Taking the Temperature of Scottish oil & gas industry Gerry Love

Introduction Scotland has long been recognised as a major oil and gas hub a gateway to the North Sea and the Atlantic Ocean. The depth, breadth and strength of skills and experience that the industry in Scotland enjoys are renowned throughout the world. Scotland s role in the global oil and gas industry has long been characterised by constant evolution and development, with Aberdeen at its forefront.

UKCS Current State of Play For the past 50 years, the oil and gas industry has played a critical role in Scotland & the UK s economic success. UKCS, within the EU, is estimated to have the largest oil reserves in the EU and the second largest volume of gas reserves after the Netherlands. More than 42.3 billion barrels of oil equivalent (boe) have been produced from the UKCS and 10 to 20 billion boe are estimated to remain UK oil & gas sector supports over 300,000 across the UK Lift costs have halved over the last 2 years from $30 per barrel to $14 July 17 30 th Licensing round, including relinquished discoveries Decom is the only area with increasing expenditure, 1.2 billion Drilling activity at low level, 14 exploration wells and 8 appraisal wells drilled in 16 North Sea basin needs fresh capital investment 3 new field approvals since 16

UKCS Current State of Play The past 5 years have seen exit of majors from UKCS and entrance of independents New entrants are often private equity backed and lack infrastructure and expertise to manage their assets New entrants taking ownership of mature assets maximising economic recovery Recently there has been a lot of activity on mergers & acquisitions, both corporate & supply chain Current thinking is on future collaboration Potential to unlock incremental value through collaborative effort.

Innovation Scotland s oil and gas innovators set the pace when it came to working dangerous and inhospitable conditions. Scotland s track record in R&D is recognised as one of the best in the world and the infrastructure exists to take that work into a new era. International operators, have located specialist teams in Aberdeen to be part of the world-class R&D community.

Technology Digital Energy Development of digital energy / BIG data and it s applications Plans for National Data Repository Historical asset integrity data allows proactive maintenance, not reactive Marine logistics - offshore logistics optimisation OGTC Solution Centre

Can Data Science Help Maximise Economic Recovery? Strategic Objectives 1. Improve the viability of UKCS Operations. 2. Improve the viability of Scottish O&G Companies 3. Increased sales & exports of Scottish developed Digital/ Data Oil & Gas products & services 4 Strategic Ambitions Current price is $70 and this could be a reality for a while Support DS companies to develop Competitive aligned Risk/reward proposals The cost of implementing DS solutions perceived to be high Support operators to build the Investment case, prove & de-risk Investment in DS 5 Major Challenges Too many vendors offering unproven golden bullet solutions Increase & Sustain Exploration through DS Current UKCS Exploration Activity is low Improve reliability & efficiencies through DS Current Production Efficiency is <60%

Can Data Science Help Maximise Economic Recovery? Strategic Objectives 1. Improve the viability of UKCS Operations. 2. Improve the viability of Scottish O&G Companies 3. Increased sales & exports of Scottish developed Digital/ Data Oil & Gas products & services 4 Strategic Ambitions Current price is $70 and this could be a reality for a while Support DS companies to develop Competitive aligned Risk/reward proposals The cost of implementing DS solutions perceived to be high Support operators Increase & 5 Major to build Next the steps: Develop Sustain Investment the evidence case, base, economic Challenges prove & model de-risk and potential Exploration Investment actions / investments DS through DS Too many vendors offering unproven golden bullet solutions Current UKCS Exploration Activity is low Improve reliability & efficiencies through DS Current Production Efficiency is <60%

The Oil and Gas Technology Centre The Oil and Gas Technology Centre (OGTC) will become the global go to centre for solving offshore mature basin, subsea and decommissioning challenges. Driven by industry, the OGTC will draw upon existing expertise residing within industry and academia as well as developing new Centres of Excellence. Focusing on: Exploration Seismic Data and Geoscience Non-seismic Technologies Well Drilling Data Collection and Analysis Rock and Fluid Characterisation Decommissioning Subsea Wells Removal of Equipment / Topsides / Jackets Cross-Cutting Technologies Sensor Technologies Asset Integrity Material Science Flow Assurance Robotics Environmental Science Manufacturing Technology Digital Technology Development & Production Well Drilling, Completion and Wellwork Subsea FPSO Land Data Collection and Analysis Asset Integrity & Production Efficiency Produced Water Handling & Disposal

Decommissioning Oil and gas decommissioning is a relatively new market with a new set of challenges and priorities. There are strong synergies with oil and gas exploration, development and production, but also key differences. Scottish Enterprise, Decom North Sea & HIE published Decommissioning Action Plan Dec 16 Working with UK Oil & Gas Authority, Decom North Sea & OGTC to realise the potential for Scottish based companies Scottish Govt announced 5m Decommissioning Challenge Fund to support infrastructure upgrades and innovative salvage & transport methods for Scottish ports

