Oil and gas sector facing sea change in wake of crisis
● PWC report to outline challenges for industry and how it is likely to adapt
Oil and gas firms must adopt more resilient business models to get back on their feet once the coronavirus emergency has eased, including “doubling down” on digital technologies and greater collaboration.
Industry experts also believe that the consequences of Covid-19 will be to provide a fillip to the energy sector’s transition to a low or zero carbon future.
The findings are contained in a major report which is due to be published by professional services giant PWC in the next few days examining the oil and gas industry’s response to the current pandemic.
As well as the direct effects of the virus, firms have had to contend with an oil price war that has seen a barrel of crude sink towards $20, although there have been signs of stability in recent days following an Opec-led agreement to trim production levels.
In its Resilience in Adversity report, PWC observes: “The coronavirus crisis will re-shape the oil and gas landscape (and many other sectors for that matter) to the point where it is entirely conceivable that we may begin to refer to “Before Covid-19” and “Postcovid-19” as a key event in the global industry’s timeline.
“All market participants across the energy value chain are being impacted. As companies mobilise their efforts, the focus is on weathering the turmoil, retaining critical operations and protecting cash flow.
“More than many sectors, the industry is used to challenges and crises. There was the global financial crisis in 2008/09 and then oil and gas companies successfully emerged, albeit somewhat bruised, from the brutal downturn which began in 2014. And in 2019 and 2020 it has been increasingly buffeted by the winds of the energy transition.”
Looking at the lessons that the industry can take forward from the crisis, the study notes that “cash is king for survival”, though there may be trade offs.
“For some players headcount reduction is a necessity but there are shades of reduction, such as options to furlough staff on reduced pay,” PWC said. “Letting go of essential staff in a downturn may mean companies are ill-prepared to navigate the current downturn and benefit from the upturn when it comes.”
The research argues that planning for the expected upturn in activity is just as important as short-term liquidity.
Meanwhile, experts from the firm say that “innovation is king for longevity”, providing an opportunity to “double down” on digital technologies and new ways of working. Digital “solutions” from artificial intelligence (AI) to drones will need to be deployed more extensively.
PWC also predicts that the energy transition will “return to the front pages in the near term”, noting: “There is a real chance that one of the consequences will be to provide a fillip to the energy transition’s momentum in so many ways.”