Exhibit 4: Major transactions in UKCS (selected examples) As a result of these deals, we are seeing an influx of nimble and agile companies focused on making the UKCS a success for their Year Buyers Sellers Industry Deal level Total transaction investors, whilst maintaining a traditional value US$m focus on safety and environmental performance. The new entrants are also 2017 Neptune Energy ENGIE Asset 3,916 challenging the incumbent players to perform differently and adapt their ways of 2017 Chrysaor plc Upstream Asset 3,024 working to suit this mature basin.

2017 Wood Group Oil Services Corporate 2,700 Thirdly, operators are starting to build fresh and more durable relationships with their 2019 Chrysaor ConocoPhillips Upstream Asset 2,675 supply chain that are relationships of equals, respecting each other’s expertise and 2019 Delek/Ithaca Energy Upstream Asset 2,000 bringing a shared ambition to create value. During the oil price downturn the supply 2017 Delek Ithaca Energy Upstream Corporate 1,285 chain diversified geographically (refocusing 2014 Antin Infrastructure Partners BG Group Asset 953 on regions outside the UKCS) and into different sectors. As a consequence, 2015 Midstream Partners Total Midstream Asset 914 operators have now to actively attract suppliers to engage in the UKCS. 2016 Siccar Point Energy OMV Upstream Asset 750 Looking ahead, the pace of change will 2015 INEOS DEA/LetterOne Upstream Asset 750 remain relentless. The oil and gas industry will play a vital role to help the UK economy 2019 HitecVision/Petrogas Total Upstream Asset 635 achieve net-zero carbon emissions by 2050, through an increasing use of technological expertise to support the transition to Source: IHSConnect; PwC Strategy& research , such as offshore wind, and through the use of existing infrastructure to support carbon abatement measures, such as CCUS. Moreover, the sector must remain focused on maximising economic recovery. The evidence in this report shows progress is being made but there is more to do.

6 | Turning the tide: The transformation of the North Sea | PwC Key findings

UKCS Competitiveness To some extent both parties, operators and oil services companies, are still locked in a 1. The supply chain in the UKCS has traditional mindset. Many operators struggle perhaps been financially squeezed as far to separate cost controls from value creation as possible. New ways of working and are still intent on addressing contractor “ between operators and oil services margins and price points. In the same way, There is just no benefit in choking the life out of the companies are critical and examples of service providers are still too focused on supply chain. They are the breeding ground of innovation, this collaboration are already emerging. costs. It is surprising this sentiment continues 2. In an era when investment costs are to exist despite the many initiatives people and technology. capped, more innovation is necessary in encouraging collaboration in this area in terms of business models and technology recent years. Nevertheless, there are Phil Kirk to ensure productivity and sustain the examples of operators and oil services CEO of Chrysaor UK North Sea. companies exploring and establishing new 3. Partnership models will be critical for ways of working. An innovative service sustaining the future of the UK North Sea, partnership was struck up between Chrysaor The industry as we know it today has changed. for big and small companies alike. and BHGE in 2018 to deliver a multi-well contract covering the drilling, completion and Operators and the supply chain now have to adapt to Extracting incremental cost savings tie-in of development wells on numerous variables in order to be successful. By Chrysaor’s operated assets. Both parties will from the supply chain is not a viable share the risks and rewards of this initiative. considering a total expenditure approach, which focuses strategy going forward on total cost of spend over the long term, paired with Operators and infrastructure owners can Most operators interviewed agree the supply commercial collaboration, companies can turn traditional chain has been squeezed hard enough in the work collaboratively too. An example of this UK. There is a risk that continuing pressure is which is leading the ways of working upside down. could precipitate bankruptcies across oil development of its Tolmount Main gasfield, using an innovative partnership model. services companies which will be detrimental Romain Chambault to competition. Premier, which has a 50% stake in the field, will fund some of the costs to develop the Director of Oilfield Equipment, at BHGE Some respondents articulated a more site including project management and nuanced view on cost reduction suggesting development drilling. Premier’s partner, Dana the focus perhaps needs to be more on value , has a joint venture with Kellas Compared to other industries we still have more to do in than cost. For some oil service providers this Midstream, a UK gas infrastructure company terms of application of new technology and innovation. in itself is still a difficult concept to accept owned by Antin Infrastructure Partners, given behaviours over many years. Since the which will pay for the construction of a new oil price collapse, supply chain teams have platform and pipeline to export the gas to Paul de Leeuw been conditioned to address costs rather shore. In return Premier will pay a tariff for Director of the RGU than look at value driven solutions. the transportation and processing of Tolmount gas through the infrastructure.