Decom The prize on the horizon??? 17.6bn to be spent to 2025 47% on P&A; only 1.2% on onshore recycling and disposal 900,000 tonnes of material to be brought ashore by 2025 Decommissioning In Central and Northern North Sea, 28 platforms forecast for removal by 2025-82% of topsides and 90% of substructures yet to be contracted GVA for Scotland could be 8.3-11.3 billion based on capturing between: 70-90% in CNS & NNS and 40-60% in SNS - Well P&A 70-90% in CNS & NNS and 40-60% in SNS - Operator Project Management 35-55% in CNS & NNS and 10-20% in SNS - Removal /associated activity 302 O&G installations eventually to be decommissioned in the UKCS alone

Subsea The Scottish oil and gas industry boasts a subsea engineering cluster that is among the strongest in the world. With almost half of the world s subsea installations in the North Sea, Scotland is a global leader in the sector. Company Base 200+ companies employing 20,000 people with a strong focus on subsea markets. Annual turnover of 7 billion, more than half of which is exported (equates to one third of the global market for subsea oil & gas). Expected to grow in other emerging markets such as renewable energy, subsea mining and aquaculture Experience of Innovation Scotland is a hub of cutting-edge research and development work. Our track record in R&D is recognised as one of the best in the world and the infrastructure exists, or is under development, to take that work into a new era. World Leading Expertise Expertise residing within the Scottish workforce is exported around the world. All the major global oil & gas engineering companies have significant operations in Scotland, including FMC, GE, OneSubsea, Aker, Subsea 7, Technip and Bibby Offshore.

Diversifying The Scottish supply chain s ability to diversify is about much more than new products, services and markets. It s also about new industry opportunities, including offshore wind and nuclear decommissioning. Offshore Wind A growing market concentrated in the UK and Europe. 3 Scottish offshore wind farms with a combined value of 3bn will began construction in 2017. Contributing to the 18bn of UK offshore wind investment forecast between 2016 and 2020. Nuclear Decommissioning The UK spend between 2bn and 3bn each year on nuclear decommissioning activities. It is forecast that the total cost of fully decommissioning the UK s existing nuclear sites could reach 117bn over a 100 year period.

Skills The quality of Scotland s workforce is internationally recognised. The people of Scotland make up one of the best trained, most reliable and cost-competitive labour forces in the world, with generations of experience in onshore and offshore services. Scotland s oil and gas industry has spawned an education and training network that features a diverse but interlinked range of vocational training facilities, education partnerships and specialist business services to the industry.

Supplychain in Scotland Scotland has an oil and gas supply chain of around 2,000 companies. 2016/17 Estimated Revenue was 19.1bn. 10.4bn was generated internationally.

How is the 10.4bn International Sales made up? 2016/17 SDI / SE International Oil & Gas Survey. Total sales 19.1bn of which 10.4bn was international. 1 2 3 4 5 6 7 8 9 10 Country

How is the 10.4bn International Sales made up? Azerbaijan Holland India Angola UAE Brazil Saudi Arabia Germany Equatorial Guinea Norway Qatar Nigeria Australia Singapore Canada Kurdistan Russia Kazakhstan Malaysia Ghana Iraq Denmark China USA

How is the 10.4bn International Sales made up? Country Sales 1 USA 1.8bn 2 3 4 5 6 7 8 9 10 Norway UAE Nigeria Angola / Malaysia Canada / Kazakhstan China / Qatar India Germany / Netherlands Saudi Arabia 0.55bn 0.45bn 0.43bn 0.39bn 0.33bn 0.32bn 0.31bn 0.30bn 0.29bn

Company Target Growth Opportunity - 2018 Region Percentage 1 Middle East 57% 2 3 3 5 6 7 8 9 10 EU Asia Pacific Africa North America Non EU Caspian Australasia South America Central America 53% 31% 31% 28% 24% 16% 11% 7% 3%

Aberdeen Aberdeen has long been recognized as a major oil and gas hub a gateway to the North Sea and the Atlantic Ocean. The oil capital of Europe is ranked as one of the highest performing cities in the UK. Despite the adverse effect of lower oil prices, Aberdeen still ranks in the top ten performing cities in the UK, according to Demos-PwC.

Aberdeen Infrastructure Growth Prior to oil crash drop, Aberdeen was planning for the future A number of major infrastructure projects are in the pipeline or already being developed: Aberdeen Western Peripheral Route Harbour Expansion New Aberdeen Exhibition & Conference Centre New Industrial Parks Westhill ( Subsea Centre ) & Prime 4 ( Statoil, Apache )

Aberdeen Harbour

Road Aberdeen Western Peripheral Road Significantly improve travel in and around Aberdeen Easier routes to industrial areas and Peterhead supply base.

Aberdeen New AECC

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