Oil and gas

Successful cost reductions lay the foundation for new growth – but do we have enough digital heads?

New research: Confidence and Control - the outlook for the oil and gas industry in 2018

Oslo, 25 January 2018: Managers in Norway's oil and gas sector expect a change in the amount of money spent on investments, operations and research and development (R&D) in 2018 according to a new global survey conducted by DNV GL, a technical advisor and verifier to the oil and gas industry.

Kjell Einar Eriksson, DNV GL
Kjell Eriksson, regional manager in DNV GL – Oil & Gas, Norway
Kjell Eriksson, DNV GL - Oil & Gas on the outlook for the oil and gas industry in 2018 Watch video
The outlook for the oil and gas industry in 2018: Key trends Watch video

Leading representatives of oil and gas companies are 2-5% more confident than their colleagues in the rest of the world that their revenue (65% compared to 61%), profit (59% compared to 54%) and growth (65% compared to 63%) will increase in the coming year. More respondents in Norway than in the rest of the world also believe they will increase their staff numbers (27% compared to 20%).   

Confidence and Control: the outlook for the oil and gas industry in 2018 is DNV GL's eighth annual report on the outlook for the oil and gas industry. It provides insight into the industry's confidence, priorities and concerns for the coming year. The report reveals a complete reversal when it comes to funding for R&D and innovation, after three years of cuts. More than a third (36%) of the 813 global respondents in the survey expect to spend more on R&D and innovation in 2018: this is the highest level registered in four years.   

Despite soaring optimism, a strong focus on cost control is being maintained – 92% of the Norwegian respondents say they will maintain or increase their cost control in 2018, but only 28% (compared to 22% globally) say they will have cost control as a top priority, compared to 37% in 2017.  

"After three quite tough years, we now expect to see several new field developments and greater investments in R&D. At the same time, it's important that we maintain our focus on improving cost-efficiency to ensure the industry is competitive," says Kjell Eriksson, regional manager in DNV GL – Oil & Gas, Norway

This is also pointed out in a report entitled Competitive edge – a changing Norwegian Continental Shelf. The report was presented by KonKraft at the Oil and Policy Seminar in Sandefjord, Norway, last week. 

"There is still some work to be done in order to extract the full potential from standardization and the use of industrial, non-sector-specific solutions. In KonKraft's report, we recommend limiting company-specific requirements for new developments and replacing these with digitalized, international industry standards. It's also important to continue the work of simplifying the NORSOK standards," says Eriksson. 

Both DNV GL's customer survey and the KonKraft report stress the importance of digitalization to maintain efficiency and keep costs low. Opportunities for increased efficiency through digital interaction using a common standardized format and automation are highly prioritized by Norwegian players. All of 51% of the Norwegian respondents expect increased investments in digital tools and processes in 2018, compared to 37% globally.    

"Standardized digital information will improve the exchange of information so that the entire value chain can communicate via 3D models and engineering databases and, in time, digital twins," says Eriksson. 

At the same time, the DNV GL report calls attention to the fact that the most important challenge in the field of digitalization is the lack of competence. In 2017, an old-fashioned organizational culture and the lack of awareness by top management were pointed out as the most important barriers, but now lack of competence tops the list. 

"All those who have really worked on developing apps and platform technology know how demanding this is," says Eriksson. We need to sharply improve our digital competence.  Here there are higher- and further-education opportunities for the university sector," Eriksson points out. 

"In any case, I think there will be many winners this year – especially those organizations that have retained their critical competence will be equipped to enter a new period of growth, as well as those that have invested in the development of new methods and tools," he concludes. 

Here are some other main findings from DNV GL's survey: 

  • After three tough years, the level of confidence has increased considerably, from 29% in 2017 to 65% this year. More than two-thirds (65%) of the respondents say their company will maintain or increase the level of its investments in 2018, compared to 47% last year, and thus support this positive change. 
  • The increasing confidence in growth in the oil and gas industry is clear in regions all over the world. In North America, confidence has risen from 49% to 57%. Europe has the brightest outlook for the oil and gas sector (up from 25% last year to 64%, with Latin America at 77% (46% in 2017) and the Asia-Pacific region at 57% (30% in 2017)
  • The Norwegian respondents are also more optimistic about oil and gas companies achieving a high level of profitability during the next 10 years. More than half (56%) of the respondents predict success, compared with 45% worldwide. 
  • Fewer respondents in Norway (36%) stated the oil price as an expected obstacle to growth in 2018, similar to the global average of 37%. A year ago, these figures were 76% and 64% respectively.