Energy 2020 Vision: Oil &

ENERGY 2020 VISION: OIL & GAS

1 CONTENTS

EXECUTIVE SUMMARY...... 3

GULF COUNTRIES DIVERSIFY WITH WIND AND SOLAR... 5

ATTACK AGAINST THE GRID: A DRESS REHEARSAL FOR WHAT’S TO COME?...... 6

LNG & SOLAR: THE PAIR THAT COULD FLIP THE SWITCH IN AFRICA...... 7

INVESTING IN TECH TO KEEP THE LIGHTS ON...... 8

DEMOCRATISATION OF DATA...... 9

THE NEAR FUTURE OF OIL & GAS IN CANADA...... 10

2 EXECUTIVE SUMMARY

The oil price collapse in late 2014 technological transformation, and SUMMARIZING BDO’S 4. INVESTMENT IN TECH: signified a fundamental change diversify its portfolio to include GLOBAL ENERGY 2020 While overall spending on R&D in the energy marketplace. While alternative energy sources. VISION FOR OIL & GAS: may decline, most of the spending prices have rebounded from the that does occur will go towards Reflecting on this period of turmoil 1. OIL PRICES: low of $26 per barrel in 2016, the technologies that enhance and transition, BDO’s Global By 2020, low oil prices—expected to supply and demand dynamics that exploration and production (E&P) Natural Resources team is looking remain at or below the $60 per barrel led to the downturn—a supply efficiencies. towards the future to help oil & gas mark—will spur Gulf Cooperation glut due in large part to U.S. shale companies anticipate and plan for Council countries to diversify their 5. DATA DEMOCRATISATION: and stagnating growth in global the challenges and opportunities energy mix within the power sector By 2020, the average E&P company demand—are here to stay. Efforts ahead. We believe that to prepare using auctions to subsidize renewable will make use of 10 percent of its big to rebalance the markets have for success in 2020 and beyond, energy projects. data—up significantly from today, helped inventory levels recover, oil & gas companies must strive but nowhere near full potential. but those efforts are contingent 2. CYBERSECURITY: to become “Lean, Green, Digital” CHARLES DEWHURST on key producers limiting output. By 2020, at least five countries will machines. Gone are the days when success was see foreign hackers take all or part t: + 1 713-548-0855 Agree or disagree with our linked almost exclusively to high The global predictions presented in of their national energy grid offline e: [email protected] predictions? We want to know — production volumes and growing this report are based on research and through Permanent Denial of Service reach out to us here. reserves. collective input from BDO’s Natural attacks. Ready or not, the Resources leaders around the world. CHARLES DEWHURST It’s the confluence of trends—not 3. GLOBAL ENERGY TRADE: In addition, the practice leaders from Global Natural Resources global oil & gas industry just the new pricing paradigm, By 2020, the growth of LNG imports five countries (Australia, Canada, the Industry Practice Leader must contend with an but rapid growth in renewables and solar power will bring electricity United States, the United Kingdom, +1713-548-0855 along with accelerating technology to four in five African people. ever-changing ‘normal’. and the Kingdom of Saudi Arabia) [email protected] advancements—that is reshaping have provided regional predictions the industry. The energy company for the industry in their markets. of the future is one that has successfully figured out how to cut costs, enhance operational efficiencies through digital and

