The non-governmental oil and gas business has witnessed a huge erosion of value in recent years. Between 1980 and 1993, a representative sample of 103 worldwide oil and gas companies destroyed a total of nearly US$300 billion in shareholder wealth, compared with the risk adjusted returns available in their respective countries (see Exhibit 1).¹ If extrapolated to all non-governmental oil and gas companies, the total loss worldwide would run to more than US$400 billion—more than the entire GDP of all but 11 countries—principally in the upstream (exploration and production) segment.

To be sure, leading firms have taken action to improve their returns and have even met with some success in the last couple of years. But these actions have not been sufficient to lay the basis for vibrant future growth. These companies continue to face a substantial cost/price squeeze, exacerbated both by increasing competition for access to the attractive areas that remain and by a stagnant or declining resource base. Conventional solutions, therefore, simply will not work. Meaningful growth is impossible without new game strategies founded on a no-nonsense exploitation of market, political, and technological discontinuities.

This haemorrhage...