Upstream Oil and Gas Sector Profile Introduction The oil and gas sector in the UK involves the extraction and exploration of new supply fields, in addition to providing treatment facilities, with the UK continental shelf (UKCS) home to 99% of the UK’s oil and gas production. In 2015, an estimated 70% of the UK’s energy supply was provided by the oil and gas sector. In 2014 the industry contributed £25.2bn to the UK’s balance of payments, capital investment was £14.8bn and £9.6bn was spent operating its assets1. Capital investment in 2015 is expected to fall to £10-11bn and is expected to halve by 20192 as exploration has dropped to its lowest level since the 1970s caused by the challenging conditions of cost inflation and the fall in oil prices. However decommissioning expenditure was £1bn in 2014, and is expected to rise to over £2 bn in 20183, and total £16.9bn over the period 2015-2024; 79 platforms are forecast for removal over the next decade.4 The industry now recognises that its cost base is unsustainable and is taking steps to reduce it to maintain competitivity of its prices as oil prices have more than halved since summer 2014.5, with the expectation of a further fall in 2016.6 Over the last year there has been joint action by the industry, the Oil & Gas Regulator and the UK Government to improve UKCS’ competitiveness by a mix of tax reforms, improved stewardship of the basin and efficiency improvements. There is also coordinated work between the industry, the Oil & Gas Authority and HM Treasury to maximise the remaining oil and gas reserves. The measures to improve efficiency have produced a stronger delivery from existing fields and, together with the start of Golden Eagle field production, production has risen 3% for first half 2015 compared with 2014. The industry workforce in 2015 stands at over 375,000 in the UK, of which only 7% are offshore7. 55% are in England and remainder are mainly around Aberdeen. The workforce has contracted by 15% since 2014. Proportion of over 55s is low at 13% compared to national average of 32%.8

Activities in the UK The upstream sector involves offshore activities of the industry in the UK North Sea, including the extraction of oil and gas, exploration for new supply fields, development, new builds and dismantling. Over the last 50 years, this sector has invested £375bn into exploration drilling and field developments9. There are almost 300 oil and gas platforms in the UKCS linked to the shore by a network of 36,000 km of pipeline - equal to the distance from Aberdeen to Adelaide and back again10. In 2014 the number of wells drilled was 14 exploration wells, 18 appraisal wells and 126 development rails., In the first half of 2015 there were 7 exploration, 3 appraisal and 38 development wells11. This is a significant decrease on the industry state a decade ago: in 2005 approximately 225 development wells were drilled and appraisal wells peaked in 2007 at 7512. Over 40 potential new developments were being considered for investment at the end of 2014.13 Production is set to increase in 2015 for the first time in a decade, an increase which will continue through to 2020.14 The extensive supply chain of the industry makes it a major contributor to the UK economy, providing thousands of jobs. By 2030, it has been estimated that 70% of the primary energy consumed in the UK will come from oil and gas.15 Production in 2014 was 1.42 bn barrels of oil and gas with an estimated 23 bn barrels still to recover. UK technical expertise and ability to pioneer innovative technologies will play a vital role in extending the UKCS basin life beyond 2050, for example using cutting edge technologies including directional drilling remotely through which wells can be drilled at myriad angles; the precision required can be likened to delivering a letter through a letterbox in Edinburgh from London.16 To achieve the cost cuttings required the industry will be focussing on business processes, standardisation, and behavioural and cultural change. The cost efficiency will lead to downsizing of the

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workforce of approximately 9% by 201917; currently almost a fifth of all workers within UK oil and gas are located, not in Scotland, but in the South East, however there will still be a need for 12,000 new entrants over the next five years18. Recruitment challenges are greater for Aberdeen-based companies.19 It is estimated that the current workforce working on overseas projects will increase from the current 26% to 35% by 2019.20 The UK Government has delivered funding of £20m for seismic surveys to stimulate exploration.21 The British Geological Survey has estimated the UK’s total offshore shale gas reserves could be up to 10 times the size of the onshore shale and exploration activity is currently under way in Morecambe Bay.

ECI related activities Engineering construction is involved in the design, project management, construction, installation, testing, commissioning, and decommissioning/dismantling and maintenance of machinery and plant within the upstream oil and gas industry. As stocks of UK oil and gas dwindle and become more expensive and difficult to extract, greater investment and constant improvement to technologies is required. All of this demands a highly skilled engineering construction workforce, which in 2014 consisted of 38% of the total ECI population.

ECI Future Forecast Future ECI Manpower Levels % Share at 2014 Estimated Manpower at 2014

38% 30%

35,064

25% 20%

Forecast

2015 Forecast (2014 baseline)

2013 Forecast using S1M 2014 data

2015 Forecast Survey

15% 10% 5%

2013 Forecast Survey

0% -5%

Required Manpower at 2026

37,318

43,619

-10% -15% -20%

Projected % Share at 2026

36%

42%

-25% 2014

2016

2018

2020

2022

2024

2026

*0% Status Quo as at 2014

Number to Recruit 2014 - 2026

15,834

21,804

The ECITB predicts that the upstream ECI manpower levels required by 2026 will be 6% greater than at 2014., However there is the prediction of it falling by 20% in 2016, with 70% of the ECITB in-scope member companies that were consulted in Autumn 2015 predicting a fall in 2016. The viability of major new and planned projects in the North Sea will be challenged by the fall in oil prices in 2015. 70% of employers have reported problems recruiting, although the shortage is less than a year ago, recruitment is strongest for operations and maintenance.22

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Future/Current ECI Related Projects and Contractors

