Related Expertise:Oil and Gas,价值创造策略和股东激进主义国防,Upstream Oil and Gas
COVID-19 has added to the woes of aglobal oil and gas sectorthat was already struggling with persistently low total shareholder returns (TSR). (See “The Components of TSR.”) Starting in early 2020, the pandemic unleashed the largest oil and gas demand shock in history. Social distancing and national lockdowns brought economies to a standstill, sending oil prices tumbling. Oil and gas companies’ share prices and earnings followed in short order.
For Big Oil, 2020 wasn’t just about the harsh business environment. The pandemic has caused international oil companies (IOCs) to accelerate their plans to reinvent themselves for a new energy landscape. With less capital available to spend, decisions on how to allocate it have become starker. As a result, a clear split has emerged in companies’ strategies for the future, with significant implications for value creation.
On one side of the strategic divide, European IOCs are ramping up their expansion into renewables and low-carbon energy businesses in pursuit of growth. On the other, their North American peers are focusing on what they know best, doubling down on oil and gas production while investing in technologies to increase efficiencies and reduce greenhouse gas (GHG) emissions.
But regardless of their approach, neither group has yet to prove to investors that it can create sustained value. Boston Consulting Group’ssurvey of 150 oil and gas investors worldwide, conducted in October 2020, found that two-thirds of shareholders expect demand to return to pre-COVID-19 levels in the second half of 2021. They also expect prices to rise.
Nevertheless, few investors expect companies to capture this upside, with 60% predicting that the sector’s median TSR over the next two years will be the same as or even lower than it has been over the past two years. To overcome this perception, companies must make fundamental changes across their businesses that transform investor sentiment and drive a share valuation rerating.
In this report, we analyze the historical TSR performance and key valuation drivers of both global and regional players, with a particular focus on the majors—the five largest publicly traded integrated IOCs. (See “Companies in Our Sample.”) We examine the ways past and present strategies have impacted returns and suggest steps to create future shareholder value.
各大石油和天然气公司的价值创造has been unimpressive for several years. Despite a late-year 2020 rally, the oil and gas sector delivered median annualized TSR (share price appreciation plus dividends) of –2% for the five years from November 30, 2015, through November 30, 2020, and still finished in last place among the sectors that BCG looks at. (See Exhibit 1.) For the industry’s biggest players—the majors and other leading IOCs—median annualized TSR has remained in the third and fourth quartiles, when compared with the constituents of the S&P 500 Index, over one-, three-, five-, and ten-year time frames. (See the appendix for details of the top 20 oil and gas TSR performers over these time periods.)
Changes in strategy and external factors help to explain the sector’s underperformance. Until the 2008–2009 global financial crisis, rising global demand and limited supply buoyed oil and gas prices, resulting in good earnings growth, strong balance sheets, and steadily greater dividend payouts. Starting in 2009, however, companies overinvested in higher-cost assets, which delivered weaker returns and tarnished the industry’s reputation as a responsible steward of shareholder capital.
As the US shale boom reached its zenith, it flooded energy markets with abundant supplies of oil and gas, leading to a steep drop in prices in 2014 that undermined the IOCs’ profitability. Companies responded by cutting costs, making portfolio decisions on the basis of value rather than volume, and increasing borrowing. By 2019, the environment had changed again. Even before the pandemic, growing investor concerns about peak oil and gas demand, the industry’s GHG emissions, and competition from renewable energy sources were weighing on share prices.
In tandem with changing strategies and new pressures, IOCs’ TSR performance has steadily worsened over the past decade as companies, faced with diminishing profits, have come to rely more on quarterly dividend programs to prop up their share prices and create value for investors. Their dependence on payouts as the main driver of TSR has resulted in higher debt and caused them to rank poorly against companies in other sectors that offer investors access to a broader value creation proposition.
