Accenture explores digital tech impact on Oil & Gas

Compiled from the Accenture and Microsoft 2017 Upstream Oil and Gas Digital Trends Survey, which was conducted by PennEnergy Research in partnership with the Oil & Gas Journal, the survey included responses from over 300 upstream companies across 18 countries.

Roughly two-thirds of the survey's respondents saw business value from digital technologies, which 27% totalling it between $50m to $100m for their respective companies. Despite this positive outlook, 14% admitted to not knowing how much monetary value digital is delivering, while 20% do not measure it at all. A mere 4% believe digital adds no value to their business today.

Additional findings showed that the majority of upstream companies expect to see value from digital technologies in the coming years. Seventy-three percent predicted that their oil and gas fields will be fully automated using these technologies within the next five years.

Rich Holsman, who leads Digital in Accenture's Energy industry group, said: "Upstream oil and gas companies are evolving from only using digital technologies in siloes to using these digital technologies and the related new ways of working to transform entire business areas."

He added: "Our survey respondents see big data and analytics, cloud, the Internet of Things (IoT), mobility, high-performance computing (HPC) and cybersecurity as having the greatest potential to transform their businesses. In the next three to five years, 70% plan to spend more or significantly more on digital technologies, and the next wave includes HPC, wearables, robotics, artificial intelligence and blockchain."

Accenture and Microsoft's research also noted the type of digital technologies that upstream companies are investing in. Fifty-six percent have admitted to investing in mobile devices, while 45% are looking into cloud. Another 43% are exploring the adoption of big data and analytics, while 42% are exploring various applications of Internet-of-Things.

http://www.itp.net/615507-accenture-explores-digital-tech-impact-on-oil-&-gas

Banks Remain Stingy With Construction Dollars

Securing bank construction loans has become a tough nut for developers to crack. Some banks have pulled back on allocations to new development, while banks across the board have become more conservative in deploying that capital.

Over the past two years, banks wary of taking on construction risk have lowered leverage, increased rates, applied more conservative underwriting and become more selective on borrowers and deals. And that picture isn’t likely to change anytime soon. “When we hear people complaining about banks lending for construction, I think it is really that they are bringing in the leverage and they are pricing it a little bit wider than they were a year ago,” says Joe Franzetti, a senior vice president at Berkadia Commercial Mortgage.

On average, loan-to-cost amounts have dropped 5 to 10 percent, with leverage on high quality loans typically at 65 percent, notes Franzetti. Banks have also raised rates slightly as they have become more selective, with pricing that is 50 to 100 basis points higher as compared to two or three years ago.

“Bank involvement in construction lending for the past two to three years has been disciplined,” adds Norm Nichols, executive vice president and head of the Income Property Group, KeyBank Real Estate Capital. Most banks of any scale are saving construction allocations for their best clients where they can be the lead versus putting capital into someone else’s deal, notes Nichols.

Banks are closely managing construction loan allocations, partly due to High-Volatility Commercial Real Estate (HVCRE) rules, which require all loans that meet that definition be reported separately and assigned a risk weighting of 150 percent for risk-based capital purposes. Banks are also more conservative because they recognize that the market is moving into the later stages of the real estate cycle, and some sectors and submarkets could face challenges due to slower growth, leasing challenges or even oversupply.


Banks wary of new supply
Multifamily developers have felt the brunt of the pullback in construction lending as that sector has seen the most development activity. PNC Real Estate is one bank that has admittedly “taken its foot off the gas” on its multifamily construction lending, notes David Aloise, an executive vice president at PNC Real Estate.

PNC returned to the multifamily construction market early in 2011, and in late 2015, the bank made a strategic decision to reduce construction loans to multifamily projects. Its construction lending subsequently dropped by about 25 to 30 percent in 2016 and has maintained a similar pace in 2017. “That was partly due to the size of our construction portfolio, which had grown pretty dramatically over that time period,” says Aloise. The bank’s high concentration in multifamily was also a factor as apartment deals account for about three-fourths of all of the bank’s construction lending.

“We may have been a little bit earlier than some of our competitors in making that determination, but I think a lot of banks in 2016 made similar choices and became increasingly selective and more focused on submarket fundamentals,” says Aloise. “Clearly, we have seen a deceleration of rent growth across most markets and there have been pockets of supply issues.”

Some banks are requiring 30 to 40 percent equity on apartment construction loans, as well as using disciplined underwriting related to vacancy and factoring in concessions during the lease-up period, notes Nichols. After a steady flow of new supply in recent years, the peak years for national apartment construction are likely to be 2017 and 2018. “I think discipline stems from the fact that that supply surge is ahead of us, and there is a fair amount of uncertainty on how, at least in some markets, all of this supply is going to be absorbed,” he says.


