Survey: Commodity Prices Remain Primary Concern for Upstream
Uncertainty regarding natural gas and crude oil prices remains the primary concern of upstream U.S. energy companies for the second consecutive year, according to Grant Thornton LLP’s 11th Survey of Upstream U.S. Energy Companies. In addition, enhancing company value through successful exploration and acreage acquisitions again rate as top priorities for the survey’s respondents.
Expectations for the average 2015 natural gas price varied by about $5.50/MMbtu among respondents. Crude oil forecasts saw a $100/barrel price difference. Survey respondents expect the spot price of Henry Hub natural gas to average $3.48 per MMbtu in 2013, $3.77 in 2014 and $4.09 in 2015. Respondents expect the price of West Texas Intermediate crude oil to average $91.18 per barrel in 2013, $92.04 in 2014 and $94.12 in 2015. The price at which survey respondents expect oil drilling to decline on average was $69.84 per barrel, significantly lower than the expected average price for oil in 2013 through 2015.
"For the second consecutive year, our survey has revealed that price volatility continues to significantly impact the energy industry,” said Brandon Sear, Grant Thornton’s National Energy practice leader. “These persistent cost issues are impacting capital spending decisions and leading many of our respondents to indicate a reliance on hedging production as insurance against price fluctuations again this year."
Due to energy price volatility, fewer respondents (60 percent) expect an increase in capital expenditures during 2013, down from 63 percent in 2012. The survey also suggested little change in the industry’s preferred method for accessing capital, indicating that private equity funding and debt instruments remained the preferred methods. In addition, respondents indicated joint ventures would become more common, with 49 percent of respondents citing use of that strategy in 2013 compared to 35 percent in 2012.
"As demonstrated in our survey results, joint ventures are an increasingly attrative option for companies looking to help cover costs of production and we believe this trend will continue in the near-term," said Brandon Cradeur, Grant Thornton’s National Energy Transaction Advisory leader. "In the past few years, U.S. companies have begun collaborating with companies outside of the United States for exploration and production of oil and gas from shale."
Encouragingly, employment still appears level for the energy industry, as more than half (53 percent) of the survey’s respondents expect employment to rise for the remainder of 2013. Yet, the expected rate of increase is down from the previous two years, from 71 percent in 2012 and 61 percent in 2011.
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