Fiscal Year 2006

Management Policies
Strategic Overview
Nobuo Seki
President and CEOMay 15, 2006

Contents
1.
2.

Double Step-Up Plan (DSP) 2008 Progress ReportMarket Outlook :World Energy Supply-Demand Balancezz

3.
4.
5.

Heavier Crude Oil. Higher Demand for Light Products.
Rapid Expansion of Natural Gas Shift: Spurring Investment in LNG Plants

Recent Risk Factors and Our Countermeasure
Initiatives for Continuing Reform of Internal Control
Systems
Summary: Aiming to be “Reliability No. 1” andCompany able to “Sustain Earnings Growth”

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Chiyoda Corporation21 Double Step-Up Plan (DSP) 2008 Progress Report

Business vision

Aiming to be “Reliability No.1” Project Company andExcellent Company able to “Sustain Earnings Growth”

DSP 2008’s business plan is front loaded and increasing.
Next four strategies measure in the midst of development<Present State: Proceeding Condition>< Business Strategy >・ Further upgrade Reliability Program
Build long-term partnership with clients

S1

based on superior technologies bypromoting Plant Lifecycle Engineering

Clients

S2

Further strengthening of the project
accomplishment power by promoting
Smart EPC and utilizing group’s
collective strengths

・Upgrade risk management skills
・Upgrade advanced IT skills (especially Construction IT,Procurement IT)
・ Strengthen GES: The Philippines engineering design
subsidiary became a wholly owned subsidiary・ Utilize “ Lessons Learnt” / Promote Knowledge
Management

Establish a chronically sound financial
position able to support the creationof next-generation businesses.

・Enrich capital stock・Enhance profitability of license sales and selective
investment in new technologies

Execution

S3
FinanceS4
HREngineering Criticality Study,
Technical Cold Eye Review

Create an energetic organization
and refine employee skills.

・BSC Integrated Management
・Continuously hire of professional personnel (5,600workforce system)
・Re-hire our retired employees and pass on theirtechnological knowledge and expertise to the next
generation.

BSC: Balanced Score Card (A strategic management system)

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3

Energy Supply-Demand Balance:
2 Global
An Age of Mega-competition for Securing Energy Supplies
Continuous Booming ofPlant Engineering Market

World Primary Energy Demand

Millions of Ton Oil Equivalent

Source: IEA (International Energy Agency) / World Energy Outlook 2004The significant impact ofescalating crude oil prices on
the global economy needs tobe closely monitored.
Oil

Chiyoda’sMarket Outlook
Oil: Deliverability Problem
Problem: Availability Æ Deliverability
More investments in refineries:
UltraUltra-largelarge-scale refinery projects
Chemical Refinery Integration:
Integration:
Expansion & new construction
Upgrading heavy oil to distillate products:
Processing of residue oil (RFCC, etc.)
Japanese oil majors

Natural Gas: Accelerated Gas ShiftNatural gas

Coal

Global LNG’
LNG’s dramatic growth
Large gas and chemical projects
using associated gasNew clean energy: Growing GTL
and other new energy markets

Other renewables

Nuclear
Nuclear power
power
Water
Water

Coal: Important fuel for
power generation

Rising demand for coal and tightening ofenvironmental regulations
Growing demand for flue gas
desulfurization
Business model reformÆCTCT-121 license sales
Clean coal technologies : coal gasification etc

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２Heavier Crude Oil. Higher Demand for Light Products.

・Crude oil price fluctuates in the stratosphere as a
primary energy source.
・Light-heavy crude oil differentiate and crude oilprice move together.

・Installing heavy oil cracking
plant・Improving efficiency ofrefinery with bottomlessconversion andadvancement

70

7.00
6.00

50

5.00

40

4.00
'97 '98 '99 '00 '01 '02 '03 :'04 '05 '06/Jan-Apr
1.55, 1.31, 1.00, 1.57, 1.17, 0.88, 1.57 $/B 3.61, 5.45, 4.90 $/B

30

3.00

20

2.00

10

1.00

00.00
Feb 21, 1997
Jun 13, 1997
Oct 03, 1997
Jan 23, 1998
May 15, 1998
Sep 04, 1998
Dec 25, 1998
Apr 16, 1999
Aug 06, 1999
Nov 26, 1999
Mar 24, 2000
Jul 14, 2000
Nov 10, 2000
Mar 02, 2001
Jun 22, 2001
Oct 12, 2001
Feb 01, 2002
May 24, 2002
Sep 13, 2002
Jan 03, 2003
Apr 25, 2003
Aug 15, 2003
Dec 05, 2003
Mar 26, 2004
Jul 16, 2004
Nov 05, 2004
Feb 25, 2005
Jun 17, 2005
Oct 07, 2005
Jan 27, 2006

Arabian Light Spot Price : $/bbl

60

Light-Heavy Crude Price Differential : $/bbl

Differential API 7º(Arabian Light 34º)-(Arabian Heavy 27º )Widening disparity between heavy andArab Light

