Grant Thornton - Survey of Upstream U.S. Energy Companies 2012

GRANT THORNTON LLP SURVEY OF UPSTREAM U.S. ENERGY COMPANIES 2012

The state of the industry—
An engine for U.S. growth

Table of contents

3 A view from the top

6 Major findings

8 2011 Economic year in review

1
0 Prices and spending

1
1 Enterprise risk management—
Risk in the spotlight

13 EP industry—Key MA transaction risks

15 Employment

1
6 Industry issues and opportunities

1 Global use of IFRS—When, not whether
8

21 Implications

22 Demographics

A view from the top

We are living in a world of uncertainty, with We also completed two private placements of
downward price pressures caused by both the common stock, bringing in more than $35 million of
European debt crisis and slower economic growth new equity, some of which has come from Europe.
in non-Organization for Economic Cooperation As a result, we have reduced our total debt by
and Development (OECD) countries being offset $18 million, extended the maturity of our debt
by continued unrest and turmoil in the oil-producing facilities to 2016, and substantially strengthened our
regions of the Middle East and North Africa. cash position and shareholders’ equity. Our move to
As Winston Churchill once said, “Without
the NYSE Amex has had a tangible positive effect on
a measureless and perpetual uncertainty, the
our company and has opened our universe to many
drama of human life would be destroyed.”
potential investors for whom a listing on a national
The energy sector is booming and is one of the
exchange is a prerequisite.
few areas of job growth. Major oil companies seem to
be switching their focus to the United States not only Across the industry, new issuances of leveraged
to achieve production growth, but also to position loans were down drastically in 2011, and deal spreads
themselves for a longer-term investment in natural were higher than in 2010. In contrast, private equity
gas. Companies with more of an international flavor financing appears to be up, mostly targeting capital-
might see domestic acquisitions of shale players as an intensive shale plays. The end of 2011 saw a move
entrée into more lucrative overseas opportunities in towards new public offerings for energy stocks with
Eastern Europe, China and India, where higher gas up to 20 IPOs being considered.
prices can be achieved. J. Paul Getty said that without MA activity was slow at the beginning of the
the element of uncertainty, the bringing off of even year but picked up in the latter half. Depressed
the greatest business triumph would be dull, routine prices have caused smaller operators to sell to larger
and eminently unsatisfying. We are perhaps starting companies, although many seem to favor joint
to see the opening moves of a paradigm shift toward
ventures as an entry point into key unconventional
natural gas, even though higher gas prices are still a
plays. Obviously most of the industry’s attention has
few years away.
been on unconventional plays during the last several
The United States is an attractive place for equity
years, and most MA activity has been concentrated
investors, especially for Europeans. We have already
in this sector. But instability in the markets has led
seen European majors make significant investments
in this country. The European debt crisis and its to a widening of the gap between buyers’ and sellers’
implications for global financial stability have led to expectations. Oil is being valued higher than natural
nervousness among debt investors. High-yield debt gas—but not as markedly as in 2010, and there are a
markets were fairly buoyant in the first half of 2011 growing number of gas-weighted acquisitions.
but have dried up since. Saratoga Resources Inc. was We are also seeing the start of consolidation in the
fortunate to raise $127.5 million in a high-yield bond natural gas sector. There is further consolidation
offering in July before the markets tightened. coming among shale players.

Grant Thornton LLP Survey of Upstream U.S. Energy Companies 2012 3

Unconventional has become the new Currently, over 60% of our production is
conventional, and a handful of companies such weighted toward oil versus gas. We like to say that
as Saratoga are taking advantage of positions in we are oilier than many of our peers, but we like to
opportunity-rich conventional plays with multiple maintain a balanced approach to oil and gas, and we
stacked pays and large held by production (HBP) are bullish on natural gas for the longer term. Having
lease positions, not to mention premium pricing for multiple stacked pay sands and HBP positions with
crude oil. Saratoga has been receiving a $15–30/barrel 100% working interest enables us to develop these
premium over West Texas Intermediate (WTI) for gas reserves when it makes sense.
Light Louisiana Sweet (LLS) and Heavy Louisiana Some of the most attractive features of shale
Sweet (HLS) crude since early 2011 although this plays are the long-lived nature of the reserves, the
spread has tightened at year end. We like to say repeatability, the high probability of success and large
we are pursuing good old-fashioned oil and gas, and lease positions. Saratoga sees the same attributes in its
we are happy to be receiving close to Brent pricing conventional South Louisiana assets. Our Grand Bay
for crude oil. Field has never had a dry hole drilled in its confines.
Crude oil prices will likely remain volatile. The field has had more than 70 years of productive
Uncertainty lies in how non-OECD growth will life, with production of over 250 million barrels of oil
offset OECD stagnation and its effect on oil demand. since 1938 from over 64 stacked pay sands, yet it still
Domestic crude oil production is likely to increase offers tremendous potential, both shallow and deep.
in 2012 because of renewed activity in liquid-rich We have low decline rates in our wells, not
shale plays like Bakken and Eagle Ford. Many the sharp declines typical of resource plays.
independents are emphasizing their move to liquids, We have several wells whose commercial production
and clearly project economics are improved by the dates from the 1940s. One well has over 50 years
more liquid-rich portions of the unconventional plays. of production from the same sand, and it is still
Natural gas prices are expected to remain fairly producing at over 20 barrels of oil per day (BOPD)
flat and experience downward pressure in 2012, today. We just completed a well in Main Pass 46
driven by increased supply from unconventionals, with 13 pay sands, only six of which were proved
coupled with slower growth and lower demand. undeveloped reserves (PUDs); completed the well
Henry Hub natural gas spot prices will likely average in a sand that was categorized pre-drill as probable;
lower than they did in 2010. The rate of growth in and found six pay sands that were never previously
domestic natural gas production is expected to slow booked. We call that lagniappe and have lots of that
in 2012. Gas supply will probably grow because of in our assets.
increased drilling to preserve lease positions. We are skeptical about the commerciality of most
Saratoga can still make good money below shale plays, given the current gas prices. This is due
$3/Mcf (thousand cubic feet) gas with respect to to (1) the sharp decline in initial production (IP)
our conventional gas assets and do not have lease rates, (2) outrageously high leasing costs, (3) the high
expiration issues because most of our leases are HBP costs to fracture, and (4) the likely need to refracture
leases. An important metric that drives rig count, specific wells to sustain production. Technological
which in turn puts downward pressure breakthroughs in horizontal drilling and hydraulic
on gas pricing, is lease expirations in shale plays. fracturing have improved shale economics, but
The domestic rig count is up substantially in 2011, uncertainty remains regarding well productivities
despite lower prices and reduced demand, and is and recoveries.
expected to grow by 10% in 2012. There are not Like many of our peer companies, we will fund
enough rigs available to drill beyond the initial terms all capital spending from existing cash flows and cash
of the leases, so new rigs are under construction. on the balance sheet. We expect to have additional
Some companies are consolidating positions in liquidity through a revolver in the near future.
the shallow-water Gulf of Mexico, while assets are Saratoga is currently focused on development drilling
discounted in response to permit delays. There is also and converting its PUD properties. Some of our
a lot of anticipation of McMoRan Exploration Co.’s development wells have an exploratory tail where
Davy Jones testing in the shallow Gulf ultra-deep we are looking for a little more upside, and our deep
play, where a number of deep and ultra-deep wildcats prospects have shallower low-risk bailouts, but we
have been drilled during the year. are essentially a low-risk development company

