03 2013 Energy Industry Outlook Survey

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2013 EnergyIndustry Outlook Survey

Is energy independenceon the horizon?

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We are pleased to present findings from the 2013 Energy Survey.The survey, now in its eleventh year, reflects perspectives from U.S.energy executives on the outlook for oil and gas prices, businesschallenges, the impact of shale oil and gas, alternative energy investments,spending and growth, emerging technologies, and other industry trends.

The results from this year’s survey highlight the growing importance of natural gas as anenergy source. The increased U.S. production of shale natural gas and oil is changing theenergy industry—and possibly the economy. Energy independence, economic growth, andthe environment are critical issues in the industry, and the natural gas boom touches them all.As a result, many executives now believe energy independence is on the horizon and that lownatural gas prices may lead to a resurgence in manufacturing and economic growth in the U.S.However, this enthusiasm is tempered by lingering uncertainty around the global economy.While executives may be bullish about the U.S. sector and the prospects for their individualcompany, they are less certain about the overall economic outlook.

In 2013, executives say they plan on spending more capital investment dollars on geographic

expansion, expanding facilities, and business acquisitions to enhance growth efforts.Technology will also play a key role, as more energy companies harness the power of dataanalytics to extrapolate insights. The industry is only in its early stages of being able to reallyexploit the potential of their applications. We expect this to be a continuing trend that canultimately enhance business functions moving forward.

Energy executives also expect to continue research and development (R&D) investment inalternative energy projects, with shale gas and oil as a key investment area. However, renewablessuch as wind and solar technologies remain firmly on the agenda. Such findings demonstratethe industry’s intent to explore all options to pursue a diverse mix of energy sources to meetworldwide needs.

We hope you find the survey results useful in addressing market challenges and opportunities.

John Kunasek Regina Mayor Partner, National Sector Leader Principal, Energy & NaturalEnergy & Natural Resources Resources Advisory LeaderKPMG LLP (U.S.) KPMG LLP (U.S.)

A new dawnfor energy

KPMG Global Energy Institute | 1

© 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which theindependent member firms of the KPMG network are affiliated. NDPPS 180752



Rapidly advancing technology in the production of shale oil and gas may allowthe U.S. to meet its own hydrocarbon needs in the future. As a result, nearlytwo-thirds of energy executives believe the U.S. has the potential to attain energyindependence by 2030, and nearly a quarter think energy independence ispossible by as soon as 2020.

Seventy-nine percent of executives agree that the energy industry’s emphasisin developing environmentally friendly technologies should focus on natural gas.Executives also believe that low natural gas prices will lead to resurgencein manufacturing and economic growth in the U.S. Respondents expect the

Northeast region of the country to reap the most benefits from this resurgence.

Executives expect continued R&D investment in alternative energy projectsthis year. More than half anticipate investments will remain unchanged in2013, but the percentage of respondents predicting a 10 percent increasein R&D investment nearly tripled.

Forty-eight percent of executives surveyed said the best use of data and analyticstechnology was operational excellence. Companies are leveraging, leading edge,

data driven technologies to improve process and supply chain efficiency as well asthe overall connection with their customers. Smart grid and big data applicationsare beginning to be deployed to turn the huge volumes of data into insight thatcan improve decision making.

Survey

highlightsMoving closer

to energyindependence

Increasingthe focus on

natural gas

Managinga diverse

energy mix

Leveragingtechnology

2 | KPMG Global Energy Institute

© 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. NDPPS 180752






Detailed

findings

Source: KPMG International, 2013 Energy Industry Outlook Survey

Industry and economic outlook

Economy

Fifty-one percent expect the U.S. economy to improve a year from

now, while 32 percent expect it to remain the same, and only

17 percent expect it to get worse.

Q: A year from now, what are your expectations for the U.S. economy?

4%3%

14%

47%

32%

Moderately improved

Significantly worse

Significantly improved

Moderately worse

About the same





By 2030:2013: 62%2012: 52%

Energy independenceMost energy executives continue to believe that U.S. energy

independence—the ability to meet most energy needs without

depending on foreign energy sources—is years away.

Q:When do you think the U.S. could attain energy independence?

