PROTECTIVE MARKING (as appropriate)

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Decommissioning From the beginning not the end

November 2015

Angela Seeney

OGA Director:

Technology, Supply Chain and Decommissioning

PROTECTIVE MARKING (as appropriate) About the OGA

Priorities

Rapidly

implement Trusted advisor

to Treasury

Industry to

urgently take

action

Le

ad

ers

hip

,

Cu

ltu

re &

be

ha

vio

ur

• New independent regulator

• Effective stewardship resources

• New powers, better resourced and funded

• Catalyst for change and facilitator of action

• Encouraging collaboration

Creating the OGA

The OGA has a key role to play in driving action

Role of the OGA

Licence offshore oil & gas

Licence onshore oil & gas

Licence carbon capture & storage

Industry culture

Commercial behaviour

Greater collaboration

Investment in UKCS

Value creation

Industry development

PROTECTIVE MARKING (as appropriate) Building the OGA

Rapid progress on all fronts

DECC

EDU

LED

Historically From 1 April c. summer 2016

OGA Executive Agency

(Civil Service)

DECC

OGA Independent regulator

(GovCo)

DECC

Fra

me

wo

rk

Do

cu

men

t

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erg

y B

ill

20

15

PROTECTIVE MARKING (as appropriate) MER UK Strategy

Delivering the maximum overall value from the

economic reserves in the UKCS

• Maximise net value not just volume

• Investment should add net value overall UK

• May oblige companies to redistribute value

• Companies to see satisfactory expected

commercial return on investment

• Balance extracting all economic reserves

and achieving MER across the UK

MER UK Definition

MER UK Principles

Combining new regulatory powers with a more proactive approach

Sanctions Rewards

Striking the right balance

PROTECTIVE MARKING (as appropriate) Decom, Supply Chain & Technology

Experienced Leadership: Ongoing activity attracting significant interest

Technology,

Decommissioning &

Supply Chain

Head of

Decommissioning

Angela Seeney

Head of

Technology

Head of

Supply Chain

Chief

Information

Officer

• Multi-disciplinary, experienced & diverse

• Recruitment for 13 roles in hand 24 in place

• Early stage planning, campaigns and roadmaps

• Alignment across the value chain & industry

• Strengthening governance, data & processes

Developing the organisation Collaborating

• Across the TDS team and OGA

• With academia, industry & trade associations

• Across relevant government departments

• With key stakeholders & other regulators

• With investors & consultants

Bill Cattanach Simon James Carlo Procaccini TBC

PROTECTIVE MARKING (as appropriate) Growth in Decommissioning

Large scope and risks on the horizon

• 4,000 wells to plug & abandon

• 290 fixed platforms

• 33 floating installations

• 370 subsea wellhead & structures

• 20,000 km of pipelines

UKCS decommissioning scope Risks

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• Early decommissioning potentially undermines MER

• The “domino” effect on critical infrastructure & value

• Supply chain is slow to materialise

• Historical high costs continued

• Lack of operator planning & collaboration

• Slow introduction of efficient technology

• Capacity squeeze (e.g. rigs) and inflation

• Acceleration drives further inflation

• Lack of expertise and process

• Poor industry collaboration

Estimate future wells P&A

Nos of wells

Ref.: Avg new wells

drilled 2012-14

PROTECTIVE MARKING (as appropriate) Protect Critical Infrastructure

Urgent action underway to avoid premature decommissioning

• Commercial facilitation

• Sullom Voe Terminal

• Theddlethorpe Gas Terminal

Immediate action

• Evaluate investment drivers

• Anticipate risks & opportunities

• Early stage involvement

Economic assessments

• Develop hub strategies

• Optimise infrastructure

• Integrated MER UK approach

Regional plans

The Domino Effect

PROTECTIVE MARKING (as appropriate) Decommissioning Considerations

Who does what

DE

CC

O

GA

OGA E&P Teams

• Cessation of production

• Regional approach

• MER UK compliant

OGA DST Team • Technology, costs, efficiencies

• Learning and cooperation

• Optimal models & plans

DECC ODU Team • Security and liability

• Programme approval

• Regulatory compliance

• Environment risk/mitigation

A huge prize: cost efficiency and collaboration is key

Cost Efficiency opportunities

Right assets; right hands: Alleviate obstacles to M&A

Industry cooperation: benefits from scale; joint campaigns

Standardisation: equipment sharing, efficiencies & reduce risks

Technology: P&A Wells, topsides removal, pipeline inspections

Supply chain: capacity planning, incentives, global export

A hug prize: cost and efficiency is key

Tri-Partite Late life review

Examine

• case for transferring fiscal relief from tax history to tax credit

• the wash back impact of investment allowance on tax relief

• alternative solutions to the issue of liability in perpetuity

• cost reduction measures.

