PREAMBLE CoverSlide OVERVIEW Introduction - - PDF document

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• PREAMBLE
• OVERVIEW
• Introduction
• GlobalChangesPostMacondo
• PreMacondoDriversforChange
• EmergingIssues
• SustainabilityRiskinMajorO&GProjects
• UnderstandingtheNewRequirementsonBusiness
• Implementation
• ConcludingRemarks
• ERM

ERMisalong standingconsultancythatspecialisesincreatingbusiness solutions concerning all aspects of addressing Environmental, Health, Safety and Social/Communityrisksastheyariseinmajorcapitaldevelopments.Over40%of theFirm’sfeesarebasedintheO&Gandminingindustries.

• CoverSlide

2.Overview 3.ERM

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• 1) INTRODUCTION
• OnApril20th2010,ablowoutoccurredatBP’sMC252wellfollowedbyanexplosion
• ntheDeepwaterHorizonexplorationriganditssubsequentloss.Elevenpeople

losttheirlifeandintheensuringthreemonthsc.650,000tonnesofoilwasreleased intothedeepwaterGulfofMexico.

• TheresultantslickstretchedfromtheequivalentofRotterdamtobeyondSwansea

andfromSouthamptontobeyondBirmingham.Theestimatedcostsforcappingthe well, oil spill response and community compensation is estimated at somewhere between$2030bn.

• Thedistinctivefeaturesofthisspillarethesize(5millionbbls),duration(15weeks),

the sensitivity of its location (major source for the US seafood and recreation industries),thepresscoverage,lossoflifeandinjury(28)andbusinessinterruption bothoffshoreandonshore.

• TheMacondoDeepwaterHorizondisasterwasnotnewtotheindustry.Whatwas

new was the scale of the resultant impact – social, environmental and ultimately financial.Notunlikethe9/11NYCterroristdisaster,ithadoccurredpreviouslyat much lesser scale, but we were blind to the possible catastrophic impact of the combination of both advancing technology frontiers and human behaviour – technicalandnontechnicalrisk.

• 4.DH

5.GOM 6.UK 7.CNN

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• 2) GLOBALCHANGES–APOSTMACONDOWORLD
• The Macondo disaster has precipitated a wide range of both direct and indirect

changesintheglobalO&Gbusiness.Theplayingfieldforupstreamexplorationand productiondevelopmentshaschangedforever.

• Thedirectchangesinclude:
• IncreasetimeforPermitsapproval:50200days(defactomoratorium)
• Increaseof>25%inrigtimetodrilltocomplywithnewregulations
• ReducedGOMproduction(400,000bpd→60,000bpd(Nov2010)→100,000

bpd(2011)

• Welldesignconstructionoptimisedforcompliance,notproduction
• Rigavailabilitydecrease(46Ap’10→12Dec‘10→34Mid‘11)
• Increased oil spill response prep costs ($1bn Marine Well Containment

Company)

• PremiumIncreases
• Rigsinshallowwater

I1520%

• Deepwateroperations

I2530%

• Deepwaterdrilling

I100%

• BanonGOMdrilling→October2010
• ContinuingbanonAtlanticandEastGOM(OCS)
• Alaska?

9.PostMacondo Issues 8.Overview

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• ChevroninSantosBasin(Brasil)?
• DrillingSafetyRule(BOEMRE)
• (US)
• TheWorkplaceSafetyRule
• (US)
• OSPRAGReview
• (UK)
• ProposedEURegulation(Oct2011)

(Europe)

• ReiteratingtheGOMDrillingMoratorium(AprilOctober2010)
• FrenchandNewYorkstateFrackingMoratoriums
• IncreasedLiabilityCaps
• EU$120m→$250m
• US???
• Difficultyforsmalleroperators
• TheprecedingglobalchangesasadirectresultoftheMacondoincidentareclearly

considerableandwideranging.TheroleplayedbyNTRsasopposedtotechnical risksascausesoftheincidentaremoredifficulttodetermine.Whatperhapsismore pertinent here is once the blowout had occurred, the NTR issues significantly impactedthescaleofthedamagesincurredbyBP.

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• 3)PREMACONDODRIVERSFORCHANGE
• DespitetheheadlinegrabbingnatureoftheMacondoDeepwaterHorizondisaster

and the reported knockon effect on global boardroom thinking regarding risk management in the O&G sector, there had been a lot of activity and momentum created in the industry towards longterm sustainable operation for some time beforeMacondo.

