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Wellhead platforms, financing schemes and contracting strategies Finding Petroleum, 21 st February 2018 Rob Gill

Wellhead platforms Setting the scene Wellhead platforms worldwide Wellhead platforms in the North Sea Financing new developments Contracting strategies

North Sea declining production 2,500 UK oil production kbbl/d 2,000 1,500 1,000 500-3

No shortage of processing and export infrastructure capacity Concentrate on producing more through existing facilities to achieve more while spending less. EOR More wells within existing fields Tie back of new discoveries 4

Oil and gas small pools : UK North Sea

Subsea development or unmanned wellhead platform?

CAPEX units Click to edit Master title style Subsea development or wellhead platform? WHP 90m WHP 60m WHP 45m WHP 30m SNS: Economic crossover One well CNS/NNS: Three wells

Wellhead platforms Setting the scene Wellhead platforms worldwide Wellhead platforms in the North Sea Financing new developments Contracting strategies

Wellhead platforms Low cost/low risk Unmanned Minimal facilities No processing Access by sea rather than by air Standardised rather than bespoke Capable of rapid deployment 9

Unocal: Phase 19-21 Tripod, Thailand Pile swaging rather than the multiday installation of the traditional through-leg piles enabled the overall platform installation to be reduced to 2 days In a GOT first, the platform was made re-locatable by introducing bolted connections within the pile sleeves, jacket tower and topsides to jacket connection 2 decks / 2 jackets per installation barge 75m

Unocal: Phase 22 Phase 25, Thailand Cost per Platform Traditional 4 leg, down leg pile 12 Slot, 2.3m well spacing 635 Tonne jacket 545 Tonne deck No automation Cost per Platform Through leg piles 16 Slot, 1.2m well spacing 370 Tonne Jacket 425 Tonne Deck Full automation of facilites Booster Compression 12 Installed Cost 93 US$ 10 million 10 8 6 Installed Cost 03 US$ 6 million 4 1992 1993 1994 1995 1996 1997 Year 75m

Origin : Kupe : New Zealand Situated 14km off the Taranaki coast of NZ. 8 well WHP Producing 200 MMSCFD. 28m water depth Weekly scraping (via remote operated multi scraper launcher)

Saudi Aramco: 3S initiative, Persian Gulf Standardisation, Simplification, SimOps Water depth insensitive: The upper section of the jacket remains unchanged allowing stockpiling of materials and pre-fabrication Wells are often installed prior to deck installation to decouple the JU Rig drilling and topside fabrication and installation schedules 10 well, max well flow rate 10,000bl/day 10-50m water depth Since 2008, this design has become the new standard in Well platform offshore Saudi Arabia, with over 50 platforms installed and operating

Installation methods. Linda, NSW, Australia 6 wells. 130 MMscfd of gas 5,000 bpd of condensate 30M water depth

Installation methods. Oseberg West Flanken 2, Norway. 2,000 tonne jacket 10 Wellslots Water Depth = 105m 8km tieback to host facilities

Installation methods. Coogee Resources, NSW, Australia 6 Wells Water Depth = 77m Jacket dry Weight 1700MT Topside Lift Weight 750MT 9 Skirt Piles with 25m penetration

Wellhead platforms Setting the scene Wellhead platforms worldwide Wellhead platforms in the North Sea Financing new developments Contracting strategies

Typical unmanned wellhead platforms in the North Sea Lots of examples in the NL and DK sectors of the North Sea Generally up to 60m water depth Heerema, Ramboll

Heavily promoted by the Norwegian Petroleum Directorate Heerema: Statoil Westflanken 2, 105m water depth. Kvaerner: Subsea on a stick : Aker BP, North of Alvheim, 120m water depth. WorleyParsons: Standardised, modular platform. Statoil, ConocoPhillips, Aker BP, Lundin and others are all looking at unmanned wellhead platforms in Norwegian waters for applications at water depths of >75m

