The oil and gas industry is finally shows signs of rebound more than three years since global oil prices crashed, with senior oil and gas executives expecting a ‘step change’ in the industry’s capex, opex and R&D spending levels in 2018, according to new research from DNV GL.
The positive outlook was released Thursday as part of DNV GL’s eighth annual oil and gas report, which provides a snapshot of industry confidence, priorities and concerns for the year ahead.
Now, more than three years since the downturn began, confidence in industry has doubled, rising globally from 32% in 2017 to 63% this year, according to executives interviewed. Two thirds (66%) of respondents say their company will maintain or increase capital spending in 2018, compared to 39% last year, the report shows.
The report reveals an imminent turnaround in spending on R&D and innovation after three years of cuts and freezes. More than a third (36%) of 813 senior sector players surveyed for the report expect to increase spending on R&D and innovation in 2018 – the highest level recorded in four years, according to DNV GL. Meanwhile, digitalization and cyber security will form the principal areas of R&D investment focus this year, representing 37% and 36% of respondents, respectively.
Nearly one in five respondents (19%) cited lack of investment in innovation as a key barrier to growth in 2018, which is on a par with oversupply of oil and gas (19%), operating costs (18%), reduced exploration activity (19%) and competitive pressure (22%), the report shows.
“Our research indicates that the oil and gas industry is becoming more confident that its successful focus on cutting costs and building new efficiencies into the value chain will last. A new optimism is now emerging, driven from a common understanding that cost levels are under control and operators can make reasonable margins from an oil price that is expected to stay lower for much longer. The winners in our industry this year are those who can continue to make a clear shift from an expansion mindset to a margin mindset, and recognize the importance of implementing new models and technologies to improve operational efficiency,” said Liv Hovem, CEO, DNV GL – Oil & Gas.
Strict discipline will remain in the oil and gas industry, however. Half of respondents (50%) are steadfast in their efforts to increase cost control measures in 2018, consistent with 2017 (51%), suggesting permanent new discipline in the industry. Close to two-thirds (62%) believe that these are permanent changes, mirroring the results from last year’s survey (63%). This may suggest that the industry is going through a sustainable period of change.
“Intentions to increase capital and innovation spending in 2018 come alongside a clear signal that oil and gas industry costs will not return to pre-2014 norms. The need to invest in R&D is urgent for some parts of the sector and our research shows that industry leaders plainly see the need to maintain a tight control over costs to support the leaner, smarter projects and operations that will be necessary to maintain margins in the years ahead,” added Liv Hovem.
Other key findings from DNV GL’s research include:
Rising confidence is also evident regionally. Europe has the most improved outlook for the oil and gas sector (up from 25% last year to 64%), with Latin America at 77% (46% in 2017) and Asia Pacific at 57% (30% in 2017), while the trend is less distinct in North America (up from 49% to 57%)
Nearly three quarters (73%) of senior industry professionals say their organization was somewhat or highly successful in achieving cost efficiency targets in 2017
Just 37% of senior industry professionals named the oil price as an expected barrier to growth for 2018, compared to 64% one year ago
Nearly two-thirds (62%) of respondents expect their organization to maintain or increase headcount in 2018, compared to 43% in 2017 – 58% of respondents expect to maintain or increase operating expenditure in 2018, up from 41% last year.