Marketing Study Off-shore Pipe Laying - Caspian Sea Market Analysis

Gozel Rahmanova MIRBIS MBA Class 57 of 2010

Agenda
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Bumi Armada Company Profile Market Geography Macro Economic Factors Turkmenistan Key Economical Data Factors Impacting Supply and Demand Current Supply and Demand Market Participants Market Power Market Entry PEST Analysis SWOT Analysis Price, Supply and Demand Forecast Reference List

Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

1. Bumi Armada Company Profile

Bumi Armada was founded in 1975 Part of the UTI Group, largest private company in Malaysia Malaysias largest off-shore services provider Activities in 11 countries Multinational and multi-cultural organization with 22 different nationalities Annual turn-over approx. USD 300 mill Business segments: - Transportation & Installation (T&I) - Off-shore Support Vessels (OSV) - Floating Production Storage Offloading (FPSO) - Fleet Management (FMS) - Integrated Project Services (IPS) - Transportation & Installation (T&I) - Exploration & Production (E&P)

Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

2. Market Geography

- 5 countries bordering the Caspian Sea - Land-locked sea with only Volga canal providing accessibility - Region rich in hydro carbon resources
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Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

3. Macro Economic Factors

The following macro economic factors have a big impact on the demand for transportation and installation services in the Caspian: Global Economy Oil Price Energy Consumption BRIC GDP Growth Interest Rate Development All projections are that the demand will significantly increase over the medium to long term, with little to no additional supply.
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3. Macro Economic Factors Global Economy

After the deep financial crisis in 2008/2009, there is a general consensus that the recession is over and that the global economy has rebounded. This will positively effect the investment climate, and comments from the recent World Economic Forum in Davos, Switzerland are that the immediate future looks brighter than first anticipated.

Although the global GDP growth will not reach the previous height of 2006/2007 in the foreseeable future, driven by the emerging and developing countries, an average of 4.5% until 2015 is nevertheless seen as healthy.

Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

3. Macro Economic Factors BRIC GDP Growth

BRIC (Brazil, Russia, India and China) is the catalyst and growth engine of the future. These economies are expected to be larger than the traditional G6 by 2040, driven by population growth, production output and infrastructure development. Turkmenistans own GDP growth is estimated at 11% for 2010, which further drives the demand up.

The end result of such rapid growth is a higher demand and need for energy, which primarily will still come from traditional energy sources such as oil, gas and coal.

Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

3. Macro Economic Factors Oil Price

Oil price is the single most important parameter in determining and predicting the allocation of funds for exploration and production of hydro carbons by the oil companies. A high oil price will attract additional investments as the returns are financially viable. From a low of USD 40/barrel in 2008, to a steady price of USD 80-90 in 2010, forecasts are that the global index will continue to increase, caused by reducing reserves, higher demand and increased production costs.

It is generally accepted that an oil price above USD 70/barrel will lead oil companies to increase investments.

Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

3. Macro Economic Factors Energy Consumption

Global population growth, industrialization, an increased middle class with higher spending power and development of the 3rd world countries will all lead to a significant increase in the demand for energy. Whereas focus is now directed at green and renewal energy, the increase in demand can not be covered by alternate energy, and thus the need for traditional sources of fuel such as oil and gas will remain high.

UN forecasts that by 2030 the world population has grown to not less than 8 billion people, much of the growth coming from developing countries.

Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

3. Macro Economic Factors Interest Rate Development

The final factor impacting the investment climate is the access to financing. After the global economic crisis in 2008/2009, many lenders took a more conservative approach and thus it was increasing difficult to gain access to capital for investments the risk willingness was significantly reduced. This has now changed for financially sound and viable projects, and with a stable and low LIBOR rate, it is expecting that investment will accelerate within the oil and gas industry.

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Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

4. Turkmenistan Key Economical Data

GDP Growth (2010): 11% GDP by Sector: - Agriculture 10.2% - Industry 30.0% - Services 59.8% : 12% : 60% : 120,000 bbl/day : 40,000 bbl/day : 34 bill m3/year : 14 bill m3/year
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Inflation Rate Unemployment Oil Production Oil Export Gas Production Gas Export

Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

5. Factors Impacting Supply and Demand

Oil Price The forecasted oil price is the main indicator of willingness from oil companies (our customers) to invest. With a normal lead time of 5-8 years from project commencement to first oil/gas, short term fluctuations do not impact immediate demand much. Exploration Budgets Again driven by oil price, and thus expected financial returns, oil companies will increase or decrease their spending within exploration, thus affecting the demand for our services. Risk Willingness In good times, the risk willingness is higher, and the banks are more likely to borrow and finance even projects with a certain risk element. During the global economic crisis it was very difficult to obtain loans as the bank were risk adverse, this has now changes somewhat, although more prudence is being applied today.
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Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

6. Current Supply and Demand

In our industry the quantity supplied is fixed in the very short run no matter what the price, hence the supply is perfectly inelastic.

