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Economic Report 2018 Aberdeen Business Breakfast Ross Dornan, Market Intelligence Manager 11 September 2018
Economic Report 2018Aberdeen Business Breakfast
Ross Dornan, Market Intelligence Manager
11 September 2018
Agenda
2
1 Where we are as a basin
Activity
Production
Drilling
Decommissioning
2 The UKCS investment proposition
Cost competitiveness
Supply chain
Fiscal stability and attracting new entrants
Resources
3 Look to the Future
Vision 2035
Embracing the Energy Transition
Economic Report 2018
The UKCS in 2018 – E&P snapshot
3
Business Environment
Economic Report 2018
4
UKCS Performance
20
25
30
35
40
45
50
55
60
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May
2014 2015 2016 2017 2018
Mo
nth
ly P
rod
uct
ion
(M
illio
n b
oe)
Monthly Production 12-Point Moving Average
Source: OGA, JODI
Economic Report 2018
Production performance has remained strong –peak likely in 2018/19
The decline in drilling activity will impact the production outlook
5
UKCS Performance
0
50
100
150
200
250
300
350
400
4501
96
4
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
Tota
l Wel
ls D
rille
d p
er Y
ear
Exploration Appraisal Development
Source: OGA
Economic Report 2018
2018 has seen an increase in new major project approvals, but more are needed
6
6Greenfield developments have been
signed off by operators so far this year
Containing more than
280 million boe
Releasing potentially more than
£2.5 billion in new capital investment
Economic Report 2018
Penguins Redevelopment
Alligin
Buzzard Phase II
Vorlich
Fram
Tolmount
A number of Decommissioning centres are emerging around the UK
7Economic Report 2018
Shetland Islands
Tayside/NE Scotland
Teesside
Great Yarmouth
9
0%
10%
20%
30%
40%
50%
60%
0
2
4
6
8
10
12
14
16
Norway Malaysia India Mexico - Gulfof Mexico
West Africa US - Gulf ofMexico
Brazil UKCS
Red
ucti
on in
Uni
t O
pera
ting
Cos
ts 2
014-
17
Uni
t O
pera
ting
Cos
ts ($
/boe
-20
17 M
oney
)
2017 UOC (LHS)
Reductions in UOCs 2014-17 (RHS)
Source: Rystad Energy
UKCS Performance
Economic Report 2018
The UKCS is more expensive than its peers. Efficiencies must be maintained and built upon
The availability of a competitive supply chain is a vital part of attracting investment to the basin
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UKCS Performance
Economic Report 2018
0
20
40
60
80
100
120
140
160
180
January2013
January2014
January2015
January2016
January2017
January2018
Shar
e P
rice
Ind
ex
Facilites Marine & Subsea
Support & Services Well Services
Source: Oil & Gas UK, Yahoo Finance
Fiscal Stability is a key driver behind new investment in a mature basin
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UKCS Performance
Economic Report 2018
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2009 2018
Pro
po
rtio
n o
f U
KCS
Pro
du
ctio
n
Majors Large Caps Mid Caps Private Equity Utilities Other
Source: Oil & Gas UK, WoodMackenzie
Competitiveness is key to realising the resource potential of the basin. We need to stay the course
15
0
5
10
15
20
25
2000 2002 2004 2006 2008 2010 2012 2014 2016
Oil
and
Gas
Rse
rves
an
d R
eso
urc
es (
Bill
ion
bo
e)
Proven and Probable Reserves
Possible Reserves
Contingent Resources
Source: OGA
UKCS Performance
Economic Report 2018
UK Oil & Gas IndustryContribution and Opportunity
- A world-class indigenous supply chain
- Employment
- Exchequer
- Energy Security
- Enterprise
- Sector Deal
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Future BasinTh
e W
orl
d In
20
40
Total Economic Growth + 100%
Growth in Primary Energy Demand + 30%
Global Population Increase + 20%
We must embrace the energy transition, Industry will play a vital role
The oil & gas industry will remain a key pillar of the energy mix in the near term, with most estimates forecasting continued use well into mid-century
In the long term, Oil & Gas and the wider industry will provide low carbon opportunities.
The outcome of the energy transition will be dependant upon a range of technological, regulatory, political and societal drivers.
Image Credit: Equinor
✓
Our cost profile is in a much more competitive position
✓
Total UKCS production has increased by around 20% over three years
✓
The supply chain has shown impressive resilience through the downturn
✓
An inviting exploration framework has paved the way for increased activity
✓
Whilst profit doesn’t equate to stability, increased free cash-flow has eased some constraints
? To sustain and build-on recent efficient gains
?To avoid a return to accelerated production decline in the early 2020s
?To retain world class supply chain capabilities in the UK that can be exported overseas
?To reinvigorate E&A drilling on the UKCS and find commercial discoveries
?
To ensure that the UKCS is internationally competitive so it can attract capital back into the basin
UK Oil & Gas Industry An industry at a Crossroads
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© 2017 The UK Oil and Gas Industry Association Limited, trading as Oil & Gas UKEconomic Report 201820
