Unconventional oil exploration could be financially disastrous, warns Co-Op

Companies rushing to exploit unconventional oil exploration could be risking severe financial and reputational damage in the long run due to stringent environmental legislation, geo-political pressures and depleting resources, according to the Co-Operative Asset Management.

Recent worries over oil reserves coupled with high prices have led to a surge in the development of unconventional oils, such as the Canadian oil sands, but with these resources being up to three times more carbon intensive to extract than traditional means the effect on the environment could be extremely detrimental, warned the group.

Further more, companies involved in these methods are failing to account for future legislation over carbon emissions, spiralling operational costs and the extent to which they will need to clean up the local environment. 

Ian Jones, head of responsible investment at Co-Op, said: 'As Investors, we understand the challenges global energy companies face in terms of geo-political pressures, scarcity and resource nationalism. However, the days when oil companies can escape payment for carbon emissions are increasingly numbered.

'Existing and impending regulations are placing a price on greenhouse gas emissions and this will hit unconventionals hard due to their carbon intensity. Companies point to technological solutions such as carbon capture and storage, but this is years from being available on a commercial scale. In the meantime, companies may continue to attract high levels of public criticism.'

Jones added that from a regulatory perspective there are parallels with the rush into biofuels.

'Early movers in first generation biofuel technology were not sufficiently mindful of emerging political and consumer anxiety over the social and environmental impacts of biofuel production. As a result, they were not ready when national targets were scaled back by EU regulators, thereby shrinking demand for their products.' He said.