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Risk managing oil explorations ERM 03

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The major oil spills of the last forty years have necessiated the updation of Risk Management Techniques in Oil explorations

The major oil spills of the last forty years have necessiated the updation of Risk Management Techniques in Oil explorations

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  • 1. Risk Managing Oil Explorations
    Energy Risk Management Series ERM 03
  • 2. Is a Risk an uncertainty?
    No longer
    In these competitive times , when just in time supply chain management and incremental pricing is the order of the day, risk is no longer an uncertainty.
  • 3. The new Risk concept
    It is a definite probability
    Risk is now, best defined as a distinct probability of an event that could be
    either an opportunity or a threat.
  • 4. Risk as an opportunity !
    When it is good it is a opportunity.
    The drilling exploration project at the Gulf of Mexico was one such opportunity which could create billions of dollars of oil revenue for BP and its partners APC (25% shares) and Mitsui (10% shares) in the project.
  • 5.
  • 6. Risk as an threat !!!
    When it is bad it is a threat.
    The explosion at the Macondo prospect in the Gulf of Mexico, that first caused the oil rig to explode, then destroyed the marine life of the ocean, and may ultimately consume the risk taker BP was one risk that went bad, to become a threat.
  • 7. After the explosion
  • 8. But it had happened before …California1969
  • 9. How did it happen again… ?
    The causes of failure was similar both in the California and Louisiana disasters 40 years apart.
  • 10. The Oil Cos. in the 1969/2010 spills
    1969 Oil spill
    Operator: Union Oil Co.
    Well: Dos Curados field
    Depth: 3479 feet
    Distance from coast 6 miles
    Oil spill
    Operator: BP
    Well : Macondo Prospect
    Depth : 5000 feet
    Distance from coast 41miles
  • 11. They rushed the operations
    Oil spill
    TIME RUSH
    BP was behind schedule and was bypassing safety checks and cement integrity tests to speed up the operations.
    1969 Oil spill
    TIME RUSH
    Union Oil Co. had drilled the oil well in 14 days time and was speeding up the finishing operations when disaster struck.
  • 12. They squeezed the cost
    Oil spill
    COST CUTTING
    BP used a single segmented casing to cut cost, as per the Congressional enquiry report. No Federal regulations exist today but industry best practices point to a double casing norm.
    1969 Oil spill
    COST CUTTING
    UOC had used a single casing of 238 feet to cut cost. Federal Regulations needed 300 ft conductor casing and 870 feet secondary casing at that time .
  • 13. And what happened ?
    Oil spill
    A blow out
    BP overruled the written recommendations of the cementing contractor Halliburton and bypassed cement integrity tests in reckless time & cost cutting . Oil and Gas leaked through the cementing causing a blowout , an oil spurt BOP failure and an explosion.
    1969 Oil spill
    A blow out
    After worker’s pulled out the drill bit a spout of high pressure gas , oil and drilling mud burst through into the drilling rig.
  • 14. When they capped the geysers forcibly , new ruptures appeared through weak spots in the cementing and from the ocean floor. So the capping was successful only after relief wells relieved the pressure.
    Drill & BOP superimposed . Not to Scale
  • 15. And it caused a …….
    Oil spill
    A blowout followed by an explosion on the rig
    The blowout occurred on the BP-Transocean rig as the blowout preventer failed . Possible forced capping led to fire and explosion killing 11 people and sinking the Deepwater Horizon oil rig .
    1969 Oil spill
    Sub-surface oil spill
    Attempts to cap the hole and blind ram it resulted in 5 huge oil plumes to rise from the ocean floor around the rig.
  • 16. And what happened after the explosions?
    Both UOC and BP went in a denial mode, understating the volume of spill, the effect on marine life and the environment.
  • 17. The offenders were allowed to control access to the site and manipulate evidence.
    The sites around the rig were promptly sealed off by the Oil Cos. making independent verification of spill difficult, though in the case of UOC the sealing was largely ineffective due to close proximity of site to the land.
  • 18. The Oil devastated marine life and beaches
  • 19. The statements by both oil majors were repeatedly misleading.
    1969 Oil spill
    UOC Statements
    Initially 120 barrels /day
    Revised 5000 bpd
    Independent assessment 10,000 /20,000 bpd
    Oil spill
    BP Statements
    Initially 5000 barrels/day
    Revised 30,000 bpd
    Independent assessment 35,000/60,000 bpd
  • 20. BP plays the blame game
    Oil spill
    BP remains unrepentant . It now blames both its contractors Halliburton and Transocean in an internal enquiry report, possibly in a strategy move to reduce its own legal liability. It has also launched a multimillion dollar exercise to advertise and buy out the media, the NGO’s and has even influenced news coverage on Google search.
  • 21. Identified causes of failure :
    • Well operators speeded up the operation
    • 22. Operators ignored risk prevention procedures
    • 23. Operators bypassed quality norms as per
    prevalent regulations or industry best practices
    • Operators changed proven designs to cut cost
    and reduce time
