Oil producers have ‘no choice’ but to use unconventional methods to protect their assets

Oil producers have ‘no choice’ but to use unconventional methods to protect their assets

Posted January 02, 2018 05:47:00 Oil companies are being urged to develop and explore unconventional ways to protect the assets they own, as new regulations are set to come into force.

Key points: A report by the Institute for Energy Economics and Financial Analysis (IEEFA) says oil companies have no choice but to develop unconventional ways for protecting their assets.

The report says if the oil and gas sector is to stay afloat, it needs to focus on innovation, rather than relying on the old “tough love” approach.

“I think it is very clear that if you want to survive, you need to get the right mix of innovation, you must think of the technology, you have to be able to deliver what you are delivering, and you have got to keep your capital costs low, and that is very hard to do,” said IEEFA chief economist Peter Kellner.

“We need to see new methods to make the industry more resilient and have to make sure we don’t get back into a time where you are going to have to rely on the same old methods to deliver.”

Oil companies are looking at technologies such as carbon capture and storage (CCS), hydraulic fracturing (HFC) and unconventional oil and natural gas (UOG) exploration to provide additional protection.

The IEEF report, titled “Oil Companies, Innovation, and the Future of the Oil Industry: Are they ready?”, is the first to look at how these new technologies might affect the industry.

It is set to apply to oil and other commodity producers worldwide, but it is expected to be broadened to include all sectors.

It has identified two areas that are most vulnerable to these new policies: oil and minerals, and energy and resources, including natural gas.

“In the oil sector, it is clear that we have to invest in technologies to get better resilience,” Mr Kellner said.

“There are going be technologies out there, which may not work in the oil sands or coal mines, and then there are also technologies out that may work for shale gas and coal, but not necessarily for oil.”

Mr Kellner says the IEE FA’s report shows the oil industry is being held back by a lack of innovation and has been left with little choice.

“It’s a question of whether or not they can be innovated and that they can come up with new ways of doing things to mitigate risks, to make investments, to develop new technology that can reduce risk, but also provide additional capital, so they can deliver what they are delivering,” he said.

In a new report, the IEA found that the oil price slump has already put a severe strain on the sector’s capital structure.

“The downturn in the commodity price has also had a significant impact on oil and mineral and energy resource and resource and resources businesses, and they have had to re-prioritise the capital that they invest in those sectors,” said Mr Kellners report.

“While the oil-producing world has continued to experience significant volatility, the sector has experienced significant weakness and it has been a challenge for oil companies to meet the needs of those sectors.”

Mr Mellers report says that while oil prices are “under the control” of governments and regulators, it may not be enough to keep the sector afloat.

“For oil companies, they have to recognise that the global oil price has been under the control of the global financial system and governments for many years,” Mr Mellers said.”[But] that doesn’t mean that the international financial system is not a significant contributor to oil prices.”

But it is certainly not enough to ensure that oil companies can deliver on their investment in the future, and also that the sector can keep its capital costs as low as possible.

“The report also says that a new regulation will force companies to focus more on “innovative, cost-effective, and cost-competitive” technologies.”

As governments and oil companies continue to focus their efforts on new technologies and innovation to make oil more resilient, the industry will need to invest more in the exploration, production, transportation, and transmission of these technologies to reduce risk,” Mr Melers said, adding that these technologies may require a different approach than the old ‘tough’ love approach.



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