Turuk Oil and Gas

Oil and Gas 2030: Let there be change

For years, oil and gas companies have struggled to produce profits, spark the interest of investors, and preserve public trust. These issues have recently been exacerbated by an excess of supply, a growing decarbonization momentum, and fundamental changes in consumer behaviour. Many companies' relevance, and even their social licence to operate, are being questioned.

Despite average oil prices of more than $70 per barrel over the previous decade, free cash flow from core operations was insufficient to sustain shareholder returns above the cost of capital. Since the 2008 financial crisis, the leverage ratio of total debt to total liquidity has more than tripled, and the industry's share of the S&P 500 has been reduced by more than half.

Despite these warning indications, oil and gas corporations continue to play a critical role in the energy future, notably in providing safe, cheap, and sustainable energy to over a billion people. However, oil and gas will no longer be the uncontested energy leader, as alternative sources will take over.

Oil and gas companies have cut their capex by a combined 34% in 2020, slightly more than the initial 28% reduction following the price decline that started in 2014.

O&G companies, as well as their supply chain partners, must make a key choice regarding their future portfolio plans. In a decarbonizing economy and an industry with profit pools shifting downstream away from fossil fuels, incumbents must decide what to unload, where to diversify, what to optimise, and which new market opportunities to explore.

Companies must examine how to optimise their chances of success after they have decided what position they want to play in the future energy environment. Affirming their importance will necessitate new actions and mindsets. Long-held beliefs in five areas must be challenged in order to create way for the innovations that will power the energy future.

The oil and gas sector has seen difficult times in the past. However, the magnitude of the difficulties it currently faces necessitates immediate response. To be relevant in a decarbonizing world, oil and gas players must rethink old assumptions and develop reinvention strategies.