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Confidence for the future of Brazil’s oil and gas sector is on a high following the successful bidding rounds and recent investments from oil majors

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New research: Confidence and Control - the outlook for the oil and gas industry in 2018
Rio, 25 January 2018: Senior oil and gas professionals in Brazil expect a positive step change in the industry’s R&D spending levels in 2018, as new research from DNV GL, the technical advisor to the oil and gas industry, confirms respondents are less optimistic than global counterparts in plans to raise headcount (10% versus 20%) and investment increases in capex (17% versus 22%).
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Alex Imperial, DNV GL
Alex Imperial, VP and area manager, South America, DNV GL - Oil & Gas
The outlook for the oil and gas industry in 2018: Key trends
Key trends for 2018
 

However, more than two thirds (61%) of Brazilian respondents say their company will maintain or increase capital spending in 2018, compared to 44% last year, suggesting a more stable outlook. The analysis show a strong correlation between companies predicting increased health and safety investment and capital spend, as well as those looking to increase regulatory compliance. 

Confidence and Control: the outlook for the oil and gas industry in 2018 is DNV GL’s eighth annual report providing a snapshot of industry confidence, priorities and concerns for the year ahead. It reveals an imminent turnaround in spending on R&D and innovation after three years of cuts and freezes. More than a third (36%) of 813 global senior sector players surveyed – 34% in Brazil - expect to increase spending on R&D and innovation in 2018: the highest level recorded in four years, and has more than doubled from last year in Brazil (up from 16% to 34%). 

Just over a third (37%) of Brazilians questioned stated that the greatest barrier to growth in the country’s oil and gas industry continues to be the local economy – though that figure has dropped significantly from 52% last year, reflecting the improvements achieved in the period. Lack of policy and government support is considered the second greatest challenge. Whilst growing regulatory burden is in third position, the figure is up nearly two-fold on last year from 14% to 27%. 

In line with regulatory concerns, more than two thirds of those questioned expect spending on compliance costs to grow in 2018 (39% compared to 26% in 2017).  

Despite the concerns related to growing regulatory burden, only a very small minority of the Brazilian respondents (7%) believe safety policies and procedures should be relaxed to enable higher levels of efficiency, comparing to 16% globally. On the other hand, less than half of respondents in Brazil believe their senior management understands the safety risks involved in cost-cutting (13 percentage points less than globally). The share of respondents expecting increased investment in health and safety has tripled from last year’s survey, from 10% to 32% (compared to 28% global average for 2018). 

Cost management is a top or high priority for nine out of ten Brazilians (91%) working in the country’s oil and gas sector - a rise from 82% last year. In contrast, the focus globally has remained relatively static - 85% in 2017 to 82% this year. 

Efficiency of existing assets remains high up in the agenda in 2018 to reduce operational cost, for upstream, midstream and downstream companies, similarly to 2017. In that sense, digitalization plays a key role, enabling the implementation of new models and technologies. 

“After a number of years of low oil price and political instability, optimism is growing at pace in Brazil. There have been important reforms and the improved predictability of the business environment have opened up opportunities for both national and international oil companies. There is now a resurgence of interest in Brazil from the majors and this is motivating project activity and industry growth,” said Alex Imperial, VP and Area Manager, South America

“It is particularly encouraging to see an upturn in intentions to increase investment in health and safety, as well as the continued focus on asset optimization to improve operational efficiency. The turnaround in intentions to increase investment in R&D is also very positive as the drive to encourage and enhance innovation is crucial to maximize production and as a means to streamline spending.” 

Other key findings from DNV GL’s research include:

  • Rising confidence is also evident regionally. Europe has the most improved outlook for the oil and gas sector (up from 25% last year to 64%), with Latin America at 77% (46% in 2017) and Asia Pacific at 57% (30% in 2017), while the trend is less distinct in North America (up from 49% to 57%)
  • Nearly three quarters (73%) of senior industry professionals globally say their organization was somewhat or highly successful in achieving cost efficiency targets in 2017, compared to 78% in Brazil
  • Nearly two-thirds (62%) of respondents globally expect their organization to maintain or increase headcount in 2018, compared to 56% in Brazil. This compares to 43% globally and 44% in Brazil in 2017
  • 58% of respondents globally expect to maintain or increase operating expenditure in 2018, up 17 percentage points from 41% last year, compared to 47% in Brazil, up from 38% in 2017.