The Voice – Bernadette Cullinane, Deloitte

23 January 2018

Q: What are the key factors/challenges/opportunities that business’ need to consider in the next 12 months?

Significant opportunity will emerge now that the sector has reset itself to operate at lower commodity prices.

As market conditions improve, the focus will be on sustainability at sub US$60/bbl oil prices. After several years of massive investments, project delays, disappointing returns and negative news, it’s time to prudently reap the benefits of the transition to operations and the export dividend. Demonstrating that free cash flow can grow in a low-price environment and fund growth and higher shareholder returns will be the big focus of many companies in the year ahead.

There is considerable opportunity for those companies sufficiently agile and forward looking to achieve sustainable competitive advantage. Leading edge companies are looking to transform into digital organisations, leveraging the huge volumes of operational data and turning it into actionable, strategic insight. Asset portfolios are being reshaped as the world unambiguously transitions towards lower carbon energy sources.


Q: What are your predictions for the industry for 2018?

2018 will be a year of growth as the sector turns the corner

The oil and gas sector globally is in recovery mode with corporate earnings, cash-flows, valuations and credit ratings starting to respond to the cyclical recovery in the commodity markets. This is feeding into improved investor sentiment for the sector.

The capital austerity and downsizing that characterised the last three years has given way to a more optimistic, growth-orientated outlook with investment, exploration and production all starting to pick up. Here in Australia, we have endured the chilling winds of the downturn to emerge as a stronger, leaner and more efficient industry with a number of attractive near-term growth options that could be earnings catalysts.

Portfolios have been rationalised, debt burdens reduced and operating models made considerably leaner. With the shift from investment to operations phase, the focus on operational excellence and productivity is now intrinsic to the fabric of being an oil and gas producer. In the future, asset portfolios will be more flexible, capable of earning decent returns with oil price scenarios in the US$40 to US$60/bbl range.


2018 emerges as the year of “New Energy”

The world is unambiguously shifting towards low carbon energy. One of the big emerging trends in oil and gas is a focus on “new energy”. In a clear indicator of where the wind is blowing, oil and gas companies globally and here in Australia are making significant investments in renewable energy like wind farms, solar PV and battery storage. Companies and policy makers are now considering the impact of electric vehicles on business and society. This repositioning towards low carbon energy is redefining the nature of the oil and gas business, impacting the traditional operating model and helping to shift investor perception of the sector. Expect much more of this in 2018.


M&A will ramp up

Mergers and acquisitions (M&A) are likely to be a big trend across in 2018, consistent with a more ambitious growth agenda, healthier cash-flows and the need to rebuild portfolios. While large-scale deals are unlikely in the current environment, portfolio style deals involving discrete asset purchases or alliances to form a strategic beachhead in a new market or geography could define the 2018 M&A landscape.


LNG predictions

In 2017, gas demand surprised on the upside and LNG prices have doubled since July, supported by the oil price recovery. As a result, the business case for new supply development is strengthening. With LNG economics and investor sentiment improving, the market is likely to assign more value to low capital intensity resource projects such as brownfield and backfill developments.

This suggests another window of opportunity for new Australian supply, although the challenge will be in bridging the cost divide. The LNG projects of the future will be quite different than the mega-projects that characterised the first wave.


Q: What are the key benefits in someone attending APPEA 2018?

The theme of APPEA 2018 is “Resilient Business – Success in the New Energy Market”. As suggested by the theme, this year’s conference will tap into the spirit of renewed optimism buoyed by the opportunities emerging across the legacy oil and gas business and the great potential to be unlocked through new energy.

This pivotal year is already being characterised by tremendous change with new operating models, technologies, regulatory frameworks and new products, services and markets. APPEA 2018, hosted in the wonderful city of Adelaide, is a great way to stay abreast of these changes and deep dive into emerging trends, hear from local and global leaders and prepare for the future.

The 2018 conference is sure to be an opportunity to build new relationships, connect with customers, suppliers, service providers and peers and reunite with many old friends – all within the unique environment offered by Adelaide.


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