Survey: Energy Execs Plan Significant Hike in Upstream Spending

Increasingly concerned about declining oil and natural gas reserves and volatile prices, many energy executives expect to "significantly" boost upstream capital spending in the year ahead, according to the results of a survey conducted by KPMG LLP.

The survey, conducted in April, polled 538 financial executives from oil and gas companies. It found 67% thought the volatility in commodity prices was bad for the industry, compared with 58% last year. And 88% expressed a growing concern about declining reserves, compared with 83% a year ago.

"Oil and gas executives are facing one of the most challenging environments they've seen in decades when releasing earnings," said Bill Kimble, KPMG's National Line of Business Leader, Industrial Markets. "The marketplace perceives that oil and gas companies have significant influence on the price of gas at the pump."

Of those surveyed, 69% said they expect to increase upstream capital spending by more than 10% this year -- well ahead of the 20% who thought they would increase spending two years ago. Mergers and acquisitions (M&A) also appear to be a continuing trend, with 21% of the executives expecting their company to be involved in a transaction over the next year. In 2005, less than 28% expected M&A activity during the year.

"In the last year, as predicted by KPMG's 2005 Energy Survey, we have seen an up tick in merger and acquisition activity in the oil and gas sector as companies tackle the issue of reserve replacement," said Kimble. "This year's results indicate that the trend is set to continue."

Other findings in the survey included the following:

    On the issue of liquefied natural gas (LNG) facilities, 57% said there were not enough LNG facilities built or being built or they were undecided. About 17% a year ago said there were enough LNG facilities built or being built.
  • 43% said leasing in the Arctic National Wildlife Reserve would be allowed in two-to-three years; 25% said five-to-seven years; 18% said never; and 14% said it would be approved by budget reconciliation in Congress this year.
  • 24% said their companies' U.S. spending would increase by 10-30% if federal acreage now off-limits were to become available for leasing and permitting. However, 54% said increased acreage would not impact U.S. spending. Another 22% said the changes would increase spending by less than 10%.
  • 41% said the "most significant challenge" facing oil and gas companies in the next year was their ability to hire qualified employees; 18% said it was commodity pricing.

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