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Most Executives Report No E&P Impact from Offshore Restrictions

More than two-thirds (68%) of energy executives recently surveyed said the regulatory restrictions following the Gulf of Mexico oil spill last year have had no impact on their companies' offshore exploration and production (E&P) efforts, according to the results of the Ninth Annual Energy Survey conducted by the KPMG Global Energy Institute.

The survey in April polled 550 financial executives from energy companies worldwide.

Shale gas/oil was most frequently cited by executives (44%) as the alternative energy source that would gain the most significant investments this year, with almost two-thirds (62%) forecasting that shale gas or oil would continue to have a transformative impact on meeting the world's energy needs.

Close to 35% of the executives said their companies plan to increase research and development (R&D) spending in alternative energy projects this year, which is up from 15% in the year-ago survey. Alternative energy sources expected to see more R&D investments were solar (31%), wind (25%), clean coal technology (17%), biodiesel (10%) and chemically stored electricity, such as batteries and fuel cells (8%).

"What is exciting about these findings is that it demonstrates the industry's intent to explore all options," said KPMG's John Kunasek. "Previously, the executives have pointed to wind and solar as the main investment choices, but this year we have seen a shift. Increased production of shale gas in North America could have profound implications on the global energy sector. Even batteries and fuel cells have entered the conversation."

About 8% surveyed said regulatory restrictions in the U.S. offshore would have little impact on long-term development of offshore reserves, but they have improved drilling practices -- and are more focused on onshore development. About 8% said they have moved their U.S. rigs to other locations worldwide in response to fallout from the BP plc Macondo well blowout.

Of those who responded to the survey, 12% said there has been an increased emphasis on "nontraditional" exploration, including shale natural gas and oil, and another 10% said their companies today are more focused on onshore drilling than a year ago.

The "good news is that energy executives tell us they are significantly increasing investment in a range of alternative energy sources and see shale factoring strongly into meeting the world's future energy needs," said Kunasek, national leader of KPMG's U.S. energy practice.

Through the rest of 2011 energy executives surveyed said they expect to see continued volatility in the price per barrel of oil, with more than half (64%) forecasting crude prices eventually to surpass $121/bbl.

Energy executives see high oil prices continuing, about one-third of the respondents with a U.S. peak of between $121 and $131/bbl, and another one-third expecting even higher prices. About 35% said current crude prices are near the high for the year. However, there is more positive news for shale players.

Most of those surveyed see higher capital spending this year from 2010. About one-third (33%) of those responding see capital spending up by more than 10% from 2010; 17% forecast a jump of 5-10%, while about 17% see about 5% more spending. Almost 70% anticipate operating costs to rise over the coming year.

Among other things executives expect more capital spending this year could be earmarked for increasing staff, with up to half (49%) of those surveyed expecting to see their workforces expanded over the next 12 months -- up 2% from the 2010 survey. About 25% said their workforces would be up 5%, while 13% said 5-10%. About 11% think their companies will expand by more than 10%.

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

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