PROTECTIVE MARKING (as appropriate) OGA Corporate Plan – MER UK

Accelerate learning curve and efficiencies

3Q 2015 Initial decommissioning cost review, with DECC and HMT (completed)

4Q 2015 + Operators’ engagement, upcoming programmes, readiness and efficiency efforts

2016 + Disruptive solutions – technologies, processes, business models

2016 Regional and basin plans, capturing industry collaboration opportunities (ongoing)

4/1Q 2015/6 Basin-wide cost analysis, cost drivers, benchmarks input to new strategy and plan

4Q 2015 Build OGA’s decommissioning capabilities, single governance board with industry

Decommissioning

KPI milestone Target

Overall decommissioning cost reduction Cumulative 30-35% down from base estimate phased to end of basin life (2050)

Ensure effective preparation on key policy positions 1) Avoid increase of regulations

2) Secure potential UKCS derogations

3) Prepare for OSPAR 2018

PROTECTIVE MARKING (as appropriate)

Total costs are be estimated at over £47bn, ramping up

significantly over the next 5-10 years

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Annual and Cumulative spend estimate (£bn, 2015 money)

Annual spend

(£bn p.a., Bars)

Cumulative spend

(£bn, Line)

Field Cessation of

Production dates are

subject to change £47bn “base case”

Historical decom

spend

2014: £800m

2013: £500m

2012: £300m

Factors influencing timeline

Acceleration

Delays

• Drop in oil price • Integrity & maintenance issues • Opex escalation • UKCS lack of competitiveness

• Rebound in oil price • Late life extensions • High decommissioning costs and insufficient capital v liabilities

Sources: OGED/OGA spend model 2015

Risk of creating an inflationary “hot spot” as decommissioning increases

Factors influencing cost build up

Topsides removals

Topsides making safe& prep

P&A – Platform

Wells

Facilities running

costs

Owners project

mgmt

PROTECTIVE MARKING (as appropriate)

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Decommissioning efficiency

Targeting 40% reduction in overall cost

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(£bn, 2015 money)

Base case - £47bn

-10% -20% -30%

-40% -50%

Cumulative spend to 2050

Efficiency case - £31bn

Annual spend estimate (2015-50)

(£bn, 2015 money)

Tactical improvements

programmes already

underway (-10%)

New programmes:

Experience and

collaboration kick in

(-20%)

Disruptive technology is

introduced (-30%)

Disruptive technology is

introduced

Continuous improvement

and further industrialisation

(-40% to -50%)

PROTECTIVE MARKING (as appropriate) Efficiency Levers

• Decommissioning plans looking at broader hub and regional scales

• Agree timing of infrastructure removal -- minimise negative impact

• Lessons learned fully shared and employed

• Pooling scope and share resources

Regional plans

and scale

Delivering 35% cost efficiency improvement

• Simpler and lower cost options developed (with safety & environmental safeguard)

• Evolve and improve standards and guidelines

• Monitor regulatory trends and mitigate risks

Fit-for-purpose

solutions

• Improve early stage planning and guidelines

• More standardisation across operators and supply chain

• Fit-for-purpose, efficient methodologies and equipment

• Efficient technologies (mature, developed, and novel)

Industrialise

execution

• Mitigate obstacles to M&A

• Clarity on future scope and activity profiles

• Adequate supply chain response and capacity in the market

• Transform to commercial and operational collaboration at scale

Market efficiency

PROTECTIVE MARKING (as appropriate) Decommissioning Supply Chain

• World-class supply chain

• £35 billion annual turnover

• 375,000 highly-skilled jobs

Export growth OGA approach

• Service companies vital role

• Deliver efficiency solutions

• Increase competitiveness

Increasing efficiency

• Alliances and campaigns

• Improve program execution

• Promote the capability

Plug &

Abandonment

of Wells

Early

planning,

preparation &

process:

review costs

Collaborate &

industrialise

supply chain

market

Lift methods

& removal of

topsides &

jackets

Subsea &

pipeline

decom Technology:

develop &

deploy

35%

reduction on

costs

• 6 key areas of cost reduction

• Balance “what”, “when” and “how”

