WHITE PAPER

Energy Transition
Transformation
To Build Optionality and Resilience, Align the Why,
What and How of Energy Transition Transformation

September 2023
By Stephanie Del Carpio, Kenny Kurtzman, Ming Teck Kong,
Andrea Ostby Syth, Prashant Mehrotra and Tom Steiner
Accelerating change, greater
uncertainty, and conflicting priorities

E
nergy companies’ new reality is faster changing and more uncertain than ever before.
Faced with conflicting priorities, they must strike a winning balance between maximiz-
ing returns, decarbonizing at speed, and investing for value. This means transforming
how energy companies do business today and how they build resilience for the long term.
This paper shows how developing an effective, ‘always-on’ operating model that integrates
purpose, strategy and executional certainty will enable companies to sustain competitive
performance in any environment.

All energy companies must address

two core issues

W
hile challenges differ by segment, to succeed in the medium- to long-term, energy
companies must address two core issues. The first is finding the right balance
between competing demands and priorities. The second is sustaining performance
in the face of rising headwinds.

Strike a winning balance between competing demands

Companies must balance valuations, capital investment decisions, and decarbonization

ambitions in a world where there are many paths available and it is not always clear what
the market will reward (Figure 1). Investors report a strong preference for low carbon capital
investments. But despite European IOCs’ seemingly aligned capital allocation strategies,
their valuation multiples remain depressed compared to peers (Figure 2).

1 ENERGY TRANSITION TRANSFORMATION

Figure 1 | Energy companies must balance three competing demands

Maximize valuations
Obligation to continuously deliver
above market performance and
return value to investors

Is our portfolio optimized Will investors reward us more

forour beliefs of future for replacing reserves or
uncertainty andin which accelerating decarbonization?
assets are we exposed?

Decarbonize at pace Invest for value

Deliver on ambitious Balance capital allocation between
decarbonization targets strategic 'big bets', option plays and
within agreed legacy businesses required to fund
the transition

Do we have the right exposure

between clean tech develop-
ment and core business?
Note: EV/EBITDA calculated based upon calendar year average
Source: S&P Capital IQ; BCG ValueScience® Center

Figure 2 | Mixed signals from the market highlight the need to maintain
optionality

Investors state a preference for low Which aligns to the European IOC However, European IOCs continue
carbon capital investment… capital allocation strategy… to show depressed multiples vs
peers
ExxonMobil

Importance of investment types in O&G Estimated 2022 CAPEX by Segment EV/EBITDA (x)
20 Future is unclear as green
Low carbon 43% 37% 9% 10% ExxonMobil 16% 17% 8% 31% 25% 3% $22B energy rapidly grows
solutions
15
Chevron 28% 24% 1% 28% 13% 6% $15B
Upstream 23% 50% 19% 8%

15% 10
BP 29% 20% 27% 8% $15B
1%
Midstream 12% 53% 25% 8%
2% 5
Shell 22% 15%
10%
36% 15% $24B

Downstream 15% 40% 25% 15%

TotalEnergies 26% 19%
3%
17% 27% $15B 0
9%
2012 2014 2016 2018 2020 2022

Extremely Important Somewhat important Conventional Deepwater US IOCs Green Energy

Uncertain Somewhat unimportant LNG/Integrated Gas Unconventionals European IOCs O&G
Unimportant Downstream Low Carbon Spend

Note: Low Carbon Spend based on company disclosed capex spend. Low carbon spend not inclusive of customer and mobility focused spend. EV/EBITDA determined
based upon calendar year market cap weighted average EV/EBITDA for all 24 Green Energy (e.g., NextEra, Iberdrola, ERG) / 64 O&G (excluding NOC)
Source: Global S&P; Rystad Energy (Nov 2021); company reports/presentations and estimates based on available information; IEA; Capital IQ; BCG CEI

BOSTON CONSULTING GROUP 2

Different challenges faced by different energy segments
The benefits of successful transformation are similar for all energy companies, and include cost efficiency, improved em-
ployee satisfaction and productivity, and faster, more effective decision-making processes. But each energy related sector
will have specific challenges it needs to address.

International Oil Companies (IOCs)

IOCs face conflicting priorities and must urgently find the right balance between maximizing shareholder returns, decar-
bonizing at speed, and investing for long term value. When it comes to portfolio management and capital allocation, un-
precedented strategic uncertainty creates pressure for IOCs to build optionality. To address these challenges IOCs should
consider

• Establishing a lean, efficient operating model for legacy upstream businesses, including streamlining processes to moni-
tor and replace reserves and building capabilities required to reduce costs and execute projects quickly.

• Defining a new operating model to enable optionality in low carbon businesses. This will require embedding agile gover-
nance processes that promote rapid decision making, establishing an ‘always on’ dynamic strategy team to assess and
act on opportunities and building capabilities to strengthen local customer and partner relationships.

