Energy Industry Seen Keeping Tighter Rein on Expenditures

Amid a positive outlook for the energy industry in 2014, senior oil and gas professionals are forecast­ing tighter monitoring of capital expenditures this year, according to research published by Norway’s DNV GL, a technical advisor to the oil and gas industry. While nine in 10 (88%) of respondents are confident about the sector, concerns over rising operational costs, a shortage of skilled professionals, and competition from international rivals is causing executives to focus spending on projects that will provide the greatest return on investment.

According to the research, the proportion of com­panies planning to increase investment in new projects has declined by 18 percentage points over the past three years, from a high of 63% in 2012 to just 45% in 2014. For the first time since 2011 and the aftermath of Macondo, overall confidence in the oil and gas sector has fallen—albeit only by one percentage point—signaling a shift in sentiment.

The findings come from a new report, “Challeng­ing Climates: The Outlook for the Oil and Gas Industry in 2014.” The research reveals that, despite some signs of caution, the overall outlook for 2014 is confident among industry professionals. However, respondents expect to keep a closer watch on costs, with six in 10 saying they will pressure suppliers to curb cost increases. Finally, uncertainty over oil and gas prices will be more prevalent in 2014. Nearly one in four industry professionals think oil and gas prices will weaken this year, while the others remain unsure.

“Oil and gas industry projects are becoming increasingly complex as the industry continues to operate in more challenging environments,” said Elisabeth Tørstad, CEO of DNV GL. “The cost of exploration and produc­tion is rising, the industry’s pool of skilled professionals is decreasing, and companies are feeling greater pressure on their overheads. This is all leading to great focus and a degree of belt-tightening across the industry, with a view to keeping a tighter rein on capital expenditure. Although confidence is still high, for the first time since 2011 and the aftermath of Macondo, overall confidence in the oil and gas sector has fallen marginally, signaling a slight shift in sentiment.”

She added that there are also signs of greater consolidation across the oil and gas industry supply chain. “Our research gives clear signs that pressure will be put on suppliers to become more innovative, to reduce costs, and to show value in 2014 by providing access to scarce, in-demand skills and by demonstrating real quality in the products and services they deliver,” Tørstad said.