There are multiple ways to take the temperature of an industry, but perhaps one of the most telling is to talk to the folks who are in charge of running their companies, turning a profit and keeping the stakeholders happy. In other words, talk to the CEOs.

PwC has done just that for 17 years now, releasing its most recent findings in February 2014. While the company talks to CEOs from a variety of industries, its findings are searchable by those industries. The energy industry had “some interesting things to say,” according to PwC’s overview of the survey.

“The energy sector is rapidly transforming, with technology playing a big role,” the overview stated. “Energy CEOs are reaching out to new consumer markets around the world and focusing on building trust with stakeholders. And they’re worried about how government actions will impact their business.”

A total of 1,344 business leaders across 68 countries were surveyed, and a further 34 CEOs were interviewed in depth. Almost 60 energy CEOs from 33 countries were surveyed.

Sector snapshot

About 80% of the respondents believe that technological advances outside the industry—digital economy, social media, mobile devices and big data—will transform their companies over the next five years. Climate change was of greater concern to these CEOs than to the sample as a whole, with nearly half of them citing the importance of measuring and reducing their environmental footprint.

Resource scarcity is being addressed by technology within the industry, opening up new sources of fuel such as shale oil and gas. Interestingly, energy CEOs are much less apt to be concerned about the speed of technological change in terms of their companies’ growth. Intellectual property concerns also seem to be of less importance.

These CEOs also are fully aware of global shifts in economic power and the impact these shifts will have on their companies. “The three countries that energy CEOs ranked as the most important to their business growth are China, Brazil and the U.S.,” the report noted. “Looking beyond the BRICs [Brazil, Russia, India and China] over the next three to five years, Mexico, Indonesia and Africa are viewed as important locations for growth.”

There also is a desire to improve the public image and stakeholder trust, the report stated. More than half are concerned that a lack of trust could impair growth, and 95% agree that a culture of ethical behavior is important. Most feel that trust among employees has improved as well as customers and creditors, but many sense a decline in trust among the media and government regulators.

“The trust question is a major issue for the oil and gas business,” said Badr Jafar, managing director of Crescent Group, in one of the in-depth interviews. “After politicians and bankers, we come in third in terms of lack of trust.

“But energy is so pervasive that it affects everybody, regardless of where you are in the world. I think the failure of trust and the way that trust has become an issue is really about communication breakdown. We need to be communicating much better.”

Opportunities for growth

Despite these concerns, 88% of the respondents are somewhat or very confident of growth over the next three years. Fewer expect an improvement in the global economy over the next year, although this number is up to 39% in 2014 vs. just 15% in 2013. But they’re also concerned about slow or negative growth in mature markets.

Looking over the next three years, 41% of respondents are very confident in their company’s growth, but this is nearly three times more than the number that expect growth in the industry in general. Only 15% expect to see revenue growth in the industry as a whole. This is due to a number of negative factors:

  • Taxes;
  • Over-regulation;
  • Government response to fiscal deficit and debt burden;
  • Continued slow or negative growth in developed countries;
  • Availability of key skills;
  • High and volatile raw materials prices;
  • Exchange rate volatility;
  • Rising labor costs;
  • High or volatile energy costs;
  • Lack of stability in capital markets; and
  • Slowdown in high-growth markets.

The report noted that energy CEOs are more concerned about these issues than their peers across the entire sample.

Transforming business

In an industry that faces constant risk, these CEOs are very confident of their ability to manage risk in face of potential transformations, demonstrating a greater level of certainty than CEOs in other industries. However, they are less sanguine about other aspects of their businesses. When asked about their preparation to capitalize on “transformative global trends,” just 28% are confident about IT, 24% are confident about human resources (HR), and only 19% feel well-prepared when it comes to R&D.

“One of the departments energy CEOs see as least ready to cope with change is R&D,” the report noted. “Only 19% of CEOs see it as well-prepared, far less than across the overall sample—and 14% say their research function is not at all prepared.”

Primary opportunities for business growth vary in some cases between the energy industry and the larger sample. While an increased share in existing markets, new geographic markets and new joint ventures or strategic alliances are on par with industry as a whole, energy CEOs count less on product and service innovation for business growth and a great deal more on mergers and acquisitions than their peers.

When it comes to innovation, “There’s a glaring gap between aspirations and actions,” the report noted. About 40% hope to develop an innovation ecosystem, 53% want to alter their R&D and innovation capacity, and 49% plan to change their technology investments. But only a handful have actually started implementing these changes.

Data management continues to be a major stumbling block for these CEOs. The energy industry is one of the most data-intensive in the world, and while 71% of the respondents are exploring better ways to use and manage data, only 20% have actually put any plans into place. Regardless of the 44% who are somewhat or extremely concerned about cyber threats, 25% report that they see no need to change their strategies.

The workforce is another serious concern. With the “great crew change” starting to exert its effects, the majority of CEOs are worried about finding skilled workers, with almost half feeling that the creation of this workforce should be a government priority. However, only 21% feel that the government has been effective.
“I perceive talent to be one of the most important challenges,” noted Emilio Lozoya, CEO of Pemex. “We are investing heavily in attracting and retaining talent. This is not only a problem in Mexico but for the industry in general.”

To this end, more than half of the respondents noted that they are adding staff. But changing their talent strategies lags behind. Only 24% of the energy CEOs are actively seeking this change, trailing the total sample, and only 24% believe that their HR departments are up to the task.

Heavy is the head that wears the crown. But those at the helm of energy companies know their place. Said Robert Heinemann, former CEO, president and director of Berry Petroleum, “We’ve had a good track record of growth over the past few years. When I first came to the company, we were producing about 13,000 bbl/d of oil. Today we’re at 45,000 bbl/d. In the next three to five years, we could be at 65,000 bbl/d.

“So it has been a good run for us.”