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The list of “top risk factors” for the sector was released for the third year in a row by BDO USA, LLP, a financial consulting firm. According to BDO, the number one risk in 2013 is “Regulatory and legislative changes and increased cost of compliance,” which was also cited as a top risk in the 10-K forms of all 100 companies BDO surveyed in 2011 and 2012.
This year, regulation of hydraulic fracturing entered the top 20 list for the first time at number 16, with 85 percent of the forms citing it as a risk. Impact of climate change and greenhouse gas (GHG) legislation came in at number 12.
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Natural Disasters Rank High
According to the list, fracking regulations were less of a concern than volatile O&G prices, which tied for the top risk, natural disasters and extreme weather conditions (tied for 3rd), operational hazards such as blowouts, spills, and personal injury (6th), inaccurate reserve estimates (7th), and general national or global economic conditions (8th).
However, in assessing the results of the survey, Charles Dewhurst, BDO’s natural resources analyst, commented that fracking regulations “in particular” were viewed by industry as a threat to operations, along with the delayed approval of the Keystone XL pipeline and a strained refining capacity.
“Aspirations of U.S. energy companies will hinge upon the industry’s and government’s ability to find mutually-agreeable resolutions to these problems,” said Dewhurst.
Regulations of all types are “tempering optimism surrounding the shale boom,” noted BDO. Also, concerns about a lack of adequate pipeline, storage, and trucking capacity grew by 27 percent this year, says BDO, with four out five companies citing it in their 10-Ks.
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Terrorism, Derivatives, Taxes
Also notable in this year’s results, according to BDO:
- Threats related to international political instability and terrorism ranked in the top 20 (17th) for the first time, with 82 percent of companies citing it as a risk.
- The risk of using hedging or derivative instruments is growing along with the increasing reliance on them; 77 percent of companies cite their use of derivatives as a risk this year, up from 48 percent in 2012.
- The risk of losing federal income tax deductions (including those related to exploratory drilling) dropped this year by 10 percentage points. The drop was related to the fiscal cliff crisis being “mostly averted,” said Clark Sackschewsky, a BDO analyst. “Uncertainties remain, but the oil and gas industry no longer fears that it is in the crosshairs of a political standoff,” said Sackschewsky.
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