  • 24. Only Financial Risk Planning not enough
    Operational Risk Plans Are Essential
    Whereas BP had an excellent financial risk planning, its operational risk management (ORM ) was totally absent. Even 90 days after the incident BP failed to submit its updated emergency plan for crisis management which is mandatory as per the regulator BOEM (previously MMS ).
  • 25. Operational Risk Management (ORM)
    ORM has principally three stages :
    Risk prevention
    Risk Mitigation
    Prevention Of Risk Escalation
    BP failed to address all three of them adequately.
  • 26. ORM must be integrated with QAP
    BP flouted risk prevention operations during design, drilling, cementing, and testing of the well prior to the accident. Operational Risk Prevention procedures are normally built in the Design and Quality Assurance Plans QAP either derived from industry standards or best practices norms.
  • 27. Media Feeds need Transparency
    Public dealing needs transparency
    One of the major needs of crisis project handling is transparency. Despite a high voltage media campaign with robotics and video support, BP could not ensure transparency of feeds. It failed to develop a credible communication process and lost its brand image despite a lavish media budget, and big ticket lobbying.
  • 28. Social Responsibility Is Needed
    Business Practices must evolve
    Big Business has increasingly been accused of lack of social responsibility, as they take added risks to increase profits. There is nothing wrong in risk taking for profitability, so long as it does not adversely affect the environment and the social fabric. In short business practices must be socially responsible.
  • 29. What can still save BP
    Nationalism before Environment !
    Despite all the environmental damage it has created, the Anglo Dutch support and the loyalty of British nationals and share holders may still save BP.
  • 30. Legal Process can be a savior
    Legal Delays Will Help BP
    The lengthy process of law in deciding such cases as seen in the Exxon Valdez oil spill will also work in its favor. So BP which failed in ORM, Media Management and Social Responsibility may still survive due to its good political and legal risk management.
  • 31. Mergers and Acquisitions
    Partial disinvestment or sell off
    BP has an extremely strong trading arm and some of the fastest selling brands in the business. Partial disinvestment of BP is possible raising added cash to pay off its liabilities on a year by year basis. A buyout by any other oil major is also possible.
  • 32. Loss of Brand image
    Not meeting social responsibilities and damaging the environment and livelihood of thousands of fishermen was not forgiven. It was punished by loss of brand image. This was perhaps the biggest loss of BP which overnight became the most hated company not only in the US but also globally.
  • 33. Social Media Justice
    Brand Image Loss is today’s Swift Market Place Justice which is more effective and telling than long drawn judicial indictments which big business try and manipulate. This takes place initially through word of mouth and then spreads through the social media. The 1969 Goo (Go Out Oil ) movement and the 2010 Boycott BP movement were such campaigns.
  • 34. Higher Risk Can Lead To Both Higher Profits or Losses
    Risks must be managed
    Time Reduction is an legitimate business objective
    And Cost Cutting is an effective business tool
    But both increases risk of failure if not well managed So it is important for Big Oil to understand and respect the environmental laws and ethics and manage the risks professionally and efficiently.
  • 35. For Oil explorations to continue the following Risks need be managed.
    Operational Risk ( ERM 03/1)
    Environmental Risk (ERM 03/2)
    Financial Risk (ERM 03/3)
    Social, Media, Legal and Political Risks
    (ERM 03/4)
  • 36. References and Sources
    Ecology to Economics blog Ecothrust0r at Amazon Kindle http://bit.ly/7XwAG
    Article in Economic Times
    Oil: A tale of 2 cartels
    Risk Managing Oil Prices
    Technorati Articles on Oil Exploration and Environment
    News Collective
    Are BP’s Risk Management Techniques Tested ?
    Sources : Bloomberg, Business Week, The Economic times, OPEC, The Oildrum , Telegraph U.K., Wikipedia, The Guardian, Financial Times, BBC, Daily Bahrain and U.S. Senate Proceedings.
    FOR ANY QUERIES MAIL TO ecothrust@gmail.com
  • 37. Other Presentations by us
    Climate Change Positive Solutions Series CE-01
    http://www.slideshare.net/SandipSen/cop15bullshitting-15-years-on-climate-change
    http://tinyurl.com/luzxss
    Climate Change Positive Solutions Series CE-01
    http://bit.ly/4kzzIz
    Climate Change Positive Solutions Series CE-82
    http://bit.ly/XUrUd
  • 38. Other presentations by us
    Business Risk management Series
    http://bit.ly/6Es2z6
    Business Risk Case Studies Ba31http://www.slideshare.net/SandipSen/business-risk-case-study-ba31
  • 39. Other Presentations by Us
    Business Risk Case Studies Ba32
    http://tinyurl.com/lnkv9h
    Business Risk Case Study – Ba 33
    http://www.slideshare.net/SandipSen/business-risk-case-study-ba33
  • 40. Other Presentations by Us
    What is Carbon – ERM-01
    http://bit.ly/bjDTl2
    Countering Peak Oil – ERM-02
    bit.ly/c451np
  • 41. COP 15 Failure Analysis
    PART 1 DISTRUST http://bit.ly/5TNFhd
    PART 2 EQUITY http://bit.ly/6dtoYm
    PART 3a TRANSPARENCY Base model http://bit.ly/5oX8GL
    PART 3b TRANSPARENCY assessment
    http://bit.ly/66UBTe