4 Grant Thornton LLP Survey of Upstream U.S. Energy Companies 2012

at this stage of our growth, with a serious eye on LLS/HLS premiums over WTI . In addition, we have
managed risk exploration in the future. With the tremendous upside—including shallow exploration
addition of liquidity from our improved operating targets above 5,000 feet with 50 Bcf of potential, plus
cash flows and equity infusions, we have substantially deep exploration targets with 10 Tcf of potential, all
increased our development budget; we spent among our large HBP leaseholdings.
$28 million in 2011, up considerably from the last We have gained momentum on numerous fronts,
three years, with just over half this amount being achieving several long-standing objectives, and we
devoted to drilling and completion. Our criteria for feel we are now positioned to realize what we believe
approving projects are internal rate of return and time is the great untapped value of our resource portfolio.
to payout. Almost all of our projects have a payout In addition to improving our operations, we have
time of less than twelve months. Saratoga’s capital made great strides in strengthening our balance sheet.
budget for 2012 is expected to be close to $50 million. Moving forward, we fully expect our program of
We find it a very cooperative regulatory recompletions and workovers, together with our
environment in Louisiana, with no permit delays. infrastructure projects and development drilling
It is a pleasure working with Gov. Bobby Jindal program, to increasingly contribute to meaningful
and Department of Natural Resources Secretary production growth as production levels from shut-in
Scott Angelle. We love the operating environment and curtailed wells are brought to capacity and new
in Southern Louisiana. The state ranks fourth in the wells are brought online.
United States in crude oil production and fifth if Mark Twain said, “We are discreet sheep; we
the Gulf of Mexico is included. Saratoga currently wait to see how the drove is going, and then go with
ranks 18th in terms of oil producers in the state. the drove.” Saratoga is not following the drove.
Saratoga has strong institutional and retail We see where they are headed, but in common with
participation in its equity and a growing market a handful of our peers, we like our current pastures.
capitalization. We have attractive conventional assets
located in state and parish lands of Louisiana, with
an abundance of low-risk development opportunities.
We are converting our reserves with an active
development drilling program. And we are weighted Andy C. Clifford
President, Saratoga Resources, Inc.
toward oil in our current production with

Major findings

Upstream U.S. energy companies are no strangers to price volatility, but even the
most grizzled industry veterans had to acknowledge that 2011 was a wild ride.
Grant Thornton LLP’s 10th Survey of Upstream U.S. Energy Companies revealed
a continued broad range of predictions for natural gas and crude oil prices.
Still, our respondents are not letting the uncertainty affect their expansion
plans. The survey reveals increasing expectations that employment will pick
up in the months ahead, after the sector contributed a significant boost to the
U.S. labor market in 2011. Capital spending plans remain relatively unchanged,
with a majority still expecting to spend more than they did the year before.
More than three-quarters are optimistic that new shale reserves will put the
country in a position to address its dependence on foreign oil.

Price expectations

77%
• Our survey respondents expect the spot price of • Forty-one percent anticipate the price of crude
Henry Hub natural gas to average $3.91 per Mcf will be high enough to support more than a
in 2012, $4.30 in 2013, and $4.69 in 2014. 20% increase in drilling activity this year, down
• Sixteen percent predict the price of natural gas from 55% a year ago. believe new
will be high enough to support more than a • Expectations for the spot price of natural gas reserves found in
20% increase in drilling activity in 2012, in 2014 range from $3 to $8 per Mcf; oil price shale will play a
up from 8% in 2011. forecasts for the same period range from factor in changing
• Respondents expect the price of West Texas $75 to $150 per barrel. the nation’s
Intermediate crude oil to average $93.14 per barrel • Uncertain natural gas and crude oil prices remain dependence on
in 2012, $97.09 in 2013, and $101.75 in 2014. the industry’s top concern. foreign oil.


Capital spending outlook “ ow, more than ever, today’s
N
• Sixty-three percent of respondents anticipate
increasing their domestic capital expenditures in
oil and gas companies should be
2012, down from 71% in 2011. focusing on managing risk. Finding
• Foreign capital outlays should remain relatively and producing oil and gas has
unchanged this year, as 82% of respondents
anticipate holding the line on such expenditures.
always been an inherently risky
• The maximum acquisition price companies business, but today there is far
are willing to pay for conventional proved less margin for error than there
reserves is $2.49 MMbtu, down from $2.57
was just a decade ago.”
in last year’s survey.
Alan Millis
Employment outlook Managing Director, Business Advisory Services, Grant Thornton LLP

• Seventy-one percent of respondents expect
employment levels to rise at their companies
Industry issues and opportunities
in 2012, up from 61% in 2011 and 50% in 2010.
• Seventy-seven percent of respondents believe
(Figure A)
new reserves found in the various shale plays in
• Eighty-six percent believe employment levels
the U.S. shift or change the nation’s dependence
in the oil and gas industry will increase this year,
on foreign oil.
up from 56% in 2011 and 33% in 2010. (Figure A)
• While 28% of those surveyed believe their
• More than half (55%) anticipate difficulties hiring
company will qualify as an “end user”, 65% have
and retaining employees in 2012, up from 22%
not begun to implement the documentation and
in 2011; availability of technical staff was rated
reporting required by the Dodd-Frank Act.
third among the industry’s top concerns.

