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Should Covid-19 mean -19% on your business?

Is future darker than Oil?

Medias have largely covered the last weeks Ups and Downs of the Oil & Gas and Petrochemical industry. Well, mostly the Downs in fact.

Among them, some have been quite prompt into voicing up the decline of the industry by bringing out, once again, the ghost of Peak Oil, going of course against the flow of all scientific studies on the subject. 

To figure out the reality, we crunched the numbers from our database listing the 1000 most active projects of the Oil & Gas and Petrochemical industry.

In fact, the outlook of the Petroleum industry is rather different than what has been massively reported.

The outlook of the Petroleum industry is rather different than what has been massively reported.

First of all it is crucial to reposition the problematic.

The Oil & Gas and Petrochemical industry is made of two types of businesses: projects on one side and service on the other.

While it’s correct that the service branch, especially in exploration, will most likely lose more than 20% of revenue in 2020 due to the Covid-19, the story is unalike for projects upstream, midstream, and downstream.

Let’s talk actual Numbers

Comparing the number of new projects above $100 million capital expenditure each, input in on the 5 first months of 2020 with the same period from previous years :

98 projects in 2017
107 projects in 2018
117 projects in 2019
106 projects in 2020

The figure of 2020 stands in the same magnitude as previous years  if we consider the impact of the quarantine and the delays in decision making, imputable to organizational problematics in times of lockdown.

Why some companies have announced losses of 20% on projects?

Since this figure, announced by some actors of the Oil & Gas and Petrochemical industry, does not match with the numbers coming from our projects database, we dig deeper into the data

The detail of the 106 projects entered in Project Smart Explorer since January 1st, shows a clear split between the type of operators:

  • 10 projects belong to  International Oil Companies (IOC)
  • 72 projects belong to National Oil Companies (NOC)
  • 24 projects belong to Independents (Independents)

As explained in our previous posts (link here), while IOCs have been quick cutting expenditures, NOCs have kept their level of investment.

Meaning for companies depending on IOCs projects, sky has darkened as this 20% matches with the drastic cuts of capital expenditure announced by the Majors ranging between 20% and 40% in 2020 and beyond.

For others chasing projects from NOCs and Independents, they may be facing delays or renegotiation, but the projects remain active.

So now what?

If losing 20% of the revenues is not a source of excitement, it may be time to rethink your projects pursuit strategy and turn to NOCs and Independents projects.

The amount of Oil & Gas and Petrochemical investments are already dominated by NOCs and Independents, the Covid-19 will enhance this market redistribution, mostly with smaller projects to be executed on fast-track.

Looking at the split per type of operator of the 347 projects from still to be awarded in 2020:

Projects to be awarded in 2020 split per type of operator

The chart shows how IOCs now represent only 11% of 2020 market, when at the opposite NOCs should grown to 67% and Independents to 22%.

In other words, there is no escape for any actors of the Oil & Gas and Petrochemical industry to pass on projects from NOCs.

Yet, the projects from NOCs and Independents have much less visibility and run quicker into execution, meaning that these opportunities are harder to trace and give less time to interact.

This is the reason why we developed new functions for more agility in, to guide you through the market trends and alert you as soon as opportunities popup.

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