1. LESSONS LEARNED POST-HURRICANE TURNAROUNDS Houston Business Roundtable May 10th, 2006 TURNER INDUSTRIES GROUP, LLC

2. REPRESENTATIVE TURNAROUNDS  Case 1 - 90,000 BPD refinery in Colorado Full plant outage 1 st qtr 06’ - planned 42 days oil-to-oil 350,000 direct man-hours (all contractors) Peak loading of approximately 1,000 directs  Case 2 - 200,000 BPD refinery in Louisiana FCCU, Alky, HDS & Sulfur Block 1 st qtr 06’ - planned 32 days oil-to-oil 100,000 direct man-hours (Turner only) Peak loading of approximately 350 directs

3. CASE 1  350,000 direct man-hours with a total installed cost of approximately $80MM (including Capital Projects)  Planned peak manpower loading of approximately 1,000 directs Planned for 4 th qtr 2005 (subsequently deferred to 1 st qtr 2006) HDS, Crude & SRU 3-year run-life to Spring 2008 AU, FCC, Cat-Poly, VRU & Amine 5-year run-life to Spring 2010 1,200 expense work items ULSD project ($450MM) FCC revamp adding a 3 rd stage separator ($4MM) CAPEX scope ($2MM)

4. The turnaround presented specific issues not representative of a "typical" turnaround  (2) large capital projects with an anticipated peak manpower at or around the turnaround time frame  TA hampered by a lack of availability with regard to plant access, lay down areas, office locations, contractor trailers, Owner personnel, contractors and craftsman  Local market is not conducive to heavy industrial construction  The turnaround timing was during winter conditions  TA would reach an over maximum manpower density

5. To account for these factors, the estimated productivity factors were increased over typical industry standards  50% productivity loss (30% outage factor and 20% non- typical outage factor)  10% contingency  15% allowance for scope growth

6. Concerned with ability to attract and retain craft labor  Instituted plan to over-man the turnaround in the initial stages in order to assure retention for; Scope growth Contingency Unanticipated productivity losses Absenteeism & attrition Recruiting issues

7.  P3 schedule developed to account for resource loading contingency Developed schedule under normalized conditions (no allowances or contingency) Leveling techniques used to optimize the schedule to front-end load resources (direct labor) Added productivity factors to allow for reconciliation to the final budgeted man-hours Developed external Excel based spreadsheet used to adjust to additional 25% man-power allowance Re-allocated manpower in P3 via hard logic

8.  Design craft wage rates to attract quality craft & supervision Original wages were set for 4 th qtr 05’ execution TA execution window was deferred to 1 st qtr 06’  Conducted an analysis of current, prevailing and anticipated wage rates that would be required for the new TA timeframe TA, originally targeted for 4th qtr 05’, was on the downward side of the 4th qtr 05’ peak New TA window would be in the midst of peak manpower requirements in the Gulf South

9. This presented several critical (high risk) factors with regard to contracting and labor Description of ThreatSeverityProbability Lack of resources (general)HIGHMEDIUM Lack of qualified crafts and their availabilityHIGH Lack of resources in view of ColoradoHIGHMEDIUM Continual decline of qualified work forceHIGH Workforce attracted away from industrial sector HIGH Lack of specialty weldersMEDIUM Impact of Threats Unable to attract craft Unable to adequately staff Safety concerns Potential QA issues Increased personnel turnover Schedule slippage Increased LPO

10. Additional risk to TA due to industry manpower requirements  Would need to implement new wage & compensation structure Allow for “market-plus” condition w/ “Market” = Gulf South Ensures wage rates would be sufficiently higher than those in the Gulf-South Coupled with other incentives and completion bonuses would allow us to attract and maintain quality craft & supervision

11. However, Hurricane’s Katrina & Rita shifted the industry and further exposed the TA  Projects & TA’s were shifting to 1 st qtr 06’, already the predicted peak Increased industry peak manpower requirements above those previously forecasted Re-build effort attracted craftsman away from the industrial sector

12. Developed risk model for three different wage rate / incentive structures  Based on HBR data and contractor surveys Survey contractors for current / relevant experiences with post-hurricane wages Optimize wage structure to remove profit motive Ensure increase goes to craft Develop flexible attractive wage & incentive structure for current environment Offer contingency for RLT approval

