2012 Sustainability selection - SBM Offshore

• Outsourcing construction work to remove the risks inherent in under- utilisation, except in cases where local content offers
a way to secure competitive advantage, e.g. the Paenal yard in Porto Amboim, Angola. This yard is operated under a joint
venture with Sonangol and DSME to meet local content requirements. A partnership has been established in Brazil,
through a JV with Synergy, to secure module and integration yard capacity in the Brasa yard which will be involved in the
latest Brazilian Projects construction and integration activities.
• Maintaining R&D investment to develop new technologies and prepare for the next generation of technical and operational
needs for FPSOs.
Business Mix between Supply and Lease Contracts
Sales contracts generate revenues and profits during execution. In most instances, related progress payments
allow for at least a neutral cash flow which reduces SBM Offshore need for capital. Lease and operate contracts
are capital intensive, although lease payments generate long-term stable cash flow, EBIT and net income. SBM
Offshore endeavours to maintain a balance between supply and lease contracts, but obviously clients select the
contracting method most appropriate to their needs. Financing market constraints may also lead the sale strategy
towards one or the other direction depending on the Group's ability to access competitive financing sources.
Cost Structure and Resources
The Group’s flexible structure incorporating globally diversified Execution Centres and a workforce of permanent
employees and short term contractors provides protection and potential benefits from macro-economic forces.
The Group’s internal costs are biased towards Europe therefore exposing it to the European economy and Euro
fluctuations. Short to medium term risks are managed by forward hedging although the long-term exposure
remains. Exposure to the global shortage and high cost of experienced oil-field human resources remains a
critical risk. This is minimised over the long-term by human resource development programmes.
In the past, securing contracts with suppliers and contractors in a very buoyant market has been a major
challenge, and this situation could happen again. The Group has worked to mitigate this risk by developing its
own trained and experienced resources whilst also identifying a wider number of external resource-providers.
Pressure on margins is managed by securing long-term relationships, favorable commercial agreements, firm
vendor commitments, escalation formulae and options. Such Frame agreements with essential sub-contractors
such as construction yards have also been developed and the Group has launched an initiative to open
relationship with new yards in China.
Operational
Project Execution Risk
The Group runs risk workshops from project proposal through to completion on every project in order to highlight
uncertain, unusual, unique or critical risk factors. These assessments aim to reduce the variability of project
outcomes and ensure that resources needed to mitigate or contain critical risks are in place. They also ensure
that Group exposure is widely understood. Personnel involved in projects attend workshops tailored to suit their
specific needs.
Health, Safety, Security and Environment (HSSE) is high priority for the Group throughout all project stages. The
Group seeks to minimise HSSE related incidents through:
• The application of continuously upgraded HSSE standards.