Figure A: Projected increases in employment levels (%)

2010 50 Company
2011 61
2012 71 Oil and gas
industry
2010 33
2011 56
2012 86

0 20 40 60 80 100


2011 Economic year
in review
Loretta Cross, Managing Partner, Energy Advisory Services and Partner, Corporate Advisory Restructuring Services, Grant Thornton LLP
Rob Moore, Director, Corporate Advisory Restructuring Services, Grant Thornton LLP

A number of events and developments directly • Nuclear and alternative energy sources falling
affected the energy industry during 2011. from favor. Before the March 11, 2011, disaster
Following are some of the highlights: at the Fukushima plant, nuclear power was
• Geopolitical unrest in Libya, Egypt, Tunisia, beginning to be reconsidered in a positive
and other Middle Eastern and North African light, but the incident soured public opinion.
countries. The civil war in Libya has resulted As heavily subsidized manufacturers from China
in approximately 1.8 million barrels per day and elsewhere flooded the world markets with
of oil production no longer being available; low-cost solar panels, U.S. companies Solyndra
however the larger implications of this conflict and Evergreen Power filed for bankruptcy; these
will be playing out for some time. And recently, filings led to a steep decline in public support
a joint exploration program proposed by the for government funding of alternative energy
autonomous Kurdish region and ExxonMobil development. The wind power production tax
has raised the ire of the Iraqi central government credit, the ethanol tax credit and related import
over jurisdiction. tariffs all expired at the end of 2011.
• Sharper scrutiny of hydraulic fracturing. • The beginnings of a rebound in Gulf of
Various federal, state and local authorities Mexico drilling. While deep well permits are
are looking to regulate or restrict hydraulic nowhere near 2008–2009 levels, regulators
fracturing, and more studies are being conducted. approved 38 such permits in 2011 (versus four
A recent earthquake near Youngstown, Ohio, during 2010 after April), 31 of which came in
that is being attributed to the injection of the last six months of the year. Rig utilization
wastewater from hydraulic fracturing into a and day rates have also improved. The Bureau
disposal well will likely intensify the review of of Ocean Energy Management, Regulation and
fracking processes and their byproducts. Enforcement (BOEMRE) recently completed Oil
and Gas Lease Sale 218, which was the first Gulf
of Mexico lease sale since the Deepwater Horizon
incident. The winning bids totaled more than
$337 million from 20 companies, including BP.

“ ergers and acquisitions were numerous in the energy industry
M
during the year, with announced transactions reaching almost
three times their 2010 total.”


• The issuance of new regulations. In December More equity capital was also made available
2011, the Environmental Protection Agency during 2011. In the public markets, IPOs for
(EPA) issued final regulations limiting emissions companies in exploration and production as well
of mercury and other pollutants from fossil-fired as energy services raised almost $2.4 billion during
power plants. Compliance by the industry is 2011—nearly $1 billion, or 70%, more than they
required within three years and is expected to did in 2010. And public equity offerings in 2011
cost $10 billion annually, and many utilities are totaled in excess of $9.5 billion, up by more than
worried that older coal-fired plants might have 17% from $8.1 billion in 2010.
to shut down. Congress may move to modify the 2012 capital budgets that have already been
rule or extend the timeline for compliance, and announced indicate optimism, with most of them
utilities are likely to initiate litigation against the exceeding 2011 levels by an average of 15–30%.
enactment of the regulations. As we enter 2012, the industry faces a variety
of ongoing challenges—the critical need for safety
Last year, we believed that 2011 would allow in its operations; environmental concerns, including
industry players to pursue growth opportunities, issues regarding hydraulic fracturing; increasingly
and this supposition has been shown to be correct. expensive technological requirements; and political
Mergers and acquisitions were numerous in the instability in many areas of the world. Many industry
energy industry during the year, with announced analysts are bullish on oil, with most predicting
transactions reaching almost three times their 2010 that prices will materially exceed $100 per barrel
total. In addition, transaction sizes increased during during the year. Analysts are generally bearish on
2011. The three largest transactions announced— natural gas given the struggles in the market to
Kinder Morgan’s purchase of El Paso, Duke Energy’s balance supply with demand; most analysts are
acquisition of Progress Energy, and BHP Billiton’s reducing their price expectations for the year to
purchase of Petrohawk Energy—represented under $4/thousand cubic feet.
aggregate consideration of more than $87 billion; this In summary, 2011 brought significant growth to
amount is greater than the combined consideration the industry. Those participants that are positioned
for the 11 largest acquisitions announced in 2010. to manage the challenges discussed above are likely
Aggregate consideration for all transactions in 2011 to experience another attractive year in 2012.
whose values were reported totaled more than
$312 billion, as compared with $216 billion in 2010.
Joint ventures, which are primarily used to
acquire interests in natural gas shale acreage, again
contributed sizable amounts of capital to the
industry in 2011. As in prior years, the majority of
joint venture transactions involved foreign partners
whose investment objectives also included making
their energy supply secure and gaining access to
technological and production knowledge. Some of
the most notable joint ventures are listed below:
• Consol Energy/Noble Energy—$3.4 billion
• Devon Energy/Sinopec—$2.5 billion
• Chesapeake Energy/Total—$2.32 billion
• Consol Energy/Hess Corp.—$600 million


Prices and spending

Volatility in natural gas and crude oil prices is making Even so, the responses vary widely. For example,
it exceedingly difficult to forecast where they are individual estimates for the average price of natural
heading in the near future. Estimates for the spot gas range from a low of $3 per Mcf in 2012 to
price of Henry Hub natural gas this year differ by a high of $5.10. Crude oil prices were no easier
as much as $2.10 per Mcf at the extremes, while the to pin down, with 2012 estimates ranging from
spread between the highest and lowest forecasts for $75 to $115 per barrel.
the price of West Texas intermediate crude oil is Respondents believe the average price of
$40 per barrel. The majority of respondents believe natural gas must be $5.29 per MMbtu to justify a
neither will approach the price levels needed to 20% increase in U.S. drilling activity, down from
support an increase in drilling activity of 20% or $5.69 a year ago. Sixteen percent of respondents
more. As a group, they are more optimistic about expect that natural gas prices will reach that
their capital spending plans. threshold, compared to 8% in 2011. Eighty-eight
percent said they would curtail production if prices
Average price projections were less than $4 per MMbtu in 2012.
Our respondents predict that natural gas prices will
recover this year, with the average expectation for
the spot price of Henry Hub natural gas exceeding
“ atural gas production continues
N
$4 per Mcf by 2013. They anticipate the price of to outpace demand, resulting in
West Texas intermediate crude oil hovering near the a few notable companies electing
$100 level over the next several years. (Figure B)
to curtail gas production in 2012.
Figure B: Average price expectations
Although uncertain and volatile
prices are inherent in the industry,
Year Natural gas Crude Oil
it is difficult to be optimistic about
2012 $3.91 per Mcf $93.14 per barrel
2013 $4.30 per Mcf $97.09 per barrel
a significant and sustained run up in
2014 $4.69 per Mcf $101.75 per barrel gas prices in the near future.”
Brandon Sear
Leader, National Energy Practice, Grant Thornton LLP


