By Velda Addison, Hart Energy
As oil prices continue their downward spiral and the cost of operating remains high, especially for shale plays, it is not surprising that a recently released survey says that 45% of the CFOs surveyed named low oil and gas prices as their greatest financial challenge for 2015.
That percentage represents a 55% increase in the number of CFOs with similar sentiments last year, based on the results of BDO’s 2015 Energy Outlook Survey. The release came a few days after the OPEC agreed not to lower its production target of 30 MMbbl/d as historic high production levels from U.S. shale plays do more than their part to saturate the market with oil.
The world’s plentiful oil supply has left many to ponder when the economics of developing these hydrocarbon resources will cause producers, especially those in the U.S., to slow down production. Some believe U.S. shale producers could break even at about $40/bbl. West Texas Intermediate has dropped from a high of $102 this year to about $67 on Dec. 2, while Brent has stumbled from about $116/bbl to about $70/bbl.
“The past six months have seen the oil markets return to the volatility that has historically characterized the industry,” Charles Dewhurst, partner and leader of BDO’s natural resources practice, said in a prepared statement about the survey. “However, while headlines may be saying these price declines herald the end of the shale boom, U.S. companies have been preparing for a return to fluctuations and are well-equipped to navigate through this transitional period.”
The year 2014, as described by BDO, has seen supply outpacing demand with robust U.S. production and accelerated activities from Middle Eastern countries.
The CFOs surveyed believe this trend will continue next year, as only 37% expect global demand to increase in 2015, which is a 43% drop in the number of CFOs expressing similar sentiments last year, BDO said.
“Amid this ongoing commodity price volatility, U.S. companies are looking to guard themselves against future fluctuations,” according to BDO. “Nearly one-third of CFOs say that they will pursue cost reduction programs to improve value for stakeholders, while 56% say they will cut costs and seek efficiencies in an effort to remain profitable in 2015.”
BDO’s survey also showed about a 68% increase in the number of CFOs who cited price declines as the top factor inhibiting industry growth. The survey also found:
- Nearly two-thirds of the CFOs anticipate growth in the domestic supply of natural gas in 2015 as well as an increase in global and domestic demand;
- Sixty-nine percent of the CFOs expect an increase in LNG exports for next year;
- Nearly two-thirds, or 61%, said they plan to focus risk management on environmental regulation, particularly concerning the environmental impact of hydraulic fracturing (33%) and water pollution and usage (34%);
- Thirty-eight percent cite more restrictive government regulations as their top political concern for 2015; and
- Forty-three percent of the CFOs said legislative and regulatory changes are the top factors inhibiting overall industry growth.
One hundred CFOs from U.S. E&P companies participated in the survey, which was conducted from September 2014 through November 2014.
Contact the author, Velda Addison, at email@example.com.
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