How institutional investors see future of Nigeria, Global energy sector- Boston Consulting

Investors are optimistic that Nigeria and global energy sector can continue its recent streak of strong short-term shareholder returns. Yet they also want leadership teams in the industry to think through value creation during the looming energy transition to more environmentally sustainable options.

Those are the key findings from a 2022 survey of 250 institutional investors in the oil and gas industry conducted by Boston Consulting Group (BCG’s) Center for Energy Impact.

According to the survey, 80percent of institutional investors believe energy companies need to take several steps to set and meet emissions-reduction targets, invest in clean energy to enhance their long-term value propositions and collaborate beyond the oil and gas sector to set cross-industry standards regarding emissions targets.

In BCG’s findings, 85percent of institutional investors agree natural gas will play a critical role as a bridge fuel between traditional hydrocarbons and renewable energy sources to help the world decarbonize while another 70 percent wants energy companies to pursue growth in natural gas.

“For management teams seeking some clarity about how natural gas fits into their portfolios, these results are a clear signal of growing support for continued investment as part of longer-term capital allocation strategies,” the survey showed.

The survey also acknowledges 80percent of investors want clarity on companies’ plans for the energy transition.

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Most of them recognised some oil and gas companies have taken some initial steps to improve their environmental performance. Yet those measures, while noteworthy, will not be enough.

“Investors also want to see results—hitting emissions reduction targets and showing EBITDA growth from companies’ low-carbon businesses in the next three years,” a survey by BCG shows.

The survey showed 60percent of investors expect a continued recovery in total shareholder return over the next two years. About 68 percent of investors believe that to meet that expectation, energy companies need to maintain strong capital discipline and focus on profitability over the next three to five years.

“These firms need to maintain or increase their payouts to investors, primarily through dividends but also through buybacks. Regardless of whether oil and gas prices are high or low, maintaining dividends and growing the top line remain central elements of Big Oil’s value proposition for shareholders,” BCG’s survey said.

In BCG’s findings, more than 80percent of investors said that it was “somewhat” or “extremely important” for companies to maintain or grow their investor payouts.

Nearly two-thirds of investors say that peak oil demand will occur by 2030—a slight increase from last year’s estimates.

Only 30percent think that O&G stocks will take on an increasing role in their portfolios in the next decade, and nearly 60percent feel pressure from their clients to divest their fossil-fuel investments.

There is less agreement on the types of targets that should be set, but over 50percent of respondents want to see net-zero targets established for Scope 1 and Scope 2 emissions (which reflect a company’s internal operations and the energy it consumes to run those operations, respectively).

And 59percent think Scope 3 emissions, which encompass the upstream and downstream value chain, should be addressed.