DRILLING OUTLOOK
“Even though certain investors might say they’re
not going to focus on fossil fuels and will focus on
renewables going forward, at the end of the day,
when you look at global energy needs, for the
next 10, 20, 30 years, worldwide consumption for
hydrocarbons is going to continue.”
- Seenu Akunuri, PricewaterhouseCoopers
conditions) and energy transition activi-
ties on the line items of its consolidated
financial statements.

The proposed rules would require com-
panies to report Scope 1 and 2 emissions.

Scope 3 emissions would be voluntary
unless a company has set an emissions
reduction target that specifically includes
them. Another pressing challenge is the exo-
dus of labor, Mr Jelinek said. The frequen-
cy of downturns and perception issues
among younger workers are both contrib-
uting factors, but the latter is especially
concerning, he noted. In a 2020 EY study
on the energy workforce, 92% of oil and
gas executives surveyed said they believe
the ability to re-skill their workforce will
determine their company’s success in the
near-term future. However, only 9% felt
strongly that they have a “robust plan” in
place to do so, and just 3% felt strongly that
their organization is adept at re-skilling
their workforce.

While executives surveyed were bullish
on their ability to fill skills gaps through
hiring, this confidence is a double-edged
sword. The fact that an increasing num-
ber of new graduates and existing work-
ers are developing these in-demand skills
reflects a strong growing demand for
those skills across multiple industries, Mr
Jelinek said. This means the oil and gas
sector will face increasing competition
for talent, at the same time that a nega-
tive industry image drives young workers
elsewhere. To address this challenge, Mr Jelinek
urged the industry to vigorously promote
its long-term commitment to sustain-
ability. “I think there’s a realization now
within the industry that you need to show
people how this industry is a humanitar-
ian necessity. People need energy, and
24 they’re seeing that this industry is actu-
ally contributing to the energy transition,”
he said.

Drawing investor interest
in a divided future
In its 2022 World Energy Investment
Report, the International Energy Agency
(IEA) noted that the average level of invest-
ment in oil and gas projects is expected to
hit $720 billion this year, a 10% increase
over 2021 levels. This figure is higher than
what the IEA had projected for year-end
2022 ($550 billion) and significantly higher
than its projection for what needs to be
invested in the latter half of this decade
($340 billion). Both projections were made
under the IEA’s NZE (net-zero emissions by
2050) scenario.

The juxtaposition of actual investment
levels with analyst projections raises the
question of whether the current energy
security crisis will open up opportunities
for greater long-term investment in oil and
gas. Mr Akunuri described this question
as essentially balancing between different
visions of the future.

“Companies are going to be much more
focused on not only the return and the
risk, but also from a longer-term perspec-
tive, as they are going to have to decide
what their portfolios are going to look like
10, 20, 30 years from now. They have to
make investments based on that. Some
of the projects under consideration alle-
viate short-term issues, some are being
made toward a future where everything is
renewable, and some are more of a balanc-
ing act,” he said.

Some regional variations in renew-
able investments can be seen. From 2010
to 2022, countries with more advanced
economies grew its capital spending
on renewables and electricity grids by
$50 billion, according to the IEA. While
emerging economies saw this spending
increase by around $1 trillion, China alone
accounted for approximately 90% of that.

Other emerging economies only saw their
spending on renewables grow by $10 bil-
lion, but stayed resilient on their invest-
ments into fossil fuels, averaging around
30% of total power investments. Advanced
economies, as well as China, averaged less
than 10% investment in fossil fuels in that
time period.

Mr Akunuri noted that fossil fuels will
continue to remain vital to developing
countries, which will require significant
electricity as they industrialize. “In my
view, with fossil fuels, the returns are fast-
er and they come sooner than renewables.

When it comes to building clean energy
like solar farms or wind turbines, that
still takes a lot of investment, and some of
these developing countries don’t have the
infrastructure or the cash to build those
things yet,” Mr Akunuri said.

As investments into both fossil fuels
and renewables continue in the com-
ing decades, it’s becoming clear that
the market will reward companies that
diversify. In a report issued this year
(“Shifting Grounds: The Future of Global
Energy Systems and the Infrastructure
Challenge”), PwC noted that energy tran-
sition and wider technological changes
are creating opportunities for companies
to capture new sources of value, as previ-
ously separate value chains are becoming
increasingly interdependent. This trend is
leading oil and gas companies to develop
collaborations down the value chain.

The PwC report mentioned the ongoing
work on hydrogen development, but Mr
Akunuri also cited the industry’s work
with battery energy storage systems and
carbon capture and storage as examples
of long-term renewable investments that
will help companies in the oil and gas
space to stand out from their peers.

“You can’t just be at status quo,” he
said. “Even though we’ve had a couple of
downturns recently, the industry has gone
through cycles before and it will in the
future. At the current commodity price, if
you’re cash flow positive, you need to be
making investments with a view towards
the future and a balanced portfolio. That’s
what investors want to see.” DC
NOVEMBER/DECEMBER 2022 • DRILLING CONTRACTOR