Oil and Gas Risk Management

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Oil and Gas Trading Risk Management A Case of
Kenya TanzaniaDr Aloys Rugazia
(PhD)aloys.rugazia_at_afrifalegalconsultants.com
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Introduction

• Risk are the unforeseen adverse contingencies.
• Risk management model differ depending on the oil
  and gas sector within the supply chain.
• The upstream, midstream and downstream may have
  different risk indicators and therefore the
  measure to mitigate them vary. However, all this
  risk are correlated.
• For example, if a fatal accident happens upstream
  then that could affect the midstream sector too.

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The key types of Risk in the Sector

• Health Safety and Environmental Risk
• Social Risk (Failure to obtain the license to
  operate).
• Contractual Risk
• Sabotage and Cyber attack Risks (Engineering
  Solutions)
• Geopolitical Risks

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Health Safety and Environmental Risk

• This invites a systematic process of identifying
  HSE impact of existing new or substantially
  altered projects and establishing mitigation
  required.
• This usually requires
• Concept design and Feed Stage
• EPC stage
• Operation Stage
• Decommission or Proposal Stage

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Accidents

• Fire, explosion, pollution spill, or mine
  collapse, are attributed to
• Flaws in industry or organizational safety
  cultures.
• Insufficient buy in of safety-oriented
  practices by industry leaders.
• Improper or inadequate design of safe systems.
• Insufficient or nonexistent hazard analysis.
• Inadequate management of policy or procedural
  changes.
• Flaws in communication and reporting of hazards.
• Failure to learn lessons from prior events.
• Oil and gas insurance provides a robust blanket
  of protection for companies in the energy
  production sector. Still, this coverage is not
  enough to effectively manage risks on its own.
  Players in the energy sector must commit to
  developing and implementing processes and systems
  that put safety first. Managerial oversight is
  crucial, especially when new systems or processes
  are added to the production model. Also, company
  leaders must use prior events as a learning tool,
  helping them to understand what went wrong and
  how a similar situation can be prevented going
  forward. Systems safety engineering, oil and gas
  insurance, and a top-down approach to
  safety-oriented cultures allow energy production
  companies to thrive even in the face of industry
  challenges

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Mitigation

• System Safety Engineering systems engineering
  has been a vital part of the energy sector for
  the past 50 years.
• Within this broad field, systems safety
  engineering sometimes referred to as process
  safety engineering has played a critical role
  in reducing risks. Working hand in hand with
  other risk management components like oil and gas
  insurance, engineering holds the keys to a safer
  industry.
• System Safety Engineering is the discipline of
  designing and operating safer systems for oil and
  gas production. Accidents can and do occur, but
  with safer systems in place, the risks are
  minimized. Unfortunately, several
  highly-publicized events in recent years, have
  been eye opening.
• This engineering discipline only works if
  industry stakeholders invest in the processes,
  technologies, and operational cultures that
  support safety. In other words, as a risk
  management approach, systems safety engineering
  only pays off when the industry understands its
  true value its ability to protect assets.
• The main Challenge is that this technology are
  oft unaffordable.

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Social Impact Assessment

• The exceptionalities in Africa Upstream sector is
  that they usually begin projects without
  acquiring the license to operate.
• This is the major risk in most African countries.
• The oft outcome of this is resource conflicts.
• Also if social and economic impacts are not
  clearly assesed it could lead to higher
  expectations that usually lead to dissarays in
  the sector and the society.

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Mitigating Social Risks

• Benefit Sharing.
• Seeking license to operate.
• Adequate Compensation to the PAPPs and balancing
  the scope of Extractive Activities.
• Transparency and Accountability.
• Diversifying the economy.
• UN Guiding Principles on Human and Business
  Rights (Standards).

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Legislative Measures

• Section 2- of the Kenyan P.A.

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Kenya PA
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Legislative Measures Tanzania
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Contractual Risk FEED

• Given that oil companies in the private sector
  are planning to invest 1.1 trillion in new
  production over the next decade, and the
  propensity for these contracts to overrun it is
  reasonable that Contract Managers responsible for
  managing this investment need Fit-for-Purpose
  contract risk management solutions.
• Front End Engineering (FEED) contracts, Engineer,
  Procure, Construct (EPC) contracts, Engineer,
  Procure, Construct, Install (EPCI) contracts, or
  Turnkey Contracts that require specialist
  technical skills and commercial capabilities.
• So, it is important to know what aspect of the
  management of these capital investment contracts
  triggers special business requirements that need
  to be addressed.

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Ctd

• A central, reliable contract management system,
  utilized by all parties to the contract, plays an
  invaluable role in capital projects.
• It prevents a hung jury situation when claims are
  being negotiated it acts as a referential point
  of truth in establishing Who made What
  decision When as the contract is executed and
  unforeseen events unfold.
• It adds context-sensitive information and
  prevents the Blame Game because all decisions,
  all authorizations for contract changes and
  amendments, are captured real-time in the central
  safety net the contract management system.

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Insurance

• Most Insurers protect upstream and downstream
  businesses against liability for damage to third
  parties caused by a wide range of activities
  from seismic surveys, drilling and construction
  to power generation, electricity transmission,
  oil pipeline transportation and refining.
• Covers are usually on the variety of risks energy
  companies face at all phases of the process, from
  exploration through to production. We offer
  protection for onshore and offshore energy risks,
  either separately or as a combined offering on a
  Primary or excess basis.
• Claims-made or occurrence basis.

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Conclusion

• As seen in our presentation, in addition to the
  normal risks. Africa offers a unique geography in
  terms of the recurring social risks in the
  region. Petroleum-related wars have repeatedly
  occurred in Africa. On that topic, one author has
  stated that Africa either trundles with the
  rhythms of violence or appears perpetually bound
  to violence. Studies mention land grabbing and
  lack of transparency and accountability as some
  of the prime causes of social tensions leading to
  aggravated human rights violations against the
  local communities where extractive activities
  take place. Reports establish that petroleum
  conflicts have resulted in over 4 million deaths
  and the displacement of millions of people in
  Libya, South Sudan, Nigeria, Algeria and Sudan.
  Land grabbing from its owners has affected 134
  million hectares in Africa, an are bigger that
  South Africa. In light of this haps, where oil
  and gas are most mined the danger of resource
  curse phenomena loom. So as regulators and policy
  influencers let us go back home and take social
  risks seriously.