Business Outlook Report 217 Adam Davey Market Intelligence Manager Sponsored By: 7.3.217
Agenda 1 Oil and Gas Markets 2 Supply Chain Outlook - Revenues - Share Price 3 Upstream Outlook - Capex - Opex - Production - Drilling - Decommissioning 4 Progress and Challenges
Nominal Price ($/boe) There has been a gentle price recovery over last few months but outlook remains uncertain 14 Dated Brent NBP Month Ahead 12 1 8 6 4 2 28 29 21 211 212 213 214 215 216 217 Source: Argus Media, ICIS Heren Business Outlook Report 217 3
Turnover ( Billion - 216 Money) The supply chain needs activity to drive revenues, efficiency is a vital part of the solution 45 Facilities Marine & Subsea Wells Services Support & Services Reservoirs 4 35 3 25 2 15 1 5 29 21 211 212 213 214 215 216 217 Source: EY Business Outlook Report 217 4
Index On average, oil and gas sector company share prices grew last year after 214/15 sell-off 16 14 Support & Services Facilities Marine & Subsea Wells Services Reservoirs Sector Average 12 1 8 6 4 2 Jan 214 Jan 215 Jan 216 Jan 217 Source: Yahoo Finance Business Outlook Report 217 5
197 1972 1974 1976 1978 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 UKCS Expenditure ( Billion - 216 Money) Upstream expenditure has fallen by almost 4% since 214 - this year is likely to be more stable 3 25 2 Operating Costs Development Costs E&A Costs Decommissioning Costs 15 1 5 Source: Oil & Gas UK, OGA Business Outlook Report 217 6
Capital Expenditure ( Billion - 216 Money) Capital Investment fell by 3% last year as major projects finish development phase 16 14 Committed Investment Potential Upside from Projects yet to be Sanctioned 12 1 8 6 4 2 212 213 214 215 216 217 218 Source: Oil & Gas UK Business Outlook Report 217 7
Total Capital Investment by New Field Approvals ( Billion - 216 Money) A flow of new project development opportunities is critical to the future of the UKCS 16 14 12 1 8 6 4 2 21 211 212 213 214 215 216 217 218 Source: OGA, Oil & Gas UK Business Outlook Report 217 8
Operating Costs ( Billion - 216 Money) Operational expenditure is now back to a more sustainable pre-boom level 12 Operating Cost Upper Range 1 8 6 4 2 27 28 29 21 211 212 213 214 215 216 217 218 Source: Oil & Gas UK Business Outlook Report 217 9
Production (Million boepd) Production has grown by 1% and 5% in last two years respectively next decade more uncertain 3.5 3 2.5 2 1.5 1.5 27 28 29 21 211 212 213 214 215 216 217 218 Source: Oil & Gas UK Business Outlook Report 217 1
Net Production Change (Million boe) New capacity and efficiency improvements in existing assets have been at the heart of growth 1 8 214 to 215 +1.4% Restart New Start Existing Asset Ceased 6 215 to 216 +4.7% 4 2-2 -4 Source: OGA Business Outlook Report 217 11
Number of Development Wells (including geological sidetracks) Development well spuds fell by one-third last year, a major concern for production outlook 25 2 15 1 5 25 26 27 28 29 21 211 212 213 214 215 216 Source: OGA Business Outlook Report 217 12
Unit Operating Costs ( and $/boe - 216 Money) Opex and production improvements have resulted in UOC s halving in two years 3 25 Unit Operating Costs ( per boe) Unit Operating Costs ($ per boe) 2 15 1 5 27 28 29 21 211 212 213 214 215 216 217 218 Source: Oil & Gas UK, OGA Business Outlook Report 217 13
Annual Decommissioning Expenditure ( Billion - 216 Money) Decomm growth driven by a few major projects expected COP date pushed back for many fields 2.5 2 1.5 1.5 21 211 212 213 214 215 216 217 218 Source: Oil & Gas UK Business Outlook Report 217 14
Number of Exploration Wells (including geological sidetracks) Volumes Discovered (Million boe) Exploration remains a challenge but some positive signs are emerging 5 45 4 Exploration Wells Potential Upside on Forecast Volumes Discovered 6 5 35 3 25 2 15 1 5 4 3 2 1 25 26 27 28 29 21 211 212 213 214 215 216 217 218 Source: Oil & Gas UK, OGA, Wood Mackenzie Business Outlook Report 217 15
197 1972 1974 1976 1978 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 Cash-Flow ( Billion - 216 Money) Free cash-flow returning to UKCS but will take time to filter down through supply chain 6 5 Gross Revenue Post-Tax Expenditure Post-Tax Cash-Flow 4 3 2 1-1 -2 Source: OGA, Oil & Gas UK Business Outlook Report 217 16
Progress Challenges The average unit operating cost has fallen by almost 5% in two years? To sustain and build-on recent efficient gains Total UKCS production has increased by around 16% in the last two years? To avoid a return to rapid production decline in the early 22s The supply chain has shown impressive resilience through the downturn? To retain world class supply chain capabilities in the UK that can be exported overseas Over 36mn boe was discovered through exploration activity last year? To reinvigorate E & A drilling on the UKCS and find more commercial discoveries Upstream has returned to free cash flow of around 5 billion for the first time since 213? To ensure that the UKCS is internationally competitive so it can attract capital back into the basin Business Outlook Report 217 17