Integrated Management and Drill Bit Supply to Companies of the Oil and Gas Industry Presentation September 2003 Smith Eurasia website:

Smith Eurasia – Main Areas of Activities  Supply of equipment and technology  Procurement services  Engineering services  Wellsite services  Integrated project management

Smith Eurasia – Supply of Equipment  Drill bits (roller cone, diamond and PDC)  Drilling equipment  Directional drilling tools  Fishing tools  Workover equipment  Completion equipment  Production equipment  Mining equipment

Smith Eurasia – Engineering Services  Well drilling engineering design  Well completion and production engineering design  Technical data review  Technical and engineering recommendations  Field testing of equipment and technology  Development of feasibility studies  Analysis of economic return from introduction

Smith Eurasia – Wellsite Services Oversight and provision of the following types of services:  Construction  Drilling  Fishing operations  Workovers  Sidetracking  Multilaterals  Milling  Completions  Perforating

Smith Eurasia NCSDK ENGINEER AGREEMENT DATA информация DATA

Computer simulation of physical and mechanical rock parameters Optimization of use of roller cone and diamond bits Statistical analysis of source databases Drilling programs and review of previous performance Production of work charts Drill Bit Optimization Process Use of D B O S software

Special Features of the Well Review of Input Data Decision Selection Selection Conditions of UseSectional Analysis of Analysis of Recommendations RecommendationsDiscussion New Products New Technology DBOS Utilization of Experience Discussion of New Proposals yes Newrecommendations no BitOrder Csg Muds ГОБ Purpose of Drilling BHA Utilization of Experience DH motors Drill Bit Optimization Process Bit Selection

South Oman: Deepwater Exploration $0 $50 $100 $150 $200 $250 Dasimi 1Har Deep 1H1 Sarmad 1Ghafeer 1H1Sarmad 2H1Ambrah 1h1Ajeeb 1H1Sakhiya 1H1 $/meter Hourly Rate = $1050 Tripping = 6 hrs GTXCP03 used in all wells ASE in Oman Oil Control directional drilling during load variation Increased load With new BHA Used asymmetric nozzle Reduced RPM and increased circulation volume ASE Services Use Examples

Conclusion 1: 1.Optimization of the bit program can significantly reduce drilling time and well costs. 2.A specialized bit company should manage the bit program. 3.Smith Eurasia, an exclusive partner of Smith International, has the expertise and technology required to provide such services in the former Soviet Union.

Specific Features of Drilling Operations in the FSU а) impossibility to fully optimize drilling parameters due to lack of required drilling equipment; b) low availability of high-end modern equipment and tools in drilling companies; c) low quality of drilling muds and their treatment; d) use of high-RPM turbine drilling;

Conclusion 2: а) optimal and efficient combination of available equipment and technology with the most advanced Western equipment and technology. b) optimization of financial and logistical arrangements for equipment. c) introduction of new types of services and organization of operations.

Services Provided  Establishment and management of drill bit warehouses  Work with bit manufacturers, contracts, placement of orders, financial settlement  Drill bit supply with payment after actual use (consignment basis)  Engineering support  Introduction of advanced technology  Control use and running of drill bits, train drilling contractor’s staff  Logistics and freight forwarding services

Effect from Implementation of the Project Implementation of the Integrated Drill Bit Management and Supply Project will:  Reduce well drilling time  Reduce well costs  Reduce well construction costs and provide additional oil and gas production  Increase the service life of drilling equipment and services  Improve safety and health status

Additional Effect from Implementation of the Project  Reduction of drilling crews and a corresponding reduction of administrative and operating costs  Improvement of overall drilling technology, reduction of construction time and, as result, quality improvements and start- up of new wells ahead of schedules with receipt of additional production  Reduction of drilling mud costs due to reduction of the time to drill a well  Reduction of the wear of drilling equipment and its repair costs due to less pipe tripping  Reduction of wear and tear of drilling tools due to less drilling time and amount of pipe tripping