Enterprise risk management—
Risk in the spotlight
Alan Millis, Managing Director, Business Advisory Services, Grant Thornton LLP

Now, more than ever, today’s oil and gas companies • Water management—State and local restrictions
should be focusing on managing risk. Finding and or lack of proximity to an adequate water supply in
producing oil and gas has always been an inherently certain geographic areas is making it more difficult
risky business, but today there is far less margin for to obtain sufficient water for fracturing wells.
error than there was just a decade ago. The explosion • Security—Increasingly sophisticated “cyber-
of social media has sparked a new wave of social terrorists” are an emerging threat to production
activism and increased pressure on politicians and control (measurement/flow) systems.
regulators to thoroughly scrutinize the business
practices of EP companies. Of course, it’s one thing to identify risks and
As a result, leading EP companies are quite another to manage them in a cost-effective way.
implementing or enhancing an enterprise risk That’s why a risk inventory is just the first step
management (ERM) program to more confidently in implementing an ERM program. Once a company
manage major risks that naturally occur in the EP has accomplished this, it should evaluate each risk
business. Optimally designed, an ERM program in terms of 1) potential financial impact to the
produces a standardized and comprehensive risk business, 2) likelihood or probability of occurrence,
inventory that arms board members, company and 3) the speed at which risk events can have an
executives and department managers with the impact on the business.
information they need to identify the risks that are ERM is much more than a process for tracking
most important to the company’s strategy. risks. According to a recent study by the American
Discussions with many of our EP clients found Productivity and Quality Center, organizations
that they are placing more emphasis than before on with mature ERM programs in place “reach beyond
addressing operational risks, specifically: process design and mechanics… and aim to influence
• Environmental—The inherent potential for culture, people and mental models.” In this regard,
release of pollutants or spills which cause ground, a mature ERM function engenders a high degree
air or water contamination; companies are of change management, necessitating the active
focused on honing their ability to quickly and involvement of senior leaders. We recommend
effectively respond to such a crisis. that our clients follow a “top-down” approach
• Regulatory—Greater challenges in complying where executives engage each functional leader in
with evolving regulatory requirements and the organization, particularly in operational areas,
inconsistent enforcement of rules in jurisdictions, to continuously build knowledge and expertise
particularly in emerging resource plays where throughout the organization about key business risks
regulators have limited experience with oil and and related risk mitigation strategies.
gas operations. Given the increasing complexity of risks facing
• Public relations—The proliferation of social EP companies and the speed with which missteps are
media is significantly increasing the velocity disseminated, oil and gas business executives may be
with which company news is disseminated to tempted to err on the side of caution and shoot down
the public, prompting companies to devise new new opportunities that could put them in a position to
strategies for shaping news coverage and opinions. expand the business. A well-managed ERM program
• Contractors—An insufficient supply of positions business leaders to resist this temptation and
adequately trained well site contractors in the pursue each new potential venture with the confidence
newer resource plays. that they’re prepared for whatever might come.


When asked the same question for crude oil Of course, those plans hinge on where prices head
prices, respondents set the average price floor at this year, as forecasted natural gas and crude oil prices
$99.37, an $11.44 increase from last year. Forty-one rank in our survey as the most important factors in
percent believe crude oil prices will be high enough to capital spending decisions. Other factors, ranked by
support a 20% increase in drilling activity this year, order of significance, include: availability of attractive
down from 55% a year ago. Sixty-six percent indicate drilling prospects, capital availability, projected
that oil production would be cut if prices were less demand for natural gas and crude oil, drilling rig
than $70 per barrel, though none of our respondents availability, availability of skilled personnel, regulatory
expect prices to dip that low this year. requirements or constraints, and tax considerations.
Our respondents said they would pay a maximum
of $2.49 per MMbtu for conventional proved natural Figure C: Plans for capital spending in 2012 compared
gas reserves, and $52.16 per barrel of crude oil. to 2011 for U.S. and foreign expenditures (%)

Increase signiﬁcantly 21 U.S.
Capital spending outlook (more than 20%) 8 expenditures
While a lesser percentage of respondents than last year
Increase somewhat 41 Foreign
anticipate increasing their domestic spending, they are (up to 20%) 10 expenditures
still in the solid majority (63%). Eighteen percent plan
No change 27
to spend more in overseas markets in the coming year, 82
with the remaining 82% predicting they will hold
Decrease 11
steady with last year. (Figure C) 0

0 26 52 78 104 130


EP industry—Key MA
transaction risks
Brandon Cradeur, Managing Director, Transaction Advisory Services, Grant Thornton LLP

It might surprise some that Houston ranked second MA transaction can alter a company’s future
only to New York City for MA deal value significantly. The challenge is that most companies
during the first nine months of 2011.* To be sure, are operationally focused and typically do not have
this was a notable achievement, considering that sufficient MA experience at the executive level or
U.S. metropolitan areas such as Chicago and Boston the infrastructure needed to acquire and integrate
have a significantly higher presence of venture companies effectively. With so many EP company
capitalists, private equity firms and hedge funds earnings and reserve restatements stemming from
whose business models essentially consist of buying acquisitions in recent years, it’s clear that the industry
and selling companies. is not immune to this challenge.
But to those in exploration and production With that in mind, it’s a good idea for EP
(EP), Houston’s emergence as a hotbed for MA executives to examine key transaction considerations
activity was far from unexpected. Since their primary that are unique to their companies and have the
assets (i.e., reserves) are a dwindling resource with potential to negatively impact capital deployment and/
a finite value, EP companies are under constant or cash flows if not properly measured and factored
pressure to acquire and exploit reserves or buy other in. Grant Thornton’s Energy Transaction Advisory
EP companies when they can’t replace reserves Services group helps companies assess EP transaction
organically. Fortunately, their historically strong risks in five overarching categories: (1) reserve and
balance sheets and cash positions allowed them to production characteristics, (2) reinvestment, (3)
make deals last year, even as many other industries operating and capital efficiency, (4) tax exposures, and
and locales were forced to retrench. (5) non-EP operations. Executives should consider a
The real surprise is how often EP executives number of essential items within these categories when
ask the same question when considering an MA conducting due diligence:
transaction: “Since our reserves—and their values—are
under the ground, why should we perform financial Reserve and production characteristics
due diligence?” My response is always the same: • The impact of historical versus projected
“How can a dynamic EP company afford not to?” production volumes and volatility on cash flows.
I’ve had the opportunity to work on more • Concentration and diversification among geologic
than 200 transactions during my career—as a basins (e.g., percentage of oil versus gas, onshore
private equity professional, a director of corporate versus offshore, and number of wells).
development in industry, and an MA transaction • The duration that proved undeveloped reserves
adviser. Through this experience, I’ve learned that (PUDs) have been on the books, the related
understanding key transaction risks—and negotiating drilling program to develop these PUDs, and
and structuring the transaction to mitigate them— whether there were significant changes to the
are critical to a successful deal. After all, a single drilling program.

