The UKCS in 2005 - Sustaining Success, Competing for the Future
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Transcript of The UKCS in 2005 - Sustaining Success, Competing for the Future
The UKCS in 2005 - Sustaining Success, Competing for the Future
Steve HarrisCommunications Director
UKOOA
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UKCS in 2005 - Sustaining Success, Competing for the Future
Introduction – the Global perspective
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Demand for crude oil has surged, with an obvious impact on crude oil prices
• Crude oil prices have risen to prices last seen in the 70’s – From a low of $11 in 1998 to $60+ in 2005
• This time less of a price shock– Driven by growth in demand rather than drop in supply
• Rising global oil prices have lead to – Increase in UK fuel prices– Rising gas prices – Placing additional strain on UK and Global economy
World Spare Oil Production Capacity
Source: EIA, Sept ‘05
Oil Price (£2005)
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1965 1970 1975 1980 1985 1990 1995 2000 2005
Pric
e Pe
r Bar
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005
Pric
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$/bbl£/bbl
$47£39
$24£16
$33£20
Average oil price over period
Source: Wood Mackenzie / UKOOA
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1965 1970 1975 1980 1985 1990 1995 2000 2005
Pric
e Pe
r Bar
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Pric
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$/bbl£/bbl
$47£39
$24£16 £
Average oil price over period
Source: Wood Mackenzie / UKOOA
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However, UK is better placed than many to face oil price rises
• UK Economy is less sensitive to oil price – Oil intensity halved since 1975
• UK has been a net oil exporter for 25 years– Could still be a net exporter until end of decade – Currently saves imports of over £30 billion
• Tax Revenues from UKCS have surged in last 12 months– Expect to reach £10 billion in 2005/6– Revenues doubled from UKCS in a year
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Substantial opportunities remain in the UKCS, but life is getting harder
• Produced 34 billion boe* over the last four decades *(barrels oil equivalent)
• Could still have another 28 billion boe (inc yet-to-find)
• Reserves replacement in 2004 (DTI)– Produced 95 bcm gas (billion cubic metres), replaced 25 bcm (26%)– Produced 725 million bbls oil, replaced 460 million bbls (64%)
3261121995-2004
9372421985-1994
13751751975-1984
24276861965-1974
Total Discovered(billion boe)
Average discovery size (million boe)
Number of discoveries
3261121995-2004
9372421985-1994
13751751975-1984
24276861965-1974
Total Discovered(billion boe)
Average discovery size (million boe)
Number of discoveries
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UKCS faces strong competition - even around the North Sea
• UK finding costs relatively high ($/bbl)– Netherlands – half cost of UK (Southern Gas Basin) – Norway – fifth cost of UK (Central / Northern N Sea)
• New UK developments typically modest in size – UK discoveries now (25 million bbls oil or 3 billion m3 gas )
(historic field sizes +/-500 million bbls oil, +/-100 billion m3 gas)– Norway – modest to very large – Reflects maturity of UKCS
• UK has advantages – Extensive infrastructure coverage aides swift development– Shared sense of urgency (Window of Opportunity) – Wide diversity of investors
(circa 120 in UK vs. circa 30 in Norway)– Ready access to UK & European gas markets
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How is the UKCS responding in 2005
UKCS in 2005 - Sustaining Success, Competing for the Future
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Both investment and expenditure on increase in 2005
• Total Spend in UKCS could reach £10 billion in 2005 (Exploration, Capex & Opex) • Capital investment has turned round over last 15 months
– Was declining rapidly post 2002 – Could reach £4.5 billion in 2005 (forecast £3.8 billion in Jan)
• Est. 24 projects approved in 2005 – vs 27 in 2004 & 14 in 2003
• Operating costs expected to exceed £5 billion in 2005, – £0.3 billion increase on 2004, – Increasing expenditure to extend life of assets and infrastructure
Capex Trends 2002 - 2005
2.5
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2002 2003 2004 2005
Cap
ex £
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Estimate June 2005
Capital Investment 2002 - 2005
Capex Trends 2002 - 2005Capital Investment 2002 - 2005
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Activity has increased in 2005, but still to feed through to production
UKCS Development Wells
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Production
Development wells UKCS Development Wells
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UKCS Development Wells
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Production
Development wells
• Development well drilling is increasing– First time in three years – Drilled 166 in 2004, compared with 113 for Q1/2 – 2005
• Still to assess impact on production• Est 16 start-ups in 2005 (vs. 11 in 2004)
Oil / Gas production Actual / Projected
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Oil price is not the only factor driving activity on UKCS
• Industry and DTI through PILOT have collaborated to promote a positive business environment – Recognising high cost and maturity of UKCS – Sought new means to encourage investment, attract new players and maximise
economic recovery
• 2001: Progressing Partnership– 3 voluntary processes designed to facilitate asset churn– Fallow acreage exploit or drop, preemption transparency, negotiation conduct
• 2003/4: Infrastructure Access Code of Practice– Facilitates satellite development through existing extensive infrastructure
• 2004/5: Brownfields Initiative– Quantifies remaining potential and window of opportunity– Initiatives to share best practice and encourage new technology– Asset Stewardship process to ‘encourage’ full exploitation– Ongoing decommissioning working group
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Resources and skills are in high demand across oil industry
• Supply chain is working flat out– Takes six – twelve months for full impact to flow through to wider sector
• Drilling Rigs
– Drilling fleets are fully booked for 2005, very few left for 2006– Rig-rates doubled (jack-ups) or trebled (semi-sub)– Increasing collaboration in drilling programmes– 2 Jack-ups, 3 semi-subs returned to N Sea in last year– Katrina added to shortage of rigs
• Skilled personnel in tight supply across industry & supply chain– ILT Capacity and Capability initiative– Industry Technician training programme now producing 100 new technician
apprentices per year
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Exploration & Appraisal - benefiting from recent initiatives
• Exploration & Appraisal activity surged– expect 80 wells for 2005
• Benefited from range of collaborative PILOT / DTI / Industry initiatives– Fallow / promote / Commercial CoP / Infrastructure CoP
