Cautious optimism the way forward for global oil & gas industry

| Feb 24, 2017

Kevin Reynard recently spoke at International Petroleum (IP) Week, one of the flagship events on the oil and gas conference circuit. Many of the leading companies and industry bodies in the sector are there and it is a fabulous opportunity to discuss common themes, trends and challenges, as well as network with clients and targets. Here, he shares his notes and findings.

Relief and optimism for oil and gas

As expected there was a sense of relief, and perhaps cautious optimism, among the delegates that maybe the worst was over. That said, many were acutely aware that the world has changed and oil and gas companies have had to adapt to succeed. 2017 is still expected to be challenging.

Throughout the day, there were some consistent themes being shared - and they almost entirely mirror our own thinking and experience. In no particular order, those key themes were:

  • Innovation is key to success. The application of technology and automation are fundamental to operating more cost effectively. Companies also have to explore new ways of working to be successful;
  • Collaboration, strategically and operationally, amongst E&P companies and especially with the supply chain, is essential to keeping costs down;
  • Companies need to work on the assumption that oil prices will be lower forever. They need to advance projects on much lower break even points and not on the assumption that high oil prices will come to the rescue. Being able to cope with a period of $30/bbl again in the future is critical;
  • Demand for electric vehicles will grow. But the extent to which this growth will undermine oil demand in transportation is unclear. Significant advances in battery technology will be required before EVs represent a large share of the global vehicle fleet;
  • Huge progress has been made in cost reduction by the industry. But the sector cannot afford to rest on its laurels. This cost reduction and efficiency ethos needs to be embedded into corporate culture in perpetuity. Moreover, the philosophy of 'marginal gains' is getting traction across some operators in the North Sea;
  • There is an interesting dynamic evolving between OPEC and the US shale sector. Recent OPEC actions are pushing oil prices up. If OPEC's strategy is successful, US shale producers are likely to respond by increasing supply, which will in turn depress prices;
  • And finally, the risk of volatility remains high! Geopolitical changes, international relations, isolationism, nationalism, shifting oil trade patterns and technology, to name but a few, will all exacerbate this level of volatility.

So, whilst we might think that the worst may be over, uncertainty will continue to disrupt the sector and impact planning. However, if companies can muster the right capabilities around innovation, if they can collaborate and apply new technologies to automate processes, if they can build on the culture of cost reduction and focus on value more - they will be better placed to navigate the challenges they face.

Proceeding with cautious optimism, whilst embracing the themes outlined, is key to the future of our industry.

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