• Support building stable supply chain & exports

• Five-year strategy and plan

• Sector-based activity approach

• Create visibility of supply chain opportunities

• Work with UKTI and SDI on overseas opportunities

• Support development of workforce expertise

• Working with industry to give supply chain a voice

Clear strategy to build a sustainable low cost supply chain market

PROTECTIVE MARKING (as appropriate) SNS Well Plug and Abandonment

SNS concept will be used as transformative

model for the wider UKCS

SNS well plugging and

abandonment initiative

Collaboration on 500 wells

with up to 40% cost savings

• 8 operators brought together at MD level

• Joint portfolio of 550 wells identified

• Encouraging multi operator campaigns

• Sharing of learnings

• Providing market visibility to the Supply Chain

• Taking advantage of current market deflation

• Encouraging development and uptake of

new technology

• Tangible progress already being made

• Provides a platform for transformation

Approach Next steps

PROTECTIVE MARKING (as appropriate)

Develop and deliver new, transformative solutions to MER UK

• Developing TLB strategic plans, 5+ year roadmap

• Identify new priorities and value propositions

• Develop new & deploy mature technologies

• Early-stage planning, business cases & funding

• Strengthen Decommissioning Technology Leadership

• Introduce a new Decommissioning Theme

- Make 100 ft. of tubing and casing disappear

- Through tubing logging

- Dealing with downhole cables

• Target MER through 35% decom cost reduction

• With Industry, Academia, Consultants & Trade Groups

• Share knowledge and benchmark

Small Pool Development Unlock 1-3 bln barrels potential cost effectively

Integrity and Inspection Cost reduction, unlock x-sector & exports

Well Construction Reduce wells cost by 50%

Cu

rre

nt

Th

em

es

OGA Dedicated Technology Team : Deliver MER UK, Support themes, Provide support via Wells TA

TB (TLB) Industry Lead with OGA Chair & Secretariat : Strengthen TB focus and drive outcomes

Focus Improve performance & prospects: Transformative solutions

Approach Collaborative: Outcome focused, evidence based and integrated approach

Harnessing Technology – Decommissioning

Decommissioning Reduce costs by 40%

PROTECTIVE MARKING (as appropriate) Core Work Area Boards

Purpose Deliver tangible benefits in support of MER UK and maximising UK value

from the oil and gas industry as a whole

Objectives 1. Develop a clear strategy and five year plan

2. Create leadership alignment and leverage tripartite action

3. Deliver tangible and quantifiable results

Core work

areas

Exploration

Technology

Asset

Stewardship

Decommissioning

Regional development &

infrastructure

Supply chain &

exports

Cost &

Efficiency

Skills

Phil Kirk, Chrysaor Ray Riddoch, Nexen Paul Goodfellow, Shell John Pearson, AMEC FW

Paul White, GE Collette Cohen, Centrica Neil Sims, Expro Group Mike Horgan

1

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Leadership Industry-led with tripartite support

Frequency Quarterly Support OGA/BIS/UKTI/OGUK

Gunther Newcombe Gunther Newcombe Gunther Newcombe Stephen Marcos-Jones

Angela Seeney Angela Seeney Angela Seeney John McDonald

Industry lead OGA | OGUK lead

Focus: avoid gaps and overlaps between core work area boards

PROTECTIVE MARKING (as appropriate) Decommissioning Board

To effectively deliver MER UK decommissioning objectives

Themes Board structure

OGA

Chair

Angela Seeney

Industry

Lead

Colette Cohen

Operator

Members (5)

Supply

Chain (5)

OGUK (1) DNS (1)

DECC OGED (2) ACADEMIA (2)

Leadership

Core Members

Expert advice

and support

Key links Technology Board

Data Mgt. Board

RD&I Board

Government forum

on decommissioning

HMT LLE workstream

BIS/SE (2) UKTI (1)

Gov’t &

Trade

Asset reviews across NS

Support Supply Chain

Development

Deliver 35% cost reduction plan

Cu

rre

nt

Pla

n

Policy Review

Enhance Data & Knowledge Sharing

& Benchmarking

Optimise Regional Solutions

LLE and M&A Models to MER

Adopt mature & develop

new Technologies

Ap

pro

ac

h

Improve Operator & Contractor

Collaboration & Alignment

PROTECTIVE MARKING (as appropriate) Key Challenges and Opportunities

Promoting

collaboration

& alliances

• Establishing a competent and competitive

supply chain to deliver decommissioning

• Changing the mind set and cost base from

reverse engineering to deconstruction

• Providing the industry with clarity and scale

of the upcoming market opportunities

• Defining and delivering cost reduction programs ,

technologies and models in line with a new strategy

• Phasing the program to ensure a stabile project flow and

avoid inflationary pressures via early stage planning

• Introducing a true spirit of collaboration to the

decommissioning landscape

Developing

capability

Changing the

mind set

To develop and deliver new, transformative solutions to MER

Reducing

costs

Efficient

technologies