The oil and gas industry has faced steep challenges in recent years that have only been further compounded by the impacts of the COVID-19 pandemic. As the demand for energy is correlated to global economic conditions, oil and gas companies that operate in the supply chain are particularly affected by any downturns in the global economy. When the market price of energy commodities drops drastically, as it has in 2020, it can be almost guaranteed that there will be significant downstream repercussions in the near future.
During this period of continued global uncertainty, access to much-needed capital is expected to be depressed. In addition, with federal aid unlikely to be forthcoming, many in the smaller to mid-size oil and gas companies are struggling.
To sum it all up, it’s an industry in turmoil, and the consequences are expected to be far reaching. In this article, we explore how the oil and gas sector is responding to the crisis and what this means for the law firms who serve them.
How oil and gas companies are reacting to the crisis
To compensate for the global challenges facing the oil and gas industry, many companies are “going lean” and finding ways to improve operational efficiencies by downsizing, selling off or divesting assets, restructuring, or filing for bankruptcy protection.
These circumstances present a unique opportunity for larger more stable players to acquire distressed assets and even their competitors – resulting in a short-lived spike in the incidence of corporate transactions in the near future. According to PWC, while the first quarter of 2020 saw declining deal activity, potential divestures from assets will be a significant driver of activity for the oil and gas industry with the industry’s structure to look significantly different in 2021 and beyond.
There is also another often-overlooked opportunity that is on the horizon for big oil. Increased investment in the renewable energy market by the majors is likely to fuel new strategic partnerships, new entity formation, and the acquisition of smaller renewable organizations. As 2020 has shown that oil and gas commodity prices can be unpredictable, wise players are now looking to diversify into other energy sectors to hedge against future swings in prices.