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With the benefit of firmer prices and lower cost structures, 2018 is expected to be a better year for the oil and gas industry. Peter Parry, global practice leader of Bain's Oil & Gas practice, outlines the five areas where capital spending could accelerate in the oil and gas industry, and what companies can do to succeed.
Read the Bain Brief: Accelerating Capital—2018 Oil & Gas Industry Planning Outlook
Read the transcript below.
PETER PARRY: Over the last couple of years, the oil and gas industry has decelerated the amount of capital being spent across the industry. It struggled in 2015 and 2016, reducing that level by over 40%.
As we entered 2017, some would characterize that as "tapping the brakes." We've been on and off with our expenditure. We've been testing what's affordable. However, with the benefit of somewhat firmer oil prices and a lower cost structure, 2018 looks to be a year in which many would expect to see us accelerate.
Where are those investment pockets going to be? Where's that capital going to get deployed? There are four or five areas which look to be at the top of the list. The deepwater's coming back. The deepwater and the offshore sectors have seen a significant adjustment in their cost potential. So we would expect to see quite a bit of interest and excitement around midsized developments in those areas. Natural gas—people are pushing their portfolios to be more gassy. In the areas like heavy oil and the oil sands, those also are interesting and will command more capital as we go forward.
Some of the questions about the downstream will be where to place capital. Towards the customer—that seems to be the direction of travel we'd expect to see investment increasing in areas where markets are going to be opened up in customer relations and small pieces of infrastructure that unblock bottlenecks.
The unconventional sector is on everybody's mind as well. But that's probably, "Let's see how we go." That works more quarter to quarter. A somewhat more cautious approach will be adopted there. But overall, a 15% to 20% increase in the total amount of capital deployed in 2018 wouldn't be a surprise.
Opportunities look good for first movers. They'll be able to take advantage of lower costs and lower rates in the supply chain. They'll be able to move quickly forward.
However, we know this industry is one that heats up very fast. Once activity starts to move, cost structures can rise, time schedules come under pressure and see slippage.
So what's going to be important then for a good journey in 2018? Well, planners will need to know the route they're going to take. They're going to need to set off early. They're going to start to press the accelerator, but gently, hopefully getting a smooth ride and delivering on expectations.
Read the Bain Brief: Accelerating Capital—2018 Oil & Gas Industry Planning Outlook