Banks still have a healthy appetite for construction loans on industrial, build-to-suit projects and significantly pre-leased office projects, while speculative office and retail construction loans are more challenging. Retail in particular is in the hot seat. Bankers are wary of the potential negative impacts from e-commerce and weaker retailer credit. “There is no doubt that retail is under duress from that perspective, which raises the question of how much brick-and-mortar retail does a certain market need,” says Nichols.

That being said, retail lending is not going to zero. Some banks can get comfortable with retail by relying on more conservative underwriting and lowering leverage. “We’re really looking at the tenant composition of a center to try to get an understanding of how insulated those tenants are from e-commerce,” adds Nichols.

New high-volatility rules ahead?

The construction lending climate is likely to remain much the same in 2018. However, banks are continuing to watch how new apartment supply is absorbed. If fundamentals remain strong, it could boost confidence and banks may be more willing to make multifamily construction loans. Meanwhile, retail construction lending could become even more conservative in 2018, depending on how retailers are impacted by holiday sales and additional store closings and bankruptcies.

One issue to watch in 2018 is a new high volatility loan proposal (H.R. 2148) for High Volatility Acquisition, Development and Construction (HVADC). Essentially, the proposal creates an additional bucket of high volatility loans with a lower capital hold requirement or capital weighting of 130 percent versus 150 percent.

In its current form, the larger banks would be subject to both HVCRE and HVADC rules, while smaller banks would only have to comply with HVADC rules. “One of the things the industry has some concern about is whether this creates two classes of lenders in terms of capital weightings and how the playing field may change for larger and smaller banks going forward,” says Aloise.


The new proposal might be an indication that regulators recognize that HVCRE didn’t really achieve what they wanted to do, and they are trying to fix it with the new version, says Franzetti. However, the HVADC proposal could actually end up muddying the waters even more and creating added confusion, he adds. The HVADC loans would also be more broadly defined, meaning that it could potentially impact more loans.

http://www.nreionline.com/lending/banks-remain-stingy-construction-dollars

Construction sector returns to growth, but optimism is in short supply

Construction firms in the UK have recovered slightly from a slump in September, but a lift from residential building was not enough to boost sentiment in the sector.

The shift from contraction back to a small margin of growth was entirely driven by housebuilding, as commercial projects and infrastructure continued to slow in October.

Activity returned to positive territory with the purchasing managers' index (PMI) score shifting to 50.8, up from 48.1 in September. Anything above 50 on the index indicates growth.

But confidence in the sector hit its lowest level since December 2012 - a 58-month low - as civil engineering companies recorded the worst performance of any group. Firms claimed that there was no flow of new contracts to replace their completed projects.

Tim Moore of IHS Markit, which produces the PMI scores, said that while a rise in house building had offered a "bright spot" it was a difficult month for the construction sector. Commercial activity and civil engineers were seeing "sustained declines", he added.

The sector is far from out of the woods, according to Samuel Tombs of Pantheon Economics. The PMI score was consistent with a fall in output of 0.5pc quarter-on-quarter in the last three months of the year, he said.

This would follow the trend of declining output in the second and third quarters of the year. Mr Tombs also warned that low confidence in the sector suggested that a more intense slowdown might be on its way.

Duncan Brock, of the Chartered Institute of Procurement and Supply, said that the sector needed to rebalanced away from housebuilding, and called for action on skills from the Chancellor Philip Hammond in his November Budget.

"Any heavy reliance on residential building alone would be foolhardy with interest rate rises on the horizon and availability of skilled workers lacking in the sector, unless the Chancellor pulls a rabbit out of the hat and supports the training of new construction workers," Mr Brock said.

He added that strong growth in the eurozone would have put pressure on UK building supply chains.

Mike Chappell, of Lloyds Bank Commercial Banking, said that contractors were operating on the basis that there would be no construction-friendly giveaways in the Chancellor’s statement.

http://www.telegraph.co.uk/business/2017/11/02/construction-sector-returns-growth-optimism-short-supply/

The challenges in Africa’s oil & gas industry

The oil & gas industry in Africa continues to face market challenges arising from the low oil price, competition for revenue growth and local talent together with new expectations from investors and regulators.

“Africa’s oil & gas industry is experiencing significant change and upheaval. There are fundamental shifts in companies’ strategies, business models and ways of working,” says Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader.