2020

2025

2030

2040

2050

Beyond 2050

Never

18%

18%

1%

5%

8%

8%

17%

27%

12%

8%

21%

22%

23%

12%

2013 2012

A strong majority (62 percent) think the U.S. can attain energy

independence by 2030, up from 52 percent in last year’s

survey. Of the 62 percent, nearly one quarter (23 percent)

think energy independence is possible by as soon as 2020.

Additionally, the percentage of executives who believe that

U.S. energy independence will never happen dropped by

10 percentage points this year, from 27 percent in 2012 to

17 percent in 2013.

Increased domestic production, particularly from shale assets, is having a profound impact on theglobal energy sector, introducing new sources to the energy matrix. This ‘shale gale’ seems to be

contributing to the increased optimism among energy executives on the potential for U.S. energy

independence and driving large investments into the development and production from these

shale assets, including ‘greenfield’ investment plays.

— John Kunasek,

national sector leader for energy and

natural resources for KPMG LLP (U.S.)







Natural gas for industry growthIf natural gas drives a resurgence in manufacturing and economic growth,

the Northeastern region of the U.S. will benefit the most, according to 36 percent

of survey respondents.

Q: Which region of the U.S. will benefit the most from this resurgence?

Midwest

22%

Southwest

17%

West

9%

South

16%

36%

Northeast

Natural gas production, particularly here in the U.S., has drastically shiftedthe energy paradigm and will be key likely to the future of the energy industry

as exports grow. The high production rates of natural gas and its reputation as a

low-cost alternative to other energy sources continue to contribute to the recent

growth in manufacturing, and as companies begin to monetize these new assets,

we’ll also see significant benefits for the local and national economies.

— Regina Mayor

energy and natural resource advisory leader for KPMG LLP (U.S.)





Business challengesMore than half of respondents (56 percent) said regulatory concerns

were the most significant challenges facing their company in the coming

year, followed by economic uncertainty (34 percent), commodity prices

(26 percent), and increases in operating costs (24 percent).

Regulatory concerns

Economic uncertainty

Commodity pricing

Aging workforce

Increases in operating costs*

Cost increases due to higher tax burdens*

Staying on top of emerging technologies

Ability to recruit certain types of skilled labor*

Managing environmental risks adequately

Geopolitical risks*

Availability and cost of capital

Exploration challenges

Other*

Access to hydrocarbon resources

Q: Which of the following are the most significant challenges facing yourcompany in the coming year?

% in 2013 % in 2012 % in 2011

56 47 55

34 40 37

26 44 41

24 16 23

24 32

17 11

16 7 16

16 22

13 11 33

13 13

8 20 25

5 6 12

3 1 5

2 10 18

Multiple Responses Allowed

*Not asked in 2011






Oil pricesEnergy executives expect oil prices to be steady for the

remainder of 2013.

$105 – $115 22% 33%

25%

Q: At what price do you think Brent Crude oil will peak in 2013(per barrel)?

$116 – $125 39%

$126 – $135 22% 27%

$136 – $145 14% 9%

$146 – $155 2% 2%

3%$156+ 1%

1%2013

More than 80 percent expect Brent Crude prices to stay in the

$105 to $135 range for the remainder of the year, while only

17 percent of the energy executives surveyed believe that

Brent Crude prices will exceed $135 per barrel during 2013.

The expectation of high oil prices is down considerably from

2012, when 42 percent of respondents expected prices to

exceed $141 during the year.

$171 - $180

$161 - $170

$151 - $160

$141 - $150

$121 - $130

$131 - $140

$181+

2012

Price stability






Greater assurance of supply appears to be

stabilizing commodity price environments and

enabling large investments. At the same time

marginal production remains ‘shut in’ and cou

quickly be reinstated should the price picturebecome even more robust for gas.

—Regina Mayor,

energy and natural resource advisory le

for KPMG LLP (U.S.)





Natural gas pricesGiven the potential of shale development, energy executives appear

more confident as to relative price stability.

Q: What do you think will be the average natural gas price for theremainder of the year?

