The New Oil and Gas Industry Supply Chain Code of Practice

1. The New Oil and Gas Industry Supply Chain Code of Practice ADD TITLE AS APPROPRIATE

2. Supply Chain Code of Practice • Initially developed by a work group established by ILT / PILOT under the Progressing Partnership banner (PPWG) • The Supply Chain CoP is one of over 10 initiatives launched by PILOT and outlines a set of best practice guidelines   • First adopted by the industry in 2002, signatories undertake to work towards full compliance with the Code • Signatories include major purchasers (operators and principal contractors) and suppliers (providers of goods and services)  • The Code is endorsed by PILOT, the Industry Leadership Team and the key Trade Associations • In July 2005 the PPWG SCCOP Work Group was disbanded and replaced with a new Supply Chain Steering Group which reports directly to ILT / PILOT

3. SCCOP Industry Involvement Major Purchasers and Suppliers PILOT Industry Leadership Team Operators Supply Chain Steering Group Supply Chain Steering Group (9) Supply Chain Managers Network (50+) Supply Chain Managers Network Work Group Work Group SCCOPWork Group Work Group Work Group SCCOP Work Group DELIVERY

4. The PILOT 2010 Vision • To make the UKCS the safest place to work in the worldwide oil and gas industry • Production at 3bn BOE per day in 2010 • UKCS capital investment sustained at £3Bn per annum • Prolonged self-sufficiency in Oil & Gas • Supporting up to 100,000 more jobs than there otherwise would have been by 2010 • A 50% increase in oil and gas exports by 2005 • £1 billion per annum additional revenue from new business

5. PILOT Initiatives Wells Share Initiative UK Norway Co-operation Access to Infrastructure CoP Decommissioning Subsea Effectiveness Commercial CoP Stewardship The Fallow Process Technology Step Change in Safety Progressive & Innovative Licensing Supply Chain Efffectiveness Workforce Capacity & Capability Supply Chain CoP

6. Code of Practice Objectives • Increased UKCS Supply Chain competitiveness through improved efficiency and reduced waste • Improve working practices, commercial behaviours and purchaser / supplier relationships • Regular and detailed forecasting of activity levels. • Enhance and simplify the bidding process. • Prompt payment. • Active two-way relationship management.

7. Supply Chain Code of Practice The original Code comprised 6 sections • Commercial Stage - Forecast/Planning all activity up to the point of tender • Commercial Stage – Tendering all activity up to the point of contract negotiations, including elimination of bidders • Commercial Stage - Negotiation agreement of contract terms • Commercial Stage - Implementation and review through the life of the contract and at the end of the contract • Commercial Stage - Monitoring and Evaluation of Code • Implementation and Adoption of the Code … commitment received from 80+ Operators and Major Contractors

8. Supply Chain Code of Practice Code of Practice for Suppliers was developed in 2003 Stage 1 Forecasting and Planning – To provide more effective business cycle planning. Stage 2 Tendering – To reduce the cost of bidding. Stage 3 Negotiations – Cut waste and reduce unnecessary paperwork. Stage 4 Implementation and Review – Getting the job done right. Stage 5 Monitoring and Evaluation of the Code – Assuring process is in place. … commitment received from 300+ suppliers and contractors

9. The Code is endorsed by: PILOT, Industry Leadership Team, Supply Chain Steering Group, Supply Chain Management Network, DTI, EIC, FPAL, IMCA, OCA, UKOOA, WSCA … it’s a real achievement for the Industry For latest information see PILOT Website http://www.pilottaskforce.co.uk/ … it has significant sign-ups already

11. Supply Chain Code of Practice PLAN CONTRACT PERFORM & PAY • New clean and simple format • Signed by CEO and Supply Chain Manager • Simplified structure • New features include • Industry Model ITT’s • “Fair” contracting principles • “Value based” contracting • More efficient Code implementation survey • Drafting party represented all industry groups

12. Supply Chain Code of Practice PLAN CONTRACT PERFORM & PAY • Communication of forward plans to industry • Provide support for Share Fairs • FPAL purchaser profiles • Suppliers to make use of information provided

13. Supply Chain Code of Practice PLAN CONTRACT PERFORM & PAY • Restricting bidders to FPAL registered companies • Eliminate duplication of data by using FPAL • Providing debriefs • Using standard contract forms • Payment in 30 days • Use of industry Model ITT’s

14. Supply Chain Code of Practice THE OPPORTUNITY • IADC analysis of Rig ITT’s undertaken • Highly fragmented approaches evident • Extensive duplication of FPAL data • Patchy use of standard contracts • ITT quality extremely variable • Tender compilation slow and expensive

15. Supply Chain Code of Practice THE SOLUTION • Create a standard ITT structure • Simple, logical organisation • Easy buy-in • Standard documents for those that want to go further • Aimed at ease of production • A quality ITT • A swift offer • A trouble free evaluation

16. Supply Chain Code of Practice ITT Index Commercial Sections Tendering instructions Contractual Sections Technical Sections Guidelines on completion

17. Supply Chain Code of Practice • Templates are clear, simple and pragmatic • Focus is on principle not prescription • Uses industry documents where they exist • Nomenclature is standard • Modular design gives flexibility • Designed to allow substitution

18. Supply Chain Code of Practice • ITT’s are Easier, Faster and Cheaper to issue • Bids are Easier, Faster and Cheaper to return • Simplifies the contracting process • Code recommendations incorporated • Creates a vehicle to introduce better practices • Operators can decide their own scale and pace of adoption • Creates step out opportunities with Well Services, Operational and Construction ITT’s

19. Supply Chain Code of Practice • Model Rig ITT currently available on FPAL website, is now in use and is easy to access …….

20. Supply Chain Code of Practice Well Services suite of Model ITT’s Marine Construction Model ITT Platform services, plant and equipment Model ITT’s • Model Rig ITT currently available on FPAL website and now in use • ITT drafting groups launching Model ITT’s in 2006

21. Supply Chain Code of Practice CODE OF PRACTICE SURVEY METHOD • Easier method of surveying Code adherence • Use of FPAL Type III feedback uses existing industry scheme and little additional effort • Input now verified 3 additional elements

22. Supply Chain Code of Practice PLAN CONTRACT PERFORM & PAY • Include performance Indicators in all significant contracts • Provide and receive FPAL performance feedback via Type 1 and Type 3 mechanisms

23. Supply Chain Code of Practice PLAN CONTRACT PERFORM & PAY • Submit complete and valid invoices • Pay all valid invoices within 30 days • Adopt a prompt payment policy for own suppliers

24. Supply Chain Code of Practice PLAN CONTRACT PERFORM & PAY Why does the Code of Practice matter to Contractors? WSCA 2005 Report Revenue increasing Profitability decreasing The Industry still cannot afford non-value adding costs in Supply Chain Management processes

25. Supply Chain Code of Practice …… work on sign-ups continues Code covers in excess of 80% of UKCS expenditure (on an operated reserve basis)