Oil, Gas Players Optimistic on Profits

Companies  in the oil and gas sector are optimistic about their ability to achieve their financial targets for 2020, according to a survey from standards agency DNV GL.

While the sector’s growth hangs in the balance for 2020, oil and gas leaders are optimistic that they will weather the storm, drawing on hard-earned cost efficiencies from the past five years to make margin.

Some 64% predict their organizations will hit profit targets this year (largely consistent with 62% in 2019), and nearly half (46%) say their companies would still achieve acceptable profits if the oil price were to average less than USD50 per barrel. This is a large proportion, given that only one of the past 15 years (2016) saw annual average prices under USD50 a barrel.

"New Directions, Complex Choices: The outlook for the oil and gas industry in 2020" is based on a survey of more than 1,000 senior oil and gas professionals and in-depth interviews with industry executives.

While two thirds (66%) of senior oil and gas professionals are confident of industry growth in 2020, this is down 10 percentage points from the 76% recorded in 2019 – the peak of a surge in confidence from a low of only 32% in 2017. Under half (46%) of respondents think that more large, capital-intensive projects will be approved this year compared to 2019, down from two thirds (67%) last year.

Capital may not flow as freely into large oil and gas projects in 2020, but companies operating across the industry’s value chain expect to boost investment this year in areas that will allow them to forge a long-term position in the energy transition. Those reporting that their organization is actively adapting to a less carbon-intensive energy mix jumped to 60% in 2020 from 44% two years ago.

“While the industry is experiencing persistent uncertainty, growing complexity, and new risks, we also see an industry taking bold decisions, building greater efficiencies and rising to long-term challenges as the world pivots towards a lower carbon energy future,” said Liv A. Hovem, CEO, DNV GL - Oil & Gas.

“Our research shows that the oil and gas industry has placed decarbonization at the center of its agenda, and it will remain a priority despite uncertainty from volatile market conditions and stalling expectations for industry growth in 2020,” she added.

Oil and gas companies’ plans to increase investment in renewable energy sources is up from 34% in 2019 to 44% in 2020. Offshore wind leads this effort, with 63% of organisations expecting to increase their investment, up from 40% last year.  

The industry’s intentions to increase investment in the hydrogen economy has more than doubled in a year. 42% of respondents said they would boost spending in this area for 2020, up from 20% for 2019.  

Oil and gas will be needed in the energy mix for decades to come – forecast to account for 46% of the world’s energy mix in 2050 compared with 54% today, according to DNV GL’s 2019 Energy Transition Outlook. This forecast overshoots the 1.5°C target set out in the Paris Agreement in 2028.