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Revival of the Fittest: Oil and gas companies can turn permanent change wrought by COVID-19 and economic upheaval into competitive advantage – KPMG

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For oil and gas companies used to boom and bust cycles, this downturn seems different. There’s no turning back from some of the permanent, structural shifts driven by the global response to the COVID-19 pandemic.

In fact, COVID-19 accelerated trends already underway. Customer service and technology expectations, generational preferences, and global demand for cleaner energy were making their mark on oil and gas long before COVID-19 was a household name. Now, these simmering changes have to come to a boil, and they have implications for the industry.

The good news is that we believe energy demand will return and even increase beyond the immediate COVID-19 impacts. However, the industry needs to prepare to offer an expanded energy mix to a wider customer base.

If adversity builds strength and character, then the oil and gas industry is in fighting shape to take on the latest difficulties.

Oil and gas leaders are no strangers to belt-tightening in tough times. They also are more than familiar with managing through geopolitical turmoil, price volatility, myriad regulatory demands, and many other factors.

Now is the time to draw from that experience. There’s no waiting it out for prices to return to previous levels. Recovery this time around will require oil and gas companies to not only leverage their resilience, but design an entirely new vision that meets the shifting demands of today’s customer.

For companies that persevere through the current challenges, moving forward successfully requires realizing and embracing several foundational changes impacting the industry.

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Understanding the new reality for oil and gas

The following key themes serve as a foundation for navigating COVID-19 impacts and long-standing trends transforming the oil and gas industry.

1.  ESG in the operating model

When human activity slowed in early 2020, the spotlight on environmental, social and corporate governance (ESG) standards only grew brighter. Yet, global energy demand is returning and will continue climb. To balance environmental requirements and energy needs, oil and gas companies have to take real action, such as pivoting to renewable energy businesses, offering “decarbonization as a service” to other sectors and governments, or decarbonizing fuels and processes. Ultimately, those organizations that truly incorporate ESG principles can reap a host of benefits, from improved access to capital and talent, to stronger community and regulatory relationships.

2.  Revisiting mobility

Oil and gas needs to carve out its role in transportation if many of the COVID-19 impacts on fuel consumption stick, such as increased commercial fuel use spurred by online sales and home delivery. Producers are looking at converting facilities and distribution for biofuels, natural gas and other diesel alternatives. They’re also starting to move into electric vehicle (EV) charging. While utilities dominate charging today, downstream players have the advantage of existing retail fuel locations and could also serve commercial EV operators at other locations, such as warehouses and manufacturing facilities.

3.  The new reality workforce and rethinking physical space

The flexible and remote work necessary during the shutdown could be here to stay, and that has sweeping ramifications for how and where companies will operate. Energy leaders see an opportunity to attract talent from new geographies and generations who would had not considered the sector. At the same time, if tens of thousands of oil and gas employees stay remote, the workplace could become a perk rather than a required daily destination, with human resources, tax, technology, real estate, and other implications.

4.  A “digital first, digital now” approach to building ambidextrous business models

Since the COVID-19 shutdown, the world has grown far more comfortable with virtual commerce and communication. Oil and gas organizations need to offer digital interactions to complement in-person experiences, even in a business-to-business setting. This requires creativity and technology to digitize anything, from contactless call centers to wholesale marketing transactions enabled by blockchain for real-time settlement. Advanced data analytics are more necessary than ever, especially for delivering the personalized and seamless experience customers have come to expect. Even with limited customer-facing technology, oil and gas can explore and execute on ideas quickly and efficiently through partnerships, joint ventures and outsourcing.

5.  Financial resilience

Preserving liquidity is important for oil and gas to sustain through the current business environment. But once they reach short-term stability, organizations must take the next steps toward long-term resiliency and efficiencies that will allow them to execute on all the opportunities now coming to light. To start, fiscal discipline is required throughout the entire cycle, not just during the downturns as was past practice for many. Then organizations can layer on top of that access to low-cost capital, flexible capital structures and more rigorous financial risk management, all critical to providing the freedom to maneuver into position for long-term growth.

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