Oil & Gas

Brands recalibrate spending as global oil prices plummet

Downstream businesses gain new respect

It wasn't business as usual for oil and gas brands, as a perfect storm of geopolitics disrupted their revenue, profit expectations, long-term planning assumptions and stock appreciation.

Oil prices plummeted from over $100 per barrel to less than $50, well below the roughly $70 to $80 a barrel considered necessary for a reasonable return on investment in exploration.

Factors driving down the price of oil included excess supply from Saudi Arabia and other Gulf states, reduced global demand because of US energy self-sufficiency and the slowdown of China's economy.

Sanctions punishing Russia for its incursion into Ukraine added complication, halting Arctic exploration by major western brands in partnership with Russian state-owned companies.

These pressures presaged a period of limited exploration, cost control and consolidation with stronger, cash-rich brands acquiring the assets of competitors weakened by the disruption.

Both the major multinational brands – including Shell, ExxonMobil, BP and ConocoPhillips – and state-owned brands such as Sinopec and PetroChina sharply cut back capital expenditure. Investment in shale oil and gas declined, as the low price for crude softened demand for cheaper energy alternatives.

As an unanticipated consequence, the majors rediscovered their downstream businesses, the refineries and gas stations with consumer-facing brands, which some vertically integrated giants had considered divesting because of their low profit contribution compared with upstream exploration.

Brand and reputation

Industry disruption was also expected to impact investment in brand and reputation. While brand contribution is relatively low in the oil and gas category, companies consider reputation a vital lever for influencing regulations, projecting the credibility necessary for establishing partnerships and gaining lucrative government contracts for exploration.

The major brands invested in partnerships and communications that affirmed their commitment to social responsibility and the local communities in which they operate. This spending on education or community development initiatives, for example, was expected to continue, but probably at a reduced level.

As the multinationals focus intently on delivering a credible bottom line, they'll attempt to be more targeted and effective in their communications. Consumers in countries with state-owned oil companies usually view those brands favorably, as contributors to the national economy and agenda. (Please see the related story.)

Challenging oil economics further hurt the reputation of Brazil's Petrobras, already weakened by national price controls, poor profit results and scandal.

Top 10 Chart

North American opportunity

One of the bright spots in the complicated geopolitics of the oil and gas category had been North America. In only a few years, the US pivoted from dependence on oil from politically volatile parts of the world to energy independence and the realistic possibility of soon becoming a net energy exporter.

Oil and gas brands operating in North America face enormous potential economies of scale and product demand from both sourcing and selling oil and gas in the world's largest energy consuming market. Americans debated about balancing the benefits gained from energy independence with the risks posed to the environment.

Topics of ongoing local and national political debate included fracking for shale oil and gas, opening up the eastern seaboard for offshore drilling, construction of the Keystone pipeline to flow oil from the Canadian tar sands to US ports on the Gulf of Mexico, and awarding more export licenses.

Energy alternatives

Meanwhile, the low cost of oil hurt many smaller, highly leveraged shale oil companies that bet on high oil prices to build demand for a lower-cost energy alternative. And investment in renewable sources like offshore wind, became less attractive.

Although the prudent prescription for oil companies was to ride out the storm, an alternative script suggested that the crisis presents an opportunity to strengthen brand and reputation by articulating a larger vision around climate change and long-term sustainability.

Among the climate stabilizing options being considered were a carbon tax that might be more acceptable with lower oil prices, and a tax credit that would compensate companies for agreeing to put some of the world's reserves off-limits into an unexploitable asset called the carbon bubble.

Brand Building Action Points

1.

Consider the low oil price not only as a crisis to endure, but also as an opportunity to discover new ways to differentiate the brand and assert brand leadership.

2.

Implement more effective and efficient communications strategies that reach the influencers and sustain brand and reputation. Communicate with stories that are targeted and relevant, but with the effectiveness and efficiency required in this tough environment.

3.

Do a better job of telling stories about how the brand contributes to the economic development of the communities of the world. Make those stories personal and honest.

4.

Invest in unraveling the policy changes facing the businesses, and create a fiscal and regulatory environment that allows the businesses to continue to thrive.

10-Year Trends & Analysis

Chinese brands boost category Brand Power

The BrandZ™ Top 10 Oil and Gas brands scored somewhat higher on reputation than the Top 100 brands overall. Reputation for the Oil and Gas Top 10 suffered following the 2010 BP Deepwater Horizon spill in the Gulf of Mexico and then rebounded, revealing a strong category effect when one of the majors experiences a problem.

Reputation scores broke down sharply according to ownership, however, with state-owned brands scoring much higher in reputation than MNCs (multinational corporations). The state-owned companies – Gazprom, Rosneft, PetroChina and Sinopec – scored an average of 131 on reputation compared with a score of only 99 for the private companies – BP, Shell, Total, ConocoPhilips, Chevron and ExxonMobil. An average brand scores 100.

BrandZ™ methodology in part drives the contrast in reputation scores. Scores for the state-owned companies are calculated from the opinions of consumers in those countries, who often view their oil and gas companies as local champions that help drive the national economy. Responses from consumers worldwide are used to create the multinational scores.

The BrandZ™ measurement of the oil and gas category starts in 2010, and includes upstream (exploration and refining) as well as downstream (retail) businesses. Since 2010, the Brand Value of the oil and gas category grew a modest 13 percent, compared with a 60 percent improvement by the Top 100 overall.

State-owned brands outscore market-driven brands in reputation

Insight

Strong reputation influences positive outcomes

The advantage of having a well-established corporate brand is that you can be ready when the licenses are being awarded. I have seen instances where strong corporate brands, together with close relationships and established reputations, have put companies automatically on the short list for licenses, while other majors of similar scale and power have been ignored because they haven't established their reputation in the same way. When international oil companies go into a country where energy is a problem and they can provide a solution, then they can achieve hero status if they manage their reputations well.

Nick Cooper
Senior Partner
Millward Brown Vermeer
Nick.Cooper@millwardbrown.com

Future View

  • One of the defining aspects affecting the oil and gas category over the next few years will be lower prices and the reorganization of businesses and investments to reflect this new normal.
  • Also significant will be the low-carbon transition; responding to the moral dilemma of providing energy to the growing population of our world, and the need to avoid catastrophic climate change.

Up 6%


Oil & Gas - Top 10 Total Brand Value
$115.3 BILLION


Category Definition
The oil and gas category includes both private International Oil Companies (IOCs) and state-owned National Oil Companies (NOCs).


BrandZ Top 100 2015

BrandZ Global 2014 Report Top 100 Report

Top 100 Chart

Top 100 Infographic


Methodology and valuation by Kantar Millward Brown


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