The industry is giddy as oil majors begin to unleash their spend again, according to a top oil expert.
Regina Mayor, KPMG’s global sector head and US national sector leader of energy and natural resources, cited a number of contributing factors for creating the new wave of enthusiasm.
An oil friendly Trump presidency, a stabilized oil price and the potential for tax reform are all changing the sentiment, according to Mayor.
She said: “The biggest news has been that Donald Trump won the election. The industry was gearing up for a completely different regulatory environment. A lot of the industry lobbying groups we work with pretty closely were geared toward some pretty high profile, controversial discussions around some of the pending regulations.
“They are now sort of reeling with positive enthusiasm because of the election outcome. I would characterize some of that enthusiasm as irrational exuberance.
“Every segment I speak to thinks they will win under the Trump administration, including renewables.
“Part of the renewables enthusiasm is the belief that they’re are too far down track with the tax incentives and have compiled a demonstrable impact with jobs and have the cost profile coming down that they’re now ready for prime time, and that would be very difficult for anyone to roll back.
“That coupled with the sense that the commodity price may be stabilizing in the 50s has seen overall the industry become quite enthusiastic about what the future will bring and what 2017 and 2018 will be.
“And then you pile the potential of tax reform on top of that. I’ve been quoting Greg Garland, the chairman of Phillips 66, and he said industry is ‘downright giddy’.”
The change will affect immediate spending habits, according to Mayor.
“I’m bullish on growth prospects,” she said.
“I’m bullish on M&A activity. I think we’re seeing some very interesting deals with pretty eye-popping prices for acreage in the Permian.
“And there’s growth across the board. You’re seeing the super majors unleash their spend. We’re seeing a more diversified player set come onto the market. There’s been a lot of capital on the sidelines for quite a while but now there’s a lot of optimism in the industry overall, not just in the US.”
However, Mayor is tempered around the speed of full recovery, stating $60 won’t be achieved until at least 2019.
“If the Saudis decide they have enough with US shale providers filling that gap and taking that benefit, they could release a lot of supply, in which case there’s a big worse case scenario where it could drop to $35, which would be devastating for the industry.
“But I’m more optimistic that demand will start to pick up substantially and people will be bit more sane about how they approach it and OPEC will continue to put some controls around supply.
“I think they understand the fundamentals of supply of demand. I just don’t see development at all costs. I also see larger players coming into the Permian that have longer-term views. And the potential for those projects to get a little more scrutiny and be viewed with a less bullish crude price projections.”
But what about the more difficult, cost heavy plays?
Mayor added: “I don’t see the industry shying away from ultra-deep water. Somebody still bought Shell’s Oil Sands assets and I’m fascinated by that and that there’s somebody really excited about it.
“Long-term people are still bullish about hydrocarbons and the underlying fundamental commodity price.”
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