Follow me on Twitter: @JohnHQuigley

Friday, October 26, 2012

Oil and gas industry report finds fracking’s risks loom large


According to a report released in May by BDO USA, LLP, an accounting and consulting firm, the booming U.S. oil and gas industry is increasingly focused on environmental risks of their operations.  BDO’s analysis of most-recent 10-K filings of the 100 largest U.S. oil/gas exploration and production companies showed a “striking increase in environmentally-focused risks.”   

Regulatory and legislative changes were cited by 100 percent of companies. “Yet this year”, BDO said, “those regulatory risks are tied directly to public anxiety over the environmental ramifications of shale gas extraction.”  A full 74 percent of oil and gas companies cited hydraulic fracturing regulation as a risk factor, up from 52 percent in 2011. Liabilities related to pollution jumped 33 percent (59 percent in 2011 to 79 percent in 2012), and litigation risks were cited in 70 percent of filings, compared to just 48 percent in 2011.
Indeed, eleven of the top 25 risk factors cited stem at least in part from the use of water and chemicals in fracking:
2012 Rank
Risk Factor Cited in 10-K Filing
2012
2011
1
Regulatory and legislative changes and increased cost of compliance
100%
100%
3 (tie)
Operational hazards including blowouts, spills and personal injury
98%
97%
5
Natural disasters and extreme weather conditions
95%
96%
7 (tie)
Environmental or health restrictions and regulations
94%
94%
11
Inadequate or unavailable insurance coverage
88%
87%
15
Reliance upon third party transportation and processing facilities
80%
83%
16 (tie)
Liabilities for pollution resulting from current or previous operations
79%
59%
19
Financial risk associated with partners, customers, or suppliers
75%
75%
19 (tie)
Increased operating costs
75%
67%
22
Hydraulic fracturing regulation
74%
52%
24
Litigation and other legal proceedings
70%
48%

The list tracks very well with a similar list of risks described in a KPMG white paper that I used to argue for a business case for squeezing the water and chemicals out of fracking.
Incremental progress toward this goal is being made by the industry; however, it is not fast enough.  Accelerating the pace is in the interests of society, the environment, and the industry’s bottom line.  

3 comments:

  1. What does disclosing a risk factor to investors have anything to do with anything? These are all already well known and acknowledged risk factors to anyone who isn't comatose.

    ReplyDelete
    Replies
    1. Thanks for reading, Mike. Yes, the risks are well-known. And that is exactly the point. Reducing or eliminating these risks makes financial sense. The industry is making incremental progress with, for example, water recycling and benign chemical use - the latter more anecdotally, as good metrics don't exist. I think a business case can be made for much faster progress, in addition to all of the other arguments. I think there can be a win-win here that addresses public concerns and benefits the industry's bottom line at the same time.

      Delete
  2. I came to know from a reputed site "As shale production in the United States continues at a rapid pace, 77 percent of U.S. oil and gas chief financial officers (CFOs) expect the domestic supply of oil to increase in 2013. In addition, 69 percent of CFOs also see natural gas supplies on the rise. If there is reason to temper the industry’s excitement with shale, it would be that only 50 percent of CFOs expect demand for oil to increase in step, concerns fueled in part by ongoing doubts about the strength of the U.S. economy. These are among the findings of a study released today by BDO USA, LLP, one of the nation’s leading accounting and consulting organizations."

    Process Industry Market

    ReplyDelete