How do we create a more refined view of oil and gas?

Transcription

1 How do we create a more refined view of oil and gas? Oil and gas companies have an opportunity to engage consumers and find common ground on an unlikely topic: regulation

2 T The oil and gas industry is interacting with the public more frequently and in different ways than ever before. Thanks to the shale boom, oil and gas companies are exploring, developing and transporting products in and across markets less familiar with the industry. Increased public interface means social license to operate is more important than ever before. The industry may also face challenges related to market share as technology makes new energy options accessible and affordable. In a market with energy choices, consumer preferences and attitudes are critical. Having a good reputation and being seen as an industry that shares consumers long-term concerns and values will be a necessity for oil and gas companies in an era of energy abundance. Yet the recent EY Oil and Gas US Perceptions survey highlighted the very real disconnect between American consumers and the oil and gas industry. The survey also identified areas where there are overlapping interests common ground that the industry can use to connect with consumers and improve understanding, communication and, in turn, its reputation. One surprising area identified by the survey as a potential starting point for improved relations is regulation, including issues around climate change. The public views environmental protection and safety as far more important than any other matter of existing or potential policy, including energy independence and pricing. At the same time, the industry places similar value on environmental stewardship and safety performance. These similar values can provide a foundation for common ground and understanding.

3 Regulation: amounts and priorities At first glance, the survey s numbers may seem negative for the industry. American consumers see significant benefits to oil and gas regulation, and they are skeptical that reducing regulation will benefit the public. Just 23% believe fewer regulations would lead to more jobs, and only 22% believe less regulation would reduce gas prices. The survey also found 41% of adults currently believe that the industry is underregulated, with another 37% saying the amount of regulation is about right. Nearly 80% of consumers of all ages and political beliefs are not in favor of reduced regulation of oil and gas. Conversely, 53% of industry executives believe there is too much regulation, and just 4% say there is too little. Despite disparate views on the amount of regulation, there is little disagreement regarding the specific role that regulation plays. For example, 85% of consumers and 79% of oil and gas executives agree regulations are necessary to prevent or minimize the impact of oil and gas accidents and spills. And 85% of consumers and 84% of executives agree regulations are necessary to ensure environmentally safe drilling practices. A large majority of consumers also say they are willing to pay more for a gallon of gasoline to ensure regulatory priorities are met undermining the conventional cost-to-consumers argument against more regulation. While 41% of consumers believe the industry is underregulated, 53% of executives believe the industry is overregulated. 41% 53% underregulated overregulated Consumer views Executive views 1

4 Regulatory priorities for the oil and gas industry Engagement = understanding Q Please select what you think should be the top three regulatory priorities for the oil and gas industry. Avoiding spills and accidents Adults 18+ Executives 44% 56% Protecting water quality 26% 39% The gap between consumer and industry perceptions of current and future regulations presents both a challenge and an opportunity. Protecting the environment is a priority for consumers, and more than three-quarters of respondents say they are willing to pay more for gasoline if air and water quality regulations increase prices. That level of commitment means oil and gas companies must deliver on their promises that they can and will operate in a prudent manner, regardless of the amount of government policy and regulation in place. Encouraging clean energy development Protecting air quality Ensuring worker safety Keeping energy prices low for consumers 37% 16% 33% 21% 32% 26% 14% 52% The opportunity is that the public s overwhelming desire for environmental protection gives the industry a meaningful platform for engaging with consumers. Combating climate change 13% 23% More engagement provides an opportunity for better understanding from both sides. First, oil and gas companies can better grasp which regulations are necessary in the public s eyes and determine if those priorities can be accomplished through industry leading practice or if regulations are in fact necessary. Additionally, oil and gas companies have an opportunity to share the extraordinary strides already in progress around health, safety, the environment and energy efficiency. Being energy independent Ensuring safe drilling practices 23% 19% 27% 35% Creating jobs 18% 17% Respondents who say the industry is not regulated enough are more likely to emphasize clean energy development, while those who believe it is overregulated emphasize low prices and energy independence. 2

5 A majority of Americans are willing to pay to achieve these regulatory objectives. Q Please indicate how much more you are willing to pay at the gas pump for regulations that accomplish each of the following outcomes. Willing to pay anything Willing to pay a lot more (US$0.50 per gallon) Willing to pay some more (US$0.30 per gallon) Willing to pay a little more (US$ 0.10 per gallon) Not willing to pay anything Protecting water quality 11% 15% 23% 29% 22% Protecting air quality 10% 16% 21% 29% 24% Avoiding spills and accidents 10% 12% 22% 30% 26% Encouraging clean energy development 10% 13% 21% 29% 26% Being energy independent 8% 12% 22% 31% 27% Ensuring worker safety 8% 13% 22% 29% 27% Combating climate change 11% 15% 20% 24% 30% Ensuring safe drilling practices 8% 11% 20% 31% 29% Creating jobs 5% 11% 17% 31% 34% Maximizing industry productivity 5% 8% 15% 28% 44% More than three-quarters of respondents are willing to pay an additional US$0.10 per gallon or more to protect water and air quality. 3

