Oil prices and cost reductions underpin rising optimism
Two key drivers of restored confidence stand out, according to Maria Moræus Hanssen, CEO and chairman of the management board, DEA Deutsche Erdoel AG. In an interview for the DNV GL report, she said: “The first is oil and gas prices. Short-term prices seem to drive a lot of sentiment about longer-term perspectives for the industry. Second, costs have come down - both running costs and investment costs.”
“The big change in industry confidence is not because of a belief that the oil price is going to rise to previous levels,” said Graham Bennett, vice president, DNV GL - Oil & Gas. “Instead, it is because industry participants now have their cost levels under control and can make a reasonable margin, even at USD55 or USD65 oil.”
Cost efficiency remains a priority
Rising expectations for oil and gas industry investment this year do not signal a return to pre-2014 norms in cost-efficiency, however. Cost-containment lessons learned in the downturn remain fresh and seemingly embedded for the longer term.
Nearly a third (31%) of respondents still view cost control as top priority – the same as in 2017 – and half of those surveyed forecasted it would be greater in 2018. Nearly a fifth (18%) expect operating costs to be the biggest barrier to growth this year – the highest proportion recorded by the survey since 2014 (33%).
Nearly two-thirds (62%) believe cost-efficiency measures introduced since 2014 are now permanent. Like last year (63%), this supports the view that the industry currently intends to sustain change aimed at protecting margin in a ‘new normal’ oil-price environment.