The sustained lower price of oil has been accepted as the new normal in the oil & gas industry with companies putting plans in place to enable a more agile response to commodity price fluctuations in the future. For some, this means a diversification of portfolio, with many considering moves to an energy mix that includes some form of renewables. Despite the challenges, there are a number of opportunities on the African continent.

“The time is opportune for oil & gas companies to take up and utilise advances in technology as an enabler in meeting some of the challenges faced. Instead of playing catch up the rest of the world, we believe that the industry should be ‘learning to leapfrog’ so that they are not only ahead of disruption – they actually cause it,” Bredenhann says.

PwC’s Africa oil and gas review, 2017 analyses what has happened in the last 12 months in the oil & gas industry within the major and emerging markets.

As at the end of 2016, Africa is reported to have had proven natural gas reserves of 503.3 trillion cubic feet (TcF), up 1% in total gas reserves on the continent. About 90% of African gas production continues to come from Algeria, Nigeria, Egypt and Libya though the overall quantity produced in 2016 reduced by 1.1% down to 208.3bcm.

Africa’ share of global oil production has continued its downward trend from the past four years, dropping sharply, moving it down from 9.1% of global output last year to 8.6%.

The challenges in Africa’s oil & gas industry

The top challenges in the oil & gas industry have remained similar to those in previous years with uncertain regulatory frameworks, corruption, and tax requirements remaining in the top six for the past four years. It is notable that financing costs and foreign currency volatility have both become more critical challenges since 2015 when they were ranked 11th and 10th respectively.

“It is disheartening that governments are not catching up to demands and calls from oil & gas companies to ensure regulatory certainty to players who are looking to invest in hydrocarbon plays in various African countries,” Bredenhann comments. Upstream regulation in South Africa remains uncertain, with the separation of oil & gas from mining still not achieved in the Mineral and Petroleum Resources Development Act (MPRDA). Other key markets in Africa, such as Nigeria and Tanzania, are also experiencing significant regulatory issues.

Corruption has remained among the top three challenges over the last four years, with numerous instances occurring across the continent. Despite the existence of anti-corruption programmes at government and corporate levels, the effectiveness of such programmes is questionable. In the context of corruption issues, it is not surprising that the costs of finance have risen to third among major challenges for African players. It is likely that the regional issues and uncertainties combined with a constrained wider industry, have led banks and other institutions to be wary of offering favourable financing terms.

The lack of skills development continues to be a problem in Africa, and it is becoming a global challenge in the oil & gas industry overall.

Will lower oil prices continue?

Aside from those challenges highlighted by companies, adjusting to the new normal of lower oil prices remains a concern for companies. The oil price has been relatively ‘stable’ through 2017. Having recovered since the January 2016 low, it has typically been trading in the US$50-60/bbl range. As the Brent oil price reached close to US$60/bbl in September 2017, the market began asking whether ‘lower for longer’ may be over. The demand for oil is picking up, and supply is easing off, suggesting a market rebalancing is underway. However, as we have often seen with global oil prices, nothing is ever certain.

Oil & gas companies cited geopolitics, supply and demand as the three major reasons for the current oil price environment. Looking ahead, respondents expect modest increases in prices over the next two years – with 65% and 52% expecting the price to be in the US$51-60/bbl range for 2018 and 2019 respectively.

The changing competitive landscape

In response to many of these challenges, oil & gas companies are looking to alter their strategies and operating models, which has changed the competitive landscape. Companies reported that major changes anticipated or recently experienced in the competitive environment are driven by the growth in alternative fuels, the impact of technology-driven disruption and the need for cost reduction.

Are oil & gas companies fit for Growth?

Oil & gas companies cited ‘too little investment in developing capabilities’ as the most significant impediment to business growth. This was followed by weak strategy and leadership.

According to PwC research, companies become ‘Fit for Growth’ by doing three things consistently and continuously: they focus on a few differentiating capabilities; they align their cost structure to these capabilities; and they organise their businesses for growth.

According to PwC’s Oil & Gas Review, 75% of companies say that they have reviewed their Africa strategy in the last three years, but they also acknowledge that there are issues with incoherence and a problem with executing it in day-to-day business.

PwC’s Fit for Growth approach emphasises that investment in capabilities that enable the organisation to create unique value for customers is key for sustainable growth.

Survey respondents indicated that they are investing in the development of new or the enhancement of existing capabilities (18%), local content and skills development (14%), infrastructure improvements (13%), and regulatory compliance (12%) over the next three years.

