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The inescapable impact of Oil and Gas on property The inescapable impact of Oil and Gas on property
Share this on WhatsAppINTERNATIONAL BUYERS, TALENT MOVEMENT, EXPATRIATE COMMUNITIES, PROPERTY PRICES… IT’S ALL ABOUT THE STATE OF O&G By Livian Lin The Oil and... The inescapable impact of Oil and Gas on property
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INTERNATIONAL BUYERS, TALENT MOVEMENT, EXPATRIATE COMMUNITIES, PROPERTY PRICES… IT’S ALL ABOUT THE STATE OF O&G

By Livian Lin

The Oil and Gas (O&G) industry has always had an impact on housing, especially in oil dependent cities like Dubai and Calgary; or at towns where the entire socio-economy revolves around oil, like Aberdeen and Geoje.

The vice president of the Texas Association of Realtors once explained that stated that the average number of days a property stays in the market is 52, but during an upcycle of the oil industry, it is just 17 days. The opposite is of course true in a down cycle.

Kuala Lumpur, which is ranked amongst the top 10 O&G cities in the world by Rigzone, has proven to be no exception to the rule – as the current slowdown has painfully demonstrated.

“Painful” because it has certainly been a long slump for the O&G industry. Reports from the 2017 World Petroleum Congress held last July in Istanbul suggest that recovery is slipping further from view.

Exploration has slowed and producers outside the shale areas in the United States aren’t increasing spending, Lorenzo Simonelli, CEO of Baker Hughes pointed at the conference.

CEO of Total SA Patrick Pouyanne and head of Weatherford International Plc Mark McCollum have both said that it may take until the end of the decade to see recovery in an industry that is suffering a historically long slump.

The O&G industry has far reaching impact, and KL’s property scene is not impervious to its influence.

BP’s Chief Executive Bob Dudley said at the congress that lower for longer is the new norm and that it may be longer but not forever.

“Until then, it may feel very tenous”, McCollum added at the congress.

In the meantime, we have been affected by lower expatriate numbers and lower demand for housing, especially in the high-end property segment.

Knight Frank reports that there is no sign of recovery in the rental market and prices in KL city center, Bangsar, Damansara Heights and Mont Kiara (key expatriate areas) remain under pressure. Despite the soft market, asking prices remain relatively stable although vendors are more flexible in negotiations.

Ian Hyde of Competentia, an international staffing solutions company which has been serving the Energy Industry for over 20 years, including the recent large scale ICHTHYS project where Malaysia was a key location, explains: “For those projects that are currently underway we found that the priority for our clients was to keep the projects moving, rather than trying to save a few dollars on restricting international assignments. In saying that, we did see a reduction in some entitlements (such as a move towards Economy Class rotational flights where this was not already the case)”.

The “global assignee” factor impacts demand for high-end properties targeted at expats.

Hyde also said that for projects which have yet to be sanctioned or are still in the pre-execution phase, the company has been involved in a number of benchmarking, costing and tendering exercises. There has also been a greater emphasis on understanding the true cost of international assignments.

“There are always ways to minimise costs, without compromising. These require close collaboration with our clients, to explore different options and find the right solution” he added.

“We are seeing temporary changes to assignment details, including class of air fare, freight allowances and costs for dependents. These cost saving measures will continue for as long as the market remains relatively depressed; once demand picks up again then such entitlements will be a key differentiator for talent choosing their next move,” Hyde concluded.

Industry reports have also stressed the constant concern of swift readjustment for the “assignee family” has a huge impact on the assignee’s success and ultimately, project effectiveness. Too much cost cutting and reduction in quality of life would certainly impact this.

The Mercer Talent Report states that though housing is a big component in costs and cost containment measures that have been introduced, ultimately, reducing generous housing allowances is not advisable or at times, possible.

So, the question is: through times of change and hardship, will the negative impact on the O&G industry have the power to change the global talent mobility process?

Mercer’s report has debunked the myth that the end is nigh for the traditional expatriate. The big reduction of expatriate packages is greatly exaggerated, and with the increasing number of emerging markets, they may actually rise.

What has changed is the profile of the traditional expatriate, which is now more diverse and growing in complexity in terms of talent mobility.

