Offshore energy: The new operating environment

Offshore oil companies are facing a challenging environment with lower oil prices, forcing them to adapt and make significant changes to stay afloat. Alasdair Walker, Head of Marine and Energy for Africa at AGCS Africa, shared insights on how this new operating environment is impacting offshore players during an interview with CNBC Africa. The current scenario is vastly different from the days of high oil prices in the past, as companies now have to navigate through an era where crude oil prices range between $45 and $55 per barrel. This has led to a reduction in drilling activity, a decrease in capital expenditure for new construction projects, and a focus on cutting costs across the industry. Walker highlighted the impact of these changes on insurers, emphasizing the importance of maintaining safety and maintenance standards even in uncertain times. While some companies may look to reduce expenditures in these areas, it can directly correlate to an increased risk profile and potential claims. By working closely with clients who prioritize safety and maintenance, insurers aim to mitigate risks and protect their clients' businesses. Despite the challenges, the demand for offshore insurance remains high. Clients are exploring options to reduce costs, such as greater self-retention and seeking cheaper rates or alternative capacity. In such uncertain times, finding risk transfer solutions and service partners becomes crucial to safeguarding balance sheets. AGCS Africa is focusing on risk mitigation strategies to prevent losses proactively, using trained engineers to identify and address potential problems before they escalate. In the African offshore energy sector, the impact of the new operating environment is significant. Exploration costs in deep-water regions like the Gulf of Guinea are high, making it economically challenging in the current crude oil price environment. While some offshore activities have slowed down, there are still prospects in onshore drilling and offshore exploration for companies with a long-term view. Looking ahead, the future of oil and gas investments in Africa appears promising. Despite the uncertainties surrounding oil prices and demand, there is optimism about the continent's potential in the sector. With significant downstream infrastructure and investment needed to maximize the continent's resources, Africa remains a frontier market for oil and gas. Nigeria, in particular, has seen international joint ventures and indigenous companies investing in upstream and downstream operations, signaling growth potential. In the realm of offshore insurance, partnerships like the one between AGCS and credit insurer Euler Hermes are crucial for assessing credit risks and supporting clients effectively. As the industry looks towards the future, the role of insurance in managing financial risks and ensuring proper risk coverage for big players will remain essential. While challenges persist, the industry's resilience and ability to adapt will be key in navigating the evolving landscape of offshore energy.