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Oil industry gaining confidence, set to up spending in 2019
AFTER years of gloom, the oil industry is out of its slump.
Three-quarters of senior oil and gas professionals surveyed by energy and maritime services company DNV GL say they are optimistic about the sector's growth this year, their sunniest outlook since before the crude-price collapse in 2014. But confidence across the energy industry is nowhere near 2010 levels, when Brent soared to US$95 a barrel, about 50 per cent above today's level.
That good cheer will nonetheless translate into higher spending, with 70 per cent of professionals saying they will maintain or increase capital expenditure budgets this year. Many companies now say they are competitive, even as oil-price volatility heightens in reaction to geopolitical turmoil, after cutting costs to survive a collapse that lasted until 2017.
Liv Hovem, chief executive officer of DNV GL's oil and gas unit, said: "Growth will be important and there is a strong belief in new investment. They're quite confident that there will be a demand for oil and gas going forward. They're also confident about their competitiveness."
Still, lurking in the data were some risks to the business. The last time the industry was this confident, spending soared. That was fine as oil rose, but in 2014, the crude decline hit companies, crimping returns in many of their projects.
Throughout the downturn, executives focused on cutting spending. In 2016, 41 per cent of those surveyed said "cost efficiency" was their highest priority. Now with prices back above US$60 a barrel, just 21 per cent say it is the highest priority.
The report said: "The key question is: will companies fall back into inefficient spending habits, or can they maintain their organisational austerity? Our research shows signs that old habits may already be resurfacing."
The relaxation around the budget may partly reflect the fact that a lot of cost-reduction programmes have already been implemented.
However, not everything will stay cheap. About half the companies said they saw price inflation last year, with the downstream portion of the industry hit worst. In the upstream segment, only a third of companies said prices increased.
Another challenge for the oil and gas business is its ageing workforce, which could leave roles that cannot be filled easily. Young people largely find the industry unappealing because they either think it is old and polluting, or are drawn to other jobs at tech companies, the report said.
Respondents highlighted skills shortages as the industry's biggest barrier to growth this year, outside of general competition and the oil price, a finding which Ms Hovem said surprised her.
She said the influence wielded by oil-sector positions needs to be explained to the younger generation.
"Technology and an uptick of every kind of digital tool, will make the industry more attractive."
Digitisation is the top research and development priority for the oil business this year, as companies see additional cost savings and safety benefits in automating processes.
Meanwhile, investment in low-carbon energy will be small, with most respondents saying regulations are the main motivation to spend in the sector.
The DNV study incorporated the views of 791 senior oil and gas industry professionals between October and November, just as the price of crude slipped into its biggest quarterly decline in four years. Respondents come from companies all over the world and across a variety of oil and gas roles, from service companies to explorers to refineries. BLOOMBERG