“Improvise, Adapt & Overcome”

Quoting Clint Eastwood in “Heartbreak Ridge”, this is the unofficial slogan of the US Marines. It could be a good slogan to adopt in the Oil and Gas industry – or perhaps we can take it one-step further by saying if we adapted, changed and innovated in 2017, in the right market conditions, we can grow in 2018.

Compared with recent years, 2017 was been much more stable for the Oil and Gas industry. The oil price alone indicates relative steadiness where we have seen an 8% increase from 1 January 2017 to $61.54 (at the time of writing). This compares to a 52% increase in the 2016 calendar year, a 34% decrease in 2015 and a 47% decrease in 2014.

There are of course very many diverse geopolitical factors affecting the oil price, however from our position as professional advisors in the Oil and Gas industry, there are two conclusions that AAB can make that may point the way to growth opportunities in 2018.

1. Whilst painful for most of us, oil price volatility since the start of the recent downturn in 2014 has driven much needed adaptation, change and innovation
2. A return to more of an economically viable oil price in the $60 range – that crucially in 2017 has been relatively stable compared to recent years, may create a more confident and rewarding business environment in 2018.

The E&P sector has arguably led the change agenda since the start of the downturn in 2014. In 2017, we have saw a return to investor confidence and much more closely aligned buyer and seller expectations. The list of organisations executing or announcing deals and transactions in 2017 was impressive and a closer look reveals much greater interest and confidence in this sector from the Private Equity market. With further Oil and Gas opportunities being actively pursued and renewed long-term confidence in the North Sea basin, AAB predicts this growth trend to continue in 2018.

The Oil Services sector, subject to the same market conditions as E&P, but with differing business models, also saw increased deal and transaction activity, particularly in the second half of 2017.  AAB expects this momentum to carry through to 2018.

Notably, in 2017, the agenda for adaptation, change and innovation in the Oil Services sector led to an emerging trend in niche companies involved in big data and analytics. This current trend of automation and data exchange, known as “Industry 4.0”, coupled with existing business streams is paving the way to significant value adding services and a drive to achieve greater efficiencies through innovation. AAB predicts this theme to prevail and dominate 2018 in Oil Services.

In both the E&P and Oil Services sectors, as we put 2017 and much of the pain which led from 2014 behind us, we can look forward to growth and development opportunities in 2018. At whatever stage companies are at through adapting, changing, innovating or growing, it is vital that professional advice is sought from experienced advisors as early as possible.

If you require further information on the Oil and Gas industry, please contact Alasdair Green, Partner & Head of Energy or contact us here.