Despite the recent spike in commodity prices, investors remain optimistic about the long-term prospects for the oil and gas industry. Investors want to see companies continue to create value by implementing sustainable energy solutions.
70% of investors expect oil prices to remain at around $60 per barrel through 2024. This level is significantly higher than predicted earlier. As a result, energy companies’ stocks are surging rapidly, even amidst pushes for renewable energy implementation. Almost everyone thinks that natural gas will play a critical role in helping the world decarbonize. Investors also want energy companies to expand their operations in natural gas. These results signal the growing support for continued capital allocation.
The optimism regarding the long-term prospects of the oil and gas industry translates into a recovery in total shareholder return (TSR). Most investors believe that companies must maintain a strong capital discipline to meet this expectation. Aside from increasing their payouts to shareholders, energy companies also need to retain their top-line growth and improve their profitability.
Despite the positive sentiment in the short term, the long-term outlook for the oil and gas industry is mixed. According to most investors, the peak oil demand will occur by 2030, and they are under pressure to sell their fossil-fuel holdings.
In 2020, it was noted that the potential for increased activism in the sector has accelerated. Investors are still looking for clear strategies for reducing greenhouse gas emissions and how they will transition to a low-carbon economy. As the climate change issue becomes more prominent, investors expect companies to take several steps to reduce their greenhouse gas emissions. Among these are setting and meeting emissions reduction targets.
Most investors agree that greenhouse gas emissions should be reduced by establishing net-zero targets for each of the emissions categories. However, they are divided on the type of targets that should be established. Most investors want to see companies’ plans for the energy transition and how they intend to meet their emissions reduction targets. However, they also want to see results, such as increased profitability and reduced greenhouse gas emissions.
Among the various low-carbon initiatives, electricity generation is more likely to be seen as a value creation opportunity than other emerging technologies. As a result, oil and gas companies considering investing in these areas need to communicate their plans and goals to external investors.
Due to the uncertainty in the industry and the current high oil and gas prices, companies may not have a lot of time to make changes.