It is notable that cost management as a strategic focus has fallen in importance this year. One-third of respondents indicated that they had no cost-cutting intentions. Just under half of respondents intend to reduce costs by up to 20%.

Achieving sustainability

The need to strategically assess the portfolio of activities oil & gas companies in Africa pursue in order to be sustainable in the drive towards a low-carbon environment is necessary. The review results indicate that M&A and partnerships are key to delivering the intended and repositioned strategies and growth. The minority of respondents were related to an M&A proposition to drive growth, with approximately 30% of respondents being targeted for acquisition and about 40% having targeted an entity themselves. The majority of respondents referred to a partnership proposition with nearly 60% having both been approached or approaching another entity for partnership.

While some oil & gas companies continue to explore opportunities for cost reduction and improved efficiency, consideration is now being given to how they will stay ahead of the competition. Given the perception of slow uptake of digital solutions in the oil & gas industry, it is surprising that nearly a quarter of companies stated that they had implemented some form of digital solution, from production and drilling to mobile solutions.

Leveraging local content

More than 25% of oil & gas companies said that projects had been postponed or delayed by local content policies, and about 15% have relocated or cancelled projects in response to local regulations. About 10% indicated an acceleration of their projects. One-third of respondents think that there are more local companies today that can serve the sector. Just under one-third acknowledge that local skills at the right level are available in their country and 11% said that new players have emerged in upstream as a result of the regulations.

“The oil & gas industry in Africa is riddled with complex challenges and adversity, but with challenge comes opportunity. The opportunity is there for players who are willing to ‘reimagine the possible’ in a future that looks very different to our present.

“It is clear that African oil players must ‘learn to leapfrog’ to remain competitive in the new energy future,” concludes Bredenhann.

http://www.oilandgastechnology.net/news/challenges-africa%E2%80%99s-oil-gas-industry

Made-in-Alberta action plan unveiled to protect 7,000 oil and gas jobs

Canadian Association of Petroleum Producers president and CEO Tim McMillan said even though its five-point plan released Monday would still cost the oil and gas industry $700 million over eight years, it would protect 7,000 jobs, inject $710 million in capital and boost the province’s gross domestic product by $2.5 billion.

The plan, which MacMillan dubbed as the “most cost-effective, but also the most jobs effective” way of meeting reduction goals, centres on the province and industry working collaboratively to create an equivalency agreement with the federal government.

Both levels of government have established similar goals to reduce greenhouse gas emissions, allowing industry and provinces to develop region-specific solutions that is much better than having a “prescriptive model” foisted upon it, McMillan said.

Under its climate leadership plan released in 2015, the Alberta NDP government committed to reducing methane emissions by 45 per cent by 2025 from 2014 levels. Less than a year later, the Trudeau government set similarly ambitious goals across the country.

The proposed federal methane regulations for the oil and gas sector would impose general requirements and facility-specific requirements around venting and leak detection, as well as mandatory system upgrades.

McMillan argued the oil and gas industry has been voluntarily working since 2012 to reduce methane and has launched research initiatives to help improve leak detection and repair. Alberta’s current flaring and venting regulations are among some of the best in the world, he said.

“The fact that no one is quibbling about the reductions or the percentage” means the industry and provinces are willing to take the lead on methane emissions, he said.

“Provinces generally have the tools, the expertise and the knowledge to make better choices provincially than the federal government does if they have to use a blunt instrument across Canada,” he said.

Alberta has yet to release its proposed methane emissions regulations, but Energy Minister Margaret McCuaig-Boyd said Monday a draft would be released “in the coming days.”

McCuaig-Boyd said Alberta’s oil and gas industry’s early action and commitment to working with government “means we are well on our way to an Alberta-made plan that puts the jobs of hardworking Albertans and a strong economy front and centre.”

http://edmontonjournal.com/business/energy/action-plan-could-see-alberta-methane-emissions-cut-by-45-per-cent-by-2025-capp

Record Year for Europa Oil & Gas

2016/17 was a record year for Europa Oil & Gas (Holdings) plc in terms of corporate activity, according to the company’s CEO Hugh Mackay.

During this time, Europa achieved a successful farm-out to Cairn of a 70 percent interest in one of the company’s South Porcupine licenses, two separate sales of Europa’s interest in the Wressle oil field in the East Midlands, the acquisition of Shale Petroleum, and the farm-out of a 12.5 percent stake in the upcoming Holmwood well in the Weald basin.

“In our view, this activity is testament to the quality of the technical work we have carried out on our licenses, the excellent location of our assets both offshore Ireland and onshore UK, and the major uptick in industry interest and activity in new plays across our areas of focus,” Mackay said in a company statement.

