Tackling the downturn

According to research from DNV GL, in the face of falling oil prices, confidence in the outlook for the oil and gas industry has dropped dramatically among sector professionals from 65% - 28% in the past three months. The pessimistic outlook is also reflected in CAPEX intentions, with those planning to increase CAPEX in the same period falling from 40 – 12% and those planning to reduce headcount increasing from 26 – 47%.

The findings also point out that senior industry professionals are split over how to tackle the year ahead. Those who are most confident about reaching their profit targets plan different cost management measures, taking a long term approach to riding out the storm, while those pessimistic about hitting their profit targets are more likely to take short term cost cutting measures.

Among those who are classed in the research as ‘profit confidents’, 67% intend to increase or maintain capital investment compared to 29% among ‘profit pessimists’ and 70% intend to bolster research and development spending compared to 40% of the pessimists. When it comes to imposing strict cost controls, profit confidents have a greater focus than pessimists on improving workflow/processes, a greater use of automation and the adoption of new IT technology. The pessimists, the report found are more likely to tackle cost cutting measures such as reducing headcount.

Geographically speaking

Among the respondents in North America, 33% are confident about the year ahead, the most confident of any region, but this is still a significant drop from 93% the previous year. The biggest drop in confidence came from Asia Pacific where 27% are confident about the outlook for this year compared to 89% the year before. The lowest confidence globally reported is in Europe at 26%.

Comments

CEO of DNV GL Oil & Gas, Elisabeth Torstad said, “while the strong correlation between the oil price and confidence is expected, we need to take heed of lessons learned from previous downturns. The oil and gas sector faces a dilemma over balancing long term growth or cutting back more sharply in response to short term processes, materials and documentation, industry players can develop a long term sustainable cost base to adjust to this lower margin environment.

“Tight schedules, high activity and complex projects have driven costs up over the last few years, but it is interesting to see that the most confident industry players are forging a different path to their less confident peers. They are showing counter cyclical behaviour by investing during the downturn, which is positive for the long term health of the industry.”

Edited from press release by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/03022015/dnv-gl-downturn-report/