Oil and Gas Companies Expect Twice the Revenue and Margin Growth

by May 21, 2021Business & Infrastructure0 comments

The oil and gas companies most committed to reinventing themselves over the next three years as a result of the COVID-19 pandemic expect to grow their revenues and margins at twice the rate of companies least committed to reinvention, according to a new report from Accenture (NYSE: ACN) that outlines best practices companies should adopt to thrive in the energy transition.

The report, titled “Necessity is the Mother of (Re)invention” features results from a global survey of more than 200 oil and gas executives and introduces Accenture’s “Reinvention Index,” which analyzed the companies across key factors related to reinvention. Accenture classified the 10% of companies that scored the highest in the Index — who are setting the pace for reinvention through bold and decisive action — as reinvention “Leaders,” with those in the bottom 25% labeled “Laggards.”

In response to the COVID-19 pandemic, all of the Leaders plan at least some level of significant changes to their business, with half (50%) intending radical reinvention, compared with only 9% of the Laggards. Almost seven in 10 Leaders (69%) consider enterprise-wide transformation essential to this reinvention and 77% of Leaders see cloud as essential to their business reinvention plans in the next three years.

And reinvention could drive substantial rewards. For instance, Leaders expect minimum margin growth of 7%, on average, in the next three years, more than double that of the Laggards (3%), and expect to grow revenues over the same period by at least 11%, compared with just 6% for the Laggards.

“Competition from new energy sources, environmental accountability, talent scarcity, investor apathy and the COVID-19 pandemic have led most oil and gas companies to realize the need to transform to ensure profitability, embrace sustainability and maintain their relevance,” said Muqsit Ashraf, a senior managing director at Accenture who leads its Energy industry group. “What’s required isn’t just piecemeal transformation but wholesale business reinvention, which is anchored in a new approach that we call our ‘5C’ model.”

The ‘5C’ model for reinvention comprises:

Competitiveness — Shaping a resilient portfolio and operating model, including ways of working, that achieve accretive returns through cycles; and

Connectivity — Enabling an intelligent and secure enterprise with end-to-end connectivity, optimization and autonomous capabilities, facilitated by cloud capabilities;

Carbon — Achieving carbon neutrality by transforming or shifting investments, operations and products;

Customer — Delivering superior customer experiences through services, solutions, formats/channels and customization; and

Culture — Building a distinct purpose-led culture and employee experience with an emphasis on collaboration, innovation and agility.

The report notes that attaining carbon neutrality, in particular, is a key facet of the reinvention required to thrive in today’s era of accelerated energy transition. In fact, more than a third (37%) of respondents, including all the Leaders, expect margin improvements of 20% or more from their low-carbon businesses in the next three years. Refocusing investments, operations and products will be key, with 97% of all respondents citing environmental performance as a priority and one-third (33%) naming it their top priority.

The Leaders are already making some headway in this area; almost all (96%) have set ambitious environmental, social and corporate governance (ESG) targets, with the same number committed to reporting frequently on their emission-reduction progress. In contrast, only 56% of Laggards have set targets, with less than half (47%) regularly publicizing their results. Additionally, all Leaders expect ESG performance to have, at the minimum, a strong impact on their competitiveness over the next three years.

Hydrogen and renewable power were identified as the two low-carbon businesses with the most growth potential. In fact, more than half of Leaders expect hydrogen (cited by 62%) and renewable power (54%) to account for more than 7% of their revenues within the decade.

“This decade will be a make-or-break period for the oil and gas industry, which remains rutted in a low-price environment, but the opportunities presented in the report provide a blueprint for reinvention for continued success,” Ashraf said. “All oil and gas companies should aim to emulate the reinvention Leaders to maintain relevance during and after the energy transition. Otherwise, the transition will transform from an opportunity to build a sustainable and profitable future to an existential risk.”

Hari Shankaranarayanan, a managing director and lead for Accenture’s energy practice in India said, “As oil and gas companies reinvent, they will need to pivot from being commodity businesses to customer-centric businesses and from businesses that meet energy demand to businesses that solve problems. The path to a sustainable and profitable future for the industry will depend on holistic transformation, especially underpinned by data-driven reinvention, platform strategy, cybersecurity capabilities and ecosystem partnerships. Oil and gas companies also need to focus on creating a culture of innovation and collaboration.”

It is to be noted that in early 2021, Accenture conducted its Oil and Gas Reinvention Index research to understand the actions that oil and gas companies are taking to meet the challenges of the energy transition, their progress toward reinvention, and the outcomes they expect to achieve. The research included a survey of 214 C-suite executives from 179 oil and gas companies across five continents and nine regions including India. More than four-fifths (83%) of the companies were international or independent oil companies, with the rest national oil companies and oilfield and equipment services companies. More than one-third (36%) of the companies have revenues exceeding US$10 billion, and 48% have annual revenues between US$1 billion and US$10 billion. Accenture also created a Reinvention Index Score, based on selected survey results and composed of equally weighted scores from each of the five identified facets of reinvention (competitiveness, carbon, connectivity, customers and culture). Responses were grouped (n = 214) into companies (n = 179) to determine an aggregated score for each, then companies were defined and grouped. The top 10% of companies were identified as reinvention “Leaders,” with the bottom 25% identified as “Laggards.”

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