Competentia’s Hyde observes that there is keener interest in local candidates, provided the skill set was suitable. Cost is a significant driver in the current climate. Some of the recent tenders Competentia worked on have requested three rate submissions: local; regional expat; expat; with the expectation being that there is a lower overall cost for regional expat roles in comparison with international expats.

However, he finds that this approach tends to underestimate the local and regional level and we could certainly see rate demands and costs increase here. This would make the international assignees look more attractive again with a commensurate increase in positions offered.

The profile of the traditional expatriate is changing to become more diverse and complex.

Ultimately, for a vast majority of job locations, the best candidates would be offered the role, regardless of their point of origin.

In the long run, Hyde finds that disruptive technology is changing and affecting our everyday lives, and will probably have a more substantial impact on the need for large international workforces. Remote workstations, online collaboration and many other new-age work solutions are already in place – compelling business firms to relook and reimagine the shape of their companies.

“In saying that, I do not see companies removing the need for human presence and oversight, particularly within our clients. Large-scale energy and resources projects are too important and open to too many variables to risk not getting it right and sacrificing delivery for cost-saving” he adds.

Indeed, Mercer’s report also stresses the importance of skills over costs, where it takes more than 12 years to develop experts in key role competency.

In previous down cycles, the industry suffered from gaps in the talent pipeline and this cycle is no exception.

Leading global professional services company Accenture adds that the industry has shed about 440,000 jobs globally since 2014. There is also the impending retirement exodus to factor in, as the O&G has traditionally had a strong reliance on the “Boomer” generation.

It is estimated that about 50% to 80% of workers aged above 55 would be lost (that’s about 150,000 years of expertise) in the next five years; and Millennials do not provide enough experience or manpower to close the gap.

Both the Accenture and Mercer reports warn that this growing workforce deficit will be a greater barrier to the industry’s success than any other deficit that might exist in capital, equipment or supplies.

Additionally, Mercer points out that the return in demand for talent would be especially felt in Asia.

Taking all of this in, we can at least conclude that a forward momentum in global talent mobility is to be expected when things pick up. The key question is, when are things picking up?

Hyde offers his insight: “From the slowdown, more projects are now being seen as commercially viable as clients and suppliers are establishing ways to work in a lower price oil environment. We expect to see more projects sanctioned soon and that usually brings some confidence back to the market”.

Disruptive technology could ultimately have the biggest impact on international talent mobility.

Dudley, who was among the first to predict the downturn, is of the opinion that prices will rise as demand overpasses supply and erodes overloaded inventories.

Mark Richards, senior VP of Business Development and Marketing at Halliburton Co said: “Sooner or later the market will catch up with the decline in spending. You can’t have sustainable business without investment”.

Saudi Arabian Oil Co’s CEO Amin Nasser already feels the supply is worrying and will invest in anticipation of an impending shortfall.

Barclay’s E&P Spending survey found that capital expenditures are expected to increase by 7%.

Global rig counts have also increased, according to Baker Hughes, and things would possibly look up as the hiatus of major investments since 2014 resulted in pending long term supply shortfall.

John England, a partner at US Energy and Resources Leader and Americas Oil and Gas Leader for Deloitte Energy Solution said in his 2017 Outlook for the industry that, despite the slowdown, Global and US oil demand have shown moderate but steady growth, while supply and demand seems to be tightening.

England believes that the industry is one of the most resilient, with have far broader visions than the short cycle projects that have been focused on in recent times. The long term perspective, he says, has always been the strength of the industry.

The long and short of it is this: Malaysia earmarked by the Brookfields Mobility Trend survey 2016 as being “one of the top three emerging countries for assignee postings for the Energy (Oil and Gas and Renewables) industry. By this measure, we should be in good position to rediscover the past vibrancy that once lit our prospects as an international property destination.

However, it is also important that we heed the lessons of the past as a cautionary tale. Should “the good times” return to our property landscape, we should approach our role as an international real estate hotspot with more maturity and an intuitive view towards actual demand. Overzealous building to address this segment did not serve us well previously, leading to an oversupply situation that we are still struggling to deal with.

After all, the world, these days, is proving to be a very unpredictable place.

 

 

 

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