How Decommissioning Affects the Markets

Decommissioning services are undeniably big business within the oil and gas industry. As many predicted, the current climate is one in which many oil reserves are naturally running dry. This provides opportunities for many companies in the sector. Drilling companies can take advantage of enhanced technology and improved exploration to make use of reserves that would have been considered impossible to access many years ago. Elsewhere, decommissioning services companies can build a reputation for themselves as experts in the field.

However, the impact of decommissioning services does not only affect oil companies. The subject is high on the agenda of both politicians and financial analysts.

In terms of finance, the importance of the oil and gas industry cannot be overstated. Many investors look to oil as a commodity that offers huge potential returns when traded correctly and monitored. At its peak in 2008, oil was one of the most valuable commodities in the world in terms of price against volume. Prices have since returned to what would be considered normal levels, but the fluctuation is a strong indicator that in times of financial crisis, oil will be looked upon with great importance.

Aside from the oil itself, the companies involved in the industry are some of the most common investment choices. The giants, such as Shell and Exxon Mobil, appear in literally hundreds of stock portfolios around the world, justified by their huge annual profits. However, savvy investors are now looking to the future of the industry to motivate their own speculation.

The fact that reserves are rapidly running out affects the likes of Shell and Exxon Mobil. They are the companies that must spend money on identifying further sources of oil to meet demand. The impact of such spending, used on new techniques and exploration, eats significantly into their profits. It is no longer a case of build a rig, process the oil, sell it and profit. Unfortunately for investors, current stock prices still reflect this model and do not take into account the imminent huge expenditure.

Instead, investors with foresight in the industry are moving their money from the larger suppliers to the companies that effectively pick up the pieces afterwards. Many companies would find the most cost effective way to abandon a rig to be leaving it floating in the sea. However, this is impossible for numerous reasons, both political and environmental. This means they have to spend money in areas in which they have relatively little expertise, therefore increasing the demand for specialist decommissioning services companies. These companies are at the forefront of the most rapidly growing aspect of the oil industry, with turnover set to increase fivefold over the next decade. It is therefore imperative for investors to not only consider the large companies when making their choices, as they are no longer necessarily where the growth is.