Reach Energy: O&G industry still vibrant despite low oil price

KUALA LUMPUR: The oil and gas (O&G) industry is still vibrant and its future remains bright despite current market sentiments caused by the low oil price, said Reach Energy Bhd managing director and CEO Shahul Hamid Mohd Ismail.
"It is a fascinating industry, very lively. You say now that oil price is low. There is an oil conference that happens every year in Houston, Texas. It's called the Offshore Technology Conference which normally happens in early May. That is a good indicator of how the oil industry vibrates. Year on year, it is getting bigger and bigger with a lot of exhibitors, a lot of technology papers being presented," he told SunBiz in an interview.
Shahul believes that the future is very good for the O&G industry, as more new and innovative technologies become available in the market.
"The future is very good for the industry. In fact more exciting in the sense that the industry is getting into a lot of frontline areas, areas we would never have ventured into. They are now drilling in the arctic, in the jungles of Africa, in the desserts and deeper waters," he said.
In the meantime, O&G companies, especially the service companies, will have to be lean and cost effective in order to survive in the current low oil price scenario.
Shahul said service companies are suffering as a result of exploration and production companies cutting back on expenditure and delaying or canceling jobs.
"Having worked for two of the largest oil companies in the world Exxon and Shell, I always think that the industry will cushion these things better if they are more prudent, whether oil price is high or low.
"That's why I'm into smaller companies like ourselves. We have to be cost effective all the time whether oil price is high or low then you can do your business, you don't have to scale down anything. It should be the norm to be cost effective," he said.
As a small oil company, Shahul said Reach Energy is eyeing smaller reserves around the world which the high cost operators are leaving behind due to economic viability and with today's technology and methodologies, it is possible to be a low cost operator.
"You don't have to spend a huge amount of money building a big offshore rig. Nowadays people are even cutting old platforms, bringing them back and welding them, making smaller structures, floatable structures and relocatable structures. All these new technologies are abundant now in the market. I think even the big operators are looking at these options now," he added.
On oil price, Shahul said it should improve and stabilise but is unlikely to go above US$100 per barrel, at least for another few years.
"It will take time, it may take longer but it's getting around the US$70 per barrel kind of mark which is alright, which will be okay for many operators because the cost of operation in many areas will be less than US$70 per barrel. So they can justify economically their projects and activities...to me, the US$100 per barrel world is an unrealistic world. I think US$75 per barrel and above is a good range to stay at. That's what I think it will stay at for the next few years," he said.
With that price trend, Reach Energy has been evaluating its potential qualifying assets using the US$70 to US$80 per barrel range.
"The cycle will come back but service companies will be looking to be more cost effective at least in the next one or two years."