Walk the line: faith rewarded in the energy sector—for now

I keep a close watch on the price of oil

Lest my consulting practice goes off the boil

I must admit, I felt worried for a time

But things are fine, I walk the line

…is not what Johnny Cash sang, but does neatly sum up consulting to the energy sector over the last year or so.

With the price of oil standing at around half of what is was a year ago, the oil industry is in a situation it hasn’t seen for decades. Clients’ revenues have been slashed but, fortunately for consultants, that hasn’t translated into projects getting canned.

In fact, consultants to the energy sector are sitting pretty right now. The market grew 6% over 2014, even with oil prices faltering towards the end of the year, and looks set to grow 3% in 2015 despite a prolonged period of depressed prices.

One of the reasons the market has remained buoyant is that most clients have been so profitable in the recent past that they don’t yet feel the need to cut consulting to save cash. As things stand, they’re committed to the programmes and initiatives that are already underway, and to the continued use of consultants to support them.

Another is that the turmoil has created plenty of work around cost cutting and efficiency. As top lines suffer, clients are looking to bring down the cost of getting oil out of the ground, and crucially, they’re still using consultants to help figure out how to do so. In these circumstances, there’s always a danger that consulting is regarded as one of the costs to be cut, but so far consultants have largely avoided that fate.

Indeed, it’s the countries with higher costs of production that are proving most fruitful for opportunities around efficiency and cost cutting. Since the cost of extraction is greater, there’s more scope to reduce it, and consultants from North America, to the UK, to Norway are finding their services in demand. Those in the Middle East, however, find their existence more precarious: the cost of production is so low that there are limited opportunities to bring it down any further. Consultants here say the impact of low oil prices on consulting work in the region is as dire as the market disruption they’ve seen in Russia—a market grappling with both low oil prices and currency devaluation.

Despite what is clearly a fragile situation energy remains—at least for now—a very attractive sector to consultants. The question is: how long will it last? With oil prices predicted to remain low into 2016, will clients continue to invest in expensive new initiatives? And how much longer will efficiency keep consultants busy when there are surely only so many efficiency gains to be found?

Unfortunately, since no one can confidently predict when oil prices will recover, it’s hard to see even into the medium-term what the impact on consulting will be. No doubt consultants will continue to walk the line, but the near-future could test their faith far more than they’re accustomed to.