Client

Site

Type

Project Detail

Activity

Contractors

Est Value

Start Date

End Date

BP

Clair Ridge, North Sea

Conventional Oil

The Clair Ridge Project develops new resources from the giant Clair Field which is located approximately 40 miles west of Shetland and extends over an area of 85 square miles, in water depths of approximately 460 feet. The project scope includes provision of new production, accommodation and drilling facilities on two bridge-linked platforms. In addition, the project will deliver new development wells and brownfield modifications to the Clair Phase 1 and the Sullom Voe terminal. New subsea pipelines will be tied into the existing export systems. A LoSal unit will be provided to enhance oil recovery. Production capacity is expected to be 120,000 barrels per day, with provision for future subsea tiebacks

Wood Group, Enterprise Engineering

BP

Culzean, North Sea

High Pressure Gas

Culzean is a 1.2 Tcf High Pressure High Temperature (HPHT) lean gas condensate field located approximately 140 miles east of Aberdeen in Block 22/25a of the Central North Sea in water depths of 300 feet. The project scope includes a stand-alone three bridge-linked platform development with dry gas export via Central Area Transmission System (CATS) and liquids export via a new-build Floating Storage and Offloading tanker (FSO). A new Heavy Duty Jack Up (HDJU) Rig is being fabricated to drill six production wells and one produced water re-injection well.

BP

Quad 204, North Sea

Deepwater oil

The Quad 204 project will provide a new Floating Production, Storage and Offloading (FPSO) vessel to extend and expand the recovery of oil from the Schiehallion field through to 2035. It includes an extension of the existing subsea system with 15 new flow lines, 21 new risers, and 14 new wells. The project is designed to produce 130,000 barrels a day of oil and 220 million standard cubic feet of gas compression (mainly for gas lift).

Apache North Sea Ltd

North Sea

In July 2012, Petrofac signed a three-year contract to provide onshore engineering and both onshore and offshore construction services to all of the Apache North Sea assets. This includes the Beryl Alpha and Bravo platforms in the northern North Sea and the Scottish Area Gas Evacuation (SAGE) gas processing plant at St Fergus, Aberdeenshire, UK and is an extension to, and continuation of, the current service contract which Petrofac holds for Apache’s Forties platforms. Under the terms of the new contract Petrofac’s scope will also include topside brownfield and greenfield activity in addition to interfacing with subsea contractors.

Petrofac, Facilities Management

2009

ongoi ng

Enquest

North Sea, Thistle, Heather and Northern Producer

Wood Group PSN has been awarded a new five year contract from EnQuest to provide engineering, design, construction, procurement and commissioning services to the Thistle, Heather and Northern Producer offshore assets in the North Sea. The terms of the contract reflect EnQuest’s ongoing focus on reducing costs and improving the efficiency of its North Sea offshore operations. Effective immediately, the contract includes extension options for up to a further five years

Wood Group, Petrofac

2009

2020

BP

6 UKCS assets + Forties Pipeline

Under the contract Wood Group PSN (WGPSN), will deliver engineering, procurement and construction services to six UK continental shelf (UKCS) offshore upstream assets and the Forties Pipeline System (FPS) onshore midstream facilities in Grangemouth.

2015

2020

Horse Hill, Gatwick

Could hold massive amount of oil - greater than North Sea, but will be difficult to extract.

£750, 000,0 00

*R&M – Repair & Maintenance, O&M – Operations & Maintenance, E & C – Engineering & Construction, D – Decommissioning/Dismantling, NB – New Build, PM – Project Management

Table Data derived from National Joint Council for the Engineering Construction Industry and National Infrastructure plan pipeline

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References: Upstream Oil & Gas Sector Footnotes

1

http://oilandgasuk.co.uk/key-facts.cfm Office for Budget Responsibility, Economic and Fiscal Outlook, March 2014 Oil & Gas UK 4 http://oilandgasuk.co.uk/2015-decommissioning-insight-indicates-steady-growth-in-sector/ 5 http://oilandgasuk.co.uk/wp-content/uploads/2015/09/Economic-Report-2015-Infographics-v3.pdf 6 http://cld.bz/BookData/TYrkA5w/basic-html/page-5.html# 7 http://oilandgasuk.co.uk/knowledgecentre/economic-contribution.cfm 8 http://www.opito.com/media/downloads/fuelling-the-next-generation-a-study-of-the-uk-upstream-oil-gas-workforce-2.pdf 9 http://cld.bz/BookData/TYrkA5w/basic-html/page-8.html 10 http://oilandgasuk.co.uk/innovator.cfm 11 http://oilandgasuk.co.uk/autumn-statement-and-spending-review-oil-gas-uk-reaction/ 12 http://cld.bz/BookData/TYrkA5w/basic-html/page-47.html 13 http://www.opito.com/media/downloads/fuelling-the-next-generation-a-study-of-the-uk-upstream-oil-gas-workforce-2.pdf 14 http://oilandgasuk.co.uk/autumn-statement-and-spending-review-oil-gas-uk-reaction/ 15 http://oilandgasuk.co.uk/key-facts/energy-provider.cfm 16 http://oilandgasuk.co.uk/innovator.cfm 17 http://www.opito.com/media/downloads/fuelling-the-next-generation-a-study-of-the-uk-upstream-oil-gas-workforce-2.pdf 18 http://www.opito.com/media/downloads/fuelling-the-next-generation-a-study-of-the-uk-upstream-oil-gas-workforce-2.pdf 19 http://www.opito.com/media/downloads/fuelling-the-next-generation-a-study-of-the-uk-upstream-oil-gas-workforce-2.pdf 20 http://www.opito.com/media/downloads/fuelling-the-next-generation-a-study-of-the-uk-upstream-oil-gas-workforce-2.pdf 21 Oil & Gas UK 22 http://www.opito.com/media/downloads/fuelling-the-next-generation-a-study-of-the-uk-upstream-oil-gas-workforce-2.pdf 2 3

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