3 BDO’S ENERGY 2020 VISION: THE NEAR FUTURE OF OIL & GAS GLOBAL PREDICTIONS

4 GULF COUNTRIES DIVERSIFY WITH WIND AND SOLAR PREDICTION 1

OIL PRICES

BY 2020, LOW OIL PRICES— The pressure is on for GCC sources in the area. Countries Although GCC countries have set EXPECTED TO REMAIN AT OR countries—Saudi Arabia, Kuwait, the are starting to make renewables targets for deployment of renewables BELOW THE $60 PER BARREL United Arab Emirates, Qatar, Bahrain, realistic through auction-based at the national or local level, the MARK—WILL SPUR GULF and Oman—to diversify away from approaches to subsidies. Through region has seen little deployment. COOPERATION COUNCIL oil, especially when it comes to auctions, countries set a target By 2020, we predict that relatively electricity production. level of investment in renewables low oil prices will spur GCC countries (GCC) COUNTRIES TO and allocate contracts to the to diversify their energy mix within The rising domestic demand for DIVERSIFY THEIR ENERGY most cost-effective bidders. the power sector. As utility-scale oil, especially in the power sector, MIX WITHIN THE POWER Almost 50 countries have adopted installed solar and wind costs is hindering the GCC countries’ SECTOR, USING AUCTIONS this approach, and almost 30 continue to decline, they will use ability to export oil and causing their TO SUBSIDISE RENEWABLE additional countries are considering renewable energy auctions to begin economies to contract. In October ENERGY PROJECTS. following suit. reaching their deployment targets. 2017, the International Monetary Fund (IMF) cut the 2018 GDP forecasts for the GCC states from 2.5 percent to 2.2 percent. Non-oil related economic growth is expected to reach 2.4 percent in 2018—well below the 6.7 percent average seen from 2000-2015. Oil-exporting countries across the broader region $60 saw their fiscal deficits skyrocket from 1.1 percent of GDP in 2014 to 10.6 percent of GDP last year. GCC countries’ current trajectory is unsustainable. Most have already begun importing LNG because of the shortage in cheap natural gas, further underlining the need for efficient, non-hydrocarbon energy

5 ATTACK AGAINST THE GRID: A DRESS REHEARSAL FOR WHAT’S TO COME? PREDICTION 2

CYBERSECURITY

BY 2020, AT LEAST FIVE The advances in technology that Any disruption to a country’s electric WE PREDICT THAT COUNTRIES WILL SEE allow the energy industry to create grid would have serious implications TODAY’S ATTACKS ON FOREIGN HACKERS TAKE new efficiencies and innovations at for virtually all industries, especially THE GRID ARE A DRESS ALL OR PART OF THEIR the same time require connectivity critical ones like healthcare, REHEARSAL FOR A MUCH NATIONAL ENERGY that leaves power grids around transportation, security, and financial MORE MALICIOUS TYPE the world more vulnerable to services. Since 2011, a dedicated GRID OFFLINE THROUGH OF ATTACK: PDOS. BY cyberattacks. and sophisticated group of cyber PERMANENT DENIAL OF attackers known as Dragonfly has 2020, AT LEAST FIVE Several electric grids around the SERVICE (PDOS) ATTACKS. been targeting the energy sector COUNTRIES WILL SEE world have already come under in Europe and North America. The FOREIGN HACKERS TAKE threat in recent years, most through group has used Trojanised software, ALL OR PART OF THEIR Distributed Denial of Service (DDoS) spear phishing emails and watering ENERGY GRID OFFLINE attacks. In 2015, an attack on a grid hole websites to gather intelligence WITH THE INTENT TO in the Ukraine temporarily cut power with the potential for sabotage. to more than 200,000 people. A DESTROY IT. subsequent attack occurred just a While the number of total DDoS year later, reportedly carried out by attacks decreased by 18 percent Russian actors. In May 2017, officials year-over-year in Q2 2017, there was from the Baltic states—which a 19 percent increase in the average are connected to Russia’s power number of attacks per target. This network but plan to move to the could indicate that the quantity European Union’s grids—said their of DDoS attacks may be waning, power grids were targeted by Russia but the severity of each attack through a series of DDoS attacks. is increasing. “On a daily basis there are DDoS attacks designed to probe network architecture, so it could well be possible that something (serious) could take place later on,” a NATO official told Reuters.

