DiD you know...Research from IHS Cambridge Energy Research Associates found that global oil and gas investments tripled between 2003 and 2011. In the Western hemisphere, investments nearly quadrupled, with 48 percent of global energy oil investments ending up in the Americas in 2011.

The U.S. market for solar panels is expected to double in 2012, according to a study by the Solar Energy Industries Association and GTM Research.

A poll in June of delegates of the World Gas Conference in Kuala Lumpur found that 81 percent of participants expect China to become the world’s largest producer of shale gas by 2030, reports the Oil & Gas Financial Journal.

According to the U.S. Energy Information Administration, by 2020 nearly half of the crude oil America consumes will be produced in the U.S.

A July report from the Interior Department found that energy development on federal lands contributed $275 billion to the economy last fiscal year and created 1.5 million jobs.

Findings from the 2012 BDO IPO Halftime Report reveal that 61 percent of capital markets executives expect energy industry initial public offering activity to increase in the second half of 2012, making it second only to the technology sector in terms of growth prospects.

Summer 2012www.bDo.com

The NeWSLeTTeR oF The BDo NATURAL ReSoURCeS PRACTICe

bDo Spotlight on bioDieSelBy Jim Westerman

the biodiesel industry is on a course of steady growth. The environmental Protection Agency (ePA) reported that U.S. biodiesel production hit a record 1.1 billion gallons in 2011, up from the previous high of 690 million gallons

in 2008. Biofuels, such as bioethanol and biodiesel, are clean-burning fuels that are used as alternatives to, or blended with, traditional petroleum-based fuels. This article will cover some of the primary factors driving growth in the biodiesel industry.

Read more on page 2

The ePA’s Renewable Fuel Standard (RFS2), which was expanded in 2007, has been one of the catalysts for growth. on July 1, 2010, RFS2’s biomass-based diesel requirement became effective, requiring for the first time that a certain percentage of the diesel fuel consumed in the United States be made from renewable sources, with a target of 800 million gallons for 2011. The industry exceeded that requirement with 1.1 billion gallons for the year. This excess supply may have also been

influenced by the expiration of the blenders’ tax credit on Dec. 31, 2011. Under RFS2, up to 20 percent of a company’s 2012 obligation can be met through 2011 renewable identification numbers (RINs) (discussed later); therefore, it is likely that companies were trying to take advantage of the credit prior to its expiration. Though RFS2 is thought to create a stable demand for biodiesel for the foreseeable future, the 2011 overproduction may reduce demand in 2012.

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and can be obtained by producing renewable fuels, buying fuel with the RINs attached or buying RINs that have been separated from the underlying fuel produced. once used for a compliance period, RINs are retired. RINs therefore have a substantial value in and of themselves and can often represent a significant portion of the price of a gallon of biodiesel.

The biodiesel industry has experienced rapid growth in the last few years and, though uncertainty looms large in the near future, continued scientific breakthroughs and technological improvements make it an exciting industry to follow.

The cooperation of automotive manufacturers is critical to the success of the biodiesel industry. While biodiesel can be used in its pure form for fuel, it is typically blended with or used as an additive to petroleum-based diesel fuel. According to the National Biodiesel Board (NBB), a nonprofit trade association, biodiesel blends can generally be used in conventional diesel engines with no modifications to the engine. The NBB cites Ford, General Motors, Volkswagen, Volvo and Mack Trucks as a few of the many companies to have approved biodiesel blends for use in their engines ranging from 5 percent biodiesel blends (B5), to 20 percent biodiesel blends (B20).

 pricing challengeSMany factors influence demand for biodiesel. Pricing is, of course, the No. 1 factor. The biodiesel industry has historically relied on various federal and state tax incentives to bring the price of biodiesel down to a level competitive with petroleum-based diesel. of these incentives, the one with the greatest impact was the federal blenders’ tax credit. The credit provided a $1 per gallon excise tax credit for the first party to blend pure biodiesel (B100) with petroleum-based diesel. The blenders’ tax credit first became effective on Jan. 1, 2005, before expiring Jan. 1, 2010, and subsequently reinstated for 2010 on Dec. 17, 2010. The credit expired again on Dec. 31, 2011. Biodiesel production for 2010 was a paltry 315 million gallons in part due to the lapse of the blenders’ tax credit and the uncertainty as to its renewal. The effect on the industry was profound with companies closing plants or filing for bankruptcy. It is uncertain whether the blenders’ tax credit will be reinstated for 2012. The current political and fiscal climate adds to such uncertainty. While there is a recognized need to promote renewable fuels, such incentives may be sacrificed as part of any deficit reduction package.

