According to BDO USA LLP’s annual survey of 100 US oil and gas chief financial officers, 45% of CFOs expect low oil and gas prices to be their greatest financial challenge in the upcoming year, a 55% increase over the number expressing similar sentiments in last year’s study. At the same time, the number of CFOs citing price declines as the top factor inhibiting industry groth grew by approximately 68%.
2014 saw a year of robust US production, while Middle Eastern countries, such as Libya, have accelerated their activities. However, demand has not kept pace, causing oil prices to recently dip below US$ 80/bbl for the first time since 2010. And CFOs are not optimistic that this trend will abate in the coming year: Only 37% expect global demand in increase in 2015, a 43% decrease in the number of CFOs expressing similar sentiments last year. Amid this ongoing commodity price volatility, US companies are looking to guard themselves against future fluctuations. Nearly one third of CFOs say that they will pursue cost reduction programs to improve value for stakeholders, while 56% say they will cut costs and seek efficiencies in an effort to remain profitable in 2015.
Charles Dewhurst, partner and leader of the Natural Resources practice at BDO, said: “The past six months have seen the oil markets return to the volatility that has historically characterized the industry. However, while headlines may be saying these price declines herald the end of the shale boom, US companies have been preparing for a return to fluctuations and are well equipped to navigate through this transitional period”.
Additional findings from the BDO 2015 Energy Outlook Survey include:
CFOs are more optimistic about natural gas, but remain wary.
CFOs, in general, expect natural gas production to grow in 2015. Nearly two thirds of CFOs expect the domestic supply of natural gas to increase in the coming year, while the majority expect both global and domestic demand to increase, as well (notably, no CFOs expect demand to decrease in 2015). However, all of these projections are less optimistic than those contained in last year’s study, suggesting that depressed natural gas prices and difficulties accessing the global markets continue to decelerate growth.
Nevertheless, CFOs remain hopeful that LNG will foster future growth, with 69% anticipating that exports will increase in the coming year. Additionally, 44% of companies say they expect to increase their investment in LNG processing.
Executives proactively focus on environmental regulation to reduce risks.
In the face of growing pressure from policymakers and the public over drilling techniques and their associated environmental impact, CFOs are looking to proactively address the environmental risks associated with their operations. Nearly two thirds of executives (61%) say they will focus their risk management activities on environmental regulation in 2015. CFOs remain particularly cognizant of minising the effects of shale extraction activities, citing water pollution and usage (34%) and the environmental impact of hydraulic fracturing (33%) as priority areas.
Legislative and tax concerns persist.
Industry executives continue to experience uncertainty surrounding pending legislation in Washington. A plurality (38%) cite more restrictive government regulations as their top political concern for 2015, while 43% say that legislative and regulatory changes remain the top factor inhibiting overall industry growth. Taxes also remain a perennial concern for executives, with nearly two thirds citing the loss of the intangible drilling costs deduction as a leading tax issue this year.
Clark Sackschewsky, partner with BDO’s Natural Resources, commented: “Legislative and regulatory changes will always be top of mind for industry executives, as the oil and gas industry is one of the most heavily regulated in the country. Taxes will always be a particular concern, as incentives like the IDC are instrumental in fostering industry growth and, by extension, economic growth”.
Adapted from a press release by Emma McAleavey.
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