Fifty-two percent of oil and gas companies focused on growth in 2012: Ernst & Young

(Calgary, 6 December 2011) Growth agendas trump survival strategies for more than half of global oil and gas companies in 2012, according to Ernst & Young’s fifth Global Capital Confidence Barometer - Oil & Gas.

“Economic uncertainty is fast becoming the new norm and leading companies aren’t letting it put a hold on their growth agendas anymore,” says Kevan Holroyd, Associate Partner in Ernst & Young’s Oil & Gas Transaction Advisory Services group. “With strengthened balance sheets helping reduce financial risk, companies are shrugging off market volatility and strategically pursuing growth, including M&A.”

Investing remains the number-one area of focus on the capital agenda. Buoyed by near $100/barrel oil prices and confidence in long-term energy demand from emerging market economies, 48% of companies expect to acquire in the next year compared to just 42% in April.

Thirty-seven percent of oil and gas companies also expect to make a divestiture in the next year with the main driver of divestment activity being a continued refocusing on their core business and assets.

But oil and gas companies are also adopting other growth strategies besides M&A. Many companies are supporting organic growth through robust capital programs related to their existing properties or equipment. Those who adopt this strategy are more likely to save capital and avoid exposing themselves to traditional transaction risks, adds Holroyd.

“The primary challenge that most companies are facing is an increasing shortage of skilled labour resources and a tightening of equipment supply to support their expansion and growth strategies, particularly in the oilsands and certain areas of the oilfield services sector,” says Holroyd.

Environmental risks are also set to surpass banking/financial reform and tax considerations when it comes to pursuing M&A opportunities. Not only that, as foreign investors move from purely financial to operator roles, cost- and risk-sharing through strategic partnerships and joint ventures will be critical.

“Strategy is everything when it comes to mergers and acquisitions this year,” says Holroyd. “Technology plays, geographic expansion, access to new relationships and securing reserves and/or market share are each factors that will drive the deal market.”

About the survey
Ernst & Young’s Global Capital Confidence Barometer is a biannual survey of senior executives from large companies around the world conducted by the Economist Intelligence Unit (EIU). The “Ernst & Young 1000” panel, composed of selected Ernst & Young clients and contacts and regular EIU contributors, were surveyed in July and August 2011. The oil and gas subset of the findings gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their capital agendas.

Read more about the oil and gas industry’s response to the Capital Confidence Barometer at ey.com/oilandgas.

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