May 06, 2019

Expect confidence to be high at OTC in Houston

Posted by Andrew Bradshaw
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The conference and exhibition season for the oil and gas industry gets underway in earnest at the beginning of May with the Offshore Technology Conference, known as OTC, held in Houston.

Thousands of visitors and delegates from all over the world, Including a strong contingent from the North of Scotland, will flock to Texas for the annual four-day gathering to see and discuss the latest technologies and practices that the industry has to offer. 

This will be my 14th visit to Houston for the event and I never fail to be excited by the OTC experience. It's a great place for me and others to meet up with folk from the other side of the world that I may only see once a year, to catch up on the truly staggering technological and engineering projects that companies are involved in and to avail myself of the generous hospitality provided by my Texan colleagues.

From the doldrums of 2016 when many companies were struggling to make ends met due to the low oil price, things have picked up considerably. We appear to have achieved some stability in the oil price and around the US$70 mark for Brent crude - and while that's almost half the price of oil back in 2014, it's a workable margin for most companies to do business. That's because some harsh lessons and home truths have been learned by many companies regarding the need to adapt to market conditions by introducing innovative business models, greater standardisation and increasing collaboration in order to bring down operational costs. 

As a result, several of the planned, bigger deepwater projects that had to be shelved in recent years because they were too expensive for the oil price at the time, are becoming more economically justifiable in the present climate. 

So, I expect to see a much greater level of confidence among those attending OTC this year than at any time in the past five years, and this is linked to the significant impact of geopolitics on the industry currently. 

Production cuts by the Organisation of Petroleum Exporting Countries (OPEC) over the past 18 months have had the desired effect of limiting supply and therefore bringing a wayward market back under control. In contrast, U.S. oil policy appears to be geared towards creating greater commodity price volatility. The decision by President Donal Trump's administration to introduce export sanctions against Iran created a year-high price spike in oil when it was announced last October. The oil price levelled off again once it was revealed that short-term waivers to the sanctions would be applied to some countries. However, the recent announcement of the ending of those waivers, combined with continued sanctions against Venezuelan oil, has generated unrest with potential for a price escalation at least in the near future. 

The long-term effect of the U.S. sanctions may well be an opening up of the taps from the other OPEC members to bring more oil into the market and stabilise prices. Whatever the tactics may be, the overall impact of all this activity will be to keep oil prices within a comfortable operating range for the industry - and the OTC crowd will welcome that.

I would also expect there to be plenty of conversation about the highly visible increase in merger and acquisition (M&A) activity in the oil and gas industry. In the past few weeks we have seen news relating to the future of Anardarko Petroleum in the U.S. . In the North Sea, we saw Chrysaor buy the assets of U.S. energy company ConocoPhillips for US$2.7 billion in the biggest exploration and production deal outside of the U.S. this year. Such announcements support the suggestion that the growing confidence in the industry, especially in the North Sea (where up to 15 new exploration wells are expected to be drilled in 2019 – nearly double that of last year) and the U.S. may lead to greater M&A activity this year. 

While OTC is very much still an oil show, I will be interested to see the extent of attention given to the renewables industry at this year’s event. More and more businesses that started with an oil and gas background are looking to the offshore renewables space (particularly wind) for market diversification. I would not be surprised to see an increasing number of companies giving over stand space to showcase their renewables capabilities – offshore technology is a broad subject after all.

Celebrating its 50th anniversary this year, OTC’s theme for 2019 is ‘going the distance’. It has certainly managed to achieve that and, as it looks to the next five decades, is likely to be around for many years to come.

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