Dubai, UAE 14 January 2015 – Regional commitment to spending on oil and gas projects is unlikely to change, even in light of the significant drop in oil prices over the last few months, according to PwC’s latest industry snapshot “ Black gold: The road ahead”.
In 2014 PwC published ‘Building beyond ambition’, a capital projects and infrastructure survey of project owners, developers, contractors, advisors and financiers, on their view of the market. In Black gold: The road ahead PwC analysed the views of respondents involved in the Oil and Gas (O&G) industry.
Spending
The findings show that 60% of O&G industry respondents reported that their organisations spent more than $1bn last year, with more than a fifth saying that spending overtook $5bn. The report also suggests that this could increase, with over three quarters of respondents expecting spending to rise over the next 12 months and 40% expecting spending to increase by more than 25%. Since this survey was conducted, the oil price has dropped significantly, but PwC does not believe this will dent the spending plans of projects planned or underway in the region. This is because of the fundamental importance of the sector to the region’s Governments in helping to deliver revenue and employment.
“Irrespective of the recent decline in oil prices, there is cause for optimism in the regional oil and gas industry. However, it also brings to sharp focus some issues that need to be addressed as a matter of urgency if the sector wants to deliver on its ambitions,” said Paul Navratil, PwC’s Leader of Energy, Utilities and Mining in the Middle East, adding “If oil prices remain as they are, or drop further, then the need for efficiency of capital will be even more important.”
Ineffective deployment of capital
Although the sector continues to invest, challenges remain. Oil and gas projects suffer from the same concerns that plague other sectors - mainly project delays and cost over runs. In the survey, 92% of oil and gas respondents said their projects are not delivered on time, with almost two fifths of these delayed by more than six months. Cost is also an issue - 70% of respondents said their projects are also delivered over budget, with 9% of people saying projects eventually cost more than 50% of their original estimates.
“A lack of planning, coordination and integration across the entire project leads to delays, claims and an inability to deploy capital effectively,”said Stephen Anderson, PwC’s Leader of Capital Projects and Infrastructure in the Middle East, adding “It’s not necessarily about what you do, it’s the way that you do it. Addressing delays and budgets will require systematic shifts in the way the industry operates; in many cases budgets are set in a vacuum away from the operational side which eventually impacts the ability of implementation.”
People and talent
A shortage of skilled workers is also becoming a challenge, with almost half of the respondents (46%) listing it as their top external challenge. A staggering 70% of respondents view competition with other countries as the largest threat to attracting and retaining talent. Despite the oil price falling, which may mean more people on the market (due to a number of firms and contractors reducing their staff) PwC believes that the volume (and core capabilities) of people on the market will still not be on the scale required or what is needed by the GCC market. In order to overcome this issue more attention will need to be placed on a broader suite of benefits to attract and retain talented people, according to PwC. Over half of respondents said compensation and benefits were the most important things to attract talent, however, 30% said career progression was important.
“This to us marks a shift,” says Stephen Anderson, “where compensation alone is not enough to
attract the right people. As the region develops and becomes a more attractive place for expatriate workers to live and raise their families, efforts have to be made to create opportunities that offer career progression and longer-term prospects.”
Funding
Ultimately, regional Oil & Gas projects are unlikely to face funding issues as they are critical to national ambitions and domestic growth agendas. Perhaps for these very same reasons, 42% of respondents do not expect funding issues to constrain spending plans- a stark contrast to other sectors, with only a 31% confidence rate.
