / 0 to 690 bar / 2,000m WD / up to ~2,500m long

Static Flowlines

: 2½”ID to 16”ID / -45C to +130C / 0 to 690 bar / 2,000m WD / up to ~15,000m long

Static Jumpers

: 2½”ID to 16”ID / -45C to +130C / 0 to 690 bar / 2,000m WD / up to ~500m long

FPSO

sers

Jumpers


ow

nes

22

Pipe Design for Every API 17J Application GAS, OIL, WATER, CHEMICALS, 2½” to 16” ID dow n to 2000m water depth dependi ng on s ize The main design is divided in to t hree families: Family 1 ”Smooth Bore” – smooth bore (liner), pressure + tensile armour, outer sheath Family 2 ”Rough Bore” – carcass, liner, special tensile armour, outer sheath Family 3 ” Rough Bore Reinforced” – carcass, liner, pressure + tensile armour, outer sheath Each famil ma include s ecial ur ose la ers such as anti wear and insulation la ers.

FAMILY 3


23

Engineering Capacity More than 190 Engineers n ro ec

ng neer ng

(Pipe + System + Structural + End fitting) +60 in Research & Development +20 in Project Management and Sales +20 in Manufacturing Operations


24

Project Management and HSEQ

Certification is performed according to procedures developed and validated by the International Pro ect Mana ement Association IPMA . 15 Project Managers 30 Pro ect Assistants & Document Controllers Divided into 4 Project Management Units (PMU) each dedicated to certain Clients or regions +20 HSEQ Personnel


25

Intense Focus on Safety and High Quality Health, Safety, Environment and Quality (HSE&Q) • Explicit HSE&Q policy implemented

Quality Assurance • Robust quality system in accordance with the require-

ments of ISD 9001:2000, ISO 14001, OHSAS 18001, API Q1 Monogram License

• 20 HSE&Q personnel • Policy in full compliance with the Danish Occupational

Health & Safet Act and the Danish Workin Environment Act • NKT Flexibles in close cooperation with clients regarding

HSE&Q improvements, e.g.:

• NKT Flexibles participated in the development of API

spec ca on an we use for all flexible pipes •

s spec ca on as es gn co e

Quality system focused on entire value chain including: •

Contract review

•

•

Project management

• “Be a professional” campaign partners include:

•

Design & Engineering review

•

Procurement

•

Manufacturing

•

Testing

• As-built documentation

• Aim to maintain a dynamic quality system  ensures

continuous im rovement in all arts of the o eration


26

Temperature and Fatigue Monitoring Detection/Monitoring of: •

Outer Sheath Breach

•

Polymer Overheating -

• •

Accumulated Fatigue Damage

•

Tensile Wire Break

PETROBRAS, Monitored Jumper - ens e

re

rea

e ec on

- Outer Sheath Breach Detection , - Accumulated Fatigue Damage


27

Engineering Services – Extended Service Life • FEEDs • Reassesment studies: - Fatigue Life Studies - Polymer Coupon Analysis - Temperature Studies - Change of Service

,

’

GDF Norw ay, Frame Agreement Engineering and Offshore Services


28

Product Development • Innovative technical solutions form the platform for NKT

Develop ment in R&D Costs 2006 – 2011E

’ 4.9%

• R&D spending comprise approx. 5% of revenues with

current activities targeted towards areas such as: • Extremely high temperature applications

(>130C) • Product improvement through deep immersion performance (DIP) test • , • Improved condition monitoring through real-time sensing of pressure and gas composition • Lateral buckling (tensile wire instability) testing

3.9%

3.0% 2.6% 2.0%

38

37

• Qualification of PVDF grade for commercial use • NKT Flexibles has highly modern R&D facilities at the

headquarters in Copenhagen and has more than 60 ’

76

50

1.7% 22

18

• Innovation is supported by an active patent strategy

2006A


2007A

2008A

2009A

2010PF

2011E

29

R&D pipeline R&D, Innovation Growth

n o t e a r v t u o l n u n C I

K-armour

FA II Project

IPUT

ID12” HPHT

FLEXTREME

Super Critical CO2

Monitor Jumper Fibre Reinforced Technology

Pipe Integrity

Maturity

Stagnation

Conventional Riser System Concepts

IR-cured XLPE applications

Service

Un-plasticized PVDF

Shallow Water S stems

Strip-armoured Flowlines

Time Profit


30

Water

s e p i P I I

500 m

1,000 m

Conventional 1 500 m

technology

T U P

2,000 m

2,500 m

3,000 m

y l i m a F I P A

New flexible pipe technology

E E R T X L F

API Fam III free han in catenery mark

3,500 m


31

Top Jumper • Proof-of-Concept pr ogram for 2250

200 m

meter water depth c ompleted successfully

Top Section

• ID6” / ID8” free hanging catenary

sys em • Optimized section s • Novel struct ures •

arcass pro

900 m

e

• Wet insulatio n

Mid Section

• Support ed pressur e armor

1800 m Bottom Section

Water depth 2250 m Proprietary information by NKT Flexibles I/S

32

Financial Review

Track Record of High Double-Digit Growth 2000-05: 18% CAGR

2005-10: 26% CAGR

2010-15: 22% CAGR

63.5% 58.0%

. 48.0%

47.0%

44.0%

3 ,527

.

. 47.6%

46.4% 33.1% 23.2%

21.4% 10.8% -6%

223 2000A

. 1,255

-7.2%

2001A

2002A

•

Initial penetration into the off-shore sector

•

Revenue driven by Acergy

•

Improving profitability

* FA-I agreement.


1,546

1,399

1,313

2008A

2009A

1,279

884 -17.2%

491

2004A

2005A

305

2003A

2006A

Revenue

Phase I: Beginning (99-05)

27.8%

23.5%

.

