Stick or Twist: oil services have crucial choices to make as energy transition accelerates

Oil services companies can no longer delay making a choice on their future direction according to the latest report from PwC Strategy&, called ‘Time to Choose’. The options are to stick with their hydrocarbon heritage; becoming ultra-efficient and digitally enabled or pivot towards low carbon growth opportunities such as offshore wind or carbon capture, using hydrocarbons as the cash generating engine to fund this transition.

‘Time to Choose’ states that a perfect storm of COVID-19, increasing public scrutiny and the growing momentum of Environmental, Social and Governance (ESG) factors influencing investor and buying decisions, has accelerated the pace and impact of energy transition in many regions.

According to the report’s respondents, many oil services companies already recognise the need to transform in order to better align with their customers, with some helping to set the pace of decarbonisation alongside major players.

Transformation influences

Low carbon credentials could become an area of significant competitive advantage. The report highlights how oil services companies can increasingly showcase their decarbonisation credentials as a means of securing tenders. Some respondents also mentioned increasing pressure being brought to bear by some majors who are keen for supply chain decarbonisation credentials to help support their own strategic direction and licence to operate.

Where firms operate can also influence the pace of transformation. As governments around the world respond to the pandemic, fiscal stimulus packages have been developed with many countries looking to use this pivotal moment in time to stimulate a green recovery to ‘build back better’.  For those companies with a major footprint or head office in Europe, energy transition and ESG themes are likely to be much higher up the corporate agenda than other regions, such as the Middle East, which will see hydrocarbons retain their importance as a focal point.

Drew Stevenson, PwC’s Energy, Utilities and Resources leader, commented:
“We believe the oil services sector has a significant contribution to make in the UK’s energy transition journey.

“From engineering expertise and innovation to project management and global operational scale, these businesses have a golden opportunity to not only channel this capability into market leading credentials that will be in-demand globally, but to play a role in shifting the conversation about how this industry fuels and sustains energy and employment into the future.”

Decarbonisation driven by digital technology, deals and diversifying skills

In many ways COVID-19 has accelerated the need to adopt and deploy digital solutions. Given the physical impact of coronavirus on the workforce, companies in the oil and gas sector have been forced to increase automation and use of digital technologies, such as remote controlled vessels and robots to inspect underwater pipe networks and conduct maintenance scans of industrial complexes.

Needless to say, while digital offers great potential for efficiency gains in the oil services segment, in the short term at least, it will be balanced against tight cost control. As a strategic imperative, investment in digital solutions cannot be cut off.

M&A is another means by which energy transition could be accelerated, with complimentary skills, technologies and credentials likely to be highly sought after as entry points into new markets.  Premium valuations are already evident for renewable-facing businesses. The availability of finance will probably also be a driver of this transition.

As for the transferability of skills between oil and gas and low carbon, this is not always easy or evident. All oil services companies have core capabilities in particular areas – some may have skills that are transferable while others may struggle.

Have you selected a strategic pathway that will allow you to flourish in an increasingly volatile trading environment? Let us know.

 

 

Post a comment or leave a trackback: Trackback URL.

Post a Comment

You must be logged in to post a comment.