The effect of energy transition on the financial performance of oil and gas companies

Abstract

We investigate the effect of transition towards low carbon energy on the financial performance of European and US oil and gas companies in the years 2010-2018. This is important, as a major participant in the global energy market, oil and gas companies have been affected by the increase in the global interest in investments into low carbon energy. The research question is approached from both perspectives of individual company transition and global transition. We find that, first, individual company transition has a negative effect on European oil and gas companies for low levels of transition, and it has a positive effect for higher levels of transition. For US oil and gas companies, the opposite effect is true. Second, global transition to low carbon energy has a positive effect on the financial performance of European and the US companies and this effect is increasing when the magnitude of transition increases. Third, this positive effect decreases when the oil price increases. In the future, global transition to low carbon energy is expected to increase further, which will amplify the positive effect in both markets, especially when the oil price is low. Therefore, we recommend oil and gas companies to further their transition to a higher level, as it positively affects their financial status.