Should Oil Companies Become Broad Energy Firms?

As the global oil industry emerges from the depths of a crash that saw prices sink to historic lows, a new report from PwC says companies are being forced to rethink their strategies. Likening the landscape to a sink or swim scenario, the report warns oil companies must either transform into broad energy firms or carve out a specialised niche in oil and gas.

Prior to the COVID-19 pandemic most analysts predicted the oil industry had decades to evolve. Now, the landscape has changed drastically, and experts warn oil companies have a matter of years to develop new strategies. Focusing specifically on the UK offshore oil and gas industry, the PwC report says that while the sector is no stranger to turbulence, the COVID-19 pandemic has presented a crisis of an entirely new calibre.

“Crisis after crisis, the sector has been able to recover and reinvent itself through innovation. But as the full extent of the damage wrought by COVID-19 becomes apparent, this time looks very different,” reads the PwC report abstract. “However, what makes this crisis unique is how it may accelerate underlying structural trends, such as Environmental, Social and Governance (ESG) themes and the energy transition.”

Oil majors lose downstream cushion

One of the biggest changes is the fact that majors no longer have the cushion of downstream businesses to support low oil prices and serious demand slumps. This is because the COVID-19 pandemic slashed demand for both crude oil and refined petroleum products, two of the biggest money spinners.

The report, titled ‘COVID-19: UK industry focus - Where next for oil and gas?’ notes that even pre-pandemic, companies were finding it difficult to balance investments in low-carbon, hydrocarbon and other eco-friendly technologies, without compromising dividends. Now, COVID-19 is forcing these companies to develop new strategies to attract investment and stay afloat in the post-pandemic landscape.

Moving towards a “greener, more complex future”

Looking forward, PwC predicts a “greener, more complex future” is on the horizon for oil majors. The report notes that in the wake of COVID-19 governments across Europe are launching stimulus packages designed to support the economy while simultaneously integrating sustainable and eco-friendly policies. As this trend continues to grow, PwC says oil majors must “adapt to stay relevant.”

For more insight into how the COVID-19 pandemic has affected the oil and gas industry don’t miss ‘The Only Certainty is Uncertainty for Corona-Stricken Oil Industry.’