• Heightened rate of E&A is critical to future of UKCS– 2002/3 slump in E&A is impacting the rate of new developments
UKCS Exploration & Appraisal Activity 2000 - 2005
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Insights from 22nd & 23rd licensing rounds
22nd Licensing round – 97 licences offered to 58 companies– 15 new entrants– 3 firm commitment wells
• Planned in a $30 world• Focus on heartlands • Balance of risk and consolidation• Proof PILOT initiatives are working
23rd Licensing round – 152 licences offered to 99 companies– 24 new entrants– 17 firm commitment wells
• Planned in a $40+ world• Interest centered on less explored,
– Mid-North Sea High, Moray Firth, East Shetland Platform, Atlantic Margin• Renewed focus on heavy oil• Higher risk domains
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Central NS Northern NS Southern NS Atlantic Margin104 41 70 34
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PromoteFrontier
22nd 23rd Round
97 152
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PromoteFrontier
22nd 23rd Round
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Number licences awarded 22nd & 23rd rounds
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UKCS in 2005 - Sustaining Success, Competing for the Future
What is driving the success of the UKCS in 2005
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Increasing diversity of investors is benefiting UKCS
• Over the last five years there has been an increasingly diverse range of companies investing in the UKCS
• Medium/large producers now produce 40% of UKCS production– From asset transfer and result of mergers
• Small producers are growing in number and increasing their share of production
• Majors remain a foundation of UKCS• New business models are being applied across UKCS
Percentage Total Spend
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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Source: Wood Mackenzie
Majors
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Percentage Total Production
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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Source: Wood Mackenzie
Majors
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Percentage Total Spend Percentage Total Production
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New Entrants have led growth of UKCS over last five years
Number of New Entrants
0123456789
1999 2000 2001 2002 2003 2004Source: Wood Mackenzie
• 35 new entrants since 1999– Inc small, medium and large operators– Now account for third of total capital investment
• All investors have a choice of where and when to invest • Critical to maintain the attractiveness of the UKCS
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Growth of New Entrants Since 1999
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1999 2000 2001 2002 2003 2004 2005
Proportion of total production
Proportion of total capital invested
33%
14%
Growth of New Entrants Since 1999
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1999 2000 2001 2002 2003 2004 2005
Proportion of total production
Proportion of total capital invested
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Growth of New Entrants Since 1999
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Proportion of total production
Proportion of total capital invested
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14%
Growth of New Entrants Since 1999
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Proportion of total production
Proportion of total capital invested
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14%
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UKCS in 2005 - Sustaining Success, Competing for the Future
Long term Opportunity
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The UKCS has a long future ahead of it
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Mill
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d
Existing Production Base
(Rapid Decline)
The Better Future
Oil & Gas Demand
Current
Place Plans in
Source: UKOOA
0.0
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Existing Production Base
(Rapid Decline)
The Better Future
Oil & Gas Demand
Current
Place Plans in
Source: UKOOA
This is the tale of two futures
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………… with substantial rewards
* Estimate Total Upstream Oil / Gas Taxrevenues 2005 - 2020
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2004 2006 2008 2010 2012 2014 2016 2018 2020
£bi
llion
(200
4 pr
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Rapid Decline£40 billion*
Current Plans £60 billion*
Better Future £85 billion by 2020*
Ultimately ~ £120 billion
* Estimate Total Upstream Oil / Gas Taxrevenues 2005 - 2020
0.0
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2004 2006 2008 2010 2012 2014 2016 2018 2020
£bi
llion
(200
4 pr
ices
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Rapid Decline£40 billion*
Current Plans £60 billion*
Better Future £85 billion by 2020*
Ultimately ~ £120 billion
Projected tax revenues from UKCS (based on $40 projection)
• There are substantial rewards for Government and Industry if we can sustain the attractiveness of the UKCS
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UK emerging as global centre for oilfield goods & services
• UK oil & gas industry supported by a substantial oilfield service sector – Grown rapidly over last decade– Now a major export industry
• Increasing number service companies support European, African & Middle East operations out of UK
• UK is global leader in key oilfield technologies– e.g. Subsea, Drilling technology – Subsea set to grow in the UK as industry seeks to extend field life.
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UKCS in 2005 - Sustaining Success, Competing for the Future
How do we sustain current success in years ahead
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Lessons from the recent past
• Need to maintain a stable business environment– Oil and gas prices are volatile– UKCS is a mature high cost basin
• Tax increases in 2002 rocked investor confidence in UKCS– In the following two years against relatively
flat oil prices• Exploration & Appraisal dropped• Development drilling declined• Capital investment declined
• DTI & Industry through PILOT have done a great deal to restore investment climate
• Investment confidence has since returned to UKCS
14 Rigs stacked - Autumn, 2003
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Conclusions
• Without UK oil & gas, the nation would be even more exposed to the impact of current oil prices
• Fundamentals remain, the UKCS is a mature, high cost basin• Activity and Investment have increased in 2005, but the full
impact is still to feed through to production• Oil price is not the only factor driving activity on UKCS
– PILOT initiatives have created a positive business environment – Investor confidence is critical
• Increasing diversity of investors is benefiting UKCS– New Entrants have lead growth of UKCS over last five years
• All investors have a choice of where and when to invest – Critical to maintain the attractiveness of the UKCS