Energy CFOs Predict Merger and Acquisition Activity to Rise in 2013, BDO Survey Finds

CHICAGO--(BUSINESS WIRE)--According to a new study by BDO USA, LLP, mergers and acquisitions in the U.S. oil and gas industry will rise in 2013 as companies seek to strengthen their financial position and take advantage of increased prices and an anticipated abundance in supply and demand for oil and gas. Fifty-three percent of U.S. oil and gas chief financial officers (CFOs) see an increase in merger and acquisition activity in the coming year, the second consecutive year a majority of CFOs have predicted an upward trend.

“Despite a weak national economy, and some uncertainty over the ability to access capital and credit, overall market conditions have created an environment conducive to M&A activity”

“Despite a weak national economy, and some uncertainty over the ability to access capital and credit, overall market conditions have created an environment conducive to M&A activity,” said Charles Dewhurst, practice leader in the Natural Resources industry group at BDO. “The energy sector has seen a lot of consolidation in 2011 and 2012. Companies anticipate this trend will carry over to 2013, buoyed by several factors, including the continued exploration and development of nonconventional resources.”

Perhaps not unexpected, a focus on revenue and profitability is the top driver for M&A in today’s market. Thirty-six percent of CFOs noted the need for companies to be cash-positive. And, in an indication the sector has indeed been negatively impacted by the ongoing recession, 29 percent suggest undervalued oil and gas assets will help push more companies to consider a merger or acquisition.

As important as M&A activity has become, few CFOs (3 percent) see the trend as being the primary driver of growth in the industry in 2013. Moreover, the pursuit of a merger or acquisition is cited by just over a quarter of CFOs (26 percent) as a top option for increasing shareholder value, polling slightly behind a focus on nonconventional areas (28 percent).

These findings are from the BDO 2013 Energy Outlook Survey, which examined the opinions of 100 chief financial officers at U.S. oil and gas exploration and production companies. The nationwide survey was conducted in September and October 2012.

Additional findings from the BDO 2013 Energy Outlook Survey include:

Access to capital and credit in limbo. After a jump in optimism in 2011, CFOs are reigning in their expectations that they will be able to access capital in the coming year. While a majority (59 percent) say they feel better about it, this still represents a 19 percent decrease in the number of CFOs expressing positivity since 2011. Forty-one percent report feeling worse, up from 27 percent last year.

Executive compensation programs increasingly tied to performance. Energy companies are leading by example when it comes to tying executive compensation more closely to key performance measures. CFOs have expressed a consistent desire to link the two areas for the past five years, and the study reveals 58 percent amended their executive compensation programs in 2012 to improve the pay-performance connection. This is the highest percentage since the survey’s inception. “I think this demonstrates a calculated and proactive effort on behalf of companies to strengthen their internal infrastructure by more closely aligning their pay to measurable outcomes,” said Lance Froelich, senior director in the Compensation and Benefits practice and a member of the Natural Resources industry group at BDO. CFOs are confident they will continue to profit from their companies’ successes: 89 percent expect their own compensation to remain about the same or improve in 2013. “This suggests a fundamental optimism by CFOs that their companies will continue to perform in 2013 and that success will be reflected in their incentive pay,” added Froelich.

Hiring and bonuses remain strong. Most CFOs (66 percent) see employment in the oil and gas sector staying relatively consistent with that of 2012. However, 25 percent expect an uptick in the number of personnel employed by their company in the coming year, while only 8 percent predict a decline. A quarter of CFOs also expect an increase in fiscal year 2012 employee bonuses, and nearly double this amount (43 percent) feel bonuses will stay at the same solid payout levels as in fiscal year 2011.

Material discussed in this release is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

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