Perfectly inelastic: 0 < Ed < 1

In this market there is no possibility to change existing resources (capacity is fixed) and the price depends solely on demand.
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Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

7. Market Participants
Bumi Armada Malaysia Barge: Armada Installer Build year: 2010 Derrick Lay Barge Max. lifting capacity: 850 tons www.bumiarmada.com

Momentum United Arab Emirates Barge: IsrafilGuseynov Build year: 1990 Derrick Lay Barge Max. lifting capacity: 250 tons www.momentumdubai.com
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Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

8. Market Power
HerfindahlIndex (HHI): H = S12 + S22 + + Sn2 H = 602 + 402 = 5,200 >1,800 CR3 = S1 + S2 CR3 = 60 + 40 = 100 >80 : high concentration market
Market Share
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Momentum 40%

Bumi Armada 60%

Our market is a pure oligopoly, non-cooperativemarket, reason being: - Only 2 competitors - Product is homogeneous - Market power is high - Barriers to entry are high

9. Market Entry
High Capital Costs Our market is highly capital intensive, and the min. investment required to enter the market will be USD 250 mill. At the same, the lead time for construction of a pipe laying barge is min. 18 months. Specialized Expertise It takes highly qualified and experienced personnel to operate a barge, and the success of the operation depends as much on the people as the barge itself. Expertize can be bought, but the pool of talent is limited and it will be difficult for a new player to attract people from established companies. Advanced Technology To construct a barge it is required to partner with one of the reputed technology suppliers in the market. These companies normally have long lead times for delivery, and will prefer to work with well known players in the market. Track Record and Reputation Customers will normally prefer a reputable supplier with a proven track record.
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10. PEST Analysis

Political Increased protectionism Localization Transparency Increased risk management Economical Increased E&P spending Cheap and stable interest rates Increasing oil price No more cheap oil

Social Local content Corporate Social Responsibility Increased middle class Global population growth Development of 3rd world

Technological Green energy movement Scrapping of old tonnage Information technology

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Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

11. SWOT Analysis

Strengths Known and respected name Strong financial backing Small but agile In-house competencies Weaknesses Limited track record in T&I Only asset tied in long contract
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Opportunities Field expansion Ability to collaborate

Threats Loss of asset New players (minor threat)

12. Price, Supply and Demand Forecast

The price, supply and demand forecast for pipe laying in the Caspian Sea will, in addition to the general macroeconomic factors, depend on the following:
180 160 140 120 100 80 60 40 20 0 2010 Supply Demand Price 100 90 90 2011 100 100 100 2012 100 110 120 2013 100 125 135 2014 100 135 145 2015 100 150 170

- Expansion of existing fields - Marginal fields becoming attractive

All macro economic factors point towards a higher demand long-term, and also local and regional factors within the Caspian Sea favouran increasing demand. High barriers to entry will prevent or limit the influx of increased capacity, and hence the existing market players can expect higher utilization rates and better prices.

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Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

- New Concessions given out

Index

13. Reference List

http://www.forecasts.org/oil.htm http://www.marketoracle.co.uk/Article6153.html http://budgeting-investing.ameriprise.com/planning-and-budgeting/financial-analysis/market-strategy-viewpoint/2009-07-21.asp http://www.imf.org/external/pubs/ft/weo/2010/01/c1/fig1_2.pdf

http://www.eia.doe.gov/oiaf/ieo/graphic_data_world.html http://www.equityvista.com/public/interest-rate-forecast.php http://www.infield.com/market-forecast-reports/offshore-middle-east-caspian-sea-market-report http://www.caspian-offshore.org/news/2010/09/10/caspian-sea-set-for-offshore-resurgence.html http://www.snamprogetti.it/module.asp?sect=flotta&pag=castoro12 http://www.momentumdubai.com/Presentations/Pipe%20Lay%20Barge%20ISRAFIL%20HUSEYNOV%20Specifications.pdf http://www.un.org/esa/population/publications/longrange2/WorldPop2300final.pdf https://www.cia.gov/library/publications/the-world-factbook/geos/tx.html http://ngpedia.ru/

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Off-shore Pipe Laying Caspian Sea Market Analysis Gozel Rahmanova

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