Accounting firm Ernst & Young U.K. Energy Services, London, has polled 88 senior executives from 55 U.K. energy companies, asking them what they thought were the major threats to their industry.
Michael Horder, partner in charge at Ernst & Young, explained, "This is the first time that the threats facing established energy companies have actually been placed in any order of precedence."
Unsurprisingly, upstream oil and gas companies put replacing reserves and oil prices at the top of their list of concerns. For the next 10 years, 35% of respondents see replacing reserves as the big worry, while more than 15% picked oil price changes.
Participants were then asked where they saw the best prospects for entering new operating areas during the next 3-10 years.
The former Soviet Union came out top, with more than 50% of participants seeing prospects there. South America was mentioned by 30% of participants, the North Sea by almost 30%, Africa by about 17%, and the Far East by around 15%.
Political fears
Yet one third of participants said they would be reluctant to consider FSU projects because, as one put it, "It has no structure, no laws, and political uncertainty."
China and Nigeria also were listed among countries to approach with caution, because they offer "poor fiscal terms," and "political instability."
Asked to list most important considerations in deciding whether to bid for exploration rights, participants put fiscal conditions top of the list, followed by stability of political regime.
Only after money and politics concerns came belief that reserves in an area are economically viable, followed by a belief that reserves actually existed, and then local infrastructure.
Asked where they believe the highest risks lie in exploring new areas, the executives' top choice was a tie between political risks and not finding economic reserves, followed by risks associated with infrastructure and engineering capabilities.
Outsourcing risks
Ernst & Young reported that most executives said their companies are using methods such as outsourcing of noncore activities, sharing operational services, and forming partnerships to cut costs.
"There are clearly risks in outsourcing," said Ernst & Young, "as one in five participants said their companies had not found it successful. However, one third was positive about its benefits, and half expected outsourcing to grow over the next 3 years."
Partnerships were deemed the best way to cut costs: "Two thirds of executives said their companies had developed partnerships or joint ventures. Over half of these were positive about the success of their arrangements, and only one participant felt they had not been successful. As one said, they provide a relatively straightforward way of cutting costs as companies share risks."
The accountants reported that half the participants expected that new "grand strategic partnerships" would emerge in the next 3 years, with most anticipating mergers among the 20 largest upstream players.
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