Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 2012 A report from the Economist Intelligence Unit Commissioned by © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 About this report Big Spenders: the outlook for the oil and gas industry in 2012 is an Economist Intelligence Unit report which analyses the oil and gas industry outlook from the point of view of top-level operators, including CEOs and other board-level executives and policymakers The report has been commissioned by GL Noble Denton The Economist Intelligence Unit bears sole responsibility for the content of this report Our editorial team executed the survey, conducted the interviews and wrote the report The findings and views expressed not necessarily reflect the views of GL Noble Denton Our research drew on two main initiatives: A global survey of senior executives was conducted in October and November 2011 In total, 185 executives took part, representing a cross-section of firms in the oil and gas industry These executives were very senior: one in three respondents were CEOs or managing directors They represented firms ranging in size from less than US$500m in revenue (76 executives) to more than US$500m (109) A series of interviews was carried out with leading industry figures between October and December 2011 Interviewees and other contributors are listed here We would like to thank all those who participated in the research Interviewees and other contributors: Thomas Ahlbrandt*, former vice president of exploration, Falcon Oil & Gas Marc Albers*, senior vice president, ExxonMobil Thomas P Barney, chief economist, Marathon Petroleum Corp Steve Chazen*, chief executive, Occidental Petroleum Jean-François Cirelli*, vice chairman and president, GDF Suez Fereidun Fesharaki*, chief executive, FG Energy Hamid Gayibov, managing director, Xenon Capital Andrew Gould*, chairman, Schlumberger Simon Henry, chief financial officer, Shell Jaap Huijskes, executive board member responsible for exploration and production (E&P), OMV Bill Day, corporate communications manager, Valero Bill Klesse, CEO, Valero David Knox, chief executive officer, Santos Helge Lund, chief executive, Statoil John Richels*, chief executive officer, Devon Energy Christof Ruehl, chief economist, BP Carl Sheldon, chief executive officer, Abu Dhabi National Energy Corp Jon Tait, head of global attraction, BP Donald C Templin, senior vice president and chief financial officer, Marathon Petroleum Corp Mehdi Varzi, president, Varzi Energy Gonzalo Velasco, communications manager, Repsol *Comments from these executives were obtained from conferences and company conference calls © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Contents About this report Executive summary The oil and gas industry barometer Key findings from the Economist Intelligence Unit’s survey of oil and gas industry professionals Investment prospects Risky business  A new energy politics?  In focus  A look at the industry’s investment plans for the year ahead 11 After a tumultuous couple of years for the sector, how are attitudes to risk evolving? 13 Implications from a year of turmoil in the Arab world 15 Is unconventional gas really the game changer industry players think it is? Refining 18 A focus on downstream investment prospects Skills 20 What are companies doing to plug the skills gap? © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Executive summary Oil and gas industry confidence is rising In a 2011 report by the Economist Intelligence Unit, commissioned by GL Noble Denton, 76% of our survey respondents said they were either highly or somewhat confident about the business outlook for their company over the next 12 months This time around, that figure has grown to 82% Backing this up, we find a large rise in the share of respondents who describe themselves as highly confident about the next 12 months Only 8% of respondents describe themselves as pessimistic about the outlook for 2012 This optimism does not mean that executives are sanguine about the industry’s prospects, however Rising costs and increasing regulation are both big concerns Moreover, the outlook for the global economy remains deeply uncertain and, if economic conditions deteriorate, oil and gas companies will have to scale back their spending commitments accordingly © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Key findings Increased optimism will feed through into capital spending increases According to our survey, nearly two-thirds (63%) of respondents are planning to invest either somewhat or substantially more over the next 12 months, whereas in last year’s survey that figure was just 49% There has also been a shift in where companies see the greatest opportunities for revenue growth Last year South-east Asia came top of the pile, with North America second, the Middle East and North Africa third and the Far East fourth This year the rankings have changed, with North America top, the Far East second, South-east Asia third and Latin America fourth Rising operating costs emerge as the main barrier to growth When questioned in detail about costs, more than 50% of respondents say that they expect an increase in wages over the next 12 months The second-biggest concern is the rising cost of contractors, with 54% expecting costs to increase, compared with only 11% anticipating a decline The upstream remains the core focus for spending A majority of respondents identify the upstream as the key area for business growth in 2012, meaning that exploration will be a major beneficiary of increased investment Our survey shows that 41% of industry professionals expect to see increased investment in exploration activities over the year, with only 4% anticipating