-1.8%

2007A

Gross m argin %

Phase II: Growth (06-08) •

Large order inflow directly from oil companies in order to secure supply of critical equipment

•

High prices and capacity utilisation drives profitability

2010PF

2011E

…

2015F

EBITDA %

Phase III: Slowdown (09-11)

Phase IV: Return to growth

•

Oil companies investment and new projects impacted by financial crisis

•

New projects expected as oil prices and drilling activity remain high

•

Low capacity utilisation and eroding margins

•

Improved profitability from better market conditions and capacity utilisation

,

34

Backlog development

Other

FA-II

4,850

1,305

2006

1,241 2007

1,068

1,231

2008

2009

General i eline •

Pre-backlog expected to grow due to improving market activity reflecting a continued solid oil price

•

Expect more flowline work in North Sea associated with tieback ro ects

•

Expect increased demand for flexible riser systems due to influx of new FPSO / FPU projects globally


1,088 2010

1,001 Current

FA-II •

Material part of work for 2012 secured with the award of FA-II

•

FA-II a significant element in ensuring visibility of future activity from 2012 - 2015

•

The contract stipulates that Petrobras shall on an annual basis award call-off order(s) amounting to 86km of products representing around 12.5% of the overall FA-II contract value

35

NKT Flexibles Strategy Key Industry Drivers

2008 – 2011YTD Achievements •

ew . n our year ramewor agreement (FA-II) signed with Petrobas (7x larger than the previous agreement – FA-I )

• Development in oil prices • Exploitation of deep

water reservoirs

”

•

subsea developments

and 8” flexible pipes for 2,000 metres depth

• Replacement of existing

• Expansion of annual production capacity

offshore installations

2011 – 2015 Strategic Goals .

r ng company o a new eve w spec a focus on capitalising on the Petrobras agreement in Brazil

2. Ensure annual capacity load of +150km/year at the Kalundborg factory 3. Develop the overall market position through human capital, escalating technologies and sustainable rocesses 4. Commercialize solutions for +2,500m depths

km

Vision y exce en per ormance o ecome e pre erre supp er o g qua y flexible pipe systems based on best-in-class technology

Revenue (DKK) EBITDA margin

1.2bn 23.5%*

~3.5bn ~25%

* Note: 2010 revenue, gross margin and EBITDA has been adjusted with DKK 77m to reflect the price adjustment mechanism in the Petrobras FA-I agreement.


36

New flexible pipe plant in Brazil from end Q2 2013

1. New Plant in Brazil on schedule Key Figures for the Brazil Busin ess Case

• Establish plant for commercial production by end Q2 2013

•

-

- –

• Recent ramp-up of Kalundborg provides useful

experience • The new facilit will more than double current ca acit

A D T I B

• Capacity to produce 225km standardized 6” pipe

568

575

50

37

125 -17

-117

• Corresponds to 25% - 30% of the capacity

available in Brazil based on current capacities • Designed for optimum flow of Petrobras type

standardized flexible pipe in the 2.5”-12” ID range • The initial investment costs will amount to approx. DKK

1

x e p a C

196

182

1.1bn of which approx. DKK 700 will fall in 2012 • In addition there will be a working capital tie-up of DKK 400

– 600m in the first 2 years of operation • With the facility assumed approx. 75% utilized from 2014

onwar s annua

Note 1: Capex includes R&D expenditure

o

+55 m s targete

C W n i e g n a h C

50

70 -365

2011E

2012E

2013E

-248

2014E

2015E

Brazilian site for new flexible pipe plant • Perfectly located in front of Brazils main offshore oil & gas development areas


39

On Schedule with site for new flexible pipe plant • LLX Terminal Sul offshore facility which will become part of the Port Acu industrial condominium in

São João da Barra.


40

On Schedule with Factory lay-out


41

On Schedule with Machinery and Equipment The technical, legal and commercial clarifications for all main process lines have been completed . • LOI’s and/or PO’s for the following main equipment have been issued: • 2 @ Extruder lines

July 2011

• 1 @ Pressure Armouring line (similar to the new in KAL)

July 2011

• • 6 @ Rewind Lines

July 2011

• 1 @ Insulation Tape Wrapper

July 2011 .

•

,

• 29 @ Powered Under Rollers

July 2011

all of which confirm delivery within NKT’s perceived project schedule. o er ma n equ pmen w  Annual

e spec e an or ere w

n

theoretical capacity of ~225km 6”ID flexible pipe and prepared for IPUT type products


42

2. Capacity Load of >150 km/year at Kalundborg • FA-II work will provide significant visibility to Kalundborg backlog for 2012 with some 86km of flexible pipe to be • Continued focus on selected niches is to ensure near-full capacity load at the Kalundborg factory beyond 2012: 1.

Mutually beneficial partnering type arrangements

• • 2.

• Strong position with FPSO contractors Im roved com etitiveness throu h technolo and cost base •

Selection and maturing of incremental technology improvements to create new “safe havens” over time, e.g. XLPE/PEX, etc.

•

Strong day-to-day focus on operational efficiency to spur a continued lowering of production unit costs e serv ces

.

• 4.

Key focus is to evolve around strong existing relationships with strategic major clients such as Statoil, an a range o ey n epen en o compan es Strong historical link to Subsea 7

• A •

Focus on utilization and commercialization of internal know-how and/or resources Creation of new market opportunities inside existing core area as well as outside the current frame ressive market ositionin

Focused effort on aggressive positioning for selected larger strategically important projects Increased production capacity allows to some extent for a trade of margin for volume

• • Based on a “full” factory corresponding to a ~75% utilization factor the factory has estimated annual revenue potential of . .


43

NKT Flexibles

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