PwC | Turning the tide: The transformation of the North Sea | 7 Further innovation needed across • There are opportunities to centralise Focus on long term value rather than Exploration is the life blood of business models and technology operations at the field development level. short term savings in cost the basin Given each operator developed their All companies we interviewed agree more Aside from clustering and centralising While many operators flagged the fields and wells independently, there is innovation is necessary for the UK North operations, some operators would like to see importance of innovation in terms of potential to standardise operations by Sea. Given the sector has been successful in a shift away from realising immediate cost business models and the use of technology, clustering field developments and using a removing costs from the system, operators savings to achieving longer term value. For they consistently emphasised the need for centralised approach to connect multiple have to explore other ways to increase example, one company highlighted the ongoing investment in exploration to keep fields with tie backs and hubs. Many of profitability and this is where innovation importance of the fabrication stage, where unit costs down. the smaller operators interviewed feel this comes in. modest increases in capital expenditure approach presents significant potential could reduce significantly long term In this area more progress has to be made to Some of the smaller independents for success. maintenance spend. It explained that ensure the overall competitiveness of the referenced their efforts to explore pooling • This concept of clustering could be sometimes at the design stage of fabricating basin. In recent years the number of back office functions to reduce costs after extended to logistics where each a piece of equipment there was a temptation exploration wells has been in worrying the oil price downturn. These initiatives operator typically duplicates the efforts of to use cheaper materials to reduce capital decline, as illustrated in Exhibit 5. However, it encompassed for example, centralised other players in the basin. So for example costs. This might translate into using a is worth noting that the recent pick up in procurement services to obviate the need for with supply vessels transporting supplier to apply paint to an installation activity has been driven by a number of multiple functions across operators which equipment and goods across the basin to whereby the number of protective coatings factors including: increased commercial risk were not always fully utilised. This approach multiple fields and operators: could it be was curtailed to keep costs down. appetite; better access to data; increased worked for repetitive orders that were not feasible for a single vessel to address the diligence on well design; better scoping and complex. However, more bespoke orders needs of multiple fields and operators in However, in a marine environment where execution; and more flexible licensing rounds. were still undertaken by in-house specialists. a cluster? While the cost – benefit analysis there is a high risk of corrosion, such a But in the end, the challenge with these of this approach is evident, there are decision could become expensive in the long initiatives was it required significant effort to concerns that this might be difficult to term due to the additional maintenance set up for what was perceived as minimal implement as each operator would required. A real life example illustrating this returns. Looking ahead, operators flagged typically prioritise its fields first. It is worth mindset was an operator which decided to potential growth areas in centralised noting this approach is already evident in thermally spray aluminium on a jacket and operations across a number of dimensions: the Central North Sea where a number of topside. While this was a more expensive operators have collaborated to implement solution in the short term, it reduced the • The centralisation of procurement across a vessel sharing platform, the need for remedial measures during the life of the basin using large scale ‘fulfillment’ Marine Logistics Alliance (AMLA).2 the asset thereby reducing overall centres to meet operator needs for parts maintenance costs in the long run. and equipment. Rather than the operators each maintaining separate warehouses and inventories, the point was raised by some about whether a single fulfillment centre spanning the entire basin could be established in the future.

2 http://www.amla.uk/#home 8 | Turning the tide: The transformation of the North Sea | PwC

As a consequence, some oil services Partnership models need to be adopted platform, Brent Bravo, from its iconic Brent companies have shifted their emphasis to to nurture competitiveness of the UKCS field in the North Sea in June 2019. That said, embracing wider digital services, using interestingly, none of the people interviewed technology to process data and deploy All respondents recognised that the increase in highlighted decommissioning as a major theme. analytics, often partnering with a technology the number of smaller operators in the North Given the renewed focus by operators on third party. Sea is a positive development. maximising economic recovery from more “What we have seen in However, many commented that the future Many companies referenced the increasing mature assets, some decommissioning success of the independents will require new importance of digital solutions to enhance projects are perhaps now not as imminent as recent years is the new partnerships between the smaller operators productivity, citing pioneering options such as previously believed. A good example of this and oil services companies. Because the entrants to the basin are digital twin technology and the use of drones for is the French operator , which independents sometimes lack detailed offshore inspections. However, there is strong announced it was investing in extending the in-house knowledge, the oil service companies well financed, robust, with support for the application of data analytics to life of two gas fields in the southern North are well placed to support them providing new drive preventative maintenance solutions. A key Sea (as part of the Southern Hub Asset skilled, highly qualified operating capabilities. More broadly, there is a challenge here is the sheer volume of data Rationalisation Project). Furthermore, a need to develop new contractual partnerships leadership teams, backed generated in daily operations. According to number of vendors have facilitated with aligned incentive schemes. It was Cisco, a typical offshore oil and gas platform M&A activity by assuming some of the suggested operators should partner with the by boards steeped with can generate 1-2TB of data every day (in every decommissioning liabilities. In 2017 Shell supply chain, and for the supply chain to day language a terabyte represents about divested a package of North Sea interests to experience. The broader benefit from a share of proceeds over time. 300,000 photos). Given this, simply capturing Chrysaor. In that transaction Shell retained a However, clearly this needs a rebalancing of the mix the better for the this data is a challenge. However, AI is seen as fixed liability of US$1 billion for future the risk dynamic and the question is, who essential to mine this information and recognise decommissioning with Chrysaor covering would be willing to do that? North Sea as they bring patterns to produce insights. about $4 billion. Eon also agreed to shoulder about half of the decommissioning costs of The nature of these partnerships varies. fresh innovation. Diversity In all these examples, those interviewed selected fields which were acquired by However, a common theme across many argued that innovation and technology both Premier in 2016. of operator is a strength interviews was the idea of operators focusing have important roles to play but have to be on their core competencies and outsourcing for the basin especially in unlocked together. Certainly the longer decommissioning can other activities to oil service companies. For be deferred, the more likelihood there is that the context of net zero All operators will need to adapt to example, an operator might view its strengths new technological solutions and different as commercial deal making and subsurface behave more like tech start-ups ways of working might help to further extend emissions by 2050 and capabilities. In which case partnering with an the life of assets whilst also reducing Many of the operators referenced the need oil services provider which operates and potential future decommissioning liabilities. the Energy Transition. to emulate tech start-ups in terms of agility maintains production assets would make sense. And these liabilities are significant. and innovation. Their ability to pilot new ways According to the OGUK, decommissioning The outlook for decommissioning Steve Phimister of working, failing fast but then learning and expenditure in the UK is expected to average scaling up quickly are characteristics many remains positive VP & Director of Shell UK & Ireland £1.5 billion per year over the next decade. operators admired, small and large. One In preparing this report, we expected that PE-backed operator emphasised the need to decommissioning would be a key area of move at speed, demonstrating how it went interest. This remains a topical theme, as from the exploration of a well to a field illustrated by Shell’s removal of a second development plan approval within a year.

