On the strategic front, portfolio optimization, alternative energy investments and M&A opportunities topped the list of issues. Portfolio high-grading continues to be a key priority, and analysts wanted to understand how companies plan to adjust their portfolios through the cyclical downturn in downstream if current macro conditions continue.
Companies were also asked about their divestment plans and any challenges they foresee in executing asset divestment in what is perceived to be a difficult market. When it came to M&A, analysts were clearly interested to know the type of assets — O&G assets or non-O&G assets — that are expected to see heightened levels of activity in upcoming quarters.
Alternative energy and decarbonization
Although oil and gas will remain a critical part of the global energy mix for decades to come, increasing investor focus on climate change is compelling companies to invest in alternative energy businesses. However, analysts’ skepticism toward oil and gas companies’ ability to achieve ambitious alternative energy business targets was clearly evident. Analysts inquired about returns on already operating alternative energy assets and questioned whether companies possess the competencies and skill sets needed to ramp up alternative energy businesses.
Environment, sustainability and governance (ESG) emerged as a key topic among the analyst community during the quarter. Companies have announced major decarbonization initiatives, and analysts were interested in their execution plans. Analysts also asked questions around companies’ medium- and long-term exploration plans to get a view of how core oil and gas businesses will compete for capital in the age of decarbonization.
Analysts expect market volatility to continue in the next few quarters. These uncertainties may continue to pose challenges to companies.
The confluence of indefinite demand disruption and the breakdown of supply discipline has led the market into a period of unprecedented uncertainty. Forces that have supported commodity pricing are gone for the time being. The focus on capital deployment, project economics, operational efficiency and cash flow will likely reach new heights. Share buybacks and dividends may be at risk, access to capital will be difficult and consolidation will take on new urgency. On top of it all, pressure to reengineer businesses in the face of energy decarbonization will be relentless.