For those who follow the oil and gas industry, it’s been a pretty tough time. With the oil price dipping as low as $27 a barrel in January and much uncertainty around the future, it’s hardly surprising that many significant players have been cutting back on capital expenditure and announcing steep declines in profit.
Despite that, for some in the industry this point in the cycle is recognised as an opportunity; a time when fortunes are won and lost. The current downturn will result in some failures, but it will also be the time when those with a long-term outlook and pioneering spirit take the steps that position them for future success. Most believe the current low oil price environment will not last forever. Bob Dudley perhaps summed up that sentiment best in BP’s latest results: “lower for longer, but not lower forever.”
Well and good for the majors, some may say, but what of the supply chain worth around $144bn globally that supports them?
Again, despite the pressure on industry, a recent survey we commissioned struck a fairly upbeat tone. 86 per cent of the 200 senior executives we spoke to in the sector said they expected more M&A in 2016 – 30 per cent said it would be significantly more. Partly that will be driven by distress and consolidation, but actually the drivers identified as most important were international expansion (74 per cent) and the desire to acquire technology which will reduce the cost of getting oil out of the ground (70 per cent).
The top five emerging markets being targeted are Singapore, China, Mexico, Nigeria, and Indonesia. These are seen as potentially more lucrative markets where cutting edge technology will be a highly-prized asset in oil recovery.
Closer to home, no less than 96 per cent expect the UK Continental Shelf to recover to peak levels of profitability. Two thirds anticipate opportunity for inbound investors into the UK. Many operators are now grateful for the steady flow of revenues derived from keeping existing infrastructure operational in the North Sea, and eyeing future opportunities around life of field extension and ultimately decommissioning. The UKCS is far from a busted flush.
All of this is encouraging for dealmakers in the sector, however as lawyers we too have our part to play in the industry’s renaissance.
At a basic level, we need to help address some of the concerns expressed around regulatory uncertainty. Delayed or denied regulatory clearances were cited as the greatest barrier to doing deals. However, a bit like crime rates, the perception of risk is out of kilter with the actual prospect of it happening to you.
At a wider level, the watchwords in the industry right now are innovation, collaboration and efficiency. Those themes should apply as much to professional advisers as they do to any part of the industry – especially if we want to be seen as more than just a necessary overhead.
Continuing to do deals in the same way they have always been done is selling the oil and gas industry short. As a profession we too need to recognise the role that greater use of technology and better project management can have in getting deals done. The industry will tolerate nothing less.
Rosalie Chadwick, partner and energy specialist, Pinsent Masons
