Alaska 2008 Summer Drilling Campaign PSUA

1. Alaska 2008 Summer Drilling Campaign PSUA Part 1: Set-up Location - Anchorage May 12th to 16th 2008

2. Alaska 2008 Summer Drilling Campaign PSUA Team Members • Tim Duckworth SIEP-EPT-PO • Don Armijo SIEP-EPT-PO • Ramachandra Kamath SEPCO-EP-AMERICAS • Jack Meijerink SIEP-EPT-PO • Derek Redman SUKEP-EPE-T-WE

3. Terms of Reference (1) • Objectives • Verify that all HSE aspects have been addressed in the planning for the 2008 drilling campaign and associated shore base operations, and that mitigation measures have been addressed for all perceived risks. • Verify and assess the effectiveness of the controls that are in place to manage the drilling and logistics operations, and overall integrated activities to be conducted simultaneously during the summer program. Verify that organizational structure and management systems are in place to coordinate activity across different functional groups and activity boundaries.

4. Terms of Reference (2) Objectives 3. Verify the state of “Readiness for Operations” in order to ascertain that there is a safe and solid basis for the initiation of drilling and logistics activities; • Resources are in place across all disciplines to carry out needed activities. • Personnel have been adequately trained to perform their duties in a safe and efficient manner in advance of beginning operational activities. • Operational plans and procedures, including contingency plans are in place, i.e., step by step procedures for routine operations such as running and testing BOPs, operating the Mud Line Cellar Bit, mooring the rig, fuel transfers, SIMOPS, commissioning and start-up procedures, and so on. The procedures must be prepared and documented in such a manner that they can be used effectively by operations and updated on a regular basis as required. • Adequate levels of qualified supervision are in place to safely conduct operations. Competency of supervision has been assessed and skill gaps addressed to ensure safe operation. Contractor supervisors are clear on Shell procedures and expectations? • Vessels and equipment are in place or are available to effectively carry out the program. • Contracts are in place to provide all the necessary services.

5. Terms of Reference (3) • Objectives • 4. Verify that logistics support is in place and adequate controls are in place to manage the activities; • Shore Base Operations – Materials re-supply and handling as well as crew change operations • Ensure robustness in plans and procedures to manage the interfaces of the simultaneous offshore logistics operations • SAR Capability

6. Terms of Reference (4) • Scope • The scope will cover the major functional and support activities planned for the summer drilling campaign. These include the following: • Wells Activity • Offshore Integrated Logistics Operations • Shore Base Activity • HSE

7. Terms of Reference (5) Scope The PSUA Team will also assess readiness to operate of the following concurrent activities taking place during the summer campaign, but do to the variability of commencement of operations this will likely be a paper and interview exercise and will not include a site visit by the PSUA Team (list of requested documents to begin reviewing these activities has been provided under separate cover and will be updated as more knowledge is gained on activities): • Oil Spill Response Program • Geo-technical Coring • Seismic Acquisition • Shallow Hazards Surveys (to be conducted both in the Beaufort and Chukchi Seas) • Marine Mammal Monitoring and Mitigation Program

8. Terms of Reference (6) Scope The intent of the review is to provide assurances to the Alaska Venture Leadership Team and Shell’s senior leadership as to the operational readiness for the drilling program, the Offshore Integrated Logistics Operation and the related Shore Base Activity. The PSUA Team is not otherwise associated with the project and will provide an independent assessment of the activities that the project team has taken to prepare for the start of the summer drilling campaign. The focus will be on operations activities and will not include a review of regulatory and permitting or external affairs activities.

9. PSUA Terms of Reference (Standard) Scope: The scope will specifically cover the management systems, plans, and activities required to ensure that the preparatory works are complete and all necessary management systems are in place to safely start up the activities. It will include a detailed review of critical HSE and Operational Procedures that cover mechanical completion, installation, hook-up, commissioning, start-up and initial production of the new facilities.      1. Well Handover;      2. HS&E Management and Emergency Response;      3. System Design Integrity and Verification;      4. Documentation;      5. Technical Integrity and Maintenance / Inspection Management;      6. Readiness for Operations and Handover preparedness;    7. Staff competence and ongoing competence assurance;    8. Flow assurance and production optimisation systems;    9. Change Management, deviation control and contingency plans;     10. Previous Audits/Reviews and HAZOPS and status of close out     11. Marine System interfaces including: Standards, Procedures and Competence    12. Minimum Environmental Standards and Oil Spill Response preparedness    13. Onshore support organizational readiness    14. Logistics readiness including spares, warehouse and supply base 15. HSE Case

10. Alaska PSUA (Set-up) Comments The comments in this report are intended to provide information and guidance as to the directions to be taken between now and the start-up. Each comment is described with a three part rating number covering Priority, Risk Assessment and (HSE Management System) Severity to aid the Alaska Venture Management Team in dealing with the issues raised. Responsibility for comment close-out lies with the respective Line Managers. As currently planned and agreed, the Review team will re-visit the operational area during late July in Audit Mode where the views expressed will no longer be ”Comments”, they will be formal “Findings” the number and type of which will determine the Audit Opinion relating to the ability to commence operations.

