The Future of Growth and the Energy Industry

Transcription

1 The Future of Growth and the Energy Industry July 20, 2017 Grant Thornton LLP. All rights reserved. 1

2 Our Speakers Steve Toon Editor in Chief Oil and Gas Investor Kevin Schroeder National Managing Partner, Energy Industry Grant Thornton, LLP Bryan Benoit Energy Industry Advisory Services Leader Grant Thornton LLP John LaBorde Energy Industry Tax Services Leader Grant Thornton LLP Nick Vellani Principal, Technology Strategy & Management, Energy Practice Grant Thornton LLP Grant Thornton LLP. All rights reserved. 2

3 Learning objectives Determine the disruptive forces of change in the exploration and production industry and how those forces impact scenarios for the future Relate how exploration and production companies in the industry are responding Recognize the levers of value that exploration and production companies are activating today to shape their business to address the risks and opportunities of tomorrow Grant Thornton LLP. All rights reserved. 3

4 Agenda 1. Introductions 2. Hart Energy/Grant Thornton Energy survey findings 3. Sharing of insights 4. Closing remarks Grant Thornton LLP. All rights reserved. 4

5 Introductions Grant Thornton LLP. All rights reserved. 5

6 Grant Thornton and Hart Energy Grant Thornton LLP Founded in Chicago in 1924, Grant Thornton LLP (Grant Thornton) is the U.S. member firm of Grant Thornton International Ltd, one of the world s leading organizations of independent audit, tax and advisory firms. Grant Thornton has revenue in excess of $1.6 billion and operates 60 offices with more than 570 partners and more than 8,500 personnel in the United States and at our Shared Services Center in Bangalore, India. Grant Thornton works with a broad range of dynamic publicly and privately held companies, government agencies, financial institutions, and civic and religious entities. Hart Energy For more than 40 years, Hart Energy editors and experts have delivered market-leading insights to investors and energy industry professionals. The Houston-based company produces magazines (such as Oil and Gas Investor, E&P, Midstream Business, and FUEL); online news and data services; industry conferences (like the DUG series); GIS data sets and mapping solutions; and a range of research and consulting services. For information, visit hartenergy.com. Grant Thornton LLP. All rights reserved. 6

7 Presenter information Steve Toon Steve is Editor-In-Chief of Oil and Gas Investor magazine, and has been affiliated with the magazine and the related A&D Watch franchise for almost nine years. His background includes experience with trade and consumer publications, a daily newspaper, book publisher, and as a full-time real estate investor. Kevin Schroeder Kevin is Grant Thornton s National Managing Partner, Energy Industry and Global Energy & Natural Resources Steering Committee Chair. Kevin has served the energy industry for 22 years. During his career, Kevin has provided audit and advisory services to large integrated oil and gas companies, E&P, Midstream, field services and power and utilities companies. He has focused on serving publicly traded and growth oriented privately held companies, including companies with significant international operations. Bryan Benoit Bryan is Grant Thornton's Advisory Services Leader for the Energy Industry. He specializes in providing opinions to US and international corporations for transaction, tax, financial reporting and dispute purposes. With 30 years of experience in corporate finance, restructuring, accounting and valuation, Bryan advises chief financial and accounting officers, tax executives, boards of directors and legal counsel, and provides opinions on value. John LaBorde John is Grant Thornton s Tax Services Leader for the Energy Industry. He is also the State Income Tax Leader for the Texoma Market Territory. John has over 27 years of experience in taxation. Most of his experience has been in public accounting focused on assisting clients in the energy industry. Nick Vellani Nick is a Principal in the Technology Strategy & Management Services group. He leads a portfolio of IT related advisory services for many of our energy clients. Grant Thornton LLP. All rights reserved. 7

8 Hart Energy/Grant Thornton Energy Survey Grant Thornton LLP. All rights reserved. 8

9 About the survey - Collected through April Responses - C-suite and senior executives - U.S. independent producers - Midstream operators - Oilfield service companies - Financial Companies - For more information: grantthornton.com/futureofindustry Grant Thornton LLP. All rights reserved. 9

10 General observations - Operating in the new normal - Achieving efficiencies - Increased hiring - Increased drilling and transactions - Investing in technology - Developments since the survey and OPEC meeting Grant Thornton LLP. All rights reserved. 10

11 Current state Grant Thornton LLP. All rights reserved. 11

12 Specific survey results - Focus on cost efficiencies and E&P economics - Optimizing sources of capital and M&A - Advancing technology - Changing risk and regulatory environment - Talent and other findings - Final observations Grant Thornton LLP. All rights reserved. 12

13 Efficiencies and Economics Grant Thornton LLP. All rights reserved. 13

14 Managing Costs What operators are experiencing from the field services sector Indicators from survey: - 21% concerned about availability - 21% concerned about price increases with consolidation - 31% seeing price increases already - Onshore costs increasing with activity, offshore flat - Sentiment varies Grant Thornton LLP. All rights reserved. 14

15 Managing Costs What are key issues from the services sector impacting the operator? Indicators from survey: % reference bottlenecks % say there is more competition for their business % say projects are proceeding no problems - Price uncertainty referenced - Service availability concerns - Quality and skilled crews in ramp up - Lack of crews and service in certain areas Grant Thornton LLP. All rights reserved. 15

