Banks have evolved to the point where the CEO of one of the world’s largest financial institutions can describe their organisation as a technology firm and barely raise an eyebrow. While it might seem to be a good example of industry metamorphosis that could be emulated, there are several reasons why oil and gas is finding transformation more challenging and while there are lessons that can be learned, the comparison is not necessarily fair in the first place, suggests Kay Rieck, an experienced market observer and investor.

This is the second part of a two-part article. The first-part, which you can read here discussed how the financial services sector has accepted change and become more focused on a future as a technology provider, at least at the top end of the scale. In this article, we will discuss why the transition of from oil and gas firm into energy firm will be far more challenging.

Spending energy turning green

While banks are seemingly effortlessly transforming themselves into technology companies, oil and gas companies appear to be making heavier weather of their transition into energy companies.

Part of the reason for this could be that the banks have always had a symbiotic relationship with technology. They have embraced it as a way to get more things done, more quickly and more efficiently and the process of change has been relatively smooth as a result. First and foremost, banks’ primary strategy is to make profits by helping people manage their money. Technology is simply a tool that helps them achieve this goal.

Oil and gas firms have it slightly different. The clue is in the name. First and foremost, they are in the business of oil and gas extraction, and so any discussion about power coming from alternative sources is a threat to their primary strategy to make profits, which is always a difficult sell.

Size and diversity

Equally, as I mentioned in the first piece , banks come in a variety of shapes and sizes, and while the top end of the banking sector has indeed invested heavily in technology, there are other parts of the sector that have been more reticent. They pride themselves on personal service rather than technology.

Oil and gas firms are in a similar position. At the top end, the global conglomerates have moved quickly to emphasise their role as wider energy providers rather than simply oil and gas companies. Those in the medium and smaller organisations have moved more slowly and are likely to continue to move slowly because fundamentally they do not have as much opportunity to change. They provide oil and they provide gas. Smaller banks can focus on customer experience if they can’t compete directly in technology, or they can white-label technology platforms from organisations in the same space that they are not competing with, but oil and gas firms do not have that luxury. Exploration and production firms need to explore and produce, or they need to completely change their business models.

Finally, the entire oil and gas supply chain is geared up to support oil and gas, and changing any aspect of it is a significant undertaking for every organisation that’s involved. While there are developments in so-called drop-in fuels that can replace traditional fuels with relatively little change to engines or heating systems, these are somewhere behind the development cycle in comparison with current front running alternatives such as wind or solar. This means that unless there is a sudden enhancement in production, drop-in fuels will arrive too late to avoid the industry undergoing significant disruption. The banking system doesn’t necessarily care if the world’s reserve currency is USD, EUR, CNY, ISK or even BTC, it simply needs two currencies to make a trade.

The banking is a far more global and homogenous industry than oil and gas, which relies on protracted supply chains that are doing a wide variety of different activities. This is not to say that the banking industry isn’t very complex, but it has consolidated to a far greater degree than oil and gas and this makes transformation easier.

There have been plenty of voices heard over the last few weeks that have suggested we should look to move away from oil and gas as quickly as possible and that oil and gas firms need to evolve. The situation is complex though and changing the global energy mix will be a complicated process with considerable implications for global trade.

This being the case, while it is easy to point fingers at the oil and gas sector and accuse it of being slow to adapt to changing realities, the reality is that it is not directly comparable with any other. There are similarities in some ways, but the comparisons are not strictly applicable.


About the Author

Kay Rieck has been an investor in the US oil and gas sector for more than two decades. He was a financial advisor and stockbroker on the New York Stock Exchange (NYSE) for many years.

He quickly developed his interest in the oil and gas sector and related assets, building his expertise in investment banking and asset management at the New York Board of Trade and the Chicago Board of Trade.

Leveraging his exceptional network of global contacts, he founded his first oil and gas development company in the U.S. in 2008, selecting investments in the Haynesville Shale, Permian Basin, Eagle Ford Shale, Dimmit County, and anywhere else that offered and continues to offer exceptional return prospects.