Sector risk radar
Although the industry has always pushed technological boundaries, it is under ever keener scrutiny and the frontiers are becoming ever more remote.
The top 10 risks for oil and gas companies
- Access to reserves: political constraints and competition for proven reserves
Our global multi-sector survey found that oil and gas respondents were more likely than those in any other sector to report difficulties in managing the risks associated with the expansion of government’s role.
- Uncertain energy policy
Energy policy is in a continued state of flux in many key geographies. Meanwhile, the consequences of last year’s oil spill in the Gulf of Mexico continue to be felt in the debate over deepwater regulations.
- Cost containment
At present, rising costs are being driven both by cyclical factors and the end of “easy oil.”.
- Worsening fiscal terms
“The use by governments of tax claims, real or not, as a pressure point to coerce oil companies appears to be increasing,” said one panelist.
- Health, safety and environmental risks
Health, safety and environmental issues have risen on the oil and gas industry’s agenda, reflecting both increased public pressure and more complex operational challenges.
- Human capital deficit
Twenty-two percent of oil and gas respondents indicated a lack of qualified personnel was impacting their operations.
- New operational challenges, including unfamiliar environments
Three years ago, this was a “below the radar” risk in our report. The threat has now moved onto the radar, and is still rising.
- Climate change concerns
Though the Copenhagen summit of 2009 failed to achieve a breakthrough, pressure on companies can arise from other stakeholders. Risks related to climate concerns cannot be fully managed solely as a regulatory compliance issue.
- Price volatility
The unrest in the Middle East and North Africa region in the first half of 2011 resulted in an oil price surge. Of course, given the increase in exploration and production costs, volatility on the downside poses an equal or greater challenge.
- Competition from new technologies
In addition to new technologies for exploration and production, the sector is impacted by broader technological advancements, such as alternative power generation and the electrification of energy delivery.
Risks on the radar for oil and gas
Our risk radar is a simple device that allows us to present a snapshot of the top 10 risks in the oil and gas sector.
The risks at the center of the radar are those that the industry analysts and executives we interviewed, on average, thought posed the greatest challenge to oil and gas companies in the years ahead. Arrows indicate whether the executives thought the risk would rise or fall in importance by 2013.
Sector risk radar
The radar is divided into four sections that correspond to the Ernst & Young Risk Universe™ model. Compliance threats originate in politics, law, regulation or corporate governance. Financial threats stem from volatility in markets and the real economy. Strategic threats are related to customers, competitors and investors. Finally, operational threats affect the processes, systems, people and overall value chain of a business.
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