Regulatory risks

Policy makers continue to signal support for action to limit climate change. The introduction of increasingly stringent climate change laws and regulations in numerous countries could compel oil & gas companies to curtail, modify or cease certain operations or implement temporary shutdowns of sites. These actions could significantly reduce profitability over time. Many oil & gas companies have operations in over 50 countries, all with differing degrees of political, legal and fiscal stability. This exposes operations to a continuous review of changing laws and their license to operate. Any of these, individually or in aggregate, could have a material adverse effect on a company’s financial condition, including operating income, cash flow, and reputation.

Operational

- Changes to trade compliance regulations e.g. In Norway, carbon sequestration has been made a condition of extraction.
- Unforeseen or newly introduced regulation, leading to higher operational costs, such as energy and/or transportation costs.

Metric: Reporting on local regulation

Environmental taxes

- Introduction of carbon price schemes, with over 50 already in place around the world.
- Fines related to any unsuccessful litigation cases.
- Changes to regulatory enforcement leading to additional build costs e.g. stricter flaring requirements.
- Forced divestment of assets.

Metric: Exposure to countries with carbon tax

Project cancellations

- Regulations designed to gradually limit fossil fuel use may negatively impact the development of new projects, due to a projected decrease in demand for their output.
- This could lead to project cancelations, as well as a write-down in the value of existing assets.

Metric: None

License to operate

- Additional compliance obligations & changes to disclosure requirements add to administrative burden.
- Local product content requirements in favor of a lower-carbon energy mix, lower the share of fossil fuels e.g. addition of biofuel.
- A cancelation or forced renegotiation of contract rights.

Metric: Number of legal disputes in progress

Opportunities: Staying ahead of regulation can lead to using lower-carbon (more efficient) transportation, production and distribution processes, lower environmental taxes, lower legal costs and improve access to capital. It will also secure a future license to operate.