Why the Outlook for the Oil and Gas Market is Brighter than You Think

And yet, in spite of some (justifiably) dramatic headlines, I have remained confident about the long-term prospects for the oil and gas industry. In the short term, of course, things will continue to be very active in surplus asset sales (my field of expertise) as drilling projects are cancelled, but that’s not what I’m talking about.

What I’m talking about are fundamentals.

From Headlines to the Nuts and Bolts

Even though the doomsayer headlines keep coming, the oil and gas industry is not going away. What it will do, however, is change. It will definitely become more efficient, and will probably become greener, but there will always be drilling.

How do I know? Simply, we need the products of the oil and gas industry.

• A large percentage of the northern hemisphere heats their homes with natural gas or other fossil fuels. Natural gas is often the most cost-effective way of surviving the winter, especially since many countries are trying to reduce reliance on nuclear power after the Fukushima tragedy.
• Everything in agriculture, from the chemicals in pesticides and fertilizers to the fuels that run machinery and dry grain for storage, comes from oil and gas. There is no viable substitute. If we were to suddenly turn off the tap, billions would starve in a month.
• In many countries, natural gas is also used to heat the steam that powers turbines in electrical power plants.
• Transportation is still heavily dependant on fossil fuels.
• Most plastics are derived from oil.

Renewables are coming along, as are more efficient technologies for everything from industry to building design, but it will be many decades before the dependance on fossil fuels is dramatically curtailed. Demand may have fallen since COVID-19, but it will never go away.

Constant Change

The oil and gas industry has often been described as an ‘old school’ or ‘dinosaur’ industry. I think this has become less true every time there’s been a downturn.

There have been several downturns in recent years, particularly in 2016 (which really originated in 2014-2015), 2008, and of course 1998. With every crisis there has been an incredible amount of change during the recovery.

For example, five years ago, while arranging surplus asset sales with oil and gas operators, the majority of my clients were nearing retirement. Now I’m talking with more 20- and 30-somethings who have a specialty or degree in supply chain, are technically savvy, and are much more focused on efficiency.

Oil and gas companies as a whole are changing too.

Leaner and Greener

Energy companies know they need to diversify beyond fossil fuels. Many are concerned about the impact of climate change, and all want to protect themselves from market volatility. In fact, as this 2019 research paper points out, “all oil majors except ExxonMobil have developed or are developing solar and wind assets”. Another common investment is in biofuels.

Oil and gas operators are incredibly wealthy and have the means to hire the best minds we have. They know that sustainability can unlock massive financial and efficiency wins. As Deborah Dull points out on this episode of our Supply Chain Next podcast on the circular economy, “the businesses that are getting this right are saving billions of dollars.”

Operators are already finding more ways to work more efficiently and more sustainably, and are better companies for it. In the US, for example, pollution from oil and gas has dropped massively in the last 20 to 30 years.

Long term, oil and gas supply chains will become much more agile. There will be a massive opportunity as the market stabilizes, consolidations occur, and operators reorganize. (This analysis from McKinsey agrees that despite the challenges, there are some bright spots, including lowering the break-even point for shale.)

Short Term Outlook

The recent downturn has created more volume for the Requis disposition team as drilling projects are cancelled. In the next few months, we’ll definitely see more.

This adds up to an optimism about disposition and about generating the cash that operators need to aid in restructuring. In the next year, there will be more opportunities to generate new solutions as the oil and gas industry adapts, and we adapt with it.

What’s Changing in Supply Chain and Disposition

When I earned my business degree in 2001, supply chain was not available as a degree—it wasn’t even a very common term. Back then, supply chain was divided up into five or six different services, like manufacturing, logistics, operations, etc. Now companies are really looking for people who are trained experts in supply chain and who are very process driven.

In the past few years, supply chain has become about streamlining and efficiency. One way we’re seeing this trend manifest is the demand for one tool to manage the greater number of contracts in their portfolio. The Requis platform covers end-to-end supply chain—not just disposition. I’ve personally seen numerous disposition clients adopt Requis for asset management and procurement because it’s so easy to use.

The COVID-19 pandemic and its aftereffects will not change the need for efficiency. As Rob Handfield says on our Supply Chain Next podcast, “A lot of people are saying that this situation will be the death of Lean. I disagree. I see everything that’s happening as being absolutely consistent with what we need to be doing in our supply chains. A supplier in China with 16-week lead times is NOT Lean! Lean is about visibility, about information sharing, alignment, relationship building, communication, and flow.”

A Bright Outlook for Requis

Requis’ timing has been impeccable. Several of our competitors have been trending towards vastly reduced customer service and self-service platforms. But oil and gas operators are not keen to self-service, as the downturn has resulted in many having to balance multiple roles. It’s our job to take the pressure off and allow us to work our magic: relationships are very important to the people in this industry and we want to achieve success together as a partnership.

Another strength is the growth of our team in the last year. We’ve put together a best in class crew, and the industry knows it, because every single member of the team has excellent contacts. People like James Donegan, Shell’s former Global Project Manager for Surplus Materials, and Mahendran Subramaniam, who has account management experience with several oilfield service companies active in APAC, have brought incredible contact networks with them. We maintain a strong focus on providing a strong marketplace for our surplus buyers, and while many in our space have moved to digital marketing as their only source of driving activity, we have doubled-down and added Simon Lovett and Stacy Smith to our inside sales team. Combined, they have over 50 years of experience in negotiating sales and strong equipment knowledge.

Other marks in our favour include the robust pipeline from Tier 1 operators of brand-new (never used) assets available on the platform, and that fact that we treat buyers and sellers the same, unlike some companies that just focus on the sellers. Our users are growing daily, and as we get more users in more verticals, the value of our data collection will continue to grow as well.

In the year since I started, I’ve seen Requis auctions progress from bringing in a total of $200,000 USD, to bringing in $2,000,000 individual bids on some assets. From where we were, to where we are, to where we’re going to be is an incredible journey. I wouldn’t miss it for the world.

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