a decline Risk remains a key challenge A combined 55% of respondents confirm that in the aftermath of the 2010 oil spill in the Gulf of Mexico, drilling permits have become harder to obtain Even more decisively, an overwhelming majority of respondents (82%) agree that in the post-Macondo period regulatory issues have become more important The survey shows that increasing regulation is regarded by more than 30% of respondents as the main challenge for their company over the next 12 months, exceeded only by the impact of rising operating costs and the shortage of skilled professionals Unconventionals have revolutionised North America’s gas sector, but progress has been much slower elsewhere The advent of projects such as the Marcellus, Barnett, Haynesville and Fayetteville shales has created a supply glut that has affected global prices Development has been slower elsewhere because the “perfect storm” that made shale gas a scalable reality in the US is not as powerful in other geographies There is some scope for optimism for refiners After a dismal few years the downstream sector is showing some signs of life, at least in the US Refining profitability has improved in the US, where robust margins have resulted from a revival of consumption of refined products But Asia and Europe remain in the doldrums Skills shortages are becoming more acute According to our survey, this will be one of the major barriers to growth over the next 12 months Last year skills issues came fifth on our list of barriers and were only identified as a top-three issue by 25% of respondents This year the issue has risen to second on the list and has been identified as a key barrier by 34% of respondents © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 The oil and gas industry barometer Findings from the Economist Intelligence Unit’s survey of oil and gas industry professionals Key points • Optimism is high across the industry • The biggest challenges are rising costs for both labour and contractors • Skills shortages are a growing concern and regulation has remained a key issue • The Far East (including China, Japan and Korea) has emerged as the key area for revenue growth, leapfrogging three places from last year’s survey • In the aftermath of the 2010 Gulf of Mexico oil spill, executives are pessimistic about the regulatory impact Figure How confident are you about the business outlook for your company in the next 12 months? (% respondents) 2011 34% Highly confident 42% Somewhat confident 2012 42% Highly confident 40% Neither confident nor pessimistic 10%Neither confident nor 7%Somewhat pessimistic 7%Somewhat pessimistic 1% Highly pessimistic As figure shows, most of the increase is attributable to a large rise in the share of respondents who describe themselves as highly confident about the next 12 months Only 8% of respondents say they are pessimistic about the outlook for the coming year Optimism is high across the industry, but confidence levels vary significantly between regions In North America 90% of respondents describe themselves as highly or somewhat confident, in Asia-Pacific the figure falls to 81%, and in Europe it drops to 70% (see figure 2) Somewhat confident 16% This second Economist Intelligence Unit oil and gas barometer shows that industry confidence is rising In last year’s survey 76% of respondents said they were either highly or somewhat confident about the business outlook for their company over the next 12 months; in this year’s survey, that figure has grown to 82% pessimistic 1% Highly pessimistic Figures for 2011 were collected at the end of 2010 Figures for 2012 were collected at the end of 2011 Increased optimism looks set to feed an expansion in capital expenditure during 2012 According to our survey, nearly two-thirds (63%) of respondents are planning to invest either somewhat or substantially more over the next 12 months, whereas in last year’s survey that figure was just 49% (see figure 3) Our poll also shows that there has been a shift in where companies see the greatest opportunities for revenue growth Last year South-east Asia (including India) came top of the pile, with North America second, the Middle East and North Africa third and the Far East (including China, Japan and Korea) fourth This year the rankings have changed, with North America top, the Far East second, South-east Asia third and Latin America fourth (see figure for the full rankings) There has also been some rebalancing in expectations about which part of Source: Economist Intelligence Unit © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Figure Europe How confident are North America you about the business outlook for your company in the next 12 months? 71% 90% (% respondents) Asia-Pacific 81% Source: Economist Intelligence Unit the industry is likely to be the strongest source of business growth over the next 12 months Upstream activities were the most popular choice for this question last year, and they have become even more heavily favoured this year, with the share of people selecting this option rising from 42% to 56% Downstream activities are also expected to provide a stronger source of growth than last year, rising from 10% to 14% Meanwhile, marketing has declined significantly, falling from 22% to 8% Continued challenges Of course, growing optimism about the future does not mean that companies are sanguine about the challenges they are likely to confront For the second year running, rising operating costs come out as the top barrier to growth in the industry (see figure 6) When questioned in detail about costs, more than 50% of respondents said that they expect an increase in wages over the next 12 months The next-biggest concern is the rising