Business Outlook 2020 - Markets & Investments

in 2020

The industry is now producing 20% more for 30% lower costs compared to 2014 and 74% of oil products in 2019 74% oil The industry is important for energy security and can also help advance the path to net zero – government and regulatory support is vital E&P rev nues could fall by almost 50% produc�on was enough to meet 51% of gas demand produc�on, adding to the supply and demand imbalance

51% gas

Any new investments will receive increased scru�ny due to market condi�ons oil and gas produc�on helps minimise the UK’s dependence on imports global oil demand significantly and 2020 could see the first annual decline since 2009 – delays and deferrals are expected There are more than 2 billion boe in company plans without commi�ed investment Domes�c produc�on £

Unit opera�ng costs are being sustained at around $15/boe The UKCS may be in a cash-loss posi�on this year for only the fall by almost 50% compared with two years ago, due to lower commodity prices 35 p/th in 2019 – the lowest average for over a decade E&Ps will take steps to preserve cash flow – less than 50% of those 5 years ago /boe third �me in 40 years

BUSINESS OUTLOOK 2020

to $30/bbl – with a lack of equilibrium in the market

UKCS Expenditure and Investment

120

35

2014AssetUOCCurve

UOC ($/boe) UOC (£/boe)

30

100

2019AssetUOCCurve

25

$15

80

20

60

15

40

10

2020 Strong domes�c oil and gas produc�on helps minimise the UK’s dependence on imports 0 20 There are more than 2 billion b in company plans without commi�ed investment

UnitOperatingCosts ($/boe - 2019Money)

51% gas

5

Government support is required to help the industry overcome challenges

Sector deal prop outline how the can con�nue to provide energy now alongside suppor�ng net zero

Many supply chain companies

Source:OGA,OGUK Supply chain companies will come under increased pressure

UnitOperatingCosts (£/$perboe -2019Money)

was enough to meet 51% of gas demand and 74% of oil products in 2019

compared with two years ago, due to lower commodity prices

0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

have seen significant revenue and margin

PercentageofUKCSAssets

Source:OGA,OGUK,BEIS

Operating Costs The UKCS has seen significant improvement in its competitiveness, efficiency and productivity in recent years. These improvements will help performance, but the industry remains significantly challenged on a number of fronts. Across the UKCS overall, unit operating costs (UOCs) averaged $15.2/boe (£12.50) in 2019. This compares with 2014 when average UOCs were $32/boe (or £20/boe) — a greater than 50 per cent improvement in US Dollar terms.

– with reduc�ons in ac�vity and investment expected

OGUK estimates that around 85 per cent of assets which produced at least 1 million boe last year have UOCs under $40/boe, compared with two-thirds in 2014, demonstrating the improved efficiency of E&P companies. The highest-cost asset in this group is now around $64/boe, compared with more than $100/boe in 2014. The improved cost profile has been achieved through reductions in operating expenditure and increased production — last year the UK industry produced 20 per cent more, at a 30 per cent lower cost than in 2014. It is likely that operating costs will be reduced further this year as all expenditure comes under increased scrutiny. reduc�ons in recent years as a result of expected ac�vity an investment reduc�ons 74% oil The industry is important for energy security nd can also help advance the path to net zero – government and regulatory support is vital

The industry is now producing 20% more for 30% lower costs compared to 2014 141 wells were drilled in 2019

Any new investments will receive increased scru�ny due to market condi�ons The UKCS may be in a cash-loss posi�on this year for only the £

oilandgasuk.co.uk /businessoutlook – delays and deferrals are expected thir �me in 40 years

– 38% more than 2018

12