After outperforming the S&P 500 in annualized TSR over the prior five years, global IOCs achieved a median annualized TSR of 7%—less than half that of S&P 500 constituents—from January 2009 through December 2014. And from January 2015 to the beginning of 2020, the IOCs’ median annualized TSR fell to 3% versus 12% for the S&P. (See Exhibit 2.)
Over the five years ending in July 2020, the sector’s strongest performers delivered revenue growth while keeping debt levels stable. As a result, dividend payouts were less important in driving value creation for these TSR leaders, which included international exploration and production (E&P) players and national oil companies.
相比之下，北美E＆P和加拿大综合球员是主要的落后者，这是由于收入不佳的恶性循环（主要是由于低油价而引起的），导致债务更高。（请参阅图表3。）由于股价削弱，这两个同行团体最近一直处于朝着更多盆地水平合并（作为目标和收购方）迈向更多盆地级合并的领先地位。合并提供了耗费成本并提高规模效率的机会，从而推动未来的收入增长。将来较高的油价，部分原因是insufficient investment by oil and gas companies in their upstream operations, might also provide an earnings boost for players across the sector.
Over the most recent five-year period, declining revenues and rising debt hindered the majors’ TSR performance, although Chevron still managed to rank among the top 20 oil and gas companies for shareholder returns. (See Exhibit 4.) Overcoming these two hurdles remains a serious challenge for companies seeking to create shareholder value. Oil and gas companies are failing to generate competitive TSR compared not just with other sectors but also with players operating in different areas of the energy industry, such as renewables developers.
大流行的帽子石油和具有挑战性的十年gas, which has seen investor interest in the sector wane. The share of oil and gas companies in the S&P 500 is currently about 2% of the index’s total market capitalization, down from about 16% in 2008. As individual companies’ market capitalization has shrunk, comparative newcomers have overtaken former stock market giants. In Europe, the market cap of Danish offshore wind company Orsted has surpassed that of BP; and in the US, NextEra—another energy company with a strong renewables presence—briefly surpassed ExxonMobil and Chevron in October on the same measure.
In 2020’s challenging and uncertain business environment, the US’s Chevron and France’s Total were the TSR winners among the majors. Although share prices of all the IOCs fell sharply during the year, these two companies had the necessary balance sheet strength to maintain quarterly payouts—despite pursuing widely differing portfolio strategies. Their valuation multiples (measured as enterprise value divided by earnings before interest, taxes, depreciation, and amortization) also held up better than their peers’ valuation multiples did.
Indeed, a robust balance sheet and the ability to maintain dividend payouts were key differentiators between the TSR leaders and the laggards in Europe in 2020. For oil companies BP and Royal Dutch Shell, cutting the dividend removed a key support for their share prices and TSR. Shell’s stock fell by about 16% in the week following a two-thirds reduction in the payout on April 30 (it announced a modest increase in October to placate investors). BP’s stock also underperformed after it cut its dividend by 50% in early August and provided further details about its transformation from an IOC into an integrated energy company, which it had initially announced in February 2020. Both stocks approached 25-year lows in early November before regaining ground later that month in the wake of positive news about progress toward COVID-19 vaccines.
Unlike BP and Shell, Total’s relatively modest debt position and portfolio bias toward barrels with a low breakeven point enabled the company to avoid a damaging dividend cut. At the same time, a lower dividend yield allayed investors’ concerns about a future reduction. As a result, the company outperformed its peers on share price and TSR. Total has indicated that it can continue to fund capex requirements without seeking external equity or debt financing even if oil prices fall to $25 per barrel. And it can meet capex and dividend payments on the same basis with oil at $40 per barrel.
Although ExxonMobil, the US’s largest IOC by revenues, maintained its dividend payout, it trailed Chevron and Total in TSR in 2020—and the other four majors over the most recent five-year time frame. One important reason: other majors compensated for declining revenues relatively early by aggressively cutting costs across their business units and thereby boosting profit margins, but ExxonMobil took comparable steps later on. As a result, the company’s free cash-flow yield has deteriorated in recent years and was the lowest of the majors for the 12 months through December 2019.