* Houston Chronicle, Dec. 19, 2011.


• The reserve report, which is a critical report Tax exposures
relied upon during EP transactions, presents • Federal, state and local income tax exposures.
many risks and estimates that are important to • Sales and use tax, property tax, employment tax,
consider, including (1) risks related to whether the escheat, or other applicable tax exposures.
report was prepared internally or externally, (2) • Deferred tax assets/liabilities, net operating loss
projection sensitivities based on production and (NOL) carryforwards, the depletion deduction
forecasted capital expenditures (CAPEX), and allowance, like-kind exchanges, and tax basis
(3) estimates generated by comparing the current verification.
NYMEX strip with the price deck used.
• Historical asset impairment testing and
related analyses. “…it’s a good idea for EP executives to examine key transaction
considerations that are unique to their companies and have the
Reinvestment potential to negatively impact capital deployment and/or cash flows
• The reserve life index—calculated by dividing if not properly measured and factored in.”
proved developed producing (PDP) reserves
by annual production—indicates the potential
pressure of capital deployment. Non-EP operations
• Comparison of the annual reserve replacement • The potential for significant liabilities related to
index, which indicates a company’s ability to other businesses (e.g., midstream, distribution or
replace its annual production, with indexes refining/marketing) with different risk profiles,
calculated by companies of similar sizes. such as an out-of-the-money trading book
• Evaluating a company’s ability to economically from aggressive marketing/trading activity or
replace reserves; this evaluation involves looking environmental liabilities from refineries and
at historical finding and development (FD) chemical plants.
costs based on dollar-per-barrel equivalent (boe).
• Calculating an undeveloped lease expiration In addition to looking at these items while
waterfall, which identifies potential acreage and conducting their due diligence, EP companies
reserves at risk of being lost. should consider factors that fall outside these broader
• Drilling and CAPEX assumptions used in categories. Following are some of the questions we
developing PUD projections. encourage our clients to answer: Does the asset base,
• The reserve acquisition price per boe versus as currently leveraged, generate adequate return
historical FD costs. on capital invested? If not, what are the scenarios
• The existence of commitments related to seismic to optimize investment? What are the strategic
acquisition, CAPEX, drilling, or long-term synergies that can be created by the transaction under
take-or-pay contracts with commodity price consideration, and how are they expected to impact
caps or floors. the overall value chain? Are hedging programs in place
to protect against commodity price exposures? Are
Operating and capital efficiency there any joint venture or royalty issues, counterparty
• Operating efficiency as measured by the full-cycle risks, or off-balance sheet financing contingencies?
cost and expressed as $/boe. The full-cycle cost is The challenge, of course, is finding the best way
the average cash cost to produce each boe and the to perform financial and operational due diligence in
capital necessary to replace it—in other words, today’s environment of limited or stretched corporate
the sum of lease operating expenses (LOE) plus development budgets. Companies can build out
general and administrative (GA) burden plus their corporate development departments, engage
FD costs. experienced transaction advisory professionals to
• Management’s ability to maintain a strong leverage their internal team, or elect to do both.
liquidity position as measured by the ratio of Whatever approach a company takes with respect
capital spending to cash flows. to due diligence, the rewards for conducting it will
be clear: The company will not only make more
informed decisions, but also perform its fiduciary
duties for its investors and lenders in an optimal way.


Employment

86%
After four straight years of low expectations for Hiring and retaining talent
hiring, we saw a marked increase in the percentage of A majority of respondents (55%) expect to
respondents looking for the industry’s overall level encounter difficulties hiring and retaining employees
of employment to rise in the coming months. Many in the coming year, up from just 22% a year ago. expect the
seem to believe that these hiring plans will exacerbate (Figure D) They indicate that higher salaries will industry’s overall
the war for talent, as a majority now believes their likely be the most popular mechanism they use to employment level
companies will have difficulty hiring and retaining attract skilled workers, with larger cash bonuses, to increase over the
employees. Given that higher salaries, larger cash equity awards and other enhanced benefits all next year.
bonuses and equity awards are widely used to attract drawing at least 50%. Fifty-seven percent predict
new workers, companies may have to differentiate increasing compensation for geologists, engineers and
themselves in other ways to bring on necessary talent. other professionals by at least 10% this year, up from
21% of respondents in last year’s survey. (Figure E)
Employment levels
Respondents predict that hiring will pick up in
Figure D: Respondents expecting difficulties hiring and
2012 at their companies and in the industry overall. retaining employees in the coming year (%)
Seventy-one percent expect their company’s
employment level to increase in the coming year, 2011 22
2012 55
compared with 61% in last year’s survey. 0 10 20 30 40 50 60

That figure swelled to 86% when considering the
industry’s overall employment; that was a marked Figure E: Respondents planning to increase professional
salaries by at least 10 percent (%)
increase from the 56% of respondents who expected
the industry to add workers last year. (Figure A) 2011 21
2012 57
0 10 20 30 40 50 60

“ he energy sector is booming and is one of the
T
few areas of job growth. Major oil companies
seem to be switching their focus to the United
States not only to achieve production growth,
but also to position themselves for a longer-
term investment in natural gas.”
Andy Clifford
President, Saratoga Resources, Inc.


