Oil and Gas Sector Outlook for 2013

The oil and gas sector is increasingly turning to technology to plug rapidly growing skills gaps, according to a new report on industry sentiment for the year ahead. GL Noble Denton’s new “Seismic Shifts” report on the future of the oil and gas sector has revealed that industry leaders are confident for significant industry growth in 2013. But, despite this optimism, major concerns are emerging over an industry skills meltdown, tougher operating environments and increasing risk and regulatory hurdles.

According to the report during November and December 2012, 428 senior professionals and executives across the global oil and gas sector have been surveyed.

1. About two-thirds (63%) operate in both oil and gas, while the rest focus primarily on either oil or gas.
2. The companies surveyed spanned a range of sizes: 28% have annual revenue of US$500m or less, while 19% have annual revenue in excess of US$10bn.
3. Most respondents’ companies (46%) are publicly listed, with the remainder either privately held (36%), state-owned (12%) or operating as a joint venture.
4. Respondents represent a range of functions within the industry, with nearly four in ten (37%) at directorial level or higher.

The key findings of the report are as follows:

Robust confidence in the industry’s long-term prospects outweighs immediate concerns over demand.

• Nearly nine in ten (89%) of those surveyed said they remained confident about the industry’s prospects in 2013, up from 82% in 2012 and 76% in 2011.
• About half (51%) of firms expect to increase their overall capital investment this year, while just 8% plan to cut back.
• Overall, in the search for growth, respondents indicate they will rely more on organic growth (cited by 41% overall) and sharply less on expansion via mergers and acquisitions (14%, down from 35% in 2012).

Deep economic uncertainty tops the list of worries for 2013, with forecasts of reduced growth increasingly becoming long-term expectations.

• A 46% of respondents flagged economic uncertainty as the principal force likely to affect the sector in 2013. Of all regions, such worries are particularly acute within Asia Pacific, where six in ten of those polled expressed concern.

Low natural-gas prices are a clear cause for concern, even as bullish oil-price forecasts help to propel the industry.

• More than one-quarter (27%) of those polled think that pricing challenges, including low gas prices, will be a key force affecting the sector, the fourth-greatest worry overall. This is especially the case given clear investment into both natural and unconventional gas, which are, respectively, the first- and third-largest priorities for investment for the year ahead. In contrast, despite worries over demand uncertainty, oil prices are expected to remain robust during 2013 – the industry collectively forecasts a price of a little over US$100 per barrel – given that extraction is more technically challenging each year.

Iran and Nigeria are seen as the toughest investment destinations for 2013, while the US is now regarded as the most favourable.

• More generally, 42% of respondents point to North America as the region they think will hold the greatest growth opportunities. Latin America has surged in popularity as an investment destination, rising from fifth place in 2011 to second overall for 2013. Industry professionals rate Iran as the joint-toughest country for investment in 2013, along with Nigeria, where uncertainty over an upcoming petroleum bill, persistent corruption and security risks all weigh on investors. 

Long-running fears over skills shortages will become an acute barrier to growth in 2013, further adding to cost pressures.

• 55% of respondents cite skills shortages as their number-one barrier to growth, well ahead of the 38% who pointed to increased costs, in second place. The only exception was in Asia Pacific, where the industry is more worried about costs than skills shortages, in part owing to the region’s demographic advantage over Europe and North America.

The regulatory burden remains a costly impediment to growth, even as many oil and gas leaders adjust to the “new normal” on industry oversight.

• Nearly half (46%) of those polled believe that the Macondo oil spill consequences are still rippling through the industry.
• About half (49%) expect to increase spending on compliance in 2013 – the single highest area.
• In North America, nearly six in ten (59%) expect to increase spending, nearly twice the rate of Europe (32%).
• Three in ten agree that many new regulations have been rushed into place, without being properly thought through (rising to 37% in North America). Just one in ten think otherwise.
• 57% say that they have taken lessons from the spill and changed their operating practices as a result.

Contract negotiations will get tougher during 2013, with greater risks for contractors.

• Pricing and contract terms will get tougher in 2013 according to 47% of respondents. Even more (49%) think that contractors will bear higher overall risks from projects. Ever since a new breed of “internationalising” national oil companies (NOCs) was identified in the 2011 edition of this research, the dynamics between governments, state-led oil majors and international oil companies (IOCs) have proven increasingly testy. 

Technology-led innovation is increasingly important to increased performance.

• Nearly one in ten firms (9%) say that innovation-led organic growth will be their main strategy for expansion in 2013, while 37% expect to increase their spending in research and development (R&D), and innovation.

According to Pekka Paasivaara, Member of the Executive Board, GL Group, In 2013, the industry faces a new reality. Increasingly challenging operating environments mean companies face tighter margins, greater overheads, higher risks, more rigorous regulation and tougher contract terms in a sector that is fast approaching a skills meltdown. But, despite all these difficulties, there is much for oil and gas professionals to be optimistic about. The dash for gas has gripped the sector; strong oil prices are propelling us through economic uncertainty; and spending on innovation is set to increase.

Source: GL Noble Denton