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U.S. E&P CFOs Pessimistic About 2010-2012 Credit Access

Access to credit for U.S.-based exploration and production (E&P) companies is unlikely to improve before the second half of 2010 and it could take until 2012, according to a majority of CFOs recently surveyed by BDO Seidman LLP.

The 100 CFOs, who work for domestic natural gas and oil producers, spoke with the accounting and consulting firm in November about the credit climate for their industry. The results were published last week in the second annual BDO Seidman 2010 Energy Outlook Survey.

Forty percent of the CFOs don't expect credit access to improve for at least another six months. Almost a third more (31%) believe conditions won't improve until sometime in 2011 and 2012. A similar sentiment was expressed about when the recession may end, with regard to its negative impact on gas and oil demand: 31% said it would be the last half of 2010 and one-third (33%) said between 2011 and 2012.

"It's still a tough environment for the energy industry right now, but concerns about the availability of financing are easing," said Charles Dewhurst, BDO's National Energy Industry Practice leader. "Many companies report that their banking relationships remain very strong, which could help them bounce back more quickly. Looking ahead to 2010, there are a number of legislative issues on the table that have CFOs worried -- in particular, proposals to eliminate certain tax incentives for oil and gas producers."

According to the survey:

In addition, more than half the CFOs in the survey (57%) reported a "delay or termination" of gas or oil exploration or processing projects this year, which is more than double (26%) the figure in 2008. Among those reporting a delayed or terminated project, nearly all (90%) cited "poor project economics resulting from rising costs or falling prices," compared with 75% in 2008. In addition, 73% cited the "lack of capital," compared with 80% in 2008. "Equipment shortages or delays" were less of a problem this year, with 20% of respondents citing it as a concern compared with 40% a year ago.

BDO used a national telephone survey conducted by independent market research firm Market Measurement Inc., whose interviewers spoke directly to CFOs. BDO said the survey was performed "within a scientifically developed, pure random sample of U.S. oil and gas exploration and production companies."

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