E&P executives are expecting a high level of M&A activity in the next year as declining petroleum reserves remain a major concern, according to the results of a survey conducted by audit, tax and advisory firm KPMG LLP. More than 380 financial executives within E&P companies were surveyed by KPMG this spring. Among them, 28% expect their company will be part of a major merger or acquisition during the next year. "The industry is facing a number of issues on a number of fronts, not the least is the issue of reserve replacement," says William Kimble, national sector leader for KPMG's energy and chemicals practice. "When almost three in 10 energy executives expect their firms to be involved in a major merger or acquisition, it provides a strong sense of the pressures this industry is facing. The issue of reserve replacement is causing much anxiety and upheaval within energy companies." Other survey results: • 83% said the prospect of declining petroleum reserves is a serious concern in the oil and gas industry; • 58% view the volatility of oil and gas commodity prices as being negative for the industry; • 49% cited cost of materials, supplies and equipment as the most significant financial issue facing their company in the coming year, 20% cited general economic conditions, 7% rising interest rates, and 7% labor costs; • 45% expect increased borrowing costs in the coming year; • 49% said they will be paying down debt to get a credit-rating upgrade, 39% said they will increase reserves through exploration and 30% said they will increase reserves through acquisition.