QUANTA SERVICES INC, QUANTA SERVICES MANAGEMENT ...

maintenance of natural gas and oil transmission and distribution systems, compressor and pump stations and
gathering systems, as well as related trenching, directional boring and automatic welding services. In addition,
this segment’s services include pipeline protection, integrity testing, rehabilitation and replacement and
fabrication of pipeline support systems and related facilities. To a lesser extent, this segment designs, installs and
maintains airport fueling systems as well as water and sewer infrastructure.
We see potential growth opportunities over the long-term in this segment, primarily in the installation and
maintenance of natural gas, natural gas byproducts and oil pipelines and related services for gathering systems
and pipeline integrity. In particular, we believe the existing pipeline and gathering system infrastructure in North
America is insufficient to support the increasing development of new sources of natural gas, oil and other liquids,
such as the unconventional shale formations and Canadian oil sands. We anticipate it will take several years to
build this infrastructure and believe this need will increase demand for our services over the long-term.
Ongoing development of unconventional shale formations throughout North America has resulted in a
significant increase in the country’s natural gas supply as compared to several years ago. We believe the
abundant natural gas supply, combined with lower gas prices, will stimulate demand for increased natural gas
usage in the future. As one of the cleanest-burning fossil fuels for power generation, low-cost natural gas
supports the U.S. goals of energy independence from foreign energy sources and a cleaner environment. The U.S.
Energy Information Administration has stated that the number of natural gas-fired power plants built will
increase significantly over the next two decades. As power generation from renewable energy sources continues
to increase and become a larger percentage of the overall power generation mix, we also believe natural gas will
be the fuel of choice to provide backup power generation to offset renewable energy intermittency. Additionally,
the Fukushima Daiichi nuclear incident in Japan in 2011 has increased the uncertainty of the future role of
nuclear energy for North America and will likely result in a delay in nuclear becoming a larger portion of North
American power generation. We believe these factors will result in increasing development of natural gas power
generation to meet North America’s future energy needs, which will in turn result in increased demand for
natural gas production and the need for additional infrastructure to connect natural gas supplies to demand
centers, increasing the demand for our services.
Additional pipeline infrastructure is also needed for the transportation of crude oil and other liquids from
unconventional shale formations in the United States and Canada. Heavy crude oil from the Canadian oil sands is
also being developed and requires pipelines to be built to take the product to refineries, many of which are in the
coastal region along the Gulf of Mexico. Canadian oil sands and shale formations in certain parts of the U.S. and
Canada contain significant reserves, and the economics of the production of these reserves depend on the price of
oil. Oil prices are currently at a level that encourages the development of these oil reserves, which will require
pipeline infrastructure to be built. We believe this need will increase demand for our services.
Other infrastructure, primarily midstream gathering systems, is also needed to support the development of
unconventional shale formations. To diversify our transmission pipeline service offering, we are focusing on
opportunities to provide our infrastructure services for gathering systems and related facilities, particularly in the
liquid-rich shale formations. We are increasing our presence in the areas of several shale formation through the
establishment of local offices to better position us to pursue these opportunities.
As a result of recent significant pipeline incidents in the United States, federal and state regulatory agencies
are implementing new pipeline safety rules and increasing enforcement activities. The U.S. Department of
Transportation has implemented significant regulatory legislation through the Pipeline and Hazardous Materials
Safety Administration relating to pipeline integrity requirements. Testing is expected to become more frequent,
extensive and invasive, and more information will be available regarding the condition of the country’s pipeline
infrastructure. As a result, we anticipate a significant increase in spending allocated to pipeline integrity testing,
rehabilitation and replacement services, and an increase in demand for these services we provide. We expect
companies will increasingly seek out companies that can provide a turnkey management solution. We believe we
are one of the few companies in North America that offers a complete solution for pipeline companies and gas
utilities as they focus on testing, rehabilitating and replacing their pipeline infrastructure.
5