Additional Effect from Implementation of the Project  Savings of considerable amounts of money through reduction of “frozen” warehoused inventory  Improved drilling efficiency through constant engineering control, implementation of new technology and creation of a broad database  Reduction of downhole problems during well drilling through a reduction of drilling time and amount of pipe tripping  Reduction of bit transportation costs an as result a smaller overall amount  Reduction of injuries due to less pipe tripping

Discussed with the Client The goals and objectives of the Project A meeting with the local technical group to establish working contacts. Input Data Technical and geophysical data packages on basic operations. (E Logs, Mud logs, Bit run data, Daily Drilling reports, End of well reports) Selection and Review of Input Data Processing of input data by D B O S software. Review of basic bit and drilling programs. Statistical analysis of base data to determine their average level and development trends A review of the use of products and bits of different manufacturers. Proposals Review and select bits offered by various suppliers. Select optimal types of bits for specific well sections. Complete bit program for the well and its discussion with the local technical service. Introduction of revisions and changes to the proposals of the local technical people. Approval of the bit program. Daily Services Provision of daily engineering support to drilling crews. Direct involvement in the process of optimization of drilling. Review of Drilling Results. Review of “immediate” drilling data. Identification of required changes Provision of a report on each drilled well and its discussion with the local technical group. Bit Optimization Process

Scope of Services Under the Actual Project 1. Smith Eurasia has established offices and consignment warehouses in each area of NC drilling operations. 2. Engineering groups are operational in each region; a drill bit program is being produced for each well covering both Western and Russian drill bits. 3. An inventory of both Western and Russian drill bits is being maintained at warehouses on a consignment basis. 4. The drill bits are delivered individually to each well and are paid for at the time of their use. 5. The engineering group provides engineering support of the drilling process, studies used bits and issues the necessary recommendations.

Time-basis comparison of technical and economic drilling performance calculated on the basis of the current Bit Program and the Bit Program Proposed by Smith Eurasia ФактическаяПредлагаемая

Comparison of Technical and Economic Drilling Performance Estimated on the Basis of the Actual Drill Bit Program vs. the Drill Bit Program Proposed by Smith Eurasia, in $ Value Terms actualproposed Bit Costs, US$ Costs per Meter, US$ Drilling Costs, US$

Economic Benefits Achieved On Drilling Sections With Service Support on Completed Wells - законченные бурением скважины - законченные бурением скважины Well No. Field 986 Growth 1026 Growth 3813 Леб 188 Ток 2713 Давыд Well Depth, m Depth at Start of Provision of Services, m Length of the Section Serviced by Smith Eurasia, m Drilling Time for the Well Section as per NC’s Plan Schedule, days Actual Drilling Time for the Well Section Serviced by Smith Eurasia, days Time Savings Relative to the NC’s Plan Schedule, days (%)42 (28%)28 (23%)44 (46%)45 (55%)24 (26%) Cost Savings vs. NC’s Plan Schedule, доллары США$ $ $ $ $ Bit Costs on the Section Based on NC’s Earlier Wells$ $73 830$74 106$ $ Actual Bit Costs on the Section$98 211$ $88 285$83 326$ Actual Additional Savings / Overspend, $$ $ $14 179$25 050$4 814 Actual Savings on Drilled Sections of Wells, $$ $ $ $ $

Smith Eurasia Selection of the optimal range of bits 1. Bit Life 2. Rate of Penetration Drilling Parameters Drilling Mud Quality Quality of pay-zone tapping Working culture Drilling operations economics Increased overall oil production due to quicker introduction of wells into production

Smith Eurasia THANK YOU FOR YOUR ATTENTION USA: Katy Freeway, Suite 645 Houston, Texas phone: fax: Russia: 65/4 Leninsky Prospekt Moscow phone: fax: Smith Eurasia – Contact Information: