AES 09089043-3-1, Rev 0

September 2009

OLEODUCTO DE CRUDOS PESADOS ECUADOR S.A.

PIPELINE COST ANALYSIS

(Final Report)

APTECH Engineering (Alberta) Ltd.

(A wholly owned subsidiary of Intertek)

Prepared by

Ray Masrour
Jim C. Towers
Phillip G. Nidd

Prepared for

Oleoducto de Crudos Pesados S.A.

Amazonas y Naciones
Unidas Edificio Banco
La Previsora, Torre A - Piso 3
Quito, Ecuador

Attention: Mr. Fabian Sanchez

Transmitted Via Email: fsanchez@ocp-ec.com

 INTRODUCTION

APTECH Engineering (Alberta) Ltd, a wholly owned subsidiary of Intertek (Intertek-APTECH),

is a full service Engineering Consulting Company specializing in Asset Integrity Management and
Life Cycle Management of infrastructure, facilities, and equipment. The petrochemical group is
located in Houston, Texas to provide a direct focus on Asset Integrity Management solutions to
the oil and gas industries. We offer such specialized services by using advanced technology and
world class expertise and providing specialists and engineering support in all areas of Asset
Integrity Management including design, corrosion and metallurgy, root cause failure analysis,
stress analysis, safety and mechanical integrity management solutions and risk analysis.

Furthermore our services take us into almost every field imaginable, such as textiles, electronics,
building, heating, pharmaceuticals, petroleum, materials, food and cargo scanning. We operate
a global network of more than 1,000 laboratories and offices and over 23,000 people in 110
countries around the world.

The petrochemical Group provides asset integrity management services to the following
industries:

• Offshore and Shipping

• Pipeline

• Chemical and Petrochemical

• Refineries and Gas Processing

• LNG and LPG

• Manufacturing

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We offer the following key services:

• Asset Integrity Management Services

• Design, Design Verification, Material Selection
• Inspection (Advanced Technologies)
• Maintenance and Inspection Strategies
• Risk Analysis, Risk Based Inspection
• Risk Based Inspection Software
• Process Safety and Mechanical Integrity Services
• Corrosion and Metallurgical Support
• Business and Financing Modeling
• Training and Audits

Additionally Intertek-APTECH helps customers to assess their products and commodities against
a wide range of safety, regulatory, quality and performance standards. Our services include
testing, certification, audition, safety, inspection, quality assurance, evaluation, analytical,
advisory, training, outsourcing, risk management, and security services.

Our customers include some of the world’s leading brands, major global and local companies
and governments, Shell, Canon, Canadian Natural Resources, Ltd., McDonalds, BP, IKEA,
Nestle, ExxonMobil, LG, GAP Inc., Valero, Panasonic, Tesco, Chevron Texaco, Marks &
Spencer and Levi Strauss are Intertek-APTECH customers. More than twenty governments
including Bangladesh, Mozambique, and Saudi Arabia are also customers.

Intertek-APTECH adds value to the products and processes of our customers, facilitating their
success in the global marketplace and providing confidence-inspiring expertise.

Resumes for Ray Masrour, Jim C. Towers, and Phillip G. Nidd are referenced in Appendix A of
this report.

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 EXECUTIVE SUMMARY

APTECH Engineering (Alberta) Ltd, a wholly owned subsidiary of Intertek (Intertek-APTECH)

has been requested by Oleoducto de Crudos Pesados Ecuador S. A. (OCP) to prepare a
proposal for development of an Engineering, Procurement and Construction (EPC) project cost
estimate for the 484.6 km OCP Pipeline and related facilities, using 2009 labor and equipment
costs. Intertek-APTECH reviewed material and component information that was made available
by OCP, in an effort to establish a clear view of the pipeline system. The cost estimate is
presented in 2009 dollars and is considered to be within 15 to 20% accuracy.

The final estimate of the Total Installed Cost (TIC) in 2009 dollars, as derived from analysis
of project benchmark comparison costs, including line fill and Value Added Taxes (VAT) is
$2,033,104,087. A list of vendor quoted cost of various pipeline components was also
reviewed as an additional source.

Intertek-APTECH examined available design and construction benchmark data for pipeline
system projects constructed in various countries around the globe over a span of 9 years from
2001 to 2009. The selected projects, which constitute the basis for this estimate, were
similar to the OCP pipeline system in overall project size, pipeline length and diameter,
number of associated facilities and general Right-Of-Way (ROW) terrain and environmental
conditions. The degree of difficulty associated with the construction of the OCP project was
taken into account by first defining the elements which impact construction activities, i.e.
number of crossings, ruggedness of the terrain, type of soil, etc. and then adopting a
industry acceptable cost upgrade factor to arrive at the accuracy level required for the
estimate.

This report is based on many document reviews including the following:

• Oil and Gas Journal. articles concerning similar pipeline projects

• Data marketed by Penwell Publishing Incorporated concerning Worldwide Pipeline

Construction Cost between 2001 and 2009

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 • Publications by Gulf Publishing containing information regarding cost estimating for
pipeline systems and marine facilities.

• 2009 vendor quotations for selected components

This estimate prepared by Intertek-APTECH meets the requirements of a Class 4 estimate as

defined in the internationally recognized AACE International Recommended Practice No. 18R97
“Cost Estimate Classification System – As applied in Engineering, Procurement, and
Construction of the Process Industries.” Even though the relative broad base of data available
for the study and used by Intertek-APTECH supports assigning the accuracy range of 15 to 20%
to this estimate, variables and unknown circumstances such as weather, customs delays, labor
shortages, material shortages, environmental or geotechnical conditions, and regulatory
requirements could increase the final estimated cost beyond this accuracy range. The
estimates provided in this report assume favorable market trends at the time of material
purchase and construction. In addition proper engineering and design work, detailed material,
equipment and construction specifications, timely equipment and material purchases and
deliveries, tight construction inspection in compliance with project specs, standards, are
considered as achievable projector targets. Class 4 estimates are usually used in feasibility
study and feasibility analysis.

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 Section 1

BACKGROUND

1.1 AS BUILT PROJECT DESCRIPTION

The following information concerning the existing pipeline system was collected and analyzed in
order to provide an overall basis for a 2009 dollar estimate inclusive of the design and
construction elements utilized in completing the original 2001 pipeline system.

The 484.6 km Pipeline System is entirely located within the country of Ecuador. The route of
the pipeline initiates within the Ecuadorian Amazon region and extends through the Andes
Mountains to the coastal area of Ecuador. In-Line-Inspection (ILI) tool launch and/or receiver
facilities are located at each of the Pipeline System pump or reducing stations as follows:

  Amazonas (PS-1-KmP 0.00)

  Cayagama (PS-2-KmP 67.4)
  Sardinas (PS-3-KmP 148.2)
  Paramo (PS-4-KmP 188.9)
  Chiquilpe (PRS-1-KmP 275.0)
  Puerto Quito (PRS-2- KmP 327.2)

A marine off-loading terminal (Marine Terminal) is located at KmP 484.6.

The pipeline consists of 4 different diameters ranging from NPS 24 to 36, 15 different wall
thicknesses, and 32 associated diameter / wall thickness combinations (refer to Tables 1-1,
1-2, and 1-3). Table 1-2 specifically reflects the diameter, wall thickness and length of
pipeline sections installed for the project. The pipe steel cost of $202,000,000.00 was
calculated on the basis of $1922.00 per ton (present day value). This value is strictly
material and manufacturing costs and does not include coating, transportation, and other
related costs which form the total pipe steel cost of $469,405,754.

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 Table 1-1

PIPE SECTION DIAMETER LENGTH SUMMARY

SECTION
SECTION PIPELINE OD (IN) LENGTH (KM)
NO.
1 PS 1-PS2 32 67.4
2 PS2-PS3 34 80.8
3 PS3-PS4 34 37.7
4 PS4-PRS1 32 89.3
5 PRS 1-PRS2 24 52.1
6 PRS2-MT 36 157.3
Total Length 484.6

Table 1-2

PIPELINE SYSTEM DIAMETER/WALL THICKNESS / INVENTORY SUMMARY

WALL INVENTORY
OD SHORT TONS MILES INCH
THICKNESS INSTALLED CALC.
[IN] OF PIPE OF PIPE MILES
[IN] LENGTH [M] BARRELS
24 0.312 5,435.20 9,470.51 704.79
0.375 8,046.07 13,869.06 1,250.68
0.500 6,872.75 11,593.21 1,416.87
0.562 5,070.97 8,461.91 1,171.95
0.625 5,444.34 8,985.15 1,395.52
0.688 5,006.64 8,171.51 1,408.88
0.750 8,798.56 14,203.45 2,691.88
0.812 7,514.43 11,997.16 2,482.42
Subtotal 52,188.95 32.41 777.82
32 0.344 12,355.09 38,626.45 1,764.03
0.375 3,922.82 12,215.63 609.76
0.438 9,626.67 29,736.11 1,743.10
0.469 9,760.06 30,028.15 1,889.85
0.500 4,453.52 13,647.22 918.13
0.562 33,552.63 101,996.66 7,754.33
0.625 46,500.28 140,204.88 11,919.22
0.750 9,652.93 28,633.61 2,953.28
0.812 11,290.42 33,219.16 3,729.84
0.875 4,729.57 13,800.34 1,679.08
0.938 9,245.87 26,754.10 3,509.20
1.062 1,494.34 4,253.16 638.69
Subtotal 156,584.21 97.24 3111.6

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 WALL INVENTORY
OD SHORT TONS MILES INCH
THICKNESS INSTALLED CALC.
[IN] OF PIPE OF PIPE MILES
[IN] LENGTH [M] BARRELS
34 0.344 12,773.68 45,199.62 1,823.80
0.375 22,519.93 79,390.34 3,500.51
0.469 24,781.73 86,378.80 4,798.50
0.500 9,108.00 31,627.74 1,877.68
0.562 30,012.15 103,436.16 6,936.09
0.625 7,236.14 24,748.39 1,854.81
0.688 12,034.23 40,842.29 3,386.47
Subtotal 118,465.86 73.57 2501.3

LENGTH [M]
36 0.375 64,892.72 257,117.44 10,086.95
0.406 27,744.67 109,543.36 4,663.03
0.438 5,708.15 22,455.39 1,033.58
0.500 6,064.61 23,689.52 1,250.26
0.562 52,949.30 205,367.11 12,237.08
Subtotal 157,359.44 97.72 3517.9
Total 484,598.47 1,589,663.59 105,080.25 Total Inch 9908.7
Mile

2009 Costs $1,922 $/ton

Pipe Cost Only $202,000,000 2009 cost estimate for

pipe only

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 Table 1-3

PIPELINE SYSTEM KEY INFORMATION SUMMARY

PARAMETER DATA
Year of Construction 2001-2003
Pipe Material X-70
Design Pressure (*)
3,200 psi (max) (Varies by pipe section)
MAOP (*) 3,200 psi (max)
MOP (*) 2,900 psi (max)
Coating type Fusion Bonded Epoxy (FBE)
Right of Way Access 4x4, walk
Cleaning frequency Monthly
Type of Cleaning Pig Conventional cups, discs and metal
brushes
Product Type Heavy crude oil (19 API)
Wax Content Insignificant
Operating temperature Can be controlled at no less than 110°F
(176°F max)
BS&W Content Less than 0.5%
Product velocity Can be controlled from 0.25 m/s (36 inch
at minimum flow) to 4.15 m/s (24 inch at
maximum flow). Slack conditions may
be present at some areas
Storage Facilities 1,200,000 barrels at the Amazonas Terminal
3,750,000 barrels at the Marine Terminal

The route generally follows the SOTE pipeline with adjustments and deviations to maintain the
integrity of the pipeline systems and extends from the receiving facilities at Amazonas in the
Oriente Region Ecuador to the OCP Marine Terminal near Esmeraldas Ecuador. The sustainable
design throughput capacity is not less than 410,000 barrels daily of 180 API crude oil. There is an
injection point approximately 151 kilometers downstream from the Amazonas Terminal where AGIP
provided all necessary facilities to inject up to 60,000 barrels per day into the passing stream.

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 Section 2

METHODOLOGY

2.1 STEPS TAKEN IN COST MODELING

2.1.1 DEVELOPMENT OF BENCHMARK COST

The study employed comparison of actual historical pipeline construction costs (parametric)
techniques and indexing to produce a realistic cost estimate. The preparation of the parametric
cost estimate is based on publically available World Wide Pipeline Cost Data from PennWell
Corporation (1421 S. Sheridan Rd., Tulsa, Okla. www.pennwell.com). This data was
supplemented with information published in the Oil and Gas Journal, obtained from relevant
web sites, and John S. Page’s book entitled, “Cost Estimating Manual for Pipeline and Marine
Structures,” the foremost publication on the subject of estimating. As a part of compiling the cost
basis, the World Wide data was filtered to focus the parametric model on pipelines that were
known to be constructed in environmental and geotechnical conditions similar to the OCP
project, which included an unstable soil, remote sites, rugged terrain and other relevant factors.

These costs were validated by knowledge gained through field reconnaissance. The general
field observation considered OCP facilities to be of better quality and the pipelines to traverse a
more difficult terrain than the majority of the pipeline systems used as benchmarks for the
parametric estimate.

