A dark age in the oil and gas industry is almost inevitable.
It’s part of the white-knuckle cycle operators live with.
The oil and gas industry finds itself on the rack yet again. But a December survey of 200 executives tempers short term pessimism with a broadly bright outlook five years from now. In the survey, conducted by Pearson Partners International, industry leaders weighed in on oil and gas prices, workforce expectations, capital spending and M&A.
Other surveys, analysts and industry observers have considered the causes of the downturn, including global oversupply of oil and gas, low oil prices and fears of increased regulations and taxes. Oil and gas leaders are greatly concerned about how the EPA will deal with fracking and also bans by local or regional governments.
By the end of 2015, about 60% of respondents said WTI could average $65-80 per barrel. For now, the industry is dealing with the pain of low prices.
Dozens of E&Ps have lowered their capex compared to 2014 since most executives don’t expect a rapid recovery for oil prices. Workforce reductions will continue, so far led by service companies cutting more than 20,000 jobs.
Still, a few bright spots are in the making for 2015.
M&A activity is expected to increase in 2015, said Chris Reinsvol, Pearson Partners’ energy practice leader. That echoes analysts who have said consolidation is necessary as the industry moves forward.
About 70% of those surveyed in early December expect M&A in 2015 to be moderately or significantly more active.
“Suppliers expect to see greater M&A activity in their segments than the oil and gas companies,” Reinsvol said.
He noted that two of the largest deals of 2014 were reached even as oil prices were tumbling: The $34.6 billion merger agreement between Halliburton (NYSE: NYSE) and Baker Hughes Inc. (NYSE: BHI) and Repsol SA’s purchase of Talisman Energy Inc. (NYSE, TSE: TLM) for about $13 billion.
While the road through 2015 appears bleak, executives remain optimistic about the industry and see a better operating environment in the years to come, the survey found. About 76% of respondents said the industry will be significantly or moderately better off in five years. Suppliers have a slightly more positive five-year outlook than oil and gas companies.
When asked about their own companies, 83% of executives expect their companies to perform better by 2020, while 5% said their companies would be worse off.
“This very positive response speaks both to the optimistic nature of the oil and gas industry as a whole, as well as the understanding of the cyclical nature of the business,” Reinsvol said.
Tailwinds
Company leaders also have high hopes for a global economic recovery, new technology and increased use of natural gas.
Lower costs and increased oil and gas exports were also cited by at least 30% of respondents.
The most cited technology developments were improvements in hydraulic fracturing, drilling technologies and the use of Big Data or the “digital oilfield.”
Natural gas is also seen as a future opportunity, particularly for power generation. In 2013, about 39% of electricity generated in the U.S. came from coal-fired power plants.
“Switching a large portion of this power generation from coal to natural gas would be quite valuable for gas producers,” Reinsvol said.
As for lower costs, they cut both ways: E&P companies see dipping service costs as an opportunity, while drillers and suppliers see them as a challenge on the horizon, Reinsvol said.
Recommended Reading
Mitsubishi Makes Investment in MidOcean Energy LNG
2024-04-02 - MidOcean said Mitsubishi’s investment will help push a competitive long-term LNG growth platform for the company.
Tellurian, Institution Investor Agree to New Loan Repayment Terms
2024-02-22 - Tellurian reached an agreement with an unnamed institutional investor to pledge its interest in the Driftwood project as collateral.
BP Pursues ‘25-by-‘25’ Target to Amp Up LNG Production
2024-02-15 - BP wants to boost its LNG portfolio to 25 mtpa by 2025 under a plan dubbed “25-by-25,” upping its portfolio by 9% compared to 2023, CEO Murray Auchincloss said during the company’s webcast with analysts.
Mexico Pacific Appoints New CEO Bairstow
2024-04-15 - Sarah Bairstow joined Mexico Pacific Ltd. in 2019 and is assuming the CEO role following Ivan Van der Walt’s resignation.
Enbridge Advances Expansion of Permian’s Gray Oak Pipeline
2024-02-13 - In its fourth-quarter earnings call, Enbridge also said the Mainline pipeline system tolling agreement is awaiting regulatory approval from a Canadian regulatory agency.