13. OPTION “0” - Maintain current wage & compensations structure at pre-hurricane structure Description of ThreatProbabilityConsequence Forces contractors to recruit non-familiar craftsmanHIGHSafety, QA, productivity Forces contractors to recruit less skilled craftsman to match wage rates HIGHSafety, QA, productivity Lower skill set equals decreased safety performanceHIGHLTI, Recordable, Fatality Lower skill set equals decreased productivityMEDIUMCost & schedule creep (LPO) Will increased attrition and turnover (less dedicated craftsman) MEDIUMSafety, QA, productivity Increases recruiting time frameHIGHCost & schedule creep (LPO)

14. OPTION “1” - Modify wage & compensation to “level 1” Added approximately 10% to wages w/ an added safety & completion bonus equivalent to 10% of base wage rate Description of ThreatProbabilityConsequence Increases TA costHIGHApproximate $1MM Forces contractors to recruit non-familiar craftsmanMEDIUMSafety, QA, productivity Forces contractors to recruit less skilled craftsman to match wage rates MEDIUMSafety, QA, productivity Lower skill set equals decreased safety performanceLOWLTI, Recordable, Fatality Lower skill set equals decreased productivityLOWCost & schedule creep (LPO) Will increased attrition and turnover (less dedicated craftsman) MEDIUMSafety, QA, productivity Increases recruiting time frameMEDIUMCost & schedule creep (LPO)

15. OPTION “2” - Modify wage & compensation to “level 2” Added approximately 25% to wages w/ an added safety & completion bonus equivalent to 25% of base wage rate Recommended structure to drive risk profile to “low” (schedule driven TA) Description of ThreatProbabilityConsequence Increases TA costHIGHApproximate $5MM Forces contractors to recruit non-familiar craftsmanLOWSafety, QA, productivity Forces contractors to recruit less skilled craftsman to match wage rates LOWSafety, QA, productivity Lower skill set equals decreased safety performanceLOWLTI, Recordable, Fatality Lower skill set equals decreased productivityLOWCost & schedule creep (LPO) Will increased attrition and turnover (less dedicated craftsman) LOWSafety, QA, productivity Increases recruiting time frameLOWCost & schedule creep (LPO)

16. Turnaround Results  Wages: The wage structure ended up below current Gulf Coast norm as competition grew from other turnarounds and post- hurricane rebuilding efforts Wage rates were set at option “1” with safety & completion bonus to be earned separate from wages The execution team did not implement contingency for raising wages to option “2” Per diem and travel were paid The safety & completion bonus were separated from wage rates instead of earned in real time Wages affected recruiting but did not affect retention

17.  Manpower: The turnaround was 10-15% under-manned and 20- 25% under managed. Contingency factor too low (10%) Used incorrect resource profile as the basis for recruiting Manpower profile based on estimated man-hours per logic driven P3 schedule No allowance for over-manning No allowance for contingency or scope growth Relaxed English speaking requirement to attract craft of Hispanic decent and from Puerto Rico

18.  Absenteeism: was report to be at approximately 10% Although securing manpower was an issue, absenteeism & attrition appeared to be a non-issue  Safety, Quality & Productivity: poor performance by all standards (4) recordable injuries on 500,000 direct man-hours (including capital projects) Weld rejection rate was high, especially on alloy piping Leaks on start-up Start-up delayed due to Capital Projects, expense work completed on time

19.  Contributing factors: Competing turnarounds in Gulf Coast paying higher wages than anticipated Per diem for working locally (per diem never adjusted) Contractors were stretched beyond their ability to provide a “known” work force. Recruiting non-familiar craftsman or craft from non-Gulf Coast regions Inadequate allocation of QC resources (Owner driven) Inordinate amount of late scope additions & discovery items (added 150,000 man-hours) Increased unit congestion above 1,500 directs vs. 1,000 planned

20. CASE 2  100,000 Turner direct man-hours with a total installed cost of approximately $125MM (including Capital Projects)  Planned peak manpower loading of approximately 1,000 directs  TA premises set by Owner for a sequential unit turnaround of the FCC, Alky, HDS and Sulfur units FCC revamp executed by Cat Specialist HDS & Sulfur units executed by GC Turner-Industries expense and CAPEX related scope of work in the FCC and Alky units.

