Though the overall outlook for the oil and gas industry doesn’t seem to be quite as dire as it was a year ago, 2017 is likely to be a year of “3 R’s” for industry players — a year of more restructurings, more realignment via mergers and acquisitions, and, for some players that take the right actions, finally a year of rebuilding. That’s according to a new study released today by AlixPartners, the global business-advisory firm.
The study begins by noting that in its recent severe downturn the industry suffered staggering wounds — including 134 corporate bankruptcies, more than 350,000 job losses, annual reductions in capital spending (CAPEX) of more than $100 billion since 2014 and cuts in operating costs (OPEX) of more than $15 billion a year.
Given those body blows, and despite recent announcements by OPEC that many see as helping drive crude-oil prices back above $50 per barrel of late, the study asserts that the core of the industry still faces a $43 billion cash-flow gap, the equivalent of oil prices rising, and staying at, $80 per barrel — or of an additional 40% cut in CAPEX vs. year-end 2016 levels.
Even as parts of the exploration and production (E&P) sector start to recover, the study also warns of a sharp “snap-back” in equipment and services costs for upstream companies, as well as a special competitive challenge for players in that sector that have not yet restructured themselves. It also forecasts continued restructuring and realignment for the already-beleaguered oilfield services and equipment (OFSE) sector, and greater stress, for the first time in this cycle, for the downstream sector (refiners), due mostly to high debt loads taken on in recent years and shrinking crack spreads (the differential between the price of crude and the petroleum products extracted, or “cracked,” from it).