HOUSTON — An annual survey released by Deloitte, “2016 Oil and Gas Industry Survey: Optimism Emerges in the Aftermath of a Long Downturn,” shows more than half (59%) of oil and gas professionals believe the recovery already has begun or will begin in 2017.
While the current state of the market still leaves cost-containment initiatives a priority for oil and gas companies, executives nonetheless showed renewed confidence in an industry recovery. Executives pointed to expectations of rising prices, a return to increasing capex, and headcount as drivers of their optimistic outlook.
“This recovery in many ways mimics the pattern of the recovery from the Great Recession,” said John England, vice chairman, Deloitte LLP and US and Americas oil and gas leader. “If last year was the year of hard decisions, 2017 will be the slow road back. Companies are generally optimistic that prices will rise to a more sustainable level next year; however, they understand that even if we see an uptick in price, the industry likely won’t fully recover until 2018 or beyond.”
The survey found that most respondents expect to see an increase in capex next year. In fact, the upstream sector, which took the hardest hit in this downturn, is the most optimistic about a recovery, followed by the midstream sector.
It also reveals a number of trends in opinion that Deloitte believes could offer insight into the direction the industry may be headed.
Most executives believe that $60/bbl is an important threshold for a revival in US E&P activity, with 71% of professionals believing it is possible for the 2016 average price per barrel to reach $40-60, or for prices to at least rise to that range by the end of the year (61%).
Almost half of the respondents believe that prices will continue to rise, reaching $60-80/bbl by 2017 (44%) or by 2020 (46%). Nearly 1/3, or 28%, of respondents foresee crude oil prices returning to $80-100/bbl for WTI and Brent by 2020.
The survey identified various factors that could dampen optimism for recovery. When asked which policy or geopolitical issue would most affect their company, survey respondents cited OPEC production decision (45%) as having the most impact on the upstream sector, but US tax and policy decisions are next (34%), outranking several prominent international issues.
While the survey did not break out specific regulations, professionals see a possibility of profound energy policy changes to be enacted, and for the scope and impact of those changes to depend on the outcome of the presidential elections in November 2016.
The findings showed a shift in expectation about the impact of short- and long-term cost containment initiatives from 2016 to 2017. Long-term cost-containment initiatives, a hallmark of the oil and gas industry expansion before the downturn, are considered the most impactful, as shown by an increase from 42% of respondents to 50% for 2017.
Short-term cost-reduction efforts are seen as less impactful in 2017 — a key indicator of an expectation of recovery. In addition, executives expect capex committed to exploration activities to rise in 2017 (42%) — more evidence for an optimistic outlook for the industry’s longer-term recovery.
In 2017, 50% of respondents see better operating efficiencies and enhanced well productivity as the biggest opportunity for cost reductions. This is a shift away from headcount, portfolio changes, and activity reductions.
Although more than half of the respondents believe 40% or more of cost reductions are short-term, an overwhelming 64% see operating efficiency gains as the best path to sustainable cost reductions, followed by contract renegotiations.
For 2016, 42% expect capex to continue declining, but the outlook changes in 2017 as 43% of respondents anticipate capex to rise in 2017.