Is it time to RENEW the Oil & Gas sector?

By Robert Speht, Renewable Energy Specialist 

Background

Oil & Gas Majors and Supermajors in europe are in transition to #NetZero CO2 - but how will they get there? It’s a very BIG TASK.

In recent months we have seen a slew of European oil & gas majors and supermajors announcing #netzero targets by 2050. It is noticeable that the supermajors outside europe have not yet got on board, but my prediction is that they join shortly too. However, each one has a different strategy about how to get there. 

Recent lows in oil price combined with probable longer-term reduction in the demand for oil & gas, has added another driver to this equation. It is driving a revision of the assumed value of assets that the companies thought they had, reduced production and revenue in the short term and long term, removed the need for a large portion of their staff, caused the cancellation of planned capital expenditure projects.

So I posed myself the question, how would I go about this BIG TASK if I was the Director for Transition at a company like Shell, BP, Total, Repsol, Eni, ExxonMobil or Chevron? 

Time to RENEW?

So after some considerable thought over recent days, I worked up my “RENEW” strategy for an oil & gas major/supermajor, which you can find here;

R - Repurpose CAPEX from O&G to large scale renewables ASAP. 

Oil and gas prices are so low at the moment that planned investment in new oil and gas projects is not currently viable, and likely will not be for the rest of 2020 and maybe also 2021 too. Indeed oil and gas companies have dialled back on production with existing plant. So the money (and it is hundreds of billions of dollars per year across the sector) needs another purpose right now.

E - Emerging projects. 

Start investing in shovel-ready large scale renewables projects emerging in key geographic markets, where the company already has a presence (this limits set up effort and risk). Shovel-ready projects would likely bring revenue starting in 1-2 years. 

N - New Short-term revenue. 

Invest in some large renewables operational projects so revenue is immediate. It’s low risk, lower returns, but it also brings immediate revenue whilst acquiring a share of the market, and repurposing the CAPEX that had been earmarked for oil and gas projects that cannot now be built. Low hanging fruit. 

E - Executing Acquisitions. 

Use M&A to acquire capacity and capability. This means projects, developers, teams, specialist knowledge and market share. In short time is of the essence here for 2 reasons. Firstly, it is very difficult to predict how long the company can depend on oil revenue, so moving fast means pivoting fast and getting revenue from a different source quicker. Secondly, moving quickly stops the competition from acquiring that capacity and capability which is a finite resource.

W - Wildcards & Moonshots. 

Invest in or acquire long-term wildcards and moonshots like; floating offshore wind, wave, floating solar, offshore hydrogen etc. For a company of this scale, these are pretty cheap at the moment (likely costing a few million US$ each). I recommend buying in to several that compliment the companies wider strategies. With a portfolio of several such projects the risks are spread and some will succeed, but the company should be prepared for some to fail. The goal is revenue in the long term and hedging across several technologies or versions of a technology.

Conclusions

For an oil & gas company that needs to transition, to pivot to renewable energy time is of the essence and if they want to succeed, then they need to follow all of the above, and all in parallel. 

So, what are we waiting for?

Robert 

I run a renewable energy consultancy (Renewables Experts Ltd) focussing on the Technical/Financial/Commercial aspects of wind, offshore wind and solar projects and work globally. Typically I help senior executives who want to;

- Break new ground - Transition to new geographic markets, new sectors, new teams

- De-risk projects, programmes etc

- Bring clarity to complex situations

There is no office and the team is based in many locations, many countries and all working remotely - and they are (as ever) open for business. No need to meet face-to-face. Also open to a new role, including on an interim or contract basis. 

www.renewables-experts.co.uk | [email protected] | +44 7971635290