Changing Business Models: An industry in Transition

SEPTEMBER 2024 – The global energy landscape is undergoing a seismic shift as the world grapples with the dual challenges of climate change and the need for reliable, affordable energy. Exploration and Production (E&P) companies, traditionally focused on oil and gas extraction, are increasingly under pressure to adapt their business models in response to the energy transition. This transition raises key questions: How are E&P companies adjusting their strategies? Will pure-play E&P companies emerge, filling the gap left by those evolving into broader energy companies? And what are the implications for innovation and workforce strategy?

Adjusting Business Strategies for the Energy Transition

E&P companies are at a crossroads. The energy transition is not just a challenge but an opportunity to reshape their business strategies. As the world’s population is projected to increase from 8 billion to nearly 10 billion by 2050, the demand for energy will rise significantly. This growing demand, coupled with the need to reduce greenhouse gas emissions, is driving E&P companies to rethink their traditional approaches.

Many E&P companies are diversifying their portfolios to include renewable energy sources like wind and solar. They are also investing in technologies that can reduce emissions, such as carbon capture and storage (CCS) and hydrogen production. These investments are not just about compliance with regulatory pressures but also about future-proofing their business models. Companies that fail to adapt risk being left behind in a rapidly changing energy market.

Emergence of Pure-Play E&P Companies

As traditional oil and gas companies diversify into broader energy companies, there is speculation about whether pure-play E&P companies will emerge to fill the space they vacate. These companies would focus solely on oil and gas extraction, capitalizing on the decline of coal and the continued demand for oil and natural gas in certain sectors.

While the energy transition is leading many companies to reduce their reliance on fossil fuels, oil and gas will remain essential components of the global energy mix, particularly in sectors like commercial transportation and industrial activity. Pure-play E&P companies could carve out a niche by focusing on efficient and lower-emission extraction methods, ensuring they remain competitive in a carbon-constrained world.

Key Areas and Technologies for Investment

To stay relevant in the evolving energy landscape, traditional oil and gas companies are focusing on several key areas. These include:

1. 1. Carbon Capture and Storage (CCS): This technology captures carbon dioxide emissions from industrial processes and stores them underground, preventing them from entering the atmosphere. CCS is seen as a critical tool in reducing emissions from hard-to-decarbonize sectors.
   2. Hydrogen Production: Hydrogen, especially green hydrogen produced using renewable energy, is emerging as a vital component of the energy transition. It can be used as a fuel in sectors where electrification is challenging, such as heavy industry and transportation.
   3. Biofuels: Biofuels offer a lower-carbon alternative to traditional fossil fuels, particularly in transportation. They are made from organic materials, and their use can help offset the carbon emissions produced during combustion.
   4. Renewables: Wind and solar power are seeing rapid growth, driven by declining costs and increasing efficiency. E&P companies are investing in these technologies to diversify their energy portfolios and reduce their carbon footprints.

Fostering a Culture of Innovation

Innovation is at the heart of the energy transition. For E&P companies to succeed in this new landscape, they must foster a culture of innovation that supports their strategic ambitions. This requires a shift in mindset from short-term profits to long-term sustainability. Companies need to invest in research and development, encourage collaboration across industries, and create an environment where new ideas can flourish.

Leadership plays a crucial role in driving this cultural shift. By setting a clear vision and providing the necessary resources, leaders can inspire their teams to think creatively and embrace new technologies. Moreover, partnerships with startups and academic institutions can bring fresh perspectives and accelerate the development of innovative solutions.

Workforce Strategy: Attracting Younger Talent

The energy transition also presents an opportunity for E&P companies to rethink their workforce strategy. As the industry evolves, so do the skills required. Companies that position themselves as leaders in the energy transition can attract younger talent who are passionate about making a positive impact on the world.

By emphasizing their commitment to sustainability and innovation, E&P companies can make themselves more attractive to the next generation of workers. This includes offering training programs that equip employees with the skills needed for the energy jobs of the future, such as renewable energy technologies and digitalization.

Conclusion

The energy transition is reshaping the E&P industry in profound ways. Companies that adapt their business models to include lower-carbon technologies and diversify their energy portfolios will be better positioned for long-term success. By fostering a culture of innovation and developing a workforce strategy that appeals to younger talent, E&P companies can navigate this transition and continue to play a vital role in providing the energy the world needs. The future may be uncertain, but one thing is clear: those who innovate and adapt will thrive in the new energy landscape.

To learn more about how the sector is poised to deliver in 2025 and beyond, join us at the “Changing Business Models” panel within the next edition of the World Energy Capital Assembly 2024 and learn from industry directly:

• • Moderator: Stephanie Del Carpio, Partner and Associate Director, BCG
  • Manoj Narender Madnani, Managing Director, EMEA Region, MARA
  • Francesco Mazzagatti, CEO, Viaro Energy
  • Sunday Shepherd, General Manager, Corporate Strategy, Chevron Corporation