Capital Prompting Investment In New Technology And Talent

February 2011, Vol. 238 No. 2

According to a study by BDO USA, LLP, an accounting and consulting organization, capital is flowing back into the oil and gas exploration and processing industry – more than half (56%) of CFOs report their ability to access capital and credit is either the same or better than last year.

Fewer CFOs (48%) felt “lack of capital” caused delays or terminations of oil or gas exploration or processing projects during the last 12 months, a significant drop from the past two years (73% in 2009 and 80% in 2008).

 “2010 was a record year for oil and gas M&A activity,” said Jim Westerman, partner in the Natural Resources Industry Practice at BDO. “With renewed access to capital, we’re seeing companies aggressively pursuing the acquisition of new properties, technologies, and other companies.”

This new capital is also being deployed to recruit and retain top talent – 95% of CFOs expect to maintain or increase the number of personnel employed by their company in 2011, and 90% expect their own compensation to remain the same or increase. 

“CFOs are feeling more confident about the market and their ability to grow their companies,” said Lance Froelich of the BDO Compensation and Benefits practice. “There is a renewed sense of security that is reflected by the uptick in CFO compensation and bonus predictions for 2011.”

These findings are from the BDO 2011 Energy Outlook Survey, which examined the opinions of 100 chief financial officers at U.S. oil and gas exploration and production companies.

–Energy industry generating more cash: 28% of companies have, or will have, a salary increase budget for this year. This represents more than double the figures from 2009, when only 12% of companies had a salary increase budget. And, for those that do have a salary increase budget in place, 46% of companies expect those increases to be more than 3%.

–Bonuses on the rise: 42% of companies plan to pay bonuses for fiscal year 2010, and of those, 93% of the bonuses will be the same or larger than last year. “CFO respondents indicated that the ’say on pay’ provisions in the Dodd-Frank legislation will not affect companies’ compensation levels or structure. This is likely because there has been a concerted effort in recent years to clean up compensation programs and eliminate poor practices,” said Froelich.

–Pay for performance takes hold: For the third year in a row, more than 40% of respondents indicated that steps have been taken to tie compensation more closely to performance. “Companies are linking cash bonuses and equity ownership opportunities to the achievement of goals directly tied to earning growth, improved operational efficiencies and shareholder returns,” said Froelich.
–Companies invest in nontraditional resources: 36% of CFOs are increasing their capital investment in environmentally friendly exploration and processing technologies, and 30% are increasing their investment in non-conventional areas, such as shale plays. This compares to only 7% and 9% increasing offshore exploration in U.S. and international waters, respectfully.

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