Gas prices will rise above

$5.01 or more 0%

Gas prices will rise

between $4.01 and $5.00 11%

Between $4.01 and $5.00 1%

$5.01 or more 1%

Gas prices will remain

steady between

$3.01 and $4.0073%

Between $3.01 and $4.00 8%

Gas prices will decline to

between $2.01 and $3.00 15%


between $1.51 and $3.00 44%


below $2.00 1%

Gas prices will continue

to decline to below $1.50 10%

Gas prices will remain

steady at current levels 36%

2012

2013

Seventy-three percent of survey respondents believe theprice will remain steady in the $3.01–$4.00 range for the rest

of 2013. Only 16 percent believe prices of natural gas will fall

below $3.00 and only 11 percent believe prices will rise to the

$4.01–$5.00 range. This is a higher overall price forecast than in2012, when nearly half (44 percent) of the executives surveyed

expected to see prices between $1.51 and $3.00 and only

10 percent expected prices above $3.00.






Geographic expansion

Employee compensation and training

17%

2%

Expanding facilities

Business model transformation

17%

7%

Acquisition of a business

Research and development

23%

10%

Information technology

Green/sustainability initiatives

24%

Regulation/control environment

Advertising and marketing/branding

28%

13%

12%

New products or services

Other

44%

15%

Multiple responses allowed

This is followed by expanding facilities (28 percent),

the acquisition of a business (24 percent), and information

technology (23 percent).

Capital spendingIndustry executives indicated that their companies will increase

capital spending most frequently in the areas of geographic expansion

(44 percent).

Q: In which areas do you expect your company to increase spending themost over the next year?

Business conditions






Geographic Expansion

Geographic expansion–within the U.S.

Geographic expansion–into or among high-growthemerging markets outside the U.S.

Geographic expansion–into or among other developedmarkets outside the U.S.

26%13%

5%


Geographic areas in focusOf the 44 percent of executives that plan on increasing capital spending

on geographic expansion, most say they will focus on expansion within

the United States.





Operating costsSixty-four percent of respondents expect operating costs to increase

over the next year.


Q: What do you anticipate will happen to your company’s operating costsin 2013?

2013

% of

respondents

% of expected

increase

4

60

2

14

20+

1-20

20+

1-20

% of

respondents

% of expected

decrease

2012 2011

Increase No Change Decrease

16

%

17%16% 19% 11%

20%

64%

67% 70%

This is down slightly from 67 percent in 2012 and 70 percent

in 2011. Only 16 percent of respondents anticipate a

decrease in operating costs during 2013, down slightly

from 17 percent in 2012.






Global workforceHiring continues along a growth trajectory, as almost half (45 percent) of

survey respondents expect their workforce to expand during the next year.

Q: During the next 12 months, do you expect your company’s workforce toexpand or contract?

2013

2012 2011


34% 40%18% 11%48% 49%

% of

respondents

% of expected

increase

3

5

37

10+

6-10

1-5

% of

respondents

% of expected

decrease

3

2

10

10+

6-10

1-5

45%

40%

15%

Meanwhile, 40 percent expect no change, and only

15 percent expect it to contract. Notably, the share of

respondents who expect their workforce to expand during

the next year has decreased each of the past three years.






*Not asked in 2011

This was followed by competitive pressures (35 percent),

strategic movement or diversity in company assets

(31 percent), access to new markets (26 percent), and

access to new resources (26 percent).

M&A driversAlmost half (47 percent) of respondents said cost pressures will be an

important driver of alliances and M&A in the energy industry.


Q: Which of the following do you think will be among the most importantdrivers of alliances, mergers, and acquisitions in the industry?

% in 2013 % in 2012 % in 2011

Cost pressures 47 34 35

Competitive pressures* 35 30 –

Strategic movement ordiversity in company assets 31 46 48

Access to new resources 26 36 32

Access to new markets 26 30 35

Access to new capital 17 32 36

Access to new technology and products 16 22 19

Purchasing leverage 15 8 13

Improved ability to meet increaseddemand for energy supplies* 14 10 –

Improved ability to fund new projects* 9 18 –

Other 6 2 3





We see many clients aggressively looking to

drive down production and operating costs

while diversifying assets and exposure into

oil and liquid-rich plays, away from dry gas—

adding further strain on an aging, inadequate

infrastructure. For those companies and

institutions seeking additional capital, JVs and

alliances with global and domestic partners,

as well as the continued broadening of

qualifying resources within MLPs, are providing

needed financing to access and develop these

new resources and infrastructure.

—Drew Koecher,

energy transactions and restructuring leaderfor KPMG LLP (U.S.)






Alternative energy investmentNinety-five percent of energy executives expect continued R&D investment in

alternative energy projects this year.