6 LNG & SOLAR: THE PAIR THAT COULD FLIP THE SWITCH IN AFRICA PREDICTION 3

GLOBAL ENERGY TRADE

BY 2020, THE GROWTH Africa represents 16 percent of Electricity in Africa has remained Renewable energy has begun to help OF LNG IMPORTS AND the world’s population but just 32 expensive—a particularly difficult more Africans turn and keep the SOLAR POWER WILL BRING percent, or 1.5 in 5 African people, barrier for its population. However, lights on, and LNG exporters—and ELECTRICITY TO 4 IN 5 have access to electricity. The growth as noted by the Africa Energy their investors—will follow this AFRICAN PEOPLE. of liquefied natural gas (LNG) could Outlook, “huge renewable resources initial track. By 2020, we predict change that. remain untapped,” with further that the growth of LNG imports and potential from excellent solar solar power within Africa will bring While many governments in Africa, capabilities across all of Africa. electricity to four in five people on especially in sub-Saharan Africa, Foreign solar companies have taken the continent. have intensified efforts to invest notice and have installed solar in domestic energy production, microgrids or home-based solar inadequate energy infrastructure systems across sub-Saharan Africa. has stood in their way. Two out of At the same time, African countries every three dollars invested into the have begun building import facilities sub-Saharan energy sector since for LNG, including a facility in 2000 have been used to develop Ghana—the first import facility in the energy to be exported rather than for sub-Saharan market. The continued local consumption. growth in solar power across Africa LNG expansion is forecast to help could improve the wider energy natural gas demand outpace demand infrastructure, creating a ripple effect for oil and coal through 2040. and attracting foreign LNG exporters Africa presents an opportunity for to invest in pipeline construction, LNG producers to find new sources a further boon to their business. of demand.

7 INVESTING IN TECH TO KEEP THE LIGHTS ON PREDICTION 4

INVESTMENT IN TECH

WHILE OVERALL SPENDING As downward pricing pressures Technology is present throughout While oil & gas companies have ON R&D MAY DECLINE, rage and with much of the world’s the energy supply chain, from in the past been labelled “low MOST OF THE SPENDING easy-to-reach oil already consumed, locating oil wells and extracting R&D intensity,” investing less than THAT DOES OCCUR oil & gas companies are tasked with reserves to refining and transporting 1 percent of net revenue in R&D, WILL GO TOWARDS producing more with less—or risk the commodity. Oilfield services spending on innovation and R&D TECHNOLOGIES THAT shutting their doors. To accomplish companies like Halliburton and has increased notably over the last this, energy companies, historically Schlumberger note that their few years. ENHANCE EXPLORATION slow to do so, are investing in customers already use high-tech Investing in innovation is the first AND PRODUCTION (E&P) new technologies to increase equipment and data analytics to step towards global oil & gas EFFICIENCIES. operational leanness while boosting determine whether a well will companies reducing expenditures profit margins. produce enough oil to make it while maximising production and economic—before the drilling begins. maintaining margins. By 2020, while Others are using more advanced their overall R&D spending may technologies to “refrack” wells decline, oil & gas companies will originally drilled using less advanced put most of their remaining dollars technologies to extend their shelf life into technologies that boost E&P and further capitalise on them. When efficiencies in an effort to do more it comes to new wells, engineers use with less. software and sensor technology to determine the right combinations of chemicals, sand, and water to maximise extraction. When deciding where to drill, E&P companies already rely on a combination of Monte Carlo simulations and 3D seismic surveys to generate 4D seismic imaging and project future physical changes to the oilfield and reservoir. Using current technology, the industry has about an 80 percent overall drilling success rate.

8 DEMOCRATISATION OF DATA PREDICTION 5

DIPPING INTO THE DATA

BY 2020, THE AVERAGE E&P As the adoption of new technologies rig technology can track progress industry effectively. As a result, COMPANY WILL MAKE USE quickens, the upstream sector’s continuously and create more most data collected from upstream OF 10 PERCENT OF ITS BIG access to data will grow accurate and safer drilling processes. operations, while it may be used DATA—UP SIGNIFICANTLY exponentially. Under the pressure of When it comes to extraction, for issue detection and control, FROM TODAY, BUT subdued oil prices, the ability to tap data can be analysed to conduct is never used for performance into that data becomes a lifeline. predictive maintenance on wells and optimisation. The average offshore NOWHERE NEAR FULL determine whether certain wells rig has 30,000 data-generating Upstream companies place tens POTENTIAL. should be re-fracked. sensors, but less than 1 percent of of thousands of data-collecting that data is analysed and used in sensors within wells and surface While most E&P companies have decision-making. facilities to monitor assets and adopted new technologies, they still environmental conditions in real lack the data analytics capabilities As tech companies begin to partner time. When used correctly, data can needed to extract the maximum more with the E&P sector, we expect create efficiencies across the entire value of that data. Upstream innovation to accelerate and better E&P process—from locating and companies are often unable to data integration across organisations extracting hydrocarbon to arranging integrate different sources of data, to take shape. By 2020, we predict for delivery to trucks and pipelines and information gathered from the average E&P company will make for transport and refinement. In the different datasets is left in silos, significant strides towards data discovery stage, E&P companies unavailable to decision-makers who democratisation, making use of 10 can use data analytics to analyse need it most. Technology companies percent of its big data—up notably year-on-year geological survey data providing the data infrastructure from today, but still nowhere near to determine the best places to drill. are often unaware of how to full potential. During the drilling phase, drill bit and apply the analytics tools to the oil

