Growth

Desire for growth declines

Prioritization of growth has broadly declined as companies in general have become more focused on the fundamentals. Oil and gas companies’ focus on growth has similarly been declining but nonetheless remains higher than the global sample of companies.

49% of oil and gas respondents are focused on growth, down from 56% in April 2012.

Compared with six months ago, our respondents, both in the broader global sample as well as the oil and gas respondents, report an increased focus on reducing costs, improving efficiency and optimizing capital. As executives assess how to compete in an environment where there is lower expected growth, this shift in emphasis toward improving bottom-line performance and seeking out new ways to improve internal performance is understandable.

Nonetheless, growth remains the number-one objective for oil and gas companies, with 49% reporting that growth is their primary focus, as compared with 27% whose primary focus was on cost reduction and operational efficiency and 22% whose focus was to maintain stability.

However, this is the lowest percentage of respondents citing growth as their top priority since Ernst & Young began its Capital Confidence Barometer surveys, and the growth focus numbers are substantially below the levels reported back In October 2010 and April 2011.

Percent of companies focused on growth

The companies focused on growth tend to prioritize lower-risk organic strategies that are within their comfort zone. Rather than pursuing ambitious, transformational deals, they are hoping to deliver growth through better execution in existing markets, changing the current mix of products and services, identifying new sales channels, and developing new products and markets through the exploitation of technology.

What is the primary focus of your company’s organic growth?

The overall declining sentiment on growth is particularly pronounced. Even the appetite for organic growth reflects this trend, and respondents’ intentions with regard to excess cash underline the declining sentiment toward growth. Only 38% of the oil and gas respondents plan to deploy excess cash toward organic growth, compared with 58% in April. Deploying cash to inorganic growth declined to 12%, from 13% in the April survey.

Returning cash to stakeholders — both shareholders and creditors — now is the priority for 50% of the oil and gas respondents, up from less than 30% in the April survey. Twenty-five percent of oil and gas respondents expect that paying down debt will be their primary focus for excess cash over the next 12 months, up sharply from 15% in the April survey.

If you have excess cash to deploy, which of the following will be your focus over the next 12 months?

A focus on paying dividends remained at 11%, but a focus on buying back stock jumped from 3% in April to 14% in the September survey. This provides further evidence that companies are focusing their attention on deleveraging and strengthening their balance sheets against a backdrop of ongoing uncertainty.

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If you have excess cash to deploy, which of the following will be your focus over the next 12 months?

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