HOUSTON — Major energy companies have focused on new projects during the shale boom, buying up large swaths of acreage. But that spending spree won’t continue in 2014, according to an analysis from Deloitte.
The consulting firm projects that oil and gas producers in North America will be focused on efficiently executing the projects they started in recent years, making plans to get high profits out of the holdings they racked up.
But several challenges lie ahead as the industry enters what some call “a harvest period”, which requires large numbers of new employees and creative approaches to financing, according to Deloitte.
Expanding pipeline network
Plans for spending on new projects mostly have moved into other sectors of the industry, with pipeline companies and chemical businesses preparing to benefit from expanded production in the United States, according to analysis from John England, Deloitte’s vice chairman and leader of its U.S. oil and gas division.
“The early stage of the North American energy renaissance was primarily an upstream exploration and production phenomenon,” England said in Deloitte’s 2014 outlook.
Production: U.S. oil boom will slow in 2015, feds forecast
He noted that oil and gas exploration and production spending rose 46 percent over the past four years, from $243 billion in 2009 to $355 billion in 2013. The growth came as oil companies tried to buy up as many drilling leases as possible in the United States, England said in an interview.
“As exploration and production investment dollars flooded into North America, the midstream sector struggled to keep up with demands to move production from newly producing regions or to increase flows from currently producing regions,” England wrote. “As we move into 2014, investments in the energy renaissance will continue to shift from the upstream sector to midstream infrastructure, refinery operations, and petrochemical facilities.”
That shift in spending is already taking place. Spending on new projects from exploration and production companies did not rise in 2013, while pipeline company spending jumped 263 percent between 2012 and 2013, according to Deloitte.
To take advantage of the new exploration and production projects, companies will need to find creative ways to pay for several costly drilling efforts at the same time, England wrote. One of those approaches might include the creation of entities called master limited partnerships, which can help raise money quickly while offering strong returns to investors, he said.
“I think even the largest independents and majors will start looking into MLPs,” England said. “They haven’t in the past because they just haven’t’ needed to, but if you look at that every large amounts of capex and dividends and stock buybacks that the oil majors have had its’ going to be difficult to support those with operating cash flows so i think they may look to other
Recruiting talented workers will be another major hurdle for the industry, England said.
Moody’s: Oil prices may fall on oversupply in 2014
England cited data from the U.S. Department of Labor showing that 50 percent of oil and gas company workers will be eligible for retirement in the next five to 10 years.
“The upcoming vacancies will need to be filled and competition for skilled talent will put upward pressure on wages, which will pinch project margins,” England wrote.
Also on FuelFix:
Top 10 deals of the US energy boom
Nati Harnik / AP
10. $9.2 billion
In March 2011, Berkshire Hathaway announced plans to buy Wickliffe, Ohio-based specialty chemicals company Lubrizol in an all-cash deal.
[photo: Warren Buffet, chairman and CEO of Berkshire Hathaway]
9. $9.3 billion
In June 2011, Dallas-based Energy Transfer Equity announced plans to buy Houston’s Southern Union Co. in a stock deal, creating one of the largest natural gas pipeline companies in U.S.
[photo: The Travis Tower, or 1300 Main, in downtown Houston was purchased by Dallas-based Energy Transfer Partners in August 2011.]
8. $10.2 billion
In April 2011, Exelon Corp. agreed to buy Constellation Energy Group Inc. in a stock deal led by CEO John
Rowe, then the longest-serving utility CEO in the country.
[photo: Then- Exelon Corp. CEO John Rowe]
Plains Exploration and Productio
7. $10.2 billion
In December 2012, global mining powerhouse Freeport-McMoRan Copper & Gold Inc. announced plans to buy Plains Exploration and Production Co. in a cash and stock deal, making a big and risky jump into the oil and gas business.
[photo: A Plains Exploration and Production Co. worker retrieves data from a well in the Inglewood oil field in Los Angeles.]
Isaac Brekken / Getty Images for National Clean
6. $10.4 billion
In May 2013, Berkshire Hathaway’s MidAmerican Energy utility announced plans to buy Nevada electric and natural gas company NV Energy in a cash deal that expanded the footprint of Warren Buffet's company in the energy sector.
[photo: NV Energy President and CEO Michael Yackira speaks during the National Clean Energy Summit 6.0 at the Mandalay Bay Convention Center on August 13, 2013 in Las Vegas, Nevada.]
TOM REEL / San Antonio Express-News
5. $12.3 billion
In February 2010, oil field services giant Schlumberger announced plans to buy Houston-based drill bits maker Smith International in an all-stock merger.
[photo: In 2012, Robert Drummond, President of Schlumberger North America, (left) talks about his company as Jeremy Aumaugher, South Division Operations Manager,listens.]
Jake Lacey / Jake Lacey
4. $14.9 billion
In July 2011, BHP Billiton announced plans to buy Petrohawk Energy Corp. in an all-cash deal that made the Australian company a bigger player in U.S. onshore energy production.
[photo: A Petrohawk Energy Co. drilling site at the Eagle Ford Shale in McMullen County, Texas.]
Nell Redmond / AP
3. $25.5 billion
In January 2011, Duke Energy Corp. announced plans to buy its North Carolina rival Progress Energy Inc. in a stock deal that would create one of the nation's largest utilities.
[photo: Duke Energy's Charlotte, N.C. corporate headquarters in Feb. 1, 2006]
2. $37.6 billion
In October 2011, Kinder Morgan announced plans to buy El Paso Corp., a Houston-based natural gas producer and pipeline owner in a cash and stock deal. The acquisition encountered regulatory challenges, but eventually created the nation's largest network of pipelines.
[photo: Rockie Express Pipeline]
Matt Nager / Bloomberg
1. $41.4 billion
In December 2009, Exxon Mobil announced plans to buy Fort Worth, Texas-based XTO Energy in a stock deal, making a major bet on the future of natural gas. Exxon Mobil is now the largest producer of natural gas in North America.
[photo: A flag flies otuside the headquarters building of XTO Energy Inc. in Fort Worth, Texas, U.S., on Monday, Dec. 14, 2009.]