Over the past ten years, ExxonMobil’s net debt has risen as the company has continued to fund capital expenditures and generous quarterly dividends despite weakening sales. In a rearguard response to the pandemic-induced decline in oil and gas prices, the company in April cut 2020 capex by 30%. It reduced future capital spending in late November and announced that it was writing off between $17 and $20 billion in investments primarily in US natural gas projects, several months after other majors had taken billions of dollars in impairment charges.
Exxonmobil的估值倍数仍然比同行更高。但是，由于其更强大的资产负债表和资金更清晰的未来股息能力，该公司最大的美国竞争对手雪佛龙（Chevron）正在赶上。埃克森美孚（Exxonmobil）的股息收益率上升表明，股东对未来支出的确定性有疑问，这给公司的多重股份带来了压力。据报道，在投资者优先事项的迹象表明，美国激进主义者的资金敦促2020年12月埃克森美孚（Exxonmobil）削减成本并遏制其支出，担心其股息处于危险之中。
Owing to the market turmoil caused by COVID-19, maintaining dividend payout levels was a key path to delivering peer group-leading TSR. But the pandemic had other important impacts as well. Several European majors revised their outlook for future oil demand downward, partly in response to the pandemic. Lower expectations for crude have caused these players to alter their attitude toward renewable energy and view it as an opportunity rather than a competitor.
European IOCs are reinventing themselves as broad-based energy companies in order to benefit from higher valuations and more positive investor sentiment toward alternative energy. They are expanding into growing low-carbon markets in renewables, hydrogen, and biofuels. They are leveraging existing customer-facing businesses to unlock value from new forms of energy consumption. For example, BP plans to build 70,000 electric vehicle charging points by 2030, up from 7,500 today. And they are growing their integrated gas businesses because the fuel has a more favorable outlook than crude oil in their medium- to long-term forecasts.
European IOCs will need to take several steps to ensure a smooth journey as they continue to transform.
Maximize returns from hydrocarbons.US players aren’t alone in needing toimprove returns from their upstream oil and gas operations。如果欧洲公司将其转变为能源公司，实现减少债务目标并支付投资者渴望的股息，则必须进行类似的改革。他们将不得不产生这些回报，同时努力解决极其困难的宏观环境。所谓的高级阶级（生产者将精力集中在最有利可图的领域上）将有所帮助。但是，公司还必须提高运营效率并减少排放，并使用新技术遏制甲烷泄漏并数字化业务的重要领域。他们必须确保尽管有其他紧迫的优先事项，这些措施尽管获得了足够的资源和管理的关注。
Prove the business case for low-carbon investments.In our investor survey, shareholders expressed enthusiasm for clean energy investments. Their expectations for the sector’s TSR, however, suggest that they are skeptical about companies’ ability to turn a profit from them. There are clear reasons for this skepticism. Although low-carbon investments generally have better growth prospects, returns on individual projects tend to be lower than for traditional oil and gas production. And because these businesses are closer to utility businesses, managing them requires a different mindset. As European IOCs pivot away from hydrocarbons, they will need to persuade investors of the long-term benefits of evolving from oil and gas producers into energy companies—and of the companies’ ability to deal with challenges along the way.
Efficiently allocate capital across the portfolio.European IOCs will also need to spend large sums on M&A to move the dial on alternative-energy investments. Most would have to invest around $5 billion a year to make a difference to group-level returns. But suitably large acquisition opportunities are scarce, and high prices for sought-after assets could erode investment returns. Companies will have to allocate capital efficiently if they are to scale up their low-carbon investments in a way that doesn’t erode the value of these new businesses and at the same time provides sufficient funding for their oil and gas operations.