cost of contractors, with 54% expecting costs to increase, compared with only 11% anticipating a decline One of the issues businesses seem to be getting more concerned about is a shortage of skills Last year, skills issues came fifth on the list of barriers, and it was only identified as a top-three issue by 25% of respondents This year 34% of respondents think skills shortages are going to be a big problem, placing the issue second in importance, behind rising operating costs Similarly, access to finance appears to be a growing concern for the industry, rising from 7th to 4th in the list of top 10 issues Regulation remains a key concern, coming third on this year’s list of barriers to growth When asked about regulation directly, more than 82% of respondents agreed that regulatory issues have become more important since the Deepwater Horizon disaster in the Gulf of Mexico in 2010, and 55% of them think that obtaining drilling permits has become more difficult in the aftermath of Macondo Figure Does your company plan to make more or less capital investment in dollar terms over the next 12 months? Select one (% respondents) 2011: 16% 33% 33% 11% 4% 43% 22% 9% 3% Invest somewhat less Invest substantially less (At least 25% annual decrease) 2012: 20% Invest substantially more (At least 25% annual increase) Invest somewhat more Keep investment the same as before Source: Economist Intelligence Unit © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Figure Which of the following regions you think will offer the greatest opportunities for your business in terms of revenue growth over the next 12 months? 2011 region rankings 2012 region rankings South-east Asia (including India) 32 % North America 36% North America 30 % Far East (including China) 31% Middle East and North Africa 29 % South-east Asia (including India) 29% Far East (including China) 26 % Latin America 26% Latin America 23 % Middle East and North Africa 23% Western Europe 15 % Eastern Europe and CIS 17% Eastern Europe and CIS 13 % Australasia 17% Sub-Saharan Africa 13 % Sub-Saharan Africa 15% Australasia 10 % Western Europe (including Scandinavia) 12% Central America Source: Economist Intelligence Unit 6% Central America 8% Figure Which sgment of the industry you expect to see the strongest business growth in the next 12 months? Select one (% respondents) 2012: 2011: 42% Upstream 56% 17% 10% 22% Midstream Downstream Marketing Upstream 12% 14% 8% Midstream Downstream Marketing Figure Top 10 barriers to growth 2011 Top 10 barriers to growth 2012  Rising operating costs, including insurance Rising operating costs, including insurance premiums 36 % premiums 36% Increasing regulation 30 % Shortage of skilled professionals 34% Competitors 28 % Increasing regulation 31% Limited new areas for exploration 25 % Limited access to capital/finance 23% Shortage of skilled labour 25 % Limited new areas for exploration 20% Increasingly limited areas of “easy” production 20 % Competitors 20% Limited access to capital/finance 16 % Public backlash/litigation over environmental concerns Ensuring adequate safety measures—for environmental risks Rising taxation/demands from states Public backlash/litigation over environmental concerns 18% 16 % Rising taxation/demands from states 17% 13 % Increasingly limited areas of “easy” production 16% 12 % Ensuring adequate safety measures—for environmental risks 10% Source: Economist Intelligence Unit Note: Figures not add up to 100% because respondents are asked to select their three top barriers to growth © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Key points Big spenders The outlook for the oil and gas industry in 202 Investment prospects A look at the industry’s investment plans for the year ahead Investment prospects A look at the industry’s investment plans for the year ahead • Investment intentions have risen significantly •Exploration is looming as a key spending growth area for a number of oil companies Key points • While most companies expect a supportive price climate, smaller firms may be more exposed to weaker prices l Investment intentions have risen significantly • National oil companies appear particularly bullish about raising capital expenditure in 2012 l Exploration is looming as a key spending growth area for a number of oil companies • There is no evidence yet that the euro zone crisis will have a major impact on investment l While most companies expect a supportive price climate, smaller firms may be more exposed to weaker prices l National oil companies appear particularly bullish about raising capital expenditure in 202 Despite the difficult economic climate and fears of recession major growth themes for Shell include deep water in the Gulf l There is no evidenceisyet that the aeuro zone crisis will have a major impact on investment in the euro zone, the oil and gas industry showing growing of Mexico, liquefied natural gas (LNG) in Australia, tight gas sense of confidence about the future investment outlook in North America, traditional plays in the North Sea, and its worldwide exploration programme an increase in capital spending, compared with Growing investment More than four-fifths of respondents (82%) say they are either only 55% in North America and 57% in Europe Despite the difficult economic climate and fears of highly or somewhat confident about the business outlook for In general, the Anglo-Dutch supermajor sees a robust demand recession in the euro zone, the oil and gas industry their company over theisnext 12 months Translating this into aboutoutlook fordesire oil andtogas, andalso host governments invest varies between and regulators showing a growing sense of confidence the The corporate action, a significantly larger share of companies than are supportive companies Majorsplans like Shell are infor active of Shell’s to invest newspending energy future investment outlook last year (63% this year compared with 49% last year) say their supplies “The thinking tends to be long-term – many years or More than four-fifths of respondents firm plans to increase investment over the next 12 months.