Tanker Offtake System for Arctic: Experience and Challenges

1. Tanker Offtake System for Arctic: Experience and Challenges Alex Iyerusalimskiy, Marine Engineering Lead The United States Association for Energy Economics Conference (28 – 31 July 2013)

2. Cautionary Statement The following presentation includes forward-looking statements. These statements relate to future events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations or operating results. Actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict such as oil and gas prices; refining and marketing margins; operational hazards and drilling risks; potential failure to achieve, and potential delays in achieving expected reserves or production levels from existing and future oil and gas development projects; unsuccessful exploratory activities; unexpected cost increases or technical difficulties in constructing, maintaining or modifying company facilities; international monetary conditions and exchange controls; potential liability for remedial actions under existing or future environmental regulations or from pending or future litigation; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; general domestic and international economic and political conditions, as well as changes in tax, environmental and other laws applicable to ConocoPhillips’ business and other economic, business, competitive and/or regulatory factors affecting ConocoPhillips’ business generally as set forth in ConocoPhillips’ filings with the Securities and Exchange Commission (SEC).

3. Two strong trends in world maritime trade can be highlighted over several decades: Seaborne oil trade is steadily growing (might imply increased risk) Oil spills are continue to decline (encouraging) Introduction 2012 0.4 bbl/mbbl 1970’s 146 bbl/mbbl

4. Introduction Continued • Crude oil shipping in the Arctic • Tanker trade in the Arctic remains just a fraction of overall world tanker operations • An AMSA study in 2000’s noted over 6,000 ships per year were recorded in the Arctic, but only 200+ were tankers • Most shipping traffic in the Arctic is in waters that are either permanently or seasonally ice-free • Exceptions include the year-round export of the concentrates from Dudinka and the nickel from Deception Bay • This status began to change in 2008 with the opening of the first year-round crude oil export system from Varandey terminal located in the ice-covered part of the Barents Sea • No medium or large oil spill has been recorded in the Arctic ice from tankers

5. A Success Story Varandey Year-Round Arctic Marine Crude Oil Offtake System The following technical presentation is only intended to provide an example of ConocoPhillips' past experience in Russia.

6. Varandey Project Overview LUKOIL and ConocoPhillips Joint Venture NaryanMarNefteGaz (NMNG)* Approximate seasonal ice boundary Open Water Tankers to Market Transshipment Point Murmansk Varandey Source: Design Challenges for Large Arctic Crude Oil Tanker by A. Iyerusalimskiy and P. Noble. ICETECH 2010 *ConocoPhillips is no longer a partner in NMNG Joint Venture

7. Varandey Project Overview: Key Components FOIROT Arctic Shuttle Tanker FSO BLS

8. Icebreaker Shuttle Tanker: Key Project Element • Design Basis • Environment conditions • Dynamic area of first-year pack ice in the extreme years up to 1.5 m • The ridge thickness may reach 9 – 10 m • Ice drift of various directions at FOIROT up to 1.5 – 2.0 knots • Air temperature as low as -40oC with -45oCas extreme value • Wave height at loading point may exceed 4.2 m • The ice transit distance may exceed 250 nautical miles • Reliable and safe ice transit to ice-free Murmansk year-round • No icebreaker support on transit route • Reliable and safe operations at the FOIROT year-round • Ice management and tug assistance at the FOIROT are provided

9. Arctic Design Challenges • Common design issues to be addressed for any vessel intended for Arctic operations Technical Requirements, Specification Design Basis Arctic Features Ice performance Icebreaking concept and propulsion system Hull form, Resistance and Powering Winterization Ice Class and hull strengthening

10. Varandey-Specific Arctic Design Challenges No trafficability data Maneuverability There was no precedent for an icebreaking crude oil tanker of this size No icebreaker support No full-scale performance data Ice pressure Design Backing performance Very limited full-scale Ice loads data Work on schedule

11. Ice Performance and Hull Form

12. Propulsion and Power

13. Propulsion, Power and Rules • Rules on ice class selection need to be validated for large ships • Arc 6: Ramming is not allowed • Arc 7: Ramming is allowed • Eliminating the necessity of backing and ramming provides the opportunity to lower the ice class from Arc 7 down to Arc 6 without compromising safety, but rather increasing it

14. Ice Class and Hull Strengthening • The azimuthing propulsion concept improves maneuverability and provides good steering ability while going astern • Increased use of backing and Icebreaking astern in ice • Changed the icebreaking pattern around the hull • Most classification societies have not yet fully adopted changes reflecting this new icebreaking technique

15. Varandey Icebreaking Tanker: State of the Art • Double hull, twin screw icebreaker tanker is the largest vessel for Arctic today • Ice performance equal or exceeds most of modern non-nuclear icebreakers • Utilizes bi-directional concept: equal icebreaking ahead and astern • New Technology: AZIPODs; Ice Loads Monitoring System

16. Effective Ice Loads Monitoring System • Purpose: • Risk mitigation and safety of ice navigation • Potential operational cost reductions • Validation of the criteria and requirements to be used for new Arctic ship • Validation of ice stress monitoring system concept • Ice loads statistics collection and operational data analysis • System developed by • ConocoPhillips • ABS • Samsung Heavy Industry System Bridge Monitor Source: The Interim Results of Long-term Ice Loads Monitoring on the Large Arctic Tanker by A. Iyerusalimskiy at.al. POAC 2011

17. Ice Loads Monitoring System

18. Varandey Experience and Learning • Three 70,000 DWT Arctic tankers have been delivered by SHI shipyard in 2008-2009 and chartered by NMNG • First crude oil lifted on June 08, 2008 (five-year operation) • Never missed the cargo (Some offloading delays at FOIROT) • Over 500 crude oil lifts performed (over 250 MM bbl) • No icebreaker escort ever required for transit, but ice management is used at offloading terminal • The vessel meets specification requirements, but operational performance significantly exceed predictions

19. Varandey Experience and Learning: Average Transit Speeds

20. Varandey: Lessons Learned • The challenges and the lessons of the Varandey project could be projected on the design process and operations of other large ships built for a similar purpose • Several factors found crucial for Arctic Tanker Offtake System development: • Vessel concept should be developed at the early stage of the project • State of the art icebreaker tanker requires advanced training of the ship drivers and engineering crew • Near real time ice information for transit planning greatly mitigates the risk and improves the efficiency • Learning ice regime, currents, tides and other local factors specific to offloading locations is necessary

21. Conclusions and Thank You