The hurdle rates of the new businesses, unless there is a regulatory change, or the cost of carbon goes up, are substantially lower than what we've been used to in the hydrocarbon world
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Learn how talent requirements, operating models, and supply chains are being turned inside-out and what oil and gas companies can do about it.
Where are clients actually losing sleep? And I mean, we can start with Europe and then come Andrew to your clients.
So, I think where we see the issue is, when this journey started, most of our clients had a clear view of what they want to get after, the long-term ambition And there was a lot of structural redesign of those operating models. So, you know, we went from very clear segmented upstream, trading, downstream segments to operational parks and gas and low-carbon buildout, and EV and mobility. And it felt like there was a view and there was a trajectory to get after.
Now, the reality of actually making that happen is far more difficult. And there are a few elements where I think most of our clients are losing sleep. One is getting used to a very different financial model. The hurdle rates of the new businesses, unless there is a regulatory change or cost of carbon goes up, are substantially lower than what we've been used to in the hydrocarbon world. So, how do we manage that profitably to serve the transition?
The second aspect of this is there is a lot of venturing that needs to be done. These are businesses we do not necessarily understand. And when I say ‘we’, I mean the energy industry. They veer into finance, into telematics, into consumer goods - an environment quite frankly, the commodity markets are not used to, and the risks associated with them.
And then I think there is a talent and cultural element of this. A lot of the majors have now brought in a wide span of talent. And you don't have just the traditional engineering disciplines, but how do you translate that into really steering a massive ship, 40, 50,000 people into a completely new direction, whilst maintaining the existing business?
These are all elements that make you lose sleep and at the same time you have a very wide shareholder and stakeholder base that want different things from you. And inevitably I think what really pays off well is honesty, transparency around what's happening and a level of education around the realities of this transition.
What are your views?
I kind of like the point about talent. If you think about it in broad generalizations with the industry there was a way to grow talent, right? It came through the bottom and kind of went up. It's now having to build muscles and bring in people with a whole bunch of different talents and ideas and operating model thesis.
And that's certainly in Southeast Asia. I think what clients worry about is an individual organization will find its way, it may have some successes and failures, but the challenge is how many jigsaw puzzle pieces need to come together near simultaneously for this to be successful. You need to have maturing carbon markets, which right now we don't have in that part of the world.
You need to have financial institutions that are putting their money where their mouth is and enabling that not just from an exclusionary standpoint, but actually kind of widening the tent to allow these models to mature. You have to have the executing organizations themselves, and then you're going to have supply chains turned inside out, things like used cooking oil for example, where the supply chain used to go from producer to customer, now you've got to build it the way back as well.
So, there's just a lot of moving parts that need to come together as closely timed with each other as you can, for any one decision to look viable in the minute, in the long term it could make money, but it’s the excel sheet in the minute that the investment committee is looking at and saying ‘why?’
Quarterly results is a very real thing.
This transcript has been edited for clarity.