Industry issues and opportunities

Not surprisingly, respondents list uncertain natural Threats to company value
gas and oil prices as the greatest threat to their Respondents list uncertain natural gas and oil prices
business. As such, they are increasingly turning to as the greatest challenge facing the industry today.
hedging instruments to address that risk, but they Availability of technical staff moved up two spots
also agree that additional government incentives to compared to last year’s survey; the issue now ranks
increase drilling would be the most effective way as their third biggest concern. Rounding out the list
to keep consumer energy prices in check. Those are regulatory requirements, legislative initiatives,
surveyed are more concerned than in recent years obtaining capital, environmental considerations, lack
about finding skilled workers, and they expressed of good exploration prospects, competition with
uncertainty about how to handle rapidly changing larger companies, and litigation concerns.
regulatory and tax requirements.
Hedging
Enhancing company value The survey found that 59% of respondents increased
Successful exploitation and exploration of resources the use of hedging instruments over the past year
top our respondents’ list of factors with the greatest to effectively manage price risk. More than three-
potential for enhancing company value. Those factors quarters (77%) said that hedging instruments were
rank ahead of (in order): operating efficiencies, mergers required by lenders.
and acquisitions, retaining and attracting people,
better use of technology, price risk management
(e.g. hedging), capital infusion and asset sales.
“ n the public markets, IPOs for companies
I
in exploration and production as well as
energy services raised almost $2.4 billion
during 2011—nearly $1 billion, or 70%,
more than they did in 2010.”
Loretta Cross, Managing Partner, Energy Advisory Services and Partner,
Corporate Advisory Restructuring Services, Grant Thornton LLP and Rob Moore,
Director, Corporate Advisory Restructuring Services, Grant Thornton LLP


“ ome of the most attractive
S
features of shale plays are the long-
lived nature of the reserves, the
repeatability, the high probability of
success and large lease positions.”
Andy Clifford, President, Saratoga Resources. Inc.

The role of government
Figure F: Preferred areas of government focus (%)
Those we surveyed said government incentives
to increase U.S. drilling for oil and gas is the most Open areas for drilling Short term Long term
East Coast 34 66
effective mechanism for reducing energy prices
West Coast 33 67
for the U.S. consumer. Increased U.S. refining Eastern Gulf Coast 60 40
and processing capacity and increased efficiency Arctic 51 49
Onshore Federal 61 39
through technology are also viewed as significant
contributors. Drilling Incentives 51 49
Asked to identify priority areas for the federal 0 20 40 60 80 100

government to focus its support of the industry, Alternative Fuels
Nuclear 25 75
respondents said opening onshore federal lands for Solar 15 85
drilling should be its biggest focus in the short term. Wind 26 74 0 20 40 60

Clean coal was the top vote-getter for alternative fuel Geothermal 28 72
Biomass 25 75
policies in the short term, coming in well ahead of
Clean Coal 53 47
other options such as biofuel, geothermal and wind Biofuel 33 67
energy. Carbon emission credits are seen as a near- 0 20 40 60 80 100

Environmental safeguards 41 59
term priority by less than a third of respondents.
(Figure F) Carbon emission credits 29 71

The shale gas boom RD Credits
Grants 43 57
Seventy-seven percent of respondents believe Tax credits 50 50
new reserves found in the various shale plays in
the U.S. will shift or change the nation’s dependence
on foreign oil.

The Dodd-Frank Act
Only 28% of respondents believe they will qualify
as an “end user” and therefore be exempted from
complying with the Dodd-Frank Act. Even so, nearly
two-thirds (65%) have not begun to implement the
documentation and reporting required by the law.


Global use of IFRS—
When, not whether
April D. Little, Partner, Transaction and Risk Advisory Services and Practice Leader, IFRS Tax, Grant Thornton LLP

A flock of nearly 2,000 public accountants and For its part, the International Accounting
industry professionals converged on the nation’s Standards Board (IASB) has indicated that it may
capital in December for the 2011 AICPA National be time to discontinue convergence efforts with the
Conference on Current SEC and PCAOB Financial Accounting Standards Board (FASB), as
Developments. What drove us all to D.C.? A suggested in recent speeches by IASB Chairman
common viewpoint was that we would finally hear Hans Hoogervorst. At the AICPA conference in
how and when International Financial Reporting Washington, he stated that the convergence efforts
Standards (IFRS) would be incorporated into the have been “extremely useful in getting us to a point
U.S. financial reporting system. The anticipated where IFRS and U.S. GAAP are much improved and
announcement was expected to reflect thoughts closer together” but may be most beneficial when
initially publicized in a May 26, 2011, Staff Paper, directed toward other countries pursuing convergence
Work Plan for the Consideration of Incorporating paths. His comments were generally indicative of the
International Financial Reporting Standards into the best method of adoption, incorporating the approach
Financial Reporting System for U.S. Issuers: Exploring outlined in the staff paper, but he seemed cautious
a Possible Method of Incorporation. At the end of the about any plan that did not include a clear timeline
three-day conference, however, the flock flew the and a transparent, very high threshold for declining
coop with no decision rendered. to endorse a standard. The IASB’s expectation is
SEC Chief Accountant James Kroeker did that deviations from international standards will be
acknowledge that while a decision had been expected “extremely rare”. The IASB continues to recommend
by the end of 2011, a final determination would not that U.S. companies be allowed to voluntarily adopt
be forthcoming for a few months. His reasoning was IFRS in the very near future.
that the staff paper was not yet complete, nor were
several major convergence projects that needed to Worldwide momentum
be finalized prior to a decision. The SEC indicated In the meantime, the rest of the world is flying
that it has completed the majority of its fieldwork toward the use of IFRS as a common global standard
and is finalizing a staff paper that will ensure a for financial reporting. The only question remaining
strong and lasting framework for standard setting. for most countries is when, not whether, to move to
According to Kroeker, key requirements for IFRS. For these countries, a single common set of
a successful incorporation of IFRS include standards has several clear benefits. First, it would
(1) providing clear U.S. authority over standard allow for greater transparency and comparability of
setting in U.S. capital markets, (2) mandating and financial statements across an industry. As financial
facilitating a strong U.S. voice in establishing global reporting gained greater transparency, investor
accounting standards, and (3) responding to the confidence in it would inevitably grow. Second,
economic and other impacts of change. global standards would allow for more efficient


