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The KPMG Global Energy Institute is pleased to announce the launch of the annual M&A Predictor report with 2018 global energy sector data.

 

The report anticipates a mixed but promising year for energy sector M&A transactions in 2018 as the market continues to stabilize and companies increasingly position themselves for greater earnings growth.

Highlights of our latest report containing timely data and commentary:

 

 

According to M&A Predictor data, corporate appetite for M&A deals in the Oil & Gas sector, as measured by forward P/E ratios, is expected to decline by 10 percent in 2018 versus 2017.

Appetite for M&A deals in the Utilities sector is expected to rise by 2 percent in 2018.

The capacity of corporates to fund M&A growth is expected to rise by 11 percent for the Oil & Gas sector and 2 percent for the Utilities sector.

The 2018 renewables market continues to be attractive and promising.

 

We encourage you to explore the full report for a more-detailed examination of both the M&A market’s 2017 activity and our assessment of what to expect in this busy year. View our interactive regional data as well for additional insights.

 

KPMG Global Energy Institute (GEI)

To register for KPMG's Global Energy Institute enabling you to automatically receive future content, as well as invitations to upcoming industry webcasts, please contact us at energy@kpmg.com.

For further information about this report, please contact us at energy@kpmg.com.

 

 

The KPMG Global Energy Institute is pleased to announce an upcoming Great expectations webcast taking place on May 9, 2018.

Register Now.

 

Great expectations | Deal making in the renewable energy sector

In recent years the renewable energy sector has become highly attractive to a varied class of investors, from utilities, renewable, infrastructure funds and long term institutional pension investors to insurance and life investors. This global phenomenon has become a critical factor in the acceleration of renewables deployment as part of the global transition to a low-carbon future.

Following the COP21 Paris Agreement there is an even greater focus on climate change policy and regulation and these changes are starting to impact the global renewables market in a positive way.

During this webcast we will explore the growing market for renewable investment in four specific countries – Australia, Spain, France and the United States. Leading KPMG experts from each region will give their perspective on the key factors attracting investment and discuss emerging trends and barriers in each country. The webcast will be chaired by Mike Hayes, KPMG’s Global Leader of Renewables.

Join our leaders for this roundtable webcast to get their perspective on the opportunities in each jurisdiction.

To read Great expectations | Deal making in the renewable energy sector click here.

We are pleased to announce the upcoming REACTION 23 webcast taking place on May 16, 2018.

Register Now.

 

Chemistry 4.0: Reinventing the chemical company with digital transformation

Digital transformation has become a part of the fourth and latest industrial revolution. Although many industries are making great strides in digital transformation, the chemical industry has been more a laggard than a leader. However, to remain competitive and explore new opportunities, many chemical companies are using digital technology for smarter manufacturing, stronger customer relationships and faster innovation. In the front ranks of digital transformation are companies that are no longer selling chemicals; they’re selling solutions to customers’ problems through new business models for the delivery of enhanced services and customized specialty chemicals.

Join Dr. Bernhard Kneißel, Director, Deal Advisory, Strategy, KPMG in Germany, who will be discussing these issues. To read Bernhard’s article, please click here and REACTION 23 Magazine can be read here.

This webcast is a must for C-suite and Directors who operate within the chemicals sector.

Participants are eligible to earn one CPE credit for this audio webcast.

 

Part 1: The impact of increasing demand for renewables from corporate consumers.

A game changer is underway in the world’s renewable energy sector.

Up until now, the renewable revolution has been led by energy developers and generating companies who were able to build renewable capacity with the help of government tariffs and subsidies. In many cases, the cost of this government support was passed on to consumers as part of the final electricity charge. There is broad consensus that renewables were vital for the global transition to a low or zero-carbon economy, and the consumer should help pay for this transition, with the investment in renewable generation being the first stage of that journey.

