Oil and gas sector at risk due to limited access to reserves

And uncertain energy policy continues to pose a significant risk as it is in a continued state of flux in many regions worldwide.

Access to reserves is the biggest current risk for oil and gas companies, according to Ernst & Young report Turn risks and opportunities into results released today. This is up one place from the 2010 annual Top 10 risks for the oil and gas sector report, replacing uncertain energy policy, which moves down to number two.

Sanjeev Gupta, Asia-Pacific Oil & Gas Leader for Ernst & Young, comments: “While limits on access are not new, a combination of factors has pushed this to number one: political unrest in North Africa and the Middle East; high oil process and the growth of new government-backed rivals.”

Uncertain energy policy continues to pose a significant risk, ranking it in the top three risks for the third year in a row. 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 new deepwater rules and regulations.

A new entrant to the top ten risks this year, at number five, is health, safety and environmental risks. This reflects both an increased focus of oil and gas companies on a more sustainable and robust operating model and the fact that the industry is facing more complex operational challenges than ever before. It also reflects the rising power of local community stakeholders.

For the first time, the report also looks at the top ten opportunities for the sector, with “frontier” acreage 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 gas. Growing energy demand alongside a tightening of access to conventional supply and advances in technology, are making unconventional sources more commercially viable. Other opportunities in the top 10 include rising emerging market demand, investing in innovation, alternative fuels and building regulatory confidence.

Sanjeev Gupta comments: “The oil and gas sector is undergoing the most significant changes that we have seen for many years with new business models, companies and sources of energy emerging. Those organizations that can successfully manage the complex, evolving risk landscape and take advantage of emerging opportunities will be the key players of tomorrow.”

The top 10 risks:
1. Access to reserves: political constraints and competition for proven reserves
2. Uncertain energy policy
3. Cost containment
4. Worsening fiscal terms
5. Health, safety and environmental risks
6. Human capital deficit
7. New operational challenges, including unfamiliar environments
8. Climate change concerns
9. Price volatility
10. Competition from new technologies

The top 10 opportunities:
1. “Frontier” acreage
2. Unconventional sources
3. Conventional reserves in challenging areas
4. Rising emerging market demand
5. NOC-IOC partnerships
6. Investing in innovation and R&D
7. Alternative fuels
8. Cross-sector strategic partnerships
9. Building regulatory confidence
10. Acquisitions or alliances to gain new capabilities