Money

Oil services firms 'at a crossroads' as energy transition accelerates



Oil services companies can no longer delay making a choice on their future direction.

Either they stick with their hydrocarbon heritage – becoming ultra-efficient and digitally enabled – or pivot towards low carbon growth, using hydrocarbons as the cash generating engine to fund the transition.

This is according to a new report from PwC, which states that a perfect storm of Covid-19, increasing public scrutiny and the momentum of Environmental, Social and Governance (ESG) factors influencing investor decisions, has accelerated the pace of energy transition in many regions.

More than 20 key stakeholders from firms across the oil services sector were interviewed in late 2020, ranging from large oil service companies to smaller niche players, alongside regulatory and trade bodies.

According to these respondents, many oil services companies already recognise the need to transform in order to better align with their customers, with some helping to set the pace of decarbonisation alongside major players.

Since the end of 2019, a number of oil and gas operators have announced their net zero ambitions with this momentum expected to grow throughout 2021.

Low carbon credentials could also become an area of significant competitive advantage, stated PwC.

The report highlights how oil services companies can increasingly showcase their decarbonisation credentials as a means of securing tenders.

Some respondents also mentioned increasing pressure being brought to bear by some majors which are keen for supply chain decarbonisation credentials to help support their own strategic direction and licence to operate.

Where firms operate can also influence the pace of transformation. As governments around the world respond to the pandemic, fiscal stimulus packages have been developed with many countries looking to use this pivotal moment in time to stimulate a green recovery to ‘build back better’.

For those companies with a major footprint or head office in Europe, energy transition and ESG themes are likely to be much higher up the corporate agenda than other regions, such as the Middle East, which will see hydrocarbons retain their importance as a focal point.

PwC’s energy, utilities and resources leader Drew Stevenson commented: “With a low carbon future rapidly taking shape, an increasing number of oil services companies are looking towards new energy and assessing whether there is an opportunity to diversify, if they have a right to win in that space or whether they need to double down on oil and gas and become ever more efficient.

“Oil services companies will need to reduce their carbon footprint, irrespective of the strategic pathway they choose – and this decision can no longer be kicked further and further down the road.”

The report suggested that the pandemic has accelerated the need to adopt and deploy digital solutions. Given the physical impact of coronavirus on the workforce, companies in the oil and gas sector have been forced to increase automation.

During lockdowns, with workforce restrictions in place, operators have employed digital technologies such as remote controlled vessels and robots, for example, to inspect underwater pipe networks and conduct maintenance scans of industrial complexes.

Mergers and acquisitions are another means by which energy transition could be accelerated, with complimentary skills, technologies and credentials likely to be highly sought after as entry points into new markets.

Premium valuations are already evident for renewable-facing businesses, stated PwC, adding that the availability of finance will probably also be a driver of this transition.

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