11. Priority Rating of Comments 1 Immediately 2 Before commencement of Marine / Air / Logistics operations 3 Before commencement of Drilling Operations 4 For Lateral Learning

12. RAM Rating of Comments

13. Severity Rating of Comments Severity Level Definition S - Serious The finding is likely to cause a high undesirable effect on the achievement of the entity’s (HSE) objectives and/or is likely to have a notable impact on other Shell entities, therefore warranting immediate reporting to senior management (e.g. OpCo or Business level). H - High The finding is likely to cause a high undesirable effect on the achievement of one of the entity’s (HSE) objectives, warranting reporting to the Auditee’s management. M - Medium The finding is likely to cause a measurable undesirable effect on the achievement of one of the entity’s (HSE) objectives. L - Low The weakness is unlikely to have a measurable impact on the entity’s (HSE) objectives, but its correction would enhance the risk based control framework.

14. Positive Observations • Good logistics organisation in place with generally effective contracts. • Evidence of extensive training underway. • Shell/Frontier HSE Leadership workshop conducted. • The Well Delivery Leader’s message on Goal Zero and working philosophy to ensure no harm to the workforce is integrated in Frontier. • Contractor Forum bringing together the contractor community supporting Alaska operations – including senior Shell involvement. • Well Delivery Leader actively responding to PSUA Team feedback during review. • Strong leadership and clear communication with Kulluk services and contractor community to maintain focus despite uncertainty progression to drilling operations phase.

15. Alaska PSUA (Set-up) Comments – 1a Wells Observations • An isolated but important example of below optimum HSE leadership exists within Frontier. • Shell should work with Frontier to address the HSE Leadership deficiency 1C4H 2. A safety risk exists due to the high proportion of new hire rig crews. • Address risk of inexperienced staff, for instance by drawing experienced staff from existing Frontier rig crews, i.e., the “Frontier Driller”. 2C2M 3. There is a limit to the number of Kulluk work sites that can be safely managed given the unfamiliarity of the crews with the equipment, processes/procedures and team dynamics. • Leadership is onboard with this and understands it needs further detailing • Develop and demonstrate effective methods, processes and procedures to ensure that the pace of work and number of Kulluk work sites will allow no harm to people or environment. 1C2M

16. Alaska PSUA (Set-up) Comments – 1b Wells Observations Strategic Goal & Stakeholder Acceptance • A commitment to deliver on Shell’s responsibilities to the external stakeholders is evident within the team. It is important that the project KPIs reflect this objective. • Review wells and logistics KPIs to drive performance consistent with external stakeholder expectations and objectives.3C2M

17. Alaska PSUA (Set-up) Comments – 1c Wells Observations Recruitment and Crews • In the event that American crews are not allowed to work on the Kulluk during the project phase, difficulties will arise to integrate them into the work group just prior to drilling operations, i.e., familiarity with equipment, team dynamics, safety culture and behaviours, etc. • Develop a clear integration plan that manages the risks created by not having American crews present on the Kulluk during commissioning. 3C2M 2. The Kulluk rig management core team has several key vacancies (both Toolpushers, Mcte Supv, both Chief Mechanics), these positions are pivotal to a safe and effective project and operating phase. • Work with Frontier to resource vacancies, and ensure that these individual meet behaviour and competencies expectations. 1C3H 3. There appears to be no defined Frontier specific training delivered to the core rig leadership to ensure understanding of their Safety Management System. • Confirm Frontier has specific SMS leadership training beyond the Shell block training and industry training in Lafayette, Louisiana. 1C2M

18. Alaska PSUA (Set-up) Comments – 1d • Wells Observation • Project Phase Success • In its present form, the OIM role in the project phase is extremely demanding including both project mgmt and core rig-related activities, thus creating potential short falls in work face management and overall project control. • Address project phase organization structure to ensure proper leadership is available to deliver activities safely and effectively. 1C3H • 2. It is understood that the Kulluk commissioning plans and associate works packs are incomplete. • Independently review commission plans and activities to deliver fit for purpose drilling systems, operational integrity, pollution control, removal of any remaining rogue items, etc. 1C2H

