Subsea Expo 7 th February 2018
Investment Opportunities Oil & Gas Technology Centre 180m investment in the Oil and Gas Technology Centre (OGTC) that opened in Aberdeen in February 2017. OGTC is an industry-led research organisation backed by both the UK and Scottish governments, set up to fund projects that help realise the full potential of the North Sea as a global centre for oil and gas innovation. 2
Importance of Oil & Gas to the UK Majority of UK Energy Mix Government is committed to supporting the industry. Oil & Gas fulfils majority of current UK energy demand, and is forecast to remain material. Current production accounts for ~50% of UK gas demand and ~65% of UK oil demand. Oil and gas are essential feedstocks for a range of UK sectors and used to manufacture products we all use, and where demand is on the increase such as plastic products, medicines, detergents, asphalt, clothes, fertilisers. The main projection is the reference case, which is one view of how the UK energy and emissions system could evolve if existing and agreed government policies were implemented but no new policies or changes to existing policies were introduced. Other views of the future are possible and there are significant uncertainties in these projections. Diverse sources of energy including domestic production contribute to Energy Security. Source: Updated Energy & Emissions Projections 2016, BEIS 3
Improving Performance, Tackling Challenges UKCS Performance turning around, challenges remain Industry outcomes Production Production Unit operating E&A wells (million boepd) efficiency (%) costs ($) 2017 2016 22 1.65 73 16 2015 26 1.6 71 21 2014 31 1.4 65 30 Source: Oil & GasAuthority We ve seen improvements around the world in productivity... but possibly the most impressive has been in the North Sea. Simon Henry, Chief Financial Officer of Shell 4
Maximising Economic Recovery Production is increasing and Reserves added 30% The increase in UK production compared to 2014 Source: Oil & GasAuthority If we look at what s left to play for it is very significant and extends the life of the basin considerably. Over the last two years industry, with the OGA as a catalyst, strongly supported by government, has added 2.1bn barrels in comparison to the pre-wood forecast. Andy Samuel, Chief Executive OGA 5
Improving Performance, Tackling Challenges Challenges in a lower oil price environment Sharp decline in costs, two pronged effort on reducing costs and increasing production, bring down costs per barrel Global exploration rates are depressed, challenge to increase drilling activity Well Count Source: Economic Report 2017, Oil & GasUK The start of production from Quad 204 one of the largest recent investments in the UK is an important milestone for BP, marking a return to growth for our North Sea business. As one of the series of important, higher-margin major projects that are now steadily coming on line for BP, it also underpins our expectation for growing production and cash flows from our Upstream business over the coming few years. Bob Dudley, BP Group Chief Executive 6
Investment Opportunities 2017: A Year for Major Projects May 2017: BP announced first oil from the redeveloped Schiehallion Area, following completion of the multi-billion-pound Quad 204 project in the west of Shetland region. June 2017: EnQuest announced first oil from Kraken, a landmark project for EnQuest and the UK oil and gas sector, as one of the largest new oil fields to come on-stream in the North Sea in a decade. Aug 2017: Total produced first oil from the Edradour & Glenlivet gas and condensate fields west of Shetland, ahead of schedule and 30% under budget Dec 2017: Premier Oil produced first oil from the Catcher field in the North Sea in December, almost 30% below budget. Apr 2017: First major decommissioning project in the North Sea with the removal of the Brent Delta platform from its legs. The Brent Delta platform was transported to the Able UK Seaton Port yard in Hartlepool. 7
Investment Opportunities Uptick in North Sea M&A Deals total nearly $6bn in first half of 2017 Three of the largest PE funds are active in the basin: Carlyle, CVC & Blackstone Source: Siccar Point Energy We identified OMV UK as a strategic fit for Siccar Point given the scale, diversity, and quality of its asset portfolio. This acquisition turns Siccar Point into a full-cycle oil & gas company with a substantial and high-quality UK North Sea portfolio. We are very excited about this next stage in the company s growth. Jonathan Roger, Siccar Point CEO 8
Fiscally Competitive Government support to the sector 2013 2014 2015 2016 2017 - Decommissioning Relief Deeds introduced, providing certainty on tax relief - Joint Oil and Gas Industrial Strategy launched - Wood Review into maximising economic recovery from the UKCS - Scotland Expert Commission - HMT Driving Investment - 1.3bn Fiscal package - 20mn for Seismic - OGA established - 1bn Fiscal package - PRT reduced to 0%, SCT reduced to 10% - Further 20mn for Seismic - 180mn for Oil & Gas Technology Centre - Industrial Strategy launched - 5mn to support further exploration - Announced introduction of Transferable Tax History 9