capital markets. Investors would be able to compare The proposed revenue recognition standard
transactions and the allocation of capital based on simplifies guidance for revenue recognition in a
common accounting methods. Finally, with the issue significant way, moving from more than 220 existing
of convergence settled, rulemakers would be able to revenue recognition models under U.S. GAAP to a
focus their attention on improving one new set of single revenue recognition model. The most common
global standards. criticism of the proposed standard is its lack of
Among those regions currently moving to IFRS, detailed guidance. The proposal was re-exposed in
Europe is furthest along. Countries from Albania to November 2011, with final issuance expected in the
the United Kingdom have been successfully using first quarter of 2012.
IFRS since 2005. The only remaining country on In the current international standards, there is
the European continent to prohibit the use of IFRS very little specific industry guidance for extractive
is Belarus, which has no common exchange, yet activities. IFRS 6, Exploration for and Evaluation
even Belarus is currently planning for convergence. of Mineral Resources, gives stopgap guidance for
Latin America has begun the transition, with Brazil accounting for exploration and evaluation costs; this
and Venezuela requiring IFRS for many companies guidance is intended to help companies transitioning
in 2011; Argentina and Colombia are mandating to IFRS from local GAAP. In the interim, a
IFRS in 2012. In Asia, India and Indonesia are the discussion paper, Extractive Activities, was issued in
most recent countries requiring the use of IFRS for April 2010. In October 2010, the research project was
many of their listed companies. Africa is not far paused to allow the IASB to conclude deliberations
behind, with Nigeria planning for transition using a on its future workplan. The Board’s next step will
phased-in approach from 2012 to 2015. be to determine, based on the completed research
project, whether to add a proposed project for
Implications for the U.S. energy sector extractive activities guidance to its future agenda.
Here in North America, our neighbors to both the For now, energy companies will have to rely on only
north (Canada) and the south (Mexico) have charted limited industry-specific guidance.
a path to mandatory use of IFRS. While the United Some of the other standards that will impact
States remains the lone holdout, the staff paper energy companies include IAS 36, Impairment of
details a method for incorporating IFRS into the U.S. Assets, and IAS 16, Property, Plant and Equipment.
accounting system. The transition to international standards in these
The staff paper described an endorsement two areas may involve a substantial amount of work,
approach whereby existing standards would since both standards generally require consideration
be reviewed and grouped into several tiers: (1) of a much more precise unit of account. Fixed assets,
completed Memorandum of Understanding for example, are capitalized based on replaceable
(MOU) projects, (2) IASB agenda projects, and (3) components. Goodwill and other intangible assets,
projects with no current revisions planned. Under similarly, are evaluated for impairment at the level of
the proposal, convergence would be determined the cash-generating unit that is used to aggregate and
separately for each group. The SEC was clear that it analyze financial data. This will compel companies
is considering comments and refinements or alternate to maintain records and evaluate transactions at a
approaches and expects to make a decision in the much more detailed level than they are accustomed to
coming months. That decision is likely to be highly under U.S. GAAP.
dependent on current key convergence projects
regarding topics of significant importance to the Why the time to act is now
energy industry: leasing, revenue recognition and With U.S. standard setters not yet charting a path
financial instruments. toward the use of IFRS, why should U.S. companies
The proposed leasing standard, which will be be concerned about international standards? Much
applicable to leases of oil and gas properties, would as they were during the evolution of Sarbanes-Oxley
put the majority of leases on companies’ balance (SOX) Section 404 and FASB Interpretation No.
sheets and effectively front-load expense for lessees 48 (FIN 48), companies in the United States are in
and income for lessors. The revised leasing standard wait-and-see mode until the SEC announces a formal
is currently being re-exposed and is not expected to plan for the use of international standards. Lacking
be finalized until at least mid-2012. any substantive guidance for energy and extractive


activities, many U.S. companies will postpone planning From the investor perspective, common
for transition to IFRS for the foreseeable future. accounting standards decrease the number of
For many, however, this tactic may result in a financial reporting languages a user must master.
competitive disadvantage. Awareness of IFRS and True, dialect differences remain, but these can be
the basic differences between it and U.S. GAAP caused by a variety of factors:
is increasingly important for companies requiring • Differences in interpretation due to common
access to global capital markets. Most global practices carried over from a country’s prior
creditors, vendors and even regulators of state-owned reporting standards
natural resources arrange contractual obligations • Differences in transitional guidance that may
using metrics tied to global reporting standards as prohibit or require certain accounting treatments
their domestic markets transition to IFRS. Some of • Lack of detailed application guidance
the common areas causing differences are discussed • Flexibility in choosing alternative accounting
above. Other classification differences impacting the policies (keeping in mind that different standards
balance sheet can also influence key financial metrics do not always mean different outcomes)
dramatically. For example, a company’s current ratio
may be affected by reclassifying all deferred taxes to Finally, as the United States moves closer to
noncurrent for IFRS purposes. Or a company may IFRS, companies with an awareness of the new
find that while it cured a debt covenant violation standards will be in the best position to manage
prior to finalizing the financial statements, the upcoming changes to U.S. GAAP and minimize their
entire obligation must be classified as current based impact on operations. Indeed, these companies will
on a purely technical violation as of the year-end. be most capable of adopting IFRS in the next 18 to
Some statements of financial position will be highly 24 months, based on a typical timeline (Figure G).
volatile, particularly in the year of conversion, as a This timeline assumes that a company will evaluate
result of the optional use of fair value measurements common accounting policies across consolidated
for intangible and fixed assets. groups and make changes to IT systems, hiring and
Additionally, many players in the global MA compensation policies, and contract negotiations.
market are using IFRS as a common basis for In other words, these companies will have a
evaluating transactions across the industry. competitive advantage when the United States
With IFRS conformity increasing on a global scale, ultimately taps into the global accounting pipeline.
a U.S. GAAP metric becomes difficult to compare
with existing benchmarks. Companies may find Figure G: A typical timeline for IFRS adoption
that capital markets are interested in common Example: 2012 IFRS reporting timetable for a March 31 year-end company
measurement metrics under IFRS rather than
IFRS IFRS
U.S. GAAP. For example, one company I’m familiar trasition reporting
with translates all U.S. GAAP reporting information date date
2010/11 2011/12
to IFRS solely for the purpose of entering the global
private equity market because, as one company Comparative year under IFRS First effective year under IFRS

executive says, “the game is played globally, so we
have to react globally.” Acquirers see common global Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

accounting methods as a time and cost efficiency, April 1, 2010 March 31,2011 June 20, 2011 March 31, 2012
IFRS opening Last local First quarterly First IFRS
while acquired companies find that interest in an statement GAAP financial report under financial
investment increases as it grows competitive under of position statements IFRS statements

common measurement standards. Companies
that aren’t prepared risk turning off investors that
might otherwise spend the resources needed to
improve technology systems, catalog and coordinate
accounting methods, or create duplicative reporting
systems for U.S. GAAP.


