Energy CEOs Bullish On Growth, Expect Greatest Profits In 2016 And 2017: KPMG Study

Despite overall optimism, chief executives cite government regulation and geographic expansion as critical challenges over the next three years

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KPMG LLP

Oct 27, 2014, 12:38 ET

HOUSTON, Oct. 27, 2014 Energy chief executives in the U.S. are optimistic about the possibilities for industry and organizational growth over the next three years, with nearly two-thirds expecting to record its greatest profits in 2016 and 2017, according to the results of a study by KPMG LLP, the U.S. audit, tax and advisory firm.

Infographic: Energy CEOs Bullish on Growth, Expect Greatest Profits in 2016 and 2017: KPMG Study

The study of 54 U.S. energy industry CEOs found that 41 percent are confident about the prospects for growth in their industry, and 52 percent are more confident about their own companies' prospects for growth. Two-thirds of the energy CEOs intend to increase headcount over the next three years.

Encouraged by the economic recovery, executives ranked organic growth, reducing cost structures and diversifying into new business areas as the top areas where they plan to focus business operations going into 2017. However, despite the overall sense of optimism, they indicate that adapting to government regulation and geographic expansion are critical challenges they expect to face over the next three years.

"There is no question that the energy sector is going through a significant transformation. New breakthroughs are positioning energy companies for tremendous growth, however these companies must continue to find ways to provide safer, more reliable, and greener energy options to consumers while also innovating their businesses and distribution systems," said John Kunasek, national sector leader for energy and natural resources for KPMG. "The companies that are more agile and responsive in updating their business models will be better positioned to find success in this rapidly changing environment."

Strategy for Growth
Despite concerns, energy CEOs indicate moderate overall growth strategies, with 67 percent focused on mostly organic growth via new product development and geographic expansion. When asked to look at their growth strategy over the next three years, CEOs indicate they plan to become more acquisitive, with 6 percent saying that their priority will be inorganic growth through acquisitions and joint ventures – compared to none currently. Those expecting an even split between organic and inorganic growth will also increase slightly from 33 percent currently to 39 percent. Further, CEOs ranked business acquisitions as a top priority in how capital would be allocated over the next three years, along with geographic expansion, new product development, and expanding facilities.

"Executives are focused on improving performance and consolidating core businesses through M&A, streamlined operations and emerging technologies," said Regina Mayor, advisory industry leader, energy and natural resources, KPMG. "A driving force behind that M&A activity will be the need for access to new technology and the optimization of the companies' energy portfolios."

Tackling Talent Pipelines to Fill the Skills Gap
In other findings, CEOs indicate they are looking to support their business priorities through strengthening their organizations' talent pipeline. One of the top three concerns executives expressed about their companies is filling the skills gap that will be created when a generation of energy industry professionals retire. Despite these concerns, twenty-six percent believe they have an adequate workforce and don't see disruption in the next three years.

"The reality within the energy industry is that the talent crisis is now at a 'tipping point' in which the effects of the talent shortage in skilled positions is impacting the bottom line as the industry continues to experience significant cost overruns," said Angie Gildea, advisory principal for KPMG's oil & gas sector.

Energy CEOs, however, indicate they are prepared to overcome the challenge. In the KPMG study, they ranked talent management priorities as: adding new talent in current areas of business, training and nurturing current employees, and adding new talent to build new capabilities for their business. Sixty-one percent of energy CEOs noted that their organizations have felt the effects of the skills gap and are adequately investing in significant training and technology to adjust for this gap. Thirty percent said they were exploring non-traditional ways of attracting the resources to serve their future needs.

"In order to address this issue, many companies are incorporating aggressive strategies to retain core talent, developing learning and knowledge management strategies to target millennials, and developing more technologically advanced assets to efficiently address various skillsets," Gildea said. "What is exciting to see is that despite this talent crisis, executives are beginning to put the right tools in place in order to better position their organizations for the future."

KPMG Energy CEO Study
The energy CEO insight was captured as part of a KPMG CEO Study of 400 CEOs across several industries. For additional information about the KPMG CEO Study, please visit here. For more information about KPMG's Energy and Natural Resources practice, please visit the KPMG Global Energy Institute.

About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.