Meeting the Challenge of Delivering
Successful Projects2017 Oil and Gas Project Management Conference
Gunther Newcombe Operations Director October 2017
Outline
• Government Support
• OGA Approach
• Industry Examples
• Key Messages
Project Issues
Industry needs to change approach in order to optimise projects
Cost and timing over runs
Operator and supply chain
relationships
Pace
Capital investment Graphic3
Context
Limited new capital spend committed but a number of new projects being worked to sanction
Source: OGA
Government Support
Imp
rove
de
com
mis
sio
nin
g e
ffic
ien
cy
29
Fiscally Competitive
Petroleum Revenue Tax
permanently reduced from
50% to 0%
Introduction of new
basin-wide
Investment Allowance
£40m for new
geophysical surveys
£5m Exploration data/studies
HMT launched
discussion
paper and
expert panel
on tax for late
life assets, to
report at
Autumn 2017
Budget
Supplementary
Charge reduced
from 32% to 10%
Source: Wood Mackenzie
0%
20%
40%
60%
0%
30%
60%
90%
Angola Norway Indonesia Denmark Australia Gulf ofMexico
UK
Go
ve
rnm
en
t s
ha
re
Inte
rna
l Rate
of R
etu
rn
Fiscal packages of £2.3bn introduced in 2015/2016 in line with “Driving Investment”
Allowance Simplification
Over 350 undeveloped discoveries and a key focus area of 30th RoundAllowances simplified to Investment Allowance (IA)
• Small fields
• Ultra high pressure / high
temperature fields
• Ultra heavy oil fields
• Remote deep water gas fields
• Deep water fields with
sizeable reserves
• Large shallow water gas fields
• Brown field allowance (BFA)
Allowances before
Autumn statement 2014
HMT
simplified
• Cluster Area
Allowance(Introduced December 2014)
• Investment Allowance (Introduced April 2015)
Current
Allowances
30% 40%
With IA Without IA
a fixed amount per field
proportionate to
investment expenditure
Government Take
Over 350 undeveloped discoveries and a key focus area of 30th Round
Examples of technology
Government revenues significantly reduced in future
Source: OGA/HMRC
OGA Approach
OGA correcting
by testing
assumptions
independently
Price
assumption
misalignment
Disconnect between
buyer and seller’s
assumptions and
evaluation
OGA flexible and
enforcing
MER UK Strategy
Assets in
right hands
Licensees not
investing or
realising potential
Infrastructure
Code of Practice
underpinned by
powers to impose
terms
Access to
infrastructure
Third parties cannot
gain access or access
on reasonable terms
OGA clarifying
area hubs or
strategy synergies
to help optimise
asset packages
Divestment
packages
Do not necessarily
ensure that assets are
in the right hands
OGA working with
investment
community to
promote new
opportunities and
discuss new
financing models
Lack of capital
Traditional
funding models
not available
HMT has
published a paper
on how tax can
support transfers
of late-life assets
UKCS fiscal
regime
Tax system may be
deterring sales of
assets close to
decommissioning
OGA assisting
where required;
standardised
agreements and
processes will
help
JOA structure
misalignment
Lack of sole risk
provisions, pre-
emption rights, and
financial capability
concerns
OGA to issue cost
norms and
benchmarking;
standardised DSAs
needed
Decommissioning
Cost uncertainty & lack
of DSAs cause deal
delay
Removing Barriers
Over 350 undeveloped discoveries and a key focus area of 30th RoundOver $8bn invested in UKCS M&A during 2017
Project Learnings
Over 350 undeveloped discoveries and a key focus area of 30th RoundECITB, OGUK and industry working together to produce project guidance
March 2017
• 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
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
• Dedicated delivery organisation in place
• Stage gate or check point project system in place
• Benchmarking assessment prior to investment:
• Documented evidence that MERUK considered:-
• New infrastructure optimally configured
• Utilise existing infrastructure
• Re-use of existing assets (3rd party)
• Encourage sufficient front end preparation
• Ensure delivery of main project parameters
• Improve predictability of project delivery
assessed against previous projects
• Drive efficiency and reduce development costs
• To directly support MER UK strategy
• OGA will judge a project using delivery
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:
MER UK
Strategy
Legally binding
obligations
Field Development Plan
/ Decommissioning
Programme
All projects requiring
an FDP/DP should
produce a SCAP
Stewardship
Expectations
Tier 1 contractors
should complete
SCAPs for projects
>£25m
SE-05 Robust
project delivery
SE-10 Planning for
decommissioningInnovation Quality
Engagement Trust
Evaluation Criteria
Over 350 undeveloped discoveries and a key focus area of 30th RoundCurrently being piloted by 3 companies and will form part of revised FDP and DP requirements
Field Development Plans
Over 350 undeveloped discoveries and a key focus area of 30th RoundRevised OGA FDP Guidance will be issued in 4Q 2017
Assessment Execute
HSE
Project
Kick-Off
Concept
Select
Draft
FDPFinal
FDPD&P Consent
Issued
First
Oil
Authorisation
Consultation on Project
Execution Plan
Development Options
Evaluation
EOR Screening
Consultation on SCAP
FEED & PEP
Determination
Field Operator Approval
Host Facility Addendum
UUOA
Supply Chain Action Plan Monitor Project Execution
Commissioning
Consents Issued
PWA
OGA
Environmental Statement
PreparationEnvironmental Statement
Consultation
Design or Relocation Notification Review
Decommission Security arrangements agreed
BEIS
Safety Case Accepted
by OSDR
MILESTONES
Small Pools Initiativem
mb
oe
Producing fields
Ongoing developments
Currently locked discoveries
10
100
1000
Over 350 undeveloped discoveries and a key focus area of 30th Round
Remaining reserves Examples of technology
Over 3bnboe in discovered resource with over 150 small pools offered in 30th Round
Industry Examples
Project Partnership
Different operator mind-set and way
of working
SURF/SPS functional tender rather than
price tender
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
Unlocking the Cheviot Field (Block 2/10b, 2/15a, 3/11b)
Cheviot
Alpha Petroleum working in partnership with GE and Baker Hughes to develop Cheviot
75mmboe with 18 firm wells delivering 30,000boep/d with first oil 2019
Project Funding
Innovative funding model by Premier enabling Tolmount development to proceed
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
Tendering for platform, pipeline and
Drilling rig to start soon
4 initial wells delivering 300mmscfg/d with first gas 2020
540bcf
250bcf
Project Pace
Apache fast track of Callater from discovery to first oil in less than 2 years
Well completed May 2017
CB2 online July 2017
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