Optimize the shareholder payout strategy to boost TSR.In the wake of the pandemic, European players have developed a range of approaches for rewarding investors. Some plan to grow the dividend, while others have announced their intention to hand back surplus cash by repurchasing investors’ shares rather than raising payout levels. These approaches will have different effects on value creation. In our experience, buybacks are less effective than dividends as a way to boost TSR because they are less predictable and because, in the absence of dividends, companies must resort to other TSR levers, such as earnings growth and changes in their valuation multiple. Investors concur: in our October 2020 survey, respondents said that they preferred reasonable debt levels and dividend growth over buybacks. Taking the right approach will be essential if companies are to secure investor support for the future.
For the most part, North American IOCs are focusing on the traditional oil and gas businesses where they have existing expertise and well-defined capabilities. Rather than moving aggressively into new low-carbon areas, they are developing plans to curb GHG emissions across their businesses.
These players still enjoy higher multiples than their European counterparts, thanks to their stronger balance sheets and track record on payouts. But to generate the healthy returns they achieved in the past, irrespective of oil price movements, they must build greater financial resilience by improving the efficiency of their operations and driving down costs.
Here are four specific actions that North American companies can take to create greater value for shareholders.
Transform the core.Companies can’t afford to wait for the reemergence of higher prices to promote earnings growth. They must adopt a transformation agenda that drives continuous improvement throughout the organization. This agenda should cover multiple aspects of the transformation process. For starters, companies should strengthen governance of capital allocation decisions. They should also take steps that deliver operational benefits, such as introducing value-creating digital technologies, adopting more agile ways of working, and developing new types of collaborative relationships with their key suppliers.
Future-proof the hydrocarbon portfolio.石油和天然气生产商必须通过改善投资组合对不断变化的需求的韧性，对气候变化的越来越关注以及更高税收的可能性以及对重型温室气体发射机的监管的增加，为更加受碳限制的世界做准备。为了确保投资者的支持，并从潜在的更高倍数中受益，必须制定有意义的减排计划，并在实现排放目标方面证明进步。美国专业的专业不仅落后于欧洲国际奥委会，而且在创建温室气体减少计划方面也落后了几位较大的北美E＆P参与者。埃克森美孚（Exxon-Mobil）最近通过在2020年12月发布更严格的计划来应对这一需求。所有公司都应考虑其目标是否足够要求维持已经担心脱碳将导致碳氢化合物资产的投资者之间的支持。他们还应该进行预测，以了解其投资组合在涉及需求，法规和市场变化的不同区域和全球情景下的表现，并利用其发现来推动更智能的资本分配决策。
Build and scale new businesses.Although North American companies will continue to focus primarily on oil and gas in the near term, they need to respond to the changing energy landscape by developing material businesses in new areas. They should explore opportunities to invest in low-carbon hydrogen, which holds the key to decarbonizing large sectors of the global economy, and incarbon capture, utilization, and storage (CCUS)。引入更多的generous federal tax credit in the US has improved the commercial viability of CCUS in enhanced oil recovery, which relies on CO2to increase the amount of oil extracted from a reservoir.
Use a tactical approach to M&A.We expect M&A to play an important role as companies seek to strengthen their position in key basins. Consolidation will enable companies to create value through enlarged revenues and reduced costs and to acquire cleaner, more resilient assets. As they consolidate, North American E&P players have a significant opportunity to drive TSR by cutting administrative, nonproduction costs. In the second quarter of 2020, the 35 largest independent E&P companies in the US spent 15% of their revenues on selling, general, and administrative (SG&A) expenses, compared with the US majors’ figure of just 7%. All players will have to use M&A tactically to gain a specific end and seize opportunities as they arise.
全球能源系统不可逆的变化。Oil and gas companies will need to be ready to compete in a bigger arena against a broader array of energy providers, with TSR performance as the yardstick. As they prepare for the new energy landscape, they must place shareholder value creation at the heart of their strategies if they are to win the future.
