KUCHING: A large chunk of major players in the oil and gas (O&G) industry have accepted the new norm of low oil prices whereby exuberance is no longer tolerable and are taking multiple initiatives to optimise their cost structures.
According to Hong Leong Investment Bank Bhd (HLIB Research) this comes amidst calls for further consolidation in the industry.
“To put it into perspective, there are 3,000 O&G companies registered in Malaysia while Norway, with similar production volume, has only about 700 registered companies, pointing to ample room for companies in Malaysia to consolidate,” it detailled in a report yesterday.
To put things in perspective, Petronas has launched Coral 2.0 initiative to save costs and improve efficiencies. Schlumberger, on the other hand, has looked at further optimisation in its business involving reduction of Non Performing Time (NPT) through widening scope of work on per staff basis.
This is in line with staff cuts, margin shrinkage and lower vessel demand observed in the overall market as oilfield operators look to be leaner in their operations.
“Calls for further consolidation in the O&G industry are echoed again by Petronas. The question is whether consolidation will happen in Malaysian O&G industry in a big way,” HLIB Research put forth.
“In our opinion, it is not expected to crystallise in a large scale as majority of the local market is controlled by 100 plus players whereby the remaining companies consist of one-asset players or licensed shipbrokers, unattractive for a takeover especially in the current downturn.”
Meanwhile, the research team sees oil long-term fundamentals remaining intact. Wood Mckenzie on Thursday said oil demand and supply picture would improve in the long run despite near term hiccups due to oversupply.
“From 2015 to 2025, the estimated shortfall of oil supply needed to cater for the growth in oil demand is expected to be at nine million barrels a day and significant oil inventory drawdown is expected in 2017.
“This is broadly in line with our view that oil prices are expected to be capped in the near term due to high oil inventory and resiliency of US shale oil production. More upside could only be seen in the longer term as the demand and supply gap narrows.”