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.
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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.
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.
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