Safety tops risk agendas according to oil and gas executives

  • Share

Oil and gas companies’ health, safety and environment (HSE) remains on top of the industry’s risk agenda according to Business Pulse: Exploring the dual perspectives of the top 10 risks and opportunities in 2013 and beyond (pdf, 2.2mb), a new report released today by Ernst & Young. The research shows that HSE, regulatory compliance, price volatility and the increasing challenge associated with accessing reserves and markets, are the top risks identified by oil and gas industry executives.

Dale Nijoka, Ernst & Young’s Global Oil & Gas Leader, comments: "The oil and gas industry is undergoing an intense focus on safety and environmental risk preparedness and mitigation. In light of corporate social responsibilities, economic challenges and regulatory pressures, it has become increasingly clear that managing these risks is vital for long-term sustainability.”

A new entrant into the top 10 risks this year is IT security, and specifically the threat to companies’ operations — or indeed, country and region-wide energy infrastructure — by cyber attacks or cyber theft of their intellectual property. Additionally, another risk now warranting its own category is that of increasing project scale and complexity. As mega-projects become more common, the industry’s record for delivering on time and on budget is under increasing scrutiny.

John Avaldsnes, Ernst & Young’s Global Oil & Gas Advisory Leader adds: “There is a renewed focus on the complete capital project life cycle. Poorly managing these issues reduces the ability to positively affect project performance and value. Aligning operations through performance management is crucial.”

As highlighted by the report, increasing emerging market demand now leads the opportunity ranking, which has moved up three places since our 2011 report. Continued growth of the world’s emerging economies will drive energy demand in these countries, and will increase more opportunities for oil and gas companies to expand in these markets.

Additional new entrants this year in the opportunity ranking list include new infrastructure to gain access to or to connect resources and markets, safety and risk management used as a partnership enabler, and new or expanded markets for natural gas.

Elias Pungong, Oil & Gas sector leader for Africa says, “It is interesting to see how these global trends are also reflected in our African environment. We see increasing focus on safety and environmental risk preparedness by African governments, but also some of the traditional African risk areas like uncertain energy policies and regulations, together with worsening fiscal terms. Our experience is that over the last few years, African governments have taken these concerns at heart and we are seeing significant efforts aimed at bringing long-term policy and regulatory stability into the African Oil & Gas Industry. We expect these efforts to continue over the next few years, where we believe there would be tangible results right across the sector.”

We have identified three themes into which the top 10 risks and opportunities can be categorised:

  1. Interaction with governments and regulatory bodies
    Supply chains in the oil and gas sector are increasingly interconnected and managing them against a backdrop of multiple governments with different and changing policies and regulations provides significant challenges. The sector is also moving quickly into new geographical and technical areas. These create new challenges for governments and short time frames in which to make critical decisions that have some profound, long-term implications for oil and gas companies.
  2. Core business focus and counterparty risk management
    With the inherent complexity and capital-intensive nature of the oil and gas industry, joint ventures are commonplace, as are multiple, complex supplier relationships. These partnerships are generally fruitful, but carry a number of intrinsic risks.
  3. Pace of technological change
    Investing in innovation and research and development has risen steadily up the opportunity ranks from sixth position in 2011 to second position in 2013Innovation is necessary for oil and gas companies not just to remain competitive but also because the industry as a whole is undergoing a fundamental shift in focus.

Nijoka concludes: "Technological advancement and regulatory change has never been greater and the need to have a clear view of the risks and opportunities across the oil and gas sector is critical to future success."

Note to Editor:

The full analysis of the top 10 risks and opportunities contains insights from industry executives and from Ernst & Young’s Global oil and gas leadership team. Ernst & Young’s Business Pulse oil and gas report is based on a sample survey of over 100 industry executives from 90 companies in 21 countries. The full report can be accessed at: www.ey.com/oilandgas/Business-Pulse.
The list of risks and opportunity for oil and gas include:

Risk ranking 2013 2015 Opportunity ranking 2013 2015
The risk of a health, safety or environmental incident, and in ensuring regulatory compliance 1 1 Rising emerging market demand 1 1
Price volatility; managing long-term investment with the potential for extreme price volatility 2 2 Investing in innovation and R&D 2 2
Access to reserves or markets 3 3 Frontier acreage 3 3
Cost escalation and inflation 4 6 Focused recruitment; training and retention programs 4 4
Uncertain energy policy 5 5 New infrastructure to gain access to, or to connect, resources and markets 5 5
Worsening fiscal terms 6 4 Safety and risk management used as a partnership enabler 6 7
Human capital deficit (e.g., skills shortages, aging workforce) 7 7 New or expanded markets for natural gas 7 6
Competition from new technologies and new sources (e.g., alternative fuels) 8 8 Acquisitions or alliances to gain new capabilities or access to resources or markets 8 8
IT security 9 10 Additional corporate social responsibility (CSR) and corporate sustainability measures and transparency 9 9
Increasing project scale and complexity 10 9 Strategic divestitures 10 10

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.

Following on from Ernst & Young’s successful integration in 2008 of 87 countries into one area from across Europe, Middle East, India and Africa (EMEIA), the firm has launched its Africa Business Center™ (ABC), which aims to enhance the effective and efficient links between its geographic reach and areas of expertise. The firm enjoys representation in 33 countries across Africa.

© 2012 EYGM Limited. All Rights Reserved

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

How Ernst & Young’s Global Oil & Gas Center can help your business

The oil and gas industry is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. Ernst & Young’s Global Oil & Gas Center supports over 9,000 oil and gas professionals with technical experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oilfield service sub-sectors. The Center works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant key industry issues. With our deep industry focus, we can help your organization drive down costs and compete more effectively to achieve its potential. For more information, please visit www.ey.com/oilandgas. Follow us on Twitter:  www.twitter.com/EY_OilGas.

Web: www.ey.com/za