National Oil Companies (NOCs)

NOCs are moving from a world in which inefficient operators were able to flourish to one where only low-cost and low-car-
bon operators will survive. To be the ‘last man standing’ they will need to invest capital in inorganic growth opportunities,
alliances, and partnerships across the low-carbon value chain and rapidly develop internal capabilities that have tradition-
ally been provided by IOC or service company partners. To transition successfully NOCs should consider:

• Reducing cost and carbon intensity to extend reserve lifespans with fit for purpose technology and support functions.

• Refocusing portfolios on the desired mix of hydrocarbon and new energy assets.

• Accelerating timely and cost-efficient capital delivery programs to take advantage of current high pricing, using innova-
tive digitally enabled capital delivery models.

3 ENERGY TRANSITION TRANSFORMATION

Upstream independents

Independent upstream players face high degrees of uncertainty and price volatility as the market shifts towards growth in
renewable and low-carbon fuels. These companies must seek to cultivate a truly lean and agile organization that drives
operational efficiency through digital tools while also maintaining their “social license” by demonstrating commitment to
responsible, lower-carbon operations. To address these issues upstream players should consider:

• Future-proofing their hydrocarbon portfolios with fit for purpose support functions and asset-specific decarbonization plans.

• Transforming their core functions using digital to reduce costs and improve decision making while implementing stan-
dardized delivery models to maintain high asset utilization.

• Building and scaling material lower-carbon businesses leveraging new methods of capital deployment and a supplier
ecosystem to secure access to technology.

Downstream independents

Downstream oil and gas companies face shrinking demand and margins, compounded by high projected decarbonization
costs. However, as investor interest moves away from traditional refining towards adjacent value pools in retail and mobili-
ty, companies are also seeing new opportunities arise. To navigate these challenges and take advantages of opportunities
companies should consider:

• Defending their core businesses and improve margins, including maturing trading capabilities to manage volatile mar-
ket conditions and extract full value from assets beyond intrinsic product margins.

• Growing by attacking in adjacent areas, facilitated by an ‘always on’ dynamic strategy and capital allocation team, and
supported by investment in reskilling / upskilling the workforce.

• Creating optionality and scalability in low carbon businesses, including partnership and M&A opportunities, as well as
abatement or divestment plans for existing assets.

Power and Utilities (P&U)

P&U players are being pushed to make capital investments in modernizing, digitizing, and enhancing grid reliability, while
decarbonizing and minimizing stranded assets. Consequently, it’s crucial to redouble sustainable efficiency efforts (costs
and carbon), while investing for the future with integrated planning for new generation and loads. Companies looking to
address these issues should consider:

• Building efficiencies through a robust operating model to increase / preserve their regulated rate of return and decrease
the cost of capital.

• Investing in integrated planning and a modernized grid, including a delivery model to incorporate asynchronous and
distributed generation.

• Growing their asset base and explore diversification opportunities.

BOSTON CONSULTING GROUP 4

 IOCs in particular have an obligation to:

• Continuously deliver above market performance and return value to investors

• Balance capital allocation between strategic ‘big bets’ such as power or mobility, option
plays in less mature low carbon businesses, and legacy businesses required to fund the
transition

• Deliver on ambitious decarbonization targets within agreed timeframes

Unprecedented strategic uncertainty means it is important for companies to build optionali-

ty into their portfolio management and capital allocation practices. In addition to self-fund-
ed organic growth, companies are pursuing a range of pathways to build new energy posi-
tions while leveraging expertise and minimizing exposure. These include M&A, joint
ventures, and strategic alliances.

Sustain performance in the face of increasing headwinds

Irrespective of the pathways a company choses to prioritize, strong headwinds will threaten
its ability to deliver sustained results. These are industry-wide trends that all energy compa-
nies must find ways to navigate:

• Declining talent pipeline for both traditional and new businesses. Degrees held by workers
and unemployment levels in extractive industries are both at their lowest levels since 2006.
These industries have also seen a 90% decrease in job seekers between 2019 and 2022.

• Growing organizational complexity. Companies have been addressing external complexity

by bolting on new business units. The result is cumbersome organizational structures and
decision making processes.

• Rising cost base combined with increased commodity volatility. Annual Brent price swings
have widened since 2019, reaching $44/bbl in 2022 and challenging M&A fair value agree-
ments and upstream investment.

• Declining resilience to supply chain, regulatory, and geopolitical shocks. Sustained under-
investment in supply chains since 2014, combined with repeated cost and environmental
shocks, have undermined resilience across the board.

Today’s increasingly uncertain reality demands that companies find ways to do business that
build resilience. Yet few are equipped with the tools needed to make this transformation.

