Comprehensive Risk Evaluation Approaches for International E&P Operations
- Jay B. Clare (URS Corp.) | Louis J. Armstrong (URS Corp.)
- Document ID
- Society of Petroleum Engineers
- SPE Projects, Facilities & Construction
- Publication Date
- September 2006
- Document Type
- Journal Paper
- 1 - 6
- 2006. Society of Petroleum Engineers
- 4.1.9 Heavy Oil Upgrading, 7.2.5 Emergency Preparedness and Training, 4.5 Offshore Facilities and Subsea Systems, 6.1 HSSE & Social Responsibility Management, 4.2 Pipelines, Flowlines and Risers, 7.2.1 Risk, Uncertainty and Risk Assessment, 6.1.5 Human Resources, Competence and Training, 7.2.3 Decision-making Processes, 6.6.2 Environmental and Social Impact Assessments, 6.5.3 Waste Management, 6.5.5 Oil and Chemical Spills, 4.3.4 Scale
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Managers of E&P projects and operations are often required to make decisions on the basis of a variety of factors including, but not limited to, safety, finance, security, and company reputation. Often these factors are hard to quantify or may be in direct conflict with each other. Therefore, it is critical that decision makers use an approach to assess risks associated with each factor in a consistent and defensible manner. The selected approach needs to be robust enough to quantify the risk sufficiently, but simple enough to allow for ease of use and interpretation of results. In this paper, we present several approaches by which risk criteria can be defined, and then present resulting risk profiles for E&P operations in developing nations, thereby increasing the number of tools available to those faced with making such business decisions.
Business risk may be defined as a condition involving exposure to events that would have an adverse impact on a company's objectives (Bowden et al. 2001). Risk, in this context, is understood to be determined by a combination of the likelihood of an event occurring and the magnitude of its consequences. An oil company's business-risk portfolio may include events, projects, or operations with potential for impacts on the company's capital investments, physical assets, revenue, worker health and safety, public welfare, natural environment, company reputation, security, and long-term legal liability. From the above abbreviated list, the reader should note that a company's business-risk portfolio may be influenced by a large number of variables including whether the company operates on a local, national, or global scale; the political sensitivities of local communities; precedents in the company's operating history that have "sensitized?? it to certain risks, and so on. Given the large range and resulting large number of potential risk factors, it is important that each risk evaluation first assess what types of risk will be considered in the evaluation.
The major components of a risk evaluation are shown in Fig. 1.
This basic methodology has been used by many to assess a variety of business risks. For example, Kulkarni and Conroy (1994) presented a pipeline-inspection and -maintenance-optimization system on the basis of this basic risk-evaluation methodology and the principles of decision analysis. The use of this basic methodology to develop risk-mitigation policies was demonstrated by Kulkarni and Huntsman (1992) in relation to landslide risks. Environmental-liability-prevention advocacy in the oil industry has begun to focus on holistic financial decision-making frameworks that consider the added value of semi- and nonquantifiable factors such as educational opportunities, community engagement, biodiversity benefits, and enhanced company reputation. Aven and Floerenaes (2004) describe a risk methodology used by Statoil that focused on how to make consistent investment decisions in light of country risk events whereby project profitability is comparable across countries. Recently, the development of comprehensive risk-evaluation approaches has been driven by the Sarbanes-Oxley Act of 2002 in the United States (Wood and Randall 2005a, 2005b). Within the E&P industry, various methodologies have been used for business-risk evaluation, spanning the gamut of potential exposures including the evaluation of the probability and consequence of accidental oil releases, geohazards, pipeline failure, and many other risk scenarios.
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Aven, E. and Floerenaes, S. 2004. Country Risk: Quantitative Measurement andAnalysis. Global Assn. of Risk Professionals 18 (May/June):44.
Bowden, A.R., Lane, M.R., and Martin, J.H. 2001. TripleBottom Line Risk Management, Enhancing Profit, Environmental Performance, andCommunity Benefit. New York City: John Wiley & Sons Inc.
Fenton, C., Jayson, D., Gillies, M., and Parkin, A. 2002. Integrated GeohazardsEvaluation and Risk Assessment for Subsea Facilities. Paper OTC 14271presented at the Offshore Technology Conference, Houston, 6-9 May.
Kulkarni, R.B. and Conroy, J.E. 1994. Pipeline Inspection and MaintenanceOptimization System (PIMOS). Paper presented at the Fourth Conference onPipeline Risk Assessment, Rehabilitation, and Repair for Scientific Survey andGulf Publishing, Houston, 12-15 September.
Kulkarni, R.B. and Huntsman, S.R. 1992. Risk Analysis of Landslides in theOakland Firestorm Area. Paper presented at the Annual Meeting of the Soc. ofRisk Analysis, San Diego, California, 16 November.
Smith, N.T.G., Jayson, D.M., Fenton, C.H., and Gillies, M. 2002. Terang/Sirasun Field Development:Geohazards Engineering. Paper SPE 77819 presented at the SPE Asia PacificOil and Gas Conference and Exhibition, Melbourne, Australia, 8-10 October.
Wood, D. and Randall, S. 2005a. Implementing ERM-1: The Importance ofPerspective. Oil & Gas J. 103 (11): 18.
Wood, D. and Randall, S. 2005b. Implementing ERM-2: The Link with RiskManagement. Oil & Gas J. 103 (12): 20.