We are now seeing something completely different — consumers themselves are looking for ways to become 100 percent renewable in the energy they use and are considering the use of alternative technologies and solutions to address the low-carbon challenge. This is most obvious in the case of a growing number of global corporations who want to be part of, and indeed control, this transition. This trend is reshaping how energy markets will function in the future.

Download the publication.

The increasing adoption of electric vehicles will ultimately have a profound impact on oil refining, retail fuel and lubricants demand. Oil and gas companies know this.

 

And yet, it’s common to underestimate how the confluence of multiple forces outside the oil and gas industry will increase the velocity and impact of the switch to the electric from the internal combustion engine. Specifically, we believe the introduction of autonomous vehicles, coupled with Mobility as a Service, will combine with additional societal and technology trends to drive a more precipitous disruption than typically expected, one which is likely to pull electric vehicles into the market and shift the composition of the fleet much quicker than currently anticipated.

These external forces will usher in a fundamentally new transportation paradigm and begin to disrupt downstream companies in the coming years. What currently seems like a slow-moving threat may have more near-term business implications.

Downstream oil companies may struggle with preparing for a disruption with an unclear, yet potentially accelerated, timeline. An approach to transformation that takes measured steps and addresses hotspots first can strike the balance between protecting today’s business and building tomorrow’s.

Read full paper.

Renewed confidence for 2018 in the Oil & Gas industry

The oil and gas industry is entering 2018 with a degree of renewed confidence. The oil price has picked up to a 3-year maximum hitting US$70 per barrel due to the current demand supply rebalancing and future demand expectations. The gas side also looks optimistic. In 2017, Gazprom exported a record amount of 193.9 billion cubic meters of natural gas to Europe breaking last year’s results. This demonstrated its growing role in the European energy supply. At the same time, the US LNG exports have also achieved a record level of average 1.9 billion cubic feet (approximately 54 million cubic meters) per day in 2017, making the USA a net exporter of natural gas. Taking all the facts into account, overall the renewed demand confidence may lead to renewed investments in the sector in 2018.

 

Date: June 6–7, 2018

Location: Royal Sonesta Hotel, Houston, Texas

Today’s environment has challenged us all with unprecedented geopolitical and economic uncertainty, a rising nationalist movement, and the increasing speed of technology development and deployment. Add to this changing reforms and regulations, the pace of disruption, and a politically charged global environment, and it is a great deal for today’s executives to consider.

KPMG’s 16th Annual Global Energy Conference, to be held on June 6–7 in Houston at the Royal Sonesta Hotel, will bring together senior energy executives and thought leaders from around the world to discuss these issues and their effect on the global oil, gas, power, and utility sectors.

Noteworthy topics on the agenda will include perspectives from our keynote speakers who are uniquely positioned to discuss today’s environment. Soledad O’Brien, award-winning journalist, documentarian, news anchor, and producer, will lead us in thinking about the role of the media in today’s heavily polarized discussions, allegations of external manipulation, and whether the notion of “fake news” has truly affected the global public.

The Honorable George J. Mitchell, former U.S. Senate majority leader (1989–1995), who received an honorary knighthood from Queen Elizabeth II for negotiating the Good Friday Peace Agreement between Northern Ireland and Ireland after three decades of conflict, will share his views on how we move forward in a unilateral, G-Zero world, a scenario in which there is no one country that can drive a truly global agenda.

In addition to these vital topics, we will hear from senior industry leaders on the effects of the digital economy on energy, leveraging a multigenerational workforce, and, of course, what’s next in U.S. tax reform for our sector.

Please plan to join us for a series of dynamic debates and discussions as we anticipate another thought-provoking, do-not-miss industry event.

Stay tuned for a detailed agenda and formal invitations coming soon.

For more information about KPMG’s 16th Annual Global Energy Conference, please visit our Web site, www.kpmgglobalenergyconference.com.

The new law represents the culmination of a lengthy process in pursuit of business tax reform over the course of more than 20 years.