16 Strategic Measures How are E&P companies responding Indicators from survey: - Securing cost stability, best practices, competitive bidding - Focus on best trends and core basins - Seeking longer term contracts, partnerships - Outsourcing - Better planning, scheduling, multi well programs, batch completions - New technology - Making better wells, decreasing drilling days - Disposing of non-core assets and marginal wells Grant Thornton LLP. All rights reserved. 16

17 Optimizing capital and M & A Grant Thornton LLP. All rights reserved. 17

18 M&A Environment Acquisitions and Divestitures - 46% planning to increase activity - 16% not looking for deals Observations - Focus on blocking up acreage and bolt-ons - Buying out non-op partners and adding surrounding acreage - Looking for distressed asset opportunities - Still waiting - Private equity sentiment Grant Thornton LLP. All rights reserved. 18

19 Challenges in M&A 38% say a significant business risk is ability to close acquisitions or divestitures Greatest challenges to completing acquisitions and dispositions - Bid / ask spreads 24% - Access to capital 14% - Price variance by play 12% - Commodity price volatility 12% - Availability of assets on market 9% Other observations - Competition for deals - Combination of above - Acreage costs Grant Thornton LLP. All rights reserved. 19

20 Capital spending Current Sentiment - 53% expect to increase capex up to 20% over last year - 30% consistent with last year - Less than 10% plan to decrease capex Continued uncertainty and caution - Most looking to maintain activity and hold production - Live within cash flows - Access to capital and budgetary constraints - Project economics and PUD drilling difficult Grant Thornton LLP. All rights reserved. 20

21 Prioritizing capital How are companies prioritizing capital? - Actively looking for strategic deals 28% - Increasing production from existing wells 13% - Range of other responses Other observations: - Only 24% believe it will be less difficult to acquire new capital - Focused on developing recent acquisitions - Drilling new wells within cash flows - Focus on highest return locations and core properties - Investing in technology - No one answer Grant Thornton LLP. All rights reserved. 21

22 Sources of Capital Capital concerns having greatest impact on strategy - Access to capital 29% - Internal hurdle rates 17% - Terms and conditions 13% - Tighter covenants 11% - Achieving the right mix of capital 11% Sources of Capital: - Operating cash flows - Commercial debt - Divestitures - Private Investment / Partners - Public markets - Angel Investors - Private Equity - Drilling JVs Grant Thornton LLP. All rights reserved. 22

23 Investing in technology Grant Thornton LLP. All rights reserved. 23

24 Technology trends & challenges - 61% of respondents say the largest challenge they face is access to the right information - 42% say that dated technology and lack of systems integration and compatibility hinder them from obtaining the right information - 19% say that capital investment in full scale, modern systems is not feasible given current market conditions Grant Thornton LLP. All rights reserved. 24

25 Technology trends & challenges, continued - Year over year, cybersecurity had the largest percentage increase as a challenge respondents are facing - Cloud usage and the ability to rapidly adopt new technologies garnered additional attention from respondents - 38% of respondents indicate that maintaining efficient internal processes is a challenge Grant Thornton LLP. All rights reserved. 25

26 Regulatory environment Grant Thornton LLP. All rights reserved. 26

27 Politics and policy More than half of respondents indicated regulatory hurdles and delays were top business risk. About 60% indicated the following to be significant to their business: - EPA regulations on emissions - Water disposal issues - State and Federal regulations on fracking Other observations: - Election results and global geopolitical situation - Lack of federal energy policy - Litigation risks Grant Thornton LLP. All rights reserved. 27

28 Tax Reform Common ground - Reduction in corporate tax rates - Tax on certain income of pass-through entities - Repeal of Alternative Minimum Tax - Move to at territorial tax system Status of tax reform Grant Thornton LLP. All rights reserved. 28

29 Other observations and final thoughts Grant Thornton LLP. All rights reserved. 29

30 Securing talent Key Findings - Trend of employee reductions subsided - 42% plan to keep current staff levels - 34% have begun or plan to hire Other Observations: - Still a mix of employment needs and challenges - Doing more with less and use of contractors - Risk of unfavorable demographics, industry reputation and generation mix - Availability of qualified people in basin Grant Thornton LLP. All rights reserved. 30

31 Final observations - Production, consumption and inventory - Price expectations - OPEC, US and large Non-OPEC members roles Grant Thornton LLP. All rights reserved. 31

32 Questions? Grant Thornton LLP. All rights reserved. 32

33 Our Speakers Steve Toon Editor in Chief Oil and Gas Investor Kevin Schroeder National Managing Partner, Energy Industry Grant Thornton, LLP Bryan Benoit Energy Industry Advisory Services Leader Grant Thornton LLP John LaBorde Energy Industry Tax Services Leader Grant Thornton LLP Nick Vellani Principal, Technology Strategy & Management, Energy Practice Grant Thornton LLP Grant Thornton LLP. All rights reserved. 33

34 Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered. For additional information on matters covered in this presentation, contact your Grant Thornton, LLP adviser. Grant Thornton LLP. All rights reserved. 34

35 Thank you for attending Visit us online at: twitter.com/grantthorntonus linkd.in/grantthorntonus For questions regarding your CPE certificate, contact Grant Thornton LLP. All rights reserved. 35