International Oil & Gas Executives Seeking to Solidify Gains in Boom Year, According to BDO Survey

  International Oil & Gas Executives Seeking to Solidify Gains in Boom Year,
  According to BDO Survey

  *Executives not planning to invest in Middle East, Latin America, East Asia
  *U.S. expected to lead future energy production
  *Hydraulic fracturing outpacing carbon emissions as a top environmental
    concern

Business Wire

BRUSSELS -- March 13, 2013

International oil and gas executives are feeling optimistic about the year
ahead, yet rather than take the opportunity to grow their businesses and
expand operations, companies are using the boom to hedge against the
short-term uncertainties of the global oil and gas industry. According to a
new study by leading international accounting and consulting organisation BDO,
nearly half (48 percent) of oil and gas executives feel better about their
access to capital and credit in the year ahead, with 45 percent citing it as
the top driver of industry growth in 2013. At the same time, 31 percent of
executives polled feel that demand for resources, strong as ever, will
influence growth.

The survey of 84 C-Level and senior financial executives at oil and gas
companies in the United States (U.S.), Russia, United Kingdom (U.K.),
Australia and Canada sought their insights on growth strategies, industry
consolidation, the environment, regulatory affairs and labour issues.

Amidst this positivity, however, executives are forging ahead conservatively,
suggesting a degree of anxiety about the long-term profitability of the energy
industry. When asked how they plan to improve profitability in the year ahead,
a majority (56 percent) of executives say they will focus on internal business
processes. Australia bucks the trend, with 58 percent of executives indicating
that they plan to pursue vertical integration through acquisitions.
Nevertheless, this inward, efficiency-driven focus reveals a broader concern
about becoming too expansive. Indeed, without exception, when asked which
region would be a target for expansion, every country surveyed overwhelmingly
cites their own territory as a preferred target; very few respondents cite the
resource-rich areas of the Middle East, Latin America and East Asia.

“Industry leaders suspect that we may be at the apex of a boom-and-bust
cycle,” says Charles Dewhurst, Global Natural Resources Leader, Natural
Resources industry group at BDO. “The oil and gas industry is largely beholden
to uncertainty, and short-term fluctuations can halt current positive
momentum. Environmental and regulatory concerns, commodity price volatility
and geopolitical circumstances can all conspire to throw a wrench into
companies’ plans.”

One of the most troubling immediate concerns for executives in the year ahead
is the possibility of labour shortages. While about one-half (51 percent) of
executives surveyed expect to increase hiring this year, 61 percent also
anticipate difficulty hiring the skilled workforce they need. As the current
workforce ages and engineering schools work to train the next generation of
skilled oil and gas labourers, executives worry that the human capital
necessary to take advantage of the current boom may not be readily available.

Shale underlying this year’s industry boost

While the long-term prospects of the oil and gas industry remain in flux, the
survey indicates that the North American shale boom is likely driving much of
this year’s short-term optimism. When asked which country will lead overall
oil production in the future, 39 percent of executives cite the United States,
a 50 percent lead over those citing Saudi Arabia (26 percent), the second
most-frequently cited oil producer in the survey. Canadian executives are also
positive about their own production prospects as a result of their ability to
exploit resources from oil sands: 40 percent of Canadian executives expect
their own country to lead oil production in the future.

With shale expected to lead production this year, executives also cite the
impact of its corresponding technology—hydraulic fracturing (fracking)—as a
major environmental concern. A plurality (44 percent) of executives rank
fracking as their top concern this year, and with the exception of Russia,
executives in every country rate it as their number one environmental
priority. In contrast, often-discussed carbon emissions and water pollution
trail fracking at 15 percent apiece.

Oil and gas execs split on regulatory concerns

Oil and gas executives are also closely watching the regulatory environment.
As an industry rife with risk, oil and gas companies are subject to
substantial scrutiny. In the wake of a number of recent environmental
accidents, including the Deepwater Horizon spill in 2010 and an oil rig
grounding off the coast of Alaska in January 2013, oil and gas executives know
that their operations are under an international microscope.

A plurality of survey respondents (40 percent) place environmental policy at
the top of their list of regulatory concerns, but comparing country-by-country
responses yields more nuance. Though U.K. executives most often cite
environmental regulation as their top concern, 27 percent—three times the
study’s average of 9 percent—also believe that anti-corruption/anti-bribery
legislation will pose an issue in the year ahead. As with our international
mining survey, the underlying reason appears to be that much of the U.K.’s
exploration and production activities occur beyond its borders. Meanwhile, the
U.S. displays a particular sensitivity to corporate tax structure in the wake
of ongoing fiscal policy debates, with 35 percent citing it as a top concern.

