Meeting the Challenge of Delivering Successful Projects 2017 Oil - PowerPoint PPT Presentation

Meeting the Challenge of Delivering Successful Projects 2017 Oil and Gas Project Management Conference Gunther Newcombe Operations Director October 2017

Outline • Government Support • OGA Approach • Industry Examples • Key Messages

Project Issues Cost and timing over runs Operator and supply chain relationships Graphic3 Capital investment Pace Industry needs to change approach in order to optimise projects

Context Source: OGA Limited new capital spend committed but a number of new projects being worked to sanction

Government Support

Fiscally Competitive Improve decommissioning efficiency £40m for new 90% 60% geophysical surveys £5m Exploration data/studies Introduction of new Internal Rate of Return basin-wide Government share 60% 40% Investment Allowance HMT launched discussion Supplementary paper and Charge reduced expert panel from 32% to 10% 30% 20% on tax for late life assets, to report at Petroleum Revenue Tax Autumn 2017 permanently reduced from Budget 50% to 0% 0% 0% Angola Norway Indonesia Denmark Australia Gulf of UK Mexico Source: Wood Mackenzie Fiscal packages of £2.3bn introduced in 2015/2016 in line with “Driving Investment” 29

Allowance Simplification Allowances before Autumn statement 2014 • Small fields Current • Ultra high pressure / high Allowances With IA Without IA temperature fields • Cluster Area • Ultra heavy oil fields HMT 30% 40% Allowance simplified • (Introduced December 2014) Remote deep water gas fields • Investment Allowance • Deep water fields with (Introduced April 2015) sizeable reserves • proportionate to Large shallow water gas fields investment expenditure • Brown field allowance (BFA) a fixed amount per field Over 350 undeveloped discoveries and a key focus area of 30 th Round Allowances simplified to Investment Allowance (IA)

Government Take Examples of technology Source: OGA/HMRC Over 350 undeveloped discoveries and a key focus area of 30 th Round Government revenues significantly reduced in future

OGA Approach

Removing Barriers Price JOA structure Divestment UKCS fiscal Assets in assumption Lack of capital Decommissioning Access to misalignment packages misalignment regime right hands infrastructure Traditional Cost uncertainty & lack Lack of sole risk Do not necessarily Licensees not Tax system may be Disconnect between funding models of DSAs cause deal Third parties cannot provisions, pre- ensure that assets are investing or deterring sales of buyer and seller’s not available delay gain access or access emption rights, and in the right hands realising potential assets close to assumptions and on reasonable terms financial capability decommissioning evaluation concerns OGA working with OGA assisting HMT has investment Infrastructure OGA to issue cost OGA clarifying OGA correcting where required; published a paper OGA flexible and community to Code of Practice area hubs or norms and by testing standardised on how tax can promote new enforcing underpinned by strategy synergies benchmarking; assumptions agreements and opportunities and support transfers MER UK Strategy powers to impose to help optimise standardised DSAs independently discuss new processes will of late-life assets terms needed asset packages financing models help Over 350 undeveloped discoveries and a key focus area of 30 th Round Over $8bn invested in UKCS M&A during 2017

Project Learnings • 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 March 2017 Over 350 undeveloped discoveries and a key focus area of 30 th Round ECITB, OGUK and industry working together to produce project guidance

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 • Encourage sufficient front end preparation • Dedicated delivery organisation in place • Ensure delivery of main project parameters • Stage gate or check point project system in place • Improve predictability of project delivery • Benchmarking assessment prior to investment: assessed against previous projects • Documented evidence that MERUK considered:- • Drive efficiency and reduce development costs • New infrastructure optimally configured • To directly support MER UK strategy • Utilise existing infrastructure • OGA will judge a project using delivery Re-use of existing assets (3 rd party) • 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: Legally binding MER UK Evaluation Criteria Strategy obligations All projects requiring Field Development Plan Engagement Trust / Decommissioning an FDP/DP should Programme produce a SCAP Stewardship Expectations Tier 1 contractors SE-05 Robust should complete project delivery SCAPs for projects >£25m SE-10 Planning for Quality Innovation decommissioning Over 350 undeveloped discoveries and a key focus area of 30 th Round Currently being piloted by 3 companies and will form part of revised FDP and DP requirements

Field Development Plans Assessment Authorisation Execute Consultation on SCAP Monitor Project Execution Supply Chain Action Plan Commissioning Consultation on Project FEED & PEP Consents Issued Execution Plan OGA Determination UUOA Development Options Field Operator Approval Evaluation PWA EOR Screening Host Facility Addendum Environmental Statement Environmental Statement BEIS Preparation Consultation Decommission Security arrangements agreed Design or Relocation Notification Review Safety Case Accepted HSE by OSDR MILESTONES First Draft Concept Final Project D&P Consent Oil FDP Select FDP Kick-Off Issued Over 350 undeveloped discoveries and a key focus area of 30 th Round Revised OGA FDP Guidance will be issued in 4Q 2017

Small Pools Initiative Examples of technology Remaining reserves 1000 Producing fields Ongoing developments Currently locked discoveries 100 mmboe 10 Over 3bnboe in discovered resource with over 150 small pools offered in 30 th Round Over 350 undeveloped discoveries and a key focus area of 30 th Round

Industry Examples

Project Partnership Unlocking the Cheviot Field (Block 2/10b, 2/15a, 3/11b) Different operator mind-set and way of working SURF/SPS functional tender rather than price tender Cheviot 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 75mmboe with 18 firm wells delivering 30,000boep/d with first oil 2019 Alpha Petroleum working in partnership with GE and Baker Hughes to develop Cheviot

Project Funding 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 540bcf Tendering for platform, pipeline and 250bcf Drilling rig to start soon 4 initial wells delivering 300mmscfg/d with first gas 2020 Innovative funding model by Premier enabling Tolmount development to proceed

Project Pace CB2 online July 2017 Well completed May 2017 Apache fast track of Callater from discovery to first oil in less than 2 years

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