2022 Oil & Gas Report

In dollar value alone, the oil & gas sector is the world’s largest industry, employing a massive workforce of around 4 million people globally. The major oil companies account for a significant percentage of a country’s national GDP. The world’s largest producers of oil are the U.S., Saudi Arabia, and Russia.

In 2021, the oil & gas sector recovered well, with oil prices climbing to their highest levels in six years. Total revenues for the oil & gas drilling sector in 2021 came to approximately $2.1 trillion. The global oil & gas market is forecast to reach $7425.02 billion in 2025. That’s a compound annual growth rate (CAGR) of 6%. This growth is primarily due to companies shifting their operations during recovery from the effects of the COVID-19 pandemic. Low-interest rates positively impacted the oil & gas industry in most developed countries. 

The global oil & gas exploration and production sector account for a large chunk of the global economy. The growth of this sector is expected to increase in the future, with OPEC crude oil production averaging 34.15 million b/d in 2022.

Oil Demand 

Oil demand is forecast to grow to 100.23 million barrels per day in 2022. That’s up 3.5mb/d from 2021. Additional oil demand is expected to come from switching from gas to oil in Europe and Asia, where gas prices are high enough to justify the switch. In the United States, gas prices will need to double for switching to make sense, so it is not expected. An added source of demand could stem from a rise in airborne freight due to issues with global supply chains. 

There are three risks to oil demand in 2022:

• A return to COVID-19 restrictions that disrupt travel
• A drop in demand from a short-term price spike
• A weakening of growth due to supply chain disruption

The Future of the Sector

Looking to 2022 and beyond, many oil & gas companies are turning to ways to reinvent their business models to concentrate on financial health, capital discipline, and climate change. In the next year and a half, oil & gas companies will continue to focus on:

• Ways to streamline their resource portfolios
• Goals for energy transition
• Attracting, training, and retaining employees amid labor shortages
• Environmental, social, and governance (ESG) requirements

The big oil & gas companies are investing in big data analytics and artificial intelligence (AI) to improve decision-making and increase profits. They are gathering massive amounts of raw data regarding the operations of refineries, pipelines, and other infrastructure through sensors on oil rigs. Data analytics allow the companies to detect patterns that enable fast reactions to problems, which saves money. AI allows for better drilling and operational decisions. 

More Key Industry Trends to Watch:

• Infrastructure
• Sustainability
• Growth in Natural Gas
• 4D Seismic Technology
• Wearables
• Robotics
• Increased Labor Costs
• Skills Shortages
• Fracking Challenges
• Better Connectivity

Commitment to ESG

Under increasing pressure from regulators and investors, oil companies will continue to look for ways to reduce carbon emissions. In the past couple of years, European companies such as BP PLC and Royal Dutch Shell PLC declared that they are investing in renewable power generation and cutting emissions. U.S. companies are not as on pace, but some have begun to announce plans to lower emissions, such as Exxon. Activist investors will continue to put pressure on the big U.S. oil companies in the coming years as long-term investors seek solutions as climate change hurts the bottom line of their portfolios. To improve ESG, more firms are expected to divest their higher-carbon assets and acquire lower-carbon oil & gas, as well as renewables and electrics. 

M&A Activity 

In 2020, M&A activity in the oil & gas industry took a hit from the pandemic, pushing oil and gas prices to record lows. That year, there were over 100 bankruptcies in upstream and oilfield services. Many other companies have leaned toward consolidation to lower costs. While most deal value in 2020 was driven by consolidation, 2021 saw more focus on lower-premium, all-stock consolidations with an eye on the Permian basin (the largest region for drilling and M&A activity). Falling oil prices drove up valuations, making it complicated for buyers and sellers to agree on prices, leading to fewer but larger deals.

Deals in the U.S. oil & gas industry dropped in value in Q4 2021 from Q3. In the last three months of 2021, oil producers made deals worth $9 billion. That’s down 50% from the Q3’s $18.5 billion. However, the entire year totaled $66 billion, which was up 25%. 

The M&A market in 2022 is expected to be very active as additional assets should be available on the market. High commodity prices, improving equity valuations, and stronger balance sheets will result in more deals. Added pressure to adapt portfolios for energy transitions will also drive deal volume and value in 2022.