Lower for longer’ – is the mantra many people in oil and gas circles are now adopting, as we move in to 2016 and beyond.
The new landscape is very different from other downturns and we are now in a complex world where significant geopolitical events, sustained unrest and war in the Middle East for example, no longer create an upswing on the price of crude.
From speaking to the ‘large operators’ and ‘big players’ in the supply chain that we come in to contact with across the globe at Pinsent Masons, the general sense is we are going to have to get used to a lower oil price and that the consequences will be severe in some quarters.
There can be few oil related businesses in the North East which have not experienced job losses and there is currently a lot of restructuring activity taking place regarding businesses burdened with heavy debt.
There is more pain to come but that said, I have worked in several industry downturns before, and while each one had its own quirks, I do believe there are parts of the industry that will come through this very strongly, with opportunities for those who have not believed that this was a one-way-bet the whole way.
Those that are involved in production efficiency and operations, and the ones who can genuinely bring in innovation, face a brighter future because we are going to have to get used to working with a lower cost base.
I fear that there are still some individuals, and some companies, sitting thinking ‘when things get back to normal I should be ok’. That mind-set will not survive this downturn and we will see more collapses, and unfortunately some of them potentially of quite significant scale
If you go back a couple of years, there was period when capital expenditure in the North Sea was around £13 billion a year but few stopped to ask, what do I actually get for my £13 billion these days?
Things clearly got out of control and I am afraid there is going to be ‘porridge and auld claes’ for a while, but to end on a positive note, there is a future for the UK oil and gas industry and the game is far from over.
Nobody is saying the world is about to stop consuming hydrocarbons any time soon, but we do have to adjust to the new normal of a lower oil price and an industry which demands lower costs, more innovation, much greater collaboration, and an increasing promotion of alternative fuel sources consistent with recent ‘climate change commitments’.
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