Navigating Turbulent Waters: The Value of Portfolio Management for the Oil and Gas sector in 2023.

Strategic portfolio management is a crucial aspect of leadership in the oil and gas sector, where the stakes are high and the environment constantly changes. It involves the ongoing process of evaluating and adjusting a company's portfolio of projects, investments, and resources to maximize value and achieve long-term goals.

For senior leaders in the oil and gas industry, effective strategic portfolio management can be the key to success in 2023.

Strategic Portfolio Management helps companies to:

Identify and prioritize the most promising opportunities:

By regularly reviewing and evaluating the portfolio, senior leaders can make informed decisions about which projects and investments to pursue and which to divest. This can help to maximize value and minimize risk. For example, a company might decide to invest in a new offshore drilling project that has the potential to bring in significant revenue while divesting from a mature field with declining production.

Align resources with company goals

Strategic portfolio management helps to ensure that all projects and investments are working towards the same goals and contributing to the company's success. For example, if a company aims to reduce its carbon footprint, it might prioritize investments in renewable energy or carbon capture and storage projects.

Adapt to changing market conditions

A dynamic portfolio management process allows companies to respond quickly to changing market conditions and seize new opportunities as they arise. For example, if there is a sudden drop in oil prices, a company with a well-managed portfolio might be able to pivot to other revenue streams, such as gas exploration or energy trading.

Maintain a competitive edge

By continually optimizing its portfolio, an organization can maintain a competitive edge in a rapidly-evolving industry. Every company that is able to quickly divest from unprofitable projects and reinvest in more promising ones will be better positioned to weather market fluctuations and outperform its rivals.

There are several best practices that companies can follow to manage their portfolios in the oil and gas sector effectively. These include:

• Regularly reviewing and evaluating portfolio performance - This helps to identify areas of strength and weakness and allows companies to make adjustments as needed.
• Using data and analytics to inform decision-making - By analyzing data on market trends, project performance, and stakeholder preferences, companies can make more informed decisions about which projects and investments to prioritize.
• Engaging with stakeholders - It is important for companies to engage with stakeholders, such as employees, shareholders, and communities, to ensure that projects and investments align with company values and goals. This can help to build trust and support for portfolio management efforts.

In the end, let's have a look at some interesting industry case studies of a successful Strategic Portfolio Management implementation.

One example of a company that has successfully implemented strategic portfolio management is bp (British Petroleum), a global energy company that has a diverse portfolio of oil and gas assets, as well as investments in low-carbon energy sources such as solar and wind power. In recent years, BP has implemented a strategic portfolio management process to optimize its portfolio and position itself for the future. As part of this process, BP has divested from mature assets and reinvested in growth opportunities. For example, in 2020, the company announced that it would sell its petrochemicals business and invest $5 billion in low-carbon technologies over the next decade. This move is part of BP's broader strategy to become a net-zero company by 2050, which involves reducing emissions from its operations and transitioning to low-carbon energy sources. BP's strategic portfolio management efforts have helped the company to adapt to changing market conditions and stake out a leadership position in the energy industry. By investing in a diverse range of assets and technologies, BP is positioning itself to thrive in a low-carbon future and deliver value to shareholders.

Another Example is NIS a.d. Novi Sad (Naftna Industrija Srbije), an energy company that is the largest oil and gas company in Serbia, with a significant presence in the Balkans region. The company's activities include the exploration, production, refining, and distribution of oil and gas, as well as the production of petrochemical products and electricity distribution. NIS has implemented a strategic portfolio management process to optimize its portfolio and achieve long-term growth. This includes a focus on exploration and production activities in the Balkans region, as well as investments in refining and distribution infrastructure. In addition to its core energy business, NIS is also active in corporate social responsibility initiatives, including environmental protection and community development programs. Overall, NIS is a key player in the energy industry in Serbia and the Balkans, and its strategic portfolio management efforts have helped the company to achieve long-term growth and success.

Lastly, let's have a look at 壳牌 , a multinational energy company that is involved in a wide range of activities, including exploration, production, refining, and marketing of oil and gas, as well as trading and marketing of natural gas and electricity. The company has operations in over 70 countries and employs over 80,000 people. Shell has a long history of strategic portfolio management, and it has regularly reviewed and adjusted its portfolio to optimize performance and achieve long-term growth. For example, in recent years, the company has divested from mature assets and reinvested in growth opportunities, such as offshore wind projects and hydrogen production. In addition to its core energy business, Shell is also active in corporate social responsibility initiatives, including efforts to reduce greenhouse gas emissions and promote renewable energy sources.

Strategic portfolio management will be essential for senior leaders in the oil and gas sector in 2023 as it helps to identify and prioritize the most promising opportunities, align resources with company goals, and adapt to changing market conditions. By implementing a robust portfolio management process and following best practices, companies can improve decision-making, enhance alignment, increase agility, and maintain competitiveness in a challenging and dynamic industry.

To achieve these benefits, it is important for companies in the oil and gas sector to adapt their portfolio management process to the pace of change in their environment and to use an agile approach that allows them to respond quickly to new opportunities and challenges. This may involve replacing rigid planning with a more flexible process that allows for continuous review and adjustment of the portfolio.

In addition, companies should apply best practices in project evaluation methodology and portfolio construction to ensure that their portfolio is optimized for success. This may involve using specialized tools and techniques to analyze and compare projects and ensuring that data and assessment criteria are up-to-date and project-appropriate.

Finally, companies should focus the knowledge and energy of their experts on creative and cognitive work by automating analytical and calculation operations as much as possible. By streamlining the portfolio management process and leveraging specialized tools and techniques, companies can make more effective use of their resources and achieve better results.

Overall, by following these best practices and applying a strategic approach to portfolio management, companies in the oil and gas sector can position themselves for success in a rapidly-evolving industry. If you wonder how to implement the SPM in your organization or you are curious about the market best practices, feel free to get in touch and let's talk.

Krzysztof Janusz, KJ

Qvistorp SA