Implications

The issues identified as concerns in this year’s
survey—price volatility, finding and retaining talent,
the need to operate more efficiently—are not likely
to go away in the coming months. Leading energy
companies are managing this uncertain environment
through a variety of means, all coordinated from the
top of the house in a strategic and holistic way.
• Risk management—Employing ERM
programs to make better strategic decisions and
redeploy capital effectively, and incorporate
risk management in financial reporting and the
corporate culture.
• Transactions—Turning to acquisitions and joint
ventures to share risk, increase capital and expand
access to new technologies.
• Accounting standards—Getting ahead of IFRS
requirements to open more doors to sovereign
wealth funds and other global investors that may
be interested in investing in high-risk energy
ventures but demand consistency in reporting.
• Talent—Benchmarking and tailoring benefits and
compensation programs to remain competitive
and take advantage of the information now
available through newly enhanced compensation
disclosure requirements in the U.S.
• Operating efficiency—Focusing on improved
cash management and working capital strategies,
assessing changes to IT management and
opportunities provided by cloud computing, and
improving the tax function to capitalize on all
available incentives and structure the overall tax
organization for optimal tax advantage.


Demographics

About the survey About Grant Thornton
This is the 10th Survey of Upstream U.S. Energy Grant Thornton LLP is the U.S. member firm of
Companies commissioned by Grant Thornton. Grant Thornton International, one of the six global
The survey was conducted via mail and Internet accounting, tax and business advisory organizations.
from November 2011 through January 2012, with Through member firms in more than 100 countries,
more than 100 responses from senior executives including 49 offices in the U.S., the partners of
of independent oil and gas exploration and service Grant Thornton member firms provide personalized
companies. Survey topics included price and attention and the highest quality service to public
employment forecasts, capital spending plans, and private clients around the globe.
regulatory and legislative developments, and
new areas of opportunity. Issues explored by the National Energy Practice
Grant Thornton Survey of Upstream U.S. Energy Grant Thornton’s National Energy Practice is
Companies were identified by seasoned professionals dedicated to serving the accounting, tax and business
in Grant Thornton’s Energy Practice. The figure advisory needs of public and privately owned
below indicates the demographics of the companies energy companies. Headquartered in Houston,
that responded to the survey questionnaire. Grant Thornton’s Energy Practice group has
experience in all segments of the industry with
Demographics a focus on exploration and production, drilling
Exploration and production companies 75% and energy services, pipeline and distribution,
Gathering and transportation companies 8% and refining and marketing. Grant Thornton’s
Service companies 13%
experienced team of energy professionals provides
Other companies 4%
the following industry-specific services:
Average total assets at the end of fiscal 2011 $1.63 billion
Average projected revenues for fiscal 2011 $544 million • audit
Public 27%
• governance risk and compliance
Private - C Corp 15% • federal tax
Private - S Corp/Partnership 38% • international tax consulting
MLP 20%
• state and local tax consulting
• forensics, investigations and litigation
• information technology
• performance improvement
• business strategy
• restructuring and turnaround
• transaction advisory services
• valuation


Contact information

Energy practice key contacts Office locations Illinois Oklahoma
Cleveland National Office Chicago 312.856.0200 Oklahoma City 405.218.2800
Rick Gross, Audit Partner 175 W. Jackson Blvd., 20th Floor Oakbrook Terrace 630.873.2500 Tulsa 918.877.0800
T 216.858.3627 Chicago, IL 60604-2687 Schaumburg 847.884.0123
312.856.0200 Oregon
Patrick Gable, Audit Partner Kansas Portland 503.222.3562
T 216.858.3537 Washington National Tax Office Wichita 316.265.3231
1250 Connecticut Ave. NW, Suite 400 Maryland Pennsylvania
Dallas Washington, DC 20036-3531 Baltimore 410.685.4000 Harrisburg 717.265.8600
Kenneth Clay, Audit Partner 202.296.7800 Philadelphia 215.561.4200
T 214.561.2290 Massachusetts
Alaska Boston—N Station 617.723.7900 Rhode Island
Denver Anchorage 907.264.6620 Boston—Fin Distr. 617.226.7000 Providence 401.274.1200
Bruce Johnson, Audit Senior Manager Westborough 508.926.2200
T 303.813.4000 Arizona South Carolina
Phoenix 602.474.3400 Michigan Columbia 803.231.3100
Houston Detroit 248.262.1950
Brandon Sear, National Energy California Texas
Practice Leader Irvine 949.553.1600 Minnesota Austin 512.391.6821
T 832.476.5048 Los Angeles 213.627.1717 Minneapolis 612.332.0001 Dallas 214.561.2300
Sacramento 916.449.3991 Houston 832.476.3600
Loretta Cross, CARS Managing Partner San Diego 858.704.8000 Missouri San Antonio 210.881.1800
T 832.476.3630 San Francisco 415.986.3900 Kansas City 816.412.2400
San Jose 408.275.9000 St. Louis 314.735.2200 Utah
Susan Floyd-Toups, Tax Woodland Hills 818.936.5100 Salt Lake City 801.415.1000
Executive Director Nevada
T 832.476.3631 Colorado Reno 775.786.1520 Virginia
Denver 303.813.4000 Alexandria 703.837.4400
Kansas City New Jersey McLean 703.847.7500
Greg Payne, Audit Partner Connecticut Edison 732.516.5500
T 816.412.2400 Glastonbury 860.781.6700 Washington
New York Seattle 206.623.1121
Oklahoma City Florida Albany 518.427.5197
Kevin Schroeder, Audit Partner Fort Lauderdale 954.768.9900 Long Island 631.249.6001 Washington, D.C.
T 405.218.2800 Miami 305.341.8040 Downtown 212.422.1000 Washington, D.C. 202.296.7800
Orlando 407.481.5100 Midtown 212.599.0100
Tulsa Tampa 813.229.7201 Wisconsin
John Meinders, Audit Partner North Carolina Appleton 920.968.6700
T 918.877.0800 Georgia Charlotte 704.632.3500 Madison 608.257.6761
Atlanta 404.330.2000 Raleigh 919.881.2700 Milwaukee 414.289.8200
Tim Ogden, Tax Practice Leader
T 918.877.0812 Ohio
Cincinnati 513.762.5000
Wichita Cleveland 216.771.1400
Brad Heerey, Audit Partner
T 316.265.3231

Content in this publication is not intended to answer specific
questions or suggest suitability of action in a particular case.
For additional information on the issues discussed, consult
a Grant Thornton client service partner.

© Grant Thornton LLP
All rights reserved
U.S. member firm of Grant Thornton International Ltd

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