UKCS stimulating investment€¦ · Dr Rhodri Thomas SVP – Head of EMEARC Research . Trusted commercial intelligence 2 Agenda 1. Global context

UKCS – stimulating

investment

Dr Rhodri Thomas

SVP – Head of EMEARC Research

Trusted commercial intelligence www.woodmac.com

2

Agenda

1. Global context – the future will not be the same as the past

2. How attractive is the UK?


3

US$70–80/bbl by 2025 is needed to meet demand but continued

outperformance in North America is a real risk

Supply gap 17.5 million b/d in 2025 $70-$80/bbl required at 15% discount rate

Source: Wood Mackenzie

70

80

90

100

110

2017 Demand Demandgrowth by

2025

Non-OPECdecline,

onstreamfields

Non-OPEC,projects

under dev

Supply gap

Mill

ion

b/d

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

<$40 $40-$50 $50-$60 $60-$70 $70-$80 $80-$90 >$90

Mill

ion

b/d

OPEC Capcity Growth

Non-OPEC Other Sources

Conventional Pre-FID

US Lower 48 Future Drilling

Demand

OPEC Capacity Growth

~17 million b/d of new supply is required by 2025 to fill the supply gap


4

Competition for new investment is intense

Source: LEFT: Wood Mackenzie GEM, NACPAT. RIGHT: ‘Petroleum fiscal and licensing month in brief’ (April 2017)

Capital expenditure (2012-2019) Possible licensing rounds (next 2 years)

0

20

40

60

80

100

120

0

100

200

300

400

500

600

700

800

2012 2013 2014 2015 2016 2017 2018 2019

Bre

nt

(US

$/b

bl)

Glo

bal C

ap

ex

(U

S$

billi

on

, 2

01

7 r

ea

l)

Capex Brent

Governments are in competition to attract investment

Apr-

17

May-1

7

Jun-1

7

Jul-

17

Aug-1

7

Sep-1

7

Oct-

17

Nov-1

7

Dec-1

7

Jan-1

8

Feb-1

8

Mar-

18

Apr-

18

May-1

8

Jun-1

8

Jul-

18

Aug-1

8

Sep-1

8

Oct-

18

Nov-1

8

Dec-1

8

Jan-1

9

Feb-1

9

Mar-

19

2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0

Legend

Confirmed launch date Estimated launch date


5

Agenda

1. Global context - the future will not be the same as the past

2. How attractive is the UK?


6

1

1.5

2

2.5

3

3.5

4

4.5

5

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Pro

sp

ec

tivit

y

Fiscal Attractiveness

Better than

expected fiscal

terms

Poorer than

expected fiscal

terms

Could attract

investment and

encourage

production

Could discourage

investment and

hinder production

Source: Wood Mackenzie ‘A Balancing act: global fiscal trends and benchmarking’ (October 2016)

UK

Prospectivity ranking considers discovered volumes, success rates, YTF volumes and oil/gas balance.

Fiscal attractiveness ranking considers the size and timing of the government share, progressivity, NOC equity and bonuses

UK fiscal system – well positioned to attract investment


7

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

202

3

202

4

202

5

202

6

US

$ b

illi

on

Capex (good tech) Capex (base)

Revenue (good tech) Revenue (base)

Cash Flow

Innovative deal structures are helping to get deals done

Innovative deals in the UKCS Is there a natural exit point for PE?

Suncor

acquires

Rosebank

stake

EnQuest

acquires

BP

package

Chrysaor

acquires

Shell

package

US$1.5

billion US$2.5

billion

Farm down

or raise

finance?

Ineos

acquires

DONG

A liquid asset market has been a long standing attraction of the UK

Siccar

acquires

OMV Ltd

UK


8

Is it worth exploring in the UK?