As demand is highly correlated to the price of biodiesel compared to petroleum-based diesel, a rise in worldwide oil prices increases the competitiveness of biodiesel. Biodiesel pricing is also highly impacted by the cost of its feedstock. historically, the feedstock of choice was soybean oil; however, soybean oil commodity prices have fluctuated greatly

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bioDieSel

over the last several years with such prices hovering at or near their highest levels since 2007. Producers have been migrating to lower cost feedstock such as inedible corn oil, used cooking oil and inedible animal fats.

Biodiesel production capacity will also play an important factor in pricing in the coming years as more plants come online and production exceeds current RFS2 standards, potentially putting downward pressure on pricing if production exceeds demand. The ePA created a renewable identification number (RIN) system to track renewable fuel production and compliance with RFS2. RINs are generated when each gallon of biodiesel is produced and is typically attached to the fuel when sold. For each gallon of pure biodiesel produced, 1.5 RINs are generated. RINs, however, can be detached from the produced biodiesel and traded as a separate commodity. RINs are used to demonstrate compliance with RFS2

For more information, contact Jim Westerman, partner in BDO’s Natural Resources practice at jwesterman@bdo.com.

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bDo Spotlight: Q&A with Matt Becker

What led you to focus your accounting work in the natural resources industry?My interest in natural resources has always been on green energy and tax incentives. Renewable energy has enormous potential in its economic and social impact. I enjoy helping taxpayers understand the credits and incentives that are available for individuals and organizations interested in promoting sustainable behaviors.

What’s been most meaningful is seeing my clients make investments in green energy technology—investments for which there would be no viable business case absent existing tax credits and incentives. These incentives are crucial to fostering advancements in the industry.

What do you see as the biggest challenges facing the industry today?The biggest challenge faced by the renewable energy industry is the overall fiscal condition of the United States. It is going to be a challenge for the federal government to leave current tax incentives in place, given their cost and the fiscal stress on the government’s budget. Add to that a political environment not focused on compromise, and it further complicates matters. The status of those incentives will significantly impact further developments in the industry.

Some of the most powerful incentives are offered to companies that produce energy through renewable means—either for themselves or for someone else. And these companies are just starting to see a strong return on their investments.

What are some of the biggest growth opportunities in the industry?There is a big window of opportunity for businesses that can make the use of sustainable energy available to the average individual. There are certainly individuals who will spend extra money to purchase energy created in a socially responsible way. however, the costs generally outweigh the benefits for most people. Wind and solar energy costs

tend to be an expensive proposition. The company that can identify and engineer an economically efficient way for the average person to use sustainable energy will be uniquely positioned for future success. It’s about creating the technology that will enable low-cost energy alternatives.

What are your predictions for the future of solar energy?Both solar and wind energy hold great promise, but solar is leading with more exciting advancements. We’re beginning to see battery technology development in the United States, which is expected to make solar energy more accessible to people. These advancements are also positive for the U.S. economy for a few reasons. First, it represents new intellectual property and innovation in the industry. Second, it will drive additional manufacturing opportunities.

What lies ahead for the BDO Natural Resources industry practice?The industry is in an incredible growth period, and the world continues to demand higher and higher levels of energy, despite the fact that we’re learning to use energy more efficiently. A great number of wind, solar and hydroelectric opportunities have yet to be realized. So, I would expect an important area of growth lies with technological developments that make green energy more affordable or efficient to produce.

For more information, please contact Matt Becker, partner and central tax regional business line leader at mkbecker@bdo.com.

