Eighty-three percent of oil and gas companies seek growth-oriented investment in 2011:
Ernst & Young
(Calgary, 22 June 2011) Seventy-five percent of oil and gas companies are more optimistic about their companies’ prospects in 2011, but rising inflationary pressures could hamper plans for growth, according to Ernst & Young’s Capital Confidence Barometer.
“With political unrest in the Middle East putting pressure on companies to develop energy sources in new regions, and economic growth amplifying global demand, it’s no surprise that the vast majority of oil and gas companies are on the prowl for new growth opportunities,” says Kevan Holroyd, Executive Director in Ernst & Young’s Oil & Gas Transaction Advisory Services group.
Of the 83% of global oil and gas companies pursing growth, 46% are actively looking to grow inorganically through mergers and acquisitions this year, up 15% from 2010, while 37% remain focused on growing their company organically by adding projects and properties.
“Here in Canada, companies are in a prime position to capitalize on growth opportunities given our stable financial, regulatory and political environment,” says Holroyd. “This combined with our proximity to the US market and our track record for attracting foreign investment from Asia has created an environment that’s ripe for robust transaction activity.”
The report finds that 23% of respondents expect financing will be readily available to fund major acquisitions and/or capital projects in the coming year and 33% already believe that access to finance is not a problem.
But with rising inflationary cost pressures threatening the expansion of oil and gas projects (oilsands as an example), companies are keeping focused on creating cost reductions, operational efficiencies, and improving cash flow before making long-term plans.
“The key is to view cost reduction as a way of generating the cash needed to fund strategic growth opportunities and thereby strengthen the company across the board,” Holroyd adds. “There’s a careful balance between reducing costs and maintaining the capabilities needed to support the business. Companies that achieve that balance will be best positioned to thrive.”
In Canada, joint ventures, partnering and strategic alliances, particularly with foreign companies, are becoming increasingly common as companies look to share development costs, pool resources, share and mitigate risk and support greater collaboration. A recent example includes Progress Energy's $1.1 billion partnership with Petronas, Malaysia's national oil company, in the Montney shale gas assets in BC.
For more on Ernst & Young’s Capital Confidence Barometer and the findings from the broader group of 1,000 executives polled, visit ey.com.
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