HOUSTON -- Energy companies’ corporate strategies in dealing with regulatory challenges can be either a net hurt or a net help to the bottom line. Success or failure in resolving issues depends, to some extent, on the tone set by all the stakeholders involved, according to Doug McClure, vice president of government, stakeholder relations and legal for Encana Oil & Gas USA.

McClure discussed lessons learned, from his long experience with the regulatory environment, as a member of a panel at the NAPE Business Conference held in February in Houston. He borrowed his reference about tone from the Sarbanes-Oxley Act, which was passed by Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. Companies are asked what tone has been set, at the top level, with respect to internal control structures and systems.

“This can be applied to the regulatory environment in oil and gas as well,” McClure said. “From the regulator to industry, what tone are you setting? That tone can translate to or deviate from what I refer to as regulatory perspective.”

McClure said that the oft-stated desire by oil and gas companies to have “regulatory certainty” is unrealistic. “There is nothing certain in our business,” he said. “Cycles are constantly changing.” But like a baseball umpire, he said, what industry should want from regulations is consistency -- whether they are bad or good. If you have that predictability, you can adjust your game.

Regulatory challenges can dial up the intensity of four main external factors for companies. These are stakeholder interests, shareholder interests, markets and the economy, he said. With stakeholder interests, for example, if regulatory challenges intensify, tensions and conflicts can increase in tandem, pitting industry against industry and more.

Unintended consequences, such as legal challenges, can become a greater risk. From a market and economic perspective, particularly in a commodity-sensitive industry, a change in compliance costs can drive certain capital programs off the threshold of commercial viability, he said.

Some challenges are more easily solved than others. “One town might be focused on nuisance impacts -- road traffic, noise, dust, etc.,” said McClure. This could escalate to a deep discussion involving zoning laws for industry activity, and eventually, an outright ban on activity. This kind of battle has taken place recently in Colorado.

The same thing can happen with capital investment decisions, he said, where sunk or future capital allocations are re-evaluated in light of the regulatory environment. McClure gave as an example Encana’s withdrawal of about $500 million in capital investment when Alberta increased its take of royalties. “You can trace these events back to regulatory shifts in tone.”

Eventually, there can be legal challenges when there are imbalances between factions.

“If nobody is ready to change their mind on anything -- if both are dead set -- you get a fatalistic approach and it’s doomed…it ends in frustration. The hope is that both sides come together with a proactive level of engagement and you reach what I refer to as ‘smart’ regulations -- not perfect, but smart,” McClure said.