The trilemma of oil companies

Abstract

Due to the unprecedented decline in the demand for oil and price collapse, major oil companies increasingly face a strategic trade-off between i) maintaining investments in their core business, ii) preserving shareholder dividend payments, and iii) investing for the energy transition. This paper investigates this strategic trilemma, assessing the responses of the eight oil majors. It models their cash flow break evens and required oil prices to sustain investments and dividends and evaluates their corporate strategies under the current low oil price scenario. Analysis shows that in a low oil price setting, majors may no longer achieve all three strategic objectives in unison but may have to pick two out of three at the maximum. Results reveal a strong impact of the companies’ region of incorporation with European-based oil companies embracing investments for the energy transition, whereas companies in America are continuing to focus on their hydrocarbon businesses and shareholder distributions.