Automation Trends & Solutions in the Oil & Gas Industry

1. Automation Trends & Solutions in the Oil & Gas Industry Larry O’Brien Research Director ARC Advisory Group lobrien@arcweb.com

2. Agenda • Oil and Gas Industry Definition & Trends • Size, Scope, and Automation Spending in the Oil & Gas Industry • Automation Suppliers as Service Providers for the Oil & Gas Industry • Summary & Conclusions

3. Agenda • Oil and Gas Industry Definition & Trends • Size, Scope, and Automation Spending in the Oil & Gas Industry • Automation Suppliers as Service Providers for the Oil & Gas Industry • Summary and Conclusions

4. The Oil & Gas Industry as ARC Defines It • Largely Upstream • Exploration, Production, Transportation, Processing • Includes Pipeline SCADA Applications (Figure Courtesy of Rolls-Royce)

5. Key Trends Affecting the Oil & Gas Industry • Cost of Energy – Over $118 a Barrel and Counting • Simple Dynamics of Supply & Demand: Unprecedented Demand Meets Increasingly Restricted Supplies • Rapidly Growing Economies of Asia, Eastern Europe, Latin America are Fueling Demand • Middle East is in the Middle of the Second Oil Boom • Companies Need to Get More Out of the Ground, More Efficiently, At Less Cost, and Without Unplanned Downtime or Waste • Companies are Looking for and Producing Oil & Gas in Increasingly Hostile Environments • Industry is Increasingly Vulnerable to Environment (Natural Disasters, Hurricanes, Floods, Etc.) • Many plants and Facilities Have an Aging Infrastructure that Needs to be Replaced

6. Capital Expenditures Focused on Upstream Despite record Oil Company Profits, Refining is not very Profitable Trends: The Cost, Need we Say More?

7. ROI for Upstream Operations Consistently Tops 10 Percent

8. Contrast that with the ROI on Refining!

9. Trends: Supply & Demand, China Leads the Way

10. How Much is Left to Go Around?

11. Trends: Middle East Hydrocarbon Investments in a Boom Cycle “Middle East and Libya account for 20 % of world projects adding productive capacity between 2007 and 2011, according to CERA. Significantly, it is also the region requiring the most manpower for design and project management …..with 35 % of the world's projected total”

12. Trends: More Efficient Production, Digital Oil Field of the Future

13. Trends: Finding New Sources of Production, The Challenge of the 21st Century • Canadian Oil Sands • Arctic Circle • Deepwater Drilling • Oil from Coal • Harsher Environments • Smaller Footprint

14. Trends: Oil & Gas Industry Increasingly Vulnerable to the Environment • Hurricanes, Floods, Extreme Weather • Terrorist Threats • Cyber Security • Corrosion • Major Portions of Production and Refining Capacity can be Wiped out at a Moment’s Notice • Cost to Producers can be Staggering

15. Trends: Oil Infrastructure Needs Modernization • ARC Estimates Total of $65 Billion in Installed Process Automation Systems are Reaching the end of their Useful Life • The Majority of this is in the Hydrocarbons Sector in North America, Europe, and Middle East

16. Agenda • Oil and Gas Industry Definition & Trends • Size, Scope, and Automation Spending in the Oil & Gas Industry • Automation Suppliers as Service Providers for the Oil & Gas Industry • Summary and Conclusions

17. Automation Market Observations • Increasing Plant Utilization • Increasing Capital Investment in Automation • Large Investments in Advanced Applications • Increasing use of Smart Field Devices and Measurement Information • Increasing Importance of Automation Systems Supporting Regulatory Compliance • Increasing Emphasis on Critical Condition Detection and Incident Prevention • Aging Legacy Automation Infrastructure • Major Concerns over Plant and Cyber Security Outlook for Automation Growth Never Brighter

18. Size and Scope of Automation in the Oil & Gas Industry Upstream Oil & Gas Alone is About 12 Percent of Total Process Industry Spending on Automation

19. ARC’s Forecast for Automation Spending in the Oil & Gas Industry Worldwide Shows Very Strong Growth for the Foreseeable Future (Millions of US Dollars) Automation Spending in the Oil & Gas Industry

20. Automation Spending in the Oil & Gas Industry Oil & Gas Industry is Number One Growth Industry for DCS

21. ABB is the Leading DCS Supplier to the Upstream Oil and Gas Industry

22. Agenda • Oil and Gas Industry Definition & Trends • Size, Scope, and Automation Spending in the Oil & Gas Industry • Automation Suppliers as Service Providers for the Oil & Gas Industry • Summary and Conclusions

23. Why Demand Is Increasing for Service Providers to Serve the Oil & Gas Industry • According to the US Journal of Petroleum Technology, 60 percent of oil and gas industry engineers currently employed are going to retire by 2010. • Large Central Engineering Groups Among Many Major Manufacturers Have Disbanded • Many Groups Have Been Spun Off Into Separate Companies (Bayer Technology Services) • Smaller Number of Personnel Responsible for More Areas of the Plant

24. The People Challenge: Aging Workforce • US Bureau of Labor Statistics • By 2010 more than 25% of working population will reach retirement age • Trend will continue into foreseeable future • Globally – Workers are Getting Older • Largest Group of Workers – over age 45 and will double in next ten years • Fastest Shrinking Age Group of Workers between 35 and 44 – arguably the most productive • Europe is expected to lose 1 million jobs annually for the next 25 to 30 years • Severe shortage of skilled workers and engineers! • Oil & Gas Industry • 50% of its production engineers will reach retirement age by 2010 People Over Age 65 Source: US Census Changing Workforce Demographics from 2000 to 2010 Source: US Bureau of Labor Statistics Exodus of Workers is Reducing Companies’ Ability to Sustain Operational Excellence

25. 25 Loss of People and Knowledge The Degree of Difficulty in Retaining People and Knowledge Replacing People and Knowledge Retaining People and Knowledge It’s Hard to Keep Good People, Even Harder to Replace Them

26. Plants Are Outsourcing More Services to Automation Suppliers ARC User Survey : Who do you Currently Purchase Services From, Today and in Three Years

27. Automation Suppliers’ Service Revenues are Growing Faster than Third Parties Systems Integrators Want to do Projects and Move On

28. Deep Product &ApplicationKnowledge Long-Term Collaborative Partnerships SupplierStrength In Services Increasingly Deep Vertical Industry Expertise Broad Geographic Reach Ability to DriveEnd User Requirements Into Products What Advantages do Automation Suppliers Have Over Third Parties?

29. Automation Suppliers Become MACs: Main Automation Contractors DCSs EPCs Production Management Systems Integrators Instruments Optimization Valves Engineering Safety Systems Customer Supplier MAC Single Point of Responsibility = Lower Cost For End User

30. The MAC Approach Can Result in Project Cost Savings of Up to 30 Percent Main Automation Contractor (MAC) Approach Can Result in Significant Cost Savings To Users Traditional Approach MAC Approach

31. Thank You. For more information, contact the authors at lobrien@arcweb.com , or visit our web pages at www.arcweb.com