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UKCS INITIATIVES TO ENCOURAGE EXPLORATION Jen Brzozowska Head of Exploration

UKCS INITIATIVES TO ENCOURAGE EXPLORATION Jen Brzozowska Head of Exploration. Why did the UK need to encourage Exploration? How was it done? Has it worked?. How was it done?. Initiatives Licensing Promote Licence Frontier Licence Fallow Process

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UKCS INITIATIVES TO ENCOURAGE EXPLORATION Jen Brzozowska Head of Exploration

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  1. UKCS INITIATIVES TO ENCOURAGE EXPLORATIONJen BrzozowskaHead of Exploration

  2. Why did the UK need to encourage Exploration?How was it done?Has it worked? NPS Conference – EXPLORATION REVIVED

  3. NPS Conference – EXPLORATION REVIVED

  4. How was it done? • Initiatives • Licensing • Promote Licence • Frontier Licence • Fallow Process • Promote UK & Relinquishment Report Publication • Stewardship NPS Conference – EXPLORATION REVIVED

  5. Licensing • Traditional Licence: • 1st to 4th Round (1964 to 1972) • 6 year Initial Term • 40 year Second Term • Multi-Block Licences • If Field Development Plan approved anywhere on the remainder of the Licence, it could be retained for the duration • 5th to 10th Round (1976 to 1987) • Shorter Second Term (30 years) but still long • 11th to 19th Round (1988 to 2001) • Three Terms (6 + 12 + 18); Relinquish all but Development after 18 years • 20th and subsequent Rounds (2002 to date) • Amended Terms • 4 year Initial Term • 4 year Second Term • 8 year Third Term only retain Field Development area NPS Conference – EXPLORATION REVIVED

  6. Licensing • Promote Licence introduced for 21st Round 2003: designed to allow ideas to be worked exclusively, realising value by marketing (enables smaller companies without major resources to pursue an interest in a prospect) • Initial Term 4 years but split; two year evaluation and promote period; two years to complete Work Programme if continued • First two years 90% reduction on fees to £15 per sq km/year • Successful Prospect Fairs held from December 2003 to December 2006 for the Promote Licensees to show and potentially sell their ideas • Frontier Licence introduced for 22nd Round 2004: allows application for larger amounts of acreage for scoping studies, initially in the area to the west of the Shetland Islands, SEA 1 & 4 only • 90% reduction on fees in a First Term of 2 years to screen acreage • Relinquish 75% to enter Second Term of 4 years to carry out the substantive Work Programme (drilling) • Further relinquishment to enter a Third Term of 6 years NPS Conference – EXPLORATION REVIVED

  7. Summary of Recent Round Success NPS Conference – EXPLORATION REVIVED

  8. 24th Round • 17 New Players • 246 Blocks licensed • 16 Wells committed to • 79 Traditional licences • 6 Frontier licences • 65 Promote licences NPS Conference – EXPLORATION REVIVED

  9. Promote Licence Update to end 2006 • 23 of the original 54 Promote Licences issued in the 21st Round have moved into Phase 2 • 15 with a Firm well commitment or Development Plan • 8 toshoot new 3D seismic with a Contingent well; all must be drilled by September 2007 • 7 of these have been drilled already • 23 of the 58 Promote Licences issued in the 22nd Round moved into Phase 2 in December 2006 • 13 with a Firm well commitment • 10 toshoot new 3D seismic with a Contingent well; all must be drilled by September 2008 • 2 of these have been drilled already NPS Conference – EXPLORATION REVIVED

  10. SEA Process continues NPS Conference – EXPLORATION REVIVED

  11. FallowWhy was an Initiative needed? Early round licences were multi-block, and if the initial term obligation was fulfilled with a Development somewhere on the licence, companies could retain acreage into the second term for up to 46 years without any further activity! NPS Conference – EXPLORATION REVIVED

  12. FallowTotal Acreage held by Company in September 1994 NPS Conference – EXPLORATION REVIVED

  13. Relevant Model Clause • Working Obligations • “If at any time the Minister serves a notice in writing on the licensee requiring him to submit to the Minister, before a date specified in the notice, an appropriate programme for exploring for petroleum in the licensed area during a period so specified, the Licensee shall comply with the notice;” The programme would be of a kind which a Licensee seeking to exploit the licence to the best commercial advantage could reasonably be expected to carry out in the specified period, assuming it had the requisite competence and resources. NPS Conference – EXPLORATION REVIVED

