Oilfield Drilling Fluids Outlook In The Middle East

Oilfield Drilling Fluids outlook in the Middle East A.Seedat Commercial Director – Eastern Hemisphere

QMAX OVERVIEW QMAX is a leading international oilfield services company that provides onshore and offshore drilling fluids, solids control, and environmental solutions to the upstream oil & gas industry Founded in 1993 in Alberta, Canada, QMAX has grown to become the market leader in Latin America and has operations in Canada, USA, Mexico, Colombia, Peru, Ecuador, Brazil, United Arab Emirates, Tanzania, Kenya, India, and the Middle East Since its acquisition by Palladium Equity Partners in May 2014, the Company has significantly expanded its market share in virtually every region through follow-on M&A and aggressive organic growth initiatives

GROWTH THROUGH ACQUISITIONS All of these Acquisitions realized over the last 30 months 3

IDEC OVERVIEW International Drilling Fluids & Engineering Services Ltd (IDEC) is a Dubai headquartered company registered in the British Virgin Islands (BVI) working extensively in Middle East & East Africa IDEC is involved in drilling, reservoir drill-in and completion fluids and services for the petroleum industry, solids control equipment and environmental services IDEC is the first independent drilling fluids company in East Africa and has provided customized drilling fluid solutions and well-site services for all types of drilling activities IDEC was acquired by QMAX Solutions Inc. in September 2014. QMAX provides valuable support to IDEC in terms of R&D capability and technical back-up as well as broadening IDEC's product and service capability to include, a full range of specialized drilling and completion fluids, as well as solids control, waste management and environmental equipment and services The combination of highly skilled, qualified technical personnel coupled with extensive well history and experience strengthens IDEC’s technical service capabilities, leading to improved rig-site planning and engineering IDEC will continue to operate in the Middle East and East Africa regions as IDEC, a Q’Max company

QMAX GLOBAL PRODUCT AND SERVICES OFFERINGS Drilling Fluid and Completion Fluid systems: oil (natural or synthetic) or water base Experienced fluid engineers and technicians ensure the right fluid is used at each stage of the drilling process Drilling and Completion Fluid Services Complete Suite of Engineering Software including Daily Tracking, Hydraulics and bridging software. Pre-shipment testing of each fluid is an integral part of the QMax Quality Control Process. Completion Phase - Systems, Processes, Heavy Brines, Equipment, chemicals, Filtration Units Wellbore Clean-Up Tools in Latin America with future roll out globally. Solids Control Waste Management Full suite of Solids Control Equipment Management of the overall solids control process Drilling Waste Management - Management of the disposal of drilling related waste material including drill cuttings, recycling of fluids, contaminated water and oil Proactive Waste Minimization practices and recommendations

Drilling Fluids in the Middle East According to Grand View Research, Inc. a U.S. based market research and consulting company, the Middle East Oilfield Drilling Fluid market size was worth USD 1.45 billion in 2015-16 and is estimated to reach USD 2.19 billion by 2022 Taking this into context that in the same period, the global drilling fluids market size was valued at USD 7.98 billion , the Middle East is and will continue to be a major market for oilfield minerals used in drilling fluids, stimulation and cementing applications. The region is a major importer of key oilfield minerals such as Barite and Bentonite used in drilling fluids Over 80% of the barite produced globally is used by the Oil and Gas industry. The industry has in the last few years undergone changes that have had a significant impact on the consumption of barite. It is still a growth industry, as global demand for oil and natural gas long term has been on the increase. In addition, the long-term drilling trend is more feet of drilling per barrel of oil produced.

Drilling Fluids in the Middle East - Barite The consumption of Barite in the Middle East in 2015 was some 1.65 million tonnes with the major consumption (some 55%) being in Saudi Arabia (900K tonnes), followed by Kuwait (155K tonnes – 9%) and Oman (73K tonnes – 4.5%) The consumption of Barite globally in the same period was some 8 million tonnes whilst at the same time, global production was 7.5 million tonnes (a drop of some 2.2 million tonnes from 2014) If the Drilling Fluid market size in the Middle East does indeed reach the estimate of USD 2.19 billion, then by the same token, the consumption of Barite in the Middle East is likely to increase by some 50% to over 2.40 million tonnes Of course, this is a slight exaggeration! The consumption of Barite is very difficult to estimate since this will greatly depend on the application and density requirements of the fluid used For example, in Kuwait where they use densities up to 19 ppg the Barite % can reach 40-45% of the fluid, while in some other applications, it may not exceed 5%. For the Kuwait example, you would normally use around 600-700 lb Barite for each barrel of mud. Normally we mix around 3000 to 5000 bbls of mud per interval so you are talking about 950 – 1600 MT of Barite per interval/well In general, we can say that normally very high density applications use invert emulsion (OBM) due to higher tolerance to solids and Barite % can reach 40-45% of the fluid cost/revenue. For other types of WBM it can vary between 5 and 35% in the majority of applications

