Global 100 Oil and Gas
The oil and gas category slowed exploration and focused on efficiency. Investor impatience and geopolitical tensions compounded the normal challenges of exploring in some of the earth’s most difficult and fragile environments.
With share prices underperforming, oil and gas companies felt pressured to return more profit to shareholders and invest less in risky, long-term exploration for oil reserves. In response, the majors looked for productivity gains and ways to cut capital spending.
These actions may trigger a new cycle of divesting assets that entrepreneurs acquire to create oil and gas start-ups. Ironically, one of the companies best positioned for this cycle is BP, which sold assets following the Deepwater Horizon disaster in 2010. In an agreement with the US Environmental Protection Agency, the company can again bid for drilling rights in the Gulf of Mexico.
To explore in the arctic, which holds around 20 percent of the earth’s recoverable oil and gas reserves, major independent oil companies (IOCs) partnered with Russian companies: ExxonMobil with Rosneft; Shell with Gazprom; Total with Lukoil. Russia’s actions in Crimea complicated these relationships. European dependence on natural gas supplied by Gazprom also factored into the geopolitical calculus.
At the same time, Chinese national oil companies (NOCs) were acquisitive last year, with transactions in Canada and the North Sea and the purchase of the Peruvian holdings of Petrobras, Brazil’s NOC. Chinese NOCs are especially active in Latin America and Western Africa.
Debates about the benefits and dangers of hydraulic fracturing, or fracking, continued in Europe and the US, where the government deliberated about the Canadian-US Keystone pipeline, balancing environmental risks against the benefits of increasing energy security and reducing transportation congestion by flowing oil through the pipeline from the Canadian tar sands to the Gulf of Mexico.
These other trends and developments also impacted the category:
Oil and gas companies modified their tone regarding climate change. The debate now is about how to remediate the problem, not whether or not climate change is real and results in part from burning fossil fuels.
From the industry point of view, one of the most positive stories is natural gas. While fracking, the hydraulic process of fracturing rock to extract gas from shale, remains controversial, environmental concerns have been balanced somewhat by the impact of natural gas on reviving the US economy.
The public voice
Although oil and gas companies shape their messages to reach the officials who control licenses to operate, social media amplifies the public’s influence.
New opportunities in the Americas
In a remarkable, but relatively unheralded development, the US enjoyed energy self-sufficiency. This change potentially will influence global politics and change industry economics, as oil companies can in one market, North America, both source energy and deliver it to the world’s largest economy.
The availability of natural gas is expected to draw companies that process it into the chemicals used in the manufacture of many products, a development that would widen the customer base for oil and gas companies in North America.
At the same time, oil and gas companies faced US regulatory restrictions in the form of limitations on liquefied natural gas (LNG) export. Export would bring new customers into the market and increase demand, lifting the price of gas, a good result for the oil and gas companies but possibly a drag on the resurging US economy, which benefits from the low price of gas.
New opportunities developed in Latin America with Mexico’s reform of its oil and gas sector, enabling investment in the state oil and gas company, Petroleos Mexicanos (Pemex) from outside Mexico. The change opens the possibility of strengthening the Pemex brand to attract partners.
Argentina reached a financial settlement with Repsol, paying the Spanish oil and gas company $5 billion in compensation for government’s 2012 expropriation of Repsol’s majority stake in the Argentine national oil and gas company YPF. Chevron entered an agreement with YPF to invest in shale gas production.
Brazil attempted to control inflation with measures that included regulating the price of gas at the pump. The price controls impacted the profits of Petrobras, the national oil company.
While the majors continued to aim their brand messages at the public officials and others who make or influence decisions about granting licenses for exploration, brand strength also was important for recruiting the best engineers and for attracting investment.
To help shape the public conversation, the oil and gas brands also invested in nuanced marketing campaigns that avoided the debate about environmental risk and emphasized the benefits people derive from energy production.
The messages are to a degree directed at the large audience of undecided people trying to balance the need for an adequate energy supply against the risk of environmental damage to delicate areas like the arctic.
ExxonMobil continued to build its brand around technical excellence, being the go-to company for the world’s most difficult and risky exploration, the added value partner when national oil companies need outside assistance. But even ExxonMobil used a less technical, more consumer friendly voice.
Chevron put a human face on the energy business in the campaign called “I Agree” where individuals testified about how energy improved their lives.
State owned companies
The state owned companies have not traditionally focused on brand building or cultivating trust. They are more impervious to pressure. That situation could change as the state owned oil companies expand globally.
Although Chinese oil and gas companies are relatively less familiar with brand building, the need for brand strength increases as the Chinese companies face heightened public concern about the environmental impact of their activities.
Both the Chinese government and public have reacted strongly to dangerous levels of air pollution. China consumes around 10 million barrels of crude oil daily, second only to the US.
It is still true that in this category the license to operate sits in the hands of very few individuals, mostly policy makers and government regulators. But it is fair to say that, because of the democratization of information and wider use of social channels, the public now has a far greater say in the fortunes of these organizations. That’s not to say we’re going to see a Coke-like campaign from the oil and gas majors, but if you look at their above-the-line activity, it’s all aiming to create a better understanding of the important work they do by a wider audience.
Hill + Knowlton Strategies
There continues to be a disconnection between the consumer-facing motor fuels brand at retail and the brand as a producer of energy that sustains quality of life. I’ve dealt with controversial issues for high profile clients and what we’ve seen is that regardless of the degree of controversy surrounding an oil company, there isn’t any substantial or sustained impact at the pump. People aren’t driving past the filling stations. They’re not cutting up their credit cards or driving grassroots boycotts on social media.
Executive Vice President
Global Energy Practice Leader
Hill + Knowlton Strategies