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A brave new world beckons

20th November 2016

As oil prices appear to be stabilising and supply and demand move towards equilibrium, there’s growing confidence in the sector that the worse is perhaps over

According to PwC the oil market is improving
According to PwC the oil market is improving

PwC’s latest report, ‘A Sea Change: Emerging from a downturn’, considers the outlook for the global oilfield service sector (OFS) and how the sector can move from crisis to success in a new world.

“As oilfield service companies emerge from the turmoil, they will be operating in a landscape that has changed fundamentally in the past two years,” Adrian del Maestro, oil & gas director of research at PwC, said. “In this new world we see an oil and gas sector focused relentlessly on cost reduction, with business models having to be resilient at lower oil prices. If we are poised for a recovery it is likely to be uneven.

“Exploration activity is reduced, the US tight oil sector has proved resilient, and the lifting of sanctions has allowed Iran to return to the world stage. In this brave new world, oilfield service companies will need to focus on several core themes to survive and succeed as the upturn takes effect.”

The report also highlights six key points that OFS companies will need to concentrate on over the coming months, from the double down on innovation and reducing the complexity of operations, to exploring partnerships and big data analytics. PwC experts also say that, while we are unlikely to see prices of USD100/barrel returning in the near to medium term at least, a more robust price in the USD60-70/barrell should be realised in the next few years.

“The OFS sector has been particularly badly hit over the last couple of years by depressed prices and lower activity levels, further exacerbated by some key skills leaving the oil & gas sector for other industries,” Kevin Reynard, office senior partner at PwC’s Oil & Gas Centre of Excellence in Aberdeen, said. “However, the global nature of many services businesses should position them well for any upturn, driven by activity in frontier basins, provided they make best use of their skillsets. And already many are starting to reap the benefits of rebasing how they deliver their services and working closely with the operator community to meet their needs.

“By developing innovative working practices, there is more, still, that can be achieved. There is no doubt that exchequer revenues have been significantly impacted by this prolonged downturn. However, the focus now needs to be on efficient and profitable growth to adapt to the new commodity price reality.

“With the right measures and actions in place, the OFS sector can survive, and indeed grow, in this rapidly evolving market. From a UKCS perspective, a successful OFS sector is the key to unlocking future success in a maturing basin.”

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