Reserves, policy top oil industry risks - report

LONDON, May 13 - Access to reserves, unsettled energy policy agendas and price volatility pose the top risks to the oil and gas industry in 2009, a wholesale change from last year, analysts at Ernst & Young said in a report on Wednesday.

The 2009 Ernst & Young business risk report, oil and gas, ranked the top ten industry risks based on interviews begun in the third quarter of 2008 with oil and gas commentators, academics, sector professionals and the company's own analysts.

In the 2008 report the top three risks the industry faced were human capital deficit, worsening fiscal terms and cost containment.

Oil reached a record price above $147 a barrel last July, but fell to below $34 a barrel by December as the global economy contracted. On Wednesday U.S. crude was trading at $59.65.

"Events of the last six months have shown how quickly and dramatically market conditions can change," report author Wendy Fenwick wrote.

Citing ecological, technological and political challenges faced by independent oil companies, Ernst & Young said the geopolitical consequences of 2008's commodity price surge and plunge continued to reverberate into 2009.

"Operating in politically uncertain regions can expose companies to challenges such as unpredictable government interference, changing fiscal regimes, annulment of contracts or civil unrest."

The report said uncertain national energy policies based on deteriorating government finances in 2009 will create "more noticeable conflicts between environmental and non-environmental policies."

"A global economic downturn and commodity price volatility have unsettled the already volatile energy policy agenda, which fluctuates among the competing goals of security of supply, climate change considerations, ensuring affordability and meeting demand growth."

The report also highlighted last year's record oil price and subsequent fall by two-thirds and said interviewees said the greatest risk to investment strategies this year was a big swing in prices.

"Companies that invest in long-term oil projects with a high marginal cost of production, such as deepwater drilling as well as oil sands, are likely to the the most vulnerable," Ernst & Young analyst Marcela Donadio wrote in the report.

"Companies will look to avoid locking high costs into drilling plans in an environment of significantly reduced commodity prices."