Continuing high prices and the creation of operational efficiencies through mergers, reorganizations and asset acquisitions will make 2008 an overall positive year for gas and oil companies, according to Deloitte & Touche USA, but the industry will face increased costs associated with legislation and global resource nationalism.
In its 2008 Industry Outlook, the consulting and financial advisory firm said traditional energy companies will need to strive for operational efficiency in the coming year to counteract rising production costs. Legislation designed to limit greenhouse gas (GHG) emissions and increase tax revenues could add more constraints and penalties to the industry, forcing some belt-tightening even if prices rise.
“Strategic mergers and acquisitions, especially asset acquisitions, may enable companies to cost effectively increase their resource base,” Deloitte said. “However, they should be alert for process and operational inefficiencies that often result from these transactions.”
Among the industry’s greatest concerns in the coming year may be difficulty replenishing its reserves as major suppliers, including Russia, Venezuela and Middle East countries nationalize their reserves. “Even in smaller producing countries such as Ecuador and Bolivia, growing nationalism is expected to impact resource access and prices to U.S. and international oil companies,” Deloitte said. By reducing energy supplies available worldwide, such resource nationalism could have an impact on U.S. supply and prices.
“With geopolitical conflicts continuing to flare in some oil-producing regions and access tightening by the day, it will be imperative for IOCs [integrated oil and gas companies] to identify sustainable ways to replace their reserves and demonstrate year-over-year production growth,” Deloitte said. “IOCs must improve the way they partner with foreign governments and national oil companies. Collaboration could benefit both parties.”
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