NEW optimism is emerging in the oil and gas sector with confidence levels almost doubling in the past year, according to a major international study.
Norwegian multinational quality assurance and risk management group DNV GL said confidence among senior figures in the industry had risen globally from 32 per cent in 2017 to 63 per cent this year.
It said oil and gas professionals expected a “step change” in capital and operational expenditure and research and development (R&D) spending levels in 2018.
The group’s research also revealed that more than a third of more than 800 senior sector figures (36 per cent) expected to increase spending on R&D and innovation, the highest level recorded in four years.
The study, titled Confidence and Control: the Outlook for the Oil and Gas Industry – also featured in-depth interviews with a number of industry experts. DNV GL said that oil companies entered 2018 with a more positive outlook than in recent years and, while the sentiment was not universal, it was built on more than the prices of oil or gas.
Instead, for many, it was built on a belief that their organisation had evolved enough in recent years to cope – even thrive – against a backdrop of lower-for-longer prices, the rise of unconventional oil, growing demand for LNG and the long-term energy transition. It also looked likely this evolution has just begun.
“The majors will turn into energy companies – they will broaden their portfolios,” says Maria Moræus Hanssen of Norwegian exploration group DEA. “Partly because there are strong investment opportunities outside oil and gas, and partly to position themselves for a changing future.”
Bente Pretlove, from DNV GL, said the changing future was likely to be on the minds of many leaders this year, particularly as they analyse scenarios that could affect longer-term investments.
“The greatest looming challenge for oil and gas companies is how they adapt to the energy transition,” said Pretlove.
“There will likely be greater regulatory and social pressure forcing the industry towards decarbonisation.
“To succeed, the industry will need to make the right investments and harness technology and innovation more than ever.”
One near-term risk identified in the study is that an increase in profitability could lull the industry back into old spending and investing habits, unravelling hard-fought cost-tightening and strategic recalibration.
Eirik Wærness, from Norway’s Statoil, shared the view of around two-thirds of respondents to the survey, that new operating models will last.
He said: “I think the industry has, for now at least, learned a lesson that will have lasting impact.
“Many changes will remain in place because it makes no sense to go backwards now that we have found smarter ways to operate.”
DNV GL’s outlook in last year’s report, titled Short-term agility, long-term resilience, remained appropriate said the group, despite shifts in confidence and investment intentions over the year.
As companies adapted, they had to invest now to prepare for various phases of energy transition.
Mark Gainsborough, from Shell, said: “A challenge going forward will be to invest more consistently, to maintain our purpose over time, and not be too disrupted by short-term changes.”
DNV GL warned that over the next three decades, climate change, the energy transition, digitalisation and technological innovation would cause unprecedented disruption across the oil and gas industry.
Companies were already reacting to the risks and opportunities this presented, while balancing their short-term priorities.
The group said the strategic challenges looked set to remain for several years, but many industry leaders would meet it with greater control over their enterprises and a new confidence for future of the industry.
Responding to the study, a spokesperson for the SNP said: “It is encouraging to see growing confidence in key sectors such as oil and gas in Scotland. Whilst it is a testament to the resilience of Scotland’s oil and gas sector, it is vital we continue to support investment and innovation through exploration, subsea engineering, carbon capture and storage and other avenues.”
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