Oil and gas exploration is known to be highly risky and cost-intensive projects that require capital investment decisions that are evaluated all the way from initiation of upstream explorations through midstream and downstream activities (Inkpen and Moffett, 2011). Risks in a project are an uncertain occurrence that can have a negative or positive impact (i.e. opportunities and threats) on ‘project objectives.’ The risk in a project also includes proactive management of all stakeholders involved that can have an impact on these goals, positively or negatively (PMBOK® Guide, 2013).

1. Risk Factors and Risk Appraisals – HH Field Development Project
Published: February 27, 2016
Introduction
Oil and gas exploration is known to be highly risky and cost-intensive projects that require
capital investment decisions that are evaluated all the way from initiation of upstream
explorations through midstream and downstream activities (Inkpen and Moffett, 2011). Risks
in a project are an uncertain occurrence that can have a negative or positive impact (i.e.
opportunities and threats) on ‘project objectives.’ The risk in a project also includes proactive
management of all stakeholders involved that can have an impact on these goals, positively or
negatively (PMBOK® Guide, 2013).
Risk Factors and Risk Appraisals - Horse Hill Project
Risk management in regards to decision making in the oil industry is conceptually difficult
decisions that management faces because their characteristics are different in most cases
(Walls, Morahan and Dyer, 1995).
Organizations distinguish risks as a consequence of uncertainty in a project and organizational
objectives. That means both organizations and stakeholders can have a different approach to
risks or perceive risks differently. PMBOK® Guide (2013, p.311) classifies these attitudes as
‘three themes,’ i.e. “risk appetite, risk tolerance and risks thresholds” in projects. Whereas “risk
appetite” is an organisations and stakeholder acceptance of uncertainties in projects and the
‘risk tolerance’ is the ‘amount’ and organisation or stakeholders in a project will endure and
‘risk threshold’ is a measurement of the level of uncertainties that can impact stakeholder’s
interests that corporations can accept or not accept the risks that are set (PMBOK® Guide,
2013).
UKOG has conservatively estimated oil reserves (i.e. 50 mmbbl) on the Horse Hill licenses to
have a tremendous impact on the UK’s economy (Moylan, 2015).
Components of risk probabilities in the Horse Hill development projects are:

2.  Stakeholder’s involvements and ownership structure in HHD Ltd., including its equity
and debt partners – High impact.
 Exploration, i.e. a reservoir may be smaller than anticipated, the quality of oil and well
characteristics – High Impact (Suslick and Schiozer, 2004).
 Infrastructure, i.e. planning, schedule, EPCI constructions for drilling site, pipeline, the
refinery and choice of technologies – High Impact (Suslick and Schiozer, 2004).
 Environmental, i.e. drilling, pipelines and refineries could cause harm on “groundwater,
soils, surface, air pollution, vegetation and wildlife’s” – High impact (Van Hinte,
Gunton and Day, 2007).
Different stakeholders are identified in the Horse Hill development as shown in Table 1
(UKOG, n.d.). These are stakeholders that can influence the project and is presented with a
various level of risk probabilities in the decision-making process:
Stakeholder’s Interests in the Project Stakeholders Influence
Horse Hill Developments Ltd.
(‘HHD’)
Operator of Horse Hill 65%
participating interests
High
UK Oil & Gas Investments
(‘UKOG’)
30% direct interest in ‘HHD,'
and 1.02% interest through
Angus Energy
High
Angus Energy 6% direct Interests in ‘HHD.' Low
Stellar Resources plc
10% direct interests in
‘HHD.'
High
Alba Mineral Resources plc
10% direct interests in
‘HHD.'
High
Solo Oil Plc 10% direct interests in
‘HHD.'
High
Evocutis Plc 2% direct interests in ‘HHD.' Low
Publically held Equity
32% direct interests in
‘HHD.'
High
UK Government
License owner and Fiscal
Regime.
High
Surrey County Council
Environmental and Social
interests in the project.
High
Oil and Gas Authority (“OGA”) Approval for the flow test High
Environment Agency (“EA”)
Consent to a flow test in the
project.
High
Schlumberger
Exclusively Service
Contractor to UKOG.
Medium
Xodus Group Ltd ("Xodus")
Service Contractor for
Petrophysical evaluations, 2D
Seismic.
Medium
NUTECH
Service Contractor Rock
Sample Analyses and
Interpretation.
Medium
Table 1. Stakeholders in Horse Hill Development Project
Source: UKOG (n.d.)

