PublicInvest Research believe there is ‘silver lining’ to lower oil price landscape

KUCHING: Following the recent Offshore Technology Conference (OTC) Asia last week, the research arm of Public Investment Bank Bhd (PublicInvest Research) observes that most believe that there is a “silver lining” to the lower oil price landscape, on the basis of falling input costs.

PublicInvest Research attended OTC Asia last week, with positive and innovative updates on the industry from global experts in the best of their respective oil and gas (O&G) areas.

“Most believe that there is a ‘ silver lining’ to the lower oil price landscape, on the basis of falling input costs,” the research arm said.

“This is most beneficial, having all suppliers and contractors closely discuss and manage costs amidst these markets where there are still economically viable projects through prudent and innovative technologies.”

According to PublicInvest Research, it is not enough to be protected by contract terms anymore today, but via conduct; in terms of cost savings, standardisation of terms, country’s regulators to ensure that its ecosystem consists of both small and large operators therefore the need to consolidate to ensure focus on the specific activities.

The research arm noted that energy researchers Wood Mackenzie believes the window of oil rebalancing is coming, and by the second half of 2017 (2H17) should see significant inventory drawdown.

It further noted that US and the Organization of the Petroleum Exporting Countries (OPEC) production are anticipated to fall by 500,000 barrels (bbls) per day and 700,000 bbls per day respectively, while an additional 400,000 bbls per day will be added on by Iran and Iraq which will more than compensate for the decline in demand.

“Brent oil price levels are predicted as follows: 2016 – US$44 per bbl, 2017 – US$50 per bbl and end 2017 – US$60 per bbl,” it said.

Meanwhile, PublicInvest Research highlighted that standardisation is still regarded as the bespoke solution for every development or well.

The research arm underlined that the advantage of standardisation is still very apparent and can ensure reduced costs, adding that this also applies to supply chains.

“The current supply chain is very fragmented, thus too many players who are dictating,” it said. “A streamlined process would allow for easier implementation.”

On cost optimisation, PublicInvest Research noted that Coral 2.0, Petroliam Nasional Bhd’s (Petronas) upstream Malaysia-wide cost reduction alliance has been successfully implemented with reflective costs savings of RM2.4 billion in 2015.

It further noted that for 2016, 11 initiatives will be exercised, which is expected to translate to an estimated savings of RM1.9 billion.

PublicInvest Research said that despite the lower oil price scenario which has seen to affect most O&G players whether on an operational, balance sheet or cost management level, major consolidations have still not occurred with 3,600 players producing 1.6 thousand barrels of oil (mbbls) per day compared with Norway where 800 players are producing two mbbls per day.