Q: What is your outlook for your company’s R&D investment in alternativeenergy projects in 2013 versus 2012?

2013

2012 2011


% of

respondents

% of expected

increase

1

9

30

20+

11-20

1-10

% of

respondents

% of expected

decrease

3

0

2

20+

11-20

1-10

40%

35%

55%

5%

8% 4%19% 73% 61%

More than half of respondents (55 percent) do not expect

a change in their company’s R&D investment in alternative

energy projects in 2013, down from 73 percent in 2012.

Notably, the percentage of respondents predicting a 10 percent

increase in R&D investment nearly tripled, from 11 percent

in 2012 to 30 percent in 2013. Additionally, 9 percent expect

an 11 to 20 percent increase, and only 1 percent expects

investments will jump by 20 percent or more.

Diverse energy mix





What is exciting about these findings it that

they demonstrate the industry’s intent to explore

all options, despite barriers from cost and

complexities, to provide a diverse energy matrix

to meet the world’s future energy needs.

—John Kunasek

national sector leader for energy and

natural resources for KPMG LLP (U.S.)





Benefiting the environmentMore than three-quarters (79 percent) of respondents said that

natural gas should be a priority for the industry in its efforts to develop

technologies that are environmentally friendly.

Q: Where do you believe the industry should place its emphasis indeveloping environmentally friendly technologies?

Despite the shale gas boom and near historic low natural gas prices,

it must be encouraging to the renewables sector to see that wind, solar,

and biofuels remain firmly on the agenda for so many companies.

— John Gimigliano

Principal in charge, Sustainability

Tax practice for KPMG LLP (U.S.)

Natural gas

Nuclear

Solar

Clean coal technologies

Wind

Biomass

Hydroelectric

Other

33%

35%

20%

27%

18%

13%

12%

4%

4%

19%

32%

35%

39%

46%

79%78%

2013 2012

This is about the same as in 2012. Natural gas was followed

by nuclear energy (39 percent), solar (33 percent), and clean

coal technologies (32 percent).







Natural gas for transportation

Solar power and the promise of cleaner but more

expensive energy

19%

Smart grid technologies and the promise of more

efficient service and lower utility rates

Wind power and the promise of cleaner but more

expensive energy

20%

Electric storage and the promise of lower energy bills

None of the emerging technologies will have a

significant impact on electric service

26%

1%

Electric storage and the promise of electric

transportation

Other technologies show more promise

26%

Home management technologies and the

promise of lower energy bills

42%

12%

10%

Fuel cell technologies that use natural gas to produce

electricity

46%

14%

Benefiting customersNatural gas continues to be a significant part of the energy outlook,

as almost half of respondents (46 percent) said natural gas for

transportation was the most promising new technology from a

customer standpoint, while 42 percent said smart grid technologies.

Q:There are many new technologies emerging in the power and utilitiessegment promising new benefits and services to customers. Which of

these technologies shows the most promise from a customer servicesstandpoint?

The technology advantage







Realizing the value of big dataAlmost half (48 percent) said operational excellence (operations,

supply chain) was the best use of data and analytics, while 31 percent

said risk management and 30 percent said competitive intelligence.


Q: Considering the relevance of data and analytics at your company,which of the following items represent the best use of data and analyticsin driving actionable insights?

Product positioning

Acquiring customers

Competitive intelligence

Human capital

Operational excellence(operations, supply chain)

IT infrastructure

Finance

Government regulation

Risk management

Other

16%

20%

19%

14%

30%

22%

48%

3%

15%

31%






Investing in smart gridThe most significant barriers to the implementation of the smart grid continue

to be largely unchanged.

Q: Which of the following issues are the most significant impediments tothe implementation of the smart grid?


Significant up-front investment

Regulators will oppose and/or delay

Customer lack of interest and knowledge

Justifying the business case

Technology development

Compliance with regulations will hurt ROI

Customer privacy concerns

Maintaining commitment to

implementation over timeUncertainty regarding funding after

stimulus plan

Consumer advocates will oppose

Large customers will oppose

Other

27%

23%

48%

23%

16%

14%

14%

16%

16%

13%

11%

4%

3%

17%

12%

5%

3%

25%

38%

28%

25%

40%

46%

57%

2013 2012

Slightly less than half (46 percent) believe that the considerable

investment needed up front will hinder its implementation,

down from 57 percent in 2012. More than a third (38 percent)

cited regulator opposition or delay. Notably, only 27 percent

think that the ability to justify the business case remains a

substantial issue, down from 48 percent in 2012.

