KPMG: Price volatility driving energy business model changes
Volatile oil and natural gas prices have accelerated planning by energy executives to change their business models, KPMG Global Energy Institute said May 24 with the release of annual survey results of US senior energy executives.
Of more than 150 executives responding, 94% said commodity pricing coupled with the regulatory environment will require significant changes to their business models in 3-5 years. Executives said their top organizational priorities for the next 2 years are developing new growth strategies and implementing changes to their business models.
Nearly 40% believe Brent crude prices will stabilize during 2017 although 26% believe this will happen by yearend. Brent prices are expected to average less than $50/bbl for 2016, said 88% of those surveyed. In addition, gas prices are viewed as continuing to stay low for the rest of 2016.
When asked about mergers and acquisitions, 92% of respondents expect to be involved in a merger or acquisition in 2 years with 38% saying asset acquisitions are more likely than acquiring an entire company.
About 51% of oil and gas executives surveyed said they think restructuring or bankruptcies primarily will drive acquisitions. “The prolonged commodity price situation, technological advances, and other disruptive forces have been shaking up the energy industry for some time now…for companies across all energy segments and operational activities,” said Regina Mayor, KPMG LLP national sector leader for energy, natural resources, and chemicals.
Companies see the way to remain competitive is by focusing on capital spending efficiency, she told reporters in a media briefing.
“This new lower-for-longer commodity pricing environment has made it necessary for energy executives to devise new ways get access to capital,” said Mayor, adding that executives listed an unstable price environment as the leading factor hindering growth over the next year.
The survey showed that 66% of executives surveyed cited scale and growth of renewable technologies as the top disruptive trend shaping the utilities sector, and 62% estimated that renewables could account for 50% of power generation by 2045 or sooner.
Paula Dittrick | Senior Staff Writer
Paula Dittrick has covered oil and gas from Houston for more than 20 years. Starting in May 2007, she developed a health, safety, and environment beat for Oil & Gas Journal. Dittrick is familiar with the industry’s financial aspects. She also monitors issues associated with carbon sequestration and renewable energy.
Dittrick joined OGJ in February 2001. Previously, she worked for Dow Jones and United Press International. She began writing about oil and gas as UPI’s West Texas bureau chief during the 1980s. She earned a Bachelor’s of Science degree in journalism from the University of Nebraska in 1974.