The pipeline project information extracted from above sources included the countries where the
projects were constructed, pipeline diameter, length, and total installed cost. The Oil and Gas
Journal generated and presented for public information a breakdown of the relative costs for
land, right-of-way, pipe fittings, construction, buildings, pumping equipment, tanks delivery
facilities communications equipment offices and furnishings vehicles and other incidentals for
ten pipeline projects. These costs were averaged and expressed in percentages of the Total
Installed Cost. A comparison between these projects showed that the cost of any one activity

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was within a few percentiles of each other confirming that an average of such cost percentages
and the application of its indexed values to this estimating task would produce results within the
required accuracy of the project.

The details related to countries, year of construction, and costing details are shown in Appendix
B of this report.

Some of the calculated benchmarked data were also subjected to a factored increase in order to
reflect the degree of difficulty associated with the OCP project which was considered as “high”
in construction rating due to the impact of location, environmental and geotechnical conditions.
The ratings are explained in Table 2-1.

Table 2-1

PROJECT TERRAIN RATING DESCRIPTIONS

DIFFICULTY RATING DESCRIPTION

High (H) Mountains, unstable, more than 1 river crossing per mile, congested areas,
multiple road, rail, levee crossings, environmentally challenged (virgin area,
senic resources, archeologically significant or indigenous – traditional lands,
inclement weather conditions, seasonal restrictions on construction, poor
access.
Medium (M) Rolling to flat terrain, few major crossings of roads, rivers, etc., long summer
construction seasons, stable soils, farm lands or other previously disturbed
areas. Parallel to existing power lines or roads with easy access and logistics,
Near existing infrastructure.
Low (L) Flat terrain – Deserts, with road access and adequate infrastructure, few or no
crossings, and no significant environmental, social, or other impediments.

2.1.2 2009 VENDOR MATERIAL QUOTATIONS

A summary of selected pipeline system component and service costs, as provided and was
reviewed. These costs include construction materials, equipment i.e. pumps, tanks, valves as
well as services such as land acquisition, testing, construction that are directly applicable to the
OCP project.

All the data used in both estimating approaches are available in an Excel File and are delivered
in Appendix B of this report.

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Once the parametric estimate was compiled it was further adjusted for additional costs that had
to be considered for the OCP Pipeline System, as follows:

1. OCP had to purchase its pipeline product (line fill). Since most pipelines are simply
carriers, the owners of the inventory are typically the producers of the crude and thus
such costs are normally not included in the pipeline construction cost. The original line
fill cost was calculated at a per barrel cost of $45.53. The cost of replacing that
inventory today would be much higher. The current value is calculated assuming a cost
of $88.07 per barrel (anticipating a continued rise in price through the end of 2009 to
near the $100/barrel level again).

2. OCP did not receive an exemption status from VAT taxes for this construction project.
This alone increased the cost of OCP by 27 to 30% above benchmark projects
constructed in other countries which normally receive tax exemptions benefit.
Benchmark countries such as Russia, Kazakhstan, etc. typically exempt developed
projects from VAT taxes since such projects bring new opportunities and jobs, and
enable the monetization of otherwise stranded resources ripe for exploitation.

OCP also incurred additional cost in improving community infrastructure and providing
educational and recreational facilities in remote and largely inaccessible areas of the country.
Furthermore OPC spent substantial sums in training of a large workforce preparing them for
project’s difficult geographic and environmental conditions as well as the operational challenges
they would encounter.

Since the Worldwide data was used as a basis for this estimating work, it is likely that these
costs are already included in the base data used for these projections.

The final benchmark comparison cost estimate is summarized below in Table 2-2.

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 Table 2-2

BENCHMARK COST ESTIMATE IN 2009 $

(CONSIDERED TO BE WITHIN 15-20% ACCURACY)

ITEM 2009 $
Land $7,031,408
R.O.W. $36,759,467
Line pipe $469,405,754
Line pipe fittings $42,140,936
Pipeline construction $575,083,042
Buildings $39,989,068
Pumping equipment $78,587,181
Machine tools, machinery $90,687
Other station equip. $114,071,445
Oil tanks $83,344,942
Delivery facilities $26,259,183
Communications systems $6,223,127
Office furn. and equip. $3,045,317
Vehicles, other work equip. $7,000,088
Other $4,487,521

TOTAL $1,493,519,166

Add Ecuador Taxes $399,584,920

Add Line Fill $140,000,000

GRAND TOTAL ESTIMATE FOR OCP $2,033,104,087

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