There is renewed confidence and a greater sense of resilience for the oil and gas industry in the year ahead. New research published by DNV GL on the outlook for the sector shows that the sector appears self-assured in its ability to better cope with market instability and long-term lower oil and gas prices. For the most part, industry leaders now appear to be positive that growth can be achieved after several difficult years.
A test of resilience is the ninth annual report on the outlook for the oil and gas industry, published by DNV GL, the technical advisor to the sector (Figure 1).
The comprehensive global survey of nearly 800 senior oil and gas professionals has revealed that in just two years, confidence has surged across the sector. More than three-quarters of respondents expect the industry to grow in 2019 (76%), up from 63% in 2018 and more than double that of 2017 (32%). Overall optimism to achieve profit targets is similarly buoyant. There is also greater enthusiasm for more investment, increasing headcount and accelerating digitalisation across the sector.
Figure 1. A test of resilience provides a snapshot of industry confidence, priorities and concerns for the year ahead.
While this positivity reflects the mood enjoyed before the oil and gas market downturn, our study shows signs that old spending habits, which affected the sector during the pre-2014 period of high oil prices, may be returning.
Despite market volatility re-emerging in late 2018, 70% of senior oil and gas professionals expect to increase or maintain capital expenditure in 2019. Likewise, the proportion of decision-makers who expect to raise or sustain operating expenditure has also grown over the two-year period, from 41% in 2017 to 65% for 2019.
Looking further ahead, a clear majority (57%) of survey respondents believe that oil and gas companies will be able to achieve high profitability over the next decade – a notable rise from 45% a year ago. It also found that two-thirds (67%) believe more large, capital-intensive oil and gas projects will be approved over the next twelve months.
Respondents who primarily identify themselves as suppliers are much less confident in achieving revenue (66%) and profit targets (57%) in the year ahead than buyers (82% and 80%, respectively).
The industry’s expectations for increasing capital and operating expenditure come at a time when companies have reaffirmed their commitment to the cost controls brought in through the downturn. More than three quarters (77%) of senior oil and gas professionals expect cost efficiency to be a top or high priority in 2019. That said, our research shows signs of companies relaxing their tight grip on costs – albeit modestly at this stage.
Fewer senior oil and gas professionals (54%) believe that stringent cost-cutting measures put in place during the downturn are permanent, compared to last year (62%). In addition, the proportion of companies planning to increase strictness on cost control has dropped from a high of 72% in 2015 to 44% in 2019, and the number of industry leaders who view cost control as a critical issue has also fallen – from 41% two years ago, to just over a fifth (21%) (Figure 2).
Figure 2. Extent to which cost efficiency will be a priority, by year.
As oil and gas companies increase investments and prudently relax their tight grip on costs, we asked our survey respondents for the first time whether they see an underlying danger of a gradual cost creep returning to the sector.
Four out of ten (41%) said they had experienced cost inflation from suppliers in 2018, rising beyond half in the Middle East and North Africa, and in Asia Pacific. The downstream sector is most affected (60%) compared to just over one-third upstream (34%). 40% expect suppliers to drive cost inflation in 2019.
Despite suggestions from some that cost inflation is re-emerging, the supply chain says it is still feeling the pinch. Those who primarily identify as suppliers are much less confident in achieving revenue (66%) and profit targets (57%) in 2019 than buyers (82% and 80%, respectively).
Back to work
Our study also revealed that recruitment is firmly back on the oil and gas industry’s. A third (34%) of those polled intend to grow their workforce this year – up from just 10% in 2014. Our research highlights that this spiking trend in recruitment may cause a talent drought to emerge, following the large-scale redundancies across the sector over the past four years.
Skills shortages and an aging workforce topped the list of senior oil and gas professionals’ barriers to growth for 2019, in tandem with concerns about the oil price and the state of the global economy. Top of the tribulations was the challenge of competitive pressures – with the supply chain in a position where it needs to consider charging more as the marketplace has re-balanced, bringing cost inflation back into the equation.
The industry’s efficiency efforts coincide with a third (36%) of those questioned predicting increased spending on R&D this year. Regionally, this is highest in Asia Pacific (44%) and Latin America (42%) but drops to just 12% in the Middle East and North Africa, and 25% in North America.
Digitalisation comfortably leads R&D priorities for the sector in 2019, with six out of ten respondents expecting more spending in this area. The top three priorities within the industry’s digitalization agenda all relate to data sharing, integration, and access (cloud-based applications, data platforms and data sharing between organisations). Two-thirds of respondents (67%) say their company will prioritize the quality and availability of data over the next 12 months.
Overall, the sector is also looking to digital technology to provide the long-term efficiency and productivity gains it needs to maintain its competitiveness over the declining cost of renewable energy over the coming decades.
Dexterity and resolve required in 2019
A test of resilience shows an industry preparing for the unexpected and ready to engage in a diverse range of opportunities and challenges. However, it’s clear this balancing act will involve two choices: relapse to old, tried and tested regimes or embrace a new, and more nimble approach.
2019 will see the industry’s resolve to maintain the efficiencies established during the recent market downturn truly tested as the sector relaxes its focus on cost control, and signs of supply chain inflation and skills shortages emerge.
Download a complimentary copy of A test of resilience from: dnvgl.com/industryoutlook2019
Read the article online at: https://www.oilfieldtechnology.com/special-reports/07032019/dnv-gl-a-test-of-resilience/
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