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LECC March 2019

Asset Ownership Changes – some personal observations

March 2019

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DISCLAIMER

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Factors Required For A Successful Asset Deal

BUYERSELLER

SELLER OBJECTIVES

• Cash• Strategic Fit• Portfolio Fit• Too difficult /

underperforming• etc

BUYER OBJECTIVES

• Growth• Strategic Fit• Capability Fit• Regional Expansion• etc

Regulators –good operator?

Banks / Investors –proper use of funds?

Do they have the ca$h ?

Acceptable liabilities?

JV Partners

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QUIZ QUESTION:

What do you think was generally the key influencing factor of deal price in a typical North Sea gas pipeline transaction?

A. Future Capex

B. Future Operating Costs (and how to allocate to shippers)

C. Regulation

D. Existing Transport Contracts

E. Future Transport Contracts

F. All of the above

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Recent Forces Influencing North Sea M&A Activity

Oil Price / Economy

Fiscal Changes

HSE Regulation

Asset Maturity

US Shale

Public Perception

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Who Has Been Selling, Who Has Been Buying?

Selling

Ø UtilitiesØ IOCsØ Foreign Independents

Buying

Ø Private Equity Ø SpecialistsØ New Entrants

All OMV N Sea AssetsENGIE E&P(N sea, N Africa, SE Asia)Various Shell N Sea Assets

All of Maersk OilFUKA, SIRGE & St Fergus

Breagh, Clipper SouthForties Pipeline System, DONGVarious N Sea AssetsMerger of ONE and Dyas

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What Are You Good At? New Field Developments Versus Operating Mature Assets

Ø Technology Leadership / Innovation

Ø Moving the NeedleØ OverheadsØ Finders / Developers

Ø Operating Excellence Ø Cost Reduction FocusØ Lean & MeanØ Late Life Focus

Example of two different operating models

Typical IOC Independent Mature

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This NPV sensitivity analysis tornado diagram is typical of a:

A. Sizeable New O&G Development Project

B. Small New O&G Development Project

C. Mature O&G Field

50

30

10

10

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OPEX

CAPEX

Oil Price

Production

Inflation

NPV tornado diagram(illustration only)

QUIZ QUESTION:

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Mature Assets – Abandonment Risks

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M&A Lesson - Avoid Silo Thinking

Legal due diligence

Commercial due diligence

Financial due diligence

Technical due diligence

Tax

Revenues / Clients

O&M

Suppliers

Partners

Liabilities

HSE

Regulatory

ABANDONMENT COST

OPEX IMPACT OF TRANSPORT CHARGES

AVOID OVER-RISKING

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Conclusions

Ø As the North Sea is maturing, assets will increasingly change hands between companies with different strategies

Ø Regulators will continue to influence the M&A landscape

Ø There is still plenty of development opportunity in the N Sea, but securing an export route into ageing transport systems may be challenging

Ø Companies are getting more comfortable with decommissioning risks

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