The oil and gas industry witnessed major ups and downs in 2018. Oil prices remained turbulent throughout the year. While many industry players continued with their old partners on most of the projects, a lot many chose to award contracts to other service providers in the field. Mergers and acquisitions remained on a high kite, though a major demerger announcement in the middle of the year shocked the industry. Trump vs OPEC, Trump vs Iran, Trump vs Russia, Trump vs China made it to news headlines almost every now and then.
Here’s how things turned out for the oil and gas industry in 2018 and created an impact that will change the way industry has been operating until now!
Oil Prices: The Era of fluctuation continues for the Oil and Gas Industry
Both Brent Crude and WTI opened in 2018 above $60 a barrel, hitting mid-2015 highs. As the year unravelled, OPEC’s decision of production cut that it took in 2017 started to show its colours. Brent crude soared in the first four months and was traded around $70 a barrel in April. Major uplift for the oil prices came when the President of the United States, Donald Trump decided in May to withdraw from the Joint Comprehensive Plan of Action (JCPOA) agreement, signed in 2015. President Trump also reinstated fresh sanctions against the Persian Gulf country, Iran. The first wave of US sanctions hits Iran in August, sending the oil prices uphill to around $75 a barrel. The whole US vs Iran spat forced many oil and gas players to leave multi-million dollar projects in Iran. French major, Total had to farm out all projects in Iran.
While all this happened, the cartel of oil-producing nations and its allies decided on to boost oil production in order to restore supply to the market.
As the year progressed further to October, different reasons such as the conflict in Libya, supply crunch due to Iranian oil going offline, and US-China trade war concerns steered oil prices gains to the maximum with Brent reaching as high as $85 a barrel. This was also the highest peak oil mounted in the last 4 years.
From this point onwards, oil prices downfall began. This was largely due to OPEC’s decision to boost oil production which started showing the effect by the end of October when oil prices slipped to $77. The slump in crude prices continued throughout November with the month ending lower than $60 a barrel. Restored US-China relations, waivers from US sanctions to 8 countries, rising US crude inventories and a lot of other factors contributed towards the worst plummet that oil prices experienced in the last 4 years. As the year ended, Brent crude prices sank to $53 a barrel, while WTI crude had shrunk to $45 per barrel.
As is evident, international politics played a crucial role in driving oil markets last year.
Major Contract Awards
The oil and gas industry saw some major contract awards by big players in 2018. Most of the oil firms continued investing in their projects, and higher oil prices, in turn, rewarded them with good returns. This was evident by their quarterly earnings.
Here is the list of major contract awards in the oil and gas industry last year:-
- Petrofac awarded USD 580 million worth EPC contract
- Samsung Engineering wins multi-billion dollar ADNOC Refining Contracts
- Halliburton bags Saudi Aramco’s gas stimulation contract
- CNOOC hands subsea contract to TechnipFMC
- Keppel receives contract to build SE Asia’s first LNG bunkering vessel
- RAMCO secures Equinor’s multi-million contract
- Santos and ConocoPhillips award FEED contracts
- Samsung Engineering secures $551m contract in Vietnam
- Maersk Drilling gets contract extensions
- Hyundai Heavy wins LNG ship contract
- Maire Tecnimont secures $527m contract
- Largest land rig contract ever awarded
- Husky extends Transocean’s rig contract
- Bumi Armada awarded six years contract extension
- BHGE grabs oilfield development contract in India
- Petrofrac join hands with Sonatrach
- Aramco steps ahead towards expansion
- Equinor’s contract with Transocean
- A multi-billion contract for Wood
- Flour bags contract for LNG Canada project
- ONGC awards contract to BHGE consortium
- Thai Oil awards £3b contract to Petrofac-led consortium
- NPCC wins $231 million contract
- Petrofac secures $115m contract in Oman
- TechnipFMC-consortium signs deal with Saudi Aramco
As the list suggests, TechnipFMC received one too many awards this year. BHGE stayed in the top tally as well, with a number of contracts falling into its share. 2018 also experienced major oil and gas industry players extending the contracts on big projects, which say a lot about the growing collaboration in oil and gas industry.
Mergers and Acquisitions in the Oil and Gas Industry: The Idea to survive together
The notion of survival in the modern age has become more like surviving together. The game of merging with bigger players in the game, and acquiring smaller fishes with the brightest colors has become a trend in recent decades. 2018 was no different. The oil and gas industry remained on its toes all year through. While many oil firms acquired or merged with other entities in order to expand their product range, oil majors like Shell continued with divesting a lot of its assets to consolidate its portfolio. Shell farmed out its assets in Canada, sold off its stakes in MLNG Tiga, vended its interests in Norwegian offshore projects, and pursued similar activities in Thai Bongkot field, MGL, Denmark, Greater Sunrise, and New Zealand. Shell acquired British giant, BG Group in USD 53 billion in 2016. Since then, the supermajor has been divesting many of its assets to balance out the equation.
The mergers and acquisition moves in the oil and gas industry continued this year with ADES acquiring Weatherford’s drilling rig business, BP acquired BHP’s US shale assets, and Santos bought Quadrant Energy. The second half of the year saw Transocean’s acquisition of Ocean Rig, Wintershall’s merger announcement with DEA, and Chevron’s exit from the Norwegian Continental Shelf.
As you can see, the whole year was filled with a number of mergers and acquisitions happening all over the oil and gas industry. However, the major shock of the year was the demerger announcement of Baker Hughes and GE. The American multinational conglomerate, GE spent $3 billion to acquire Baker Hughes in 2017 creating a combined entity of more than $23 billion in annual revenue. However, just in a year, GE flipped on its decision and decided to exit from the merger. The demerger process will conclude over the next three years!
2018: A year of Impact
All in all, 2018 impacted the whole oil and gas industry in a mixed fashion. With the oil prices once again touching the lows, it would be interesting to see its behaviour in 2019. However, international politics will continue to influence the path oil prices will take this year. Collaboration is once again expected to become the savior for the oil and gas industry. Oil and gas industry is also keen on adapting new technological advancements across all the segments. With digitalization and other transformative modifications slowly penetrating through the rough patches of the industry, the future outlook is far more than exciting for the oil and gas industry!