Analysis: Regulation, Prices Top Issues Facing Energy Execs

Regulation, prices and investment are the top issues affecting energy executives' outlook for the industry in the coming year, according to Grant Thornton LLP's ninth annual Survey of Upstream U.S. Energy Companies. The survey revealed that 68 percent of U.S. oil and gas senior executives believe that an increase of 20 percent or more in the cost of drilling because of changes in government regulation would make new exploration and development projects uneconomical.

As with years past, executives remain positive with regards to their outlook on employment, with 61 percent expecting higher employment levels at their companies in 2011, compared to 50 percent in 2010 and 35 percent in 2009. Even with this optimism for their industry, 58 percent of respondents believe the U.S. economy will not fully recover until beyond 2011.

"As unrest continues in the Middle East, oil futures top $100 a barrel and industry participants await clarity on pending deep water drilling regulations, it's imperative that we understand what leading executives think about the state of today's energy sector and where it's headed tomorrow," said Loretta Cross, Grant Thornton Corporate Advisory & Restructuring Services partner. "Grant Thornton's annual energy survey contains fresh insights into the issues that are foremost on the minds of senior exploration and production executives, who help formulate national energy policy and create solutions to reduce the country's dependence on foreign oil."

Brandon Sear, Grant Thornton Energy practice leader, feels the survey responses confirm other dialogue that the firm has had with energy industry leaders who think that "the upstream industry experienced a massive influx of capital this past year. The economic climate of 2010 has allowed most U.S. exploration and production players to strengthen their financial position which in turn positions them nicely for growth opportunities in 2011."

The vast majority of respondents indicated that they expect an increase of 10 percent or higher in the cost of drilling in the Gulf of Mexico due to fallout from the runaway Macondo well in 2010 and of those, 37 percent expect an increase of 20 percent or more in those costs. This confirms the trend identified in Grant Thornton's July 2010 white paper "The implications of the April 2010 oil spill on deepwater exploration and production."

Additional industry issues and opportunities from this year's survey include: Respondents still believe that incentives for increased U.S. drilling are the number one way for the U.S. to reduce energy prices.

While most respondents view alternative fuels as a long-term solution to improving environmental concerns, respondents indicated that clean coal is the most likely to be effective in the short term.

Area of most opportunity: successful exploitation of existing prospects, followed by exploration, and operating efficiencies. Uncertain natural gas and crude oil prices have been identified for the third year in a row as the top concern in the industry today.

This is Grant Thornton LLP's ninth annual Survey of Upstream U.S. Energy Companies. The survey was conducted from November 2010 through January 2011, with more than 100 responses from senior executives at independent oil and gas exploration and service companies. Issues explored by the Grant Thornton Survey of Upstream U.S. Energy Companies were identified by seasoned professionals in Grant Thornton's national Energy practice.

Respondents' average total assets at the end of 2010 were $682 million, while the average revenues for the 2010 fiscal year were $386 million. Approximately one-third of the respondents were from public companies (35%) and the remaining two-thirds were from private companies (65%).


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