HOUSTON—The U.S. oil market is on an upswing compared to global markets. That and new types of investment decisions, cost-cutting measures and operational modifications are creating a “new normal” for operators, according to R.T. Dukes, research director at Wood Mackenzie.

Dukes was one of the featured speakers at the Houston Energy Breakfast, hosted by KCA on Sept. 22, where he pointed out that U.S. oil and gas markets are becoming the preferred place for investment. He also said the global oil market outlook is now dependent on U.S. barrels, despite many within the industry not being prepared for U.S oil to hit the market initially.

“The market is much different; the market is expecting these barrels,” Dukes said. “Every time North Korea tests a nuclear missile and the oil market doesn’t move, there’s an influence from a belief that there are barrels in the U.S. that can be produced that would fill any gap that would be created.”

When looking at Brent to WTI, international trading is closer to $56 dollars a barrel a day (bbl/d), while U.S. oil trading is closer to $50 bbl/d, marking a two-sided split Dukes sees in the market. Dukes noted that U.S. total capex investment is thriving in 2017, despite global markets flailing.

“Total capex is down about 40% in 2017, actual U.S. investment is going to be up 20% to 30%…we think we began this year [on a] rebound,” Dukes said.

Additionally, Dukes discussed how there has been a growing number of pre-FID decisions in 2017, and the number of investments is beginning to normalize again compared to previous years.

“There was a low in 2015 [then] it went up a little bit in 2016, and we think we’re going to get something like 20 to 25 investment decisions this year from major international projects, which is about half of normal. We were getting about 40 to 45 in 2010 through 2014.”

Outside of capex shifts, the oil market is also seeing cost coming down across the globe, while U.S. costs plummeted quickly due to its diverse and competitive supply chain, according to Dukes.

“[There has been] about $60 billion in shareholder distribution cuts so far and that number will grow with each year that passes,” he said. “We’ve had about $75 billion in equity issuances and asset sales and that number will grow with every day that passes as well.”

So why is U.S. oil and gas seeing a surge in cost cuts? Dukes said that as companies are fighting for market shares there is a race to zero margins, as many are seeking negative margins by staying at work.

Furthermore, he said that much of the cost savings is due to lowered operational costs by companies across the globe.

Cost-cutting

Regina Mayor, principal at KPMG, added that companies are “very focused on performance management and accountability and driving that down to the line” in order to find out how much they are spending every day, what they could change in regard to that spend and how to work more efficiently and effectively.

Mayor, who was also a featured speaker at the event, also advised on what would allow companies to see lower costs and higher margins.

“There is more upside to being very transparent with regards to cost and appropriate margins for each party and working together to bridge those gaps,” she said.

In order to establish those ‘win-win’ joint ventures, she said, companies should try being more transparent when it comes to developmental and operational goals when doing business.

Mayor spoke on how companies are not only cutting costs in the industry, but also driving growth, improving their business and getting back to their business in order to be profitable within the market.

“I’m seeing a lot of improvement in field work-level execution planning; staging and sequencing the rigs, the crews and equipment and also standardizing facilities development…those types of things are driving a lot of efficiencies.”

For optimal business improvement, she notes that totally rethinking how a company develops a particular field along with standardizing and improving how you go about your business is all beneficial.

Market Disruptors

Mayor highlighted key trends that would be game changers for the industry.

“There is a major demographic shift that is happening, there is a major change in information technology and then, of course, the oil and gas technology.”

While speaking with Hart Energy after the event, Mayor said the disruptors will eventually have an impact on hydrocarbons, exploration and development efforts, logistics movements and the supply chain.

Mayor said millennials will make up half the workforce by 2020, causing the industry to see a multigenerational workforce. With millennials in the workforce, there will be different means of communication and motivation influencing the market.

While speaking with Hart Energy after the event, Mayor said gasoline consumption will be impacted as millennials continue to share assets, appliances and other “big ticket” items.

Furthermore, she adds millennials’ penchant for moving to urban areas will “drive change for power consumption, electricity needs, ride-sharing and mobility as a service,” influencing gas demand in the industry.

Two other key trends, Mayor explained, are intelligent automation and blockchain technology.

Intelligent automation is a system of algorithms that can perform human-like duties, such as cash application and finance activities.

Within the industry, things such as “land administration, mineral rights management and really complex analytical activities that used to take 10 people to 100 people to administer on an onshore environment” will be conducted by robots, Mayor said.

Additionally, blockchain technology will have an effect on the way barrels move, on intercompany transfers as well as third-party and counter-party transactions.

“Blockchain would make it instantaneously settled and reconciled with keys that are unique for those counterparties,” Mayor said. Though intelligent automation is current, blockchain won’t really impact the industry until the future.

Mayor exerts that there are “really interesting macro-dynamics that could impact all facets of our sector and drive changes…a lot more quickly than maybe [the industry] anticipated.”

Mary Holcomb can be reached at mholcomb@hartenergy.com