Late December/early January is the time of year when industry outlooks are announced, revealing company spending plans, oil price predictions, and potential stumbling blocks. The steep drop in prices in the fourth quarter of 2018 made these outlooks particularly challenging, and most are laced with cautious optimism about the year ahead. But common themes emerge: the industry is still in cost-containment recovery mode; the march toward digitalization is in full swing; and shale output from the US will only increase as pipeline bottlenecks began to ease with new construction.
This past year was one of recovery, as the downturn that began with the price crash in 2014 appeared to be over, although that view is not unanimous. Capital expenditures rose last year because of higher oil prices but spending was cautious, and that caution was validated when both Brent and WTI prices fell about $30/bbl during the fourth quarter. A price rally in January began to ease concerns that the industry was in another free fall.
Oil and gas spending growth rose 4% in 2017 and 5% in 2018, according to the International Energy Agency (IEA), after dropping 60% during 2014–16. The US shale sector contributed largely to that growth, as spending on unconventionals outstripped interest in conventional oil and offshore. Majors increased their visibility in unconventionals in plays such as the Permian Basin. Shale remains a bright spot, and will allow the US to likely remain the world’s largest producer of liquids and gas.
Global oil inventories have come down significantly since the downturn, even with the increase in US production. But major uncertainties exist, making this year “even more hazardous than usual” to forecast trends in 2019, an IEA spokesman was quoted as saying. That uncertainty is reflected in a recent survey of more than 30 oil analysts, who predicted that Brent prices would end the year anywhere from $30/bbl to $78/bbl.
Deloitte’s 2019 industry outlook states that “opportunities from digital technologies are becoming increasingly apparent and have the potential to unlock new value.” As featured in JPT over the past year in particular, more companies are employing or experimenting with artificial intelligence, automation, machine learning, robotics, and blockchain, often attracting nontraditional vendors and startups.
The offshore sector has yet to recover. US Gulf of Mexico (GOM) production rose last year but drilling activity did not, and the rig count ended the year at an 81% utilization rate. There were 36 active deepwater GOM sites at the end of the year, compared with 49 in early 2017, according to the US Bureau of Safety and Environmental Enforcement. Norway’s upstream regulator is not optimistic about spending there. Oil and gas production will fall 4.7% this year to 1.42 million B/D after a 6% drop last year, according to an annual report by the Norwegian Petroleum Directorate. Mexico’s offshore may be a bright spot, but the industry is still looking for signals from the new government that it is friendly toward private sector E&P.
