2. Manage emissions: Oil and gas cannot completely decarbonize, but customers and regulators will increasingly seek progress on various emissions metrics, such as carbon intensity of production. Coupling emissions management strategies with digital technology provides an enterprise-wide and full-lifecycle view of the emissions portfolio, and allows management teams to execute growth strategies aligned with customer needs in a future energy system.
“In a recent project for a global integrated energy company, we assessed which technology could best create an integrated carbon tracking system,” said Ben Williams, EY Americas Oil & Gas Technology Consulting Leader. “As a result, the client is on the verge of making its carbon footprint transparent and has the perspective to unleash revenue, and business-model opportunities create value during the transition to a lower-carbon future.”
3. Execute capital strategy: The two metrics EY professionals are watching are the forward price strip and the cost of capital, specifically borrowing costs to inform the velocity of these estimates. Driving this trend is a continued high grading of portfolios among energy producers. For example, in Q3 2022, oil and gas had 101 deals with US$53b, according to EY analysis.
“As commodity prices hold, we expect assets will continue to shift with both high volumes and deal value through 2023,” said David Johnston, EY Americas Oil & Gas Strategy and Transactions Leader. “Over the next two to three years, we estimate those shifts at north of $150b. Specifically, in a climate of higher interest rates, we expect corporates to be key buyers and private equity largely on the sell side.”
The expanded investor focus on energy security and the energy transition will maintain private equity appetite for renewed opportunities, however. Corporates are anticipated to leverage a capital allocation strategy via oil and gas assets with low-carbon solutions. Low-carbon businesses like carbon capture, utilization and storage, or carbon capture, utilization and sequestration allow producers to gather Inflation Reduction Act capital to scale solutions with existing assets and offer a differentiated proposition to both customers and investors. Ecosystem strategies, where tech and energy form partnerships and joint ventures, will increase as well.