Business Outlook 2018

BUSINESS OUTLOOK 2018

3. Market Outlook

3. Market Outlook

In Summary I t was a tale of two halves for oil markets in 2017. The first half of the year saw the Brent spot price settle in the $45-55 per barrel (bbl) range, with the relative stability and increased confidence in the basin being the catalysts in unlocking a wave of mergers and acquisitions (M&A). The second half of the year, and particularly the last quarter, was characterised by rising prices that eventually saw Brent surpass $70/bbl in early 2018 for the first time in three years. This will have provided a welcome short-term boost to margins for exploration and production (E&P) companies on the UK Continental Shelf (UKCS), although the oil price has since fallen back to $65/bbl. The National Balancing Point (NBP) gas market gave gas producers a similar boost last year. The average day-ahead price finished at 45 pence per therm (p/th), around 30 per cent higher than in 2016. With some European gas contracts still linked to oil prices, it was the second half of the year where the gains were made as rising oil prices fed through to the NBP gas market. This was heightened by local factors such as a cold winter, a reduction in the UK gas storage capacity and unplanned outages across Europe, which drove the gas price up beyond expectations during the 2017-18 winter months. The question moving forward is will the recent price increases hold over the next couple of years? Growing US production, the threat of falling OPEC quota compliance and fears that global economic growth may slow are currently limiting contracts for future delivery of Brent to sub-$60/bbl in 2020. Although caution remains over longer-term price expectations, it is encouraging that a new mix of investors in the UKCS have already shown a willingness to deploy capital as they look to generate maximum value from their newly acquired assets. 3. Market Outlook are expected to stabilise in 2018 Brent oil price averaged $54.2/bbl in 2017 25% up on 2016 £ although free cash flow remains a major concern 3. Market Outlook Brent oil price averaged $54.2/bbl in 2017 25% up on 2016 Although the Brent spot price briefly surpassed $70/bbl in January 2018, future co tracts for deliv ry b yond 2019 remain at sub-$60/bbl

Brent oil price averaged $54.2/bbl in 2017

25% up on 2016

4. Supply Chain Outl Although the Brent spot price briefly surpassed $70/bbl in Ja uary 2018, futur contracts for

Supply chain revenues are expected to stabilise in 2018 £ although free cash flow remains a major concern delivery b yond 2019 remain at sub-$60/bbl

4. Supply Chain Outlook Supply chain revenues

The NBP day-ahead gas price averaged 45 p/th in 2017

5. Exploration &Prod The average share price of supply chain

Around companies active on the UKCS increased by 30% higher than 2016 of post-tax cash flow was generated on the UKCS in 2017, more than in any year since 2011 8% in 2017

8 4. Supply Chain Outlook Supply chain revenues

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