2007/2008 SUPPLY CHAINCODE OF PRACTICE COMPLIANCESURVEY REPORTThe Supply Chain Code of Practice is endorsed by PILOT, Oil & Gas UKand its Supply Chain Management Forum, BERR, EIC, FPAL, IMCA, OCA,WSCA, NOF Energy and EEEGR.

CONCLUSIONS AND PROPOSED 2008/2009 OIL & GAS UK WORKFRONTS

There has been a notable relaxation in compliance with the Code throughout 2007 and this may be due in part to stretched resources, rising costs of the industry and code of practice champions moving on. However, this is accompanied by a consistent belief in the Code and its principles, showing that there is a requirement for a helpful push in the industry. This relaxation was predicted by Oil & Gas UK, who recently urged companies to re-sign the Code, encouraging them to refresh their commitment to it. A seminar was also held in May 2008 to discuss Supply Chain best practice and future proposals to improve compliance via the Changing Gear Initiative. Furthermore, the Oil & Gas UK Supply Chain Forum has been pre-emptively dealing with a number of issues raised in this survey. Current Oil & Gas UK Supply Chain Forum/ Changing Gear workfronts include:

• Increase use of LOGIC standard contracts: Provide training workshops and concentrate on promoting those forms which are best used

• Encourage fair contracting principles: A value contracting and cost-base alignment model is currently being formulated by the forum

• Encourage use of KPIs: Raise awareness that this can be facilitated via FPAL

• Increase use of ITTs: Continue to promote and provide training on the new model ITTs

• Raise awareness of Workplan: FPAL to provide training

• Increase number of Code signatories and update champions list: Target and approach prospective new signatories. Ask companies to refresh their commitment by re-signing the Code

• Encourage use of two-way performance review in FPAL: Tiered compliance rating of each company will be affected by performance review activity in FPAL

• Encourage industry to foster better working relationships: Even if short term contracts are only available- fair contracting principles and mutual agreements can mean efficient partnerships. Norminations welcome for innovative business partnerships awards to be presented at the Oil & Gas UK Awards Dinner 2008

• Improve 30 day payment: The forum is currently undertaking a study to investigate the circumstances under which payment cycles break down

• Combat shortage of supply chain personnel: Professional development gateway/ portal being developed to encourage careers in supply chain management/ procurement using the Chartered Institute of Purchasing and Supply (CIPS) accreditation system in conjunction with OPITO The Oil & Gas Academy

• Encourage a more compelling application of the Code across the Supply Chain: Via the introduction of a new tiered compliance mechanism (circa Q1 2009) which will encourage companies to work towards full compliance with time and create an ethos of competitiveness for good business ethics and practices

AGR Peak Well Management Aker Offshore Partner Ltd AMEC Group Ltd Apache North Sea Ltd Applied Geo Consultants Ltd Atlas Engineering UK Ltd ATP Oil & Gas (UK) Ltd Avanteq Ltd BEL Valves Bibby Offshore Ltd BIS Salamis (M&I) Ltd Blairchem Ltd BP Caledyne Ltd Cameron UK CB&I UK Ltd Chevron Collabro Ltd ConocoPhillips (UK) Ltd Consafe Engineering Services Ltd Danbor Services UK Det Norske Veritas Dominion Gas Dingbro Ltd - Filtration Division Enterprise Engineering Services Ltd Evolve Training ExxonMobil FlameSkill LtdFlexitallic Ltd

FPALFranks International LtdGDF Britain LtdGeoKey LtdHalliburton HoneywellHunting Oilfield Services (UK) LtdHydratight IADC Imes Ltd Impalloy LtdJWF Process Solutions Ltd Klinger Labtech Services LtdLloyd’s Register EMEALundin Britain LtdMaclean Electrical Maersk Oil North Sea UK LtdMarathon Oil UK LtdMCE GroupMcNulty Offshore Construction Ltd Mech-Tool Engineering Ltd ModuSpec Engineering UK LtdNesscoInvsat New Digital Business Ltd (NDB) Nexen Petroleum UK Ltd NHV Ltd Odfjell Drilling (UK) LtdOffshore Design Engineering Ltd

PILOT SHARE FAIR 10

PILOT Share Fair 10 provides an arena for the latest UK oil and gas business development opportunities where operators and contractors unveil their 18 month forward work plans for the UKCS. This high profile event continues to be a huge success, typically drawing over 600 delegates. The primary objectives are to:

• Provideaninsightintothefutureprojectdevelopment plans of operators and contractors

• Createanopportunityfornetworking(tomeet prospective clients and update existing contacts)

• Createaninformationsharingenvironment

• Provide‘onetoone’sessions (either hosting or attending)

• Providesupportfortheindustry’ssupplychain code of practice

• Provideanopportunitytogathermarketintelligence

To find out more about Share Fair 10, please contact the Oil & Gas UK events team (Tel: 01224 577 250, Email: events@oilandgasuk.co.uk).

