KPMG: Most oil execs expect 2011 oil prices to exceed $121/bbl

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, May 26 -- Energy executives expect continued volatility in oil prices for the rest of the year, with 64% forecasting crude oil prices will exceed $121/bbl on the New York Mercantile Exchange, said a survey released by KPMG Global Energy Institute during its annual energy conference in Houston.

The audit, tax, and advisory firm polled 550 financial executives from global energy companies during April. KPMG reported 6% of executives surveyed expect 2011 crude prices will exceed $151/bbl before yearend.

Another 32% expect NYMEX crude oil prices will peak at $121-130/bbl. One third of executives forecast even higher prices, with 17% saying they expect $131-140/bbl, and 9% saying $141-150/bbl. Only 35% believe current crude prices already are near the high this year, forecasting a peak at $111-120/bbl.

"Energy leaders tell us continued volatility will be driven by underlying issues such as regulation, geopolitical concerns, and supply disruptions, as well as escalating energy demand," said John Kunasek, national leader of the KPMG US energy practice, and executive director for the KPMG Global Energy Institute.

Kunasek also said energy executives are “significantly increasing investment in a range of alternative energy sources” and see shale plays as significant in meeting the world's future energy needs.

Budget plans
When asked about research and development spending on alternate energy, 35% of those polled said their company would increase R&D investment during 2011 compared with 15% in KPMG's 2010 survey.

"What is exciting about these findings is that it demonstrates the industry's intent to explore all options," added Kunasek. "Previously, the executives have pointed to wind and solar as the main investment choices, but this year we have seen a shift…. Even batteries and fuel cells have entered the conversation."

Executives surveyed also said their companies will increase overall investment, forecasting capital spending will increase in 2011 compared with 2010. About 33% expect to boost capital spending by more than 10%, 17% forecast an increase of 5-10%, and 17% forecast an increase of up to 5%.

Nearly 70% anticipate operating costs will go up over the next 12 months. When asked about hiring, nearly 50% expect their company's workforce to expand over the next 12 months.

"Executive expectations for capital spending and hiring are very positive indicators for the energy industry," said Regina Mayor, oil and gas sector leader for KPMG in the US. "After several years of lower investment, companies appear focused on transformation and innovation, despite the significant regulatory and economic risk factors they are confronting."

Contact Paula Dittrick at paulad@ogjonline.com.



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