Oil and gas companies should consider whether they would deliver more shareholder value by winding down production or diversifying into renewables as the energy transition gathers pace, a new report has said.
The impact of falling commodity prices as demand drops on the net present value of company portfolios could be significant, even for producing fields, it said. The hit to values of planned developments that are yet to produce are likely to be even higher. While the supply shock following Russia’s invasion of Ukraine has provided a temporary reprieve and seen companies make record profits, it has also encouraged governments to accelerate the roll-out of renewables to meet demand and improve energy security.
Many large energy companies, including US oil giant ExxonMobil and Saudi state oil giant Aramco, are ignoring these forecasts and planning on continued growth in demand. Some firms are planning their output levels based on Opec forecasts that would see oil demand rise to 116 million barrels a day by 2045.