Rio de Janeiro, 23 January 2019: Almost all (93%) senior oil and gas professionals in Brazil expect the sector to grow in 2019, the highest such confidence level in the global industry, and sharply up from 78% a year ago
- 93% of senior oil and gas professionals in Brazil expect the sector to grow in 2019
- Nearly two thirds (64%) believe their companies will boost or maintain capital expenditure this year
- 82% think their companies will increase or maintain headcount in 2019
- 87% still see cost efficiency as a top or high priority in 2019
- 69% view embracing digitalization as key to increasing profitability.
This high level of optimism and other clear signs of the market recovery in Brazil are revealed in new research from DNV GL, the technical advisor to the oil and gas industry. A test of resilience, the company’s ninth annual report on the outlook for the oil and gas industry provides a snapshot of sector confidence, priorities and concerns for the year ahead. It is based on a global survey of nearly 800 senior oil and gas professionals and in-depth interviews with sector leaders.
Among positive signs in Brazil, nearly two thirds (64%) of those surveyed believe their companies will boost or maintain capital expenditure in 2019. More than half (53%) anticipate that operating expenditure will rise or remain the same as in 2018. A large majority (82%) expect to raise (40%) or maintain (42%) overall headcount over the next year. Similarly, 82% predict higher or stable spending on R&D/innovation, with those expecting increases having nearly tripled from 16% in 2017 to 47% now.
The findings are encouraging for a new Brazilian government pledged to enabling greater participation by international oil companies and local independent players to further develop the country’s oil and gas potential.
“Based on our research, Brazil’s oil and gas sector looks in increasingly good shape to exploit new opportunities,” said Alex Imperial, VP and Area Manager, South America, DNV GL - Oil & Gas. “It is attracting investment from international oil companies, and from Brazilian independent oil producers. Besides, the national oil company Petrobras projects 10% growth in oil production in Brazil this year, and average annual growth of 5% in total oil and natural gas production over the period 2020–2023, requiring significant investments.”
Amid expected higher spending, Brazil respondents citing operating costs as one of the biggest barriers to growth has risen from 17% last year to 24% now. With companies seeking to fund growth in an improving market, access to finance/capital is also cited by 22%, up from 12% in 2018. The local economy remains an important but less cited (36%) barrier than in 2018 (37%) or 2017 (52%).
A balancing act seems to be taking place between the desire to invest in growth and a continued but mildly looser focus on costs. A large majority (87%) describe cost efficiency as a top or high priority in 2019, little different from any year since 2015. However, those citing it as a top priority have fallen from 42% in 2017 to 32% in 2018 and 29% now, suggesting at most a slight loosening of cost control in the past year. Nevertheless, the proportion reporting success in achieving cost-efficiency targets has doubled from 15% to 29% in a year. In addition, more than two thirds (69%) say cost pressures are driving them to collaborate more with industry participants.
Most of the top investment areas for R&D in the Brazilian oil and gas industry this year relate to making projects and operations more efficient. Digitalization (44%) and subsea (33%) occupy first and second place respectively in the most-cited list. More than two thirds (69%) of respondents see embracing digitalization as key to increasing profitability: 58% expect to increase investment on it in 2019, up from 41% a year ago. Process automation (50%), cloud-based applications/databases (40%) and data platforms (35%) are the most cited high priorities for digital investments.
Greater opportunities and collaboration in a climate of continued focus on cost efficiency also reflect in DNV GL’s findings on contracting models. For example, nearly two thirds (62%) of Brazil’s senior oil and gas professionals agree that their organizations favour partnership models based on shared risk/reward.
“The role of digitalization is twofold: to help organizations achieve long term efficiency and productivity gains, and it has the potential to make collaboration easier through data-sharing platforms. The downturn in the last 3 years weakened the relationship between operators and suppliers, but going forward new types of collaboration and partnership models will be crucial. Hence, these trends combined will require significant innovation in business practices,” adds Imperial.