What 126 managers think

May 17, 2004
Oil and gas managers in a recent survey expect more mergers and another year of budgetary focus outside the US.

Oil and gas managers in a recent survey expect more mergers and another year of budgetary focus outside the US.

They also see a lack of high-quality prospects in the US and a shortage of qualified workers as constraints on upstream activity.

Oil & Gas Journal conducted the electronic survey of 126 professionals for the KPMG Global Energy Conference May 25-26 in Houston.

The survey, not a valid sample of the whole industry, targeted decision-makers. Most of the respondents work for large companies in technical and managerial jobs.

Fifty-two of the respondents work for integrated companies, 24 for large independents, and 15 for medium-size or small independents. One respondent works for a service firm, and 12 work in refining and marketing. The rest work in other company categories.

In the view of survey participants, small independent producers remain prime merger targets. Fifty-four percent of respondents said they expect more mergers among small independents, and nearly as many said they expect "super" and large independents to acquire smaller companies during the next 3 years.

Spending plans

Asked about their companies' up- stream capital spending this year on activities other than acquisitions, 36% said they expect increases of 10% or more outside North America. Twenty percent see spending gains of that magnitude in the US, and only 4% see that much increase in Canada.

For spending in the US and Canada this year in comparison with 2003, "about the same" attracted the greatest vote shares—43% for the former and 34% for the latter.

In a question about US oil field activity, respondents were asked to rate potentially suppressive influences according to a scale on which 1 represented no constraint and 5, major constraint. Here are the choices and the average rating for each:

  • Lack of high-quality prospects—3.32.
  • Not enough qualified people to handle available opportunities—3.28.
  • Diminishing interest in US prospects—3.07.
  • Rising costs of services and supplies—2.90.
  • Use of capital to pay debt, buy assets, repurchase shares, etc.—2.69.
  • Political uncertainty—2.67.
  • Uncertainty over oil, gas prices—2.64.
  • Unavailability of essential services or supplies—2.61.

The category with the highest percentage of votes as a "major constraint" was the one concerning qualified people (18%), followed by lack of high-quality prospects (15%).

The category with the highest percentage of votes as "no constraint" was political uncertainty (23%), followed by alternative capital uses (16%).

A different question asked how respondents' companies would change their spending on exploration and production if US federal land now off limits to producers became available for leasing. The question specified acreage off the East and West Coasts, in the Eastern Gulf of Mexico, and in the West.

The greatest percentage of responses to this question—35%—indicated a 10-30% increase in the US share of total E&P spending. Other responses and their percentages: less than a 10% increase in the US share of total, 25%; insignificant change, 20%; more than a 30% increase in the US share of total, 13%; most of total is already in US, increase of less than 10% in total, 3%; and most of total is already in US, increase of more than 10% in total, 5%.

In another rating question, respondents indicated risks in several categories, with 1 representing no risk and 5, very high risk. The results, ranked by average rating:

  • Unfavorable regulation—3.14
  • Unfavorable changes in oil or gas prices—3.08.
  • Economic downturn—3.02.
  • Unfavorable changes to national fiscal or monetary policy—2.98.
  • Security threats—2.86.
  • Corporate governance issues—2.68.
  • Failure of new technology—2.60.

The survey asked respondents to select average-price ranges for New York Mercantile Exchange natural gas and crude oil futures for 2004, 2005, and 2006.

The gas-price range receiving most votes for 2004 (50%) and 2005 (41%) was $5-5.99/MMbtu. For 2006, with 35%, it was $4-4.99/MMbtu.

Oil prices of $30-34.99/bbl drew the largest percentages for 2004 (65%) and 2005 (55%). For 2006, the top percentage, 36%, went to the $25-29.99/bbl range.

Hiring patterns

The survey also asked about hiring.

Forty-five percent of the respondents said they hire mainly consultants or personnel from other companies. Twenty percent said they hire mainly from university petroleum-related engineering and geology programs.

Other options and their percentages: not hiring but planning to start within 12 months, 18%; hiring mainly from university nonpetroleum-related engineering programs and cross-training new hires, 15%; and currently eliminating technical or scientific positions, 3%. The low score of that last response is an encouraging sign that 126 will remain a statistically invalid sample of the industry population for at least another year.