Cost Management Higher Priority for Oil Industry Professionals in 2016 – DNV GL

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Elisabeth Tørstad

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The DNV GL’s sixth annual survey on the outlook for the oil and gas industry says that cost management is a higher priority for oil and gas professional in 2016 as crude oil prices continue to decline

NEW research from DNV GL has revealed that cost management has become an even higher priority for senior oil and gas professionals in the year ahead, as 73% prepare their company for a sustained period of low oil prices.

The top three measures prioritised to impose stricter cost control are: tougher decisions on capex, headcount reductions and increasing pressure on the supply chain.

The survey entitled A New Reality is DNV GL’s sixth annual benchmark report on the outlook for the industry, providing a valuable snapshot of industry confidence, priorities and concerns for the year ahead. It draws on a survey of more than 920 senior oil and gas professionals, along with in-depth interviews with a range of experts and business leaders.

“Ongoing high supply in 2015 has suppressed oil prices, forcing the industry into a year of reflection and restructuring. From Shell abandoning its Arctic development plans, to BP cutting USD6bn in operating costs — and planning to sell USD3-5bn of assets over the next two years — difficult decisions are being made across the board. Cost pressure on operators is being pushed down the supply chain, affecting everything from headcounts to infrastructure projects. Some believe that the year ahead may well bring a balancing of supply and demand in 2016.

“Additionally, a confident minority of companies said they are managing the market downturn better than others, are optimistic about their prospects for the coming year, and plan to ramp up spending as a result.

“The future remains in the balance, however. 2016 began with the lowest oil price in 12 years, increased tension in the Middle East and continued uncertainty over the state of the Chinese economy,” it said.

On supply and demand the survey said opinions were clearly divided on whether oil and gas supply would continue to outpace demand in 2016 — just over half of our survey respondents (55 percent) said it would. “The supply side of the oil sector is giving indications that a change is on the way,” says Eirik Wærness, Statoil’s Chief Economist. “First, in the US, shale-oil production growth has dropped from some 1.5million barrels per day (b/d) to a decline of around 800,000 b/d, and it is still on the way down,” he said.

Additionally, preliminary reports suggest that OPEC’s (Organisation of the Petroleum Exporting Countries) current levels of production are having a greater impact than first predicted on the national budgets of members such as Saudi Arabia. Although the latest meeting of OPEC did not result in a change in strategy, many members are struggling under current levels of production. On top of this,

“Collectively, we all are subscribing to the ‘lower-for-longer’ view on commodity pricing for oil, gas, and LNG products,” says Michael Utsler, COO, Woodside Energy.

According to Elisabeth Tørstad, chief executive officer, DNV GL, this latest research provides insight on how companies across the value chain have to work carefully to balance short-term cost-cutting programmes with longer-term strategies to adjust to a new reality where the oil price may be lower for longer.

“While cost cutting remains a top priority for most companies, there are some promising signs that the industry is adopting longer-term thinking on cost management While the industry is understandably preoccupied with generating shorter-term value, we must also keep an eye on where longer-term value and efficiency gains can be made. Nearly one in five companies do not have a strategy in place to maintain innovation.

“At DNV GL, we are continuing to invest 5% of revenue into R&D. Innovation isn’t just about finding the breakthrough technologies – although that’s important too – it’s also about making things simpler and more efficient and ultimately helping the industry to safely cut costs,” Tørstad said.

— Jan 25, 2016 @ 17:12 GMT

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