(82%) sayeven decades Figurein7our industry, rather than driven by short-term they are either highly or somewhat confident factors,” says Shell’s chief financial officer, Simon Henry If your company is involved in business outlook for their company Upstream activities areabout seenthe by the majority of respondents exploration, does it plan to increase over the next 2 months Translating as the key area for business growth over the next year, so itthis into Figure or decrease the frequency or intensity corporate action, a significantly share of of itsisexploration activities over should come as little surprise that exploration will belarger a major If your company involved in exploration, doesthe it plan companies than last year (6% this year compared next 12 months? Select one to increase or decrease the frequency or intensity of its beneficiary of this increased investment Our survey shows (% respondents) with 49% last year) say their firm plans to increase exploration activities over the next 12 months? Select one that 41% of industry professionals expect to see increased (% respondents) investment over the next 2 months investment in exploration activities over the course of 2012, with Significantly only 4% anticipating aUpstream decline (see figureare 7).seen by the majority increase activities of respondents as the key area for business 11% Reflecting differencesgrowth in demand infrastructure overand the next year, so it should come as requirements, however, expectations about capital spending little surprise that exploration will be a major vary across regions Inbeneficiary the Asia-Pacific area 72% survey Our of this increasedofinvestment respondents predict ansurvey increase in capital spending, compared shows that % of industry professionals with only 55% in Northexpect America and 57% in Europe to see increased investment in exploration 38% Don’t know/ not applicable 30% Somewhat activities over the course of 202, with only % The desire to invest also varies between companies Majors anticipating a decline (see figure 7) like Shell are in active spending mode The company has taken 16 Reflectingsince differences in demand andmore new final investment decisions the start of 2010 for infrastructure requirements, however, expectations than 400,000 barrels of oil equivalent per day of new production about capital spending vary across regions In the As spending ramps up on these and other projects, it expects Asia-Pacific area 72% of survey respondents predict that overall capital spending levels will increase as well The 0 © The Economist Intelligence Unit Limited 202 increase 1% Significantly decrease © The Economist Intelligence Unit Limited 2012 17% Stay the same 3% Somewhat decrease Source: Economist Intelligence Unit Big spenders The outlook for the oil and gas industry in 2012 Bullish in the US The oil majors are generally more confident about the investment outlook than their smaller rivals Over the next two years the US firm ConocoPhillips plans to execute a US$28bn capital programme, almost 90% of which has been allocated to exploration and production (E&P) supporting the company’s 100%-plus reserve replacement target In geographical terms, the US is absorbing the largest amounts of capital in the current market According to Barclays Capital, it pulled in 21% of US$529bn in global E&P spend in 2011, with the capital commitment of US$110.7bn representing an 18% increase over 2010 spending levels Companies with large international portfolios are in the midst of ambitious capital expenditure (capex) programmes Occidental Petroleum, the fourth-largest US oil and gas company, revealed a 56% increase in 2011 capital spending to US$6.1bn, which will increase further as the company proceeds with its extremely capital-intensive Shah sour gas development in the UAE offshore with Abu Dhabi National Oil Co (Adnoc) Big spending from NOCs Meanwhile, many national oil companies (NOCs) also look likely to go on spending in 2012 In Europe, Norway’s giant Statoil will continue to invest at a high level, “to mature our attractive portfolio and realise our strategy for growth towards 2020”, according to the company’s CEO, Helge Lund And in Russia, Rosneft has said that it will boost its investment programme for the year by 35% to approximately US$15bn as part of its push to upgrade refineries Figure Does your company plan to make more or less capital investment in dollar terms over the next 12 months? (% respondents) North America 55% 57% Asia-Pacific 72% Source: Economist Intelligence Unit 10 There is, however, evidence of a more cautious approach in the Middle East For example, Carl Sheldon, the CEO of Abu Dhabi National Energy Company (TAQA), sees the company spending US$2bn in 2012, a small increase on the previous year: “Essentially we have a capital spending programme that started in 2010 and goes up to 2013 For each of those years we’ll spend roughly US$2bn each year in five major programmes – drilling in Western Canada, drilling in the North Sea, the Bergermeer gas storage project in the Netherlands and two power projects in Morocco and Ghana.” Like other companies, TAQA is prepared to cut spending should the price climate become less inviting “If prices went south in a big way it is pretty easy for us to toggle our Canadian expenditure down, because we drill