1. Investing in a North Sea business in a low oil price world www.pwc.co.uk O&G UK Rob Turner Adam Maitland December 2015

2. PwC We are at the early stage of a significant change in the North Sea’s ownership base Investing in a North Sea business in a low oil 2 October 2015 1 2 4 3 5 The market for deals remains extremely challenging … … and the traditional cyclical ‘M&A unfreeze’ remains a long way off However, PwC is seeing signs that the crisis is driving a creative approach Closing the value gap through deal structure and risk sharing, and new ventures forming to solve the funding gap This will eventually unlock new capital for investment in both upstream and services

3. PwC Upstream investment – Not a lack of appetite, just extremely difficult to get a deal away Investing in a North Sea business in a low oil 3 October 2015 Challenges Persistent pessimism Unresolved price and cost pressures Momentum for change Significant shift in ownership Innovative approach to deal structure Risk sharing PwC

4. The ingredients are in place to unlock investment, despite the continued uncertainty Investing in a North Sea business in a low oil 4 October 2015 Deals on the table Active conversations Data rooms open Banks PE Funds Strategic Money pointed at the sector

5. PwC Why it’s not unlocking – Some familiar oily reasons Investing in a North Sea business in a low oil 5 October 2015 Buyer- seller mismatch Costs Innovation unproven Savings not quantified Oil price Uncertainty Expectation vs. base case Decommissioning Immediate cash requirements Timing and quantum uncertainty

6. PwC Financial reasons are as important – A new investment model has to be developed Investing in a North Sea business in a low oil 6 October 2015 Seeking -Scale -Control Distracted by the big opportunities, and global alternatives Still stinging – And therefore highly risk averse Dealing with current lending portfolio Burnt by emergence of equity risk both their corporate and asset- backed books Keen, but having to learn Still trying to adapt a restructuring model and manage downside Seeking a level of security and returns which are difficult to deliver alongside existing capital structures PE – Chasing the perfect dealBanks – Still stingingFunds – Learning …

7. PwC Unlocking this means greater risk sharing – Between buyer and seller, across the capital structure, and across stakeholders Investing in a North Sea business in a low oil 7 October 2015 Corporate debtEquity Asset backed lending Supply chain? Pricing for equity riskDelivering corporate growth Distinction between production and pre-production terms Margin in exchange for risk Ability to put cheaper credit to work

8. PwC Innovation in investment is emerging – This will drive a significant change in ownership Investing in a North Sea business in a low oil 8 October 2015 Using deal structure to close the ‘value gap’ New ventures to share risk New capital available Momentum for growth Changing asset ownership No return to cyclical M&A

9. An oilfield services perspective www.pwc.co.uk O&G UK Rob Turner Jon Shelley October 2015

10. PwC Global oilfield services listed composite Investing in a North Sea business in a low oil 10 Source: Capital IQ at 30.09.2015 October 2015 -156bn -c40%

11. PwC Global oilfield services listed composite (continued) Investing in a North Sea business in a low oil 11 Source: Capital IQ at 30.09.2015 October 2015 -2.3x -c25%

12. PwC The reality Investing in a North Sea business in a low oil 12 Listed market valuations used as a guide to deal pricing Same businesses largely doing the same things On average, worth c40% less  ‘buyer/seller value gap’ Market volatility creating forecasting uncertainty Very significant reduction in investment into OFS businesses and deal completions but we are seeing activity levels returning The reality October 2015

13. PwC Global quarterly oilfield services deal volumes Investing in a North Sea business in a low oil 13 - c.60% Source: 1Derrick at 31.08.2015 October 2015

14. PwC Why? Investing in a North Sea business in a low oil 14 Lower for longer – Market is not going to deliver earnings growth for most in start to medium term – Boards need to find another way to create value for shareholders Deal drivers: -Cost synergies -Ability to offer packaged solutions -Diversification – Products, capability and geography -Technology capture -Opportunistic – Strong and weak balance sheets -Normal life-cycle -Private Equity appetite -More upside than downside in Oil Price? October 2015

15. PwC How? Investing in a North Sea business in a low oil 15 Buyer/seller divide still exists – But is narrowing Creativity to bridge gap through deal structures that share risk and upside – Complex ‘Vanilla’ propositions unlikely to succeed for some time Value creating opportunities definitely exist for the strong, brave and creative and capital is available to support well-thought through propositions October 2015

16. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, 'PwC' refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 151002-133112-LS-OS Thank you Jon Shelley Partner PwC, Aberdeen T: +44 (0) 122 425 3194 M: +44 (0) 7740 242610 E: jonathan.g.shelley@uk.pwc.com Rob Turner Director PwC, London T: +44 (0) 020 7804 5272 M: +44 (0) 7510 351990 E: robert.m.turner@uk.pwc.com