This enhanced commercial performance has also meant that US unconventional oil has followed natural gas in proving itself to be a viable, long-term core asset. And this stability comes amid growing investor awareness of the need for further investment in hydrocarbons, even in the case of an accelerated decarbonization of the energy system.
The experience of 2022 showed that investments in US hydrocarbons can quickly deliver energy required, either owing to more rapid economic expansion or supply disruptions in other parts of the globe. The disruptions to energy supplies caused by Russia-Ukraine war coincided with further production curbs by the OPEC+ group, marking one of the few times since 1973 that a geopolitically driven supply crisis was not met with expanded Saudi output.
To be certain, the energy crisis in the aftermath of the Russian invasion did not erase concerns about climate change or the impacts of the continued and expanded use of hydrocarbons. But it has forced a more prudent mindset among investors and other stakeholders on the longer-term necessity of oil and gas, which coincided with the industry’s ability to demonstrate its ability to steward these resources in a manner that also delivered shareholder value, including when prices softened.
At the same time, this commitment to shareholders did not come at a time of retreat from commitments to broader stakeholders. Rather, oil and gas companies are approaching their US operations by demonstrating they can be the best possible stewards of the hydrocarbon resources under their control — including by committing to reducing the GHG footprint of their operations — while also taking up the challenge of programs like the Inflation Reduction Act to innovate and commercialize newer technologies such as carbon capture and hydrogen to accelerate the decarbonization of the energy system.
Consolidation is helping to drive these aims, and some signature deals — such as a major’s acquisition of an independent – demonstrate how companies are relying on low-cost and low-carbon intensity assets to complement their overall strategy.
“Specifically, further consolidation is anticipated in the US shale — in order to capitalize on back-office synergies — as well as among midstream companies,” said Bruce On, EY US-West Region Strategy and Transactions Energy Leader. "We expect to see M&A activity further increase this year (and even more so in 2024) as the economy stabilizes and expectations begin to converge.”
Though individual corporate strategies may vary, a common approach now being adopted is to define both a current and future business that is true both to a company’s outlook, strategy, capabilities and culture. In so doing, they define a core part of the future energy system they seek to serve. And their articulation of these ambitions has also been improved with the continued enhancements witnessed in corporate ESG reporting.