The top 10 risks and opportunities for global organizations in Oil & Gas sector
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6 Octombrie 2011 |
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ERNST & YOUNG S.R.L. |
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Introduction
While risk continues to dominate the business agenda, competition is also becoming just as dominant a feature. Market volatility, pricing pressure, variations in market performance, demanding stakeholders — all have contributed to a global economy that encourages competitive drive. And with that drive comes opportunity. For that reason, we have broadened the scope of what has traditionally been our Business Risk report to incorporate both risks and opportunities.
This report is part of a wider cross-sector piece of research that explores the top 10 business risks and opportunities globally and across seven sector groups. The seven sectors are oil and gas, retail, power and utilities, banking, government and public administration, health care, and life sciences.
As in previous years, we have taken a “bottom-up” approach to our work, gathering opinions from leading industry-based and academic commentators, across the seven global sector groups.
In addition, for the first time, this year we have conducted a second wave of research. This comprised a large-sample survey of companies and governments in 15 countries in order to rank the risks and opportunities, obtain forecasts on whether these challenges would be more or less important in 2013, and discover how leading organizations in each of the seven sectors are responding to these challenges.
Our research suggests that access to reserves is the number one risk for the oil and gas sector, particularly with regard to political constraints and competition for proven reserves. Uncertain energy policy is the number two risk and remains in a continued state of flux in many key geographies. As the industry moves into new territories and new forms of unconventional energy, there’s been a lot of discussion about the need to maintain licence to operate. Safe operations, environmental safety, and transparency are clearly key for this to be maintained. A consequence of failing to manage many of the risks highlighted in this report, may lead to the loss of licence to operate.
With regard to opportunities, frontier acreage was ranked number one. Areas previously regarded as too difficult, too expensive or too politically unstable to justify operations have become more economically viable given expectations of high energy demand and advances in technologies and business processes. Similar factors are also driving the opportunity ranked number two: unconventional sources, such as shale gas, oil sands and coalbed methane. Growing energy demand alongside a tightening of access to conventional supply, and advances in technology, have made unconventional sources commercially viable. Other opportunities included rising emerging market demand, investing in innovation, alternative fuels, and building regulatory confidence.
The top 10s are the result of a qualitative, opinion-gathering process, designed to identify the key risks and opportunities for businesses in 2011 and beyond. However, we also recognize that the definition of risks and opportunities varies from sector to sector and from company to company, depending on objectives and many other factors. As such, we hope the list will trigger a debate that we would like to explore further. Are the items on the lists similar to those you are monitoring? Are they your top 10? Have our panelists missed anything critical?
Executive summary
Based on our interviews with oil and gas sector commentators and our global multi-sector survey (which included 82 oil and gas executives in 15 countries), we have compiled the following rankings of the top 10 risks and opportunities for oil and gas companies in 2011.
The top 10 risks
1. Access to reserves: political constraints and competition for proven reserves
Up one place from the 2010 report.
While limits on access are not new, they do form a crucial part of the strategic landscape for international oil companies. Indeed, 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.
2. Uncertain energy policy
Down one place from the 2010 report.
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.
3. Cost containment
Unchanged from three in the 2010 report.
John Avaldsnes, EMEIA Oil & Gas Leader at Ernst & Young, contended that: "In a competitive, tight-margin industry like oil and gas, cost containment will always be a high priority." At present, rising costs are being driven both by cyclical factors and the end of "easy oil."
4. Worsening fiscal terms
Unchanged from four in the 2010 report.
"Under uncertain market conditions, governments tend to make regulatory changes to their benefit," as one panelist noted. Another commentator we spoke to concurred: "The use by governments of tax claims, real or not, as a pressure point to coerce oil companies appears to be increasing."
5. Health, safety and environmental risks
New this year.
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. Thirty-two percent of oil and gas respondents reported that they had faced difficulties in responding to such rising public expectations.
6. Human capital deficit
Up one place from the 2010 report.
The top drivers of this risk, as reported by oil and gas respondents to our global multi-sector survey, were a shortage of personnel with necessary skills and increased global competition for talent. Twenty-two percent of oil and gas respondents indicated a lack of qualified personnel was already impacting their operations.
7. New operational challenges, including unfamiliar environments
Up three places from the 2010 report.
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.
8. Climate change concerns
Down three places from the 2010 report.
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.
9. Price volatility
Down three places from the 2010 report.
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.
10. Competition from new technologies
Below the radar last year.
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.