Dollars per Barrel

light crude oil price ：Arabian Light/Heavy

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Chiyoda Corporation5

２Clean Energy:Rapid Expansion of Natural Gas ShiftNatural gas estimated recoverable reserves： LNG Plant demand :(Million ton)

BP Statistical Review of World Energy 2005

■World total：6,337 TCF
1. Russia 1,694 TCF（TCF（26.7％）
26.7％）
2. Iran
971 TCF（TCF（15.3％）
15.3％）
3. Qatar
910 TCF（TCF（14.4％）
14.4％）

400

FormerSoviet Union&Eastern Europe

350

89 TCF

379

300

Increasing

164

250

+ 255

200
150

100
2,171 TCF
50・・・ 0WesternEurope■15 million ton x 17 years

10012484

115

29112003

Total ：140 mtpa
@2005
Asia Pac:91 mpta
Europe: 35 mtpa
America:14 mtpa

2020

(Source: Cedigaz "International Gas Report" May 21, 2004)

Projects awarded
to Chiyoda*Ras Gas (3)*Qatargas (3,4)

Africa496 TCFAmerica

Middle
East
2,571
TCF

EuropeAsia-PacificNorth
America
258 TCFLNG Plant Construction Plans :■181 million ton

Australia& Asia
502 TCF(As of April 2005)

Latin
America251
TCF：500 million ton x 36 trains: Projects awarded
in FY2005

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6

３ Recent Risk Factors and Our CountermeasureSudden increases in prices of materials and other items (Higher prices of basic
materials such as copper, nickel, and zinc push up the cost of cables, stainlesssteel and galvanizing)→ Early procurement arrangements and order placement, reflection ofhigher prices in contract terms and negotiations with customers.

Guaranty of longer delivery lead times items (Cost rise of pressure vessels,heat exchanger and compressor, risk of longer delivery lead times anddeterioration)→ Securing early, long-term commitment from vendors: Strengthen
quality control and delivery date management (Enhance Procurement
Management: South Korea and Italy)* Quality Management utilizing the wide experience of Special “Fabless” Team
(Experienced Master Engineers)

Increase in manpower cost (of experienced workers), capacity shortages atsubcontractors→ Strengthen relationship with partners and promote Construction IT

Increase of uncertainty→ Further strengthening of risk management
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３

Oman Qalhat LNG Project Quick project completion

First step towardbuilding confidence
as “Reliability No.1”

 Flawless Start-up(started operation without troubles) Omanization(Ratio of local employees)
 Safety Record in Construction:

38 Months without Lost Time Incident
25

LNG export volume: million ton / Year@2005
LNG輸出量：百万㌧／年@2005

Oman LNG
Source: Cedigaz “International Gas Report” April 21,
2006

20

LNG production capacity:
Total 10.39 mtpa
3.3 mtpa X 2 trains15( 6.72 mtpa, completed in February 2000),
23.18

1021.37

Start production: From Feb. 2000
20.15

18.51

11.03

50

3.67

Indonesia

Malaysia

Qatar

Algeria

Australia

10.01

Trinidad

8.78

Nigeria

Oman’s LNG Export: 9th in theworld / 2005

Qalhat LNG (train 3)
6.76

6.72

BruneiOman(3.67 mtpa, completed in Dec. 2005)
mtpa: million ton per year

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４Initiatives for Continuing Reform ofInternal Control Systems
To aim at establishing a highly transparent management• Coordinate risk management and Cold Eye Review• Effectively complying with METI’s “INTERNALCONTROL IN THE NEW ERA OF RISKS” since FY2003• Integrate Balance Score Card Management →Improve and reform business processes;
Raise maturity level of organization• In-house evaluation of internal control systems◆ Compliance with the New Companies Act:Established the Internal Control Committee◆ Strictly enforced and promoted Corporate Social
Responsibility (CSR)
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Chiyoda Corporation9Summary :Aiming to be “Reliability No. 1” and５
Company able to “Sustain Earnings Growth”
DSP2008 Medium-Term Management PlanFirst year: Satisfactory progress achieved
Second year: Prudently accelerate DSP2008 programs and start
bringing in benefits
1.

Execute projects in manner that will win recognition
as Reliability No. 1 Company
3 Large LNG projects in Qatar / Success of domestic
petroleum large-sized projects
Rigorously executing the Double-Check System
Customer’s Success through Reliability No.1
(Raise awareness throughout the company )2.

Initiate programs to achieve goals defined inDSP2008 Medium-Term Management Plan
Early achievement of concrete goals
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10Please address inquiries to: Takuhiro Murata, IR Manager, Corporate Communications OfficeTel: 045-506-7538 Fax: 045-506-7085 Cell: 090-3348-3484
e-Mail: tamurata@ykh.chiyoda.co.jp URL： http://www.chiyoda-corp.com/Forward-looking Statements
The forecasts and plans in this presentation are based on information available to management on May
15, 2006, the date these materials were prepared. Actual results may differ significantly from these
forecasts for a number of factors, including but not limited to changes in economic conditions andoperating environment in Japan and overseas.

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11