AlixPartners 2022 Offshore Oil & Gas Report

The End of the World as we Know it?

Failure to adapt to transition to renewables could cost offshore oil and gas industry $50bn, triggering a 90% drop in the value of industry assets, says new AlixPartners report

• Over half of the offshore oil and gas industry’s revenues, valued at over $50bn, could be lost in push toward ‘net zero’, unless industry adapts;
• Failure to adapt to energy transition could see a 90% drop in the overall value of offshore oil and gas assets from $123bn to c.$12bn, impacting banks, shareholders, lenders and investors.

LONDON (24 February 2022) – If the offshore oil and gas industry fails to swiftly adapt to the transition to renewable energy sources, it could lose around half of its total revenues, according to a new study from global consulting firm, AlixPartners.

AlixPartners has developed a proprietary scorecard, published today within its 2022 Offshore Oil & Gas Report, to assess the potential impact of energy transition on the offshore industry. The scorecard reveals that, in a ‘worst case’ scenario where the industry does nothing to mitigate the impact of the transition to renewables and ‘Net Zero’ is reached by 2050, over $50bn of revenue (about 50% of sector revenues) would be lost. The report identifies that 78% of sales in the offshore oil and gas industry are hydrocarbon sales, which means that unless the industry attempts to mitigate the impact of the transition to renewables, it is going to face significant disruption.

In this scenario, the overall value of offshore oil and gas assets would fall from $123bn to c.$12bn, which would have significant knock-on consequences for banks, shareholders, lenders and investors.

Financial implications

Offshore stakeholders of every sort have only a limited time to develop responses to the financial implications of widespread energy transition. The energy transition represents an existential threat to the entire offshore universe in the long term, with reduced sales and profitability, weakening balance sheets and eroding asset values, declining ability to service debt and lower returns for investors. If offshore players do not successfully implement one or more of the mitigation strategies in the near future, they will face tremendous adverse financial consequences.

Adapt or die

Whether the industry is doing enough to tackle this disruption remains to be seen. According to AlixPartners’ 2022 Disruption Index, 94% of executives globally believe that their business models will need to change in the next three years, indicating that the offshore industry must look at mitigation strategies.

Winner and losers

Specifically, as AlixPartners indicates in its Offshore report, those businesses that emerge the strongest will have pursued at least one, and more likely a combination, of the following strategies:

• Decarbonization: Reduce emissions produced by offshore assets such as drilling rigs and OSVs as well as by overall operations;
• Diversification: Tap expertise and cash generated through carbon-intensive operations to fund transitions to new markets and operations;
• Consolidation: Consolidate and form strategy alliances through M&A to achieve operational efficiencies and gain advantages in increasingly competitive markets;
• Focus: Maintain focus on oil and gas, assuming that demand for oil and gas will persist for many years to come.

Peter Oppitzhauser, a Director and energy sector specialist at AlixPartners, London, commented:

“We are undoubtedly living in an era of rapid and total disruption, across all geographies and sectors. The offshore sector, along with the rest of the oil and gas industry, will not be able to survive another downturn – there will be no recovery and the industry will go into terminal decline. Escalating pressure to contend with climate change will lend urgency to the drive for an accelerated energy transition. The time to take action to meet the transition’s financial, operational, and organizational demands is now. Tomorrow is already too late”.

Notes to Editors

About AlixPartners

AlixPartners is a results-driven global consulting firm that specializes in helping businesses successfully address their most complex and critical challenges. Our clients include companies, corporate boards, law firms, investment banks, private equity firms, and others. Founded in 1981, AlixPartners is headquartered in New York, and has offices in more than 20 cities around the world. For more information, visit www.alixpartners.com.

About the AlixPartners 2022 Offshore Oil & Gas Report

The 2022 Offshore Oil & Gas report was produced by AlixPartners in February 2022 and it analyses the impact of the energy transition on the offshore oil and gas industry. Its findings are based on AlixPartners analysis of reported data and data gathered from sources that include: Climate Watch, the World Resources Institute (2020), IEA WEO 2021, Rystad Energy, Wood Mackenzie, IEA World Energy Outlook 2021.