Safety tops risk agendas according to oil and gas executives

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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 EY. 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, EY 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.

Elias Pungong, EY Africa Oil & Gas Sector Leader adds: “These findings perfectly reflect what we are seeing in the sector in Africa. Increasing importance of HSE and regulatory compliance, but also the traditional risks in Africa such as access to reserves in challenging areas, worsening fiscal terms and uncertain energy policies still feature quite high on this survey. African governments are demonstrating more awareness of these concerns and are increasingly working hard at addressing some of them through a combination of an enhanced regulatory framework, and adequate legislation and well-thought policies.”

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.

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

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 2013. Innovation 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."