Lathrop Survey: Oil Execs Favor Diversifying

More traditional oil and gas companies expect to focus on renewable energy and prioritize environmental initiatives in 2024, and a smaller majority than last year expects to increase fossil fuel production.

A new report from law firm Lathrop GPM released on Jan. 23 indicates energy decision makers are turning to renewables, carbon capture utilization and storage (CCUS) technologies, energy efficiency improvements and other environmental initiatives as they work to weather economic and regulatory headwinds and spur growth.

According to the 2024 Oil and Gas Outlook and Trends report, 65% of respondents said their companies would increase oil and gas production versus 72% the previous year, while 80% said their companies will increase focus on renewables, compared to 72% in 2023. In 2023, 46% said their companies planned to extend the life of aging infrastructure but, this year, 62% of companies planned to do so.

In 2023, 70% of respondents said their companies would prioritize environmental initiatives and, this year, 76% of companies are stepping up that focus.

For the report, Lathrop surveyed 100 oil and gas executives, 95 of whom were U.S.-based, in October 2023. About 80% of respondents were in the C-suite. Operations included E&P (47%), midstream and pipelines (45%), downstream (35%), fully-integrated renewables (32%) and upstream (26%).

Capex and inventory

The responses come despite a two-year slowdown in capex growth across the industry, with 47% of respondents citing investment challenges related to tax incentives and subsidies, according to Lathrop.

Decision makers had high expectations for capex in 2024 following the Exxon Mobil deal to purchase Pioneer Natural Resources and Chevron’s acquisition of Hess, according to the report.

Executives said they supported the notion of a capex increase as inventory runs scarce. Of respondents, 10% said they expect significantly higher capex in 2024 compared to 2023, with 34% saying somewhat higher and 47% saying capex rates would remain unchanged year over year.

Only 9% said they expected somewhat or significantly less capex this year.

“I think inventory is a big question,” Patrick McRorie, chair of Lathrop GPM’s energy practice, told Hart Energy. “Most recently, you're seeing continued M&A activity across all different sizes and scales of corporations. I think consolidation will be a big thing we need to look at, and what it means for both our clients and the energy-consuming public.”

McRorie said the consolidations affect everything from personnel to drilling schedules and beyond. “You look at companies coming together, and then they have to figure out what the respective drill schedule was and will be in the next quarter,” he said. “Taking my drill schedule and your drill schedule, and figuring out how to combine them is a heavy lift.”

While those decisions impact a lot of people, shareholders just want to know, “‘Are you still going to be able to produce as much oil in 2024?’ And there's just more depth to it than that,” he said. 

The confluence of capex and inventory may lead to more creative approaches, he said.

“If I am an oil and gas company land executive, I'm thinking about, ‘How does my capex live within trying to either go back in and drill horizontal wells where there were vertical ones,’” he said.

“‘How do I get creative in reducing that surface footprint and, therefore, the carbon emissions,’” McRorie added. “‘How do I get creative in talking about energy efficiency?’ A lot of stuff that's being done around that is, ‘How do you get a barrel of oil or an Mcf of gas from a wellhead to a market in a more efficient way?’”

Speaking of efficiency

McRorie said some major companies are playing a long game to position themselves as leaders in the energy transition and renewables sector.

According to the survey, about two-thirds of executives said energy efficiency would be a top operational or investment opportunity in 2024.

Nearly half of the respondents said their companies were exploring diversification opportunities due to cost, tax incentives and supply chain issues.

Of those surveyed, 66% said their companies would focus on improving energy efficiency, 51% on CCUS, 44% on electrification, 41% on solar PV, 41% on biofuel or biomass, 39% on utility-scale battery storage, 27% on hydrogen, 25% on LNG and 24% on geothermal.

Survey respondents believed CCUS will have utility-scale application within the next decade. The industry already has 154 U.S.-based CCUS projects in the development pipeline and seven under construction. Siting, construction of new pipelines, and enhanced system reliability are critical to these projects succeeding, the executives said.

ESG focus wains

While companies are more focused on energy efficiency, they have put ESG under the microscope, and fewer companies are implementing policies this year. 

This year, 32% of respondents said they had implemented ESG policies, flat from the previous year, while another 32% were in the process of implementing such policies this year, down from 42% the previous year. Nineteen percent of respondents said they are not considering policies this year, up from 12% the previous year.