BDO survey: Declining oil prices rattle industry


The global oil and gas market has US energy executives cautious as they plan for 2015. According to BDO USA LLP’s annual survey of 100 US oil and gas CFOs, 45% of these 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 growth grew by about 68%.

BDO says that 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 $80 per barrel 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 to 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.

“The past six months have seen the oil markets return to the volatility that has historically characterized the industry,” said Charles Dewhurst, partner and leader of the Natural Resources practice at BDO. “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.”

These findings are from the BDO 2015 Energy Outlook Survey, which examines the opinions of 100 CFOs at US oil and gas exploration and production companies. The nationwide survey was conducted from September through November of this year.

The survey also found that 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 liquefied natural gas (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.

The survey shows that executives are proactively focusing 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 are particularly cognizant of minimizing 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, DC. 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.

“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,” said Clark Sackschewsky, partner with BDO’s Natural Resources practice. “Taxes will always be a particular concern, as incentives like the IDC are instrumental in fostering industry growth and, by extension, economic growth.”

The BDO USA 2015 Energy Outlook Survey is a national telephone survey conducted by Market Measurement Inc., whose executive interviewers spoke to CFOs at a sample of oil & gas exploration and processing firms (with revenues ranging between $76,000 and $323 million and an average revenue of $26.7 million) from September through November.

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