Upstream companies are facing a range of opportunities—as well as challenges—that make today the right time for CEOs to chart an optimized path.
In recent years, falling oil and gas prices have prompted many companies to launch strong cost-cutting measures—putting them in a position of relative financial strength. At the same time, upstream oil and gas players are contending with the challenges presented by the growing emphasis on decarbonization and renewable energy around the world, as well as changes in mobility patterns and end-user preferences. To seize the opportunities while navigating the challenges, companies must focus on four domains as they map out a path: ways of working, operations, the asset portfolio, and relationships with ecosystem partners. Within each domain, digital capabilities are key.
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Ways of Working
Adopting agile practices, establishing a performance-centric culture, and making better use of financial incentives.
Operations
Rethinking and transforming operations, and optimizing the operating model to support strategic objectives.
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The Portfolio
Strategic M&A, strategic divestitures, decarbonization, CCUs, and strategic business model shifts.
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Relationships with Ecosystem Partners
Finding new, win-win ways of collaborating with suppliers, redefining business terms with host governments, deriving greater value from assets operating by external partners.
The upstream oil and gas sector has long embraced technological innovation as a means of increasing profitability, but the industry has been slow to adopt the global business trend of digital transformation. For long-term impact, digital can help companies capture a tremendous amount of value across the entire value chain, transforming all aspects of business operations.
In the context of an abundant oil and gas supply, and uncertainty about the development of demand, operators need to constantly push for greater cost competitiveness and lower emissions—and digital is the lever that can help make it happen. Producers must embrace digital technologies—including big data, analytics, and artificial intelligence—as part of a multipronged approach that addresses operations, organizational effectiveness and efficiency, the business portfolio, and building cultures for long-term business improvement.
Digital modeling and simulation tools can connect reservoir data, field architecture, equipment design, environmental impact, and economics into a single framework to help companies succeed.
Together, these developments have the potential to transform the upstream oil and gas industry’s fortunes by substantially improving capital efficiency, lowering production costs, and reducing time to first oil. For such a transformation to be successful, oil and gas companies need to fundamentally change their DNA and the way they work. A structured and pragmatic methodology that embraces an agile approach and addresses all aspects of the value chain will deliver maximum benefit.
Through end-to-end support, partnerships, and advisory capabilities, BCG enables upstream operators and oilfield service companies to tackle three tough challenges posed by the digital era.
Energy organizations are well structured and process driven, but they lag behind leading companies in other industries in optimizing ways of working to generate superior performance.
Historically, most companies have organized themselves by asset, but today larger players depend more often on a functional model as they pursue controls and consistency across operations and around the globe. Big functional models inherently require a more collaborative workplace—a cultural shift that can be hard to get right. And technological disruption is adding another layer to upstream organization and operating model effectiveness, as companies move toward new processes, governance, and decision-making logic.
There are several distinct areas on which upstream oil and gas companies can focus in order to lift themselves to the next organizational level.
BCG has extensive experience working with leading upstream oil and gas clients worldwide. Our experts have advised 19 of the world’s leading 25 oil companies on some of their most pertinent strategic challenges—decarbonization, digital transformation, operational excellence, and more.
