Meeting the Challenge of Delivering

Successful Projects2017 Oil and Gas Project Management Conference

Gunther Newcombe Operations Director October 2017

Outline

• Government Support

• OGA Approach

• Industry Examples

• Key Messages

Project Issues

Industry needs to change approach in order to optimise projects

Cost and timing over runs

Operator and supply chain

relationships

Pace

Capital investment Graphic3

Context

Limited new capital spend committed but a number of new projects being worked to sanction

Source: OGA

Government Support

Imp

rove

de

com

mis

sio

nin

g e

ffic

ien

cy

29

Fiscally Competitive

Petroleum Revenue Tax

permanently reduced from

50% to 0%

Introduction of new

basin-wide

Investment Allowance

£40m for new

geophysical surveys

£5m Exploration data/studies

HMT launched

discussion

paper and

expert panel

on tax for late

life assets, to

report at

Autumn 2017

Budget

Supplementary

Charge reduced

from 32% to 10%

Source: Wood Mackenzie

0%

20%

40%

60%

0%

30%

60%

90%

Angola Norway Indonesia Denmark Australia Gulf ofMexico

UK

Go

ve

rnm

en

t s

ha

re

Inte

rna

l Rate

of R

etu

rn

Fiscal packages of £2.3bn introduced in 2015/2016 in line with “Driving Investment”

Allowance Simplification

Over 350 undeveloped discoveries and a key focus area of 30th RoundAllowances simplified to Investment Allowance (IA)

• Small fields

• Ultra high pressure / high

temperature fields

• Ultra heavy oil fields

• Remote deep water gas fields

• Deep water fields with

sizeable reserves

• Large shallow water gas fields

• Brown field allowance (BFA)

Allowances before

Autumn statement 2014

HMT

simplified

• Cluster Area

Allowance(Introduced December 2014)

• Investment Allowance (Introduced April 2015)

Current

Allowances

30% 40%

With IA Without IA

a fixed amount per field

proportionate to

investment expenditure

Government Take

Over 350 undeveloped discoveries and a key focus area of 30th Round

Examples of technology

Government revenues significantly reduced in future

Source: OGA/HMRC

OGA Approach

OGA correcting

by testing

assumptions

independently

Price

assumption

misalignment

Disconnect between

buyer and seller’s

assumptions and

evaluation

OGA flexible and

enforcing

MER UK Strategy

Assets in

right hands

Licensees not

investing or

realising potential

Infrastructure

Code of Practice

underpinned by

powers to impose

terms

Access to

infrastructure

Third parties cannot

gain access or access

on reasonable terms

OGA clarifying

area hubs or

strategy synergies

to help optimise

asset packages

Divestment

packages

Do not necessarily

ensure that assets are

in the right hands

OGA working with

investment

community to

promote new

opportunities and

discuss new

financing models

Lack of capital

Traditional

funding models

not available

HMT has

published a paper

on how tax can

support transfers

of late-life assets

UKCS fiscal

regime

Tax system may be

deterring sales of

assets close to

decommissioning

OGA assisting

where required;

standardised

agreements and

processes will

help

JOA structure

misalignment

Lack of sole risk

provisions, pre-

emption rights, and

financial capability

concerns

OGA to issue cost

norms and

benchmarking;

standardised DSAs

needed

Decommissioning

Cost uncertainty & lack

of DSAs cause deal

delay

Removing Barriers

Over 350 undeveloped discoveries and a key focus area of 30th RoundOver $8bn invested in UKCS M&A during 2017

Project Learnings

Over 350 undeveloped discoveries and a key focus area of 30th RoundECITB, OGUK and industry working together to produce project guidance

March 2017

• 11 diverse major projects reviewed in detail by

OGA, operators and Tier 1 contractors

• No relationship between project size/complexity

and outcome

• Key finding is that leadership and behaviours are

critical for success

• OGA will continue to work with industry using asset

stewardship processes to ensure learnings are

transferred and MER UK maximised

SE-05 Robust Project Delivery

• Deliver projects as per cost/schedule at project sanction or decommissioning programme

