According to Grant Thornton LLP’s 6th annual 2008 Survey of Upstream US Energy Companies, top executives from the energy industry face more global challenges in exploration, employee recruitment, and retention and perception in their sector than ever before. The accounting, tax and business advisory firm reports that more than 90 respondents to the survey (30% public and 70% private companies) want to see individual and corporate leaders focus on increased access to new acreage for exploration, training and developing people to replace the aging and shrinking oil and gas workforce, and educating the general public about the energy industry. The report’s findings show signs of strength and weakness within each of these areas.

“I believe this survey truly reflects what many of the top seasoned industry leaders are facing in the market today,” said Reed Wood, Grant Thornton LLP’s partner-in-charge of the firm’s energy practice.

Successful exploitation of resources provides the greatest potential for enhancing company value and growth, according to 2008 survey respondents. Consistent with the last four years, respondents continue to believe the Gulf of Mexico offers the greatest potential for new discoveries of crude oil and natural gas reserves. Alaska and the Rocky Mountains are the next best potential areas.

Looking ahead, only 27% of 2008 survey respondents anticipate more difficulty in securing contract drilling services over the next 12 months. This, too, is fairly consistent with the 2007 survey results, where 29% of respondents anticipated difficulty in securing contract drilling services in the following year.

Despite the fact that nearly 75% of this year’s respondents do not expect problems securing drilling contracts, the lack of good exploration prospects is still one of the most critical issues facing the oil and gas industry today.

Fifty-nine percent of survey respondents feel additional legislative incentives are not required for the E&P industry. However, 89% of respondents feel additional legislation will be enacted to further protect the environment. In light of this projected increase in legislative action, 42% of all respondents are predicting an increase in spending related to environmental remediation or study in 2008.

Respondents anticipate significant growth in industry employment rates over the next three years, with 81% anticipating an increase in 2008 and 65% anticipating an increase in 2010. In addition to overall industry employment growth, 76% of companies surveyed plan to increase their headcount in 2008, and 63% say an increase to headcount will be made in 2010. These percentages compare favorably to the importance of attracting skilled personnel, where respondents indicated this is the fourth most important issue in 2008.

“Our industry’s greatest challenge continues to be labor,” said Richard J. Alario, chairman, president and chief executive officer, Key Energy Services. “Specifically, we regularly search for the best ways to recruit, train and retain a new work force that is willing to perform the dirty, dangerous and uncomfortable jobs we offer and that our customers demand.”

The report notes that as young adults are lured into safe, comfortable office positions with lucrative salaries; the oil and gas industry will continue to struggle to find ways to persuade this generation into the oil fields. Eighty-five percent of respondents anticipate difficulties in hiring and retaining employees.

Alario summed up the challenge. “We will have to pay very well, be loyal and care very much if we are to reverse the base feelings the Y-genners have about our industry. We must now pay the price for the graying of our industry and the unstable employment for which it was so well known in slower times. Luckily, today we can afford it.”

According to 39% of survey respondents, conservation could have the greatest impact on reducing energy prices, followed by 18% for incentives to increase drilling in the United States. As in past years, many respondents commented that they want to see their leaders enhancing the public’s awareness of the risks, challenges and opportunities confronted by all industry participants for their respective customers and energy consumers.

Here are some additional highlights from the survey:

- Sixty-four percent expect the recent trouble in the credit market to affect their ability to secure funding.

- According to 93 survey respondents, the average price of natural gas must be US $8.91 in order to justify an increase in US drilling activity of more than 20%.

- Sixty-five percent of survey respondents anticipate increases in their US spending in 2008 vs. 2007. Of the respondents that have foreign operations, only 14% plan to increase foreign expenditures.

- Respondents anticipate a rise in merger, acquisition and restructuring efforts in 2008, with 67% predicting such activity.

- Sixty-four percent use hedging instruments to effectively manage price risk.

To order a copy of the survey or to view more detailed results, visit www.GrantThornton.com/oilandgas.

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