HAZID Country Issues

8/11/2019 HAZID Country Issues

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COUNTRY ISSUES

CPOI Exper ience of Operating in Province : Level of practical experience of working in the province/country, either by PRE or our

Partners. This can also encompass local experience by another Business Stream.

CP02 Pol itical Stabili ty: The relative stability of the Federal Government andlor local authorities, plus power dependence on key

groups (eg Military) and any subversive insurrection activitylactive tribal rivalries. This should encompass both the host country

and similar problems in bordering countries (eg Azerbaijan, Armenia, Chechnya).

CP03 Securi ty o f Proprie tary Information : The impact of losslleakage of prop'rietary information as a consequence of operating in

certain developing countries, eg China.

CP04 Currency R isk ( vs US$): The impact of any foreign exchange fluctuations relative to US dollar from investment or operating

costs or product sales incurred in either local currency or other leading currencies (eg Yen, Euro, or Sterling). This should take

account of any arrangements in-place to hedge against such risks.

CP05 Fiscal Pol icyITax (etc): The perceived degree of uncertainty associated with unforeseen changes in fiscal policy by host

governments the attendant impact on ongoing business. Due recognition should be taken of initiatives to impose

environmental taxes (eg C 02 n Norway). Account should be taken of any contractual agreements, eg in Production Sharing

Agreements, which protect us from subsequent changes.

CP06 Safety & Securi ty of Personnel: The plans in place, together with the degree of associated costs, for the safety security of

our staff working in third world countries where there is a perceived threat to their well being. This should include separate

consideration where the perceived threat is different at working sites to cities (ej: Colombia).

CP07 Regulatory Environment (Federal & Local): The degree of understanding of the federal regulatorylpermitting requirements

-

plus likely changes - and any additional more localised requirements. This should include the appropriate degree of

understanding of the likely timescales for meeting such requirements their approval by the authorities.

CP08 Local Culture: The uncertainty in impact of differing cultural differences on business performance

-

which may lead to reduced

flexibility in meeting schedule objectives in different parts of the world hence impact costs.


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CP09 EmploymenffLo cal Sourc inq Expecta tions: The impact of expectations of both host governments localised authorities to

optimise sourcing of goods services with local suppliers contractors, ie to help developlgrow their local infrastructure

hence local employment, balanced against our own requirements for eg qualityltechnical integrity and effective contractor

management.

CPIO Infrastructure: The uncertainty in the qualitylreliability of existing local infrastructure, eg in terms of utility supplies, existing

pipelines and local fabrication facilities associated impact on our development. This should also take account of any positive

benefits from our Global Social l nvestment Policy.

C P I I Group R e p u t a t i s The impact of any event that could have a measurable impact on our reputation whether it be with the

financial community (impact on share price), partners (their view of our ability to deliver promises), with host governments (risk

to future business opportunities) or active lobbying from global Non-Governmental Organizations (NGOs), such as Amnesty

International or Greenpeace.

Given our Brand nam e is key to our success effective understanding of reputational r isks

are vital; even a relatively small issue can adversely affect our reputation with very dam aging cons equen ces for the

whole organisation

CP12 Eth ica l Conduc t: The impact of any issues, eg inappropriate business practiceslconduct, or local Human Rights abuse which

is at odds with our Ethical leadership values.

CP13 ExpropriationIRevenue Security : The impact of uncertainty in either asset expropriation or risk of disruption to production (

hence revenue) from terrorist activities (eg blowing-up export pipelines). This should also include risk to not receiving payment

for deliveries made eg where there is significant dependence of product uptake in third world countries.


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MARKETSICOMMERCIAL CONTEXT

EPOI Partner Aliqnment: The impact of lack of alignment between each Partner in joint venture developments the subsequent

impact on pace of development. This should also take account of views of differing Partner priorities with other competing

opportunities each may have also their own objectives in terms of optimising utilisation of their own export infrastructure

systems.

EP02 Partner Fundinq Constrain ts: The uncertainty in the ability of small Partners state-owned enterprises to effectively fund

their share of agreed developments (eg as per our experiences in Colombia). Diffe ring

funding

priorities y other major

Operators (such as Shell) sh ou ld be covere d

y

E01.

EP03 Deve lopment of Produc t Markets: The basis for Products marketing including degree of uncertainty in global/local macro-

economic growths and how this could impact product sales predicated on specific market penetrations. This should include

taking account of any long-term supply contracts plus any cross-Stream supply issues.

