11-04-05 4 1.1 Risk and Risk Sharing 1. Challenges
11-04-05 5 1.1 Risk & Risk Sharing (1) NET EARNINGS19942003 USD in Billions 10 largest oil companies 10 largest E&C companies 23.2 75.7 Source : Bloomberg 2003 0.8-0.3
11-04-05 6 GROWING IMBALANCE BETWEEN OIL AND E&C COMPANIES SHAREHOLDERS‘ EQUITY19942003 USD in Billions 10 largest oil companies 10 largest E&C companies 235 423 1.1 Risk & Risk Sharing (2) Source : Bloomberg 2003 8 9
11-04-05 7 PROJECTS GROWING FASTER THAN E&C COMPANIES‘ SIZE At Technip, the 5 largest contracts in backlog (Group share) amounted to: 10 years ago: € 1.6 Billion 5 years ago : € 2.1 Billion 2003: € 2.9 Billion Average size of the 5 largest contracts is now close to Euro 600 million per contract; equivalent to about 1/3 of the Technip Group’s equity. 1.1 Risk & Risk Sharing (3) MEGA PROJECTS = HIGHER RISKS BUT are those really FAIRLY SHARED?
11-04-05 8 Find & Development cost per BARREL : 1992 - 2000 fluctutating between 4.2 to 5.1 USD/Barrel 2001 - 2003 suddenly going up from 4.6 to 7.1 USD/Barrel (oops!) Source : ABN/AMRO To reduce project cost, companies are inclined to tighten terms and conditions on projects. E&C contractors are forced to accept: Lower margins for higher risks Heavier liabilities Negative cash flows Lower insurance coverage Paradoxically, such an approach is more likely to lead to higher costs on projects (+ a few casualties among the E&C companies). In turn E&C companies wil try to transfer parts of the above risks towards their suppliers and subcontractors, normaly with the same end results and the claim culture is born. 1.1 Risk & Risk Sharing (4)
11-04-05 9 1.2 Globalization 1. Challenges
11-04-05 10 E&C companies have been transferred from local engineering outfits into large global companies (Technip from 6.000 to 19.000 people in last 5 years). Ongoing reducing margins and pressure on project budgets has forced the E&C contractors and their suppliers to find low cost labor and hardware. Significant investments needed to upgrade low/moderate cost engineering centers (requires about 10 years). Hardware : value for money ! Tremendous effort needed to maintain quality and ensure project schedules when purchasing in low cost countries. Potential danger of loosing competences in home office engineering centers by outsourcing design & engineering work. More and more difficult to find skilled, well trained engineering staff in Western Europe. Engineering is not sexy! Some vendors are technically preferred (single source) by one company but blacklisted by another for the same application. This is hampering efficient global procurement and competitive bidding. 1.2 Globalization (1)
11-04-05 11 USA 55-65 €/h Northern Europe 55-75 €/h Southern Europe 30-45 €/h SE Asia 18-25 €/h India 15-20 €/h (1 € = 1.30 $) 1.2 Globalization (2)
11-04-05 12 1.3 Information Technology 1. Challenges
11-04-05 13 1.3 Information Technology (1) Investments in IT tools are high : 70-80 million Euros for the Technip Group on a yearly basis. Selected IT tools of (engineering) companies are embedded in their work processes. Software suppliers are launching new programs and versions irrespective if there is a need or not (Windows 95, 98, 2000, SE, XP). Technip Group went from W’95 directly to XP. Same is applicable for engineering tools. Clients/owners are insisting on their own tools during project execution, resulting in inefficiencies, loss of data and extra costs on those project(s). You can think about Smartplant P&ID versus Autocad or PDS versus PDMS etc. E&C contractors on their turn are forcing vendors to use their procurement tools resulting in the same. The increase in data transfer and handling is asymptotic, especially the data transfer by email :
11-04-05 14 1.3 Information Technology (2) Electronic Mail: The Numbers!!! 18,000 Users in the Technip Group 3,100 Email Accounts in Technip Paris Office. 2,800 Individual Email Accounts 300 Project Email Accounts About 800,000 emails per Day in the Group About 250,000 Internet Emails per Day to the Group, including: 35,000 Spams and 18,000 virus infected emails (blocked by our tools)
11-04-05 15 1.3 Information Technology (3) 1 Bite= 1 Character (0 or 1) 1 Byte= 8 Bits 1 Kilo Byte (KB)=1,024 Bytes 1 Mega Byte (MB)=1,024 KB 1 Giga Byte (GB)=1,024 MB 1 Page Email (Text)=5 KB 1 Message of 1 MB=200 Pages = 2.5 cm 1 Picture=Few KB to > 1 MB 1 Email Account of 1 GB=200,000 Pages =25 m =1/12 Eiffel Tower! Unit of Measures…
11-04-05 16 Electronic Mail: The Numbers!!! For Information, Technip Group currently has: 120 Email Accounts over 1Giga Bytes 450 Email Accounts over 500 Mega Bytes 1,250 Email Accounts over 200 Mega Bytes 2,300 Email Accounts over 50 Mega Bytes Total Individual Accounts Volume= 750 GB Total Project Accounts Volume= 1500 GB This represents a pile of paper of nearly 60 km high and please note this is without the fact most of this paper is printed in multiple number of copies. 1.3 Information Technology (4)
11-04-05 17 1.3 Information Technology (5) THISOR THIS ?
