In the face of falling oil prices, confidence among oil & gas professionals in Europe for the industry outlook in 2015 has fallen by 61 percentage points in a year to 26%, according to new research published today by DNV GL.
Low confidence in Europe is also reflected in capital expenditure intentions, with 49% planning to decrease CAPEX this year, compared to 8% last year. Nearly half (48%) also plan to decrease headcount in 2015 compared with only 16% in 2014.
Although confidence and CAPEX intentions are scaled back, the drop has been less severe in Europe over the last three months than other regions, notably Asia Pacific, where confidence fell sharply by 50% points in just three months. Since October, regional differences have flattened out with Asia Pacific, Europe and North America now expressing similar confidence levels following the further drop in barrel price.
More than three quarters (76%) of European respondents plan to increase strictness on cost control with 31% saying that cost management will be their top priority in 2015. A number of measures are expected with 49% planning tougher decisions on what CAPEX decisions are actually approved and 36% prioritising improved workforce/work processes and the same number planning to increase pressure on the supply chain to reduce costs. Approximately one third (33%) of European respondents expect to prioritise standardisation of tools and processes in order to impose stricter cost controls.
Liv Hovem, director: Europe and Africa for DNV GL – Oil & Gas, said: "Given the low profitability at current prices, it is not surprising to see a sharp fall in confidence right now and the knock-on impact of short-term measures to reduce costs.
"Experience from previous downturns has shown that it is important to also keep a focus on long-term recovery and growth to remain robust in different price environments. It is interesting to see that standardisation has been highlighted as an approach to working smarter and more cost-effectively."
Tobias Rosenbaum, regional manager: Continental Europe and North Africa for DNV GL – Oil & Gas, said: "Despite tighter budgets and tougher conditions, it is important that the industry continues to develop skilled people in Continental Europe and it is positive to see that 60% of respondents plan to maintain or increase investment in research and innovation.
"This will be needed for the long term health of the industry. And there is work in progress too: the Pan-European pipeline projects in the southern gas corridor are very long term oriented and we see them being pushed ahead independent of the current of oil & gas prices."
DNV GL’s report, ‘A Balancing Act: The outlook for the oil and gas industry in 2015’, provides a timely assessment of industry confidence and priorities for the year ahead and is based on a global survey of more than 360 senior industry professionals and executives carried out the week of 19 January 2015.
The report also includes 18 in-depth interviews with a range of experts, business leaders and analysts. The research has been compared with a previous survey carried out from October to November 2014 to monitor shifting sentiment during a period of falling barrel price, as well as DNV GL’s 2014 industry outlook report.
Key findings include:
- The biggest barriers to growth for European respondents are the low oil prices (68%), the weak global economy (36%), uneconomic gas prices (21%) and tougher competition from international rivals (19%)
- Only 14% of European respondents cite skills shortages or an ageing workforce as a barrier to growth in 2015. Globally skills shortages were the biggest barrier to growth in 2014 (49%) and also 2013 (55%)
- More than a third (34%) in Europe plan to reduce exposure to riskier/costlier projects, an increase of 15% compared to three months ago
- 11% in Europe still plan to increase spending on R&D / innovation
- Among respondents globally, the US is the most favourable investment destination (28%), followed by China (11%) and Norway (9%)
For more information, please contact DNV GL.