3. The different level of influences and the probabilities is defined as follows:
 High Level - Direct interest in the project and have an impact on the decision-making
process and its financial objectives and the outcome of the project.
 Medium Level – Does not have a direct effect on commercial financing or decisions
making of the project other than supporting the decision based on findings and
operational impact, cost and time.
 Low Level – Little effect on the project decision-making other than advice and
supporting roles due to its low level of a stake in the project.
All stakeholders have different needs and interests of the project, and their needs must be
managed accordingly through the creation of a ‘risks register’ that will identify, plan, manage
and control stakeholders. That would typically be performed through a stakeholder analysis
process where one have identified stakeholder expectations and their impact. Moreover, the
project manager must develop appropriate strategies that will engage them throughout the
process and also built a communications plan for continuous communications to understand
their expectations and needs (PMBOK® Guide, 2013).
Concluding remarks for the Horse Hill development projects
Copeland and Weston (1983, p. 17) stated, “The investment decision is essentially how much
not to consume in the present so that more can be consumed in the future which is to maximize
the present value of lifetime consumption.” With this in mind and based on the structure that
the fiscal regime of UK that has “concession regime based on profit-based special taxes and
corporate income tax and ring-fencing rate” and its political stability (EY, 2014). It would be
useful based on the tax structure for HHD that can defer losses and spread their risks between
stakeholders should preferably negotiate a typical joint venture contract between the
government and its stakeholders.
References
Copeland, T., E., & Weston, J.,F. (1983) ‘Financial Theory and Corporate Policy,’ Addison-
Wesley Publishing Company Inc., [Online]. Available from:
http://afa.cwslive.wiley.com.liverpool.idm.oclc.org/SpringboardWebApp/userfiles/afa/file/Free%
20Textbooks/Financial%20Theory%20and%20Corporate%20Policy_Copeland.pdf (Accessed: 27
February 2016)
EY. (2014) Global oil and gas tax guide [Online]. Available
from:https://web.archive.org/web/20150501041355/http://www.ey.com/Publication/vwLUAs
sets/EY-Global-oil-and-gas-tax-guide-2014/$FILE/EY-Global-oil-and-gas-tax-guide-
2014.pdf (Accessed: 27 February 2016).
Inkpen, A.C. & Moffett, M.H. (2011) The global oil & gas industry: management, strategy &
finance. Tulsa, OK: PennWell [Online]. Available from:
http://library.liv.ac.uk.ezproxy.liv.ac.uk/record=b2632439~S8 (Accessed: 27 February 2016).
Moylan, J. (2015) ‘Oil discovery near Gatwick airport “significant”’ [Online]. Available
from: http://www.bbc.com/news/business-32229203 (Accessed: 27 February 2016).
Project Management Institute. (2013) A guide to the project management book of knowledge
(PMBOK® Guide). 5th ed. Newton Square, PA: Project Management Institute, pp. 125 – 131.

4. Suslick, S., B., & Schiozer, D., J. (2004) ‘Risk Analysis Applied to Petroleum Exploration and
Production: An Overview,’ Journal of Petroleum Science and Engineering, Vol. 44, No. 2,
pp. 1 – 9.
UKOG (n.d.) ‘2015 RNS News; 2016 RNS News,’[Online]. Available from:
http://www.ukogplc.com/page.php?pID=88; http://www.ukogplc.com/page.php?pID=110
(Accessed: 27 February 2016).
Van Hinte, T., Gunton, T., I., & Day, J., C. (2007) Evaluation of the assessment process for
major projects: a case study of oil and gas pipelines in Canada,’ Impact
Assessment and Project Appraisal, 25:2, pp. 123 – 137.
Walls, M.R., Morahan, G.T. & Dyer, J.S. (1995) ‘Decision analysis of exploration
opportunities in the onshore US at Phillips Petroleum Company’, Interfaces, 25 (6), pp. 39-
56.