Top energy biz barrier: Regulation
But the boom will continue in ’15
Grant Thornton and Hart Energy survey finds regulatory requirements and lack of qualified workers major barriers to growth; capital expenditures continue to rise
Energy industry executives cite federal, state and local regulatory requirements as the largest barrier to their company’s growth, primarily due to the contentious political environment for horizontal drilling in many areas. This is according to the 2014 Grant Thornton LLP survey of U.S. oil and gas companies, conducted in partnership with Hart Energy.
A majority (55 percent) of respondents say that the volume, complexity and uncertainty of regulations are the biggest challenge, while another 20 percent of respondents say it is the resulting inability to accurately forecast economic consequences. Response time by the government to assist companies with compliance once a new regulation is established is cited less often (10 percent).
“In addition to operational challenges throughout this U.S. energy revolution, the industry continues to face major environmental and regulatory risks,” said Kevin Schroeder, industry managing partner for Grant Thornton’s Energy practice. “The opposition comes from traditional environmental activists, as well as local residents motivated by lifestyle issues such as excessive noise.”
Tremendous demand for workers
While regulations are cited as the largest growth barrier, the boom in the oil industry has created tremendous demand for workers at all levels. Compared with 2014, 63 percent of the respondents expect their company will hire more in 2015, while just 2 percent say hiring will decline. The operational infrastructure challenge most cited is finding and retaining qualified personnel (45 percent). An additional 5 percent of respondents say that the pool of potential employees is insufficient to that challenge. Fifteen percent cite the uneven quality of service providers, either because of inexperience or lack of personnel.
Survey data also reveals that financing from capital markets is readily available. Overall, the ready supply of capital is helping to fuel an upturn in upstream mergers and acquisitions (M&A). It is against this background that the greatest number of survey respondents (31 percent) say that high costs driven by competition is their largest M&A challenge. Seventeen percent cite “the quality of projects and assets available on the market” as their largest M&A challenge.
Capital spending to jump 20%
When asked about plans for capital spending in 2014 versus 2015 for U.S. expenditures, 67 percent of respondents expect to boost expenditures up to 20 percent or more in the coming year. Just 18 percent forecast no change, and only 5 percent expect a decrease. On the other hand, when asked about plans for capital spending in 2014 versus 2015 for foreign expenditures, 62 percent of respondents believe this question is not applicable to their business throughout the next year.
The survey is based on answers from 564 respondents collected in July 2014. Respondents were C-suite and senior executives from U.S. independent producers, midstream operators, oilfield service companies and financial companies. Participant titles included CEO, COO, CFO, CIO, senior vice president, board member, general counsel, and tax and finance professional.
Founded in Chicago in 1924, Grant Thornton LLP (Grant Thornton) is the U.S. member firm of Grant Thornton International Ltd, one of the world’s leading organizations of independent audit, tax and advisory firms.