5 ENERGY TRANSITION TRANSFORMATION

“
Aligning purpose, strategy
and executional certainty
via an effective operating
model is essential to sustain
competitive performance
Importance of a holistic approach

T
o meet these two challenges – simultaneously balancing competing demands while
sustaining performance despite rising headwinds – companies must adopt a holistic
approach that integrates an inclusive and compelling purpose with a clearly articulat-
ed strategy and robust performance agenda. Such an approach helps leaders manage key
tradeoffs and create the right organizational context to efficiently execute their strategy. It
begins with defining and aligning organizations’ ‘Why’, ‘What’ and ‘How’ to deliver sustained
results in the face of ongoing uncertainty (Figure 3).

Figure 3 | A holistic approach to integrating purpose, strategy and execution

will deliver sustainable performance against a backdrop of uncertainty

THE WHY
Purpose and Vision

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SUSTAINABLE PERFORMANCE

7 ENERGY TRANSITION TRANSFORMATION

Why: purpose and vision

The why establishes the company’s purpose for existence and defines the vision for where it
is headed. These elements are essential as they provide an authentic foundation for the
changes that are needed to thrive in a new, lower carbon reality. The Brighthouse Productivi-
ty Index suggests that helping people understand why what they do matters energizes them
and results in 2.25x more productivity. Purpose also makes change personal and is the re-
quired foundation for a transformation to take root.

One North American oil and gas player applied this principle to an enterprise-level transfor-
mation. The company faced issues in connecting prior business unit transformations to an
overall change agenda and operationalizing this broader agenda to improve performance.
Leaders decided to ground the company’s transformation in its vision of being the producer
and supplier of choice. They equipped leaders throughout the organization with the right
communications and tools to align employees and drive changes across upstream, down-
stream, midstream and corporate functions. This shared consistency of purpose helped to
deliver $4bn in additional value across more than 5,000 separate initiatives.

What: strategy, performance expectations, and energy transition plan

The ‘what’ defines the path forward to achieve the company’s stated purpose and vision. Map-
ping this path requires companies to understand and balance trade-offs across the enterprise
and to develop a clear strategy and performance agenda. The what should encompass:

• A dynamic strategy that reflects the company’s purpose and vision and is ‘always on’
to allow agile response to high levels of uncertainty and change (e.g., dynamic portfolio
management / capital allocation processes).

• Mechanisms to ensure competitive performance, including challenging and specific

targets informed by external benchmarks and allowing leaders to make trade-offs between
parts of the value chain.

• A substantive plan for energy transition including placing strategic bets, setting up op-
tion plays, and balancing investment between new business models and the core opera-
tions needed to fund the transition.

Companies that do this well are able to deliver market-leading shareholder returns, resilient
business models and sustainable results. One example is a North American power and
utility company that was seeking to reduce costs and optimize its operational design in
response to activist pressure to improve efficiency. They developed a strategy considering
trade-offs and identifying a winning combination of growth activities, policy changes and cost
reduction opportunities supported by clear targets for operational, cost and capital perfor-
mance improvements. The company was able to deliver close to $500M in efficiencies and
improve its competitive performance.

BOSTON CONSULTING GROUP 8

 How: talent, organizational context, and execution

Having a winning strategy is not enough. Companies also need to design the right organiza-
tion and operating model to deliver it. This ‘how’ is often the most difficult element to get
right. Many companies struggle to tailor the traditional businesses operating model required
to fund the transition while also capturing new, low-carbon opportunities. These opportuni-
ties have very different risk and return profiles and require different skills and capabilities to
execute. An effective how hinges on the company’s ability to secure or develop:

• Leading talent with the right capabilities. Such a talent pool requires a combination of
upskilling, reskilling, and market sourcing, as well as leaders that are aligned on the com-
pany’s purpose and role model desired behaviors.

• An advantageous operating model, reflecting fit-for-purpose organization design, clear

performance management (with goals and incentives aligned at the highest level and cas-
caded through the organization), efficient processes executed by cross-functional teams,
and streamlined, agile decision making to monetize low carbon opportunities in a fast-
paced market.

• Culture and behaviors that are clearly articulated and tied to company purpose. These
are activated by the leaders and teams driving performance and must be embedded sus-
tainably throughout the organization.

• Executional certainty delivered through a high-powered transformation team equipped

with the right processes and tools to ensure rigor in the transformation while also provid-
ing human-centered change management (i.e., focusing not just on the business but on
the people who support it).

A UK-based upstream independent applied many of these elements in their operating mod-
el transformation. The company is an efficient North Sea operator looking to sustain a
steady cash flow from its asset base and expand its portfolio. To deliver on this strategy the
company revisited its organizational design based on a campaign approach1 and defined a
transformation plan including change management and upskilling requirements. A dedicat-
ed and empowered Transformation Management Office increased executional certainty. As
a result, the company is expected to deliver ~$30M in annual savings from contract labour
reductions with 15-20% of roles optimized through multi-skilling.

