According to a new study by BDO USA LLP (an accounting and consulting organization), 54% of CFOs in oil and gas E&P companies believe “legislative changes” will be the most important factor inhibiting the industry’s growth in the US in 2011. An additional 40% listed legislative changes as their greatest financial challenge for the coming year (a 21% increase from 2010). This information came from the third annual “Energy Outlook Survey,” a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to CFOs. The results imply that the coming year could be a very challenging one, with many companies being forced to re-strategize. Legislative and regulatory issues caused project delays and in fact terminated a number of E&P projects in 2010. Survey results indicate that among respondents who experienced a project delay or termination, 61% cited federal or state environmental regulations as the cause, 58% cited legislative changes, and 39% said the regulatory moratorium on drilling activity was the reason for delaying or terminating projects. According to Charles Dewhurst, partner and national leader of the Natural Resources industry practice at BDO, “One message came through loud and clear in this year’s survey – that legislative changes represent the biggest threat to growth in the oil and gas industry. “With the mid-term election results, energy executives can anticipate an easing in the flow of new legislation impacting the industry,” he said. The remaining question is, “Will this be enough to relax the permitting process for deepwater drilling in the Gulf of Mexico?” Survey results indicate many respondents do not anticipate a quick fix to drilling activity in the Gulf of Mexico – 38% do not expect drilling activity in the region to return to 2009 levels until 2012 or 2013, and 31% say it will be after 2013 or never. The survey also addressed the CFOs’ view of renewables. Wind power leads the pack, with 39% of CFOs expecting wind to be the biggest alternative source contributor to the world’s energy needs in the next five years, followed by geothermal (19%), solar (13%) and biofuels (12%). “There is growing interest in renewable energy sources; and at this point most CFOs are putting their money on wind power,” Dewhurst said. “However, a big test will come soon as federal cash grants to the renewable energy industry are set to expire. With Republican control of the House, many now doubt whether these grants will be renewed.” Development of additional energy sources will have to take place to meet growing demand. Many CFOs (71%) expect global demand for oil to increase in 2011, and 67% expect global demand for natural gas to increase. Nearly half (46%) plan to maintain the total number of oil and gas drilling rigs operated by their company next year, and another 34% plan to increase the number of rigs working. When asked what is the most important factor driving the overall growth of the US oil and gas industry in 2011, 18% of the respondents said “new production technologies.” This response is nearly three times as high as 2009. Although costs are expected to rise, BDO says, most CFOs foresee heightened demand for oil and gas next year, but drilling contractors are not likely to increase rig counts until they see demand on the rise. Concerns about international competition continue, with 57% of CFOs saying they are concerned that President Obama’s proposals to eliminate certain tax incentives for American oil and gas producers will cause increased dependence on imports and will send investment dollars and jobs overseas. Despite an expected increase in global demand, companies are staying put geographically for the time being; only 7% plan to expand to new geographic areas outside the US in 2011.