Approaching portfolio optimisation.

Oil and gas capital expenditures peaked at $750 billion in 2014. Having declined to less than $500 billion up until 2020, they then dropped even further to $285 billion. For most companies, the return on invested capital for oil and gas has proven volatile, with it dropping below zero twice in 10 years. Oil and gas companies have struggled against industry headwinds for over a decade now and it is well past the time to conclude that their portfolios have not been fit for the 21st century.

In 2021, the oil and gas sectors are tackling a fresh set of challenges due to deteriorating market conditions as a result of the COVID-19 pandemic and the global drive towards net-zero. The current market context is shaped by a demand for new types and quantities of fuels, plastics, and specialty materials, and this is again testing the resilience of companies’ asset portfolios.

The next decade will prove even more challenging than the last as the energy transition accelerates. To overcome testing industry trends, companies need to identify how they can strengthen their portfolios through M&A and organic investment.

However, portfolio optimisation is easier said than done.

Portfolio optimisation can deliver improved financial performance but only if it is aligned to a broader business strategy inclusive of rethinking your brand, people and sales strategies. This is a hard and too often overlooked aspect; how is my new portfolio supported by the other elements of my business? Have I reassessed my existing brand, people and sales approach, as well as rethinking my assets, products, and services?

Over the past several decades, mergers & acquisitions (M&A) have yielded mixed results across industries and sectors, with roughly half of deals not having any positive impact on the acquiring companies’ performance. The same has been generally true for organic growth, which has not always translated to improved performance either. In the case of oil and gas, many companies have spent significantly to build new portfolios, but capital expenditures have often eclipsed revenues.

Oil and gas companies need to rethink how they approach their portfolios.

Only companies that leverage a relevant and superior brand, hire and retain the right people, develop a sales strategy that is fit for the digital world and invest in marketing will have a fit-for-purpose portfolio which will overcome future volatility and uncertainty.

TOM'S HOT TAKE: Oil and gas companies need to rethink portfolio optimisation.

Thomas Barton

Researcher & Strategic Planner

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