Smart Grid





The benefits of the smart grid implementation

continue to emerge. We see the promise of

smarter assets in the areas of customer service,

operational improvement, and risk management.

—Ron Clantonsmart grid leader for KPMG LLP (U.S.)





Conclusionatural gas is growing in overall importanceto the U.S. energy industry, according to this

year’s survey. Executives expect the growthin shale natural gas and oil production to

have profound changes on the prospect of U.S. energyindependence, economic growth, and consumertechnologies. Notably, executives expect to continueinvestment in R&D for alternative energy projects.Not surprisingly, most executives are concerned thatregulatory pressures and legislative uncertaintiescould present barriers to growth for their companies.Nonetheless, they anticipate an increase in both capitalspending and hiring in the coming year.

N







Revenue Company Type Title

Demographics and

methodologyKPMG’s 2013 Energy survey is the 11th annual energy surveyconducted by KPMG’s Global Energy Institute. This year’s surveyreflects the responses of 103 financial and business executivesfrom global energy companies during the spring of 2013.

Public companies

Private companies

$100 million to $249.9 million



$1 billion to $4.9 billion

$5 billion to $10 billion

More than $10 billion

Senior vice president/director

C-class (CFO, COO, CTO, etc.)

Executive vice president/managing director

CEO, president

16%

15%

7%

25%

11%

26%

66%

34%

9%

17%

15%

59%






ABOUT KPMG

KPMG is a global network of professional firms providing Audit, Tax and Advisory services.We operate in 156 countries and have more than 152,000 people working in member firmsaround the world. The independent member firms of the KPMG network are affiliated withKPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is alegally distinct and separate entity and describes itself as such.

The views and opinions from the survey findings are those of the survey respondents and do notnecessarily represent the views and opinions of KPMG International and/or any KPMG member firm.

About the KPMG Global Energy InstituteLaunched in 2007, the KPMG Global Energy Institute(GEI) is a worldwide knowledge-sharing forum on currentand emerging industry issues. This vehicle for accessingthought leadership, events, and webcasts about keyindustry topics and trends provides a way for energyexecutives to share perspectives on the challenges andopportunities facing the energy industry—arming themwith new tools to better navigate the changes in thisdynamic arena. To become a member of GEI, visitwww.kpmgglobalenergyinstitute.com.

Presented by the KPMG Global Energy Institute,

KPMG’s Global Energy Conference (GEC) is KPMG’spremier annual event for financial and businessexecutives in the energy industry. The GEC attracts morethan 700 professionals each year and brings togetherenergy luminaries from around the world in a seriesof interactive discussions. The goal of the conferenceis to provide participants with new insights, tools, andstrategies to help them manage industry-related issuesand challenges. To learn more about the GEC, visitwww.kpmgglobalenergyconference.com.



About the KPMG Global Energy InstituteLaunched in 2007, the KPMG Global Energy Institute(GEI) is a worldwide knowledge-sharing forum on currentand emerging industry issues. This vehicle for accessingthought leadership, events, and webcasts about keyindustry topics and trends provides a way for energyexecutives to share perspectives on the challenges andopportunities facing the energy industry—arming themwith new tools to better navigate the changes in thisdynamic arena. To become a member of GEI, visitwww.kpmgglobalenergyinstitute.com.

Presented by the KPMG Global Energy Institute,

KPMG’s Global Energy Conference (GEC) is KPMG’spremier annual event for financial and businessexecutives in the energy industry. The GEC attracts morethan 700 professionals each year and brings togetherenergy luminaries from around the world in a seriesof interactive discussions. The goal of the conferenceis to provide participants with new insights, tools, andstrategies to help them manage industry-related issuesand challenges. To learn more about the GEC, visitwww.kpmgglobalenergyconference.com.



© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of theKPMG network of independent firms are affiliated with KPMG International. KPMG International provides

Contact Us

For more information, contact

John Kunasek

Partner, National Sector Leader

Energy & Natural Resources

713-319-3513

[email protected]

Regina Mayor

Principal, Energy & Natural

Resources Advisory Leader

713-319-3137

[email protected]

kpmg.com

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03 2013 Energy Industry Outlook Survey