May 2015
Danielle Elliott
Bliss Integrated Communication
212.584.5486
[email protected]
CHICAGO – May 5, 2015 – The U.S. energy industry continues to struggle to find its footing as commodity prices remain stubbornly low. This year’s BDO Oil and Gas RiskFactor Report, which analyzes the risk factors listed in the most recent 10-K filings of the 100 largest public U.S. E&P companies, finds that low prices are dampening companies’ enthusiasm for investing and expanding—and amplifying the potential impact of impediments to future growth.
For the first time since the study’s inception, risks related to replacing or expanding reserves was the most frequently cited threat, with all companies indicating low prices are inhibiting their ability to make key investments in maintaining supply. According to IHS, the pain is widespread: The number of newly-discovered oil and gas reserves reached a 20-year low in 2014. Amid this uncertain supply environment, 82 percent of companies also expect to experience shortages in rigs, equipment and personnel, further constraining their ability to keep up production. This represents a 5 percent jump in the number of companies citing similar concerns in last year’s study.
“Many in the oil & gas industry expected the commodity pricing environment to improve fairly quickly, but a variety of market forces—including growing supply in the Middle East and difficulties exporting U.S. resources abroad—have conspired to hit U.S. producers’ bottom lines hard,” says Charles Dewhurst, leader of the Natural Resources practice at BDO. “Ironically enough, the resulting lack of domestic supply may help push prices back up, but for now, it appears that U.S. companies are poised to feel the most pain as the market corrects itself.”
Moreover, the past year’s decline in oil prices is also driving increased worry about accounting-related risks, such as maintaining internal controls and complying with accounting regulations. The number of companies citing this risk grew by 47 percent, with 84 percent of companies noting it in their 10-Ks. While low prices continue to force companies to record impairments on their balance sheets, intensified scrutiny from the SEC and PCAOB is simultaneously drawing renewed attention to more stringent financial reporting—meaning E&P companies must devote ever-growing attention and resources to maintaining their books.
These findings are from the fifth annual BDO Oil and Gas RiskFactor Report, which examines the risk factors listed in the most recent SEC 10-K filings of the 100 largest (by revenue) publicly-traded U.S. E&P companies. The risk factors were analyzed and ranked in order of frequency cited.
– See more at: https://www.bdo.com/news/2015-may/energy-sector-enthusiasm-for-growth-diminishes#sthash.vQrEcL94.dpuf