9 BDO’S ENERGY 2020 VISION: THE NEAR FUTURE OF OIL & GAS IN CANADA

10 CLOUD COMPUTING TAKEOVER PREDICTION 1

SHIFTING ASSETS

BY 2020, TRADITIONAL Many oil & gas organizations look to There are various types of cloud servers, storage, and other ACCOUNTING RULES WILL capitalize large capital expenditures computing arrangements in the components on behalf of its users. PRESENT NEW CHALLENGES through traditional capex and Opex marketplace, including: expenditures. With the adoption of With an ever-increasing number FOR FINANCIAL PLANNING, • Software as a Service – This cloud technologies, this will continue of options available to companies FORECASTS, AND ASSET arrangement is a software to present challenges in 2020 as transforming their business models, MANAGEMENT, AS OIL & GAS distribution model where companies shift their large capital a cloud computing arrangement may applications are hosted by the COMPANIES INCREASINGLY expenditures to the cloud. not fit into a specific standard and, LEVERAGE INNOVATIVE service provider and the purchaser thus, entities may need to look at the SOFTWARE SOLUTIONS. Halliburton is an example of has access to the software Conceptual Framework to determine a price-conscious cloud user. through a network. The customer whether there is an asset in the The company has used cloud maintains all infrastructure arrangement. technologies most aggressively in and hardware. new business ventures, where the IFRS 15 uses a completely new model • Platform as a Service – This cost of deploying new on-premise for recognizing revenue that is more arrangement is a model where solutions, combined with the risk prescriptive. The changes aren’t only the cloud provider delivers of over-investing in resources in an for revenue recognition, but also both hardware and software unpredictable demand environment, many areas around revenue. In these tools needed for application make the cloud’s value proposition cloud-based scenarios, there is a development. The provider hosts particularly compelling. risk that the accounting will impact the hardware and software such business procurement decisions. In the quest to be leaner during that the customer does not By 2020, traditional accounting economic downturns, oil & gas need to perform installation or rules will present new challenges companies in 2020 will be turning purchase in-house hardware and for financial planning, forecasts, many of their operational systems software. This model does not and asset management, as oil & gas to cloud-based technologies replace the full infrastructure of companies increasingly leverage and leveraging the power of the customer’s needs. innovative software solutions. connected machinery. Reducing • Infrastructure as a Service – cost and complexity of large Greater transparency and monitoring This arrangement is a model capital expenditures that could be of these cloud software costs in the where virtualized computing traditionally capitalized from an income statement is recommended resources are provided over the accounting perspective simplified the to avoid unconscious bias and to internet. The third-party provider process. But the cloud and a desire provide a clearer basis for decision- hosts the hardware, software, to rent versus buy is changing that. making in strategic investments by executives. 11 THE DEATH OF CONVENTIONAL BUSINESS PLANNING PREDICTION 2

