The Top 10 Risks for Oil and Gas Companies in 2012

The oil and gas industry is subject to financial, compliance, operational, and strategic risks.  These risks are subject to several external factors:

  • Financial risks, which stem from the economy
  • Compliance risks from laws, politics, or corporate governance
  • Operational risks affecting processes, systems, and people in a company
  • Strategic risks from customers, competitors, and investors


These four types of risks are depicted in the diagram below.  The items near the center of the circle present the greatest risks to oil and gas companies in the next year.

Source: Ernst and Young

Risk #1:  Competition for Access to Reserves

Access to reserves is the top risk for several reasons:  First, the political unrest in North Africa and the Middle East has created uncertainty over future access to oil in those areas because there is no guarantee that governments of countries will continue to cooperate – or that these regions will be safe.

Secondly, high oil prices may cause governments to attempt an increase in their share of revenues, leading to the formation of more government-backed oil companies.  These companies will have a distinct advantage over an International Oil Company (IOC) competing for the same reserves in their country.

Risk #2:  Energy Policy Changes

There is greater regulatory oversight in the industry involving environmental issues that may restrict access to reserves.  Additionally, the 2010 oil spill in the Gulf of Mexico has created new oversight bodies and more stringent requirements that may cause offshore drilling in the Gulf to be cost prohibitive for the non-majors.

Risk #3: Cost Containment

Extracting oil and gas from accessible acreage is becoming increasingly difficult, requiring not only the development of new technologies, but also a technically proficient workforce that can operate that technology. Operational cost is also affected by increased environmental and safety reporting requirements.

Risk #4: Worsening Fiscal and Contractual Terms by Host Countries

When oil prices increase, governments can make regulatory changes to their own benefit, often using tax claims to cause foreign operating companies into giving the host country a higher revenue share.

Risk #5:  Health, Safety, and Environmental (HSE) Risks

With an industry wide focus on how well operating companies are managing health and safety and are prepared to respond to an event, HSE can influence the ability to bid and win projects in the marketplace. Companies with greater health and safety capabilities will have a competitive advantage.

Risk #6:  The Great Crew Change

The human capital deficit means a bigger focus on recruiting, training, and developing a world class retention program.

Risk #7:  Operational Challenges in New Environments

Companies are moving to deep water and Arctic drilling, which brings challenges such as new technologies, operations management, and safety issues.

Risk #8:  Growing Public Concern Over Climate Change

Oil and gas companies that address global concerns over climate change will be more competitive.  For example, many companies are engaged in carbon dioxide reporting processes.

Risk #9:  Volatility of Oil Prices

The price of oil is subject to political and economic pressures, all of which influences an operating companies’ decision to invest in an oil and gas project. Although national oil companies and the super majors may be able to absorb greater price volatility than smaller operating companies, the price of oil affects the entire oil and gas supply chain.

Risk #10:  Competition from New Technologies

Alternate energy sources (electricity, solar, wind, geothermal, and hydro) are competing against the development of new technologies for exploration and production. As a response to the challenges posed by emerging technologies, it is important for oil and gas companies to continuously monitor new technologies, develop a culture to innovate and prioritize investing in innovation.

Clover specializes in placing professionals in the oil and gas industry. If you are an Operator seeking to augment Project Teams, contact Jeff.W@clovergs.com

If you are an experienced professional looking for opportunities in the Upstream Industry (Alaska, Eagle Ford Shale Play, Bakken Formation, Deepwater Gulf of Mexico), send your resume in complete confidence to Chris.S@clovergs.com 

About Clover Global Solutions

Clover Global Solutions, LP provides Oil & Gas companies flexible and cost effective solutions fulfilling today’s need for contingent human capital. Client-identified contractors can be safely and rapidly deployed, retirees and annuitants can be re-engaged, open positions can be sourced and filled even on the most aggressive timeframes, and global Oil & Gas projects reap the benefits of 16 years of Contingent Workforce experience by the most trusted and flexible name in staffing today.
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One Response to The Top 10 Risks for Oil and Gas Companies in 2012

  1. K says:

    Hi,
    I agree with most of the points listed above. However, I believe the issue about human capital deficit is not addressed in the way it could benefit the industry. Before I started my degree, there have been a skill shortage and nothing has been done to improve this. I graduated last year with a first class degree in Petroleum Engineering from a UK institution and still looking to embark on a career. I’ve been doing a menial job instead, while governments and companies keep promoting the fact that there are skill shortages. Don’t get me wrong, I’m grateful for the part-time retail job I have, but I’m barely using my hard-earned degree. How would this problem be solved if graduates like me are finding it hard to get into the industry? If graduates of three years had been employed right after graduation, they would have filled the solved a part of this problem and continue to develop themselves to becoming highly competent professionals.
    I was speaking to a colleague recently who told me there have been ‘skill shortages’ in the Engineering course he studied for over 20 years ago. A brilliant guy, but ended up working in retail because he couldn’t find a graduate position when he graduated. More and more skills required from graduates would be lost if this continues. Most importantly, the future generation might not find it worthwhile to study an Engineering course when they are not guaranteed of a career at the end of it.

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