Fiscally Competitive Autumn Budget 2017 Transferable Tax History (TTH) will be available for any deals approved by the OGA on or after 1 November 2018. The government will publish draft legislation for technical consultation in spring 2018. Gives companies buying UK oil and gas fields certainty that they will be able to obtain tax relief for decommissioning the field at the end of its life. The amount of tax history to be transferred is not pre-determined and is to be agreed by the buyer and theseller. The tax will be transferred on a last in first out basis. Safeguards are in place to ensure an undue amount of TTH is not transferred. TTH is not mandatory for future deals. This initiative is a world first and its success, or otherwise, will be watched closely by governments and companies in other mature oil and gas regions. Government will legislate in Finance Bill 2017-18 to clarify that all tariff income earned by petroleum licence holders is within the ring fence corporation tax regime. This will support the government s commitment to extend the Investment and Cluster Area allowances to include income from tariff receipts. 10
Investment Opportunities Invest in Exploration 29 th Licensing Round Closed Oct 2016, awarded Mar 2017 New innovate licence Developed in collaboration with industry Variable and flexible durations Lower rental rates Strong and diverse applications Source: Oil & GasAuthority While the results of the other two exploration wells were disappointing, we are convinced of the remaining, high-value potential on the UK Continental Shelf. The Verbier result gives us the confidence and determination to continue our exploration efforts. Jenny Morris, Vice President for UK exploration, Statoil 11
Investment Opportunities Licensing Rounds 30 th Round - Focus on mature/producing areas of the UKCS - Extensive portfolio of prospects and undeveloped discoveries technology support - Bidding closed on 21 Nov 2017 - Strong response to the licensing round despite it being focused on mature areas - OGA have received 96 applications for 239 blocks, including from multinationals and new entrants - OGA intends to offer awards to successful applicants during Q2 2018 2015/16 legacy and reprocessed legacy lines 2015/16 2D broadband acquisition 30 th Licensing Round Areas UKCS Designated Area Oil Field Gas Field Gas Condensate Field 31 st Round Source: Oil & GasAuthority - Focus on less explored areas - OGA released results of the 2016 Government-Funded Seismic Programme on 27th November 2017-31 st Round to be launched mid 2018 2D line locations are subject to data availability and quality. The final datasets may vary from this illustration. 30 th Licensing Round areas are indicative further details on blocks offered can be found on the OGA website.. The 5m funding I am announcing will help exploration to find potential new deposits, and boost prospects for jobs in Aberdeen and the surrounding area. This continues the UK government s extensive package of tax and funding support for the industry and the wider Scottish economy. Rt Hon Philip Hammond, Chancellor of the Exchequer 12
Low Political Risk Low Political Risk UK ranked at seventh place out of 190 countries in World Bank Ease of Doing Business ranking (June 2017). UK is a top scoring country, ranked 10 out of 176 countries by Transparency International. Top scoring countries tend to have higher degrees of press freedom, access to information about public expenditure, stronger standards of integrity for public officials, and independent judicial systems. Source: Transparency International 13
Managing Decommissioning Decommissioning Costs UK has a generous tax relief system, giving the industry certainty to support financial planning. UK government provides tax relief that can offset over 40% of the total cost and access to tax relief is guaranteed by the Decommissioning Relief Deed. UK Oil & Gas Authority have a target of reducing future decommissioning costs by 35%. Many other industries have found a 35% reduction in cost to be easily attainable; oil and gas decommissioning should be no different. OGA UKCS Decommissioning 2017 Cost Estimate Report. Regulations also allow for activities (and hence costs) to be phased out, which enables coordination across assets and results in synergies. A public policy issue with clear motivation for government to incentivise cost reduction. 14
Managing Decommissioning Decommissioning takes place in phases over time Cessation of Production (CoP); Decommissioning Programme (DP); Comparative Assessment (CA), Environmental Appraisal (EA) or Environmental Impact Assessment (EIA). * (as per Offshore Decommissioning Unit Industry Guidance), phasing of key milestones is case specific Source: OPRED 15
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