The latest edition of DNV GL’s ‘Confidence and Control’ report makes for some positive reading. The annual benchmark study, which is based on a survey of 813 senior industry professionals and executives, as well as 15 interviews with a range of experts, suggests that the oil and gas industry is greeting 2018 with a fresh sense of optimism.1 Indeed, 63% of the professionals surveyed state that they are confident about growth in the industry, which is up from just 32% reported last year.
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The downstream sector is even more bullish, with 82% of oil refining and gas processing respondents reporting that they are confident about the industry’s growth prospects this year. When it comes to profitability, 65% of downstream respondents believed that they would hit their targets in 2018, compared to 49% in the upstream sector and 54% in midstream.
While less volatile oil prices in 2017 certainly played their part in improving industry confidence, the report suggests that another factor may be even more vital: cost cutting and improved efficiencies. Graham Bennett, Vice President of DNV GL – Oil & Gas, explains: “The big change in industry confidence is not because of a belief that the oil price is going to rise to previous levels […] But instead because industry participants now have their cost levels under control and can make a reasonable margin, even at US$55 or US$65 oil.”
DNV GL’s survey suggests that renewed confidence will lead to new smart investments in R&D, digitalisation and diversification, all of which will help to drive greater cost efficiency. Two-thirds of survey respondents plan to maintain or increase CAPEX this year, with the downstream sector once again leading the way. Interestingly, the report notes that this increased spending is likely to be far more disciplined going forward, with 84% of those respondents that are set to increase their CAPEX this year doing so following successful cost cutting in 2017.
Integrated and downstream companies are also diversifying more than their counterparts in the upstream and midstream sectors, with 65% of respondents suggesting that they are likely to invest in opportunities within the energy industry outside of fossil fuels, and close to 60% reporting that they could invest outside of energy entirely. It would seem that the downstream sector is actively readying itself for the long-term clean energy transition, which acts as a reminder that significant challenges lie ahead for our industry.
The saying goes, ‘whatever doesn’t kill you makes you stronger.’ The oil and gas industry is set to emerge from its recent troubles with new cost models, greater discipline and smarter ways to operate that will enable it to thrive in the future, whatever the challenges.
1. ‘Confidence and Control – the outlook for the oil and gas industry in 2018’, DNV GL, (March 2018).