Energy survey finds discipline, caution among E&P companies

A&D up, technology and talent key issues

The exploration and production (E&P) industry is demonstrating caution and discipline in the face of continuing energy price volatility.  Yet optimism is evident, too, through a focus on core assets, incremental improvements and making use of new technologies on existing properties. The sector appears to have learned from and is intent on avoiding the boom-and-bust cycles of the past.

These were some key findings of the Grant Thornton/Hart Energy survey conducted in the fall of 2017. A key indicator of that discipline:  For the first time since the survey was initiated, more than 50% of respondents report that they are able to keep production flat.

Kevin Schroeder, leader of Grant Thornton LLP’s national Energy practice, commented, “We’re seeing E&P companies focus on maximizing production from existing properties, improving efficiency across their operations and making disciplined acquisitions that build on the strengths of their existing portfolios. ”

 Other findings that indicate operators are taking a more controlled approach include:
  •  Strategy—42% plan to pull back and sharpen their focus on a few core areas, compared with 26% looking to diversify their asset portfolio across multiple plays/basins and 21% pursuing a pure play strategy.
  • Capital expenditures—50% are focused on spending capital expenditures more efficiently while 47% will stick to core area drilling and development. Only 15% are planning to drill wells in new areas.

Energy: Strategy fits your company
As for staffing, 41% of respondents plan to keep staffing at current levels, while 14% indicate they are hiring now and 34% may do selective hiring. While these numbers are up from a year ago, they demonstrate  caution and discipline within the industry.

Energy Survey
Interest in A&D is up
Discipline does not mean that operators are not exploring opportunities for growth. When asked where they would invest an extra $1 in their business, 35% answered acquisitions. Other answers bore out the trend toward caution and focusing on existing basins. Investing in increasing production from existing wells was the next most common response at 22%, and saving as cash totaled 18%.

When asked directly about acquisitions and divestures (A&D), 49% of operators reported plans to increase A&D activity, the most common answer by a wide margin. Operators are facing a number of challenges when it comes to A&D, however. Commodity price fluctuations and differing buyer/seller expectations were the most common challenge, at 34%. Access to capital was reported as a challenge by 20% of respondents. One reason for the differences in buyer/seller expectations? A decrease in distressed companies for sale. This year, only 33% of respondents indicated plans to sell or merge, compared with 60% in 2015. Stronger industry fundamentals and an improved economy mean it is no longer a buyer’s market.

“A&D remains a viable growth strategy, but the low-hanging fruit is gone,” says Schroeder. “The right deals are harder to find. Buyers need to focus on opportunities that will deliver real value to an existing portfolio.”

Technology—progress and challenges Findings about technology revealed both progress and challenges. Only 17% of respondents to this year’s survey report difficulty accessing the data necessary for making effective decisions, compared with nearly one-third of respondents two years ago. An increased number of respondents report having trouble accessing play and basin analytics, however – 44% compared with 31% earlier this year. E&P companies should consider taking a hard look at their IT capabilities. Leading players use integrated technology to provide real-time access to key data across the enterprise, allowing better, more timely decisions from the well-head to the front office.

Given the heightened concern about cybersecurity in most industries, it is surprising to note that only 9% of respondents reported cybersecurity as their top technology challenge.

“The industry is making improvements when it comes to IT, but many companies still lag behind in developing integrated solutions that can drive real advantage,” says Schroeder. “And the relative lack of concern about cybersecurity is troubling. That has to be an increased area of focus.”

Attracting talent While respondents are not planning on aggressive hiring, they do face a need for new skills. Baby boomers are retiring and many experienced workers who were laid off over the past 10 years are not returning. Meanwhile, the increasing role of IT in the industry demands a new set of skills. Yet the younger professionals with these skills are more interested in other industries. By emphasizing the key role technology plays in the industry and underscoring the growing importance of alternative energy strategies, E&P companies can make the industry more attractive to today’s talent.

“Younger talent tends to perceive the E&P industry as outdated,” says Schroeder. “Emphasizing the key role technology plays in the industry and adopting a mindset that is more open to disruptive, cutting-edge solutions could go a long way toward making E&P jobs more attractive to younger candidates.”

Overall, operators seem to have learned their lessons from the wild ride of the last decade. By maintaining discipline, increasing efficiency and focusing on their core assets, they hope to counteract fluctuating prices in a tumultuous industry.

Kevin Schroeder, National Managing Partner,
Energy Industry
T +1 405 415 3550.