a lot of wells in the onshore We drill 70-100 wells a season in Canada, whereas in the North Sea we might drill just 8-12,” says Mr Sheldon The threat of another major downturn in the global economy could see this happening, warns Hamid Gayibov, the managing director of Xenon Capital Partners, which advises on Russian energy merger and acquisition (M&A) deals “I see there being some increase in capex, and the momentum is there However, there is big uncertainty regarding the global oil market, and if there is a major dislocation in the global economy, we could see the oil price collapsing and fundamentals continuing to weaken In that event there will be little incentive for Russian oil companies to increase investment.” This sense of caution contrasts with the generally positive view of industry fundamentals outlined by the international majors Statoil’s Mr Lund, for example, argues that the industry remains fundamentally attractive, with energy demand growing Europe Invest substantially/somewhat more In South America, Brazil’s market-leading giant Petrobras is planning a 24% increase in spending, much of it focused on its deepwater reserves in the Atlantic, and Mexico’s state-owned oil company Pemex is also lavishing large sums on an expanded offshore drilling programme The overall message is that for those plays where the economics are supportive, oil companies will continue to spend big in 2012 There remains a big caveat, however: if global economic conditions were to foment, oil and gas companies, whether big or small, would have to scale back their spending commitments in those areas where they can so without creating damage to their wider portfolio © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Skills What are companies doing to plug the skills gap? Key points • Skills shortages are a key barrier to growth and are of increasing concern • Following the example of BP and Shell, companies should consider delinking recruitment drives from the oil price cycle Skills shortages are becoming more acute and emerge from our survey as one of the biggest barriers to growth over the next 12 months Last year, skills issues came fifth on our list of barriers and were only identified as a top-three issue by 25% of respondents This year, the issue has risen to second on the list and has been identified as a key barrier by 34% of respondents The lack of suitably qualified labour is a global problem In Western Australia, where a number of resource plays are under way to meet growing Asian demand, it is estimated that by 2015 there will be a shortage of roughly 150,000 people needed to develop projects in the north of the state In the UK, engineering skills shortages threaten to undermine growth in the development of the maturing 20 North Sea acreage Some of the majors active in this area have hinted at problems recruiting enough people to fuel expansion of their UK Continental Shelf (UKCS) operations According to a UK oil training body, Opito, the most difficult vacancies to fill in the subsea sector are those for engineers, professional engineers and managers, a difficulty which is compounded by the fact that the skills, knowledge and experience lost through retirement are more difficult to replace in these areas than is the case with other workforce areas The industry’s long-standing skills gap appears to be getting oil companies’ full attention Lessons are being learned, as oil companies are now acutely aware of the dangers of failing to invest in talent The two case studies here explain how BP and Shell are trying to overcome the problem © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Case study: BP Like other oil majors, BP faces a constant challenge to secure skilled labour The company hires between 6,000 and 8,000 people every year, of whom around 10% are graduates But in certain geographies there’s less talent entering the industry than companies would like “In the UK, for example, we are concerned that there aren’t enough STEM (science, technology, engineering and maths) students coming out of universities,” says Jon Tait, BP’s head of global attraction “We are not struggling to hire graduates – we hire about 150 a year in the UK – but we are keen to make sure that pipeline of good talent comes through the schools and universities and then into our organisation.” The cyclical nature of oil and gas industry hiring – with periods of depressed prices traditionally yielding reduced hiring – is something that companies like BP are looking to break out of “What you’ve seen in the industry is a direct correlation between hiring and the oil price, and what BP is trying to is regardless of the oil price ensure we have the right pipeline of talent coming to our organisation,” says Mr Tait Graduate recruitment is critical BP recruits thousands of experienced and lateral hires [recruited from other oil companies] every year, but in terms of growing talent in the organisation the company is looking to have the right feeder stock of talent coming in at graduate levels Vocational training is a key component of BP’s employment offering, with a US$500m annual budget earmarked for training and development purposes globally “In the UK we have an educational services resource centre that provides tools for interactive teaching and lesson plans for teachers And we have the BP UK Schools Link programme which was set up in 1968 and now covers 194 schools and enables BP employees to work with local schools and help enhance their curriculum especially in the science and engineering space,” says Mr Tait Case study: Shell The energy industry needs a deep pool of motivated workers with technical expertise in a range of disciplines, from microbiology to