New report highlights oil & gas industry split over cost management strategies for tackling downturn

Published Feb 3, 2015
[an error occurred while processing this directive]

Edit page New page Hide edit links

Elisabeth Tørstad, CEO of DNV GL – Oil & Gas
Elisabeth Tørstad, CEO of DNV GL – Oil & Gas

In the face of falling oil prices, confidence in the outlook for the oil & gas industry has dropped dramatically among sector professionals from 65% to 28% in the last three months, according to new research published today by DNV GL. The pessimistic outlook is also reflected in capital expenditure (CAPEX) intentions, with those planning to increase CAPEX in the same time period dropping from 40% to 12% and those planning to reduce headcount increasing from 26% to 47%.

The findings highlight that senior industry professionals are split over how to tackle the year ahead, according to DNV GL’s fifth annual research report on the outlook for the sector. Those who are most confident about reaching their profit targets plan different measures for cost management, taking a long-term approach to riding out the storm, while those pessimistic about hitting their profit targets are more likely to take short-term cost-cutting measures.

Among the ‘profit confidents’1, 67% intend to increase or maintain capital investment compared to 29% among ‘profit pessimists’ and 70% to bolster R&D spending compared to 40% respectively. When it comes to imposing strict cost controls, profit confidents have a greater focus than profit pessimists on improving workflow/work processes (45% vs 35%), greater use of automation (11% vs 1%) and adoption of new IT technology (13% compared to 4%). The ‘profit pessimists’ are more likely to take cost-cutting measures such as reducing headcount (35% compared to 15% in the confident group).

Among respondents in North America, a third (33%) are confident about the year ahead, the most confident of any region, but still a significant drop from 93% the previous year. The biggest drop in confidence however is in Asia Pacific where 27% are confident about the outlook for 2015 compared to 89% the year before. The lowest confidence globally is reported in Europe (26%).

Elisabeth Tørstad, CEO of DNV GL – Oil & Gas, said: “While the strong correlation between oil price and confidence is expected, we need to take heed of lessons learned from previous downturns. The oil and gas sector faces a dilemma over balancing long-term growth or cutting back more sharply in response to short term pressures. By taking a broader view and reducing complexity and standardising processes, materials and documentation, industry players can develop a long-term sustainable cost base to adjust to this lower margin environment.

“Tight schedules, high activity and complex projects have driven costs up over the last years, but it is interesting to see that the most confident industry players are forging a different path to their less confident peers. They are showing counter cyclical behaviour by investing during the downturn, which is positive for the long-term health of the industry.”

DNV GL’s report, A Balancing Act: The outlook for the oil and gas industry in 2015, provides a timely assessment of industry confidence and priorities for the year ahead and is based on a global survey of more 360 senior industry professionals and executives carried out the week of 19th January 2015. The report also includes 18 in-depth interviews with a range of experts, business leaders and analysts. The research has been compared with a previous survey carried out from October to November 2014 to monitor shifting sentiment during a period of falling barrel price, as well as DNV GL’s 2014 industry outlook report.

Other key findings include:

• The industry’s skills shortage – which has been the largest barrier to growth for the past two years – has fallen to tenth place (14%) jointly with geopolitical instability in key markets. Low oil prices are now the biggest barrier in 2015, cited by 68% of respondents. The weak global economy is second (35%), followed by uneconomic gas prices (20%)

• The US is the most favourable investment destination (28%), followed by China (11%) and Norway (9%)

• Globally, respondents in Asia Pacific have the greatest expectation to increase CAPEX (15%) and the lowest expectations are recorded in Latin America by only 4% of senior oil & gas professionals

• Intentions to decrease headcount are similar in Europe, N. America and Asia Pacific (between 46% and 49%)

• The region with the highest intention to increase strictness on cost control is Latin America (78%)

• A quarter (25%) of respondents plan to increase standardisation of tools and processes to impose stricter cost controls.

Tags: DNV GL Oil & Gas


Comments on this page are closed.

+ Larger Font | + Smaller Font
Top Stories







Mobile News
Mobile news

Our news on
your website


Do you have any
tips to us


sitemap xml