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Cautious optimism shapes oil and gas capital agenda

Hydrocarbon Engineering,

According to EY’s 10th bi-annual Oil and Gas Capital confidence barometer, a survey of 1600 senior executive in more than 54 countries, including 145 oil and gas executives, the capital agenda is one of cautious optimism.

Andy Brogan, EY’s Global Leader Oil and Gas Transaction Advisor Services, commented: “The barometer shows a new consensus in oil and gas prices and relentless pressure on capital efficiency is driving greater emphasis on optimization and growth. A conservative view on oil and gas pricing, combined with pressure to deliver capital returns has led to the industry adopting a slightly more cautious approach”.

Just over half of respondents expressed the view that the global economy is improving. The current figure of 54% represents a marked decreased from 71% in October 2013. Job creation prospects also reflect economic caution: The portion of oil and gas respondents expecting to grow jobs has declined from 57% in October 2013 to 37% in April 2014.

Expectations for growth

“Growth agendas have shifted to a new path, featuring more innovative and high risk organic growth. More emphasis is being placed on fast tracking current portfolio opportunities than before”, Brogan said.

The survey shows that 40% of respondents are focused on cost reduction and operating efficiency, an increase 28% for October 2013. Only 39% see growth as their primary focus, down from 66% in October 2013.

The impact of shareholder activism has been felt, with over 90% of respondents indicating that issues raised by shareholders have shaped boardroom agendas. Attention to costs has been foremost among shareholder demands and boards have responded accordingly.

Merger and acquisitions

30% of respondents expected to pursue acquisitions during the next 12 months, a decrease from 39% in October 2013. Despite this, the oil and gas sector remains positive that deal activity will increase.

According to EY, the reduction in activity has been more to do with deal value that deal volume. Valuation gaps have been a major contributor to the decline. These now appear to be closing.

“The deal market in oil and gas is traditionally very resilient but we are in more of a buyers’ market now than we have been for some time. We expect the general note of caution to continue to deter some of the bigger deals but expect that deal volumes will remain reasonably robust. The continuing focus on emerging market activity appears to be hear to stay”, Brogan concluded.

Adapted from a press release by Emma McAleavey.

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