From populism to trade wars and the horrors of real wars, these are distracting times. Trying to keep track of everything is like trying to keep your eye on the ball under a street magician’s three cups: It is so easy to lose track of what is really going on, what is truly important.
There are observers of, and commentators on, the oil and gas industry that view the speed of movement and uncertainty caused by constant change as so confusing that they suggest attempts to set strategy are little more than wild guesses.
I take a different view. The oil and gas industry is old and smart and very hard to trick. Even in a world of multiplying geopolitical risks, it is very good at reading the room and taking its opportunities. Dealing with risk, instability and navigating uncertainty is what the industry does for a living. The sector is forever handling commodity price swings, geological risk, regulatory risk, project risk and technology risk. All of these and more are familiar features of a well-mapped landscape — and, within that landscape, industry leaders are used to having to make decisions that stand the test of many decades.
Old Lessons, New Problems
The industry has also developed a tried-and-tested formula for resilience: focus on a strong balance sheet, low break-even prices, cost efficiency and risk sharing. Critically, the industry knows not to overconcentrate on any one investment, any one trend or any one risk. Why? Because its long investment time frames have taught it again and again that the cycle will turn. Societal opinion will swing one way, then the other. Hostile governments will, sooner or later, find that they need the energy industry again. And prices will always moderate: The best cure for high prices is … high prices; the best cure for low prices is … low prices.
