Processing Magazine

US oil and gas industry execs expect new regulation to lead to consolidation

May 7, 2013
oil refinery
One likely consequence of the new regulation is an increase in the number of mergers and acquisitions among oil and gas operators in an effort to reduce the impact of rising compliance costs, the research showed.

The United States is likely to maintain a leading position in global oil and gas production, but new regulation may cause a wave of consolidation amidst concerns about increasing operating costs, just-released research from technical service provider GL Noble Denton suggests.

However, regulatory changes are not expected to adversely affect U.S. appeal as an investment destination. Instead, most oil and gas companies believe they will only enhance the industry’s reputation and safety.

More than 100 senior oil and gas professionals in the United States took part in the study, which gauged their attitude toward the new industry regulation. It revealed that 85% of those interviewed expect regulation to become more stringent over the next couple of years and 61% believe that new regulation will have at least some negative effect on their business. More than three-quarters felt that it would put extra administrative workload on companies.

RELATED: US oil and gas reserves outstrip previous estimates

However, only 17% of the panel expected that the changes would prevent the United States from remaining a global leader in the oil and gas industry. Nearly half of those polled said that the new regulation would result in better safety, while 76% supported a goal-oriented approach to compliance instead of a more prescriptive approach.

The study also found that more than four in five professionals expected a rise in compliance costs and 57% thought that new regulation would make businesses more cautious in risky endeavors. Just one in 10 industry representatives agreed that U.S. authorities were doing what is necessary to prepare the industry for the changes.

RELATED: New report calls for tough emissions regulation for Canada's oil and gas industry

New regulation of the U.S. oil and gas industry focuses mostly on improving safety, according to the OilVoice website. The need for change became pressing after the Macondo incident in 2010, when a BP oil rig exploded, killing 11 people and injuring 17 others.

One likely consequence of the new regulation is an increase in the number of mergers and acquisitions among oil and gas operators in an effort to reduce the impact of rising compliance costs, the research showed. Almost three in five of those surveyed believed that only large companies would be able to meet the costs and remain competitive under the new law. However, the sentiment for future investments remains positive, with half estimating that investments would either increase or remain unchanged, compared with a quarter who claimed that the new rules would lead to a drop in investors' interest.

Many operators believe that new law will restore public trust in the sector and help oil and gas businesses to boost their reputation. In fact, a number of big companies are already implementing the tougher measures globally in an attempt to gain an early advantage over their competitors.