EP04 Sou rces of Value Complexitv : The degree of dependence on business success of linked downstream projects proceeding

-

eg dependence of Gas projects on downstream LNG, Power Generation and/or Petrochemical investments. Recognition of

advantageous use of C02 for EOR and optimisation of heat power for cross business or 3rd party usage. Key here is to

ensure

OptionValue gets effectively captured.

(There is some sim ilarity here to e g Opportunities within TO1 where there c oul d be a dditional value from further

Exploration success in eg Deeper Reservoir Horizons o r n TO2 from s ubs equ ent Secon dary recovery.)

EP05 Feedstock & Produc t Values: The uncertainty in net impact on NPV of variation in eg oil price fluctuations in different

countries from our established Mid-cycle price scenario (eg our high bottom line leverage to higher oil prices in the USA vis-a-

vis eg Middle East). Similarly for Gas Power and Downstream developments the uncertainty in Feedstock/Product value

differential assumptions on NPV.

EP06 Produc t Differenti als: The uncertainty in impact of product quality discounts/premiums on reference case assumptions

including anyimpact of local volume discounts as a consequence of significant increases in local supply market.


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EP07 Mana ging Exec utive Mngt Peformance Expectations: The uncertainty in ability of our Asset Development Team to manage

Executive Management Peformance expectations and hence to deliv reference case promises due to eg, resource limitations

and/or inappropriate functional mix/skills/competencies (including the uncertainty

in

ability to effectively communicate these

limitations early enough during project development) including ability to effectively develop appropriate quality external

relationships needed to deliver performance.

EP08 Bran d Issues: The uncertainty in value gained by optimising the positive strength of our Brand Image ie any cross-stream

value through real focus on the PRE name rather than a narrower Project -focused approach.

EP09 Comp etito r threats t o economic su ccess : The uncertainty in the overall asset life/NPV as a consequence of either active

competitive production/expansions etc and/or significant technological enhancements which render our process relatively

uncompetitive.

EPIO Feedstoc k Avai labi lityl Produ ct Offt ake Agreements: The impact of uncertainty in sources of feedstock supply

(

attendant

implications for Feedstock prices) uncertainty in assumptions for contractual take-up of products (particularly in developing

countries).

EP11 Term s Uncertain ty: The uncertainty in commercial terms, whether it be in terms of Production Sharing Agreements (eg Price

fluctuation clauses, Contract Term, and/or Royalty payments), access over host third party facilities, or tariffs to third party

export infrastructure.


5/11

HEALTH, SAFETY

&

ENVIRONMENT

HPOI Safety o f Design: The uncertainty in current understanding of the impact of any safety related design issues, eg the impact

from very high pressure operations, not currently fully evaluated. Examples could include very low probabil ity risk of

catastrophic equipment failure (eg Piper A ) .

HP02 Emissions/Spil ls: The uncertainty in impact of any spilllunexpected emission on business outcome (albeit of very low

probability). Examples could include impact of eg spill in Deepwater GOM which impacted the business opportunity at

maximum cost exposure (including the associated Impact of cost of clean-up).

HP03 Envi ronm enta l Sens itiv ities: Covers the impact of expectations of local communities in respect of their local environment

(including those concerns which relate to operations causing eg seismic instability). Also includes the uncertainty of impact of

environmental pressure groups such as Greenpeace leading to eg schedule related impacts.

HP04 Waste Management ( eg Dr il l cuttings) : The uncertainty in current understanding of the impact of any subsequent further

strengthening of our Green Agenda & subsequent impact on business outcome.

HP05 Dif fer inq Par tner Standards: The uncertainty in impact of differing Partner philosophies to our HSE policies & the potential

schedule related impacts plus any additional PRE carry costs .

HP06 Hea lth Sens itiv ities: Covers the impact of all types of health risks, including location-specific stress, increased mobilityltravel

etc, associated with our evolving working environment, and its potential impact on individual projects.

HP07 Con struct ion Safety: The uncertainty in current understanding of the impact of issues associated with working on a

construction site (incl contractor fabrication yard or offshore installation and hook-up). This will also cover the potentia l impact

on operations of modifications and expansions to existing plant. E.g. Heavy lifts over live piperacks, pressure testing of new

equipment systems, vehicle accidents.


