Confidence Yields Investment Surge: DNV GL

International oil companies face a challenging year, according to new research by global quality assurance and risk management companyDNV GL It shows that business leaders expect the industry to commit to greater investment to meet hydrocarbon demand.

But the proportion of industry leaders who expect to raise or sustain operating expenditure has also grown over the two-year period, from 41% in 2017 to 65% for 2019, suggesting that cost-cutting is no longer possible.

Exactly two-thirds (67%) of senior oil and gas professionals believe more large, capital-intensive oil and gas projects will be approved this year, according to A test of resilience, DNV GL’s ninth annual report on the outlook for the oil and gas industry. And a slightly larger percentage plans to increase or maintain capital expenditure in 2019 – nearly double that of 2017’s figure of 39%.

All the regions – North America, Latin America, Europe, Middle East/North Africa and Asia Pacific – inspired greater investor confidence in this year's survey than they did in last year's, but with wide differences: for example Europe was only 2 percentage points brighter at 70% than it had been the year before, and this year it was the lowest of the lot.

And a clear majority (57%) of respondents believed that oil and gas companies will be able to achieve high profitability over the next decade – a large rise from 45% a year ago. Levels of optimism differ by region, but the overall trajectory is the same, the report says.

While regional reasons for pessimism exist, there are some concerns common to all areas surveyed: "Competitive pressure now ranks as the biggest expected barrier globally in 2019, unseating the price of oil, which has topped the list of worries for the past five years. These top two issues are closely followed by the global economy.

A third (34%) of the 791 senior professionals surveyed expect to grow their workforce in 2019 – more than three times as many respondents than four years ago (10%). But at the same time, the pool of talent is not growing. Young engineers are not generally attracted to the upstream industry, perhaps believing that its days are numbered.

“The global oil and gas industry is entering 2019 with renewed optimism and a greater sense of resilience. Despite greater oil price volatility in recent months, our research shows that the sector appears confident in its ability to better cope with market instability and long-term lower oil and gas prices. For the most part, industry leaders now appear to be positive that growth can be achieved after several difficult years,” said the head of DNV GL's oil and gas division, Liv Hovem.

“While increasing optimism and expectations for higher spending are to be welcomed, there will also be new challenges for the sector this year. The industry’s resolve to maintain the efficiencies established during the recent market downturn will be tested as the sector relaxes its focus on cost control, and signs of supply chain inflation and skills shortages emerge,” Hovem added.