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Reasons for optimism as European oil and gas sector adapts to new reality, says DNV GL

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A new reality - The outlook for the oil and gas industry 2016
Continental Europe puts long-term focus on R&D and innovation.
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Liv Hovem, Senior Vice President and Director of Division - Europe and Africa, DNV GL - Oil & Gas
Liv Hovem, regional manager, Continental Europe, North and East Africa for DNV GL – Oil & Gas
Elisabeth Tørstad, CEO,  DNV GL - Oil & Gas
Elisabeth Tørstad, CEO of DNV GL – Oil & Gas

Although the majority of senior oil and gas professionals in Europe (68%) are preparing for a sustained period of low oil prices, there are reasons for optimism according to a new report published today by DNV GL, the leading technical advisor to the oil and gas industry. Despite ongoing concerns over job losses, a new more meaningful stage of cost management is expected, prioritizing efficiency, cutting complexity and driving innovation.

According to A New Reality: the outlook for the oil and gas industry in 2016, a DNV GL report based on a global survey of 921 senior professionals in the sector1, cost management is the top priority for 41% of Continental European respondents in 2016. The highest-prioritized measure to impose stricter cost controls is to optimize the efficiency of production from existing assets (31% in C. Europe, compared to 25% of respondents globally). Reducing exposure to riskier/costlier projects is favoured by 29% in C. Europe (compared to 25% globally) and 27% will initiate simpler processes and designs (versus 20% globally).

Continental Europe has less of a focus on reducing headcount to manage costs in 2016 compared to the global average (22% vs 31% globally) and pressure on the supply chain is also easing, down from 31% in 2015 to 27%.

Liv Hovem, regional manager, Continental Europe, North and East Africa for DNV GL – Oil & Gas, says: “While the oil and gas sector in Europe still needs to be prepared for more short-term cost-cutting measures and job losses, there is cause for optimism. Companies are driving initiatives to reengineer projects to create more efficiency and generate longer-term value.

"The industry needs to accelerate these more meaningful cost-management measures that will enable it to adjust to the new reality and put it on a sustainable growth path for the long term. That means cutting complexity, increasing collaboration and driving standardization.”

There are positive signs that the industry is adopting longer-term thinking on cost management: six in ten respondents say that their organization will seek to achieve greater standardization of tools and processes during 2016. Standardization measures in Continental Europe will have a high focus on processes, process design and operational procedures in 2016.

Further, more than half of respondents (55%) say their organization is taking a long-term approach to innovation and R&D, compared to a global average of 49%. The R&D focus will be on LNG/gas production for 43% of respondents (compared to 17% globally) and subsea/deepwater operations (18%, compared to 20% globally).

The most common strategy for maintaining innovation with shrinking budgets is to increase collaboration with other industry players (47%). Nearly one in three (28%) plans greater involvement in joint industry projects in the year ahead.

Elisabeth Tørstad, CEO of DNV GL – Oil & Gas, adds: “Innovation isn’t just about finding the breakthrough technologies – although that’s important too - it’s also about making things simpler and more efficient and ultimately helping the industry to safely cut costs. At DNV GL, we are continuing to invest 5% of our revenue in R&D as we see this as a key enabler for sustainable long-term competitiveness.”

Other key findings include:

  • Respondents in Continental Europe expect subsea technologies (32%), enhanced oil recovery and floating liquefied natural gas (FLNG) – both 29% - to be the most important technologies in 2016, in line with global respondents.
  • 62% of respondents in Continental Europe believe there will be increased consolidation within the oil and gas sector in 2016, compared to 72% globally.

1. A New Reality: the outlook for the oil and gas industry in 2016 is an industry benchmark study from DNV GL, the leading technical advisor to the industry. Now in its sixth year, the programme builds on the findings of five prior annual outlook reports, first launched in early 2011. During October and November 2015, we surveyed 921 senior professionals and executives across the global oil and gas industry. More than a third (35%) of respondents work for oil and gas operators, while 60% are employed by suppliers and service companies across the industry. The remaining respondents come from regulators and trade associations. The companies surveyed vary in size: 40% had annual revenue of USD 500m or less, while 14% had annual revenue in excess of USD 10bn. Respondents were drawn from publicly-listed companies and privately-held firms. They also represent a range of functions within the industry, from board-level executives to senior engineers.