1 International Conference on Services and Equipment for the Russian Oil & Gas Industry Session 5 Competition & Russian Oil Field Services December 3rd 2003

2 Price Value Added Competition & Competitive Advantages Market for Technology can all be discussed philosophically but the real world is the real world

Case of 3D Sesimic Value “Migration” The value of this technology to the Oil Companies has been billions of Dollars Meanwhile the Seismic companies themselves are losing money

The Oil & Gas reserves of the Russian Federation certainly represent a huge opportunity (at least for Oil Companies) But what kind of opportunity does it realistically represent for Service Companies? (Russian or Foreign) (Russian or Foreign)

5 Market size estimates of some selected oilfield products & services (Rigs/Drilling does fully not include Oil Company “in house” Service Organizations) $ Millions

6 Russian in Russia Western in Russia U.S. in U.S. Logistics / Customs2132 QA / HS&E265 Training122 Materials Costs20 Wages & Benefits Research & Development255 Depreciation costs Capital Investment166 Low Productivity Costs1000 Profitability Standards %11%10% US Price = A view on Pricing & Competitive Advantage

7 Russian in Russia U.S. In U.S.Variance QA / HS&E263 Training121 Research & Development253 Capital Investment Clients benefit from these differences Service Companies spending more in these areas expect enhanced profitability for extra value delivered

8 If desired technologies are not available locally then some differential is inevitable Russian in Russia Westen in RussiaVariance Logsitics / Customs Extra Costs QA / HS&E1 1 Extra Costs Wages & Benefits vs. Productivity Profitability Standards %11% US Price =

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10 The numbers LUKoil compares Shows for Parker Drilling a net (assets minus debt) investment of 584 million generating a “sales” profit of 11 million So the return in 2001 is 1.88% A saving account pays more with less risk

11 Future Expectations Relative prices of Russian and Western Service companies will converge over time Relative prices of Russian and Western Service companies will converge over time Differentiation in technology between Russian and Foreign services will decrease Differentiation in technology between Russian and Foreign services will decrease Some In-house service organizations will be sold off or divested while others will become more separated and independent but will remain under the control of the oil companies Some In-house service organizations will be sold off or divested while others will become more separated and independent but will remain under the control of the oil companies The total market for Oil Field Services in the will grow about 20% (in $ terms) over the next 5 years The total market for Oil Field Services in the will grow about 20% (in $ terms) over the next 5 years

12 Thank you!