ultra-deepwater production and need for shuttle tankers in the gulf of mexico

Ultra-Deepwater Production and Need forShuttle Tankers in the Gulf of Mexico

International Maritime Associates, Inc. — Washington, DC, USA — Tel: 202-333-8501Fax: 202-333-8504 — E-mail: imaassoc@msn.com — Website: www.imastudies.com

Presentation by Jim McCaul at the 6th Annual Deepwater Technologies & Development Conference

September 11, 2001

Ultra-Deepwater Gulf of Mexico

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Ultra-Deepwater Leases in the Gulf of Mexico

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Ultra-Deepwater Sites Producing or Being Developed in the Gulf of Mexico

Crazy Horsebeing developed

Atlantisbeing developed

Mad Dogbeing developed

Devil's Towerbeing developed

Na Kikabeing developed

Horn Mt.being developed

Hoover/Dianaproducing

Mensaproducing

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Priority Development Sites inUltra-Deepwater

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Area

TotalNumber of

Priority Sites Sites Now inDevelopment

Sites Drilledor With

Drill Plan

UndrilledPriority

Sites

Alaminos Canyon 25 0 7 18

Amery Terrace 2 0 0 2

Atwater Valley 23 0 10 13

DeSoto Canyon 5 0 0 5

Garden Banks 3 0 2 1

Green Canyon 15 2 9 4

Keathley Canyon 26 0 4 22

Mississippi Canyon 36 4 22 10

Walker Ridge 35 0 11 24

Total 170 6 65 99

Site contains at least one block for whichthe operator bid $1 million or more

Deepwater Oil and Gas Pipelinesin the Gulf of Mexico

Source: MMS

Pipeline Unfriendly Area in theGulf of Mexico

Area of VeryIrregular Seabed

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Potential Infrastructure Connections forUltra-Deepwater Fields

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

AtlantisMad Dog

Crazy Horse

Na Kika

Horn Mt.

Hoover/Diana

BrutusGenesisAuger

Mars Ursa

Distance from Infrastructure and Seabed Characteristics of Ultra-Deepwater Development Sites

(excludes five host sites)

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

13

9

42

17

25

16

22 22

1718

0

10

20

30

Smooth Seabed

Rough Seabed

Miles from Infrastructure

No.

of

Site

s

Segmentation of Development Sites by Distance toInfrastructure and Seabed Conditions

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Layout of the 108,000 dwt Shuttle TankerNordic Savonita

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Characteristics of Four RecentlyDelivered Shuttle Tankers

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Capex for Recent Shuttle Tankers

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Jones Act Restrictions

• U.S. law requires that ships used in domestic trade be built in the U.S., crewed by U.S. citizens and owned by U.S. citizens

• The floating production unit is a point on the U.S. OCS and transportation from that point to another point in the U.S. is domestic trade

• As a result, shuttle tankers built for use in the Gulf of Mexico will be at least twice the international price

U.S. Shipbuilders Capable of Building Shuttle Tankers

Primary Contenders• Avondale — could be tied up with Navy amphibious ships and Alaskan

tankers• NASSCO — but busy with Alaskan tankers, several ro/ro ships and a

possible order for a new class of 12 Navy ships• Kvaerner Philadelphia — new yard, good facilities but inexperienced• Alabama Shipyard — tied to Samsung and Conoco for shuttle tankers• Bender/Tampa — long shot

Could, But Not Interested• Ingalls — Navy shipbuilding the core business• Newport News — ditto

Refinery Restrictions

• Most refineries on the Gulf Coast are limited to receiving ships with maximum draft of 40 feet

• Given this constraint, a shuttle tanker with 550,000 to 700,000 barrels can be employed in the trade

• A larger tanker could be used if LOOP were the discharge point — but designing a ship for LOOP would limit the flexibility of using the ship

Characteristics of the Four FieldsSelected for Shuttle Tanker vs. Pipeline

Cost Comparison

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Transport Options from the Four Fieldsto the Citgo Refinery in Lake Charles

• Option 1 — Direct shuttle tanker transport

• Option 2 — Shuttle tanker via LOOP

• Option 3 — Delivery by pipeline via existing infrastructure

Option 1 — Direct Shuttle Tanker Transport to the Citgo Refinery in Lake Charles

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

GB 949

GC 845

WR 633

AT 113

Citgo Refinery

Shuttle Tanker

Option 2 — Shuttle Tanker Via LOOP to the Citgo Refinery in Lake Charles

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Option 3 — Delivery by Pipeline Via Existing Infrastructure to the Citgo Refinery

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

GB 949

GC 845

WR 633

AT 113

Ursa

GenesisAuger

Clovelly

Citgo Refinery

Existing Pipeline

New Pipeline

Comparative Transport Cost fromAtwater Valley 113 to Lake Charles Via

Pipeline and Shuttle Tanker

$0.59

$0.79

$0.68

$0.60

$0.75

$0.54 $0.52

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00 - - New Pipeline - - - - - Shuttle Tanker - - -

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

($ in net present value cost per barrel)

Breakeven Distance to InfrastructureDepends On

• Seabed terrain — rough or smooth

• Discounts that can be negotiated on connecting pipeline tariffs

• Shuttle tanker capex

• Cost of capital

Breakeven Distance from Infrastructure Assuming(1) a 60% Discount on Connecting Pipeline Tariff and

(2) Shuttle Tanker Capex of $105 Million

Miles to Infrastructure

PV

Lif

e of

Fie

ld T

rans

por t

Co s

t( $

pe r

ba r

r el)

0 10 20 30 40 50 60 70 80 90 100$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Pipeline

Shuttle Tanker

RS

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Breakeven Distance from Infrastructure Assuming(1) a 60% Discount on Connecting Pipeline Tariff and

(2) Shuttle Tanker Capex of $125 Million

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Miles to Infrastructure

PV

Lif

e of

Fie

ld T

rans

por t

Co s

t( $

pe r

ba r

r el)

0 10 20 30 40 50 60 70 80 90 100$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Pipeline

Shuttle Tanker

RS

Comparison of Shuttle Tanker Financing Options

Source: IMA, Shuttle Tankers Required in the Gulf of Mexico Through 2010, Spring 2001

Option

Direct Purchase: Field operatororders shuttle tanker(s) for itsaccount, utilizing its own capitalresources

Purchase by Partnership: Fieldoperators form a partnership tobuy and operate shuttle tankers,similar to MSRC or LOOP

Long-term Charter: Fieldoperator gives long-term charterto ship operator, who in turncontracts for shuttle tanker(s)

Contracts of Affreightment:Ship operator gets long-term con-tract(s) of affreightment from oneor several field operators andleverages the COA to obtainfinancing for building shuttletankers

Title XI Guarantee: MarAdguarantees the financing to buildshuttle tankers, enabling the ship-owner to obtain 25-yr. financingat low interest by investing12½% equity