Rapidly Changing Energy Marketplace Forcing Energy Execs To Focus On Business Models, Growth Strategies: KPMG Survey

HOUSTON, May 13, 2015 /PRNewswire/ -- Fluctuating commodity pricing and a volatile environment have pushed energy executives to focus on new growth strategies and implementing significant changes to their business models, according to the results of the 2015 Energy Industry Outlook Survey conducted by the KPMG Global Energy Institute.

KPMG's annual energy survey, which polled nearly 200 senior energy executives in the U.S., found that more than half of executives (56%) are in the process of or planning changes to their business models over the next two years. Further, when asked to cite their top organizational priorities, execs ranked the top three as: a focus on growth, reducing costs, and increasing cash flows.

"In order to achieve growth in this challenging environment, energy companies need to be agile and take a 360-degree view of their businesses, which will require many to make significant changes," said John Kunasek, national sector leader for energy and natural resources for KPMG LLP. "While managing costs is still important, these companies also need to identify ways to drive growth and innovation across their organizations."

Pulse of the Power and Utilities Market 
The results of the 2015 Outlook Survey suggest that the power and utilities sector is focused on grid resilience and distributed energy supply growth, increasing cost pressures, and a challenging regulatory environment.  Almost 70 percent of execs surveyed indicate they see a significant move away from the traditional vertically integrated regulated utility towards a more unbundled and distributed energy supply market future. 

Generating growth is still a top priority for industry executives with 44 percent pointing to organic growth as one of the top strategic priorities over the next two years. This fact is underscored by utility execs who ranked their highest capital allocation priorities over the next two years as: business model transformation, geographic expansion, and acquisition of a business. Not surprisingly, 57 percent of execs point to deploying a strategic planning process to respond to these accelerating market changes over the next three to five years.  

The outlook for hiring remains strong in power and utilities. More than 60 percent of respondents indicate they will be increasing headcount over the next two years, with 21 percent indicating an increase in headcount of more than 10 percent. 

"Emerging more efficient distributed energy supplies such as solar combined with the advancement of energy storage technologies is accelerating the need for incumbent utilities to relook at their business models," said Kunasek. "There will always be a need for some form of an electric delivery backbone but we really need to look at the investments the industry needs to make and updates to the traditional regulatory model to enhance an existing delivery system that better enables these new markets to flourish." 

Pulse of the Oil and Gas Market 
The 2015 Energy Outlook survey also found that 53 percent of oil and gas executives feel the price of Brent Crude oil will stabilize by the end of the year, however, 35 percent think prices will continue to fluctuate into 2016. Forty-five percent predict Brent Crude price per barrel will average $50 - $59 for 2015 while 24 percent think the average price will reach $60 - $69 this year. This is a major change from last year's survey results, which indicated 94 percent of all respondents expected the price of oil would be $100 or higher. In addition, gas prices are viewed as continuing to stay low, but respondents predict a full $1/MMBtu decrease year-over-year which is about a 25 percent reduction in the price expectation.

"The recent collapse in oil prices is an issue on the mind of every energy executive, as it caused a ripple effect that has had profound implications across the entire oil and gas value chain," said Regina Mayor, advisory industry leader for energy and natural resources at KPMG LLP. "Companies are taking necessary actions to drive improved near- and long-term performance and identify areas of greater efficiency to adapt to market pressures and remain competitive in this environment."

The volatile price environment is driving a strong focus on cost with most executives saying they are managing costs through: better managing staffing or outsourcing; improving planning and budgeting management tools; changing service delivery models; and optimizing costs related to inventory and repairs.

Despite the volatile commodity pricing environment, the survey suggests that growth is on the horizon, with more than 50 percent of oil and gas execs indicating they plan to allocate capital over the next two years to acquisition of a business, expanding facilities, and business model transformation. In fact, 49 percent of oil and gas respondents plan to develop new growth strategies over the next two years.

In addition, the majority of oil and gas executives (76%) expect to see their organizations' headcount increase or stay the same over the next two years. Of those, 28 percent expect to increase headcount by more than 10 percent, compared to last year's response of 10 percent expecting an increase by more than 10 percent. Further, 92 percent of oil and gas respondents anticipate the U.S. economy will improve (49%) or stay the same (43%) in the next year.

"This data shows that even in today's challenging price environment, short-term staffing cuts are not as pervasive as headlines may indicate, and perhaps there is more job opportunity across the broader energy market," said Mayor. "It's not all doom and gloom in the oil sector; the companies that employ a variety of actions around supply chain, cost optimization and a well-designed core operating model that will come out of this downturn with a successful future."

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 162,000 professionals, including more than 9,000 partners, in 155 countries.

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SOURCE KPMG LLP

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