Costs are down and when infrastructure-led exploration works, the economics are strong

2014-2016 well trends

0 20 40 60

Average cost / metre(US$ '000)

Average metresdrilled / day

Average well cost(US$ million)

2016 2014


Infrastructure-led exploration

Exploration and appraisal wells

0

100

200

300

400

500

600

1.0 2.0 3.0 4.0 5.0

NP

V1

0 J

an

20

17

(£ m

illi

on

)

P/I ratio Source: Wood Mackenzie

20

mmboe


9

0

0.5

1

1.5

2011 WM model Current WM model

NP

V1

0 J

an

17

(£ b

illi

on

)


COP: 2023

Total capex*: £143m

Rem reserves*: 75 mmboe

COP: 2033

Total capex* : +£890m

Rem reserves*: +95 mmboe

* From 2011 (capex excludes decommissioning costs)

Infrastructure time out is a huge threat

0

20

40

60

80

100

120

2017 2018 2019 2020 2021 2022 2023 2024 2025

Number of hubs with more than 5 years to COP

Existing hubs 2017


Infrastructure hubs with >5 years economic life Beryl life extension


10

0

10

20

30

40

50

60

70

80

90

2017 2018 2019 2020

US

$/b

bl B

rea

ke

ve

n, N

PV

15

Brownfield Greenfield


US$13bn of investment to play for in pre-FID pipeline

UK Pre-FID developments

Low-risk, short-cycle projects winning in the near term. Larger projects still have work to do

Bubble size = reserves

100

mmboe

What next?


11

0%

5%

10%

15%

20%

25%

30%

35%

40%

2014 to now Future

Pe

rce

nta

ge r

ed

ucti

on

, c

om

pa

red

to

20

14

Supply chain deflation Optimisation & simplification Execution efficiency


Capex: UK projects could extend reductions but this will only come by

doing things differently

Collaboration, project simplification and standardisation are all vital for keeping costs low

Indicative breakdown of capex savings (2014 base level)


12

Some progress but more needed

0

20

40

60

80

100

120

US

$/b

bl b

rea

ke

ve

n, N

PV

15

Original scenario

Current scenario


Captain EOR Rosebank

Shift in breakeven and reserves 2016 and 2017 FIDs

2016

2017

2 Arundel

Utgard

4

Corona

Lancaster

Finlaggan

Cheviot Area


13

Opex: cut by up to 40% since 2014; biggest impact from internal

efficiencies

We expect 2020 opex to be 40% higher than today

Opex / boe trajectory 2014 – 2020

$16

$29

$22

- 1/3 of reduction from

supply chain deflation

- Deferral and scale-back

of work largest factor

2014

- Majority of supply chain

savings will stick

- 60% of efficiency savings

sustainable as activity levels

increase

2016 2020


14

Large-scale decommissioning is imminent

Fields ceasing by year (2017-2030) Southern Gas Basin – Cleeton hub

0

5

10

15

20

25

30

35

Nu

mb

er

of

fie

lds

EIS

Atlantic Margin

Northern North Sea

Central North Sea

Southern Gas Basin


37

companies

£8

billion

Source: Wood Mackenzie’s Upstream Data Tool (UDT)


15

Operator

Standardisation wins

over optimisation

Reward efficiency

over price

Inflation-prone

sectors well services,

O&M, Norway rigs

Service sector

Integrate solutions

flexibly

Differentiate on

technology and service

Understand your place

in a project’s economics

Continually challenge the accepted approach, be open to new ideas

wherever they come from and be prepared to fail

Single project optimisation: the new gold-plating? Time to act

strategically, move away from project tactics


16

Disclaimer

This report has been prepared for Oil & Gas UK by Wood Mackenzie Limited. The

report is intended solely for the benefit of attendees and its contents and conclusions

are confidential and may not be disclosed to any other persons or companies without

Wood Mackenzie’s prior written permission.

The information upon which this report is based comes from our own experience,

knowledge and databases. The opinions expressed in this report are those of Wood

Mackenzie. They have been arrived at following careful consideration and enquiry but

we do not guarantee their fairness, completeness or accuracy. The opinions, as of this

date, are subject to change. We do not accept any liability for your reliance upon them.

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Documents

UKCS stimulating investment€¦ · Dr Rhodri Thomas SVP – Head of EMEARC Research . Trusted commercial intelligence 2 Agenda 1. Global context