The vast majority of energy executives (94%) say continued volatility in commodity pricing coupled with the regulatory environment will require significant changes to their business models over the next three to five years, according to the results of the 2016 Energy Industry Outlook Survey conducted by the KPMG Global Energy Institute.
KPMG’s annual energy survey, which polled over 150 senior energy executives in the U.S., found that the top organizational priorities over the next two years are developing new growth strategies and implementing changes to their business models. To that end, they expect capital allocation to be directed toward the acquisition of a business and business model transformation initiatives.
While 92 percent of executives expect to be involved in a merger or acquisition in the next two years, 38 percent say the most strategic approach would be acquiring assets versus an entire company. Among oil and gas executives, 51 percent believe restructuring/bankruptcy opportunities will be the primary driver of acquisition activity.
“The prolonged commodity price situation, technological advances and other disruptive forces have been shaking up the energy industry for some time now, creating challenges and opportunities for companies across all energy segments and operational activities,” said Regina Mayor, national sector leader for energy, natural resources and chemicals for KPMG LLP. “Companies have seen that the way to thrive and remain competitive is by ensuring that their organizations are continually making growth, and a focus on capital spending efficiency, a strategic priority.” (Share Regina’s quote on Twitter https://goo.gl/Zchggp.)
Landscape of the Oil and Gas Market
The 2016 Energy Outlook survey also found that nearly 40 percent believed that Brent Crude oil prices will stabilize to a reasonable level by spring of 2017, however, 26 percent believe this will happen by the end of 2016. Eighty eight percent now anticipate the price of Brent Crude oil will be less than $50 per barrel for the year, compared to 22 percent in last year’s survey results. In addition, gas prices are viewed as continuing to stay low for the remainder of 2016.
“This new ‘lower for longer’ commodity pricing environment has made it necessary for energy executives to devise new ways get access to capital to fund short- and long-term strategic activities,” said Mayor. “For this reason, companies are taking necessary actions to identify areas of greater efficiency and looking at organic and inorganic growth strategies.”
The unstable price environment is the leading factor executives see hindering growth over the next year. Despite the volatile commodity pricing environment, the survey suggests that growth is on the horizon, with more than 44 percent of oil and gas execs indicating plans to develop new growth strategies over the next two years.
Landscape of the Power and Utilities Market
Based on the survey results, the power and utilities sector appears focused on renewable technologies and strategic planning. Sixty-seven percent of execs cited scale and growth of renewable technologies as the top disruptive trend shaping the sector. In fact, 62 percent of executives estimate that the U.S. will have a renewable footprint of 50 percent by 2045 or sooner.
With all of the disruption in the industry, 41 percent of execs indicate that they expect significant change in utility business models to a much more distributed, unbundled operating model that redefines the energy supply and delivery business. To get there, many executives cited strategic planning as the top process to accelerate growth over the next three to five years, followed by cultivating a company culture that is motivated or incentivized to generate ideas and opportunities.
“Despite the significant changes that have affected utilities, fundamental transformation is on the horizon,” said Mayor. “While the models may vary based on regional demands and regulatory requirements, it is clear that the industry will need to structurally evolve to adapt to new technologies and market participants.”
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