  14. Fallow Block Process Flow Diagram NPS Conference – EXPLORATION REVIVED

  15. Classification into 26 Identifiers (Blocks) BH “Class B Hold” BR “Class B Rescued” B1 “No activity” B2 “Low level activity” B3 “Delayed by partner misalignment” B4 “Delayed by third party issues” B5 “Delayed by infrastructure issues” B6 “Divestment planned” B7 “Non-economic accumulation”   A1 “Doing all that can be expected”  A2 “Wells AFE'd”  A3 “Proprietary Seismic AFE'd”  A4 “Seismic Reprocessing 2 year review”  A5 “Seismic Reprocessing 1 year review”  A6 “Infrastructure full or none available”  A7 “FDP in preparation”  A8 “Subeconomic” (from class B) A9 “Median Line issues” M “Moratorium” N1 “Not Fallow - Relinquished” N2 “Not Fallow - New proprietary seismic” N3 “Not Fallow - Well drilled” N4 “Not Fallow - FDP or new production” N5 “Not Fallow - no exploration area remaining” N6 “Not Fallow - Licence in primary term” R “Relinquishment notice submitted” NPS Conference – EXPLORATION REVIVED

  16. NPS Conference – EXPLORATION REVIVED

  17. Fallow Block Status382 currently identified Fallow Blocks (pre 20th Round) NPS Conference – EXPLORATION REVIVED

  18. Fallow Block Impacts NPS Conference – EXPLORATION REVIVED

  19. Status of 304 Blocks which have been released on website in 12 month process NPS Conference – EXPLORATION REVIVED

  20. Fallow Discoveries Process Flow Diagram NPS Conference – EXPLORATION REVIVED

  21. Fallow Discoveries Status NPS Conference – EXPLORATION REVIVED

  22. Fallow Discoveries Impacts NPS Conference – EXPLORATION REVIVED

  23. Fields which are now under Development or in Production that were Fallow Discoveries or on Fallow Blocks TOTAL RESERVES (P + P) : c 450 mmboe NPS Conference – EXPLORATION REVIVED

  24. Promote UK • BGS on behalf of DTI has mapped and helped promote 25 undeveloped discoveries and 101 leads since 2000 • Posters on the UKCS Geology have been produced for display at NAPE and similar events in North America and the UK to encourage new entrants • Prospect Fairs have been held annually in December for the last four years in conjunction with the PESGB NPS Conference – EXPLORATION REVIVED

  25. Promote UK & Relinquishment Report Publication NPS Conference – EXPLORATION REVIVED

  26. STEWARDSHIP • Concern that some fields are not being invested in to their full economic potential • Possible explanations: • Capital constraints • People constraints • Materiality of benefits • Partnership misalignment • Shadow of decommissioning … • Work Group Recommendations • Construct a framework for raising the game on Stewardship • Replace Annual Field Report with simpler data submission • Construct filtering indicators to highlight issues • Map out process for Stewardship Improvement • JV involvement NPS Conference – EXPLORATION REVIVED

  27. 1-2 months 3-6 months Annual Data Return Data analysis and feedback Clarification Discussions Options: DTI/JV meetings Technical and commercial solutions sought Full audit Use of expert for technical issues Letter identifying concerns JV can revise programme Notice served Review Any remaining issues following clarification? Alignment Reached? No Yes Sanctions Development notice Change of operator Other sanctions NPS Conference – EXPLORATION REVIVED

  28. Stewardship Current Status • Stage 1 Data Gathering completed for first phase 2006 • 224 Producing Assets • indications of increasing spend on future opportunities and development drilling • development drilling activity still below 2001 levels • 34 assets selected for detailed review • Stage 2 Detailed Review of these 34 now in progress • But this is an Annual process: Data Gathering commenced in January 2007 for selection of further assets to target The Energy Review 2006 required that Infrastructure Owners review surrounding Exploration potential in other Operators assets as well as their own NPS Conference – EXPLORATION REVIVED

  29. Has it worked?Drilling Activity over the last 11 years NPS Conference – EXPLORATION REVIVED

  30. Fallow Process Helping to Drive Activity NPS Conference – EXPLORATION REVIVED

  31. Drilling Activity 2006 • Exploration Offshore • 29 wells • Appraisal Offshore • 39 wells • Total 68wells • 18 of these were Obligation wells • 12 wells were on Fallow B or B Rescued Blocks • 4 wells were on Fallow B or B Rescued Discoveries • Half the Exploration or Appraisal Activity in 2006 resulted from either Obligation or Fallow drilling NPS Conference – EXPLORATION REVIVED

  32. Comparison of Company Held Acreage 1994 & 2004 NPS Conference – EXPLORATION REVIVED

  33. Comparison of Licensing pre Initiatives (2000 – pink acreage) to post 24th Round (2007 – blue acreage) NPS Conference – EXPLORATION REVIVED

  34. Acknowledgments • Thanks go to Simon Toole, Director of the Licensing, Exploration and Development Branch, Energy Development Unit, at the UK Department for Trade and Industry, for permission to give this talk, and particularly to Toni Harvey of the Exploration Team and Helen Hichens, the Southern Field Team Leader, who compiled all the Fallow Facts. NPS Conference – EXPLORATION REVIVED

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