Driving value in the upstream Oil & Gas sector

The need to understand and assess value in the Oil & Gas sector has never been greater than it is today.

Over the next twenty years the sector will need to invest substantial amounts of capital to meet the growing demand for energy – and do so in the context of rising cost pressure and competitive forces.

This report (and accompanying presentation) examines the ability of companies in the upstream Oil & Gas sector to deliver value to shareholders on this large future investment.

We have done this by identifying the top performing companies, as measured by their return on capital employed (ROCE), and isolating the key characteristics that enable them to deliver returns over and above that of their peers.

The best performing companies - those in the top quartile - generated an average ROCE of more than 32 per cent between 2006-2012. This is higher than the 21 per cent achieved for the industry as a whole and significantly better than the 9 per cent (or less) recorded for companies in the bottom quartile.

The three factors we believe best explain the differences in their performance are:
  1. Selectivity not velocity in their approach to capital investment - it’s not about how much you spend but what you spend it on that counts
  2. A strong focus on operating excellence - companies in the top quartile had production costs almost 10 per cent lower than the industry average
  3. A commitment to driving capital productivity - top performers are on average almost 47 per cent more effective as their peers in terms of capital productivity.
The upward trajectory of global energy demand presents enormous opportunities for companies in the upstream Oil & Gas sector for the next two decades. The companies that want to stay ahead of the pack and deliver strong returns to their shareholder will be those paying careful attention to these three factors.

Download the publication Download the associated presentation