19. Alaska PSUA (Set-up) Comments – 1e • Wells Observations • Frontier Relationship • Manpower contract for Kulluk with Frontier is not entirely reflective of the current working arrangement and is a potential source of conflict. • Contract with Frontier requires revision to reflect current work-scope. • 3C2M

20. Alaska PSUA (Set-up) Comments – 1f • Wells Observations • Project General • There are no clear operational readiness Go/No-Go criteria evident to the PSUA Team for commencing into either the project or drilling operations phases. • Clear operational readiness Go/No-Go criteria should be established and agreed both internally with Shell senior stakeholders and Frontier. 1C3H • Safe work practices for critical operations are still incomplete, i.e., MOPO, high pressure testing, confined space entry, man-riding, etc. • Documentation and procedures for safety critical activities should be completed. Priority should be given to those required for the project phase, the remainder to be completed prior to drilling operations. 2C2M • 3. The well operations programs have not yet been completed. • Mature the well operations program in line with ORP. 3C3M

21. Alaska PSUA (Set-up) Comments - 2 Offshore Integrated Logistics Operations Training effectiveness is under constant challenge due to contractor staff seasonal rotation and associated changeout. • Ensure that the required training of marine personnel will be completed after personnel mobilisation and prior to vessel deployment. 2C3 H • Logistics to review standards for application in the Alaska Venture Project Execution Plan and Logistics Business Strategy/Operations plan 4C3M

22. Alaska PSUA (Set-up) Comments – 2a • Offshore Integrated Logistics Operations – Global Logistics Management System (GLMS) • The offshore basic training matrix certification (HUET, AK Culture, NSTC, Marine Trash & debris, Journey Management) including expiry dates for all personnel is not currently loaded into GLMS automatically. • The offshore training data is to be automatically loaded into GLMS for correct control of personnel movement offshore 4B3L • There is no automatic link between travel agent Carlson WagonLit bookings, Journey Management and GLMS • Link Carlson WagonLit system to Journey management and GLMS 4B3L

23. Alaska PSUA (Set-up) Comments – 2b • Offshore Integrated Logistics Operations - Aviation • The management of Helicopter under slung loads is a potential high risk activity at the receiving location in particular. • The ERA Loadmaster must be located on Kulluk during underslung load unloading and associated cargo handling activities1D4H • There is a potential opportunity to reduce costs by minimizing helicopter movements to Kulluk when in Canada (CHL charge 1.2 MM/Month vs. ERA 400K $/Month) 4C3M • Review helicopter movements to Kulluk for optimisation of contractor usage and cost saving 4C3H • The AW139 helicopter currently has no rotor heat tracing – useful for de-icing during the autumn period of operation. • Execute rotor icing risk analysis and depending upon outcome install rotor heat tracing on AW139 helicopters 4C3H • Review EP2005-0263 Aviations Standards for application in the Alaska Venture Project Execution Plan and Logistics Business Strategy/Operations plan 4C3M

24. Alaska PSUA (Set-up) Comments – 2c • Offshore Integrated Logistics Operations - Marine • Enhancements in marine practices required : • Bering Marine Corp. to develop and agree SMS for Artic Seal, including operating limits in sea conditions - Adverse Weather Working Procedures (AWWP) before deployment 1D4H • Activate succession and retention planning for supervisory marine Shell staff. 4C3L • Expedite implementation of Blue Sky fleet tracking system before 1 July 2008 2C3M • Review EP2005–0262 Marine Logistics Standards for application in the Alaska Venture Project Execution Plan and Logistics Business Strategy/Operations plan 4C3M

25. Alaska PSUA (Set-up) Comments – 2d • Offshore Integrated Logistics Operations – Road Transport • There are potential opportunities for rationalising and reducing exposure of road transport into Alaska and to the North. • The consolidation of road loads and utilisation of established rail and Ro-Ro systems will reduce cost and exposure for long haul freight movement. Demonstrate ALARP and any consequent opportunity for improvement by means of a road transport risk analysis. 2C4M • Further improvement opportunities exist by increasing the FOB proportion of freight being moved for the Venture. • Supply Chain Manager to review FOB delivery terms for TUK and Deadhorse aimed at 30-50% of Contractors’ delivered equipment 2C4M • Review EP2005–0261 Road Transport Standards for application in the Alaska Venture Project Execution Plan and Logistics Business Strategy/Operations plan 4C3M

