EMERGING RISKS FOR CONTRACTORS IN
SHALE OIL & NATURAL GAS SHA E IL & NATURAL GAS
Ventures into expanding industries or new market niches
can create opportunities for growth and diversification and
lead to financial success. However, such ventures can also
overextend a contractor’s existing capital, equipment, and
staffing – and present real potential for financial loss or
One such emerging market niche, shale oil and natural gas
development, has already shifted the global energy market
and impacted the American economy by increasing the
abundance of domestic energy. However, the current shale
oil and gas boom is dependent on favorable pricing based
on demand and free markets without manipulation. When
oil and gas prices fall, production slows or stops altogether.
Contractors engaged in shale oil and gas development
projects may experience project delays, slow progress payments, or terminated contracts if the volatility results in a
retraction or a bust cycle, as experienced by many emerging
To mitigate these and other risks, it is critical to balance the
The New “Oil Boom”
risk exposures of shale oil and gas development with suf-
ficient controls. As strategic leaders, CFMs should carefully
consider the risk to reward ratio before pursuing projects in
this frontier market. A comprehensive risk assessment can
help identify operational and financial vulnerabilities to max-
imize potential benefits and prioritize risk mitigation actions.
Although shale oil/gas exploration and production is in its
infancy, there is optimism about the shale energy boom.
Due to two complementary oilfield production technological
breakthroughs, hydraulic fracturing (fracking) and horizontal directional drilling, enormous reserves of shale oil and
natural gas deposits are now commercially recoverable.
Fracking uses water, sand, and chemicals pumped under significant pressure to break shale rock formations and release
the trapped gas and oil reserves. Due to the significant
depths of trapped reserves, standard vertical drilling does
not release the pent-up shale oil and gas.
Although the process of fracking has been in existence since
the mid- to late-1940s, the mechanics – and economics – of
fracking changed with the advent of modern directional drilling rigs, ushering in an era of unanticipated exploration and