Ichthys LNG, Australia

LNG Value Chain- a Canadian Contractors perspective…

Ichthys LNG, Australia

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Long History, Strong Legacy

Founded in 1911 in Canada

Expanded internationally in 1921

Became public in 1986 trading on

Toronto Stock Exchange

SNC & Lavalin merge- 1991

Acquired Kentz in Aug 2014

Founded in 1919 in Ireland

Expanded internationally in 1970

Became public in 2008 trading on the

London Stock Exchange

Acquired Valerus in Jan 2014, provider of

gas processing, compression and

production solutions

Presence in over 50 countries, 45,000 employees, providing EPC & EPCM Services

to clients in Oil & Gas, M&M, Power and Infrastructure markets

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Americas Africa Europe Middle East and Caspian Far East and Russia Australasia

Our Global Reach

Nowhere too cold, too hot, or remote..

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Qatar

Exxon/Rosneft

Sakhalin

PNG

Australia

Cold climate projects

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Exxon Neftegas Limited Sakhalin 1-OPF, Chayvo,

Crude Export Terminal &

Odoptu EPF

Sakhalin 2-LUN-A Commissioning of the Sakhalin Energy Investment Company (SEIC) offshore platform

And warmer climes....

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Gorgon, Pearl & Ichthys

Regasification terminals

Canaport -New Brunswick

Rabaska Quebec

and leave not a trace left behind..

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Decommissioning & Reclamation of

Polaris Mine, Little Cornwallis Island,

Nunavut, Canada

Clean-up of Radar Station (Baffin

Island) Cape Dyer, Nunavut, Canada

LNG Market observations

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Odoptu Field in north eastern Sakhalin

Market overview

Tight until 2017 until all the 94Mtpa of capacity under construction is on

stream.

Developers are looking at expansions & New Build - Arctic to the Tropics

488Mtpa of new supply projects under development, - competing to serve a

growing demand of some 175Mtpa by 2025 (who are the Losers?)

North American exports are unlikely to be a complete solution

Costs need to be controlled since the growing demand is in price sensitive

markets.

$40/barrel?

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Our challenges…

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• Demand – Supply Equilibrium

• Exploration in Frontier locations

• Geo-Political friction -Security of Supply

• Greater environmental ( & safety ) challenges

• Cost & Schedule Predictability

• Technological – drilling, shipping (Artic)

• PR & Positive Legacy

Cost Breakdown

1% 7%

3%

29%

10%

19%

31%

Cost Breakdown by Plant Area

Site Preparation

Gas Treatment

Fractionation

Liquefaction

Refrigeration

Utilities

Offsites (Storage,Jetty, Flare)

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• Project Scope

• Project Complexity

• Location

• Equipment & Materials

• Engineering and Project Management

• Contractor Margin

• Owner’s Costs

• Currency Exchange Risk

9%

8%

29%

19%

35%

Cost Breakdown by Category

Owner's Costs

Engineering &ProjectManagementEquipment

Balk Materials

Construction

Cost Drivers

Mega Projects cost escalation

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EY* Findings aligned with 2011 IPA study -70% of upstream megaprojects

confronted cost overruns or delays, a deterioration from 2003, when 50% were

either late or over budget

EY also evaluated a sample comprised of the largest 20 post-FID projects.

65% of these projects were confronting cost overruns with an average escalation

of 23% from the approved FID budget. Over 78% exceeded Base Line schedule

• Identified 5 fundamental causes of overruns and delays:

# Portfolio and project commercial context

# Project development

# Project delivery

# Regulatory challenges

# Geopolitical challenges

*Source: EY Report Aug 2014

We are all in this together…

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65% Projects over Budget 78% Over schedule

Future Cost Reductions?

• Commercial Model Review

• New EPC Contractors

• Challenge the Major Vendors – Competition

• Joint Developments / Shared Services

• Get the Basics right

• One Team Concept

– Profit related to Outcomes

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the future? Collaborative project teams

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• Provide strong leadership

• Engage your stakeholders

• Set clear, achievable goals

- environmental & safety excellence,

- reliability, operating cost, capital cost.

• Communicate the messages – engage everyone,

celebrate success along the way

And in Conclusion…..

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• Good PR & Stakeholder Management vital

• Speed to Market for new LNG facilities is both a

challenge and an Opportunity

• Back to basics…

• Positive, Predictable outcomes are essential

• One Team Concept –Profit related to Outcomes?

Questions….

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Contact details:

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John J. Jeffers Group Development Director Kentz Engineers & Constructor Member of the SNC - Lavalin Group P.O. Box 34826, Abu Dhabi United Arab Emirates T: +971 2 4013200 F:+971 2 5591202 M: +971 56 6691085

john.jeffers@kentz.com