My 2018 New Year editorial suggested that the E&P industry was moving out of the slump produced by the dramatic 2014 drop in the oil price and that better things were ahead. To a certain extent I have been proved right. According to analysts Rystad Energy, 2018 was the best year for discoveries since 2015, with over 9 Bboe found altogether, 82% of it offshore. Exploration spending, which has dropped by more than 60% since 2014, finally stabilised in 2018. This, allied to an improved success rate, primarily due to smarter technology, has resulted in an lower discovery cost per barrel of oil equivalent, while reserves replacement has also shown improvement, rising from 11% in 2017 to 15% in 2018.
The general atmosphere when talking to colleagues in the industry at the many conferences, exhibitions and seminars I attend has also turned relatively optimistic; in fact PETEX, the biennial meeting of the Petroleum Society of Great Britain, held in November, even had the title ‘A Renewed Optimism’. However, as the oil price started once again to nose dive, with Brent crude dropping from nearly US$85 in early September to just above US$50 in late December – a value last seen in the middle of 2017 – one has to ask if this optimism is justified.
I think that a cautiously optimistic outlook is reasonable; reserves need to be replaced, so we need to get exploring again. According to Tom Ellacott, senior vice president at Wood Mackenzie, E&P company’s portfolios and plans for 2019 are set to weather price volatility, with a strong commitment to capital discipline. After several years of frantically streamlining their portfolios and reducing their workforces, exploration companies seem to have an appetite for exploring once more, albeit with careful constraints on costs and working with a break-even oil price scenario of around $50 a barrel.
As evidence of this, recruitment has started to increase. Deidre O’Donnell, MD of specialist E&P recruiter Working Smart, reports that they are experiencing an increase in the number of new hires and consultancy roles globally. “It appears that there is a greater optimism and clients are now seriously considering increasing resources again. The demand over the last 12 months has been predominately in the digital transformation space, mainly for consultants on rolling contracts, but in recent months we have experienced a steady increase in commercial and geotechnical permanent roles and I believe that this will continue throughout 2019,” she says.