11-04-05 18 Easy to loose track on the ongoing developments : what is not possible today can be done tomorrow. Required education levels engineering staff are going up (i.e Red lining on document control). People are overwhelmed with information E-mail culture without clear questions/organization, Server capacity of today is too small for tomorrow. E&C companies are fully dependent on IT tools. Standard E&C formats are not excepted by owners. IT tools do not save one single engineering hour, although reducing inconsistencies. IT tools are capital intensive i.e. PDS 3D, FEM analysis, CFD & EFD, E-procurement, ERP Against the IT philosophy, clients and authorities are asking more and more paper and TECHNIP transfers this message to the suppliers 1.3 Information Technology (6)
11-04-05 19 1.4 Rules and regulations 1. Challenges
11-04-05 20 1.4 Rules, Regulations & Requirements (1) Pressure Equipment Directive (PED) CE marking Safety Integrity Level (SIL) Atmosphere Explosive (ATEX 137 & ATEX 100a) Local Authorities : TUEV/STOOMWEZEN/APAVE…… NOBO’s! HAZARD reports HAZOP reports ISO 9001 ISO 14001 OSHA 18001 And ………………………..
11-04-05 21 1.4 Rules, Regulations & Requirements (2) Specific client requirements and of course all different. Environmental requirements. Local (authority requirements) ALL ABOVE RESULTING IN : –An Inspection & Test Plan for a compressor these days consist of 100 pages. –Significant increase in size (data) of requisitions containing contradictive information. –Vendors are not capable to read everything in the proposal phase. –Increased prices due to risk coverage is the result. –Changes to the vendor standard products increases the error rate. BUT HAS HARDLY ANY EFFECT ON THE PLANT DESIGN (HARDWARE) ITSELF.
11-04-05 23 1.5 Innovations & Developments (1) This is typically accepted as an innovation:
11-04-05 24 1.5 Innovations & Developments (2) This is typically NOT accepted as an innovation:
11-04-05 25 1.5 Innovations & Developments (3) Neither is this one : 80" P10004A-DA10-H
11-04-05 26 Type of costsReference Plant(80’s): 600 kta Mega-Plant (2004): 1000+ kta Energy input8000 kWh per ton of Product 5300 kWh per ton of Product Product lossesLess than 1%Less than 0.25% CO2 emissions1550 kg per ton of product 790 kg per ton of product Operators7 per shift Also the silent Reduction in OPERATING COST for Ethylene Production is seen as “normal” and not as an innovative design 1.5 Innovations & Developments (4)
11-04-05 27 2. Technip’s Response 2.1 Risk and Risk Sharing 2.2 Globalization 2.3 Information Technology Tools 2.4 Rules and regulations 2.5 Technology & Innovations
11-04-05 28 2.1 Risk & Risk Sharing (1) What is needed to restore a more balanced relationship between plant owners/Clients and E&C contractors? A new Behavior? –Limit Lump Sum contracts to well-defined scope end technologies. –Allocate risks/costs to the right party. –Let business people run the show (Rather then lawyers) –…and provide them some give-and-take authority. –Focus on the long term partnerships Contractual Terms –Provide the E&C contractor a neutral, if not positive cash flow. –In turn E&C contractor shall do the same to their suppliers. –Payments in multi-currencies in line with contractor’s cost structure. Or in other words : Plant owners to re-establish an appropriate risk-award balance for their contractors and actually SHARE risks in order to provide sustainable profits for all participants in the engineering chain.
