A new report on the oil and gas industry has said the worst is “perhaps” over as it highlights ways large companies in the sector can take advantage of “green shoots of recovery”.
PwC’s latest report, ‘A Sea Change: Emerging from a downturn’ said there was a “growing confidence” in the sector as oil prices appear to be stabilising.
Focusing on the big oilfield services (OFS) companies such as Baker Hughes, Halliburton, Schlumberger and Weatherford, the report cites the chief executive of Schlumberger, Paal Kibsgaard’s recent claims that “we have indeed reached the bottom of the cycle”.
But the report warns that the sector has faced a “torrid time” in the last two years since the start of the oil price collapse and any recovery is expected to be “uneven” as some companies emerge from the turmoil sooner than others.
It highlights an 18% average slump in research and development (R&D) spend since the onset of the downturn, urging that it is “essential OFS companies protect investment levels in this core area”.
Prior to the downturn, the report cites an industry player as describing the sector’s willingness to adopt new technology as “glacial”, although this is due to fears that rapid adoption could lead to “catastrophic failure”.
The report adds that the creation of the £1.8billion Oil and Gas Technology Centre (OGTC) in Aberdeen has been established to “pioneer technologies of specific benefit” to the North Sea.
PwC also says that, while we are unlikely to see prices of US$100 per oil barrel returning in the near to medium term at least, a more robust price in the $60-70 should be realised in the next few years.
Adrian del Maestro, oil & gas director of research at PwC, said: “As oilfield service companies emerge from the turmoil, they will be operating in a landscape that has changed fundamentally in the past two years. In this new world we see an oil and gas sector focused relentlessly on cost reduction, with business models having to be resilient at lower oil prices. If we are poised for a recovery it is likely to be uneven.
“In this brave new world, oilfield service companies will need to focus on several core themes in order to survive and succeed as the upturn takes effect.”
Kevin Reynard, office senior partner at PwC’s oil & gas centre of excellence in Aberdeen, said: “The OFS sector has been particularly badly hit over the last couple of years by depressed prices and lower activity levels, further exacerbated by some key skills leaving the oil & gas sector for other industries.
“However, the global nature of many services businesses should position them well for any upturn, driven by activity in frontier basins, provided they make best use of their skillsets. And already many are starting to reap the benefits of rebasing how they deliver their services and working closely with the operator community to meet their needs.
“By developing innovative working practices, there is more, still, that can be achieved.”
Alan McCrae, energy tax leader at PwC, added: “There is no doubt that exchequer revenues have been significantly impacted by this prolonged downturn. However, the focus now needs to be on efficient and profitable growth to adapt to the new commodity price reality.
“With the right measures and actions in place, the OFS sector can survive, and indeed grow, in this rapidly evolving market. From a UKCS perspective, a successful OFS sector is the key to unlocking future success in a maturing basin.”
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