• Project needs to demonstrate competitiveness and robustness and identify challenges

Indicators to Assess Delivery Outcomes

• Accountable leadership

• Dedicated delivery organisation in place

• Stage gate or check point project system in place

• Benchmarking assessment prior to investment:

• Documented evidence that MERUK considered:-

• New infrastructure optimally configured

• Utilise existing infrastructure

• Re-use of existing assets (3rd party)

• Encourage sufficient front end preparation

• Ensure delivery of main project parameters

• Improve predictability of project delivery

assessed against previous projects

• Drive efficiency and reduce development costs

• To directly support MER UK strategy

• OGA will judge a project using delivery

milestones, not the processes to deliver it

Stewardship Expectations set out good practice for operators

Supply Chain Action Plans

SCAP process facilitates and demonstrates that operators are:

MER UK

Strategy

Legally binding

obligations

Field Development Plan

/ Decommissioning

Programme

All projects requiring

an FDP/DP should

produce a SCAP

Stewardship

Expectations

Tier 1 contractors

should complete

SCAPs for projects

>£25m

SE-05 Robust

project delivery

SE-10 Planning for

decommissioningInnovation Quality

Engagement Trust

Evaluation Criteria

Over 350 undeveloped discoveries and a key focus area of 30th RoundCurrently being piloted by 3 companies and will form part of revised FDP and DP requirements

Field Development Plans

Over 350 undeveloped discoveries and a key focus area of 30th RoundRevised OGA FDP Guidance will be issued in 4Q 2017

Assessment Execute

HSE

Project

Kick-Off

Concept

Select

Draft

FDPFinal

FDPD&P Consent

Issued

First

Oil

Authorisation

Consultation on Project

Execution Plan

Development Options

Evaluation

EOR Screening

Consultation on SCAP

FEED & PEP

Determination

Field Operator Approval

Host Facility Addendum

UUOA

Supply Chain Action Plan Monitor Project Execution

Commissioning

Consents Issued

PWA

OGA

Environmental Statement

PreparationEnvironmental Statement

Consultation

Design or Relocation Notification Review

Decommission Security arrangements agreed

BEIS

Safety Case Accepted

by OSDR

MILESTONES

Small Pools Initiativem

mb

oe

Producing fields

Ongoing developments

Currently locked discoveries

10

100

1000

Over 350 undeveloped discoveries and a key focus area of 30th Round

Remaining reserves Examples of technology

Over 3bnboe in discovered resource with over 150 small pools offered in 30th Round

Industry Examples

Project Partnership

Different operator mind-set and way

of working

SURF/SPS functional tender rather than

price tender

Collaborative Contractor Club no bespoke

solutions – all price competitive

Baker Hughes/GE a fully integrated

solution

Redeploy FPSO – best fit solution

Investment giving senior banks

confidence

Unlocking the Cheviot Field (Block 2/10b, 2/15a, 3/11b)

Cheviot

Alpha Petroleum working in partnership with GE and Baker Hughes to develop Cheviot

75mmboe with 18 firm wells delivering 30,000boep/d with first oil 2019

Project Funding

Innovative funding model by Premier enabling Tolmount development to proceed

Different operator mind-set and way

of working

CATS Management Ltd and Dana

Petroleum fund portion of platform and

export line

Tariff payments once production

commences based on minimum rate

Modifications to Dimlington Terminal also

covered in the deal

Feed in progress with sanction 1H 2018

Tendering for platform, pipeline and

Drilling rig to start soon

4 initial wells delivering 300mmscfg/d with first gas 2020

540bcf

250bcf

Project Pace

Apache fast track of Callater from discovery to first oil in less than 2 years

Well completed May 2017

CB2 online July 2017

Key Messages

• Government and OGA framework in place

• Learnings are out there to be shared

• Leadership and behaviour are key to success

• Encouraging signs that culture is changing

Industry needs to change approach in order to optimise projects