Report: Slow, Steady Recovery More Likely Than Rapid Rebound

A slow, steady recovery in oil prices is more likely than a rapid rebound, according to a global oil and gas industry survey from international law firm Ashurst.

The report showed that the majority of companies surveyed expect Brent to hit between $55 and $59 in the next 12 months, with 15 percent anticipating highs of $54 and 15 percent anticipating highs of $60 in 2016.

In addition to a gradual price increase, eighty-three percent of firms expect a “substantial” increase in merger and acquisition activity in the next three to five years, including an average expected increase of 50 percent by volume this year compared with 2015.

"It was interesting to discover through our research that the vast majority of the industry is not expecting a fast recovery in commodity prices, meaning companies need to continue to find ways to effectively manage their balance sheets and risk profiles, while funding growth projects and increasing the profitability of their businesses," said Peter Vaughan, Asia Pacific head of oil and gas at Ashurst, in a company statement.

“In our experience, this will require strong relationships with stakeholder groups, the use of creative financing sources given traditional lending has become more difficult to secure, and ensuring business partners are closely aligned to unlock value and avoid impasses,” he added.

"The attitude of oil and gas companies can be summed up as defiant in the face of adversity during the last 18 months. As they shift from survival to growth, the key challenge for companies now is to operate sustainably in a low price environment,” said Ashurst's EMEA & US head of oil and gas, Philip Thomson, in an Ashurst release.

Ashurst’s report also showed that capital investment was frozen or cut by 87 percent of the companies in their most recent strategic plans, with only 13 percent planning to increase capital spending. Asia Pacific was also labeled as the hottest destination for new investment, with 31 percent of companies expecting to pursue their next investment in the region, followed by Africa (22 percent), Europe (19 percent) and the Americas (15 percent).

Preparing For A Recovery

Ashurst revealed four steps that every company can take in order to prepare itself for an impending recovery. These comprise:

·        Maintaining good relationships with all stakeholders.

·        Gaining funding through alternative sources such as asset sales, lease-backs and vendor financings. 

·        Selecting the right aligned business partners, including joint venturers and government.

·        Optimising assets and footprint to enhance efficiency.

"Companies must act with discipline and focus in this environment to emerge match fit for the inevitable recovery,” said Vaughan.


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