According to the Deloitte 2014 Oil & Gas Survey, industry experts are overwhelmingly positive about prospects for 2015. Eight out of ten respondents were only somewhat or not very concerned about a fall in prices.
Post survey, Deloitte highlights that a sense of confidence about the strength of the shale revolution is reflected in energy industry activity. WTI prices fell nearly 15% between October and November. However, companies are continuing with their capital spending plans and continue to post strong revenue growth. Some companies have even announced dividend increases despite the underlying price decline.
- With respect to downstream profitability, the industry remains very positive for continued profitability in the sector in 2014 as they were in 2012.
- The continued optimism for refining and marketing is somewhat surprising given the dramatic narrowing of the Brent/WTI spread from US$ 15 – US$ 20/bbl in 2012 to just around US$5 today.
- With WTI and Brent prices having fallen further since the survey was conducted, one can expect that industry sentiment has only grown more positive on downstream profitability.
- With industry production and revenues booming, six in ten industry professional expect to see an increase in capital spending in 2015.
- Despite the recent fall in prices, this sentiment will likely remain strong as the industry is poised to enter an extended demand cycle driven by growing demand from developing countries.
- This demand growth may be further enhanced by the recent downturn in prices, which may spur oil demand growth in developed economies as well.
Mergers and acquisitions
- In addition to positive expectations for organic growth through capital budgets, half of industry professionals are optimistic that inorganic growth through mergers and acquisitions (M&A) will increase over the next year.
- Given recent trends, in which M&A activity has been slightly muted versus prior periods, Deloitte holds that a return to the average can be expected over time.
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