11-04-05 29 Each project is evaluated on its own merits No market share or asset utilisation target supersedes this rule TENDER Cost Estimation, Legal & Financial Review Management Authorization to Tender (ATT) BID Cost, Legal & Financial Update Management Authorization to Commit (ATC) AWARD Ensure Appropriate Risk/Reward Achieved on Each Contract 2.1 Risk & Risk Sharing (2)
11-04-05 30 2.2 Globalization Multi Office project executions are very well possible today by means of IT tools, but actual cost savings shall not be over estimated. By means of global networks on all engineering levels and IT tools (databases via Lotus Notes, red-lining) this can be managed. (Expensive) investments on IT tools are an absolute must as well as the definition of one set of company standards and work processes. This is achieved via the Global Engineering & Construction Council within the Technip group. By global procurement and lumping of project volumes, price discounts can be achieved. A global procurement organization is a must for today's E&C contractor in order to obtain best prices and buy goods as per the project currency. Vendor lists in case of LSTK contracts shall not be restricted in order to obtain fair & global competition.
11-04-05 31 GLOBAL NETWORK OF ENGINEERING CENTERS Bogota Caracas Abu Dhabi Chennai Bangkok 170 300 1,080 690 160 Shanghai 520 Moderate cost centres provide enhanced competitiveness on projects Staff by Location Aberdeen + Oslo 2,430 Rome 1,120 Zoetermeer + Düsseldorf 580 Kuala- Lumpur 960 Rio 1,520 Houston 2,170 PARIS 3,380 A powerful tool to: Manage fluctuating workloads Mitigate currency exposure
11-04-05 32 2.3 Information Technology Control of project data an absolute must. Sharing of data via controlled databases only instead of sending i.e. 20 MB emails to 20 people. Email filling is difficult and expensive, while databases can be maintained after the correct instructions are provided. Also security aspects (access rights can be easily handled )are covered. Companies shall not interfere in each others’ working process, except when it has added value for both parties and on mutual agreed basis only. Cost involved shall be recognized. Exchange of data via a predefined protocols/forms during the project life cycle is an absolute must. It is our vision this shall be one global standard. How companies enter or extract data shall be up to them. Better strategic tool development a must. Better communication between software suppliers and E&C contractors (wants & needs) shall be established. Difficult to share I.T. developments as competition between E&C contractors and competition between software suppliers will remain.
11-04-05 33 2.4 Rules, Regulations & Quality Requirements Limit the adoption of more rules and regulations. The positive affect of the old ones is still subject to debate….. Clients/Plant owners to accept E&C and equipment suppliers standards instead of imposing their own. It safes money for all participants in the chain when doing so. Authority and HSE requirements are of course an obligation for all parties involved. Of course shall each plant be safe, ensure health of all involved and have as less as possible impact on the environment. Generating tons of additional paper will not lead to the desired results. Technip promotes besides modern tools the traditional working processes like combined P&ID reviews, combined HAZOP studies, combined Model reviews. Training and education for all involved shall secure a safe plant design. Involvement of notified bodies has not increased safety either quality, but early involvement a must to avoid surprises later on by opinion engineering. In order to achieve the desired quality level of goods, ordered with low cost suppliers, the quality control need proper attention from both expediting and quality control at the supplier premises. This is achieved by the Technip Group by using expediting and inspection power available within the group at the locations needed. The EPC.business.com tool is used for this.
11-04-05 34 2.5 Technology & Innovations Technology is a differentiator for the Technip Group. Technology developments are centrally coordinated outside the Business Units, however with input from the BPU w.r.t. needs and wishes. Technology Budgets available in each operating centers but Group wise coordinated based on market need/trends. Technology Manager assigned and responsible for local developments. Clients to recognize innovations and realize the latest technology is not developed at zero cost. E&C companies and their suppliers shall be compensated for their innovative work. Technology and lessons learnt are shared via the database philosophy as explained earlier. Engineering defects are reported via the Quality Improvement Database and require a physical implementation in the existing QA system before it can be approved. Turn around time is set on 12 weeks. Q.I.P. databases can be shared by the whole Technip Group.
11-04-05 35 3. Technip Group - Who are we?