We would like to thank the following companies who responded to this year’s survey*

Performance Improvements Group LtdPetro-Canada UK Ltd Premier Oil plc Qserv RBG Ltd Red Spider TechnologyRSD Supplies & services LtdRWE DEA UKSafety Hub Ltd SBS Logistics LtdSchlumberger Oilfield UK PlcScotgrip (UK) Ltd Shell U.K. LtdSPM Ltd Streamline Shipping Group Subsea 7 UKTalisman Energy (UK) Ltd Technip UK LtdTotal E&P UK Ltd Universal Sodexho LtdVenture Production PlcWalker Technical ResourcesWeatherford UK LtdWellhead Electrical Supplies Wilson UK Ltd Wood Group Engineering

CONTACT INFORMATION

For further information about signing up to the Supply Chain Code of Practice, contact: Rebecca Lennox, Tel: 01224 254 057Email: Rebecca.Lennox@berr.gsi.gov.uk

For further information about PILOT, visit www.pilottaskforce.co.uk

For more information about this survey and our findings, please contact: Norman McLennanTel: 01224 577 330Email: nmclennan@oilandgasuk.co.uk

To visit FPAL: www.fpal.com

* This list comprises of 75 signatories plus 12 non-signatories. Some companies completed both purchaser and supplier surveys, taking the total number of survey submissions to 98.

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Compliance with the Supply Chain Code of PracticeThe Supply Chain Code of Practice was launched in March 2002 under PILOT’s “Progressing Partnership” initiative, with the aim of improving efficiency and reducing waste in the UK oil and gas supply chain by the introduction and active pursuit of a number of initiatives. The Code was re-launched and revised in 2005 and there are now 135 signatories, with numbers expected to increase significantly over the next year. Oil & Gas UK monitors progress regarding implementation of the Code on an annual basis by means of this compliance survey and this report highlights the key findings and high priority compliance issues. The Code is endorsed by: Oil & Gas UK; PILOT, BERR, EIC, FPAL, IMCA, OCA and WSCA and the regional trade associations of NOF Energy, EEEGR and NSIG have also recently indicated their support.

In general, this survey shows that attitudes towards the Code are positive; however there has been a moderate decline in the parameters used to assess compliance. Oil & Gas UK and BERR/PILOT are working together with the industry to refresh commitment to the Code via the Changing Gear Initiative and a new tiered compliance mechanism.

SURVEY RESPONSE

There was a response rate of 56% (75 out of 135) of signatories, compared with a 50% response rate achieved in the 2006 survey (59 out of 117 signatories). A further 11 non-signatories and two other industry bodies responded this year. The total expenditure on goods and services was £11.1 billion (note that 12 companies completed both purchaser and supplier surveys and their contract expenditure was only counted once to obtain this total).

CONTRACT VALUE AND DURATION

This survey gauged the level of compliance at high and low contract value using the EU utilities threshold for works and services (£279,785) as a guide, and the results were not significantly different around this threshold. Hence, it can be concluded that respondents are applying the same principles to all contracts irrespective of value. Around 80% of purchasers issued contracts above this threshold versus 53% of suppliers.

Contracts tended to be short term with 71% of purchaser and 61% of supplier contracts lasting for less than one year.

Responder type Number of Number of contracts Total contracts Average contracts Respondents exceeding EU threshold spend (above & below spend per company for works & services threshold) (£279,785) Purchaser 37 1884 £10.6 billion £330.8 million

Supplier 61 666 £1.6 billion £31.6 million

Total (12 companies 98 2500+ £11.1 billion -completed both surveys)

30 DAY PAYMENT & QUALITY OF INVOICES

Performance in thirty day payment cycles has shown a slight decline since the last survey with 65% purchaser payments being made within this time frame versus 42% supplier payments reported as received. Despite payments being received slowly, suppliers claim to be making 57% of payments to their own sub-contractors within this timeframe. 73% of purchasers reported having systems in place allowing payment of the undisputed portion of disputed invoices; however only 34% of suppliers said payment of the undisputed portion was received within a reasonable timeframe (30 to 45 days).

