Uncertainty about natural gas and crude oil prices remains the No. 1 concern of upstream U.S. energy companies for the second year in a row, according to Grant Thornton LLP.
Enhancing company value through exploration and acreage acquisitions also rate as top priorities. The report, commissioned by Grant Thornton in partnership with Hart Energy, comprises more than 200 responses from senior executives in the energy industry across North America. Survey topics included price and employment forecasts, capital spending plans, regulatory and legislative developments, and new areas of opportunity.
The survey was conducted from February through March with senior executives at independent producers and service companies. Respondents’ average total assets at the end of fiscal 2012 were $4.7 billion, and the average projected revenues for fiscal 2012 were $2.3 billion. About 17% of the respondents worked for public companies, 78% were privates and 5% were employed at master limited partnerships.
The spot price of Henry Hub natural gas is expected to average $3.48/MMBtu in 2013, $3.77 in 2014 and $4.09 in 2015, respondents said. Expectations for the average 2015 natural gas price varied by about $5.50/MMBtu among respondents. Spot prices in 2015 range from $2.50/MMBtu to $8.00.
“As with 2012, volatility has led to a reliance on hedging production as insurance against price fluctuations,” Grant Thornton researchers noted in the new report. “For both 2013 and 2014, the majority of respondents indicated that more than 50% of their oil and gas production would be hedged.”
Crude oil forecasts through 2015 saw a $100/bbl price difference. West Texas Intermediate crude oil is expected to average $91.18/bbl in 2013, $92.04 in 2014 and $94.12 in 2015. The price at which survey respondents expect oil drilling to decline on average was $69.84/bbl, which is lower than the expected average price for oil in 2013 through 2015.
“For the second consecutive year, our survey has revealed that price volatility continues to significantly impact the energy industry,” said Grant Thornton’s Brandon Sear, the National Energy practice leader. “These persistent cost issues are impacting capital spending decisions and leading many of our respondents to indicate a reliance on hedging production as insurance against price fluctuations again this year.”
Of the executives surveyed this year, 18% said “uncertain oil prices” were the most critical problem, while 16% said it was uncertain natural gas prices.
A year ago, the availability of a skilled technical staff was seen as the third biggest problem, but it fell to the eighth most critical issue this year. Rounding out the possible threats, in order of importance, are regulatory requirements, access to enough acreage, legislative initiatives, environmental concerns, competition with larger companies, access to midstream infrastructure; litigation and other concerns.
Because of energy price volatility, fewer respondents (60%) than a year ago (63%) expect to increase capital spending this year. The survey also suggested few changes in the industry’s preferred way to access capital, which may indicate that private equity funding and debt instruments remain the go-to methods. In addition, joint ventures may become more common, with almost half (49%) citing use of partnerships this year, compared with 35% in 2012.
“As demonstrated in our survey results, joint ventures are an increasingly attractive option for companies looking to help cover costs of production and we believe this trend will continue in the near-term,” said National Energy Transaction Advisory leader Brandon Cradeur. “In the past few years, U.S. companies have begun collaborating with companies outside of the United States for exploration and production of oil and gas from shale.”
Jobs still are out there, with more than half (53%) expecting employment to rise through the rest of 2013. However, the rate of job growth is down from 71% in 2012 and 61% in 2011. Less than one-third (31%) anticipate difficulties “hiring and retaining employees” in 2013, down from 55% in 2012. However, “availability of technical staff is still on the list of industry concerns, but not as high as in years past.”
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