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

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.

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.

22. Operators ignored risk prevention procedures

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

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