Business Outlook 2018

although free cash flow remains a major concern

BUSINESS OUTLOOK 2018 3. Market Outlook

25% up on 2016

4. Supply Chain Outlook Although the Brent spot price briefly surpassed $70/bbl in January 2018, future contracts for Supply chain revenues are expected to stabilise in 2018 delivery beyond 2019 remain at sub-$60/bbl

Brent oil price averaged $54.2/bbl in 2017

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

5. Exploration and Production Outlook

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 62% of supply chain companies surveyed by Oil & Gas UK have At least 12 new developments – worth around £5 billion of capital investment – are expected to be sanctioned in 2018 a more positive outlook for 2018

In Summary M ost E&P businesses appear to have strengthened over the last 12 months, with more free cash flow generated by the basin than in any year since 2011. Production efficiency improvements and the addition of new capacity resulted in flat production, despite some significant unplanned outages last year. Output is expected to grow over the next two years, before the lack of investment during the downturn begins to have an impact with the likely consequence that production reverts into decline. The investments made today will therefore be key to managing production performance in the 2020s. It is particularly encouraging that up to £5 billion of new capital projects could be approved this year, providing much needed new business for the supply chain. These developments have been boosted by significant efficiency gains on the UKCS over the last three years. It is crucial that this is built upon, both operationally and commercially, to continue to attract investment in new opportunities and extend the life of existing assets. Drilling remains an area of serious concern with less than 100 wells drilled on the UKCS for the first time since 1973 when the basin was still in its infancy. Development drilling has fallen by around 45 per cent in just two years, which is a particularly worrying trend for the future health of the basin. On the exploration side, although just 14 wells were drilled last year, at least five successful discoveries have already been announced that could carry a combined 350 million boe based on early estimates. Material improvements to non-technical factors, such as the fiscal regime, the cost base, access to infrastructure and commercial behaviours should enhance the value proposition of exploration drilling. However, early signs for 2018 suggest that many companies will opt to commit available capital to other parts of the business that pay back faster and offer more certain returns. Around of post-tax cash flow was generated on the UKCS in 2017, more than in any year since 2011 £ although free cash flow remains a major concern 4. Supply Chain Outlook 5. Exploration &Production Outlook Supply chain revenues are expected to stabilise in 2018 The average share price of supply chain companies active on the UKCS increased by Around At least 12 new developments – worth around £5 billion of capital investment – are expected to be sanctioned in 2018 25% up on 2016 of post-tax cash flow was generated on the UKCS in 2017, mor than in any year since 2011 8% in 2017 £ although free cash flow remains a major concern

5. Exploration &Production Outlook

Just 94 wells (71 development, 14 exploration and 9 appraisal) were spudded on the UKCS in 2017, the fewest since 1973

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