AFTER such a long time in the doldrums, it appears that the global oil and gas sector may be feeling more positive – if the results of a new survey are correct.
The major survey of oil and gas industry executives conducted by Deloitte found that a majority of those that participated had a positive sentiment that the fortunes of the sector are about to turn around.
The Deloitte’s “2016 Oil and Gas Industry Survey” of oil and gas professionals found that more than half (59 %) of oil and gas professionals believe the recovery already has begun or will begin in 2017.
Deloitte said that while the current state of the market still leaves cost-containment initiatives a priority for oil and gas companies, executives nonetheless showed renewed confidence in an industry recovery.
The company said that the executives pointed to expectations of rising prices, a return to increasing capital expenditures and headcount as drivers of their optimistic outlook.
“This recovery in many ways mimics the pattern of the recovery from the Great Recession,” said John England, vice chairman, Deloitte LLP and U.S. and Americas oil and gas leader.
“If last year was the year of hard decisions, 2017 will be the slow road back. Companies are generally optimistic that prices will rise to a more sustainable level next year; however, they understand that even if we see an uptick in price, the industry likely won’t fully recover until 2018 or beyond.”
Deloitte’s survey reveals that from upstream to downstream, most respondents expect to see an increase in capital expenditures next year. In fact, the upstream sector, which took the hardest hit in this downturn, is the most optimistic about a recovery, followed by the midstream sector.
The study also reveals a number of trends in opinion that offer insight into the direction the industry may be headed:
Most executives believe that US$60 per barrel is an important threshold for a revival in U.S. oil and gas exploration and production activity.
- 71% of professionals believe it is possible for the 2016 average price per barrel to reach US$40 to US$60, or for prices to at least rise to that range by the end of the year (61%). Almost half of the respondents believe that prices will continue to rise, reaching US$60 to US$80 by 2017 (44%) or by 2020 (46%).
- Nearly one-third of the respondents (28%) foresee crude oil prices returning to US$80-US$100 for WTI and Brent by 2020.
On the gas side of the equation the responses were quite moderate in the near term, with more confidence in the longer term.
- For 2017-2020, 70 percent of the respondents expect prices to range between $2.50-3.50 per million British thermal units (MMBtu), with a third anticipating this price band in 2017.
- Survey respondents expect Asian natural gas prices to be much higher than Henry Hub to the end of 2016-2020, which creates opportunity for U.S. LNG exporters. Of professionals surveyed, 81% believe international prices will range from $5-10 per MMBtu. However, an increasingly optimistic view (29 %) is for prices to be in the $10-15 per MMBtu range by 2017 to 2020.
OPEC a key
Undertaken just prior to OPEC’s announcement that it would reign in production, it was no surprise that the Organisation’s actions were considered critical to future price stability.
When asked which policy or geopolitical issue would most affect their company, survey respondents cited OPEC production decision as having the most impact on the upstream sector, but U.S. tax and policy decisions are next, outranking several prominent international issues.
- OPEC’s ongoing influence on crude oil prices remains the most important concern for 45% of professionals.
- Next areas of greatest concern are changes in U.S. tax policy and regulation (38%) and environmental and local stakeholder issues (34%).
- While the survey did not break out specific regulations, professionals see a possibility of profound energy policy changes to be enacted, and for the scope and impact of those changes to depend on the outcome of the presidential elections in November 2016.
Upstream cost containment
The findings showed a shift in expectation about the impact of short- and long-term cost containment initiatives from 2016-2017. Long-term cost-containment initiatives, a hallmark of the oil and gas industry expansion before the downturn, are considered the most impactful, as shown by an increase from 42% of respondents to 50% for 2017. Short-term cost-reduction efforts are seen as less impactful in 2017 – a key indicator of an expectation of recovery.
In addition, executives expect capital expenditures committed to exploration activities to rise in 2017 (42%) — more evidence for an optimistic outlook for the industry’s longer-term recovery.
- In 2017, 50% of respondents see better operating efficiencies and enhanced well productivity as the biggest opportunity for cost reductions. This is a shift away from head count, portfolio changes and activity reductions.
- Although more than half of the respondents believe 40% or more of cost reductions are short-term, an overwhelming 64% see operating efficiency gains as the best path to sustainable cost reductions, followed by contract renegotiations.
- While 43% of respondents expect more personnel reductions in 2016; next year, only 31% believe there will be ongoing layoffs. In fact, 36% of the respondents expect hiring will restart in 2017.
- For 2016, 42% expect capital expenditure to continue declining; but, in 2017, the outlook changes as 43% of respondents anticipate capital expenditure to rise in 2017 – optimism for a recovery next year is returning.