26. Alaska PSUA (Set-up) Comments – 2e • Venture – General • Some Supply Change Management and Alaska Business Development - vendor relations activities - could be better managed from Anchorage instead of the current arrangement being wholly based out of Houston. • Scope for Supply Chain Management staff to be assigned and located at Anchorage 1B3M • In a few areas readiness for start-up may be compromised by funding issues. In particular contract commitments for service provision can be subject to funding limitations (e.g. medical services). • Confirm funding arrangements are in place in a timely manner to support the acquisition of the service contacts for support service. 1B3H

27. Alaska PSUA (Set-up) Comments - 3 Onshore Activity - Telecoms & IT It was not confirmed that Western Geco are conforming to the SEPCo equipment standards • Confirm that emergency IT and Comms systems are compatible. 2C3H There is a multiplicity of IT and Comms systems. Safety critical user understanding of these systems could be enhanced by provision of a consolidated representation. • Develop an integrated pictorial representation of all IT and Comms systems required particularly for use in Deadhorse and co-ordination offices 2C3M The complex IT & Comms system is still under development both in technical and staffing terms. The Failure Modes and Effects Analysis (FMEA) has not yet been carried out and is not yet scheduled. • Execute the IT & Comms FMEA. 2C4H • Comms Staffing in Deadhorse base to be clarified – confirm the level of commitment required from Alaska Telecoms. 2C4H

28. Alaska PSUA (Set-up) Comments – 3a On shore Activity - Supply Bases Further efficiencies inSupplyBase activities could be achieved in the following manner: • Develop and agree a load-out plan from Tuk base to Kulluk in concert with Frontier during the project phase; avoiding over supply and consequent space shortage and difficult working conditions. 1C4H • At the TUK Supply Base, Kulluk Artic Services (KAS) should confirm adequate staff positions are filled and materials handling training is completed.2C3H The West Dock Supply Base is BP owned and operated with only intermittent Shell access. • Deadhorse Supply Base requires dedicated Shell representation on location to support the West Dock Supply Base. 3C3M • Review EP2005 – 0264 Lifting and Hoisting Standards for application in the Alaska Venture Project Execution Plan and Logistics Business Strategy/Operations plan 4C3M

29. Alaska PSUA (Set-up) Comments - 4 HSE The PSUA Team was not able to sight all HSE Cases in their entirety during the review. • All HSE Cases must be completed prior to commencement of operations including completion of all outstanding action items 1C3H In addition there was stated to be an inconsistency between the Operations HSE Case and HSE Plan. • Complete HSE Plan and define the relationship between HSE Plan and HSE Case in Operations areas. 1D3H HSSE Logistics out-standing items • Develop addenda to the EPW-wide HSE Case by completing Hazard Control Sheets and Bowtie diagram for Logistics: Road Transport Marine Logistics Aviation Lifting and Hoisting Waste Management 4C4M

30. Alaska PSUA (Set-up) Comments - 5 Oil Spill Response Programme Well resourced with a mixture of experienced and new staff. Succession planning has been recognised. Risks this year are limited primarily to marine fuel handling. Western Geco will necessarily be fuelling on the move – Contingency plans will be driven by weather predictions. • Align Oil Spill Response matrix with Vessels AWWP (Adverse Weather Working Procedures) for refueling1C4H

31. Alaska PSUA (Set-up) Comments - 6 Geo-Technical Coring No comments at this time

32. Alaska PSUA (Set-up) Comments - 7 Seismic Acquisition In the Chukchi Sea, some operations will be conducted beyond the range of the SAR helicopter. There are plans to manage medivac at this extreme range, however, these will be totally weather dependent. • Confirm that the AWWPs for Gulivar, chase boats and SAR aircraft are aligned and supported by a decision making risk matrix. 2C4H See comments elsewhere on Western Geco covering oil spill and communications.

33. Alaska PSUA (Set-up) Comments - 8 Shallow Hazards Surveys No comments at this time

34. Alaska PSUA (Set-up) Comments - 9 Marine Mammal Monitoring & Mitigation Programme (4MP) No comments at this time

35. Back-up slides

36. Alaska PSUA (Set-up) Comments • 2009 Season Look-Ahead recognising that work in the directions described below is progressing; • The SAR S61 Helicopter at Point Barrow; transfer to Wainwright or Point Lay to reach outer limits of Chukchi Sea concession and reduce Helicopter exposure over open waters. • Develop large Ware-Barge option, including Cranes, Warehouse, accommodation, Helipad, fuel, incinerator and storage facilities to reduce shallow draft vessel risk exposure • Develop synergies with other Operators (Sakhalin Energy) Icebreakers not affected by Jones Act. • Replace Arctic Seal – Select suitable replacement, align with requirements including Ware-Barge