Risk management aand risk assessment of oil and gas projects

1. Risk Assessment and Risk Management in Oil and Gas Projects Kayode Adebiyi, FCA, MBA QKE Session ICAN/NNPC Abuja Chapter Sept. 16, 2020

2. Our Roadmap E & P Business Risks Risk analysis & Risk assessment Risk- Perspectives Q & A Risk & Uncertainty Management

3. Perspectives on Risk

4. Asset, Vulnerability, Threat, Risk & Control • Asset= anything has value to the organization • Vulnerability= any Weakness of Asset • Threat= any possible Danger • Risk= Vulnerability exposed to Threat • Risk= Vulnerability X Threat • Control= Countermeasure to reduce Risk

6. Risk Diagram Threat Risk Vulmerability • Crocodile is a threat • Possibility of falling is a risk • Imbalance is a weakness Human resource is the most valuable asset

8. Threats everywhere!

9. Goal

10. Risk depends on perspective (1)

11. Risk depends on perspective (2)

12. Risk depends on perspective (3)

14. “Flavors” ofRisk • Riskincludes • Exposure to losses(hazards) • Risk managers avoidrisks • Potential for gain(opportunities) • Risk managers takerisks

15. Why take risks? Try to balance risks and opportunities Risks Opportunities

16. Risk without the expectation of reward is suicide • Attitude to risk: • Where do YOU sit? An old and bold pilot is difficult to find ! Risk Averse Risk Neutral Risk Seeking

17. Risk Increases the More You Don’t Know All The Potential Outcomes The Probability of Occurrence Cost of a Undesirable Outcome

18. Said Another Way:The more you do know and understand about the better long term risk manager you will be. All The Potential Outcomes The Probability of Each Outcome Occurring Cost of Undesirable Outcomes

20. Well, then I guess, we both are in deep trouble “Risk comes from not knowing what you’re doing” - Warren Buffett 14

21. Risk vs. Profitability

22. EODEOD

23. E & P Business Risks and Exposures

24. E &P Projects Characterization E & P Projects Characterization High risk and uncertainty Long lead time Capital and Technology intensive Hidden underground Highly regulated Complicates the risk/uncertainty equilibrium Ready finance and cutting-edge technology Big ticket characteristics

25. E&PProjectsLifeCycle Thelife-cycleofanE&Pprojectcouldbeshownsimplyinfigurebelow andneeddecisionforeachstage:

26. Oil and Gas Risk Exposures Oilandgasvaluechain Exploration & Development Hydrocarbon Production Shipping Refining & Blending Storage Distribution Marketing

27. Oil and Gas Risks and Exposures (E&P cycle) NIGERIAQIT CAMEROUN Abandonment Acreageacquisition LAGO S ReservoirMgt Operations QI L Basinanalysis Facilities installation Exploration and Production Life Cycle Prospectgeneration Facilities construction Facilities design Economicanalysis ATA Field development Wildcat Drilling Field Development Plan Economic analysis Appraisaldrilling 6

29. MainE&PProjectRisks • Exploration • ExistenceofHydrocarbons • MagnitudeofDiscovery • TypeofHydrocarbon • Development • TechnicalRisk • ReservoirDevelopment • Fiscal • Changesinfiscalterms • EconomicRisks • Explorationanddevelopmentcosts • Hydrocarbonprices • Politicalrisk • Nationalization • PolicyandRuleChanges

31. Major Risks Associated with Oil and Gas • Upstream • Well Blowout: Costs of control: • Loss of the Well:

32. Major Risks associated with Oil and Gas • POLLUTION AND OTHER THIRD PARTY LIABILITY RISKS

33. EXPLORATORY DRILLING • PHYSICAL DAMAGE • RIG • DRILLING EQUIPMENT / CONSUMABLES • IN HOLE EQUIPMENT • AUTOMOBILES • CARE CUSTODY AND CONTROL • CARGO

34. DRILLING OPERATIONSOFFSHORE WELL • Drilling Equipment offshore • PHYSICAL DAMAGE and DRILLING OPERATORS LIABILITIES • Drill ships • Jack-up drilling units • Semi-submersibles • Submersibles/swamp barge

35. Construction and Installation • PHYSICAL DAMAGE • CONSTRUCTION INSURANCE ON PRODUCTION FACILITIES (ON/OR OFFSHORE) • DRILLING EQUIPMENT / CONSUMABLES • IN HOLE EQUIPMENT • AUTOMOBILES • CARE CUSTODY AND CONTROL • CARGO • FSO/FPSO AND ALL MOORING FACILITIES

36. PRODUCTION (OPERATION) • PHYSICAL DAMAGE • ONSHORE PRODUCING ASSETS • OFFSHORE PRODUCING ASSETS OIL STOCKS • OIL AND GAS STOCKS • FSO/FPSO AND MOORING SYSTEMS • PIPELINES • DRILLING EQUIPMENT / CONSUMABLES • IN HOLE EQUIPMENT • AUTOMOBILES • CARE CUSTODY AND CONTROL • CARGO

37. Risks Analysis and Assessment

38. Time Zero - Understand theBusiness? • What is the business? • What is the industry? • What is the strategic plan? • – NOW, WHERE, HOW • Who owns the business? • Who runs the business? • How will risk management „fit‟? • What is the Risk Appetite for the company or Project

39. Time Zero – Risk Assessment Questions to be answered • Where do the risks come from? • How big are they? • What are the major contributors? (Time, Cost etc) • What are the risks sensitive to, and how can they be changed? • What level of risk does the company find intolerable, what is considered trivial? • What is it worth doing to reduce the risk? • Fundamental First steps

40. Lloyd’s RegisterEnergy Risk assessment - determining acceptable levels of risk for yourbusiness Companies need to pay attention to risks and have robust processes inplace Decide how far to go with protective and mitigating measures Reducerisk Identifying Managerisk Business risks Consider Regulatory regimes Assessing Examine cost Correctly evaluating Recognise opportunities

42. Risk and Uncertainty Management

43. Risk vs Uncertainty (1)

44. Risk vs Uncertainty (2)

45. Risk vs Uncertainty (4)

46. Risk vs Uncertainty (5)

47. Risk vs Uncertainty (6)

49. RISKMANAGEMENT‹#› Importance of RiskManagement CashFlow Stability Credit Longevity