Ramp Renewables? Portfolio Perspectives.

It is often said that Oil Majors should become Energy Majors by transitioning to renewables. But what is the best balance based on portfolio theory? Our 7-page note answers this question, by constructing a mean-variance optimisation model. We find a c0-20% weighting to renewables maximises risk-adjusted returns. The best balance is 5-13%. But beyond a c35% allocation, both returns and risk-adjusted returns decline rapidly.


Pages 2-3 outline our methodology for assessing the optimal risk-adjusted returns of a Major energy company’s portfolio, including the risk, return and correlations of traditional investment options: upstream, downstream and chemicals.

Page 4 quantifies the lower returns that are likely to be achieved on renewable investment options, such as wind, solar and CCS, based on our recent modeling.

Pages 5-6 present an “efficient frontier” of portfolio allocations, balanced between traditional investment options and renewables, with different risk and return profiles.

Pages 6-7 draw conclusions about the optimal portfolios, showing how to maximise returns, minimise risk and maximise risk-adjusted returns (Sharpe ratio).

The work suggests oil companies should primarily remain oil companies, working hard to improve the efficiency and lower the CO2-intensities of their base businesses.

2050 oil markets: opportunities in peak demand?

Many commentators fear long-run oil demand is on the cusp of a steep contraction, leaving oil and gas assets stranded. We are more concerned about the opposite problem. Projecting out the current trends, global oil demand is on course to keep rising to over 130Mbpd by 2050, undermining attempts to decarbonise the world’s energy system.

Our new, 20-page note reviews seven technology themes that can save 45Mbpd of long-term oil demand. We therefore find oil demand would plateau at 103Mbpd in the 2020s, before declining gradually to 87Mbpd in 2050. This is still an enormous market, equivalent to 1,000 bbls of oil being consumed every second.

Opportunities abound in the transition, in order to deliver our seven themes, improve mobility, substitute oil for gas, reconfigure refineries for changing product mixes, and to ensure that the world’s remaining oil needs are supplied as cleanly and efficiently as possible. Leading companies will seize these opportunities, driving the transition and earning strong returns in the process.

Patent Leaders in Energy

Technology leadership is crucial in energy. It drives costs, returns and future resiliency. Hence, we have reviewed 3,000 recent patent filings, across the 25 largest energy companies, in order to quantify our “Top Ten” patent leaders in energy.


This 34-page note ranks the industry’s “Top 10 technology-leaders”: in upstream, offshore, deep-water, shale, LNG, gas-marketing, downstream, chemicals, digital and renewables.

For each topic, we profile the leading company, its edge and the proximity of the competition.

Companies covered by the analysis include Aramco, BP, Chevron, Conoco, Devon, Eni, EOG, Equinor, ExxonMobil, Occidental, Petrobras, Repsol, Shell, Suncor and TOTAL.


More information? Please do not hesitate to contact us, if you would like more information about accessing this document, or taking out a TSE subscription.

Does Technology Drive Returns?

Technology drives 30-60% of energy companies’ return on capital. This is our conclusion after correlating 10 energy companies’ ROACEs against 3,000 patent filings. Above average technologies are necessary to generate above-average returns.


For the first time, we have been able to test the relationship between oil companies’ technical abilities and their Returns on Average Capital Employed (ROACE).

In the past, technical capabilities have been difficult to quantify, hence this crucial dimension has been overlooked by economic analysis in the energy sector.

Our new methodology stems from our database of 3,043 patents, filed by the Top 25 leading energy companies in 2018. The data cover upstream, downstream, chemicals and new energy technologies (chart below) . All the patents are further summarised, “scored” and classed across 40 sub-categories.

The methodology is to correlate our patent-scores for each company with the ROACE generated by the company in 2018. We ran these correlations at both the corporate level and the segment level…

Results: patent filings predict returns

Patent filings predict corporate returns. In 2018, the average of the Top 10 Integrated Oil Majors generated a Return on Average Capital Employed (ROACE) of 11%, based on our adjusted, apples-to-apples calculation methodology. These returns are 54% correlated with the number of patents filed by each Major (chart below).

Technology leaders are implied to earn c5% higher corporate returns than those deploying industry-average technologies, which is a factor of 2x.

Upstream patent filings also predict upstream returns, with an 85% correlation coefficient. The data are skewed by one Middle East NOC, which earns exceptionally high returns on capital, but even excluding this datapoint, the correlation coefficient is 65% (chart below).

The curve is relatively flat, with the exception of two outliers, implying that it is hardest to improve general upstream returns using technology. This may be because upstream portfolios are vast, spanning many different asset-types and geographies.

Downstream patent filings predict downstream returns, with an 80% correlation coefficient (chart below). However, our sample size is smaller, as we were unable to dis-aggregate downstream ROACE for all the Majors.

The curve is very steep, indicating that downstream technology leaders can surpass c20% returns on capital, versus c10% using industry-standard technologies.

Chemical patent filings predict chemical returns, with a 57% correlation coefficient (chart below). Again, our sample size is smaller, as we could only estimate chemicals ROACEs for some of the Majors.

