Oil and gas companies most committed to radical reinvention amid Covid: Accenture report
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.
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 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 analysed the companies across key factors related to reinvention. Accenture classified the 10 per cent 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 per cent labelled “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 per cent) intending radical reinvention, compared with only 9 per cent of the laggards. Almost seven in 10 Leaders (69 per cent) consider enterprise-wide transformation essential to this reinvention and 77 per cent 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 per cent, on average, in the next three years, more than double that of the Laggards (3 per cent), and expect to grow revenues over the same period by at least 11 per cent, compared with just 6 per cent 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 realise 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, Connectivity, Carbon, Customer and Culture.
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 per cent) of respondents, including all the Leaders, expect margin improvements of 20 per cent or more from their low-carbon businesses in the next three years. Refocusing investments, operations and products will be key, with 97 per cent of all respondents citing environmental performance as a priority and one-third (33 per cent) naming it their top priority.
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 per cent) and renewable power (54 per cent) to account for more than 7 per cent 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.”
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 per cent) 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 per cent) of the companies have revenues exceeding US$10 billion, and 48 per cent 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).