Legislation Inhibiting Oil & Gas Industry Growth, Forcing Companies To Re-Strategize
– Companies Increasing Investment In New Technologies
By BDO USA LLP,
Chicago, IL – – According to a new study by BDO USA, LLP, one of the nation’s leading accounting and consulting organizations, 54 percent of chief financial officers (CFOs) at oil and gas exploration and production companies feel that “legislative changes” will be the most important factor inhibiting the growth of the U.S. oil and gas industry in 2011. In addition, 40 percent cite “legislative changes” as their greatest financial challenge in the year ahead (a 21 percent increase from last year).
The legislative/regulatory environment was a major cause of delays or terminations of oil and gas exploration or processing projects during the past year. Among respondents who experienced a project delay or termination, 61 percent cited “Federal or State environmental regulations,” 58 percent cited “legislative changes” and 39 percent cited the regulatory moratorium on drilling activity.
“One message came through loud and clear in this year’s survey – that legislative changes represent the biggest threat to growth in the oil and gas industry,” said Charles Dewhurst, partner and national leader of the Natural Resources industry practice at BDO. “With the mid-term election results, energy executives can anticipate an easing in the flow of new legislation impacting the industry. But will this be enough to relax the permitting process for deepwater drilling in the Gulf of Mexico?”
Many respondents do not anticipate a quick fix to drilling activity in the Gulf of Mexico – 38 percent do not expect drilling activity in the region to return to 2009 levels until 2012 or 2013, and 31% say it will be after 2013 or never.
These findings are from the BDO 2011 Energy Outlook Survey, which examined the opinions of 100 chief financial officers at U.S. oil and gas exploration and production companies. The survey was conducted in November of 2010.
Some of the major findings of the BDO 2011 Energy Outlook Survey include:
CFOs are betting on wind power: 39 percent of CFOs expect wind to be the biggest alternative source contributor to the world’s energy needs in the next five years, followed by geothermal (19%), solar (13%) and biofuels (12%). “There is growing interest in renewable energy sources; and at this point most CFOs are putting their money on wind power,” said Dewhurst. “However, a big test will come soon as federal cash grants to the renewable energy industry are set to expire. With Republican control of the House, many now doubt whether these grants will be renewed.”
Industry is taking measures to meet growing demand: A majority (71%) of CFOs expect global demand for oil to increase in 2011 and 67 percent expect global demand for natural gas to increase. Nearly half (46%) plan to maintain the total number of oil and gas drilling rigs operated by their company next year, and another 34 percent plan to increase their count. When asked what is the most important factor driving the overall growth of the U.S. oil and gas industry in 2011, 18% of CFOs cited new production technologies – nearly triple the number from 2009. However, costs are expected to rise – 66 percent of CFOs expect drilling and exploring costs to increase. “Most CFOs see heightened demand for oil and natural gas in 2011, but drilling companies are reluctant to increase the rig count until they see this materialize. The result will inevitably be increased drilling costs and this was borne out in the survey.”
Concerns about international competition continue: Fifty-seven percent of CFOs are concerned that President Obama’s proposals to eliminate certain tax incentives for American oil and natural gas producers will cause increased dependence on foreign oil and natural gas, and send investment dollars and jobs overseas. Despite an expected increase in global demand, companies are staying put geographically for now; only 7 percent plan to expand to new geographic areas outside of the U.S. in 2011.
The BDO 2011 Energy Outlook Survey is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to chief financial officers, using a telephone survey performed within a scientifically-developed, pure random sample of U.S. oil and gas exploration and production companies. It is the third annual survey.
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 40 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,138 offices in 115 countries.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.
Disclaimer: Articles featured on Oregon Report are the creation, responsibility and opinion of the authoring individual or organization which is featured at the top of every article.