Challenges & Opportunities in the Offshore Energy Sector - Johnathan Reynolds, Nautilus Associates

1. Challenges and Opportunities in the
Offshore Energy Sector
Norfolk Chamber breakfast – 12th November

2. Policy Context
• Budget 2015
• Reduction in Supplementary Charge from 30% to 20%
• Reduction in rate of PRT from 50% to 35%
• Give Oil & Gas Authority new mandate to scrutinise decom plans
• £20m support in 15/16 for seismic and other geoscience surveys to catalyse UKCS
E&P
• UK energy policy
• Investing in low carbon generation, recognising gas as a key ‘transition’ energy
source
• Change to Contracts for Difference supporting new renewable energy projects
• Security of supply and lower energy prices are the major drivers
• Increasing UK content in energy projects, whilst reducing costs

3. Energy Sector Profile - Comparison
2013 Strategy 2015 Update Comparison
Employment 7,710 8,469 +9.8%
Number of Businesses 797 834 +4.6%
GVA £1.43bn £1.6bn +12.6%
GVA per employee £185,473 £189,800 +2.3%
Business Turnover £3.18bn £3.62bn +13.8%

4. Electricity Generation – Installed Capacity 2015
Source: Nautilus Associates / 4C Offshore 2015
£3.7bn
£5bn
£3.3bn
£2.5bn
£1.9bn
53%
1%
8%
22%
0%
14%
2%
Offshore Wind
Onshore Wind
Solar
Nuclear
Landfill Gas
CCGT
Biomass
414MW
2.83GW
1.2GW
740MW
Onshore: 2,542MW
Offshore: 2,834MW

5. Capital Investment Forecasts to 2020Source: Nautilus Associates / 4C Offshore
East of England
£18.5bn
United Kingdom
£159bn
789 Projects
North West Europe
£191bn

6. Size of the opportunity – towards 2020
Source: Nautilus Associates / 4C Offshore 2015
0
5000
10000
15000
20000
25000
30000
35000
40000
2015 2016 2017 2018 2019 2020
TotalCAPEXInvestment(£m)
Developer Articulated Construction Year
Solar
Tidal
Gas
Biomass
Onshore Wind
Transport
Oil & Gas Decom.
Power Transmission
CCS
Offshore Wind
Nuclear
Offshore Oil & Gas
£45bn £27bn
£21bn
£10bn

7. Size of the opportunity – towards 2020
United Kingdom
Source: Nautilus Associates / 4C Offshore 2015
£114bn
£113bn
£32bn
Offshore Oil & Gas
Nuclear
Offshore Wind
Gas
CCS
Transport
Power Transmission
Biomass
Oil & Gas Decom.
Onshore Wind
Ports
Tidal
Solar
Wave
£45bn
£27bn
£21bn
£7.3bn

8. Offshore Wind
Oil & Gas Decom.
Offshore Oil & Gas
Transport
Gas
Power Transmission
Ports
Solar
Biomass
Onshore Wind
Size of the opportunity – towards 2020
East of England
Source: Nautilus Associates / 4C Offshore 2015
£3.7bn
£5bn
£3.3bn
£2.2bn
£1.9bn

9. Energy Prices
Source: Cornwall Energy

10. Breagh A Platform
Home to UK’s offshore gas
industry, worth billions!
• Exploration
• Production
• Storage
Oil & Gas

11. Offshore Gas – UKCS
In 2014:
• spent £9.7bn operating the UKCS, c.8% up on 2013.
• invested £14.8bn of capital
• spent £1.1bn on seismic data and 18 appraisal wells
• Spent £1bn on decommissioning activity
• produced 1.42m boe per day, 1.1% less than 2013.
Best year-on-year performance in 15 years!
• Paid >£4.7bn in production taxes (2013/14), and
expects to contribute <£2.8bn (2014/15)

12. Total UKCS Expenditure
Total expenditure on the UKCS reached £26.5bn in 2014, the highest on record for
the fourth successive year.
TotalExpenditure(£bn–2014money)
DevEx hit hardest??
Opex more secure??

13. Crude oil price forecast
Source: Cornwall Energy, data from the World Bank, IMF and Economist
http://www.worldbank.org/content/dam/Worldbank/GEP/GEPcommodities/PriceForecast_20150422.pdf
http://www.imf.org/external/np/res/commod/index.aspx
http://gfs.eiu.com/Article.aspx?articleType=cf&articleId=663259050&secId=0

14. Gas price forecast
Source: Cornwall Energy, data from the World Bank and IMF
http://www.worldbank.org/content/dam/Worldbank/GEP/GEPcommodities/PriceForecast_20150422.pdf
http://www.imf.org/external/np/res/commod/index.aspx

15. UKCS Production Forecast

16. Welland Platform
being decommissioned in 2011
Decommissioning 2015 – 2023
£14.6bn
expenditure
(24% SNS)

17. Sizewell B Power Station
1.2GW Capacity Nuclear
Sizewell C
£14bn+
expenditure

18. Sizewell A Decommissioning
Sizewell B
1.2GW capacity
operational until 2035
Sizewell C
3.2GW capacity
planning phase
At the time Sizewell B was being built it
was the largest civil engineering project
second only to the channel tunnel.Source: British Energy

19. 63%of UK’s installed capacity is
off the East Anglian Coast!
The UK has more operational
wind farms than the Rest of the
World combined!
Offshore Renewables

20. Size of the Market

21. Ensign Platform
Initial Feedback from
Businesses and Workshops
Oil & Gas Task Force

22. Consultation feedback
• Mixed feedback that the oil price was having a
direct impact
• The price fall has highlighted existing problems
within the SNS. It is highly taxed, has ageing
assets etc., and this has been masked by the
previous higher prices.
• It was felt that difficulties could last until 2017.
• Exploration drilling is on hold with no plans until
early 2016.

23. Region’s Prospects:
• Overall, the prospect seems good, however
numerous organisations commented that there
was no direct correlation between the gas and oil
price and operators were using the low oil price
as an excuse to reduce costs.
• Whilst there were new discoveries e.g. Cygnus
and Platypus, exploration was deemed to be
limited.
• No major operators based in the area and those
that remain are looking at viability to stay

24. Priorities
• Immediate call for a fresh review of the Wood
Review with a focus on SNS rejuvenation plan
• Strong engagement with the OGA and DECC to
ensure the SNS, and gas, is properly supported
• Develop an collaborative industry vision similar
to offshore renewables, both target price and
levels of UK content in all projects
• Develop business and supply chain support
package, targeting potentially vulnerable firms

25. Funding & Investment
• Availability of financial support was seen as
important, but not critical. Professional and
expert support would be of greater benefit.
• Funding landscape seen as complicated with
little support on how best to navigate
• Potential to create a flexible investment fund or
convertible loan to help firms through
challenging cash flow periods

26. Questions?
Nautilus Associates Ltd.
T: 0333 370 4429
E: info@nautilus.uk.com
www.nautilus.uk.com