DNV GL’s 2017 outlook for the oil and gas industry has revealed short-term agility and long-term resilience, with an overall stabilization of confidence in some regions, despite depressed and prolonged oil and gas prices.
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Image of Tørstad, from DNV GL. |
The Norwegian certification and classification body conducted a survey of more than 700 senior executives from around the world, and with its seventh survey, is providing some priorities and concerns for 2017.
DNV GL says that its research reveals signs of deep, strategic changes for sustainable growth beyond cyclical patterns. Some 26% of industry leaders expect their business to invest or increase investments in renewable energy in 2017. As many as 59% see investments in renewables as a shift in long-term business strategy.
“The number of companies we now see pursuing opportunities beyond oil and gas signals a step change in the reshaping of the sector and demonstrates its ability to adapt and build a more robust, diverse and sustainable energy future,” says Elisabeth Tørstad, CEO, DNV GL – Oil & Gas.
Investments are expected to continue across the value chain during the year, however, when compared to 2016, those expecting to maintain or increase capex has dropped from 43% to 39%. Of those surveyed, 77% believe that gas will become an increasingly important component of the global energy mix over the next 10 years.
A third of respondents (33%) say their organizations will be increasing merger and acquisition (M&A) activity in the next 12 months (up 10%). More than 78% expect increased industry consolidation in 2017.
A clear majority of 85% have cost management as a top or high priority for 2017 and 63% see their current cost-efficiency measures as marking a permanent shift towards a leaner way of working. Organizational restructuring (37%), reducing operating expenditure (35%), and improving efficiency from existing assets (29%) are the top three priorities for cost control in 2017, DNV GL’s survey reveals.
Two-thirds (66%) say that the cost pressures are driving more industry collaboration, a positive effect of recent market challenges. Standardization efforts are also increasing as it helps remove remaining complexities. Some 66% of respondents say their organization will seek greater standardization of tools and processes in 2017, up from 59% last year.
Digitalization is also increasingly seen as a means to enhance operational and cost efficiencies. About 39% expect their organization’s spend in this area to increase in 2017. Half (49%) of respondents also said their organization will embrace digitalization to increase profitability.
“Last year, we saw intense and painful short-term cost-cutting measures in the industry,” Tørstadsays. “Though few expect a recovery in 2017, and cost-cutting measures are still on the table this year, confidence in the oil and gas sector growth has stabilized for now and opportunities are being created. Improved focus on collaboration, standardization and digitalization will enable the industry to transform to meet the demands of the new era and become profitable in volatile markets.”
DNV GL finds that larger companies are leading the charge towards digitization, however, 60% of respondents from large companies say their organization needs to embrace digitalization to increase profitability, compared with 56% of those from mid-sized companies and 45% of those from small companies. The survey finds that 57% of large companies are expecting to increase spending on digitalization in 2017, compared with 42% of mid-sized and 30% of small companies.
“There’s general acceptance of the idea that big data, in particular, is important to the future of oil and gas,” says Paul Doucette from GE Oil & Gas. “Many operators are working on how to go about harnessing it. The struggle is to make data meaningful and actionable fast enough to make a difference.”
Respondents based in North America reported significantly higher confidence in the outlook for 2017 than those in other regions. Almost two-thirds (65%) are confident of their company’s overall prospects, compared with 45% in Asia Pacific, 49% in the Middle East and North Africa, and just 40% in both Europe and Latin America
In the UK, DNV GL’s research reveals low confidence among UK-based senior oil and gas professionals for hitting revenue and profit targets this year. Nearly a third (31%) of UK respondents are confident in their organization’s prospects for 2017 - down from 43% last year.
“The significant drop in confidence in the UK marks the sentiment of an industry that has endured two years of measures to lower costs as it adapts to a market that is unlikely to return to the way it was only a few years ago,” says Hari Vamadevan, senior VP, DNV GL – Oil & Gas.
The focus on workforce reduction as a cost cutting measure has dropped by 6% from 2016, down from 31% to 25%. However, 55% still say that overall headcount is expected to decrease in 2017 compared to 51% in 2016.
There was also a forecast for the price of oil at the end of 2017, in which respondents averaged US$57.8/bbl.
Nearly half of respondents (49%) agree that the industry downturn is helping to reduce the complexity of projects and operations.
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