A majority of oil and gas executives expect the price of West Texas Intermediate crude to remain in the $40-50/bbl range in 2017, according to a recently released survey conducted by Deloitte. In its 2017 Oil & Gas Executive survey, released Oct. 11, 64% of executives held this view.
By contract, executives last year were markedly more optimistic about a rapid price recovery, Deloitte said. “With lower expectations of a rapid price recovery, the need by many [executives] to find new efficiency gains and reduce costs could push the digital revolution to its tipping point,” it said.
“The slow road back has gotten longer,” said John England, vice-chairman, Deloitte LLP, and US energy and resources leader. “The protracted holding pattern we’ve been in for the last 2 years seems to have shaken executives’ confidence in every sector—upstream, midstream, and downstream.
England said, “As the industry hunkers down to focus on cost reduction and productivity, one silver lining may be a drive to the next wave of digital technology adoption to uncover new efficiencies important to success.”
The main findings of the survey include:
• The pessimism was more pronounced in oil prices, with the outlook for natural gas slightly more stable. Nearly half of those surveyed expect Henry Hub gas to be $2.50–3/MMbtu in 2017, with price increases expected for 2018, and into 2020.
• Half of upstream oil and gas executives expect as much as a 10% decline in capital expenditures in 2018 vs. 2016. About 58% of executives expect a net decrease in rig deployment in 2018 vs. 2016.
• Oil field services is seen as the sector with the greatest potential for increased mergers and acquisition activity, followed closely by upstream exploration and production, integrated oil, and midstream.
• About half of respondents see service and supply cost changes as the biggest factors impacting cost structures in 2017 and 2018, followed by increased well productivity (42%) and digital technology (31%).
• About 41% of respondents anticipate a decline in headcount reductions in 2018 vs. remaining the same. Also, fewer expect direct headcount changes to have as much of an impact on costs in 2018 vs. 2017.
• More than half, 56%, of midstream executives expect a decrease in capex in 2018 vs. 2016.
• Pipelines are seen as the best opportunity for growth in 2018, with the majority continuing to view the Gulf Coast as the most productive (49%), followed by US Midwest and Appalachia (42%).
• Downstream executives are slightly less likely to expect reductions in capex (45%) compared with those in upstream and midstream.
• Expectations for refinery margins by yearend 2018 are largely in line with current margins, with 52% expecting margins between $15-25/bbl.
“The new reality seems to have set in—waiting for a significant price recovery may be a long haul,” said Andrew Slaughter, executive director, Deloitte Center for Energy Solutions, Deloitte Services LP. “It possibly has never been truer now that the low-cost producers are the winners. The bottom line is that companies should focus on cost discipline and operational efficiency. Digitization is likely the next frontier in this new normal, offering a lifeline for new efficiencies, cost reductions and productivity.”