6/11

TECHNICAL CHALLENGE

TPOI Subsur face Delineat ionlComplexity: The impact of uncertainty in subsurface volumes, delineation/complexity the

associated impact on hydrocarbons-in-place (STOIP) reserves size

(

the attendant impact of this uncertainty on NPV). (If

Teams use this Factor to capture Uncertainty in Recoverable Reserves then any additional lmpact from

TO2 should not be

skewed )

In particular circums tances there cou ld be merit in utilising either TO1 or TO2 (or possib ly E04) to help illuminate

risked lmpact of potential add itional value from additional Explorat ion success in, eg Deeper Horizons. In such

circumstances the lmpact on NPV needs to be net of additional costs to capture such incremental value. It is

important from a Real Options perspective that such opportun ities can

be appropriately illuminated from the ALERT process.

TP02 Recovery Factor: The impact of uncertainty in Recovery Factor the associated impact of uncertainty in recoverable

reserves.

(Similarly to comments in TO1 above it is important that any opportunities to subsequently capture potential

incremental recovery volumes, eg by retrofitting secondary recovery plant on pre-installed space are illuminated

including the impact o f that subsequent incremental re trofit co sts on incrementa l NPV.)

TP03 GORlGCRlWater ProductionlF luid Injection : The impact of uncertainty in GOR and/or GCR or water production or fluid

injection requirements the associated impact on Facilities Processing requirements, eg Gas Handling/compression

associated Power Generation requirements.

TP04 Reservoi r Fluids Characteristics: The uncertainty in knowledge of fluid characteristics (eg H2S but particularly C0 2 content

and it s environmental tax implications) across the reservoir the associated impact on eg flowlines/facilities/wells

design/metallurgy requirement for additional gas treatment facilities.

TP05 Well Product iv ity: The uncertainty in impact of wells productivity the associated uncertainty in both the number of production

wells and injection wells (including the impact of any changes in assumed ratios). This should take account of both initial well-

flows plus a;;sumptions in rate of fall-off of individual wells.


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TPO TerrainlTopographvlWater

Depth: The uncertainty associated with understanding of the terrain, topography or water depth in

which the development is to be undertaken and the impacts these may have on the development concept eg current limitations

with respect to Riser technology in deep water developments).

TP 7

SeismologvlSoillMet-ocean Conditions: The uncertainty associated with local seismology, soil conditions or met-ocean

conditions and the impact these may have on the development concept.

TP 8

Facilities Concept choicelstretch incl Energy Efficiencv):

The uncertainty associated with the reference case assumptions

made in the choice of Facilities concept, including degree of real experiencelknow how of the technology plus the assumed

degree of stretch involved. Particular focus on optimising energy efficiency through best use of technology eg onshore power

generation).

TP 9 Drilling Complexity:

The uncertainty associated with the degree of complexity pf wells eg degree of step-out, length of

horizontal sections, proximity of salt-domeslshallow-gas etc) and the assumptions made in reference case in terms of

technology know howlstretch, well design, learning, side tracks plus weatherloperational downtime.

TPIO Completions Complexity:

The uncertainty associated with the complexity of the completions philosophy and the assumptions

made in reference case in terms of technology know howlstretch, completions design, learning, tree-running plus

weatherloperational downtime.

TPI

Mid-StreamlExport: The uncertainty in respect of Export system type andlor size etc), the degree of stretch involved eg

arctic pipelines etc), understanding of terrain, and the understanding of any revolutionary high grade steel and/or welding

techniques assumed.


8/11

PROJECT DEFINITION & EXECUTION COMPLEXITY

XPOl Ava ila bil ity o f Kev Skill s: The uncertainty associated with the likely availability and appropriate skills

competencieslexperience of key OperatorIOwner staff both for the overall development and in the construction locality.

XP02 Ear ly Team Alig nme nt (i ncl. Pa rtne r Staff): The uncertainty in ability to build early cross-functional team alignment of Project

Objectives etc including alignment of seconded Partner staff to be able to effectively influence

BU

Mngt/Partners/Operators with

detailed scopi ngldefinitionlexecu ion phi osop hies

(Differs from

C 1

with relates to broader partner alignment.)

XP03 Modific ationlRevamp content: The uncertainty associated with the degree of ModificationIRevamp content associated with

the development and assumptions made in terms of provisionlreplacement of existing plant materia ls (eg status of

underground/corroded pipe work, electricallinstrumentation, etc). This needs to include understanding of interactions with

associated shutdownslturnarounds. It also needs understanding in uncertainty in quality of as-built information on existing

plants basis for how work within existing plants will be scheduled (given permitting constraints).

