Oil & Gas Execs: Market Moving Up

Monday, January 23, 2012
Pekka Paasivaara, member of the GL Executive Board

While forecasts of financial gloom dominate mainstream news casts, there is an emerging feeling of optimism in fo the near term prospects for the oil and gas business. Oil and gas industry leaders have forecast improved performance and higher levels of capital expenditure this year, despite concerns over global economic instability, according to a new report on the future of the sector. 

Increased investment across the industry will focus on exploration activity, with North America emerging as the area with the greatest opportunities in 2012.
Big Spenders: The outlook for the oil and gas industry in 2012, is the Economist Intelligence Unit’s second annual industry barometer, commissioned by GL Noble Denton, an independent technical advisor to the industry with considerable insight into many of the issues faced by those operating in the oil and gas sector. 
82% of the 185 board-level directors and industry policy makers surveyed for the report are either highly or somewhat confident about the business outlook for their company, compared with 76% last year. Just 8% of those polled described themselves as pessimistic over performance in 2012. 
Findings from the research also show that nearly two thirds (63%) of executives plan to invest either somewhat or substantially more over the next year, in contrast to 49% in 2011. 41% of industry professionals expect to see increased investment in exploration activities over the next year, with only 4.3% anticipating a decline.
There remains a caveat, however; if global economic conditions deteriorate, oil and gas companies will have to scale back their spending commitments where they can do so without creating damage to their wider portfolios, according to the report.
Other key findings from the research, as reported by the Economist Intelligence Unit, include:
- Rising operating costs emerge as the top barrier to growth. More than 50% of respondents say that they expect there to be an increase in wages over the next 12 months.  54% of respondents also expect the cost of contractors to increase, compared to only 11% anticipating a decline.
- Risk remains a key challenge. An overwhelming majority of respondents - 82% -     either strongly or somewhat agree that regulatory issues have become more important in the post-Macondo period. Increasing regulation is regarded by more than 30% of respondents as the main challenge for their company over the next 12 months. 
- Skills shortages are becoming more acute. According to the Economist Intelligence Unit’s research, this issue comes out of the survey as one of the major obstacles to growth over the next 12 months. Last year, skills issues came fifth on the list of barriers and were only identified as a top three issue by 25% of respondents. This year, the issue has risen to second on the list, and has been identified as a key barrier by 34% of respondents. 
 
Unconventional gas: A global game changer? 
The advent of projects like the Marcellus, Barnett, Haynesville and Fayetteville shales have created a supply glut that has affected global prices. Yet there is widespread doubt as to whether the shale gas revolution can be exported outside North America.
Scope for optimism for refiners: After a dismal few years, the downstream sector is showing some signs of life, at least in the US. Refining profitability has improved where robust margins have resulted from a revival of consumption of refined products. But Asia and Europe remain in the doldrums. 
Pekka Paasivaara, member of the GL Executive Board, said: “The second annual Economist Intelligence Unit oil and gas industry barometer sends a clear message: Companies are preparing to spend big in 2012, despite a slower growth in demand for oil and gas during the second half of last year, and concerns over the future of the global economy.
“But this doesn’t mean that our clients are sanguine about their prospects for the year ahead. Findings from the report highlight a wealth of barriers to success, from rising operating costs to the worry of an impending shortage of skilled professionals and an uncertain regulatory environment in the post-Macondo era. 
“While capital expenditure looks set to take off, industry leaders will need to invest selectively this year, keeping operating risks low during a period of prolonged uncertainty. Their success will be defined by an ability to develop innovative approaches to operating more safely, efficiently and sustainably than ever.”
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