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Oil, gas executives sound 'gun-shy' in gloomy Deloitte survey


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Oil, gas executives sound 'gun-shy' in gloomy Deloitte survey

Oil and gas executives have largely abandoned the confidence they showed in 2016 with a renewed sense of caution centering on oil and gas prices, Deloitte said in a survey report released Oct. 11.

The survey, which included summer interviews with 250 oil and gas professionals, showed the severity of the swing from 2016, when prices bottomed out and had started rebounding, to the current year, with oil prices hovering between $40 per barrel and $50/bbl. The upstream "confidence score," which reflects expectations for capital spending, swung from positive 20 in the 2016 Oil and Gas Industry Executive Survey ? executives expecting increases outnumbered those expecting decreases by 20 percentage points ? to negative 33 in the new report.

Half of upstream oil and gas executives said they expect a 10% decrease in capital expenditures in 2018 compared to 2016, with 40% expecting exploration expenditures to decrease. That pessimism extended to oil and gas prices, with executives expecting West Texas Intermediate crude prices to remain between $40/bbl and $50/bbl for the rest of the year and rising only to a range of $50/bbl to $60/bbl in 2018. Gas prices were expected to be even more stable, staying between $2.50/MMBtu and $3/MMBtu in 2017 and increasing very little in 2018.

Deloitte Vice Chairman and U.S. Energy & Resources Leader John England told S&P Global Market Intelligence that the downbeat nature of the survey was unexpected. "To be honest, sometimes you start these surveys and think you know where they're headed. This time, I think we were surprised how pessimistic and cautious the industry has become," he said. "This downturn, if that's still the right term for it, has been here a long time. We're in our fourth calendar year, and that gets into people's heads."

England said the term "gun-shy" would be an accurate assessment of industry executives. Fear of making major capital expenditures in a less-than-enticing price environment, he said, is making U.S. shale plays even more attractive.

"They're focusing their capital on U.S. unconventionals that are more capital-flexible, that you can get in and out faster," England explained. "If they get signals that prices aren't moving the right way, they can get out quickly. They want to be more nimble with capital, but we'll see more volatility in capital expenditures."

The expectation that gas prices will remain steady and relatively low, however, was not much of a surprise.

"People have come to believe that our gas reserves are so large and that the cost of production keeps going down, it's hard to make a case for us having a significant increase in gas prices," England said. "The low prices are increasing demand, it's increasing natural gas as part of the fuel mix in our country and the world as a whole. It's reducing our emissions, but at the same time, it's hard to get optimistic about where gas prices will go."

In the 2016 survey, executives expected oil prices to be heading back toward $70/bbl by now. England said the new study shows that optimism has been stifled and $50/bbl is being considered by many to be "the new normal."

"I've said that it'll be a slow road back, and it's been a slow and a long road back," he said. "Companies are beginning to think they've got to expect $60 oil moving forward and get comfortable with that. They have to manage expectations and make things work at a lower price level."