XP04 Schedulinn Basis Risk to Fir st Production): The overall uncertainty associated with the scheduling basis norms used to

model the pace of development including degree of stretch

-

both in terms of reference case sanction date, project execution

duration, and overall cycle time to first beneficial production (ie DiscoverylStart of Appraise to Start of Operate). For Gas

projects inability to meet contractual gas delivery dates can result in significant penalty payments lead to significant

erosion in value.

It should be borne in mind that there are a raft of schedule related factors (eg Partner alignm ent) already captured

hence careful consideratio n is required to minim ise double dipping .


9/11

XP 5 Est imating Basis Risk: The overall uncertainty with the cost estimating basis for the development

(Facilities/wells/export/special

infrastructure costs - eg Security) including degree of stretch in terms of reference case (eg

appropriateness of key benchmarkslnorms for major cost drivers).

I t should be borne

in

mind that there are a raf t of capital cost relat ed actors already captured (eg Facilities

conceptlExport system/Drilling complexi ty etc) hence careful consideration

is

requi red to mini mise double

dipping

(eg limit as appropriate

in this

category to rat esho rms uncertainties rather than scope-related uncertainties

cons ider ed elsewhere).

XP 6

Work FrontsIKey Interfaces: The uncertainty in the impact of key development interfaces (eg Sub-

surfaceNVellslFacilities1Export

including

contractorlvendorlrelationship

interfaces) the associated impact on cost schedule

assumptions.

XP 7 Quali ty of Design BasisIDefin ition: The uncertainty in the definitionlquality of design basis of reference case current Front

End Loading status.

XP 8 Remoteness Access Lo~istics omplexity: The uncertainty associated with remoteness eg, difficulty in delivering equipment

materials to construction site, including status of understanding of roadlrail infrastructure customs clearance procedures

plus site accornmodationlcatering needs.

XP 9 Climatic Weather Windows: The uncertainty associated with climatic weather windows (eg hurricanes, ice, abnormal waves,

tropical storms, shallow water etc) their impact on schedule assumptions (both in terms of direct constructionlinstallation

activities or in transportation assumptions to construction site).

XPlO

Contracto rIVender Sourc ing: The uncertainty associated with sourcing of goods services plus the quality of contractors

management including the market-related activity impact on availabili tylpricing of same and assumptions made in terms of

internationalllocal contents. This should also consider implications from eg local trade union andlor alliancing agreements.

XP11 Rigllnstln. Vessels Availabili ty: The uncertainty associated with availability of appropriate duty drill rigslinstallation barges

and assumptions made in terms of market-related pricing for these.


10/11

XP 2 Labour Market: The uncertainty associated with both the availability, competency, and productivity of local labour pools their

possible impacts on cost schedule assumptions.

XP 3 Project Strategy Development: The uncertainty associated with the development structure of the Project Strategy the

associated Contracting strategy.


11/11

OPERABlLlTYlPRODUCTlON RAM P-U P

YPOI Avail abil ity of Exp erienced Operations Staff: The uncertainty in the availability ( sourcing of) experienced Operations

Maintenance staff.

YP02 Operating Cost Risk: The uncertainty in the estimates of operating costs, including key

assumptionslratesloperating

efficiencies made.

YP03 Systems Ava ilab ilit y eg Plan tlExport/Wells ~: he uncertainty in the availability of Wells plus third party host facilities andlor

export systems their potential impact on production forecasts.

YP04 Leve l of New Techno loq y Equipment Items: The uncertainty of New Technology equipment installed impacting production

forecasts.

YP05 Spa rin g Philosophy Crit ical I tem sk The uncertainty of the sparing philosophy of critical items, ie those utilising significant

space, such as power generators andlor compressors and potential impact on overall availability hence production forecasts.

YP06 Operabil ity o f Design: The uncertainty of the design basis impacting overall availability and hence production forecasts.

YP07 Technica l Integri ty inc l. QAIQCJ: The uncertainty of the technical integrity philosophy impacting overall reliabilitylavailability

and hence production forecasts.

YP08 Dec omm iss ion inq Phi losophy: The uncertainty in the decommissioning philosophy including possible future changes eg

dictated by regulatory needs or changes in company philosophy) impacting overall economics.

YP09 Planned Rate o f Ramp-up: The uncertainty in the assumed rate of ramp-up in production, and the associated impact on initial

Production Forecasts.

HAZID Country Issues

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