Middle East Market - Barite Barite in the Middle East market comes mainly from four sources: India China Turkey Morocco There are other smaller sources of Barite, but only used for the local market (Pakistan for example) Many countries in the ME use Barite heavily due to the nature of their fields and the high densities required to control their pressures

Barite Production & Consumption China (40%), Morocco (14.4%) and India (12%) are the leading producers of barite, and they also have the largest reserves. The United States does not produce enough barite to supply its domestic needs. Barytes Association data: China Morocco India USA Turkey Other 2015 Production '000 Tonnes 3000 1080 900 430 310 1780 7500 2015 Consumption 2015 Production Other 24% China 40% 2015 Consumption Other '000 Tonnes 22% US 1910 Middle East 1650 S China 1450 America 6% Europe Europe 780 10% S America 470 Other 1740 Turkey 4% USA 6% 8000 India 12% Morocc o 14% US 23% Middle East 21% China 18%

Barite Mineral deposits US Geological survey of World reserves of Barite: '000 Tonnes China 100,000 Kazakhstan 85,000 Turkey 35,000 India 32,000 Iran 24,000 USA 15,000 Morocco 10,000 Mexico Other Countries Other Countries 18% 7,000 67,000 375,000 China 27% Mexico 2% Morocco 3% USA 4% Iran 6% India 8% Turkey 9% Kazakhstan 23%

Barite quality In August 2010, The American Petroleum Institute (API) introduced a new barite grade (SG 4.1) in addition to the standard 4.2 specification. The intention was not to replace the 4.2 grade, but to provide the end-user with choice as to which material to use. This change was driven in part by a shortage of 4.2 grade barite at that time Heavy metals in barite are the main issue regarding selecting the source of barite for certain countries/customers. Although not an API specification, drilling companies have started to focus on heavy metal content in particular mercury (Hg 1ppm) and cadmium (Cd 3ppm) as specified by the US Environmental Protection Agency (EPA) for the Gulf of Mexico Countries in the Middle East have become more and more strict regarding environmental regulations and have put limits on heavy metals discharge

Barite quality Barite with SG 4.20 was the only grade used in the Middle East until recently where due to the tightness of supply, Operators start to accept lower grades At the same time Companies started to look for suitable alternatives, including hematite, ilmenite, galena, manganese tetroxide, etc. but barite remained and is still the preferred weighting agent There is no real benefit of the 4.10 grade barite except to ensure availability and slightly lower cost than the 4.20 ; other than that, nothing special Some Operators insist on using the 4.20 grade but most of them now also accept 4.15 (India in particular) and 4.10 grades Price difference between the grades is not critical but it is more a question of availability.

Saudi Arabia – Aramco Rig Count History Rig Count – All Rigs 250 200 150 100 50 0 2008 2009 2010 2011 2012 Rig Count 2013 2014 2015 2016

Saudi Aramco Minerals Usage 2015 2016 Bulk Products Rig Count Saudi Aramco Usage (MT) Rig Count Saudi Aramco Usage (MT) Barite 214 900,000 218 950,000 Bentonite (Untreated) Wyoming Grade 214 150,000 218 170,000 Marble (Calcium Carbonate) 214 125,000 218 145,000 Totals 214 1,175,000 218 1,275,000

Saudi Aramco Key Mineral Market Drivers Key growth Aramco December 2016 Rig count was 218 active with anticipated growth of 46% in 2017 Aramco’s current supplier focus is on Local Content (IKTVA – in-Kingdom Total Value Add Programme), Availability, Pricing Discounts and Performance with products on the ground – Best pricing and proof of material readiness will create some preference from Buyers. Local content and local manufacturing is a must going forward to enter the market. Barite Secure competitive pricing and commitments - Indian, China, Turkey good quality and other Barite Ore suppliers meeting Aramco’s stringent specifications. Important specs to meet minimum 4.20 sg and maximum 3000 mgl Total Carbonates Indian Barite is best quality and certain rigs specifically request this grey Barite (Less fines). Bentonite Maintain pricing and highest quality to avoid the use of treated / non treated specifications . Aramco is pushing hard for API Section 9 Sodium based treated Bentonite versus Wyoming Grade Non Treated Sodium Based in order to reduce costs

Future Demand Barite is and will still be the main weighting agent preferred by the Middle East customers Calcium Carbonate is replacing Barite in many reservoirs drilling applications, especially at lower densities, due to its solubility in acids, but it is taking only a small chunk of the Barite market Dependent on the fluid application and density requirements, the consumption of Barite in the Middle East to some 2.40 million tonnes by 2022 may not be too unrealistic! Reference Sources: Grand View Research, Inc Barytes Association US Geological survey of World reserves of Barite Saudi Arabia Associates

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QMAX is a leading international oilfield services company that provides onshore and offshore drilling fluids, solids control, and environmental . the Middle East Oilfield Drilling Fluid market size was worth USD 1.45 billion in 2015-16 and is estimated to reach USD 2.19 billion by