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Market Offering Credentialing Overview Marty Stetzer, APO Practice Leader

Schlumberger Business Consulting Asset Portfolio Optimization (APO) – Service Line Reserves Management Initiative (RMI). Market Offering Credentialing Overview Marty Stetzer, APO Practice Leader Jonathan Fuller, Project Team leader. Introduction.

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Market Offering Credentialing Overview Marty Stetzer, APO Practice Leader

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  1. Schlumberger Business ConsultingAsset Portfolio Optimization (APO) – Service LineReserves Management Initiative (RMI) Market Offering Credentialing Overview Marty Stetzer, APO Practice Leader Jonathan Fuller, Project Team leader

  2. Introduction • Schlumberger Business Consulting Asset Portfolio Optimization and Risk Management (APO) Solution . . . • Targets significant improvements in risk reduction and shareholder value maximization by leveraging our leading portfolio optimization concepts and tools • The core knowledge of the APO practice comes from numerous implementations of the Merak suite of portfolio optimization tools, using the latest techniques in decision theory, stochastic modeling and probabilistic analysis

  3. Set Strategy and Vision Reserves Mgmt Process Business Planning Process Capital Allocation Process RMI Fitwith APO OfferingKey buyer is at senior and CXO level… Market Dynamics Quantification of External Drivers Piers Tonge Team • Observations to date: • This model resonates with the way E&P clients run the business • Each buyer needs a little different story and sales qualification approach • APO has best “story line” for access to this level • Primary SLB (OFS, DCS, etc) contacts are below this level • Buyers are interested in best practices and benchmarks • E&P CXO Processes • To manage the business Asset Teams Reservoir Mgrs CXO Management Committee(s) Planning Manager Corporate Planning Manager CFO Management Committee(s) Match Offering to Each Key Process Owner

  4. Unified Reserves Management Improvement (RMI)An Industry Imperative Discussing Schlumberger's capabilities and positioning to assist clients in improving reserves management practices Marty Stetzer – Schlumberger Business Consulting Jonathan Fuller – Project Team Leader Tim Nguyen – Security Architect June 2004 Internal Schlumberger Sales Discussion Materials

  5. RMI – OutlineTable of Contents… • Topic Pages • Business context 3,4,5 • Schlumberger Credentials 6,7 • Schlumberger Positioning & Offerings 9,10,11 • Summary: Recent Competitive Move 12 • Appendices • SLB domain expertise • Reserves Management Clients

  6. Business Context Reserves Management Management of reserves is at the heart of E&P value creation… • To create value, E&P companies must effectively move reserves from possible/probable to proven (3P-2P-1P) • R/P ratio is another key index of organizational performance • Reserves growth (per share) has a strong correlation to share value A top industry concern exists about the quality of the reported reserves data – and the integrity, repeatability & control of the management systems and tools that generate that data.

  7. Business Context Reserves Management Reporting Chain is ComplexThird parties involved across the workflow… Client Opportunity: Leveraging our deep domain experience across the reserves management reporting chain to help clients define a consistent and repeatable management system to meet requirements of all key stakeholders Schlumberger Core Competency • Reserves “management system” must: • Have Integrity • Be Transparent • Meet Regulations • Be Compliant Reporting Standards & Tools Schlumberger Core Competency Reserves Valuation Technical Evaluation & Tools

  8. Business Context Unified Reserves Management Workflow TemplateProcess integrity and security is needed across the business workflow… 1 Establish Field Production Volumes (well-by-well) Estimate Recoverable Reserves (by Field) 2 4 • Report Reserves • Operational • Compliance Potentials Operational Reserves Report (3P-2P-1P) Technical Volumes Volumes External Internal Technical Volumes SEC / other Guidelines SEC / other Reporting Volumes Define Reserve Opportunities Portfolio 3 • Manage Financials • Revenue • DD & A + PPE • Division of Int. • JVs 8 Historic Lifting Costs, Prices, and Interests Pro Forma Financials Performance Metrics Economic Cases (Compliance and Operational) Bases & Assumptions Results Annual Planning Cycle 5 Develop & Document Strategy (e.g., R/P vs. Cash Flow) DevelopCorporate Plan 6 7 • Manage Portfolio Project • AFE’s • Budget Year 1 Long Range Plan Bases &Assumptions Technical Business Reporting & Compliance

  9. Field / Well Info Capture Technical Evaluation Reserves Valuation Reporting Std’s & Portfolio Tools Financials Compliance / Reporting / Security Offering Strength High Medium Low Schlumberger Credentials Competitive Landscape SLB has core competencies across Reserves Management workflow…