1. A campaign approach refers to moving from a scheduled inspection and maintenance regime delivered by
offshore personnel to a targeted campaign of maintenance delivered by a dedicated crew who move between
facilities to complete a pre-agreed scope of work. It can be applied to both traditional oil and gas and
renewables assets / operations.

9 ENERGY TRANSITION TRANSFORMATION

Benefits will depend in part
on transformation context

C
ompanies that move quickly towards a holistic, always-on approach to integrating
purpose, strategy and execution will deliver sustained performance that defends
against existential threats while positioning themselves to take advantage of future
opportunities (Figure 4).

Figure 4 | Examples of major existential threats and future opportunities

Defending against existential threats Positioning for future opportunities

Cost savings from fit-for-purpose

Stranded assets with inaccessible capital 25-40% operating models and digitization

Non-competitive cost position along the Employee satisfaction from new ways
supply curve
+10% of working

Undervalued by the market where some of the Faster decision making from streamlined
parts greater than enterprise value
30-40% and clear processes

Source: BCG case experience

BOSTON CONSULTING GROUP 10

 However, it is important to acknowledge that every company will start from a different posi-
tion and must design the right transformation for its unique context. We can think of this
performance context and associated priorities in terms of archetypes: ‘good to great’; ‘fit to
grow’; and ‘crisis to resilience’ (Figure 5).

• Companies that are performing well today with no cash flow or earnings issues but with a
strategic need to transform should consider taking a ‘good to great’ approach. This focuses
on enhancing their maturity and capabilities to enable future growth in adjacent sectors
like CCUS, hydrogen and biofuels that position them for differentiation and leadership.

• Other companies with less pressing cash or financial issues should take a ‘fit to grow’
approach to recover and position for long-term growth and capability building. This starts
with developing and delivering on strategic priorities (e.g., climate action, growth agenda)
to satisfy investors while looking to enhance capabilities for future growth opportunities.

• Some companies are in crisis mode, facing activist challenges, reputational issues or hav-
ing to quickly address short term liquidity needs. For these companies the primary focus
should be on moving from ‘crisis to resilience’ using restructuring, zero-based budgeting,
digital/genAI tools, etc. to restore financial performance and create capacity and resources
to invest for the future

Figure 5 | Performance context and timeframe orientation inform

transformation priorities

Transformation archetypes Typical transformations given archetype

High Good to Great Fit to Grow Reimagining Employee Experiences

(e.g., EVP, ways of working, culture
Good to Great

• Strong cash position • Address earnings/ liquidity

• Strategic need to transform, issues first
no current liquidity or • Then position for long-term Improving Maturity and Capabilities
earnings issues growth and capability (e.g., tech-led digital/Al transformation
• Focus on capabilities and building
growth
Fit to Grow

Need/desire to Developing and Delivering On Strategic Priorities

build long-term Business as usual Crisis to Resilience (e.g., Climate action, growth agenda, portfolio, strategy)
resilience
• Long term strategy is robust
io n • May be liquidity issues Creating Capacity and Resources to Invest
Crisis to Resilience

at (more severe) and/or (e.g., cost-out, zero-based budgeting)

rm
s fo earnings issues (less severe)
n
tra
ta
No
Restoring Financial Performance
Low (e.g., (di)stressed, restructuring, insolvency situations)
Low Urgency to deliver near-term High
breakthrough value

11 ENERGY TRANSITION TRANSFORMATION

Transformation is daunting
but doable

F
acing this new, uncertain reality can be daunting for energy companies, as they must
strike a delicate balance between delivering on their climate and sustainability commit-
ments and maximizing market returns. However, a tailored approach that addresses the
why, what and how of a transition transformation can facilitate the process and build resil-
ience for a fast-paced and uncertain future. With a holistic and dynamic ‘always-on’ ap-
proach, companies can successfully navigate the difficult trade-offs that are inherent in the
energy transition and position themselves to win in the future.

BOSTON CONSULTING GROUP 12

 About the Authors
Stephanie Del Carpio (lead) is an Associate Director based in London.
[Link]@[Link]

Kenny Kurtzman is a Managing Director and Partner based in Houston.

[Link]@[Link]

Ming Teck Kong is a Managing Director and Partner based in Singapore.

Andrea Ostby Syth is a Managing Director and Partner based in San Francisco.
[Link]@[Link]

Prashant Mehrotra is a Managing Director and Partner based in Houston.

[Link]@[Link]

Tom Steiner is a Project Leader based in Houston.

[Link]@[Link]

For Further Contact

If you would like to discuss this report, please contact the authors.

13 ENERGY TRANSITION TRANSFORMATION

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