Regulation top risk seen by energy companies

05 15, 2012 by Reuters

Government regulation is the top risk seen by crude oil and natural gas exploration and production companies, according to a study of annual reports by the top 100 producers done by accounting and consulting firm BDO USA LLP.

The study of annual filings with the U.S. Securities and Exchange Commission also found a large jump in concern over the regulation of hydraulic fracturing, which has become a top method for extracting oil and natural gas from shale formations in the United States, according to BDO.

"A big part of the No. 1 risk is that lurking belief the industry has a target on its back in the eyes of the government," said Charles Dewhurst, who leads BDO USA's natural resources practice.

While increased government regulation or new laws limiting energy companies have been an abiding worry for energy producers, increased regulation of fracking, as hydraulic fracturing is called, jumped from a risk seen by just over half of the companies in 2011 to a fear of 74 percent this year.

"I think fracking is viewed very poorly by many environmental groups," Dewhurst said.

Those groups have raised fears about the fluids used under high pressure to break underground rock formations to release supplies of crude oil and natural gas.

Fracking has also been blamed for increased numbers of earthquakes in some areas of the United States.

This year, 63 percent of companies said they said they saw difficulty in obtaining drilling permits, up from 29 percent in 2011.

Earlier this month, the Obama administration unveiled new rules to regulate hydraulic fracturing on federal lands, including a requirement for prior approval prior to using the technique.

The 2010 explosion on the Deepwater Horizon drilling rig at an offshore well owned by BP Plc in the Gulf of Mexico also weighs on the minds of oil and gas producers, according to the BDO survey.

Nineteen percent of the companies sited the ramifications from the Deepwater Horizon spill as a risk, up from 16 percent a year ago.