“A global energy industry, anchored in the UK, powering the nati on and exporti ng to the world”

Oil & Gas UK Blueprint for Government – 2017

Oil & Gas UK is the leading trade associati on for the UK oil and gas industry, with around 400 members across the UK. We are an apoliti cal organisati on with a clear vision for the industry and these our are key prioriti es for the new UK Government. oilandgasuk.co.uk

Blueprint for Government

Vision 2035: a £290 billion opportunity for UK oil and gas “A global energy industry, anchored in the UK, powering the nation and exporting to

the world” Worldwide need for energy is forecast to increase by a third by 2035 with global GDP doubling over the same period. Oil and gas have a crucial role to play in satisfying that demand in support of an international move to a low carbon future. With the right policy framework, our abundant geology, legacy infrastructure, a world class supply chain and considerable national expertise could help enable lower cost CO2 transportation and storage, and facilitate the future use of clean hydrogen to provide low carbon solutions across power, heating and transport.

In 2035, oil and gas will still supply around half of the world’s primary energy needs, with the UK Government forecasting that oil and gas will provide two thirds of the UK’s energy requirements. Production of our indigenous oil and gas resources not only underpins industrial growth in other sectors of the economy, but is also a fundamental part of our everyday life. The UK oil and gas industry’s Vision 2035 (below), draws on two narratives: one for UKCS oil and gas production; the other for our supply chain. With up to an estimated 20 billion barrels of indigenous oil and gas yet to be recovered, we could ensure we are still a significant producer in 2035.

Our supply chain has the potential to double its turnover within a generation by capturing a larger share of export markets as well as increasing gross revenue from extending UKCS oil and gas production. Extending the life of the UKCS and making full value of our world class supply chain could generate additional revenue of over £290 billion (2016 money undiscounted) to the UK economy. This is Oil & Gas UK’s blueprint for the next Government. We have identified four priority areas, which we set out on the next page.

Blueprint for Government

Priority 1: Establish a UK energy policy which realises the full benefits of the UK’s indigenous resources.

1. An energy policy for the UK, built upon the Maximising Economic Recovery UK strategy, which acknowledges

that: a. Oil and gas have a vital role in the energy mix over the long term, particularly as transport fuel, in

power generation, in space heating and in specific industrial applications, b. As an affordable, reliable, lower-carbon fuel, natural gas helps achieve significant Green House Gas

(GHG) emissions reductions, replacing more carbon-intensive fuels. In the longer term, Carbon Capture and Storage (CCS) could make a significant contribution toward reducing GHG emissions. Continued research and development are therefore required to advance this technology,

c. Given the continued demand for oil and gas, the UKCS offers an affordable and secure source of energy.

Priority 2: Ensure the UKCS is globally competitive for investment. 2. Build a competitive fiscal regime, which includes a continued commitment to HM Treasury's Driving

Investment Plan, while addressing fiscal barriers to entry, particularly regarding decommissioning. 3. Build a competitive regulatory regime, working with the sector to minimise the cost of regulation, while

protecting our world class safety standards. 4. Invest in world-class infrastructure to ensure that oil and gas hubs across the UK are connected physically and

digitally (e.g. airports, rail connections and access to high speed broadband).

Priority 3: Strategic management of Brexit to support, develop and promote the oil and gas industry. Prioritise the following principles during the Brexit negotiations: 5. Frictionless access to markets and labour

a. Ensure that post Brexit immigration policy allows businesses to recruit highly skilled personnel from across the world.

6. Maintaining a strong voice in Europe a. Ensure that EU policy issues critical to the oil and gas industry are managed in partnership with

industry throughout the Brexit process (for example, clarity over the future of the emissions trading scheme and how it will be applied in a UK context).

7. Protecting energy trading and access to the internal energy market.

Priority 4: Take practical steps to protect, progress and promote operators, the supply chain and the offshore and onshore workforce. 8. Plan a Government programme promoting the capabilities of the oil and gas supply chain, including

Department for International Trade account management support for SMEs. 9. Improve physical infrastructure to support activities from new developments through to decommissioning. 10. Commit to extending funding for the Oil and Gas Technology Centre to support commercialisation of ground

breaking new technology. 11. Ensure better signposting of Government funding that could be used to pursue MER UK. 12. Increase the number of trained engineers and encourage greater take-up of STEM subjects, particularly

among girls, by implementing the recommendations from the Women’s Business Council and the Perkins’ review of Engineering Skills.

13. Undertake a mapping of future skills demand that accounts for technical advances. 14. Recognise the importance of workforce engagement to the development and retention of skills.

The average share price of supply chain companies ac�ve on the UKCS increased

marginally by

3%in 2016

The UKCS has improved its efficiency, streamlined

costs and boosted produc�vity over the

last two years

UKCS produc�on has increased by

16% since 2014, following

over a decade of con�nual decline

Unit opera�ng costs fell to

during 2016, down 48% from the peak

of $29.70/boe in 2014

Around 360 million boe of oil and gas was discovered in 2016

more than in any year since 2008

Supply chain revenue fell from £41.3 billion

in 2014 to around £28 billion in 2016

of fresh capital was commi�ed in 2016,

with only two new fields approved

£500Investment fell from

a peak of almost£15 billion in 2014

to £8.3 billion in 2016

22 wells drilled

in 2016

Explora on and appraisal ac vity remained

depressed, just

22 wells drilled

in 2016

Explora on and appraisal ac vity remained

depressed, just

Development drilling is at its lowest

since the 1970s

Explora on and produc on companies are expected to return

to a posi on of free cash-flow in 2017

2017 has already seen almost twice as

much money invested through mergers and

acquisi ons ($4 billion)

than across all of last year

Around one third of total UKCS produc on

in 2018

is expected to come from recent start-ups

Exports are expected to account for

43% (£11.8 billion) of supply chain

turnover this year

Up to 14 new developments

are being considered for approval over the

next two years

if fresh capital in the basin is not urgently secured

2020

The UK will face a poten al significant produc on decline

post

Total capital investment in the basin is

forecast to fall furtherover the next two years

Fiscal policy must con nue to adjust with the basin’s maturity to help

drive compe veness

the supply chain will come under further pressure

If new projects do not proceed to sanc on on me

Drilling ac vity must increase to con nually replenish the pipeline

of opportuni es

There are

barrels of oil and gass ll to recover

The UK oil and gas industrys ll supports

The UKCS delivers more than half

the UK’s oil and gas

The UK supply chainis a world leader

with unrivalled experience in

maximising recovery from a mature basin

Progress in 2016

Facts and Figures

Outlook – Challenges

The industry’s na�onal contribu�on

oilandgasuk/businessoutlook

2016 – Challenges

Outlook – Poten�al

@oilandgasuk#ogOutlook

oilandgasuk.co.uk