Economic Uncertainty and Regulatory Concerns Linger Heading into New Year
CHICAGO – As shale production in the United States continues at a rapid pace, 77 percent of U.S. oil and gas chief financial officers (CFOs) expect the domestic supply of oil to increase in 2013. In addition, 69 percent of CFOs also see natural gas supplies on the rise. If there is reason to temper the industry's excitement with shale, it would be that only 50 percent of CFOs expect demand for oil to increase in step, concerns fueled in part by ongoing doubts about the strength of the U.S. economy. These are among the findings of a study released today by BDO USA, LLP, one of the nation's leading accounting and consulting organizations.
"The marketplace opportunity promised by the continued development and production of non-conventional energy sources is at perhaps its highest level in years," said Charles Dewhurst, practice leader in the Natural Resources industry group at BDO. "Shale resources are at the center of this opportunity and, today, energy companies have actively begun to embrace shale and have made it a central component of the U.S. oil and gas industry's growth strategy for the future."
The survey found that 31 percent of U.S. energy companies plan to increase their capital investments for 2013 in nonconventional areas, including shale, while only 26 percent plan to invest in more environmentally-friendly exploration and processing technologies. Companies are banking on a combination of continued development of shale plays, an increase in prices and new production technologies to help turn their investments into a profit.
While companies gear up for increased shale production, they are increasingly mindful of the environmental concerns around shale exploration and other industry issues. Hydraulic fracturing issues remain companies' biggest environmental concern for a second year, as cited by 44 percent of CFOs, followed by 25 percent who view spills and pollution clean-up as their top concern.
These findings are from the 2013 BDO Energy Outlook Survey, which examined the opinions of 100 chief financial officers at U.S. oil and gas exploration and production companies. The nationwide survey was conducted in September and October 2012.
Additional findings from the 2013 BDO Energy Outlook Survey include:
U.S. and global economic uncertainty drives down confidence. Sixty percent of CFOs say they feel more pessimistic this year than last on the state of the U.S. economy and its impact on demand for oil and gas. This is reflected in a drop in sentiment about accessing capital and credit. In 2011, 73 percent of CFOs felt positive about accessing additional sources of financing, compared to just 59 percent this year. And the shift from domestic to global economic uncertainty comes into perspective when the topic turns to price volatility. A plurality of CFOs (44 percent) say ongoing turmoil in the Middle East; more than fears of a double dip recession (22 percent) or the European debt crisis (16 percent), will have the greatest impact on oil prices in the coming year. "This demonstrates the extent to which U.S. oil and gas companies have adapted to the economic push and pull of the last several years, as well as challenging geopolitical dynamics at home and abroad," added Dewhurst. "Yet they retain optimism the industry will be able to surmount these ongoing uncertainties."
Regulations stymie growth. Government regulation continues to be on the minds of industry leaders, with 63 percent reporting that state and/or federal regulations have resulted in delays or terminations of projects during the past 12 months, compared with 56 percent a year prior. As the next Congress convenes in January, 36 percent fear more restrictive government regulation in 2013, followed by 28 percent who think tax proposals targeting the energy sector, including possible corporate tax hikes, lie ahead. There also exists roughly equal amounts of concern over the partisan nature in Washington and the overall state of the Federal budget deficit – 18 percent of CFOs express concern over the former, while 17 percent cite the latter.
A skeptical industry awaits a new round of legislation. Half of the CFOs surveyed say legislative issues will be the biggest factor inhibiting growth of the sector moving forward. And, for the fourth consecutive year, more CFOs (37 percent) see legislative changes posing the sector's greatest financial challenge heading into 2013, ahead of low prices (36 percent) and access to capital and credit (17 percent). "There was a lot of talk about the need to be energy independent during the recent election," said Clark Sackschewsky, a partner in BDO's Natural Resources practice. "Now that politicking is over and the legislative process resumes, companies are anxiously looking to see the extent to which Congress addresses the important energy issues that lie ahead."
Material discussed in this release is meant to provide general information and should not be acted on without professional advice tailored to your firm's individual needs.
About BDO USA
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