Transcript Gas - Championing the UK subsea sector -

The UKCS in 2005 - Sustaining Success,
Competing for the Future
Steve Harris
Communications Director
UKOOA
UKCS in 2005 - Sustaining Success, Competing for the Future
Introduction – the Global perspective
2
Demand for crude oil has surged, with an obvious impact
on crude oil prices
World Spare Oil Production Capacity
Oil Price (£2005)
80
Price Per Barrel 2005 Prices
70
60
$/bbl
£/bbl
50
40
30
20
Average oil price over period
10
$47
$24
$33
£39
£16
£20
£
0
Source: EIA, Sept ‘05
1965
1970
1975
1980
1985
• Crude oil prices have risen to prices last seen in the 70’s
– From a low of $11 in 1998 to $60+ in 2005
• This time less of a price shock
– Driven by growth in demand rather than drop in supply
• Rising global oil prices have lead to
– Increase in UK fuel prices
– Rising gas prices
– Placing additional strain on UK and Global economy
3
1990
1995
2000
2005
Source : Wood Mackenzie / UKOOA
However, UK is better placed than many to face oil price rises
• UK Economy is less sensitive to oil price
– Oil intensity halved since 1975
• UK has been a net oil exporter for 25 years
– Could still be a net exporter until end of decade
– Currently saves imports of over £30 billion
• Tax Revenues from UKCS have surged in last 12 months
– Expect to reach £10 billion in 2005/6
– Revenues doubled from UKCS in a year
4
Substantial opportunities remain in the UKCS,
but life is getting harder
Number of
discoveries
Average
discovery size
(million boe)
Total
Discovered
(billion boe)
1965-1974
86
276
24
1975-1984
175
75
13
1985-1994
242
37
9
1995-2004
112
26
3
• Produced 34 billion boe* over the last four decades *(barrels oil equivalent)
• Could still have another 28 billion boe (inc yet-to-find)
• Reserves replacement in 2004 (DTI)
– Produced 95 bcm gas (billion cubic metres), replaced 25 bcm (26%)
– Produced 725 million bbls oil, replaced 460 million bbls (64%)
5
UKCS faces strong competition - even around the North Sea
• UK finding costs relatively high ($/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
6
UKCS in 2005 - Sustaining Success, Competing for the Future
How is the UKCS responding in 2005
7
Both investment and expenditure on increase in 2005
Capital
Investment
Capex Trends
2002 - 2005
2002 - 2005
Capex £ Billion
5.0
Estimate
June 2005
4.5
4.0
Estimate
Jan 2005
3.5
3.0
2.5
2002
2003
2004
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,
8
– £0.3 billion increase on 2004,
– Increasing expenditure to extend life of assets and infrastructure
Activity has increased in 2005,
but still to feed through to production
Development
UKCS Developmentwells
Wells
5.0
250
Oil / Gas production
Actual / Projected
200
150
4.5
100
4.0
Production
50
3.5
0
3.0
Million boepd
4.5
Production
million boe per day
Number Development Wells
inc sidetracks
300
4.0
3.5
3.0
2.5
2.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
est.
Jan-01
Jan-02
Jan-03
• 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)
9
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Ja
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
–
–
–
–
10
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
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
11
Exploration & Appraisal - benefiting from recent initiatives
Number of Exploration & Appraisal Wells
(Including sidetracks)
UKCS Exploration & Appraisal Activity 2000 - 2005
100
90
80
Appraisal
Exploration
70
60
50
40
30
20
10
0
2000
2001
2002
2003
2004
2005
• 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
12
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
70
Number licences awarded
22nd & 23rd rounds
Traditional
60
Promote
Frontier
50
97
30
20
10
0
Central NS
104
Northern NS
41
Southern NS
70
– Mid-North Sea High, Moray Firth, East Shetland Platform, Atlantic Margin
13
152
40
• Planned in a $40+ world
• Interest centered on less explored,
• Renewed focus on heavy oil
• Higher risk domains
22nd 23rd Round
Atlantic Margin
34
UKCS in 2005 - Sustaining Success, Competing for the Future
What is driving the success of the UKCS in 2005
14
Increasing diversity of investors is benefiting UKCS
Percentage
Percentage TotalTotal
Spend Spend
100%
100%
Small
80%
Small
80%
Large / Medium
Large / Medium
60%
60%
40%
20%
Percentage Total
Production
Percentage
Total
Production
40%
Majors
Majors
20%
0%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Wood Mackenzie
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Wood Mackenzie
• 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
15
New Entrants have led growth of UKCS over last five years
Growth of New Entrants Since 1999
35
33%
Number of New Entrants
9
30
Proportion of total production
8
7
6
Proportion of total capital invested
25
5
4
3
20
2
%
1
14%
15
0
1999
2001
2002
2003
2004
Source: Wood Mackenzie
10
5
0
1999
2000
2001
2002
2003
2004
2005
• 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
16
2000
UKCS in 2005 - Sustaining Success, Competing for the Future
Long term Opportunity
17
The UKCS has a long future ahead of it
This is the tale of two futures
4.5
4.0
Oil & Gas Demand
3.5
Million boe/d
3.0
2.5
The Better Future
2.0
1.5
Existing Production
Base
(Rapid Decline)
1.0
0.5
Current
Plans in
Place
0.0
2004
2006
2008
2010
2012
2014
2016
2018
2020
Source: UKOOA
18
………… with substantial rewards
Projected tax revenues from UKCS
(based on $40 projection)
8.0
£ billion (2004 prices)
7.0
6.0
Better Future
£85 billion by 2020*
Ultimately ~ £120 billion
5.0
4.0
Current Plans
£60 billion*
3.0
2.0
Rapid Decline
£40 billion*
1.0
0.0
2004
2006
2008
2010
2012
2014
2016
2018
2020
* Estimate Total Upstream Oil / Gas Tax
revenues 2005 - 2020
• There are substantial rewards for Government and Industry if we can
sustain the attractiveness of the UKCS
19
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.
20
UKCS in 2005 - Sustaining Success, Competing for the Future
How do we sustain current success in years ahead
21
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
22
14 Rigs stacked - Autumn, 2003
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
23