Royal Dutch Shell plc (ADR) (RDS.A), Exxon Mobil Corporation (XOM): What Keeps Energy Executives Up at Night?

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Besides profits, energy companies care about a lot of things. But if they had to pick a few, what would they be?

According to a recent report by Ernst & Young, which surveyed more than 100 energy company executives from 90 companies in 21 countries, oil and gas companies’ top priority is health, safety, and the environment.

The report, titled “Business Pulse: Exploring the Dual Perspectives of the Top 10 Risks and Opportunities in 2013 and Beyond,” further found that price volatility, access to reserves and markets, cost escalation, and uncertain energy policy were the next largest business risks identified by the executives surveyed.

Royal Dutch Shell plc (ADR) (NYSE:RDS-A)

Other top priorities/risks
A new entrant into the list of top 10 risks this year was IT security, referring specifically to the threat of cyber-attacks and cyber-theft, which have increasingly plagued both private businesses and international organizations over the past few years.

Another major risk that even got its own category was the increasing scale and technical complexity of new projects — a development that’s largely a consequence of the end of the era of “easy” oil. As oil companies attempt to offset sharp declines from maturing reserves, they have to venture into some of the harshest, most remote regions of the world, where costs and uncertainties are both sky-high.

Offshore exploration risk
Deepwater locations, especially off the coasts of Brazil and West Africa, have emerged as popular hotspots. For instance, Brazilian oil major Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is planning to drill exploratory wells off the coast of Tanzania, where it holds 50% stakes in two offshore exploratory blocks, while Chevron Corporation (NYSE:CVX) recently announced that it will move forward with the development of the Moho Bilondo “phase 1 bis” and Moho Nord projects located offshore the Republic of Congo.

While some of these ventures turn out to be quite successful, others don’t pan out too well. Just take a look at Royal Dutch Shell plc (ADR) (NYSE:RDS.A), which has plowed billions into its operations in Alaska — a venture it recently shelved because of weather-related and other challenges. The Hague-based oil giant has also taken heat for operational blunders in Nigeria, where oil spills, theft, and vandalism have cost the company 60,000 barrels of oil a day in lost production.

Cost overruns and delays
In additional to operational mishaps, oil and gas companies continue to be plagued by projects that repeatedly run over budget and over time. According to an assessment by Independent Project Analysis, the typical exploration and production “megaproject” ends up being 25% over budget and takes 22% longer to finish that initial estimates.

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