MODERN BUSINESS PLANNING Project success rates are rising. Common mistakes to avoid? • Not carefully thinking about Organizations today are losing an the behaviors the KPIs will drive BY 2020, CONVENTIONAL • Allocating too many irrelevant average of US$97 million for every towards achieving the strategy APPROACHES TO BUSINESS metrics to the executive US$1 billion invested—a 20 percent PLANNING WILL NO scorecards so that executive • Not directly linking the metrics decline from last year. LONGER BE SOPHISTICATED conversations lose focus on the and KPIs to the strategy ENOUGH TO RESPOND Today’s organizations operate in a critical few and the intent is lost Oil & gas organizations will need to TO DYNAMIC CHANGES new working environment. Ongoing • Not providing context of the continue to focus their corporate economic and political uncertainty, IN TODAY’S BUSINESS metrics or discussing how the strategies to avoid these common speed of innovation, shifting ENVIRONMENT. executive can influence the mistakes and take measures to align customer and employee demands, metrics operational performance with a more visibility into organizational strong set of KPIs that are realistically activities, and an increasingly diverse • Insufficient time and effort spent embedded into the corporate culture set of stakeholders have impacted all on setting targets for metrics and and back digitally enabled platforms. oil & gas companies. building action plans to meet or exceed those targets By 2020, conventional approaches to business planning will no longer • Insufficient data transparency to be sophisticated enough to respond allow executives to measure their to dynamic changes in today’s ongoing performance business environment. With such • Not allocating sufficientdecision approaches, business plans can end rights to executives to allow them up disconnected from the day-to- to influence the metrics day reality of the organization and, ultimately, the business planning • Failure to set an appropriate process becomes an exercise in benchmark for the metric playing catch-up rather than a path • Failure to communicate shared to desired results. ownership of metrics across the organization where more than one department influences the metric

12 ENTERPRISE RESOURCE PLANNING EVALUATIONS WILL RISE PREDICTION 3

RE-EVALUATING ERP PLATFORMS While many assume that the oil Why will oil & gas entities need to 3) Active compliance and BY 2020, OIL & GAS & gas sectors look like any other re-evaluate their platforms? Four policy management ORGANIZATIONS WILL BE industrial business, when it comes to key reasons: This feature set is where some Enterprise Resource Planning (ERP), ERP platforms perform like stars FORCED TO RE-EVALUATE 1) R eal-time hard and soft operational specific elements will while others don’t. The oil & gas THEIR ENTERPRISE asset control drive organizations to examine their sectors are highly regulated, with RESOURCE PLANNING Asset controls in the oil & gas overall approach given the uptick in hosts of federal, state, and tribal sectors are critical to efficient (ERP) PLATFORMS. M&A activity from 2016 to 2017. rules being applied quarter-over- operations. Because of this nest of quarter. Over time, these clusters By 2020, oil & gas companies requirements, some ERP platforms of regulations and policy sets will face an existential pressure are unable to deal with these have sometimes weighed on oil to achieve a step change in cost elements efficiently and must & gas operations. and productivity. This typically ensure that potential vendors are has hundreds of separate and up to scratch in this area. 4) Standardized data processes incompatible systems, and a big ERP In the same way that regulations 2) Thin systems integrations investment that is costly to maintain, and levels of process efficiency This value point typically applies difficult to change, and unsuitable for apply to oil & gas operations, the to the speed of operations. If a digital world. ability to leverage standardized you find that a particular ERP processes that maintain an ERP platform is difficult to integrate datastore becomes equally with third-party components, you important. are probably looking at the wrong system. Opportunity costs relating to oil & gas sectors are enormous, so you don’t want to find yourself slowed down by one or more difficult affiliate components.

CONTACT Justin Friesen (Partner) +1 403 205 5770 Stephen Payne (Partner) +1 416 525 1762 Hetal Kotecha (Partner) +1 403 213 5447

13 This publication has been carefully prepared by BDO.

‘BDO’, ‘we’, ‘us’, and ‘our’ refer to one or more of BDO International Limited, its network of member firms (‘the BDO network’), and their related entities. BDO Inter-national Limited and each of its member firms are legally separate and independent entities and have no liability for another such entity’s acts or omissions. Neither BDO International Limited nor any other central entities of the BDO network provide services to clients. Please see www.bdo.global/about for a more detailed description of BDO International Limited and its member firms. Nothing in the arrangements or rules of the BDO network shall constitute or imply an agency relationship or a part-nership between BDO International Limited, the member firms of the BDO network, or any other central entities of the BDO network. BDO is the brand name for the BDO network and for each of the BDO member firms.

This publication contains general information only, and none of BDO International Limited, its member firms, or their related entities is, by means of this publication, ren-dering professional advice or services. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact a qualified professional adviser at your local BDO member firm to discuss these matters in the context of your particular circumstances. No entity of the BDO network, its partners, employees and agents accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the informa-tion in this publication or for any decision based on it.

Editorial: BDO Global Office, Belgium