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Johannesburg – The price of oil is expected to impact the sustainability of the oil and gas industry, according to the PwC Africa oil and gas review for 2016.
The report analysed the oil and gas industry in the past 12 months. It indicated that the impact of renewable and alternative energy sources, new competitors, environmental consequences of the industry, and legislation are among the factors influencing the sustainability of the industry.
“The trouble with sustainability for the industry going forward, is that certain players are cheaper than others” said Chris Bredenhann, PwC Africa Oil and Gas Advisory Leader. In response, companies have increased production to ensure that cash flow is constant. However this has a knock-on effect of oversupply.
Read: Brent slides under $50 as supply glut woes resurface
Data by Rystand Energy indicates breakeven points for oil producing countries. For Nigeria, breakeven is at $80 per barrel. If the price of oil, which is currently expected to reach $52 by the end of 2016, does not climb then it poses a problem for companies to keep operating at a loss, explained Bredenhann. Companies may have to focus on cost cutting or improving operational efficiencies.
Stakeholders should consider making changes to their business models in order to survive, said Bredenhann. “We need to see new business models, new products, new energy sources and new strategies to meet the new reality.”
Oil and gas companies are investing in various areas to boost growth in the next three to five years. These include improved efficiencies, followed by local content and skills development and infrastructure improvements, among other things, the report revealed.
Basic and technological infrastructure is essential for the oil and gas industry to thrive. Of the companies surveyed, 20% believe that inadequate basic infrastructure will have a significant impact on their business over the next three years. Only 20% of respondents expect technology to have a significant impact on their business over the next three years.
However, although oil and gas companies embrace technology in their production space, CEOs surveyed indicated that they do not “adapt well” to new technology and change. “They adapt well from a production standpoint, but not in a business model space. They are not embracing digital to the point they should be,” said Derek Boulware, senior manager, Africa oil and gas advisory. Only 3.43% of respondents rated technology infrastructure as a top strategic focus area for the next three years.
More companies need to reinvent themselves, by responding to their changing environments, explained Boulware. Part of that involves responding to digital transformation.
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