AOG Conference Learning from other Geographies North Sea Adam Davey & Stephen Marcos Jones 24 th February 2017
Who are Oil & Gas UK? Raise profile Deliver industry initiatives Promote dialogue Engage with governments and other stakeholders Oil & Gas UK s vision is To ensure that the UKCS becomes the most attractive mature oil and gas province with which to do business
Agenda 1 Where were we in 2014? The case for change 2 Industry Intervention The ETF 3 Where are we now in 2017? Impact of ETF 4 Q&A
Where were we in 2014? The case for change
Total Expenditure ( Billion - 2015 Money) Industry expenditure was at an all time high 30 25 20 Decommissioning Costs Exploration and Appraisal Costs Development Costs Operating Costs 15 10 5 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: Oil & Gas UK, OGA 5
Cash-Flow ( Billion - 2016 Money) In 2014 the UK Upstream ran a free cash-flow deficit of almost 5 bn 60 50 Gross Revenue Post-Tax Expenditure Post-Tax Cash-Flow 40 30 20 10 0-10 -20 Source: OGA, Oil & Gas UK 6
Turnover ( billion - 2016 Money) Oilfield service companies were growing but could see the future was not bright 45 Facilities Marine and Subsea Wells Sevices Support & Services Reservoirs 40 35 30 25 20 15 10 5 0 2009 2010 2011 2012 2013 2014 Source: EY 7
Industry s Intervention: The Efficiency Task Force
The Efficiency Task Force Oil & Gas UK Board ETF Steering Group Business Processes Inventory Management Compression Systems Procurement Logistics Standardisation Subsea Standardisation Valves Cooperation, Culture & Behaviours Industry Behaviours Charter REE CIN Maintenance
Business Process
Efficiency in Inventory Management Apache North Sea, Centrica, EnQuest, Shell Upstream International and Talisman Sinopec Energy UK Limited 200,000 items of varying value on the trading platform
Efficiency in Procurement
Efficiency in Logistics
Standardisation & Simplification
Subsea Standardisation and Simplification Real Life Case Study -Prospect Review Centrica West Pegasus Applying the Theory Research Findings Potential efficiencies that could be applied to subsea developments by adopting a fit for purpose and a more simplified approach to projects. The objective of undertaking this prospect review was to establish what cost savings could be realised when applying the findings identified to date to an existing prospect considered economically challenging.
Subsea Efficiency Cost Savings Range* Project Management and Engineering 20.4% 24.7% Procurement, Manufacture and Fabrication 14.8% 28.3% Transportation and Installation 16.3% 33.6% The above % indicates the savings achieved within these groupings. Overall Percentage Savings 20.4% 24.7% * Dependant on Field Option Approach is not just limited to subsea application Further cost savings are possible through application to other areas
Culture & Behaviours
Industry behaviours and level of collaboration is improving
Rapid Efficiency Exchange Portal to facilitate cross industry learning and sharing of case studies 50 industry efficiency improvement case studies Highlight challenges being faced to encourage potential solutions REE v2 being developed Inclusion of workforce engagement element Ideas submission portal Activity tracking/follow-up assessment Discussion forum
Focus for 2017
ETF Deliverable Prioritisation High Promote 1 Focussed Priority 2 1 Culture & behaviours 2 Communications 3 Logistics Impact 7 8 6 3 4 5 4 Commodities (valves test case) 5 Procurement & Tendering 6 Subsea 7 Compression 8 Inventory Low Low Low Priority Focus Early Impact/Quick Win High Training and competency to be scoped 21
Where are we now?
Total Expenditure ( Billion - 2015 Money) Expenditure is heading back toward 2010 levels 30 25 20 Decommissioning Costs Exploration and Appraisal Costs Development Costs Operating Costs 15 10 5 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Oil & Gas UK, OGA 23
Capital Expenditure ( Billion - 2016 Money) Attracting new investment into the basin is one of the biggest challenges currently facing the UK 16 Committed Investment 14 12 Potential Upside from Projects yet to be Sanctioned 10 8 6 4 2 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Oil & Gas UK 24
Operating Costs ( Billion - 2016 Money) Operating costs have come right back down to levels last seen in 2007 12 Operating Cost Operating Cost Forecast Upper Range 10 8 6 4 2 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Oil & Gas UK 25
Is the cost reduction market driven or sustainable over the long term? Price Reduction 15-20% 20-25% Operational Change 10-15% Deferred Demand 40-50% Eliminated Demand 26
Production (Million boe/day) Production back above 1.7mn boe/d, driven by efficient operations and new capacity 3.5 3 2.5 2 1.5 1 0.5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Source: Oil & Oil Gas & UK Gas UK 27
Unit Operating Cost s ($/boe - 2015 Money) Unit operating costs back to a sustainable level... Future production holds the key to this picture 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Oil & Gas UK 28
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Cash-Flow ( Billion - 2016 Money) Summary: Last year was the first year of cash-flow surplus since 2012. Problem solved? Not quite 60 50 Gross Revenue Post-Tax Expenditure Post-Tax Cash-Flow 40 30 20 10 0-10 -20 Source: OGA, Oil & Gas UK 29
Any Questions? www.oilandgasuk.co.uk info@oilandgasuk.co.uk #oilandgasuk 2016 The UK Oil and Gas Industry Association Limited, trading as Oil & Gas UK