Grant Thornton and Hart Energy survey finds lower oil prices force
energy companies to rethink strategy
After record prices in 2014, U.S. oil and gas companies have had
struggles in 2015. Gone is the booming climate and record-setting
growth, and, as a result, companies have adjusted strategy to deal with
operational challenges such as budgetary constraints and capital
considerations. This is according to the 2015
Grant Thornton LLP survey of U.S. oil and gas companies, conducted
in partnership with Hart Energy.
When asked about the biggest operational barrier to their business, more
than one-half of respondents said either budgetary constraints (35
percent) or access to capital (22 percent). Also, the capital waters are
more treacherous to navigate than last year, with a majority (54
percent) of respondents finding access to new capital to be more
difficult this year than last year. This one-two punch may suggest that
well-capitalized companies with solid balance sheets and a strong asset
position have the advantage in the new price environment.
“As prices fell in 2014 and early 2015, managements took the normal
steps to deal with a price decline — capital budgets were cut, rigs were
idled and operating costs were shaved,” said Kevin Schroeder, industry
managing partner for Grant Thornton’s Energy practice. “In the spring,
it looked like the industry might stabilize at a new norm of around $60
a barrel. But with prices falling again in the summer and hedges coming
off — together with pressures on energy lenders — we’re in a period of
greater stress. The industry has some real challenges ahead.”
Perhaps no single question reveals the changed circumstances of the
industry as one about the biggest operational infrastructure challenges
companies face. In the 2014 survey, finding and retaining qualified
personnel drew the largest response (45 percent). This year, its polar
opposite — necessary downsizing of personnel — attracted nearly 30
percent. The operational infrastructure challenge most cited is
maintaining efficient processes internally (37 percent), which reflected
reduced headcounts as well.
Survey data also reveals that capital spending is often being put on
hold. When asked last year about their plans for U.S. capital spending
in 2015, 67 percent of respondents expected to boost expenditures up to
20 percent or more year over year. This year, 36 percent expect a
year-over-year increase for 2016, while 32 percent predict a decline.
Nearly half of those who predict a drop expect it to be more than 20
percent – which suggests that well-run companies that have kept their
costs down can succeed in this price environment.
When asked about their biggest technology challenges, the two top
responses were cost of implementing a new technology platform and access
to relevant data for decision-making — each mentioned by about 30
percent of respondents. In addition, when asked in 2014 about their main
mergers and acquisitions challenges, by a 10-point margin respondents’
top choice was high costs driven by competition. This year, however,
some 54 percent say it was the differences in buyer and seller
expectations, outpacing the next highest response of commodity price
fluctuations (24 percent) by 30 percentage points.
The full report is available at www.grantthornton.com/2015energysurvey.
About the 2015 Grant Thornton LLP survey of upstream U.S. oil and gas
companies
The survey is based on answers from 545 respondents collected in July
2015. Respondents were C-suite and senior executives from U.S.
independent producers, midstream operators, oilfield service companies
and financial companies. Participant titles included CEO, COO, CFO, CIO,
senior vice president, board member, general counsel, and tax and
finance professional.
About Grant Thornton LLP
Founded in Chicago in 1924, Grant
Thornton LLP (Grant Thornton) is the U.S. member firm of Grant
Thornton International Ltd, one of the world’s leading organizations of
independent audit, tax and advisory firms. In the United States, Grant
Thornton has revenue in excess of $1.4 billion and operates 57 offices
with more than 500 partners and 6,400 employees. Grant Thornton works
with a broad range of dynamic publicly and privately held companies,
government agencies, financial institutions, and civic and religious
organizations.
“Grant Thornton” refers to Grant Thornton LLP, the U.S. member firm
of Grant Thornton International Ltd (GTIL). GTIL and the member firms
are not a worldwide partnership. Services are delivered by the member
firms. GTIL and its member firms are not agents of, and do not obligate,
one another and are not liable for one another’s acts or omissions.
Please see grantthornton.com
for further details.
About Hart Energy
For more than 40 years, Hart Energy editors and experts have delivered
market-leading insights to investors and energy industry professionals.
The Houston-based company produces magazines (such as Oil and Gas
Investor, E&P, Midstream Business, and FUEL); online news and data
services; industry conferences (like the DUG™ series); GIS data sets and
mapping solutions; and a range of research and consulting services. For
information, visit hartenergy.com.
View source version on businesswire.com: http://www.businesswire.com/news/home/20151027005686/en/
Copyright Business Wire 2015