Latest report reveals confidence in oil sector

The vast majority (89%) of senior oil and gas professionals in Asia Pacific are confident about the industry outlook for 2014, but are showing cautionary due to rising operational costs and uncertainty over oil prices, according to new research published on Monday.

Despite the confidence, less than a quarter (22%) of Asia Pacific operators believe they are on track to hit their targets this year, said the report published by DNV GL, the leading technical advisor to the oil and gas industry.

As a result, operators are having to keep a tighter rein on capital expenditure, with operators under growing pressure to extend the life of existing assets and increase the return on these investments.

The research, entitled Challenging Climates: The outlook for the oil and gas industry in 2014, provides a snapshot of industry sentiment for the year ahead. It is based on a survey of more than 430 oil and gas professionals, and in-depth interviews with more than 20 industry executives.

Key findings among Asia Pacific respondents include:

• 41% believe that increased overall operating costs will be the biggest barrier to growth for their business

• Australia (6%), Malaysia (6%) and China (5%) all feature within the top five destinations outlined by respondents, after the USA (22%) and Brazil (9%).

• 89% are confident about the overall outlook for the oil and gas industry during 2014

• Less than a quarter (22%) are highly confident about hitting profit targets

• 70% plan to increase pressure on suppliers to curb costs

Richard Bailey, Divisional Director in Asia Pacific for DNV GL, says: "The Asia Pacific region is home to some of the world's most capital-intensive projects; many of which are facing major cost inflation as operators come under pressure to bring them on stream on time.

"Our research shows that these spiraling costs, coupled with a growing shortage of skilled oil and gas professionals, are causing industry leaders to re-evaluate their capital spending plans and take a narrower strategic focus in the year ahead to keep a tighter rein on capital expenditure.

"This comes during a period when we are starting to see signs of greater consolidation across the oil and gas supply chain. The pressure will be on suppliers to innovate to reduce costs and show value through providing access to scarce, in-demand skills and by demonstrating real quality in the products and services they deliver," he continued.

The report also said that in response to rising costs operators will seek to rely on bigger supply chain partners that are more capable of providing a consistent global service. About one in five (22%) respondents said that their company would increase their partnership with larger partners, compared with only 6% two years ago. DNV GL's research also affirms that operators will focus on controlling risk and cost by seek greater standardization in their procurement approaches. This gives rise to greater interest in operators centralizing, standardizing and streamlining their supply chain, to avoid costs in creating new solutions.

Skills shortages are cited as the second biggest barrier to growth by 40% of respondents in Asia Pacific and a quarter expects to struggle to find sufficient qualified external partners to achieve their objectives during 2014.

Despite these challenges, the Asia Pacific region is still considered to offer some of the most favourable overall conditions for investment during 2014. Australia (6%), Malaysia (6%) and China (5%) feature within the top five destinations, after the USA (22%) and Brazil (9%).