  10. Schlumberger Credentials Beyond Technology – We are Involved Reserves standards guidance developed by SLB… • Credentials • Published white paper for Canadian reserves interpretation in January 2003 • Led SPE/SPEE technical sessions • Identified need for deep technical understanding to do the job correctly

  11. Schlumberger Offering Schlumberger OfferingsA unified portfolio of offerings across SIS, DCS, SBC… • 1. Assess & Plan Engagement (Client Buyer is Chief Engineer, E&P VP’s, CFO, Head of Internal Audit) Our starting engagement is a review across the process, people and technology components of the reserves management chain to develop the business case and project priorities to help clients focus any necessary improvement efforts – Page 9 • 2. Define and Implement Improvements (Client Buyer is Chief Engineer, E&P VP’s, CFO, Head of Internal Audit) After conducting the A&P engagement, SLB has the capability of working (jointly) with clients to help implement the improvements needed to get a world class management system – Page 10 • 3. Application of Tools & Technology (Client Buyer is CIO) In addition to continued sales/implementations of Eclipse, Petrel and the Merak suite, we have identified a need for a Secured Reserves Management System (SRMS) – Page 11

  12. Capability Assessment Business Case Solution Architecture Implementation Plan Schlumberger Offering 1. Assess & Plan (A&P) EngagementFramework below identifies the key solution drivers for RMI… RMI Solution Components A&P Solution Outputs Improved Business Results Process External business drivers Internal business strategy Reserves & Portfolio Strategy $ Risk Organization • Regime economics • Political risk • Compliance • Technology advances • Risk reduction goals • Long term R/P ratio • Acquisition • Divesture • Align business unit direction to overall strategy Technology • Global in scope • Meet compliance • Inc. third parties • Reduce risk • Improve credibility • Improve transparency Offering: Conduct an Assess & Plan Engagement to help clients define where to start in getting get a consistent and repeatable management process in place across the reserves management value chain…. With a focus on business results. Typical SBC Led Assess & Plan Engagement: Six weeks, Fees = $150-200K+

  13. Schlumberger Offering 2. Define and Implement RMI ImprovementsHelp clients get to a disciplined management system … • This effort is technically complex. We can leverage Schlumberger best practices and benchmarks from dealing with hundreds of E&P companies • Projects must complement existing client initiatives and accommodate the technical, commercial, reporting and compliance needs of top management • This new system must be workflow-centric, secure and transparent – and routinely accommodate a variety of third parties • Leadership, design and ownership of this effort needs top management sponsorship Offering: Put an experienced team in place to work side-by-side with clients to define and implement improvements in process, people and technologies needed to deliver both business results and better reporting across the RMI value chain. Typical SBC Led Enagagement: $1.5 - $2.0 million

  14. Schlumberger Offering 3. Technology: The Integrated SRMS SolutionSecure Reserves Management: auditable, controlled and repeatable… Password OTP Smart Card User Portal Access Control LDAP/ Active Directory Collaboration Tools Reserves Workflow Process Manager Secure Auditing Manager System Application – Access Manager Secure Database Visualization Access Manager Solaris/Linux Application Server Windows Application Server Windows Application Servers/Citrix Server

  15. Summary In ConclusionWhy make Reserves Mgt Initiative (RMI) a core offering of Schlumberger? • Reserves Management has had some compelling events which raised level of E&P management attention • Reserves Management includes processes that are the key to value creation for the E&P business • We are unique in the very deep domain experience available across SLB • Competition is everywhere, but we have the strongest content credentials • NOTE: The competition in moving…“ Landmark awarded 15-month contract from Netherland, Sewell & associates, inc.”, Halliburton Press Release 05/27/04 Focus on business strategy, process, organization – let technology follow

  16. Appendix • Areas of SLB expertise • Reserve Management clients • Go-to-market strategy • Target clients and key organizational contacts • Better practices from Shell • Summary of the perceptions

  17. Credentials SLB Reserves Management Workshop Experts Deep domain expertise across the Reserves Management workflow… • Onsite: • Marty Stetzer Facilitator – SOX, Compliance • Brad Youmans Reservoir Management & SLB Technology • Jon Fuller Reservoir Management & SLB Technology • Anders Kuhlberg Reservoir Management - Petrel • Scott Raphael Reservoir Management – OFM (Part Time) • Jim Flynn Reservoir Management – Eclipse • Jim Hubbard Reserves Valuation – DCS, New Orleans • Jack Douglas Reserves Valuation – Golden Engrg. – Security • Chuck Brown Reserves Reporting (Volts)– P/Mgr at Marathon • Jeannine Smith Reserves Reporting – MERAK Volts • Remote: • Femi Delalu Reservoir Management & MERAK Volts Technology • Steve Clarke Reserves Valuation, Gaffney Cline & Intnl Standards RMI Workshop, Houston, 5/13/04

