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Report: Oil, Gas Companies Fear Rising Prices, Regulation

Two issues -- rising oil and gas prices and regulatory changes -- were selected as the biggest threats to the oil and gas industry, according to BDO USA LLP, which referenced U.S. Securities and Exchange Commission (SEC) 10-K filings for the 100 largest exploration and production (E&P) companies in the U.S. for a new report on industry risks.

The report "Risk Factor Report for Oil and Gas Businesses" also found that nearly every E&P company (98%) is worried about an inability to expand reserves or find replacement reserves, while 97% are fretting over operational hazards, including blowouts, spills and personal injury. Natural disasters and extreme weather conditions and inaccurate reserve estimates concerned 96% of the companies to round out the top five concerns.

"The spike in oil prices resulting from supply issues and ongoing regulatory battles are the issues weighing heavily on the minds of oil and gas executives," BDO spokesman Charles Dewhurst said. "These issues have long been prevalent in the industry, but are tinged with more urgency as significant tax and environmental regulations come closer to fruition and turmoil in the Middle East continues to drive up prices. We expect these to remain top risks for companies for the foreseeable future."

Although every E&P company told the SEC that regulatory issues were a risk, 94% specifically cited environmental restrictions over issues such as climate change. Meanwhile, 69% said they were concerned about greenhouse gas legislation and 52% were worried about the regulation of hydraulic fracturing. The derivatives portion of the Dodd-Frank Act also vexed 63% of the companies.

Carlton Carroll, spokesman for the American Petroleum Institute (API), indicated to NGI on Tuesday that BDO's findings sounded plausible but said the top issue API was focusing on is getting drilling permits issued in the Gulf of Mexico (GOM) more than a year after the Macondo well blowout.

"We have an unreliable and inconsistent permitting process which is extremely slow," Carroll said. "Our folks are waiting to get back to work in the [GOM] and elsewhere and the [Obama] administration has done nothing but shut down our access to domestic resources. That's the main challenge we see."

BDO called replacing and estimating reserves "a risky business."

"Not only do new reserves threaten to turn out dry wells or unsatisfactory levels of production, but industry competition is fierce and companies have to battle over the acquisition of new drilling properties," BDO said. "Estimating reserves is also an inexact science, and 96% of companies are concerned over the financial fallout of inaccurate reserve estimates."

According to BDO, 75% of E&P companies also told the SEC they were concerned about the financial stability of their partners, customers, vendors and suppliers.

"Companies are also uncomfortable with their reliance on third-party-owned pipeline, transportation and processing facilities as even minor disruptions in transportation could have major financial ramifications," BDO said, citing an 83% concern figure.

BDO spokeswoman Emily Weinman told NGI that an executive summary of the report would be available during the week of June 13.

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