New breed of unmanned wellhead platforms in the North Sea 60-120m water depth 4-6 / 12-16 wellslots No processing Walk to work No accommodation 60 m 80 m 4-6 month maintenance visits Control and utilities from a host facility 100 m Minimisation of steel profiles and weld set ups A modular, standardised and repeatable design 120 m

Click to to edit edit Master Master title title style style Built in sections Block 0-1 ready for assembly to block 2-3

Click to to edit edit Master Master title title style style Built in sections Block 0-1 assembled to block 2-3

Click to to edit edit Master Master title title style style Built in sections Block 4 assembled after surface treatment

Click to to edit edit Master Master title title style style Built in sections Topside will be fabricated in parallel with jacket

Click to to edit edit Master Master title title style style Built in sections After surface treatment lower deck will be pre-outfitted with equipment. When all pre-outfitting are completed upper deck will be lifted on to lower deck for assembly and welding before outfitting will start.

Jacket and topside transported to barge Transportation will be performed by use of multi wheelers for both jacket and

Barge launch. Barge launch provides greater negotiating power to asset developer

Oil and gas small pools : UK North Sea

Small pool size distribution. Unmanned wellhead platforms could assist in exploiting 60% of fields Equivalent to 94% of oil

Wellhead platforms Setting the scene Wellhead platforms worldwide Wellhead platforms in the North Sea Financing new developments Contracting strategies

PE10 ratios 2013 2014 2015 2016 2017 S&P 500

PE10 ratios 2013 2014 2015 2016 2017 S&P 500

Small pools ownership Most opportunities are unlicenced Many others are operated by tier 2s or by independents Balance sheets likely to be weak and/or with limited capacity for debt.

New Accounting Rules from 2019 Equity = $0.7billion Debt = $0.3billion Debt/equity = 43% Equity = $1.7billion Debt = $1.3billion Debt/equity = 76% Company also has a 10 year operating lease on a $1billion FPSO which doesn t appear on the balance sheet as an asset or as a debt. FPSO lease must be shown on the balance sheet as both an asset and a debt.

New Accounting Rules from 2019 Equity = $0.7billion Debt = $0.3billion Debt/equity = 43% Equity = $1.7billion Debt = $1.3billion Debt/equity = 76% FPSO lease payments = $100million PBIT = $60million Interest = $30million PBIT = $160million Interest coverage = 2x Interest coverage = 1.2x Interest = $130million

Small pools investment environment The oil sector may not represent investors first choice. Small pools will tend to be developed by smaller companies which may not have the most robust balance sheets. Accounting rules changes may push some companies to finance developments off balance sheet.

Wellhead platforms Setting the scene Wellhead platforms worldwide Wellhead platforms in the North Sea Financing new developments Contracting strategies

Typical financing for a new development Contractors and suppliers. FEED, EPC Banks OpCo Cash Common Equity SPV Farm in partner Asset OpCo has significant control of the SPV and so the value of both assets and debt of the SPV must be included within OpCo s consolidated balance sheet

Contracting strategy for a Wellhead platform These developments are not complicated Standard designs and and business as usual tie ins. There is little requirement for a a protracted concept design and FEED It s sufficient to specify tie in locations, reservoir properties and applicable standards. Allow full service design/construction/installation companies or consortia tender the design, construction and installation. Tie back projects are well suited to a form of financing scheme and contractual arrangement which aligns the incentives of all participants. 39

Off balance sheet financing Contractors and suppliers are highly incentivised to deliver production on time. Simple, repeatable, BAU wellhead/subsea tie backs are low risk and predictable Contractors and suppliers Banks OpCo holds an oil supply contract OpCo Common OpCo holds Equity small % of Common Equity and so keeps bank debt off its balance sheet SPV Asset Trader /PE Equity OpCo has no significant control of the SPV and so only the value of the oil prepayment will appear on OpCo s consolidated balance sheet

Summary Unmanned wellhead platforms could assist in exploiting 60% of UK sector small pools equivalent to 94% of the total reserves within these fields

Thank you Rob Gill gillrw@btinternet.com