Energy firms rethink risk-capital allocation

Today’s capital-constrained environment is driving energy companies to review their approach to allocating the capital required to support risk exposures. David Stokes and Olly Spinks look at the challenges associated with risk-capital allocation and discuss how effective implementation can improve a company’s understanding of risk and risk-adjusted performance

The fallout from the financial crisis has seen a fundamental shift in the attitude of energy companies to their balance sheets. Investment and expansion has given way to capital constraints, asset divestment and a refocusing on core business as the harsh realities of an ongoing balance sheet recession have set in.

This environment is also driving a renewed focus on the approach that energy companies take to defining and allocating the capital required to support their risk exposures. Concern