DNV GL released its annual oil and gas industry benchmark study on Wednesday, and the survey of 700 industry executives and professionals found that confidence is at roughly the same level as last year, with about one third of respondents expecting growth in 2017. In addition, only about one third expect oil prices to improve this year.
“The industry is on a balance point,” explained Paul Doucette, global leader for public policy and external funding at GE Oil & Gas. “Companies are trying to decide where the new normal is.”
The outlook varied markedly by industry sector. Half of respondents from operators are confident about prospects for the coming year, but only one quarter of manufacturers share their view. Respondents at larger companies were also generally more confident than those at small or midsize firms, by a margin of about 15 percentage points. North American respondents were also much more bullish than others, with about 65 percent expecting improvement this year versus 40-45 percent of respondents in other regions – a reflection of the lower development costs for onshore U.S. drillers.
Price expectations remain low
Most respondents expect that oil prices will not rise significantly in 2017, due in large part to an oversupply of crude. Nearly two thirds believe that supply will outpace demand this year, despite the recent OPEC agreement.
Ye Hua Huang, deputy director-general at the China National Offshore Oil Corporation (CNOOC) Bohai Oilfield Bureau, told DNV that “the actual amount of production cut will still depend on whether producers abide by what they have agreed on. The cut could also be overshadowed by any increase in production by non-OPEC members.” With new production coming online outside of OPEC – like the increased drilling activity of U.S. shale producers, and the new fields entering production in Kazakhstan and Brazil – total production may well rise over last year's levels.
Stocks also remain at record levels, putting a further damper on crude prices. “There’s so much supply
in storage now that we could be in a situation where supply exceeds demand by a million barrels per day for the better part of one and a half to two years before storage levels are back to normal,” said Eirik Wærness, senior vice president and chief economist at Statoil.
Cost-cutting remains the norm
Nearly nine out of ten respondents said that their organization had successfully cut costs last year, and about eight out of ten said that cost reduction would stay at current levels or increase in 2017.
Only one respondent in ten expects to increase operating expenditures this year, and about four in ten expect cost-cutting efforts to shift from capex to opex – a more difficult category to tackle. While the cuts have improved the bottom line for operators, DNV warns that reducing expenditures on maintenance, health and safety carries long-term risk. “Cutbacks in investment do not produce an immediate safety impact; their effects are felt in the medium term, so it is difficult for the industry to claim that safety has not been affected, as they do not yet have the operating data to support that statement,” says DNV vice president Graham Bennett. “But the lack of investment in inspection, maintenance, competency training and the physical fabric of installations will come back to bite hard if it continues into 2017.”