London, 25 January 2011

Despite fears of tougher regulation following incidents such as the Deepwater Horizon spill in the Gulf of Mexico, the global oil and gas industry is optimistic of an upturn in business in 2011, a new report reveals. The study also makes clear that price volatility has failed to dent the industry's appetite for investment in new exploration and market opportunities.

Deep water ahead? The outlook for the oil and gas industry in 2011 was written by the Economist Intelligence Unit and sponsored by GL Noble Denton. The report provides a barometer for the industry at a crucial moment in its development, based on a survey of almost 200 top-level industry leaders, including CEOs and other board-level executives, and policymakers.

The oil and gas industry has come through a period of unprecedented volatility, with record prices followed by a crash and then a slow recovery. What's more, the Deepwater Horizon disaster has left the industry guessing about its long-term impact on regulation, costs, company strategy and, for some, even survival.

But when asked to look ahead over the next 12 months, senior industry executives surveyed and interviewed see considerable investment opportunities during a period of relative price stability, especially in the fast-growth economies in Asia.

Key findings from the research include:

• Industry investment plans remain on track. Companies are upbeat about oil industry capital investment, with oil prices remaining relatively high and steady, mainly owing to robust demand from emerging markets.

• Asia is an emerging market for the oil and gas industry, for demand and supply. Nearly one-third of executives surveyed see Southeast Asia as offering the greatest opportunities over the coming year, with that proportion rising to 58% when combined with China and the Far East. North America is the next significant region of opportunity, cited by 30% of respondents.

• Natural gas has emerged as an industry “game changer”. Natural gas has gained widespread credibility as a relatively low-carbon “transition fuel”, especially for electricity generation. Global demand for liquefied natural gas (LNG) has grown as countries in Asia and Europe have sought to increase their supply options. And the emergence of large reserves of “unconventional” gas in North America offers oil and gas companies the chance to replace declining production. However, both the recession and the sense of abundant supply have depressed natural gas prices.

• Companies expect regulatory change in the wake of the Gulf of Mexico disaster—but its precise impact is unclear. Nearly three-quarters of respondents expect regulation to become tougher in North America, and a substantial majority expect that costs will increase. The longer-term impact of Macondo will be on companies’ operational strategy, especially as their safety record will become a more important factor in gaining access to global reserves.

"The inaugural oil and gas barometer takes the pulse of senior executives at a challenging time for the industry," said Tony McAuley, managing editor, energy, at the Economist Intelligence Unit. "New risks are emerging, and 'black swan' events like the Gulf disaster have shown that the operating environment and the perception of risk can change seemingly overnight.

"But our survey shows that there is room for optimism too. Companies are prepared to invest for the future, and meet new safety and environmental standards. There is an appreciation that the industry must do its bit to reform, yet there is equally a clear message that policymakers must not allow knee-jerk reactions to influence regulations."

John Wishart, president of GL Noble Denton, said: “This report forecasts an upturn in industry growth, with cautious optimism. But key players in the industry will need to find more innovative solutions to mitigate risk, while operating more efficiently and sustainably.”

Ends --

Download the full report at:

www.businessresearch.eiu.com/deep-water-ahead.html