Oil & Gas Industry Competitiveness Assessment Summary of the Baseline Score, Insights and Opportunities

July 2016

Industry Competitiveness Dashboard: Above average, with plenty of room to improve Consistency across all key performance measures results in Australia achieving a strong competitive position amongst its peer group, while providing plenty of opportunity to improve. Industry Competitiveness Dashboard

Industry Competitiveness Leader Board

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Exploration

Exploration: Best in class, but what for?

Development

Production

Abandonment

While Australia performs well in the Exploration phase, this remains meaningless if the discovery of hydrocarbons cannot be monetised at scale and at pace. § 

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Australia is fortunate to have an abundance of energy resources, but they cannot become complacent with their successes (34.6% and 94.9% onshore success rate in Exploration and Appraisal activities respectively) in this area. The Australian government has an extensive and mature database of geological and seismic data (93.4% in agreement) that is openly shared and readily available to the public, encouraging information sharing and greater collaboration.

Exploration Activities 10 8 Seismic Data Maturity

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4 2 0

To further develop in this area, Australia can consider: o 

Researching and investing into the development of advanced exploration / seismic technology to increase exploration success rates.

o 

Streamlining supply chain by coordinating exploration activities, i.e. sharing resources and infrastructure, which would ultimately lead to a reduction in exploration cost.

Exploration Success Rate

Appraisal Activities

Total Well Cost

Appraisal Success Rate

Med Aus

Exploration Metric Scores (Onshore and Offshore scores combined)

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Development & Execution: Weak performance and a poor track record

Exploration

Development

Production

Abandonment

Australia has a poor track record in Major Capital Project development. With construction ramping down, the country needs to shift its focus to Production.

20

18

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16 14

12

$/Boe

Several factors contribute to Australia’s weak performance in this area, namely, geographical location / remoteness (68% difficulty), high labour cost (most expensive in the world), and restrictive industrial relations (66.3% negative).

10 8 6

To further develop in this area, Australia can consider: o 

Increasing resources and infrastructure sharing between industry operators to overcome supply chain and geological challenges.

o 

Leveraging advanced manufacturing innovations, i.e. 3D printing, to print parts and ultimately reduce cost and wait times.

o 

Increasing open and transparent communication and engagement with unions and other industrial relation bodies.

o 

Reviewing organisational structures, particularly the overuse of high-cost / highly qualified work force (“white-collar”).

4 2 0 Australia

Median

Best

Development Cost 2100

1400

Days

§ 

700

0 Australia

Median

Best

Development Schedule

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Production: The biggest opportunity

Exploration

Development

Production

Abandonment

Slashing costs and workforce numbers can only deliver limited short term value. The country needs to innovate and find new ways of working to maximise value in the Production phase. § 

Australia has higher OPEX costs due to several factors (covered in Development). These factors also affect asset utilisation (89.6%), which is just below the world median (91.0%), and trails behind the world best (113.8%).

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There are several actions and initiatives that Australia can undertake to overcome its current challenges and increase competitiveness in this area. Australia can consider: o 

Setting up “regional hubs” to tackle geographical remoteness. This includes increasing collaboration between Operators and Service Providers to share resources and infrastructure (e.g. Oil and Gas UK).

o 

Leveraging advanced manufacturing (3D printing) innovations (discussed prior).

o 

Changing the dynamics of the Supplier relationship, by having more value-based and outcome-focused contracts that provide greater incentives to service providers, and also higher value delivered to operators.

o 

Collaborating with regulatory bodies and the government to review regulation and reduce “red-tape” together (there are currently approx. 150 statues and more than 50 agencies regulating the Oil and Gas industry).

Production Operating Costs

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Abandonment: A looming threat, or an opportunity

Exploration

Development

Production

Abandonment

The industry must carefully consider strategies to reduce Abandonment costs in the near term to avoid being on the “back-foot” when the wave of Abandonment projects commence. § 

Australia performs very poorly in the Abandonment phase as it has few local projects and experience of scale, and significant liabilities in the next few decades as operational assets will begin to ramp down.

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There are differences between executing abandonment activities for onshore and offshore assets, where it is considerably more costly in the latter. The majority of Australia’s current production capacity is based offshore (67.5%), which increases cost.

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To further develop in this area, Australia can consider: o 

Researching to ensure regulations are robust to effectively support the industry.

o 

Investing in building local work force capability e.g. through international exchange programs, etc.

o 

Learning lessons, insights from other countries who are currently executing abandonment and decommissioning projects, e.g. UK.

Future Abandonment Liability $/BOE Reserves 6

Priority Areas: Unlocking Australia’s potential

Exploration

Development

Production

Abandonment

Implementing innovative and collaborative solutions to improve Australia’s work force, research and innovation, supply chain and regulatory challenges will allow the country to become one of the most competitive oil and gas producers in the world • 

14% improvement in Australia’s overall competitiveness score is achievable through a number of changes across the four priority areas: •  Supply chain: Collaborating to share resources and infrastructure as well as setting up regional supply hubs. •  Research and innovation: Leveraging advanced manufacturing capabilities (e.g. additive manufacturing, modular design and development) increased collaboration between universities and industry.

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•  Work force: Investing in building local capability for the production and abandonment phases. •  Regulatory reform: Increasing engagement between industry and government to reduce “red tape”. Successful implementation of these changes has the ability to unlock up to approximately $5bn in untapped value (15% of industry revenue).

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