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
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
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
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
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.
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.
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
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.