lean manufacturing The highly skilled nature of many of these jobs means that recruitment can be a challenge To meet that challenge, says Shell CFO Simon Henry, Shell starts with a truly global approach in which it assesses which of the company’s businesses will grow, which will decline and how its geographical presence will change over time And it then assesses the demographic profile of its 93,000 employees against these changing requirements “This allows us to pursue a selective approach to recruitment, choosing the markets, skills and schools we wish to target on the basis of both global and local need We aim to recruit high-potential employees early, developing their skills over an extended period of time,” says Mr Henry “That’s also why we’ve invested heavily in graduate recruitment during the recent recession This is not something our energy industry has always done well in the past Recruitment has sometimes tended to follow the oil price.” “Today, we’re taking a much more consistent approach, recruiting new talent continuously through the business cycle Even during the recent economic downturn and in the midst of a major corporate restructuring at Shell that removed 7,000 jobs worldwide, we aimed to recruit about 1,000 graduates a year, up from around 400 in 2003,” explains Mr Henry About two-thirds of those new recruits are in skilled technical disciplines When it has had to cut jobs, the company says it has been careful not to disrupt the talent pipeline of skilled young workers Shell has developed close links with leading universities such as Cornell in the US, Imperial College London, and the Technical University of Delft in the Netherlands, assigning a senior Shell employee to manage the company’s relationship with each university “Every year our engineers and scientists visit universities to discuss career possibilities and conduct interviews in person That’s helped to improve our standing as an employer of choice among students, ensuring we consistently attract the top talent in every field,” says Mr Henry © The Economist Intelligence Unit Limited 2012 21 Big spenders The outlook for the oil and gas industry in 202 Big spenders The outlook for the oil and gas industry in 2012 Appendix Survey results Do you operate in the oil/gas sector? Select all that apply (% respondents) Oil 46 Gas 42 Neither 43 Which of the following aspects of the sector you operate in? Select all that apply (% respondents) Upstream (including exploration, development and production of oil and/or natural gas) 34 Midstream (processing) 14 Downstream (including tankers, refiners and retailers) 24 Other (including pipeline, marine and other services) 58 How confident are you about the business outlook for your company in the next 12 months? (% respondents) Highly confident 40 Somewhat confident 41 Neither confident nor pessimistic 11 Somewhat pessimistic Highly pessimistic Don’t know 28 © The Economist Intelligence Unit Limited 202 22 © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Does your company plan to make more or less capital investment in dollar terms over the next 12 months? (% respondents) Invest substantially more (>25% increase year on year) 19 Invest somewhat more 45 Keep investment the same as before 22 Invest somewhat less Invest substantially less (>25% decrease year on year) Don’t know If your company is involved in exploration, does it plan to increase or decrease the frequency or intensity of its exploration activities over the next 12 months? Select one (% respondents) Significantly increase 13 Somewhat increase 29 Stay the same 18 Somewhat decrease Significantly decrease Don’t know/not applicable 36 How you expect costs across the following aspects of the business will change over the next 12 months? Select one in each row (% respondents) Increase substantially Increase somewhat Stay the same Decrease somewhat Decrease substantially Don’t know/Not applicable Exploration 19 43 17 19 Transmission and distribution 10 33 37 16 Safety 17 39 38 3 Wages 34 39 Marketing 48 24 91 12 Operating expenditure 12 27 47 10 11 13 Contractors 11 31 42 Recruitment 11 32 37 Training 11 44 31 10 R&D 12 33 © The Economist Intelligence Unit Limited 2012 40 10 23 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Which of the following regions you think will offer the greatest opportunities for your business in terms of revenue growth over the next 12 months? Select up to three Can we ask why? (% respondents) North America 35 Far East (including China) 33 South-east Asia (including India) 29 Latin America 24 Middle East and North Africa 21 Eastern Europe and CIS 18 Australasia 18 Western Europe (including Scandinavia) 15 Sub-Saharan Africa 14 Central America Will your company rely more or less on mergers and acquisitions as a source for growth over the coming 12 months? (% respondents) Significantly more 10 Somewhat more 25 The same as before 40 Somewhat less Significantly less Don’t know 12 If applicable, you think the replacement rate of your company's oil/gas reserves will improve or decline in the next 12 months? (% respondents) Significantly improve 10 Somewhat improve 34 Stay the same 19 Somewhat decline Significantly decline Don’t know/not applicable 30 24 © The Economist Intelligence Unit Limited 2012 © The Economist Intelligence Unit Limited 202 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Which of the following you believe represent the main challenges for your company in the next 12 months? Select up to three (% respondents) Rising operating costs, including insurance premiums 37 Shortage of skilled professionals 33 Increasing regulation 32 Limited access to capital/finance 24 Limited new areas for exploration 19 Rising