Oil markets are resilient at the moment, except occasional and short-lived spikes in oil prices. Questions remain over demand, both in the short term (trade wars and economic growth) and the long term (vehicle electrification and carbon reduction). Aided by sanctions on Iran and turmoil in Venezuela, OPEC production restraint has supported prices in the face of growing North American production. Oil and gas executives remain confident about growth, with nearly 74% expecting their revenues to modestly or strongly increase and 68% of respondents anticipating their profits to witness similar jumps over the coming year.
A confluence of factors is shaping oil and gas companies’ strategies
Not surprisingly, geopolitical risks and trade disputes have topped the list of major risks to oil and gas investment. While oil markets are pricing the attacks on oil processing facilities in Saudi Arabia as a one-off event, oil and gas companies are recognizing growing geopolitical risks from such events, as well as sanctions on Iran and production loss in Venezuela. New environmental or climate-change-related policies have been identified as a significant risk, which was not the case five years ago. The oil and gas industry is facing mounting pressure from capital markets, equity markets, activist investors, governments and the general public to decarbonize. In addition, concerns over a slowdown in demand and low oil prices are creating pressure on oil and gas companies’ margins and driving them to control costs.
Companies are proactively addressing the challenges arising from geopolitical issues and changing trade and tariff rules by reconfiguring their supply chains and operations, and outsourcing or divesting non-core and back-office functions. Broader societal issues are increasingly impacting boardroom strategies and driving companies to communicate their long-term value creation to investors, stakeholders and the public. While 60% of oil and gas companies already measure and report customer value, a large majority plan to adopt social value (58%) and talent (34%) reporting within the next 12 months. As oil and gas companies tackle several external interconnected challenges, they must also overcome internal inertia and traditional barriers to become more agile and proactive in a rapidly changing world.
Staff cuts during the oil price crash, the retirement of skilled and experienced workers, and the lack of new employees to replace them have led to a skills shortage in the oil and gas industry. Notably, 60% of oil and gas companies are finding it difficult to hire and retain talent, primarily technical staff to run their core business or digital and technology experts. While automating routine or hazardous tasks and using digital technology to make the talent function more effective could help, attracting younger generations to work in the industry and reskilling the current workforce will also be important.