  18. Credentials Reserves Management CredentialsSLB reporting & compliance implementations at: • Worldwide • Burlington Resources (US,Canada) • Devon Energy (US, Canada) • Kerr McGee (US, UK) • Norsk Hydro (Norway, UK, Canada) • BHP (Australia, UK, US) • Santos (Australia, UK, US) • Rwe-Dea AG (UK, Norway, Egypt) • Marathon Oil (UK, US) • Middle East & Asia • ChevTex (Indonesia) • KOC (Kuwait) • Woodside (Australia) • Al-Khafji Joint Ops (Saudi Arabia) • Europe, CIS & Africa • Gaffney-Cline (U.K.) • 7 FSU NOCs • South America • PEMEX (Mexico) • Repsol-YPF (Argentina) • Canada • Sproule & Associates • Aston Jenkins & Associates • CanWest successor • USA • Unocal

  19. RMI Go-to-Market: UnderwayTiming of offering and release… • May: Developed relationship with Jim Ross – Industry respected, former chairman of Gaffney Cline – UK. Will consider linking with SLB • May: Defining workflows and capabilities with SLB cross-functional team • June: Sales slide deck ready for GAD/GAM teams • July-Aug: Win two USA/Canada engagements for RMI engagements • September: IQPC: SLB sponsoring their Reserves Management industry session…. P. Goode – Keynote Speaker, M. Stetzer – Chairman APEGGA (Canada): Two industry G&G sessions…B. Youmans – Speaker • 4Qtr 2004: Follow-up IQPC sessions planned in Singapore, Houston

  20. Target RMI ClientsFocus on USA & Canada to leverage compliance initiatives, for now… • Current - June: • El Paso: Sessions with clients to qualify lead • Occidental: Meeting with Chief Engineer. Follow-up to SLB security session • Burlington Resources: Meeting with Chief Engineer • CVX: Meeting with Head of Reserves Management with SLB VP Security • CEPSA: Credentials presented to assist with Reserves Management review • ADCO: Undergoing reserves process review – committed Volts client • The SIS attendees at the workshops added these targets: • Unocal: Reserves mgt process could need strengthening • Conoco-Phillips: Post merger review of reserves mgt process • Later: • Develop clear value proposition for foreign companies and NOC’s

  21. Set Strategy and Vision Reserves Mgmt Process Business Planning Process Capital Allocation Process Reserves Management Improvement (RMI) Key buyer for RMI shaded in grey… Market Dynamics Quantification of External Drivers Piers Tonge Team • E&P CXO Processes • To manage the business Asset Teams Reservoir Mgrs CXO Management Committee(s) Planning Manager Corporate Planning Manager CFO Management Committee(s) Match Offering to Each Key Process Owner • Seize the Opportunity: • Reserves Management Improvement (RMI) is the highest priority E&P issue • The workflows in this problem have a high degree of technical content • SLB has respected heritage and position • Tool implementations gives us credibility for our SBC consulting capabilities • These buyers do not want to be “sold” • They want teams to work with them not for them

  22. RMI, Issues Across the ProcessShell Reserves Audit: Typical business practice improvements… • Inadequacy of Shell Reserve Guidelines • Slow to Incorporate SEC updates • Did not encourage review of existing bookings • Reserves definitions differ for Internal / Operations & those for regulatory compliance Strategy • Requires systematic & consistent use of external 3rd party experts in reserve audits • No consistent application of standards across BU’s • Need for Roles and responsibilities to be more clearly defined e.g. in de-booking of reserves. Process • Weakness in various structures: • Lack of Reserve Audit independent from business (now reports into Technology head) • Need for Finance / Legal reporting structures to be independent from business functions, and reporting direct to group heads. • Lack of appropriate resources for both Group Reserve Management (internal) and Reserve Audit (Compliance) • Revised reserve component of Incentive plans Organization Technology • Lack of Systematic document retention policy and audit trail • Need for document Integrity / Security / Audit checks

  23. Recent Industry Events – Reserves Management Top of mind issues for CEOs, shareholders and regulators… • Announced cuts in the estimated oil and gas reserves at Royal Dutch/Shell, El Paso and other E&P companies have raised questions. • How could companies suddenly have far less potential oil and gas than initially reported? The answer is in a mixture of imprecise regulations, geological guesswork and corporate culture that go into the accounting of such reserves. NYTimes 031204

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