taxation/demands from states 18 Competitors 18 Public backlash/litigation over environmental concerns 18 Increasingly limited areas of "easy" production 15 Ensuring adequate safety measures—for environmental risks Developing operations in regions with less mature infrastructure Disputes over sovereignty and legal status of operations Developing new technologies to support operations The need for closer collaboration with partners Ensuring adequate safety measures—for personnel Weakening relationships between NOCs and IOCs Other, please specify To what extent you agree or disagree with the following statements regarding the aftermath of the 2010 oil spill in the Gulf of Mexico? (% respondents) Strongly agree Somewhat agree Neither agree nor disagree Somewhat disagree Strongly disagree Don’t know/Not applicable Regulatory issues have become more important 36 45 10 13 10 31 The oil spill has had a minimal impact on overall demand for oil and gas 34 35 Drilling permits have become more difficult to obtain in the last 18 months 33 21 20 19 The oil and gas industry needs to develop a unified response to technology failures 40 38 12 61 41 17 The oil industry needs to develop more rigorous safety training programmes 40 33 19 The industry needs to increase investment in the development of new technologies to improve safety 34 © The Economist Intelligence Unit Limited 2012 43 25 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Do you expect your business to invest more or less capital in the following energy types over the coming 12 months? (% respondents) Significantly more Somewhat more No change Somewhat less Significantly less Don’t know/Not applicable Oil 40 20 23 41 12 Gas 43 20 21 61 Biofuels 11 30 26 27 Onshore/offshore wind 10 22 10 22 29 30 Solar 26 33 Other renewable energies 12 24 28 30 In which of the following regions you expect regulations relating to the oil and gas sectors to increase/tighten over the coming 12 months? Select all that apply (% respondents) North America 70 Western Europe 44 Australasia 24 Far East (including China) 18 Latin America 15 Middle East and North Africa 15 South-east Asia (including India) 15 Eastern Europe and CIS 14 Central America 13 Sub-Saharan Africa 12 26 © The Economist Intelligence Unit Limited 2012 © The Economist Intelligence Unit Limited 202 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Which country you believe will offer the most favourable regulatory environment for oil and gas majors to operate in over the next 12 months? (% respondents) United States of America 13 Canada Brazil Australia China Nigeria Libya India Malaysia United Kingdom Iraq Norway Indonesia Kazakhstan Kuwait Qatar United Arab Emirates Afghanistan Algeria Angola Bahamas Colombia Germany Ireland Poland Russia Sudan Tanzania Trinidad and Tobago Turkmenistan Vietnam Other 11 © The Economist © The Economist Intelligence Unit Intelligence Limited 2012Unit Limited 202 27  Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 In your areas of interest, you expect government subsidies on balance to favour the oil and gas sector, or the renewable energy sector, over the next 12 months? Select one (% respondents) Will favour oil and gas 20 Will favour renewable energies 45 Will favour unconventional energies Will favour oil/gas, unconventional and renewable energies equally Will favour neither oil/gas, renewables nor unconventional energies Will discriminate against oil & gas 12 Will discriminate against renewable energies Will discriminate against unconventional energies Will discriminate against oil & gas, renewable energies, and unconventional energies Don’t know Looking at the overall picture, you believe governments' and/or NOCs' policies towards IOCs over the next 12 months will be: (% respondents) Significantly more favourable Partially more favourable 21 Broadly unchanged 37 Will be somewhat more restrictive 27 Significantly more restrictive Don’t know 28 © The Economist Intelligence Unit Limited 2012 © The Economist Intelligence Unit Limited 202 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Do you expect access to new sites for oil/gas exploration to improve or worsen over the next year? (% respondents) Significantly improve Partly improve 30 Stay the same 27 Partly worsen 25 Significantly worsen Don’t know Which segment of the industry you expect to see the strongest business growth in the next 12 months? (% respondents) Upstream 58 Midstream 12 Downstream 14 Marketing Other, please specify Don’t know © The Economist Intelligence Unit Limited 2012 29 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Do you believe the use of service contracts – for example, to oilfield services companies – will increase or decrease over the coming 12 months? (% respondents) Significantly increase 17 Somewhat increase 48 No change 20 Somewhat decrease Significantly decrease Don’t know How you expect natural gas prices (as per Henry Hub or European benchmarks) to change over the next 12 months? (% respondents) Rise by 50% or more Rise by 25% or more 16 Rise by 10% or more 33 Fluctuate by no more than 10% up or down 30 Drop by 10% or more Drop by 25% or more Drop by 50% or more Don’t know Do you expect downstream margins for oil and gas to be better or worse in 12 months' time? (% respondents) Significantly better Somewhat better No change Somewhat worse Significantly worse Don’t know Oil 31 31 21 19 Gas 40 25 Which of the following best describes your company? (% respondents) Privately owned 38 Private-equity backed 11 Small cap Mid cap Large cap 23 State-owned 12 Partnership Other, please specify © The Economist Intelligence Unit Limited 202 30 © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 In which country are you