                TOTAL   Australia   Canada    U.K.    U.S.    Russia
Anti-bribery
/ corruption     9%      8%          0%        27%     0%      20%
legislation
Corporate tax    26%     15%         17%       18%     35%     40%
structure
Environmental    40%     23%         67%       36%     52%     20%
policy
Labour and
employment       11%     31%         17%       0%      4%      0%
issues
Other            14%     23%         0%        18%     9%      20%

Other key findings from the survey include:

  *Oil and gas executives are split on the most preferable way to enter a
    foreign market. Acquisition in the country of interest and a joint venture
    with a local company in the country of interest are two most-cited options
    at 30 percent each, and independently establishing operations comes in a
    distant third with 18 percent of executives citing it as their preferred
    method.

    “Further international expansion may not be a top priority for executives
    at this time,” says Dewhurst. “But it does remain an arrow in the
    industry’s quiver should current market conditions persist. Executives
    need to be thinking about the best way to move forward so that they can
    act quickly when the opportunity presents itself.”

  *Executives feel most optimistic about alternative energy methods their
    countries are most capable of producing. When asked which source of
    alternative energy would contribute most to the world’s energy needs,
    one-third of executives cite solar power. However, each country’s
    executives appear to display a preference toward sources they have a
    decided advantage in: 44 percent of Canadian executives cite solar power,
    the U.K. is evenly split between solar and wind at 33 percent each, the
    U.S. favours wind at 37 percent, Russia prefers biofuels at 50 percent,
    and Australian executives are split between biofuels, geothermal power,
    hydroelectric power and solar (notably, no one from Australia believes
    that wind power will be a major contributor to future energy needs).
  *All Russian respondents concerned about resource nationalism. Resource
    nationalism appears to have a fairly limited impact for most countries
    surveyed, with 53 percent saying it has no impact at all. However, over
    the past 12 years, Russia has seen a growing re-nationalisation of its oil
    and gas industry. Reinforcing this trend, BP sold its stake in joint
    Anglo-Russian venture TNK-BP to Rosneft in a move that will render Rosneft
    responsible for almost half of Russia’s oil production. As a result, 75
    percent of Russian executives say resource nationalism will significantly
    impact their operations this year, and 25 percent say it will have a
    moderate effect.

NOTE TO EDITORS

About the international BDO network

BDO refers to one or more members of BDO International Limited, which form
part of the international BDO network of independent member firms (the ‘BDO
network’).

Service provision within the BDO network is coordinated by Brussels Worldwide
Services BVBA, a limited liability company incorporated in Belgium with its
statutory seat in Brussels.

Each of BDO International Limited (the governing entity of the BDO network),
Brussels Worldwide Services BVBA and the member firms is a separate legal
entity and has no liability for another such entity’s acts or omissions.
Nothing in the arrangements or rules of the BDO network shall constitute or
imply an agency relationship or a partnership between BDO International
Limited, Brussels Worldwide Services BVBA and/or the member firms of the BDO
network.

BDO is the brand name for the BDO network and for each of the BDO member
firms.

The combined fee income of all the BDO Member Firms, including the members of
their exclusive alliances, was $6.02 billion in 2012. The global network
provides advisory services in 138 countries, with almost 55,000 people working
out of 1,204 offices worldwide.

Methodology statement

This is the initial international BDO Natural Resources Study with emphasis on
the oil and gas industry. The research was conducted among senior management
executives representing a broad mix of companies and geographic areas. Topic
coverage was highly diverse including, but not limited to: key drivers of
growth for the global oil and gas industry, access to capital and credit,
strategies for enhancing profitability, impact of regulations, key targets for
geographic expansion and the identification of important threats facing the
global oil and gas industry.

This multi-country executive survey was designed and managed by Market
Measurement, Inc. in close consultation with BDO. Questionnaire content was in
the native language of each country.

The study findings are based upon attitudes, behaviours and perceptions among
84 oil and gas executives with similar levels of representation in the study
data across the U.S., Australia, Canada, Russia and the United Kingdom. Study
participants were identified through major trade and professional
associations, subscribers to industry publications and similar sources.
Additional characteristics of this important research initiative include:

  *Job titles: More than one-third (39 percent) are the chairman, CEO,
    president or managing director of the organization, and the survey saw a
    slightly more robust level of representation from
    CFOs/controllers/directors of finance (44 percent).
  *Geographic coverage: Almost three-quarters (73 percent) have international
    operations.
  *Sales revenue: Almost one-half (43 percent) of the participating companies
    report annual worldwide revenues in excess of $50 million.

Contact:

Bliss Integrated Communication
Meghan Warren, 212-584-5469
meghan@blissintegrated.com
 
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