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Integrated Producers’ ‘Operational Lapses’ Pose Investor Risks
Integrated oil and natural gas producers have stepped up their game in recent years to deal with “large-scale operational lapses,” but there still are sources of concern, especially oil spills, according to a risk analysis by MSCI ESG Research.
MSCI analysts, which conduct reviews of portfolio risks on a variety of sectors, detailed what they believe are the top risks for the integrated oil and gas sector in a new report, “Large Oil Spills — the Gordian Knot for the Risk Taker?” Analysts rated the investment worth of 30 of the world’s largest oil and gas operators based on their history of spills and environmental management.
“Despite global economic decline, oil prices have remained at a historically high level of roughly US$100/bbl, which has supported the economics of many unconventional petroleum projects,” wrote senior analysts Yulia Reuter and Dana Sasarean. “However, environmental liabilities and ongoing operating costs in projects requiring assumption of greater operational leverage continue to grow, exemplified by clean-ups of marine hydrocarbon spills, water treatment costs in hydraulic fracturing, and tailings remediation in oilsands projects.”
Norway’s Statoil ASA and UK-based BG Group plc, which both have extensive North American operations, are “best positioned” in MSCI’s integrated oil and gas coverage “to manage associated environmental and social impact, including such aspects of hydrocarbon spills.”
However, BP plc, the largest leaseholder in the Gulf of Mexico (GOM), and U.S.-based Chevron Corp. were both singled out by MSCI as having “high-risk exposure to environmental risks…coupled with significant long-term evidence of operational failures.”
BP had several high-profile accidents at its Texas City, TX, refinery, as well as oil leaks in Alaska pipelines. The most newsworthy was the 2010 Macondo well blowout in the deepwater GOM; the London producer recently agreed to resolve some of the billions in U.S. claims but it still faces extensive litigation and financial risks (see Daily GPI, Nov. 16).
Chevron, meanwhile, has seen its reputation tattered by a recent refinery fire in Richmond, CA, as well as long-running environmental litigation related to its Ecuador operations. In addition, Chevron spilled an estimated 2,600-4,000 bbl of oil off the coast of Brazil in November 2011m for which it has paid a $14 million penalty.
Also cited for operational lapses were China’s PetroChina and Sinopec, which “show poor evidence of strong risk management systems to prevent and deal with potential accidents.”
It’s not only offshore accidents that pose risks for energy investors, said MSCI’s analysts. “With the growth of unconventional oil and gas reserves in the companies’ hydrocarbon portfolios, and operations in sensitive ecosystems and jurisdictions with poor compliance standards, risk exposure may continue to increase.”
An “increased appetite for complex and challenging unconventional oil and gas projects, including deep- and ultra-deepwater, oilsands, and shale oil and gas, especially those located in fragile environments such as the Amazon rain forests, marine/coastal areas, and the Arctic, we estimate an increased risk of spills and negative environmental impact.”
Large spills remain an “obvious challenge,” said analysts, but operators are making efforts to reduce and prevent spills. Excluding Macondo and Montara, another huge spill, MSCI estimated that the 30 global integrated producers analyzed had reduced the volume of spills to an average of 10,300 bbl in 2011 from a peak of 17,400 bbl in 2008.
“Statoil and BG are among the companies consistently adopting and implementing best practices and thus are most capable of addressing the risk associated with their core business, offshore oil and gas, and minimize their environmental impact and associated liabilities. BG, for instance, has achieved the lowest rate of spills at a fraction of the industry average at 0.02 bbl/sales.
“Among the supermajors, Shell’s hydrocarbon spills remain notable (average volume of 78,000 bbl/year over 2007-2011 and intensity of 0.21 bbl/sales); however, by 2012 the company has reduced spills by half since the peak of 2008/2009.”
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