Chicago, IL – January 9, 2012 – As global oil production finds new life in the United States, U.S. energy companies are increasingly making non-conventional sources a part of their production strategies. Seventy-nine percent more CFOs cited the discovery of significant new resource plays as the most important factor driving overall industry growth in 2012 (25% versus 14% in 2011), according to a recent BDO USA, LLP survey of 100 chief financial officers at U.S. oil and gas companies. As oil and gas companies plan for 2012, CFOs are increasing their capital investments in the exploration of non-conventional areas, including shale plays (40%), followed by more environmentally friendly exploration and processing technologies (27%) and offshore exploration away from U.S. waters (7%).
“We are in the midst of a significant global shift as non-conventional energy sources become more attractive to oil and gas companies,” says Rocky Horvath, partner in the Natural Resources industry group at BDO USA. “These companies no longer view unconventionals as expensive and time-consuming, but rather as a dependable and sustainable source of revenue. I expect that we’ll continue to see interest and investment in unconventionals as the U.S. takes center stage in this transformation.”
In the past several years alone, vast improvements in technology have made shale gas and oil sands extraction lucrative production strategies. When it comes to increasing value for shareholders, 29 percent of CFOs cite non-conventional resources as the strategy they are most likely to pursue; followed closely by cost-reduction programs (27%) and mergers and acquisitions (24%).
These findings are from the BDO 2012 Energy Outlook Survey, which examined the opinions of 100 chief financial officers at U.S. oil and gas exploration and production (E&P) companies. The survey was conducted in November 2011.
Additional Findings from the BDO 2012 Energy Outlook Survey Include:
Natural Gas Interest Fuels Environmental Concerns. Most (71%) of CFOs expect global demand for natural gas to increase in 2012. As oil and gas companies aggressively seek new resources, business development strategies must also account for environmental ramifications and legislation. Among companies that experienced a delay or termination of oil and gas exploration or processing projects in the past year, 56 percent of respondents point to federal or state environmental regulations as the cause. When asked to identify the one environmental concern that will most affect their business in 2012, 45 percent of CFOs put hydraulic fracturing at the top of their list. Other concerns include spills and pollution clean-up (26%), and greenhouse gas emissions (19%).
Wind Remains Top Alternative Energy Source. When considering alternative energy sources, wind power continues to lead the charge with 32 percent of CFOs projecting that wind will be the greatest alternative contributor to the world’s energy needs in the next five years. Other CFOs identified biofuels (19%), hydroelectric (18%), geothermal (15%) and solar (14%) as the most viable alternative energy sources. Confidence in wind power has decreased in part due to a rising interest in hydroelectric energy, which saw a substantial increase in CFO interest over the last year (18% versus 9% in 2010).
Merger and Acquisition Activity Projected to Increase. As unconventional production methods create new opportunities for U.S. oil and gas companies (including smaller industry players), merger and acquisition activity will remain robust in 2012. The majority (52%) of CFOs surveyed expect M&A activity to increase in 2012 over 2011 levels, while 46 percent of CFOs expect activity to stay the same. Thirty-nine percent of respondents identify revenue and profitability as the primary M&A driver. Other catalysts include undervalued oil and gas assets (24%), a desire to increase market share (16%), geographic coverage (13%), and the push to become a fully-integrated oil and gas company (7%).
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