[Editor's note: A version of this story appears in the January 2020 edition of Oil and Gas Investor. Subscribe to the magazine here.]

When the chronological odometer clicks over to a zero year, it’s always a good opportunity to pontificate on what the future might hold, and we’re all certainly looking for enlightenment these days. The energy industry is experiencing great volatility as we enter the third decade of the millennium; in fact, what might be revealed as a paradigm shift by the end of the ’20s.

This time last decade we were just beginning to get our heads around the vast resource potential of the gassy shale plays, and tight oil producibility was still in question. We anticipated the technology would be exported globally. Excepting in Argentina, it hasn’t worked out, and maybe that’s a good thing considering the world supply glut we’ve created.

The U.S. oil and gas industry has experienced an amazingly successful decade, in hindsight. Too successful, it could be argued. What was once a battle cry of “drill, baby, drill” has morphed into catcalls by investors of “show me the money.” Just as with the advent of unconventional exploration in the early 2000s, the industry is poised for a transformation going into this decade.

First, it is shifting from a mindset of resource scarcity to resource abundance. The go-go pace of drilling and growing production as fast as possible is moderating. Dictated by soft commodity prices, the near 2020s will see E&Ps take a more measured approach to development, focused on efficiencies and returns.

Already, less capital is directed toward growth and more toward maintaining declining production, said IHS analyst Bob Frykland, addressing an IPAA audience in December. Specifically, 80% goes to keeping production flat currently.

“We don’t ever see a growth period coming forward at the same magnitude” as before, he said. “We’ve switched from a game of growth to one of managing costs and doing more for less.”

Second, investors must be appeased if producers are to hope for a return of capital to the space. Mizuho Group analyst Paul Sankey says the best E&Ps in the new decade will continue on the “right path” of constrained capex and reduced growth, with increased cash return to shareholders. And not be subtle about it.

“Oil companies need a premium return to the market to make up for their industry’s lack of growth and higher volatility. So a yield in line with the S&P 500 is not attractive,” he said in a Dec. 12 note. Rather, he suggests a five times return to that of the S&P500 to attract back investors.

“A sustained double-digit cash return to shareholders is outright attractive against any stock in the market, and is enough to offset the headwinds for oil. Beyond being an industry with a proven track record of destroying value, it bribes you to ignore the Tesla effect negative, the end of Peak Oil effect negative and the Greta Thunberg effect negative.”

Those “effects” represent a third driver going into the new decade: Oil and gas companies must directly address energy consumers who more and more are denouncing hydrocarbons in favor of renewables. The topic of climate change evokes a lot of emotion on a national and global level, said Wil Van Loh, CEO of Quantum Energy Partners, at a talk in October.

“We have to get dead serious about ESG [environmental, sustainability and governance] issues. It’s not really an option anymore in my opinion,” he said. “You won’t have access to capital in three years if you don’t recycle all your water, if you don’t have emissions monitoring on all your well sites. Given the intensity of the discussion, if we don’t police ourselves much better, you won’t like the policing that’s going to come down to us as an industry.”

Fourth, expect the industry to further contract via consolidation. “With the fundamental backdrop of moderate, range-bound oil prices, a company’s place on the cost curve is critical,” noted Morgan Stanley analysts in a Dec. 11 note. Low-premium mergers of equals make a lot of sense, they said, but expect majors to be active buyers as well.

“The combination of deeply discounted E&P valuations relative to the majors, the overly fragmented nature of the U.S. shales and the value creation from scale operations sets the stage for potential consolidation.”

These are just some of the themes that will impact industry as the new decade begins. We hope technology will open up vast new resource opportunities to keep drillbits turning, and the industry will have found its place within the hearts and minds of investors and consumers. Let’s check back in 10.