Oil and Gas Outlook: 2017
Posted January 17, 2017 in Articles
Following another year of turmoil in 2016, many experts are expecting the oil and gas industry to begin its rebound in 2017. According to Exploration and Production Magazine (“E&P”), the industry appears to be on the verge of “closing a nail-biting chapter” of layoffs, decommissioning of rigs and continued drops in the price of crude.
However, the news is not entirely positive: E&P’s favorable outlook is based largely on continuation of strategies implemented during the downturn—not a reversal of the downturn itself. As a result, while oil and gas companies that have weathered the storm may have reason to be cautiously optimistic in 2017, it appears that the long-term effects of the current oversupply may be likely to continue in the New Year.
“The Slow Path to Recovery”
A Deloitte report also indicates that the oil and gas industry has likely begun its “slow path to recovery.” The report highlights the decision of several OPEC nations to cut production moving forward in order to work toward re-establishing parity between supply and demand (though it also contemplates the realistic possibility that some countries may depart from this approach), while also noting that the true extent of the downturn’s effects remains to be seen.
In particular, the report identifies questions in two key areas:
Capital Allocation – While oil and gas companies may have gotten smarter about investing during the downturn, will their cost cuts pay off long-term? With the industry continuing to face uncertainty, are companies investing enough? Or, are they still investing too much? Will the industry be ready when it is finally time to ramp up production in order to meet demand?
Personnel – Layoffs have been an effective and necessary cost-cutting measure for oil and gas companies of all sizes. But, with the first page of a new chapter looming, are they now understaffed to meet their financial goals? Will they be able to attract the same talent that they could prior to mass job losses in the industry?
On the other hand, S&P Global Platts seems to have a more-optimistic outlook for price recovery in 2017. In an article from January 6, 2017, MarketWatch cites S&P Global Platts in forecasting that the current stock overhang will “disappear by the third quarter.” The article goes on to state that, “the oil market [will] move from over-supply to a more balanced supply\demand situation,” before the end of the year.
Strategic Decision-Making in 2017
So, what moves do oil and gas companies need to make in 2017? Continuing to make smart investment decisions seems to be one obvious answer, although that is of course easier said than done. Continuing to monitor the activity of the OPEC countries will be important as well, and oil and gas-producing companies will need to be ready to energize their operations quickly when supply finally hits equilibrium with demand.
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With offices in Miami, Florida, Mithras Investments provides energy investment consulting services to oil and gas companies worldwide. If your company needs insightful, data-driven advice for making smart decisions in the changing economic climate, call us at (305) 517-7911 or request an initial consultation online today.