Last week DW celebrated its 25-year anniversary with their DW25 Conference in London. Through the course of the afternoon, speakers offered insight into oil & gas business challenges and opportunities, spanning a multitude of industry sectors. The keynote speaker James West, Senior MD and Partner at Evercore, was joined by panellists Graham Bennett, Vice President at DNV GL, Bob Drummond, CEO at Hydrasun Group, Neil Hartley, Managing Director at First Reserve and Tony Hodgkins, Commercial Director at ORCAS. DW speakers were Chairman John Westwood, Research Director Steve Robertson, with Andrew Reid, CEO as moderator.
- Saudi Arabia was noted as having major challenges including a huge budget deficit which can only be addressed by a significant rise in the oil price. Without this, its demographic situation holds potential for social unrest. Some other oil producers could already warrant the status of ‘failed states’.
- The Middle East was, however, highlighted by several speakers as remaining a bright spot for both oilfield services and equipment.
- Global E&P spending is expected to drop 20% in 2015. Onshore, North American drilling and oilfield services have been hit hardest by the oil price collapse, though offshore drilling tells a different story, with the long-forecast rig oversupply being the key issue.
- In 2016 North American spending is expected to decline further and higher incentives are required to sustain drilling and exploration. However, a 2017 rise in the US onshore rig count is expected and a number of oilfield services & equipment sectors are forecast to show significant growth from their present lows.
- In the offshore rig markets, new construction activity could be limited for the next five years.
- The impact of the oil price downturn on the offshore segment has to some extent been masked by the long-lead time of field development projects.
- Offshore, commercial relationships and business models must change. The FPSO sector for example, faced major challenges even before the oil price fall and there is now a real need to standardise the approach to design.
- The North Sea is “stuck in a time warp”, with high costs and low productivity, a result of “poor planning and management”.
- The oil price fall has raised the potential of North Sea decommissioning which is now “definitely going to happen”.
- Emerging sectors such as FLNG and offshore wind are growing and now significant in scale.
- The oil & gas supply chain is overpopulated by too many small companies and there is a major need for more corporate consolidation in order to improve efficiency.
- Institutional equity energy allocations for the oil services industry are the lowest of all groups compared to historical averages.
- Though hit by pricing pressure, the impact on MMO-related (Maintenance, Modifications and Operations) activity has been comparatively lower than others.
- The downstream maintenance market will display a rapid recovery due to investment in new infrastructure for North American crudes and upgrades of international facilities.
- It was noted from a private equity view however, that although there will be challenging investment decisions, significant opportunities do exist.
- Fossil fuel investors are being targeted by organised opposition pushing for disinvestment; however, natural gas can play a key part in the move towards a greener future by displacing coal in power generation.
- Oil & gas is a 155 million boe/d industry with major long-term prospects.
- Ultimately, oil prices will increase due to growing demand outpacing supply.
- “The decline curve never sleeps” and some 448,000 new development wells are needed from 2015-21 to offset production decline and rising oil & gas demand.
Finally, John Westwood closed the event, adding “When we formed Douglas-Westwood in January 1990 Brent crude was $23.73 a barrel. Applying the US $ inflation index this equates to a 2015 price of $43.20. Today (23rd October 2015) Brent Crude is $46.50.”
Douglas-Westwood extends its sincere thanks to everyone participating in the event and to all our clients and friends we have worked with over the last 25 years.
Hannah Lewendon, Douglas-Westwood Faversham
+44 1795 594737 or Hannah.Lewendon@douglaswestwood.com