11-04-05 36 TECHNIP IN A SNAPSHOT A leading provider of engineering, technologies and construction services for the oil & gas, petrochemical and other industries Listed on Euronext Paris and New York Stock Exchange OFFSHORE: Engineering Subsea Construction Platforms ONSHORE: Refining / Hydrogen Petrochemicals Gas, LNG, GTL Onshore Pipelines INDUSTRIES: Lifescience/Chemicals Metal & Mining Power Plant / Infrastructures Share of 2004 Revenues 48.5% 46.5 % 5 %
11-04-05 37 2004 REVENUES BY REGIONS Europe, Russia - Central Asia Asia - Pacific Americas TECHNIP : 5.141 M € 18% 7% 50%25% Africa, Middle East
11-04-05 38 TECHNIP: No. 1 IN EUROPE, No. 4 WORLDWIDE Non oil service engineering & construction segments Oil service engineering & construction segments 2004 Revenues (USD in billions) Source: Bloomberg * * 9 months 2004 – Annual Results on 10 March
11-04-05 39 TECHNIP: HIGHLY INTEGRATED Upstream Downstream Non- oil Oil & Gas Exploration & drilling Engineering & project management Subsea construction Pipelay Subsea equipment Facilities fab. & install. Refining Gas processing Petrochemicals Life Sciences Mining & Metals Power plants & infrastructures
11-04-05 40 GLOBAL NETWORK OF ENGINEERING CENTERS, YARDS & PLANTS UK 2 550 USA 3 480 Colombia 140 Brazil 1 570 Venezuela 300 Africa 160 France 3 530 Italy 1 870 Benelux 360 Scandinavia 930 Germany 350 Russia 100 Middle East + Abu Dhabi 1 030 India 670 Australia 170 Asia-Pacific 1 450 Spain/Portugal 290 Canada 50 19,000 People Worldwide
11-04-05 41 VESSELS Apache - 122,9 m Sunrise 2000 - 132 m Alliance - 78 m Constructor - 126,3 m Marianos - 91,1 m Orelia - 119 m Deep Pioneer - 158,6 m Venturer - 129,1 m Wellservicer - 111,4 m Seamec 3 - 92,7 m Seamec 2 - 92,7 m Seamec 1 - 92,7 m Deep Blue - 206,5 m Pipelay Vessels Subsea Construction Vessels Trenching Vessel Normand Pioneer* - 95 m * Owned by Solstad (Long term charter)
11-04-05 42 CONTROL OF PROJECT EXECUTION Two principles are concurrently implemented: Project Director: single point of accountability for each project Senior Management: hands-on policy, supported by central expertise Senior Management Reporting SVP Project Management SVP Global Procurement SVP Cost and Planning Support Reporting Monitoring (Monthly Project Reviews) Cost Control Construction Installation EngineeringProcurement Project Director Full Authority Reporting
11-04-05 43 GLOBAL PROCUREMENT NETWORK Worldwide Network Increases Flexibility and Competitiveness EPC Internet-Based Procurement System Volume Processed in 2003: €1,200M Sourcing from USD zone: 2000: 27% 2003: 41% Estimated net savings in 2003: €30M Houston Los Angeles Kuala Lumpur Aberdeen Paris Rome Rio de Janeiro Düsseldorf Regional Procurement Manager Regional Procurement Manager Global Procurement Officer Global Procurement Officer Commodity Family Managers Commodity Family Managers Zoetermeer
11-04-05 52 MANAGEMENT STRUCTURE Offshore I. REPLUMAZ, CEO Onshore-Downstream D. BURLIN, CEO J. DESEILLIGNY, SVP Business and Operations Industries J.N. MEARY, CEO D. VALOT, Chairman Executive Management D. VALOT, Chairman and CEO D. BURLIN, A. DECRESSAC, J. DESEILLIGNY, O. DUBOIS, I. REPLUMAZ Board of Directors (11 members) A. DECRESSACO. DUBOIS CFOHR/COMM
11-04-05 53 OVERALL DIVISION STRUCTURE (BPU) OFFSHORE ONSHORE / DOWNSTREAM INDUSTRIES North Sea, Canada USA, Mexico, Caribbean Western Europe, Russia, CIS Southern Europe, Eastern Europe, Africa Chemicals Life SciencesAmericas EthyleneElectricityGNL Africa- Mediterranean IndustriesBuildings Middle-East, Pakistan, India N. UCCELLETTIP. BARRIL L. POPE D. MIELCAREK M. BUFFENOIRA. DURANTEE. FALLEURH. OGER S. ALEVN. GRECOG. CAVANNA J.F. CAZESI. STEVENSON S. EGGENJ.N. MEARY Asia-Pacific B. DI TULLIO Brazil F. DELORMEL I. REPLUMAZ D. BURLIN J. DESEILLIGNY J.N. MEARY Caspian Sea K. BOE Latin America E. GORY
11-04-05 54 BREAKDOWN OF TECHNIP'S CAPITAL February 28, 2005 6 % Oppenheimer Funds Inc. 3.20 % IFP 1.40 % Treasury stock 2.20 % Employees 87.20 % Others