June 2016, Vol. 243, No. 6


Survey Highlights Challenges CEOs Face In Today’s Environment

A Pipeline & Gas Journal Staff Report

PWC’s 19th Annual Global CEO Survey: Oil and gas industry key findings, details the views of 71 oil and gas CEOs in 34 countries and draws on in-depth interviews with industry leaders, John J. Christmann IV, CEO and president of the Apache Corp., U.S., and Andrew Clyde, president and CEO of Murphy USA, U.S.

PWC also surveyed 1,409 CEOs in 83 countries and a range of industries in the last quarter of 2015 while conducting face-to-face interviews with 33 CEOs.

It is not surprising that oil and gas and gas companies are increasingly concerned about the business challenges of today and the future. During one of the worst years in the industry’s history, 72% of oil and gas CEOs said there are more threats facing their business today than three years ago.

Another key finding is that today’s business industry leaders have a tough job finding growth and delivering results year in, year out. But they know an even tougher task lies ahead – preparing their organizations for a more complex future where customers and other stakeholders increasingly expect them to do more to tackle society’s important problems.

For the purpose of this article, the survey figures shown reflect the response of oil and CEO unless otherwise stated. For example, today’s CEOs from the oil and gas sector and the entire sample indicated they faced a business environment that’s becoming increasingly complicated to read and adapt to.

Also, two of the most telling concerns expressed by oil and gas CEO respondents – geopolitical uncertainty and over regulation – are the same as those which worry CEOs across the sample. The level of concern is even greater as 89% of oil and gas CEOs are concerned about geopolitical uncertainty – the most of any industry – compared to 74% across the entire sample, while 84% are concerned about over-regulation, compared to 79% of all CEOs.

These issues, coupled with lower oil and gas prices, are affecting confidence in the global economy. Like their peers in other industries, oil and gas CEOs are less optimistic about global economic growth this year, with just 27% expecting it to improve, down from 35% last year.

Apache’s Christmann said, “I don’t have a crystal ball on oil prices…That’s why we’ve been focused on our cost structure at three various levels – our capital cost to drill new wells, our lease-operating expenses and then our General &Administrative expenses. The bottom line is that we’ve had to push the reset button and really attack the cost structure to gear up for a lower-price environment.”

Oil and gas companies say they are undertaking major restructuring and cost-cutting in response to the sharp drop in oil and gas prices, which shows no sign of reversing in the immediate future. Survey figures show 68% of oil and gas CEOs are planning cost-cutting in the next year.

Tax is also on the minds of these same CEOs – 46% are extremely concerned that an increasing tax burden could threaten growth. They rated a clearly understood, stable and effective tax system as number one on their list of priorities for governments, ahead of availability of key skills (the top choice of CEOs overall) and high levels of employment.

They’re most interested in stability – 80% agreed or agreed strongly (vs.67% of CEOs overall) that a stable tax system is more important than low rates of tax. Oil and gas CEOs are also more likely to agree strongly (45% vs.46% overall) that tax is a business cost that needs to be managed efficiently (as per other business costs).

While 76% of the CEO agree that their business’s approach to tax affects their reputation, 66% indicate that they are planning to make some significant changes to their tax affairs.

Meeting Stakeholder Expectations

Not surprisingly, the CEOs rank resource scarcity and climate change as the global trends most likely to transform wider stakeholder expectations over the next five years (69% vs. 43% overall). These CEOs also see a shift in global economic power as likely to transform expectations – most likely because emerging economies will be driving increasing demand for energy.

Although they are finding it difficult in today’s multipolar world, most oil and gas CEOs say they recognize the needs of a wider set of stakeholders and are taking them into account. Nearly everyone surveyed (94%) is planning at least some changes to how their company defines and manages risk in order to respond to stakeholder expectations: 46% expect significant changes in how they manage brand, marketing and communications. And 39% say they will make significant changes to minimize social and environmental impact of their business operations.

That’s not to say it will be easy. Nearly half said they see additional costs to doing business (49%) and unclear or inconsistent standards or regulations (49%) as a barrier to meeting stakeholder expectations, and a third (32%) mention conflicts between stakeholder interests and financial performance expectations.

Survey results also show they are slower to use new technology to engage with their stakeholders and are much less likely to use social media , (35%) vs. 50% overall). They also rated data and analytics as the top connecting technology (59%), followed by CRM systems (52%).

Christmann singled out better data as his company’s “holy grail”. “In the end, we live and die by gathering and analyzing good-quality data, so if I could do that quickly, it would save us a lot of time, effort, energy and money and move us ahead.”

Murphy’s Clyde focused his comments on technology. “I keep up with technology by looking at changes taking place in other industries,” he said. “Frankly, our sector has been a little slow to invest in technology, so I find more ideas and insights outside our sector, and determine if what other retailers and businesses are doing is adaptable to our business.”

Talent Challenges

When queried about talent challenges, Christmann said, “Historically, the talent flow in and out of our business has tended to track oil prices and the commodity cycle. There was a big gap from 1985 to 2000 when not very many people entered this business, and at this point in time, we’re reeling a bit because there just is not a lot of seasoned technical staff in the 40-50-age group.”

CEOs were queried as to changes they might consider to attract, retain and engage people they feel are necessary to remain relevant and compete. They cited the following as the top three priorities: pipeline leaders for tomorrow (52%); workplace culture and behavior (42%); and effective performance management (38%). Surprisingly, very few indicated they plan to make changes to their focus on productively through automation and technology (11%) or the use of predictive workforce analytics (just 1%).

CEOs ranked innovation and environmental impact at the top of their list as areas they want to measure better. The survey notes that oil and gas companies operate all around the globe, under all different types of terrains and environments. As with the extraction industry, there are environmental considerations, and the oil and gas industry is highly scrutinized by the general public, regulatory agencies, the media and more. The ability to better measure and communicate some of the risks and efforts to minimize environmental impact would help improve their global image.

21st Century Business Success

More than three-quarters (76%) surveyed said their companies report on both financial and non-financial matters and 70% agree that business success in the 21st Century will be defined by more than just financial profits.

Measuring a company’s impact and contribution to society is pretty subjective, according to Murphy. “Our key stakeholders can see our track record in our communities and with our employees, and our employees’ families and friends know if we’re a good company to work for.”

In summing up some of the areas where the industry needs to communicate better, Christmann said, “Our industry as a whole does a lot of good things, but we have this bad oil image that dates back to the 1970s and 1980s. When you look at what we do for the environment, what we do for society, we have a philosophy of investing where we live. We donate a lot of money in those communities.

“The younger generation loves getting out and making a difference, which they measure in terms of where they choose to work. Our industry provides a needed service. Obviously, we want to provide it as cleanly as we possibly can, and we have goals and measures in terms of how we protect the environment and our safety record. Our objective is to provide, explore, and find hydrocarbons and then give back to the communities where we live.”

Editor’s Note: Article text is based on an excerpt from PWC’s 19th Annual Global CEO Survey.


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