Turbulent times force innovation on oil and gas industry 
Investment priorities in the oil and gas sector are shifting after an oversupply of oil and the growth in shale production, with more focus on smaller projects that promise quicker paybacks. Investors are looking for scaled-down offshore projects and onshore brownfield and satellite fields in order to reduce capital expenditure. The industry is reacting to the lower price of oil with tighter financial discipline and by shedding staff. Standardisation across the industry has also helped control costs. However, the lack of funding for larger projects and rising demand for energy are putting pressure on companies to continue to innovate.
Some companies such as Exxon Mobil and Chevron re-directed large shares of their capital spending towards the US shale patch while others bet on favourable prospects for deep-water offshore. Yet, what they all have in common is a tendency to increasingly target smaller projects that can deliver paybacks over a shorter period of time. This is a notable change for an industry that has traditionally been dominated by long lead-time projects.

Companies have significantly changed the way they pick projects and execute on them. For example, conventional onshore development has shifted towards brownfield and satellite fields to minimise capital spending. Meanwhile the offshore industry is experiencing even more rapid change as companies have scaled down projects, introduced strict standards for facilities and equipment and optimised project design.

In tandem with this shift in strategy, global upstream costs have fallen both in the US shale industry and globally – these costs were a key determinant of skyrocketing expenditure in the first part of this decade.

The fundamental question that the industry now faces is to what extent these cost reductions can be sustained in the future. Standardisation of equipment and operations, improved design, efficiency in projects and corporate activities, integrated approaches in supply chains and increased use of digital technologies are all areas that have contributed to bringing costs down.

However, a large component of costs, including commodities and raw materials prices, as well as labour, remain cyclical by nature. The sector will need to continue to improve its operations in order to offset those inflationary pressures.

Despite these improvements, the sector has not solved all its challenges. The risk of another round of skyrocketing costs remains, especially if the lessons of the last three years are forgotten. In most cases, companies face significant debt exposure and relatively poor financial health. The capital discipline recently adopted will need to be balanced with the imperative to scale up investment in new projects in order to offset the natural decline of fields and meet demand requirements. At the same time, large job cuts have led to the loss of many important competences that will not be easily replaced. And the imperative of meeting energy demand needs while minimising environmental impacts remain an open task for the industry.

Though challenges remain, one thing is certain. The oil and gas industry has belied its reputation as a conservative sector and proved it was capable of constant innovation itself and proven it could adapt rapidly to a changing world.