“The year ahead should see more of the same. We remain focused on securing farm-outs for the remainder of our Irish licenses with partners with whom we can advance our assets towards drilling. At the same time, we are looking forward to commencing drilling activity at the conventional Holmwood prospect in the Weald, an area that is generating considerable excitement following the opening up of the Kimmeridge limestone play,” he added.

Europa registered revenues of $2.1 million (GBP 1.6 million) for the 12 month period ended July 31, 2017. This marked a slight increase over last year’s figure of $1.7 million (GBP 1.3 million). Net cash balance as at July 31, 2017 stood at $4.7 million (GBP 3.6 million), compared to $2.2 million (GBP 1.7 million) last year

http://www.rigzone.com/news/record_year_for_europa_oil_gas-30-oct-2017-152253-article/

Honda North donates Odyssey for veterans transportation

PEABODY — Local veterans will have an easier time finding a ride to their doctor’s appointments after the city got the keys to a new Odyssey van from Honda North.

The donation came after a year of Veterans Services Officer Steve Patten, secretary Lisa Leavitt and volunteer Ken Hopkins driving veterans to and from medical appointments in their own cars.

“I really believe that’s one of the No. 1 issues facing our aging veteran population – the ability to get to medical appointments,” Patten said.

Mayor Ted Bettencourt, a group of Peabody veterans and Patten were at Honda North, an International Cars Ltd. company, in Danvers for a ceremony Monday with Richard Collins, ICL president, and CEO and General Manager Joseph Hajjar.

“I’m not sure they’ve (veterans) received the support and recognition that they should get and receive for the services they’ve done for our country,” Collins said, “We think it’s worthwhile and something we’d like to recognize.”

Leavitt said the Peabody crew has been driving veterans a couple times a week to appointments, mostly in Boston, Jamaica Plain and Bedford.

“Most of them want to go to the Senior Center that offers a ride to Jamaica Plain twice a month, but it’s just not enough,” she said.

In talking with veterans during the rides, Patten and Leavitt said they realized family members were taking time off from work to drive veterans to the doctors, and some vets were even paying for private transportation services to avoid asking for rides.

“That’s $20 each way, so you pay $40 just to get there and then another $30 for a co-pay, that’s $70 for a doctor’s appointment,” Patten said, “What happens if they have to go three times in a week on a fixed income? They’re getting killed with medical expenses.”

Leavitt came up with the idea to have a city-owned vehicle after Salem’s Veteran’s Services Agent Kim Emerling filled in for Peabody until Patten was hired last fall.

“The only city that has a car is Salem,” Leavitt said, “When he told me about that, there had been veterans calling our office for rides but we didn’t do it — we didn’t have availability for it at the time — so once I heard he had that car I said, ‘We need that for our veterans.’”

Patten did a little networking through his wife, Lindsey, who works for Porcello Law Offices in Salem. Owner Jean Porcello-Giusto has a business relationship with the Danvers car dealership and relayed their mission.

“Within a week they said they were definitely going to do it,” Patten said of the donation. “Honda North changed the lives of veterans in Peabody. From now on, if you’re a Peabody veteran or a current member of a Peabody veteran’s organization, we will pick you up at your front door, wait for you and drive you home from an appointment.”

Veterans can schedule a ride a week in advance for their appointments with the Veteran’s Services Department. The city will cover costs of fuel, insurance and maintenance of the vehicle, according to Bettencourt.

“This is an initiative to continue work for our veterans. It started as a program years ago that utilizes vans at the Senior Center to transport veterans to two VA hospitals. This was the next step for us,” he said. “The partnership with Honda North will make a difference in the lives of our veterans and show honor and respect to those who deserve it.”

The Veteran’s Services Department is looking for regular volunteers to drive one day per week, with the ability to switch days with other volunteers as needed. Leavitt and Patten will step in as drivers when volunteers aren’t available.

Jim Sweet, a Vietnam War veteran, was among the veterans at the ceremony. He is the commander of veterans of a group called the Second Corp Cadets Veterans Association, and he raved about Honda North.

“The fact that this van comes out is important in two ways, to me. One is it’s going to give people – veterans – a chance to get to the hospital or to the doctor,” he said. “The other thing is it reminds these vets ...that they’re not forgotten. This is for you.”

http://www.salemnews.com/news/local_news/honda-north-donates-odyssey-for-veterans-transportation/article_9fc15dda-ff5a-551c-b22c-834b20975e90.html