The legislation includes substantial changes to the taxation of individuals as well as U.S. businesses, multi-national enterprises, and other types of taxpayers. Overall, it provides a net tax reduction of approximately $1.456 trillion over the 10-year “budget window” (according to estimates provided by the Joint Committee on Taxation (JCT) that do not take into account macroeconomic/dynamic effects). Highlights of provisions that impact the power and utility industry include:

  • A permanent reduction in the statutory C corporation tax rate to 21% with statutory provisions requiring that excess tax reserves associated with public utility property be normalized
  • Repeal of the corporate alternative minimum tax (AMT)
  • Expensing of capital investment with an exception for property predominantly used in certain rate regulated trade or businesses
  • Limitation of the deduction for interest expense with an exception for interest expense properly allocable to certain rate regulated trade or businesses
  • Modification to the capital contribution rules under section 118
  • Fundamental changes to the taxation of multinational entities, including a shift from the current system of worldwide taxation with deferral to a hybrid territorial system, featuring a participation exemption regime with current taxation of certain foreign income, a minimum tax on low-taxed foreign earnings, and new measures to deter base erosion and promote U.S. production

The following discussion provides initial analysis and observations regarding the tax law changes in H.R. 1 that are considered to be of greatest importance for the power and utility industry.

Read a 167-page report prepared by KPMG that examines the provisions in the new tax law and provides observations: New tax law (H.R. 1) – Initial observations [PDF 1.4 MB] To read the full report, click here.

The KPMG Global Energy Institute is pleased to invite you to add your insights to the 2018 Energy Outlook Survey.

Take the Survey Here.

KPMG recognizes that in-depth industry insight is critical to our clients, and knowing what the “new normal” is can help companies maintain a competitive advantage. Completing the survey should take less than 15 minutes, and will help ensure that we have as complete a picture as possible in identifying relevant perspectives, directions, and priorities for the U.S. Energy industry.

Once the survey has concluded, participants will have access to the findings in advance of the general public.

We value your opinion, and look forward to your responses being a part of the survey results.

Thank you for your participation.

KPMG Global Energy Institute is pleased to announce the launch of the twenty-fourth edition of Reaction Magazine, KPMG’s signature publication for the chemicals and performance technologies industry, which you can download here.

This edition explores geopolitical trends and their impact on global chemical companies, synergies within the industrial gases market, an outlook for the U.S. chemicals industry, and a look at innovation with AkzoNobel.

Adapting to a changing geopolitical landscape

Geopolitical uncertainty is on the rise. Volatile oil and gas prices, shifting alliances in the Middle East, shocks to the European Union (EU) such as Brexit, the expansion of China, the Trump administration in the United States and the rise of nationalism and opposition to free trade—all these developments and more are increasing stress levels across the business world. Traditionally, the chemical industry has been more reactive than proactive about dealing with geopolitical disruptions. However, chemical companies would do well to consider appointing a Chief Geopolitical Officer (CGO) to help them address uncertainties in an increasingly turbulent world. Please click here to read more.

Synergies sought in M&A by industrial gas players

Major industrial gas manufacturers have recently been focused on optimizing and strengthening their positions in core markets, both geographically and by business unit. M&A activity in the sector has reflected this and has been aiming at driving synergies to leverage innovation and technology, improve service, reduce distribution costs, increase efficiency, and allow greater access to core markets, as well as divest any noncore businesses. This is a familiar trend that has been seen across the chemical industry. Please click here to read more.

Despite uncertainty, optimism for U.S. chemical companies

Uncertainty is the only certainty for today’s U.S. chemical industry. A new administration in Washington, DC, is attempting to loosen regulations, change tax laws, and adopt new federal policies designed to promote business growth. At the same time, this administration has suggested that increased tariffs and a renegotiation of international trade agreements would benefit the U.S. economy, even though trade barriers might curtail export/import growth in U.S. chemicals. Nevertheless, the U.S. chemical industry remains greatly favored by low feedstock and energy prices, a strong domestic economy and a business-friendly government agenda, all of which justify continued optimism about industry revenues and growth. Please click here to read more.

