UK North Sea

Strategy and Innovations for

Late Life and Decommissioning

Gunther Newcombe, Operations Director

© OGA 2017 This presentation is for illustrative purposes only. The OGA makes no representations or warranties, express or implied, regarding the quality, completeness or accuracy of the information contained herein. All and any such responsibility and liability is expressly

disclaimed. The OGA does not provide endorsements or investment recommendations. Oil and Gas Authority is a limited company registered in England and Wales with registered number 09666504 and VAT registered number 249433979. Our registered office is at

21 Bloomsbury Street, London, United Kingdom, WC1B 3HF

The UKCS offshore oil and gas sector is

high cost, low efficiency with limited

remaining potential

TRUE FALSE

Slide 3

Framework & approach

Role of the OGA

Investment

and action

Encouraging

collaboration

Effective

stewardship

Striking the right balance

Asset

Stewardship

Strategies &

Delivery Plans

Area Plans

OGA is a progressive regulator

Slide 4

Imp

rov

e d

eco

mm

issio

nin

g

eff

icie

nc

y

29

Fiscally competitive

Petroleum Revenue Tax

permanently reduced from

50% to 0%

Introduction of new

basin-wide

Investment Allowance

£40m for new

geophysical surveys

HMT launched

discussion

paper and

expert panel

on tax for late

life assets, to

report at

Autumn 2017

Budget

Supplementary

Charge reduced

from 32% to 10%

Source: Wood Mackenzie

Fiscal packages of £2.3bn introduced

during 2015/2016 in line with “Driving

Investment” principles

0%

20%

40%

60%

0%

30%

60%

90%

Angola Norway Indonesia Denmark Australia Gulf ofMexico

UK

Go

ve

rnm

en

t s

ha

re

Inte

rna

l Rate

of R

etu

rn

0.0

1.0

2.0

3.0

4.0

5.0

2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050

Gas (bcf/d)

0.0

0.3

0.5

0.8

1.0

1.3

1.5

2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050

Oil (mmbbl/d)

Slide 5

Performance turning around

0

0.5

1

1.5

2

2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050

Oil & Gas (mmboe/d) Yet-To-Find

Unsanctioned Discovered Resources

Unsanctioned Probable and Possible

Sanctioned Not Producing

Sanctioned Producing

Producing

Sanctioned

Producing

Sanctioned

• Production efficiency from 60% - 73%

• Incremental base projects

• New projects coming on production

Producing

Sanctioned

Unsanctioned (risked)

Small pools (risked)

YTF (risked)

Increasing production

Source: OGA

Stewardship Survey

Production increasing through improved

production efficiency & new developments

with considerable upside potential

02468

10121416

Slide 6

2016 Operator OPEX

Performance turning around

Managing cost

0

5

10

15

20

25

30

35

40

45 $

/bo

e

Majors

Non-Majors

2016 Average $15.7/boe

Actual

Forecast

2016 Unit Operating Cost

0

1,000

2,000

3,000

4,000

5,000

$b

n

2016 Total OPEX Breakdown

Facilities Wells Logistics Pipelines Terminals

5

4

3

2

1

$b

n

OPEX reduction through restructuring,

revised contracts and improved workforce

engagement & efficiency

Operators

$b

n

Annual Operating Costs

2014 Average $30/boe

Source: OGA

Stewardship Survey

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

UKCS Capital Expenditure

Investment

0.0

0.5

1.0

1.5

2.0

2.5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

mm

bo

e/d

ay

Sanctioned Future Production

0

5

10

15

20

25

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Field Consents

$b

n

Peak investment at high oil prices,

active evaluation of a number of new

field applications

Gas

Condensate

Oil

Under evaluation

Base production

Actual

Forecast

Source: OGA

Stewardship Survey

Slide 8

Revitalizing exploration

CNS

WoS

NNS

SNS

YTF

6bnboe

SNS

NNS

CNS

WOS

SNS

Number of Wells

SNS

MM

bo

e

Seismic research in under-explored areas, release of

reports and data, new approach to licensing and

increased technical rigour

Other

Source: OGA

Stewardship Survey

12000 0

Unlocking small pools

mm

bo

e

Producing fields

Ongoing developments

Currently locked discoveries

10

100

1000

Subsea storage

Versatile Production Unit Spooled pipeline

Unmanned buoy

CNS

WoS

NNS

SNS

2.4

bnboe

Over 350 small pools, one of key focus areas

in next licensing round, with technology

being a key enabler

Slide 9

Other

Source: OGA

Stewardship Survey

Slide 10

29

Reducing decommissioning cost

Imp

rove d

eco

mm

issio

nin

g e

ffic

ien

cy

Cost certainty and reduction

• Benchmarking

• Standardisation of methods

• Sharing good practice

Delivery

Capability

• Learning from other industries

• Contracting & commercial strategies

• Changing behaviours

Regulatory Guidance

• Improve awareness

• Communicate requirements

• Develop tools e.g. cleaning

Well

Abandonment

• Campaign approach to well P&A

• E&A suspended well stewardship

• Pilot and upscale

10%-15%

Potential savings (not additive)

25%-35% 15%-20% 35%-45%

0.0

1.0

2.0

3.0

4.0

2010 2012 2014 2016 2018 2020

Annual Decommissioning

Spend

Target is to reduce decommissioning costs by 35%

from 2016 baseline estimate

$b

n

$60bn

Source: OGA

Stewardship Survey

Slide 11

Imp

rov

e d

eco

mm

issio

nin

g

eff

icie

nc

y

29 Decommissioning – Status Update

Decommissioning experience

Brent Murchison SNS

Estimated cost decreased over £1bn

over past 2 years

Work with supply chain: cost

reduction in topsides removal

Reduced well P&A costs: execution &

contracting strategy, efficiency

improvements

Learning transferable: Shell willing to

share

Lessons learned to help half cost of

future projects

2 years ahead of schedule, estimated

final cost 88% of sanction cost

Early engagement with contractors,

flexibility of schedule

Sharing/engagement with regulators,

peers and industry

Internal well P&A campaigns delivering

50% cost reductions

Multi-operator well P&A to further

reduce costs and share experiences

Optimisation of schedule and market

flexibility

Engaging with SNS peers/industry

Slide 12

29 Decommissioning – Status Update

Baseline supply chain turnover from exports

Potential increased gross production revenue

Deliver MERUK &

realise full hydrocarbon

potential of the UKCS

Expand service sector

range, market coverage,

& double exports

World class

competitiveness

The big opportunity

Vision is to increase the prize by

half again over the next 20 years

£420bn

£280bn

£350bn

£500bn

Reve

nu

e/T

urn

ove

r p

.a.

£b

n 2

01

6 p

ric

es

2035

2014

+ £150bn

+ £140bn

Potential increased supply chain turnover from exports

Baseline gross production revenue

Source: OGA

5

10

20

15

25

30

35

0

Thank you

Gunther Newcombe

Operations Director