6 Climate change conversations Despite much of the public rhetoric and controversy surrounding climate change, 91% of Americans believe it is real and 70% believe it is anthropogenic, or caused by human activity. Oil and gas executives hold somewhat similar views 93% say climate change is real, although only 45% believe it is anthropogenic. Interestingly, only 47% of Americans believe most or some oil companies have acknowledged climate change exists yet another area for outreach that would benefit the industry. There is some disconnect, however, about what actions should be taken. Compared with three-quarters of consumers, only 59% of executives believe climate change should be addressed now. Yet most executives believe their companies can and should be a part of the solution. Consumers are more skeptical: just 31% say the industry wants to be involved, and 29% say they believe oil and gas companies do not want to help. When it comes to possible solutions, consumers believe oil and gas companies should be creating alternative fuels (62%), investing in new technology to be more efficient (54%), and investing in research and development (53%). Executives say the industry is currently focused on reducing greenhouse gas emissions (43%), operating more efficiently (19%), and investing in and using alternative energy sources (18%) in order to address climate change. Again, while there is not complete agreement on the industry s approach, there are areas of overlap, and the public s lack of awareness about the industry s efforts offers another area for further engagement. 47% Less than half of Americans believe most or some oil companies have acknowledged climate change exists. 78% of executives say the industry should communicate better or connect with the public more effectively on climate change. 4

7 Consumers look for leadership While climate change is important to consumers, most cite general environmental goals such as clean air and water as a priority. Considering younger people are more apt to be staunch supporters of climate change initiatives, this issue will likely move to the forefront in the years ahead. The industry could improve its reputation, especially with teens and young adults, by taking a leadership role on climate change. Executives agree 78% of oil and gas executives say the industry should communicate better or connect with the public more effectively on the issue. The recent announcement by four oil majors to support the Climate Leadership Council s proposal for a broad-based carbon tax is one example of how the industry is working to be more visible in climate change discussions. The council is calling for a bipartisan policy that will impose a fee per ton of carbon dioxide emitted starting at US$40 a ton and rising over time. Those revenues would be returned to taxpayers in the form of a monthly carbon dividend. This would, of course, increase the cost of traditional hydrocarbons and make renewables more competitive. The majors embrace of this proposal drew some criticism from environmental groups, who see it as greenwashing. But it is clear the public would prefer the industry to be involved in finding solutions rather than remain on the sidelines. March 2017 President Trump signed an executive order aimed at dismantling the Clean Power Plan. June 2017 President Trump announced the US will withdraw from the Paris climate accord. 195 nations December 2015 A total of 195 nations agreed to reduce greenhouse gas emissions as part of the Paris climate accord. May 2017 The US fell to third behind China and India in EY s Renewable energy country attractiveness index. November 2017 Negotiators for 195 nations will gather in Germany to discuss how to carry out the Paris agreement. 5

8 Fairness in tax reform Tax reform has long been a desire of many in Washington, DC, and some insiders believe it could happen as soon as the first quarter of Of course, it is impossible to predict what provisions would be included in any draft legislation or what the final bill would look like. Our survey showed that in the absence of such details, consumers are uncertain about what tax reform will mean and what impact it may or may not have. In general, consumers believe tax reform would be good for large investors but bad for the national debt, and are mixed on the personal impact it would have. Oil and gas executives, however, are much more bullish 90% believe tax reform would be good for the economy and 81% believe it would be good for consumers. Nearly 75% believe it would help reduce energy prices. Should tax reform benefit the oil and gas industry? Consumers are mixed, with 15% saying oil and gas companies should pay lower taxes; 31% saying they should pay the same amount as they currently do; and 33% saying oil and gas companies should pay more taxes (the remaining 21% were unsure). But a majority (55%) believe oil and gas companies should pay the same amount of tax as companies in other industries, with only 22% saying they should pay more. Of those who say oil and gas companies should pay the same amount of tax, 36% cite fairness as their reason. Among those who say they should pay more, 37% mentioned environmental reasons. Consumers think tax reform will be good for: Executives think tax reform will be good for: Large investors 54% Energy prices 42% Large investors 90% Energy prices 74% Overall economy 40% Consumers 41% Overall economy 90% Consumers 81% 6

