Emerging risks for E&P firms

Ernst & Young in its recent annual oil & gas business risk report highlighted top risks as perceived by C-suite executives, academics and industry decision makers. The report is positioned to assist the industry in developing risk management initiatives, prioritise issues, develop mitigation strategies and support strategic planning.

From the Indian context, national oil companies and private players are looking at growth outside the Indian shores and investing or planning to invest heavily in international assets. Uncertainty in the emerging policy and regulatory framework is very critical to the investment decisions planned by these companies. Post-Gulf of Mexico incident, there is uncertainty on how the energy and policy framework will evolve.

The view is that additional legislation are under consideration, including enhanced focus on safety and environmental compliance requirements with heavy penalties in case of any violation. With the likely introduction of stringent environmental compliance requirements, the costs are expected to increase, having a negative impact on return on investment.

For example, in the European Union, several environmental standards have been introduced, including a drive to reduce carbon dioxide emissions at least 20% by 2020. China has implemented various environmental regulations designed to curb greenhouse gas emissions.

Such measures will raise both operating cost and business continuity risk.

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