A recovery in the oil and gas industry may have already begun or will begin next year, according to more than half (59%) of the oil and gas professionals surveyed recently by Deloitte. This would mean that the industry downturn—now 2 years old—may be drawing to a close, the survey suggests.
The survey—“2016 Oil & Gas Industry Survey: Optimism Emerges in the Aftermath of a Long Downturn”—illustrated renewed confidence driven by expectations of rising commodity prices and increased capital expenditures
“This recovery in many ways mimics the pattern of the recovery from the Great Recession,” said John England, vice-chairman, Deloitte LLP and US and Americas oil and gas leader. “If last year was the year of hard decisions, 2017 will be the slow road back. Companies are generally optimistic that prices will rise to a more sustainable level next year; however, they understand that even if we see an uptick in price, the industry likely won’t fully recover until 2018 or beyond.”
Indicated trends
Deloitte’s survey shows that most respondents expect to see an increase in capital expenditures in 2017. In fact, Deloitte says, the upstream side of the business is the most optimistic about a recovery.
Other trends indicated by the survey include:
• A “key threshold” oil price of $60/bbl.
• 71% of those surveyed believe it is possible for the 2016 average price to reach $40-60/bbl—or for prices to at least rise to that range by yearend (61%).
• 28% of respondents foresee crude-oil prices returning to $80-100/bbl for West Texas Intermediate and Brent by 2020.
• For 2017-20, 70% of the respondents expect gas prices to range $2.50-3.50/MMbtu, with one-third anticipating this price band in 2017.
• Survey respondents expect Asian gas prices to be much higher than Henry Hub to the end of 2016-20.
• 81% believe international prices will range from $5-10/MMbtu. However, an increasingly optimistic view (29%) is for prices to be in the $10-15/MMbtu range by 2017 to 2020.
When asked about policy or geopolitical issues affecting their companies, 45% of survey respondents indicated decisions made by the Organization of Petroleum Exporting Countries as having the most impact on the upstream business. Next in line as having an impact on the business were US tax and policy decisions (38%). Environmental and local stakeholder issues were ranked third as concerns at 34%.
Of course, those surveyed see the possibility of “profound energy policy changes” that may be enacted, but the scope and extent of impact of those changes would depend largely on the outcome of the upcoming presidential election.