21. The Owners planning premises made some allowances for typical turnaround inefficiencies  Owner Alliance estimating manual plus 20% or Page & Nations plus 40%  Expected significant scope growth through discovery  Mobilized contractor supervision and some craft early To account for these factors, the Owner made allowance over their typical standards  Allowance for discovery, analysis, recommendation & repair in TA timeline

22. Concerned with ability to attract and retain craft labor  Manpower / resource profiles Resource loading the P3 schedule with the total estimated man-hours Inclusive of productivity factors Included indirects on an individual task basis Levelized using a systems turnover based priority  Craft labor rates were estimated pre-hurricanes Adjusted 1 st qtr 06’

23. Subsequent analysis of the prevailing wages rates and compensation structures for competing projects and turnarounds forced several revisions to the compensation structure Initially the wages were set for the Gulf-Coast standard plus $3.50 per hour with an additional $3.50 per hour completion bonus The final rate structure was set (2) weeks prior to the oil- out date to include the total $7.00 per hour as part of the base wage with an additional $3.50 per hour completion bonus.

24. Turnaround Results  Wages: Owner set the wage rates at post-hurricane rates plus additional incentives Per diem was paid but no reimbursement was allowed for travel Wages proved to be sufficient to attract craft labor Attrition was not due to wages Per diem was not adequate to cover the lodging costs post- hurricane($60 per day per diem versus $90 per day hotel costs)

25.  Manpower: Turner was 10-12% under-manned in the initial stages of the TA Turner’s was able to satisfy their manpower needs pre-TA Previously committed craftsman were either not showing up or left while in process Several factors contributed to the depletion of the recruited work force; The accelerated start of competing projects / turnarounds plus escalating wages by competing projects (3) day orientation cycle (unpaid) Per diem proved to be inadequate for local housing market post-hurricanes

26. Estimating standards used in 2004 and proved to be in- accurate for a 2006 TA TA Execution was during peak manpower requirements in the industry No allowances for scope growth or discovery in resource profile Resource profile in P3 proved to be inaccurate; Pipe resources (fitters & welders) were identified in the P3 schedule for only those activities that involved pipe welding Other activities normally classified as piping activities were classified as boilermaker activities Gives a false measurement of the actual pipe fitters required for the scheduled work.

27. Manpower concerns were alleviated by several factors: Late turnover of systems from decommissioning pushed schedule activities Recruiting effort continued with provisions made for securing non-traditional labor sources Gained peak manpower earlier than scheduled Turner was successful in achieving peak manpower within their scheduled window (adjusted for late turnover) Owner late in turning over discovery work items

28.  Absenteeism: Estimated at 10-12% Virus attack on TA (craft, staff & supervision) An issue with the critical craft such as pipe fitters and welders For example: Resource profile calls for (4) welders, the absence of (1) represents a 25% absent rate Completion bonus not a factor at beginning of TA Criteria helped as craft banked several weeks of bonus (no more than 2 absences allowed) Attrition was not due to wages General malaise in industry

29.  Safety, Quality & Productivity: acceptable performance (1) recordable injury High weld reject rate. Fit-up issues due to lack of qualified pipe fitters lead to weld reject rates Mechanical craft with productivity ranging from a low of.85 to a high approaching 1.00 (<1.00 poor) Piping craft productivity is forecasted at a.65 No leaks delaying systems start-up Instituted strict QC program to follow flange make-up Increased QC staff above previous “normal”

30. Other contributing factors; Productivity factor used for estimating and resource loading was too low for current condition of labor market Added requirements of post-BP environment increases travel time and complicates logistics A factor of 40% is to low for a turnaround of this magnitude and complexity Crew mixture of foreman to craft was set by Owner on a 12-1 basis, revised to a 10-1 ratio but this still proves to be too high in a turnaround environment Owner late in turning over discovery work items

31. Improper interpretation of Page unit rates Page is base rate “plus” inefficiencies for non-TA construction activities No account made for 2-year difference in labor market and post-hurricane environment

32. Lessons Learned  Wages & incentives; Proved to be insufficient for recruiting in a labor market not in view of the Gulf-South, proved effective in recruiting for Gulf-South work Wages had limited impact on retention as competition increased Incentives proved effective in retaining craft toward end of TA as they start seeking ROF Recognize the market & set attractive per diem Possibly include incentives in bare wages

33.  Estimating Revise estimating standards to account for current environment. History does not apply. Plan for contingency wage increases Historical issue of under-estimating contingency & scope growth Anticipate the added requirements of the post-BP environment (increase in travel time and complicated logistics) Increase indirect staffing required to plan, monitor and coordinate craft (supervision, QC, etc.)

34.  Planning Develop discovery work within first TA 30% of duration Front-end load manpower, back-end load scope to first 50% duration Develop TA schedule to allow for over-manning in first 50% of duration Include allowances in resource profile as well as timeline  Management: Craft supervision has increased responsibility for planning, productivity & QA/QC. Decrease ratio of craft to foreman to 6-8:1 Anticipate additional QC staffing to assure tightness