BDO Practice Updates

We are pleased to announce that two members of our Natural Resources practice have been admitted to

the partnership. rafael ortiz, based in the firm’s Houston office, is an Assurance partner who works with oil

and gas exploration and production companies to provide a range of

accounting, auditing and consulting services. nathan lang, based in the firm’s Austin office, is an Assurance

partner with extensive experience in

initial public offerings.

International Growth

BDo International’s Natural Resources group, which is comprised of BDo Member Firms from 15 different countries, met in Dubai in April to discuss industry developments. The international group decided to include alternative energy as part of BDo Natural Resources business plans, alongside oil & gas and mining, indicating its growing importance as a market niche. our clients can now benefit from the strength of a global team of experienced personnel who bring to bear a network of professionals to provide a full range of assurance, tax, corporate finance and consulting services.

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2012 calenDar contact:CHARles DeWHURst, Houston713-986-3127cdewhurst@bdo.com

KevIN HUBBARD, Houston713-986-3149khubbard@bdo.com

CARlOs ANCIRA, Austin512-391-3510cancira@bdo.com

lANCe FROelICH, Houston713-986-3186lfroelich@bdo.com

ROCKy HORvAtH, Houston713-986-3150rhorvath@bdo.com

JIM JOHNsON, Dallas214-665-0614jwjohnson@bdo.com

CHRIs sMItH, los Angeles310-557-8549chsmith@bdo.com

AlAN steveNs, Dallas214-665-0786astevens@bdo.com

ClARK sACKsCHeWsKy, Houston713-986-3101 csackschewsky@bdo.com

JIM WesteRMAN, Houston713-986-3171 jwesterman@bdo.com

www.bdo.com

auguSt 2012

Aug. 21-22AFPM CAT Cracker SeminarIntercontinental hotelhouston, Texas

Aug. 22-24Summer NAPE Expo*George R. Brown Convention Centerhouston, Texas

September 2012

Sept. 10-132012 World Heavy Oil CongressAberdeen exhibition & Conference CentreAberdeen, Scotland

Sept. 24-26MINExpo International 2012Las Vegas Convention CenterLas Vegas, Nev.

Sept. 24-26Oil & Gas Investment Symposium (OGIS) San FranciscoThe Palace hotelSan Francisco, Calif.

Sept. 25-27International Pipeline ExpositionCalgary Telus Convention CentreCalgary, Alberta, Canada

october 2012

Oct. 9-102012 Oil Council North America Assembly**Four Seasons hotelhouston, Texas

Oct. 14-16DUG Eagle Fordhenry B. Gonzalez Convention CenterSan Antonio, Texas

Oct. 14-16 AFPM Environmental ConferenceMarriott City CenterDenver, Colo.

Oct. 23-252012 World Energy Cities Partnership (WECP) Annual General MeetingSheraton hotelSt. John’s, Newfoundland, Canada

BDO’S NATURAL RESOURCES INDUSTRy PRACTICE BDo’s Natural Resources industry practice provides assurance, tax and advisory services to emerging and established businesses in the United States and all over the world who are involved in both the traditional and alternative energy industries. our clients often operate across borders either raising capital or making acquisitions abroad. our extensive industry knowledge is supported by our international network of 1,118 offices in 135 countries, allowing us to provide a consistently high level of service wherever our clients do business.

ABOUT BDOBDo is the brand name for BDo USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDo has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 40 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDo International Limited, BDo serves multinational clients through a global network of 1,118 offices in 135 countries.

BDo USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDo International Limited, a UK company limited by guarantee, and forms part of the international BDo network of independent member firms. BDo is the brand name for the BDo network and for each of the BDo Member Firms. For more information, please visit: www.bdo.com.

Material discussed is meant to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual circumstances.

To ensure compliance with Treasury Department regulations, we wish to inform you that any tax advice that may be contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or applicable state or local tax or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

© 2012 BDo USA, LLP. All rights reserved. www.bdo.com

The following is a list of upcoming natural resources conferences and seminars:

*BDO is exhibiting**Charles Dewhurst will be participating in a panel discussion on the regulatory environment