10 | Turning the tide: The transformation of the North Sea | PwC

Exhibit 8: Recent investor announcements impacting oil and gas Participants in the UKCS need to articulate better the importance of Entity Date Decision hydrocarbons in facilitating the Legal & General 2019 Legal & General Group divested its funds in stating the energy transition oil and gas producer had not adequately addressed climate change “The government needs to Following on from this, most respondents Stock 2019 Oil and gas companies listed on the LSE reclassified under a feel that there is an important and perhaps set out very clearly that Exchange (LSE) ‘non-renewable energy’ category. The move was designed to unpopular narrative to be told to the public distinguish between hydrocarbon focused companies and there is an energy greener producers about the UKCS contribution to the national economy and its role in the energy transition. transition and it involves National Trust 2019 National Trust announced it was divesting its £1 billion portfolio While those interviewed recognised the from fossil fuels oil and gas. Without the urgency to move to a lower carbon world, the Norwegian Sovereign 2019 The fund, worth some $1 trillion, announced it would dispose of its reality is the global economy still depends latter your world ends. Wealth Fund investments in 134 companies that explore for oil and gas but heavily on hydrocarbons. Therefore making retain stakes in integrated oil firms with a diversification strategy that transition will require time, given the Source: PwC Strategy& research contribution of renewables to Alistair Stobie demand is still small despite growing quickly. CFO of Hurricane Energy Some independent operators may In an interview the chief operating officer of have to face increasing investor Wintershall Dea, Maria Moræus Hanssen, Moreover, gas potentially has a particularly scrutiny and pressure to improve the conceded their future strategy might important role as the bridging fuel to a low carbon economy. As illustrated in Exhibit 9, carbon footprint of their operations consider investing ‘in some sort of The current portrayal of renewables or some technology being part according to the International Energy With increased public scrutiny of the sector, of the energy transition’.3 Agency, 55% of energy demand is still the industry as dirty is many independent operators feel they need expected to be met by hydrocarbons flawed – we all need to to intensify their efforts to improve their In 2019 Chrysaor and Shell became partners (gas, oil and to a lesser extent coal) in carbon footprint. Whereas in the past, they with Acorn, which is developing a carbon 2040 in Europe. work together to get that might have focused on reducing methane capture, utilisation and storage (CCUS) message across. leaks or improving energy efficiency for project at the St. Fergus gas plant incremental improvements in emissions near Peterhead. containment, this may not suffice. Clearly, this potential new level of abatement Mitch Flegg Independent operators recognise they may investment will have implications for the CEO of Serica Energy need to invest in carbon abatement future strategy and funding requirements of technologies, such as carbon capture, some of the independents; they may need to utilisation and storage (CCUS). set aside funds for the deployment of these new carbon technologies.

3 Navigating Europe’s Oil & Gas Landscape, Colombia Energy Exchange, May 2019 PwC | Turning the tide: The transformation of the North Sea | 15

Contacts

Drew Stevenson Alan Barr Kevin Reynard Neil Leppard UK Energy Sector Leader, PwC UK Head of Deals Aberdeen, PwC UK Office Senior Partner, Aberdeen, PwC UK Director – Upstream Deals, PwC UK

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Authors

Adrian Del Maestro Mike Tholen Craig Stevens Director, PwC UK Upstream Policy Director, Oil & Gas UK Head of Sales & Marketing – Energy, PwC UK

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