The curve is also steep, with technology leaders earning c10-20% returns, versus low single digit returns for less differentiated players.

Overall, the results should matter for investors in the energy sector, for capital allocation within corporates, and for weighing up the benefits of in-house R&D. We would be delighted to discuss the underlying data with you in more detail.

Lost in the Forest?

In 2019, Shell pledged $300M of new investment into forestry. TOTAL, BP and Eni are also pursuing similar schemes. But can they move the needle for CO2? In order to answer this question, we have tabulated our ‘top five’ facts about forestry. We think Oil Majors may drive the energy transition most effectively via developing better energy technologies in their portfolios.


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Patent Partners: Pairing Up?

This note contains our ‘Top Five’ conclusions about the Oil Majors’ research partnerships, drawing off our database of 3,000 oil company patents. Different companies have importantly different approaches. We can quantify this, by looking at the number of patents co-filed with partners (chart above).

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TRLs: When does technology get exciting?

We categorised 300 of the Oil Majors’ technologies according to their technical maturity. We find the most exciting examples are not the most technically mature, but those on the cusp of commercialisation. Majors that work on earlier-stage technologies also have better overall technologies (c50% correlation coefficient). Hence, to create value, it is important to maintain a constant funnel of technology opportunities.


When we assess an energy technology, we score it on four dimensions: how far does it advance the industry-standard? How large is the potential economic impact? How proprietary is it? And finally, is it “ready”?

To quantify the final category, we use the industry-standard conceptual framework of ‘Technology Readiness Levels’ (TRLs), which are summarised below. It is worth being familiar with this categorization, as it recurs throughout our work.

But when do technologies get exciting?

To some extent, “excitement” depends upon your perspective. Venture funds may find most value on the earlier rungs of the ladder. But most companies and investors get excited in the later stages. We can measure this. The results are surprising.

Below, we have summarised our “TSE Technology Scores” for 300 technologies, used by the 25 oil and gas companies that we follow. The highest scores appear to be for technologies at Readiness Level Seven (chart below).

Even though these technologies are less mature than TRLs 8-9, we think they are more exciting. This is unexpected. As discussed above, our “Technology Scores” specifically award higher marks to more mature technologies, and penalise those that are less mature.

On the other hand, maybe it is not so surprising. Opportunities at TRL7 are, by definition, new and cutting-edge. Conversely, the shine tends to wear off for more mature technologies, that have already spread around the industry.

What does it means for companies?

If the most exciting technologies are the ones on the cusp of commercialisation, it is important that leading companies can embrace them. We think the answer is to maintain a rich funnel of opportunities, including those at earlier stages. Our data suggest that the technology-leaders around the industry are doing exactly this…

Below, we rank the 25 oil and gas companies that we follow. We find a 50% correlation between the companies that are working on ‘earlier stage’ technologies and those that have better overall technologies.

“Technology Scores” across 25 Oil and Gas companies, which are tracked by TSE

Investable insights. To develop a lead in technology, you have to be involved in developing technology. If your sole approach is to buy mature technologies off the shelf, you will only access them later, and with less theoretical context than the leaders. We think this explains the correlation above. We also think it matters for investing in the best energy companies, where technical capabilities are starkly different (below).

“Technology Scores” across 20 Oil and Gas Companies, which are tracked by TSE


How can we help? For our full database of 300 technologies, scores by company, or by industry sub-segment, please contact us. We can also provide consultancy services on your company, highlighting areas where there is most scope for improvement, by reference to peers’ best-practices.

Can Technology Revive Offshore Oil?

The appetite to invest in new offshore oil projects has been languishing, due to fears over the energy transition, a preference for share-buybacks, and intensifying competition from short-cycle shale. So can technology revive offshore and deep-water? This note outlines our ‘top twenty’ opportunities. They can double deep-water NPVs, add c4-5% to IRRs and improve oil price break-evens by $15-20/bbl.


Pages 9-18 of the note outline each of our ‘top twenty’ focus areas, after reviewing 1,500 patents and 300 technologies across the industry. In each case, we outline which companies are most advanced.

Our work shows it is essential to invest with – or have your resources managed by – technology leaders. The industry must also keep improving, to re-excite investment.

Why the Thunder Said?

Energy transition is underway. Or more specifically, five energy transitions are underway at the same time. They include the rise of renewables, shale oil, digital technologies, environmental improvements and new forms of energy demand. This is our rationale for establishing a new research consultancy, Thunder Said Energy, at the nexus of energy-technology and energy-economics.

This 8-page report outlines the ‘four goals’ of Thunder Said Energy; and how we hope we can help your process…


Pages 2-5 show how disruptive energy technologies are re-shaping the world: We see potential for >20Mbpd of Permian production, for natural gas to treble, for ‘digital’ to double Oil Major FCF, and for the emergence of new, multi-billion dollar companies and sub-industries amidst the energy transition.

Page 6 shows how we are ‘scoring’ companies: to see who is embracing new technology most effectively, by analysing >1,000 patents and >400 technical papers so far.

Page 7 compiles quotes from around the industry, calling for a greater focus on technology.

Page 8 explains our research process, and upcoming publication plans.