A unique approach to innovation with AkzoNobel

In January of 2017, AkzoNobel launched Imagine Chemistry, a strategic initiative developed in conjunction with KPMG to help solve real-life chemistry-related challenges.66 A start-up challenge for the global chemical industry is at the heart of this initiative. This year’s response has been outstanding, with hundreds of ideas submitted by numerous start-ups along with scientists, research groups, and students. In June, the finalists were announced. Each one will work closely with AkzoNobel in a unique approach to innovation based on openness, shared intellectual property (IP), and a highly collaborative process for effective development.

Please click here to read more.

To register for KPMG’s Global Chemicals Institute enabling you to automatically receive future editions of Reaction, as well as invitations to upcoming chemical industry Webcasts, please click here.

A closer look at what the UK's 2017 autumn budget means for oil & gas and the impact of the explosion at a natural gas hub in Austria.

Explosion at natural gas hub in Austria

The recent accident at a natural gas hub in Austria has underscored the importance of securing reliable supply of hydrocarbons to Europe. Despite discussions on the future of oil-and-gas the current rebalancing of the market due to OPEC-Russia cuts, along with the weather and supply interruptions make the current and mid-term outlook for hydrocarbon demand stable. This confirms the long-standing Russian belief that no one but Russia can provide to the European Union with an uninterrupted supply of hydrocarbons at an acceptable price. Recent improved hydrocarbon price forecasts add additional comfort over potential for short to medium term recovery of hydrocarbon prices.

Anton Oussov, Global Head of Oil & Gas and Head of Oil & Gas in Russia and the CIS, KPMG in Russia

 

2017 UK autumn budget: What it means for oil and gas

The UK Government announced in November that they will introduce the ability to transfer tax history with the sale of an UK oil field. The inability to access tax relief has been seen as a barrier to new entrants to the UK and thus the UK Government is aiming to encourage further investment, especially in late life assets. Under current rules, tax relief for decommissioning expenditure is based on the tax history of the company incurring the expenditure, which has been seen a deterrent to new entrants.

It will be effective for transfers of oil fields which receive Oil and Gas Authority approval after 1 November 2018. Mark Andrews, UK Head of oil and gas at KPMG says “Recent transactions in the sector have seen the transfer of late life assets to those owners with the agility and specialist experience to best exploit the remaining reserves, and it is hoped today's announcement will help drive more of this activity once this change takes effect in 2018.” Claire Angell, UK Head of Tax for energy at KPMG adds “There has been a long-held concern that the current tax treatment of decommissioning costs were adversely impacting the goal of Maximising Economic Recovery (MER) in the North Sea Basin. The innovative approach announced today should encourage new investment and new entrants which, it is hoped, will increase production from late life fields.”

Claire Angell, Tax Partner, Energy and Natural Resources, KPMG in the UK

 

Read the full report now

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Time to invest in the digitization of trading and risk management

The KPMG Global Energy Institute is pleased to announce the release of Drilling Down: Time to invest in the digitization of trading and risk management. In this edition, we asked Jason Guyre about the digitization of trading and risk management.

During the most recent commodity price downturn, energy companies facing reduced prices had limited capital to invest in technology upgrades to support business and operational capabilities, process efficiency, or risk control frameworks within their trading and risk management operations. The downturn also highlighted that companies with more advanced trading and risk management capabilities were better equipped to handle the volatility in the market. During this same period of time, financial services companies with trading operations and capital to invest have made a number of innovations in this area.

Now that many energy companies have adjusted to the new normal and have experienced some recovery in commodity prices, many of the industry’s risk management professionals are considering how best to invest in the middle office. Many are finding that emerging technologies—including blockchain, digital labor, cognitive computing, and analytics—offer numerous opportunities to address existing disadvantages and create new business value.

Read the article

The KPMG Global Energy Institute is pleased to announce the release of a new white paper: Winning the race for the customer – Manage and align customer expectations and customer experience execution to help returns which can be downloaded here.

