U.S. energy CEOs are optimistic about the industry and their growth for the next three years, with nearly two-thirds expecting their best profits in 2016 and 2017, a survey by KPMG LLP has found.
The advisory firm said a survey of 54 domestic energy chiefs reported that about two-fifths (41%) are confident about growth prospects for their industry, and more than half (52%) are more confident about their companies' prospects. Two-thirds intend to add more people over the next three years. The energy CEO insight survey was part of a study of 400 CEOs across several industries.
Because of the economic recovery, the top bosses ranked organic growth, reducing cost structures and diversification into new business areas as the leading ways they plan to focus operations into 2017. Despite an overall sense of optimism, government regulations and geographic expansions were cited as challenges over the coming three years.
"There is no question that the energy sector is going through a significant transformation," said energy and natural resources national sector leader John Kunasek. "New breakthroughs are positioning energy companies for tremendous growth, however these companies must continue to find ways to provide safer, more reliable, and greener energy options to consumers while also innovating their businesses and distribution systems. The companies that are more agile and responsive in updating their business models will be better positioned to find success in this rapidly changing environment."
Even with some concerns, the CEOs indicated they see moderate overall growth strategies, with 67% focused on mostly organic growth through new product development and geographic expansion.
"When asked to look at their growth strategy over the next three years, CEOs indicate they plan to become more acquisitive, with 6% saying that their priority will be inorganic growth through acquisitions and joint ventures, compared to none currently," the KPMG survey found. "Those expecting an even split between organic and inorganic growth will also increase slightly from 33% currently to 39%."
The CEOs ranked mergers and acquisitions (M&A) as a top priority in how they would allocate funds over the next three years, along with geographic expansion, new product development and expanding facilities.
"Executives are focused on improving performance and consolidating core businesses through M&A, streamlined operations and emerging technologies," said energy and natural resources advisory industry leader Regina Mayor. "A driving force behind that M&A activity will be the need for access to new technology and the optimization of the companies' energy portfolios."
The CEO also said they were ready to support their priorities by strengthening the talent pool. One of the top three concerns was to fill the skills gap created when the generation of current industry professionals retire. Around one-quarter (26%), however, said they have an adequate workforce and don't see a disruption in the next three years.
"The reality within the energy industry is that the talent crisis is now at a tipping point in which the effects of the talent shortage in skilled positions is impacting the bottom line as the industry continues to experience significant cost overruns," said oil and gas sector advisory principal Angie Gildea. Energy CEOs, however, are prepared to overcome challenges. Sixty-one percent said their organizations have felt the effects of the skills gap and are investing enough in training and technology to adjust. And 30% were exploring new ways to attract resources to serve their future needs.
"In order to address this issue, many companies are incorporating aggressive strategies to retain core talent, developing learning and knowledge management strategies to target millennials, and developing more technologically advanced assets to efficiently address various skill sets," Gildea said. "What is exciting to see is that despite this talent crisis, executives are beginning to put the right tools in place in order to better position their organizations for the future."