Long-Term Focus Will See Oil and Gas Industry Succeed

The oil and gas industry is planning ahead for long-term sustainability.
Published: Thu 17 Apr 2014

Technological advancement and regulatory change has never been greater. In response to this, the oil and gas sector needs to adopt a clear view of all the risks and opportunities in order to gain success in the future. This is according to Dale Nijoka, Ernst and Young Global Oil & Gas Leader.

Mr Nijoka’s comment is in response to Ernst and Young’s latest report- Business Pulse: Exploring the dual perspectives of the top 10 risks and opportunities in 2013 and beyond.

Top risks

Oil and gas companies’ health, safety and environment (HSE) remains on top of the industry’s risk agenda, as does regulatory compliance, price volatility and the increasing challenge associated with accessing reserves and markets.

A newcomer to 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.

Another risk is that of increasing project scale and complexity. As mega-projects become more prevalent, the industry’s record for delivering on time and on budget is under increasing scrutiny.

Elias Pungong, Ernst and Young Africa Oil & Gas Sector Leader points out that these findings reflect the situation in Africa. The continent’s oil and gas sector are also grappling with the increasing importance of health, safety and environment and regulatory compliance. In addition to this, the traditional risks in Africa such as access to reserves in challenging areas, worsening fiscal terms and uncertain energy policies, remain prominent. He points out: “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.”

Top opportunities

The report highlights that an increasing emerging market demand now leads the opportunity ranking. 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.

Other opportunities 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.

Three themes

The report identifies 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. 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 as they are faced with 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; however they can pose a number of intrinsic risks.

3. Pace of technological change

Investment in innovation and research and development has risen steadily up the opportunity ranks. Innovation is necessary for oil and gas companies to remain competitive.

Mr Nijoka points out: "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.”

Further reading:

Ernst and Young-Business Pulse: Top 10 risks and opportunities in 2013 and beyond