In our previous publication, The race for the customer: Winning in a dynamic marketplace, we discussed how the Power and Utilities (P&U) industry faces challenges from a growing number of competitors. In the following paper, we will discuss how utilities can provide individualized and enhanced services for residential consumers while still balancing service experience and expectations in a way that optimizes revenue.

Winning the race for the customer – Manage and align customer expectations and customer experience execution

The P&U industry is evolving to focus on customer understanding and service excellence. However, the question remains: Are utilities evolving fast enough to grow their customer offerings while ensuring sustainable returns?

Who wins the race for the utilities customer is far from certain. The industry itself is undergoing significant disruption from increased access to distributed and alternative energy supplies, a changing regulatory environment, and rising customer expectations driven by online experiences that involve customized experiences, fast and easy purchases, service tracking, remote security control, and other services.

Out of this disruption have come numerous business opportunities—a fact not overlooked by nonutility industry companies ranging from online retailers to telecoms and manufacturers. These new players have started to enter the market from multiple angles, creating a race to own the utility customer relationship and through that, control who has access in the future to multiple profit opportunities. Most of these companies bring a combination of strong brand permissions, customer relationship management skills, digital and social media technology expertise, and service and technology integration capabilities.

As a result, utilities are being forced to develop new customer-centric strategies that are designed to manage the experience and meet increased expectations for more reliability, better information, customization, and greater responsiveness in service delivery.

  

Read full article here.

A closer look at the revision of the global consumption forecast, OPEC's extended cuts in 2018 and climate change liability risks. 

 

Revising the global consumption forecast

While Tesla unveils its first electric truck and Norway, Western Europe's biggest oil and gas producer, considers getting rid of its investments in the oil-and-gas assets in the Sovereign wealth fund, OPEC has just revised its global consumption forecast up 360,000 bpd from its previous forecast.

The increased confidence in the short-term demand coupled with continuing uncertainty in the long-term demand makes it tougher for oil companies to come up with convincing investment cases in additional supply. This again begs the question as to whether the current business model of oil-and-gas majors is adequate.

Anton Oussov, Global Head of Oil & Gas and Head of Oil & Gas in Russia and the CIS, KPMG in Russia

 

Read the full report now

 

Brought to you by the KPMG Global Energy Institute. 

 

In this edition of KPMG Global Energy Institute’s Drilling Down, we asked Andy Steinhubl and Chris Click about the recent merger and acquisition transactions in the exploration and production (E&P) sector.

 

There have been several merger and acquisition transactions in the E&P industry this summer, including EQT Corporation’s proposed acquisition of Rice Energy. What is driving deal flow in this sector?

 

Recent E&P transactions represent North American producers’ attempt to sustain profitable growth during a period of potentially “lower for longer” commodity prices. Strategic players are focused on establishing and developing core positions—quality assets at scale, allowing them to deploy skill sets and technologies to enhance performance. For example, in commenting on its acquisition of Rice Energy, EQT Corporation stated that the integration of complementary positions in the Marcellus and Utica basins would “drive higher capital efficiency through longer laterals and reduce per unit operating costs through operational and G&A synergies.”[1]

 

In fact, Roger Manny, the CFO of Range Resources, another Marcellus player, commented that combinations such as the above would likely lead to “more paced, prudent, and rational development” in the Appalachian area, and to a “less frantic boom and bust.” He further stated that a company like Range Resources “with quality assets…for investors who believe in the gas market” would be an attractive party to similar deals.[2]

 

In addition, some players are utilizing capital to reinforce a specific technical capability. Hence, a “doubling down” on what many already see as a core position or competency can lead to lower costs and a more coherent portfolio story to take to the investment community. The recent reshuffling of oil sands assets from the hands of large independents and majors back to domestic Canadian E&Ps is a great example of this.[3]

 

Read the full article.

 

[1] Source: Rice Energy Investor Relations, United States (June 19, 2017)

[2] Source: SNL Financial, United States (August 2, 2017)

[3] Source: Hals, United States (May 1, 2017)