9 If tax reform occurs, consumers believe taxes on oil and gas companies should be: Industry taxes and the public: is increased awareness possible? Higher Same Lower Not sure 33% 21% 31% 15% The tax code governing oil and gas is complex and specialized, primarily because of the nature of the industry and because many provisions were designed to encourage the development and production of oil and gas properties. Provisions such as intangible drilling and development costs (IDCs) and depletion allowances were designed and enacted to encourage investment and operation in light of the significant capital requirements of the oil and gas industry and the risks involved in the exploration and production of oil and gas. It remains to be seen how the oil and gas industry and in particular, certain of the tax provisions related to oil and gas operations will be impacted by potential tax reform, but our survey shows that overall, Americans want the industry to be treated fairly and on an even scale with other industries. The oil and gas industry should pay the same amount of taxes as other industries: 55% Consumers agree 88% Executives agree 7

10 Good news overshadows How EY can help The survey findings suggest that, while there are some existing misconceptions on both the part of consumers and executives, there are a number of issues where there is general agreement. This is especially true regarding the importance of protecting the environment and operating safely and, to a lesser extent, tax fairness. The industry would do well to view this data as solid evidence calling for more engagement with consumers rather than less both to hear other points of view and to communicate the industry s values and approaches to issues such as climate change. The result would be improved relationships with the very people the industry serves Americans who use and benefit from oil and gas. As the oil and gas industry faces constant and unprecedented change, EY helps companies solve complex issues and capitalize on opportunities to grow, optimize and protect their businesses now and in the future. EY oil and gas teams combine an appropriate set of skills, insight and experience to provide strategic advice and long-lasting results. In a fast-paced global economy marked by increasing competition, transparency and rapid data exchange, companies gain a competitive edge when they are able to prepare for policy and regulatory developments before they happen. EY helps oil and gas companies prepare for and overcome the challenges of navigating an uncertain and ever-changing regulatory environment. EY assists oil and gas companies in tracking and assessing tax policy and reform issues affecting their businesses, providing services that range from monitoring legislation and strategic planning to representation and economic modeling. The Washington Council EY advisory services group helps clients manage opportunities and risks associated with the legislative and regulatory process. The Climate Change and Sustainability Services practice helps companies develop an effective strategy for sustainability, the environment, and health and safety, from nonfinancial reporting advisory and assurance to analytics, supply chain design and environmental cost assessment services. 8

11 Contact us Deborah Byers Matt Handford John Hartung Greg Matlock Jeff Petrich Vance Scott Tim Urban timothy.urban@ey.com 9

12 About the survey The EY Oil and Gas US Perceptions Study was developed by subject matter resources within EY member firms in the US Oil & Gas practice. In developing the survey, EY sought to unearth new and valuable insights not available through any other existing research. The EY Oil and Gas US Perceptions Study involved two surveys: Consumer survey This survey was conducted online, by FleishmanHillard on behalf of EY, between 25 January and 3 February A total of 1,204 American consumers aged 16 and older were interviewed nationwide, including 1,004 Americans aged 19 and older and 200 Americans aged 16 to 18. The data has been weighted to reflect the composition of this population according to figures obtained from the United States Census Bureau in terms of gender, age, region, ethnicity and race. Because the sample is based on those who initially self-selected for participation, no estimates of sampling error can be calculated. Answers may not sum to 100% due to rounding. Oil and gas executive survey EY also conducted a second survey of 109 oil and gas executives based in North America. This survey was conducted online, by FleishmanHillard on behalf of EY, between 28 February and 5 March Of the respondents surveyed, 98% currently work in the oil and gas industry, while 2% worked in the industry within the past two years. More than half (55%) of respondents are C-suite members, chairpersons, owners or partners in their companies; 19% are presidents or directors; and 26% are vice presidents, deputy directors, general managers or department heads. Of the respondents, 19% have more than 40 years of oil and gas experience, 36% have 30 to 39 years, 19% have 20 to 29 years, 17% have 11 to 19 years and 9% have 10 years or less. Because the sample is based on those who initially self-selected for participation, no estimates of sampling error can be calculated. Answers may not sum to 100% due to rounding. EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. How EY s Global Oil & Gas Sector can help your business The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY s Global Oil & Gas Sector supports a global network of more than 10,000 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oilfield subsectors. The team works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant sector issues. With our deep sector focus, we can help your organization drive down costs and compete more effectively EYGM Limited. All Rights Reserved. EYG no: GBL US CSG ED none This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/oilandgas/perceptions Note: in the survey, net responses were calculated by subtracting the percentage of negative responses from the percentage of positive responses.