Recent Influences on Exploration and Development

Simon Toole

Director – Licensing, Exploration & Development

Overview• Recent Rounds• New Entrants• 1st Round Licence Extensions• Changing Gear Initiative• West of Shetlands Gas Infrastructure• Energy Bill• Carbon Capture & Storage• Tax Changes• Credit Crunch Implications• Exploration Opportunities – Promote CD

8 3 17 17 34 # Firm Wells

First Round Licences

• Issue – Whether to allow an extension– 23 Licences with 120 producing fields

• Policy (case by case)– Fields: Yes– Potential Producing Areas (PPA): If nearing

development and/or well activity planned

• PPAs considered to-date– 21 ‘minded’, 11 ‘not minded’ (view may

modify as plans evolve)

Commercial Code of Practice• Developed in 2002 to promote co-operative

value generation• Contains high-level objectives focussing on:

– Best practice processes; flexible methods and fit-for-purpose solutions, maximise use of standard agreements, conduct post-activity review

– Senior management commitment; front end involvement, ensure appropriate resources available, empower staff, appropriate use of tactics

• Should apply to all commercial negotiations

Changing Gear

• Annual survey originally showed improvement but there has been a recent dip in performance

• Proposed Minister’s letter to set challenges:– Confirm support for Codes of Practice– MDs to set direction & identify issues– Use of available standard agreements

Progress with Commercial Code

Changing Gear

West of Shetland Gas Infrastructure

• New gas infrastructure is key

• 3rd Party investment process success

•Technical work planned for early 2009

• Project sanction in 2009

Energy Act 2008

• Power to:– Secure financial security to cover well

abandonment– Enable partial licence revocation within a

licence group– Order plugging and abandonment of wells– Reverse un-consented licence transfers

Wells & Licensing

• Amends Petroleum Act 1998 to reflect how UKCS practices have evolved over 30 years, i.e enables:– Ministers to require information and security when risk

is unacceptable– Decommissioning funds to be kept outside insolvency

settlements– Extended powers to cover construction phase– Cover for new business models – partnerships– Exclusion of liability for licensees that never ‘benefit’

Energy Act 2008

Decommissioning

Carbon Capture and Storage

• Act sets out legal framework for licensing • Exclusive rights will be conferred by Crown Estates• Interaction between overlapping Petroleum and Storage

licenses– Existing depleted or producing fields will retain exclusive rights– Other situations will be regulated by commercial arrangements

with due regard to prior rights of any petroleum licence

• EU Directive likely to confirm that long-term stored CO2 for EOR projects will be eligible for ETS credits

Energy Act 2008

North Sea Taxation

Re-determination of Field Boundaries in unexploited parts of PRT paying Fields on

‘Economic Grounds’

– Licensees to make economic case to DECC– Must demonstrate that PRT is preventing a project

going forward– Re-determination will NOT be made if

• Project would go ahead anyway with PRT• Project would not go ahead even without PRT

– Re-determination will lapse if no development forthcoming

– Newly determined Field will not pay PRT

North Sea Taxation

• HMT have published New Consultation Paper

• Builds on changes made in Budget 2008 and subsequent industry discussions.

• Key points:

– Introduces concept of a Value Allowance – against the supplementary charge – which could help bring forward challenging developments.

– Three main categories of fields where targeted incentives seem most helpful - HPHT fields, Heavy oil, Small fields.

– Specific proposals for issues on which industry have made representations: Capital gains tax, Change of use (to e.g., gas storage, CO2 storage), Simplification of PRT.

– But Government have rejected industry’s preferred approach of a 25% uplift on capital allowances. (Too much “deadweight”, i.e., would reduce tax receipts on too many projects likely to go ahead in any case.)

• Consultation runs to 13 February 2009. New measures could be introduced in Budget 2009.

Credit Crunch

• Very uncertain and difficult times - particularly for small companies

• If there are difficulties please let us know

• Plan 26th Round – views welcome on timing

Promote CD Leads & Discoveries

Promote CD Opportunities

37 Leads & 2 Discoveries

Maps, Stratigraphic columns and Cross Sections

In Place and Reserve Estimates Play summaries

CD available at DECC stand