personally based? (% respondents) Australia 27 United States of America 18 India 15 China Canada United Kingdom Nigeria Indonesia Malaysia Spain Austria Italy Netherlands Norway Brazil Germany New Zealand Pakistan Sweden Thailand Colombia Cyprus France South Korea United Arab Emirates Other © The Economist Intelligence Unit Limited 2012 31 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 In which region are you personally based? (% respondents) Asia-Pacific 56 North America 21 Western Europe 14 Middle East and Africa Latin America Eastern Europe What are your company's annual global revenues? (US$) $500m or less 40 $500m to $1bn $1bn to $5bn 15 $5bn to $10bn 13 $10bn or more 26 What is your title? (% respondents) Board member CEO/President/Managing director 17 CFO/Treasurer/Comptroller CIO/Technology director Other C-level executive 14 SVP/VP/Director Head of business unit Head of department 14 Manager 21 Other 32 © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 While every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in this white paper Cover image - © photobank.kiev.ua/Shutterstock © The Economist Intelligence Unit Limited 2012 33 LONDON 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8500 E-mail: london@eiu.com NEW YORK 750 Third Avenue 5th Floor New York, NY 10017 United States Tel: (1.212) 554 0600 Fax: (1.212) 586 1181/2 E-mail: newyork@eiu.com HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: hongkong@eiu.com GENEVA Boulevard des Tranchées 16 1206 Geneva Switzerland Tel: (41) 22 566 2470 Fax: (41) 22 346 93 47 E-mail: geneva@eiu.com [...]... 2 3 The oil industry needs to develop more rigorous safety training programmes 40 33 19 The industry needs to increase investment in the development of new technologies to improve safety 34 © The Economist Intelligence Unit Limited 2012 43 25 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Do you expect your business to invest... that have made these projects viable in the US are not easily replicated in other geographies Time will tell as to whether the reality of unconventional gas will ever live up to the hype © The Economist Intelligence Unit Limited 2012 17 Big spenders The outlook for the oil and gas industry in 202 Big spenders The outlook for the oil and gas industry in 2012 66 Refining Better daysRefining ahead? Better... Economist Intelligence Unit Limited 202 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Which of the following do you believe represent the main challenges for your company in the next 12 months? Select up to three (% respondents) Rising operating costs, including insurance premiums 37 Shortage of skilled professionals 33 Increasing... by the US Energy Information Administration (EIA) at 862,000bn cu ft Also important are the US’s provision breaks, a stable regulatory regime, private ownership of mineral rights and the existence of a strong service industry © The Economist Intelligence Unit Limited 2012 15 Big spendersBig The Bigspenders outlook spenders forThe the The outlook oil outlook and for gas for the industry the oiloil and. .. Unit Limited 2012 21 Big spenders The outlook for the oil and gas industry in 202 Big spenders The outlook for the oil and gas industry in 2012 Appendix Survey results Do you operate in the oil/ gas sector? Select all that apply (% respondents) Oil 46 Gas 42 Neither 43 Which of the following aspects of the sector do you operate in? Select all that apply (% respondents) Upstream (including exploration,... 42 Recruitment 11 32 37 Training 11 44 31 10 1 3 R&D 12 33 © The Economist Intelligence Unit Limited 2012 40 6 10 23 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Which of the following regions do you think will offer the greatest opportunities for your business in terms of revenue growth over the next 12 months? Select up... Marketing 7 Other, please specify 0 Don’t know 9 © The Economist Intelligence Unit Limited 2012 29 6 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Do you believe the use of service contracts – for example, to oilfield services companies – will increase or decrease over the coming 12 months? (% respondents) Significantly increase... © The Economist Intelligence Unit Limited 202 22 © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Does your company plan to make more or less capital investment in dollar terms over the next 12 months? (% respondents) Invest substantially more (>25% increase year on year) 19 Invest... © The Economist Intelligence Unit Limited 202 30 © The Economist Intelligence Unit Limited 2012 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 In which country are you personally based? (% respondents) Australia 27 United States of America 18 India 15 China 7 Canada 3 United Kingdom 3 Nigeria 3 Indonesia 2 Malaysia 2 Spain... 2012 © The Economist Intelligence Unit Limited 202 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Which country do you believe will offer the most favourable regulatory environment for oil and gas majors to operate in over the next 12 months? (% respondents) United States of America 13 Canada 9 Brazil 8 Australia 7 China 5 ... outlook oil outlook and for gas for the industry the oiloil and and ingas 202 gas industry industry inin 202 202 Big spenders The outlook for the oil and gas industry in 2012 Big spenders Figure... Intelligence Unit Limited 2012 17 Big spenders The outlook for the oil and gas industry in 202 Big spenders The outlook for the oil and gas industry in 2012 66 Refining Better daysRefining ahead? Better... © The Economist Intelligence Unit Limited 2012 40 10 23 Big spenders The outlook for the oil and gas industry in 2012 Big spenders The outlook for the oil and gas industry in 202 Which of the