The quality of suppliers’ invoices was rated at the high end of average by purchasers.

USE OF STANDARD CONTRACTS, KPIs AND ITTs

The use of standard contracts shows room for improvement with only 40% of purchasers issuing them and 20% of suppliers receiving them in 2007. There was also concern in the supplier community over the number of special clauses included in standard contracts, allegedly placing a higher level of risk upon them with regards to liabilities and indemnities. The average number of special clauses regularly included in contracts by purchasers was 10 and by suppliers was 4; however the highest number reported by a purchaser was 64. The use of Key Performance Indicators (KPIs) was surprisingly low, with less than a quarter of purchasers and suppliers including them in their contracts.

The survey asked whether, in the respondents’ opinions, purchasers were generally adopting fair contracting principles and 58% of pur-chasers vs. 33% of suppliers broadly agreed, showing room for improvement. Fewer supplier-received ITTs provided bidders with scope to add value alternatives or enabled feedback on unsuccessful bids last year compared with 2006.

RELEASE OF NEW MODEL INVITATION TO TENDER (ITT) FORMS

Four new model Invitation To Tender forms (ITTs) relating to drilling, marine construction, topside support and well design were released in November 2007. Between 80 and 90% of purchasers and suppliers were not yet using the new model ITTs by the end of 2007. However, it is expected that this will increase in 2008 and new versions of ITTs will likely be requested by the industry (e.g. for general services contracts). Encouragingly, one particular new entrant operator has already used new model ITTs to great effect.

Use of industry standard forms of contract (LOGIC) 2006 2007 ChangePurchasers 48% 41% - 7%Suppliers 53% 23% - 30%

% of contracts which included formal KPIs 2006 2007 ChangePurchasers 37% 23% - 14%Suppliers 34% 12% - 24%

% of ITTs which provided bidders with scope to add value alternatives - 2007 vs 2006 2006 2007 ChangePurchasers 63% 65% + 2%Suppliers 51% 32% - 19%

% of ITTs which enabled unsuccessful bidders to receive feedback - 2007 vs 2006 2006 2007 ChangePurchasers 72% 72% 0%Suppliers 49% 27% - 22%

% of purchaser payments within 30 days % of payments received by suppliers within 30 days

2004 2005 2006 2007 2004 2005 2006 2007

69% 72% 72% 65% 16% 34% 45% 42%

COMMITMENT AND USE OF FPAL

FPAL utilisation is good on the whole with 99% of respondents being FPAL registered. Three quarters of contract awards were made to FPAL registered sellers last year (less than 2006). There has been a decline in the use of regular two-way performance review with only 38% of purchaser contracts and 15% of supplier contracts encouraging use of this. Attitudes towards duplication of FPAL data in ITTs has remained fairly consistent.

FPAL provides a tool enabling purchasers and suppliers to record details of future project requirements, offering prospective (sub)contractors the opportunity to plan ahead in resourcing-up for tender submissions. Purchasers have a higher awareness of this facility (62%) than suppliers (30%) but 80% of both groups would consider using this facility in future. The majority of suppliers are keeping their registration information (82%) and capability assessments (71%) up to date in FPAL.

POSITIVE ATTITUDE TOWARDS THE CODE REMAINS

In terms of attitudes towards the Code and its principles, the results were positive with 70% of purchasers and suppliers being either supportive or highly supportive. Furthermore, 64 out of 66 respondents would be prepared to sign/ re-sign the Code to reflect the ongoing organisational commitment where senior management has changed out.

CLIENT ATTRACTIVENESS & PERFORMANCE

Continuity of business was ranked as the most important factor to suppliers, followed by payment within 30 days and receptiveness to innovation and value-adding opportunities.

% of contracts awarded to FPAL registered sellers - 2007 vs 2006

2006 2007 ChangePurchasers 83% 74% - 9%

% of contracts which encouraged FPAL two-way performance review- 2007 vs 2006

2006 2007 ChangePurchasers 54% 38% - 16%Suppliers 53% 15% - 38% Perception that the duplication of data within FPAL has decreased - 2007 vs 2006

2006 2007 ChangePurchasers 3.4 (average) 3.4 (average) No changeSuppliers 2.7 (average) 2.8 (average) Slight improvement

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