• A number of issues had been driving this thinking in the second half of the last

decade–notnecessarilycatastrophicevents,butequallycriticaltothefutureofthe industry.Themoremacroeconomicoftheseinclude:

• FutureReservesReplacement
• OilPriceEscalation
• GlobalFinancialCrisis(2008)
• All of these perturbations have caused the industry to question how they can

continuetooperateinasustainablemanner–wehaveincreasinglybeenforcedto askthequestion,“Howwellpreparedisourbusinesstooperateinanenvironment

• fincreasingregulation,riskuncertaintyandstakeholderscrutiny?”
• Itisinsightfultolookfurtherintothekeyfactorsorchallengesthathavecreatedthis

changeintheindustry,especiallyastheyrelatetothesearchforreplacement/future hydrocarbons.ItisalsousefultoexaminetherolesofbothtechnicalrisksandNTRs and in particular their interconnectedness. Addressing NTRs often involves technicalsolutions,andsimilarlytechnicalrisksareoftenputforwardintheformof NTRstoenhancetheemotivecomponent. 11.PreMacondo 10.Overview

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• ↓

SOVEREIGNOIL

• Reserves replacement for IOC’s has been the elephant in the room since the 90s.

Roughly70%oftheworld’sfuturereservesareundersovereigncontrolofnational

• il companies (NOCs) and usually accessed by formation of minority JVs. The

valuationofIOCsforsometimehasbeenbasedonreplacementratioofreserves.

• Therapidoilpriceescalationto$150pbinsecondhalfofthedecadesawshortterm

windfallprofitsbeingmadebytheindustrybutatthesametimearapidescalation incostsofmaterials,(i.e.steel,rigsetc.)whichcausedthecancellationordelayof manyprojects.Thistrendwasfurtherexacerbatedbythetransitionfromsocalled “easy oil” to “socially difficult oil” where nontechnical factors were having significantimpactondelaysandsubsequentcostsoftheseemergingmegaprojects. ThescenarioisbesttypifiedbyShell’sdevelopmentoftheSakhalinIIprojectwhere costs blew out from about $5bn to more than $20bn, ultimately resulting in Shell losingtheircontrollinginterestintheprojecttotheRussianNOCGazprom. The ironic fact about this debacle for Shell is that the Russian Government used environmental noncompliance issues or NTRs to force Shell to forfeit control – issuesthatthelocalindustryalmostuniversallyneverareincompliance. ThiswasfollowedbytheGFCin2008whereglobaldemandintheindustryreceded causing significant falls in O&G prices and putting further pressure on project sanctions.

• 13.EasyOil

12.SovOil

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• TECHNOLOGYFRONTIERS
• →

→

• The30%offuturereservesnotunderthecontrolofNOCsisgenerallyconsideredto

beTechnicallyDifficultOil.Thesetechnologyfrontiersincludedrillingatdepth– ShellhasjustcompletedthePerdidoproductionwellintheUltraDeepwaterGOM which is 3000m below the seabed in 3000m of water – the world’s deepest productionwellandtwicethedepthofwateroftheMacondowell.Thetechnology that has taken drilling in several hundred metres of water to 3km and from 1km belowtheseabedto3kmhastaken20yearstodevelop.ButpriortoMacondo,the industryhadnotidentifiedtheNTRslikelytobeassociatedwithadeepwaterblow

• utandimprovedtheresponsecapabilityonanindustrywidebasis.
• In

the Unconventional Resources industry, directional/horizontal drilling technologywhencombinedwithhydraulicfracturinghascreatedarevolutioningas productionfromtightshales/rocksatdepthsofover3000m.Fromafractionofa percent of US gas production, shale gas is now responsible for approximately a quarterofUSproduction.

• However,asIwilldiscusslaterinmytalk,themajorityoftheUGR’srisksareNTR

issues.Fromtheindustry’sperspectiveverylittlehadchangedfromconventional gasdrillingandproduction–exceptofcourseurbanproximity!Byclaimingsecrecy

• verproprietarycompositionsofFracFluids(HaliburtonExemption),theindustry

immediatelycreatedapositionofdistrustinthecommunitywhichwasleveragedby documentariessuchasGasland.

• 14.Technology

15.Depth 16.Technical Frontiers

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• OperatinginfrozenArcticoffshoreconditionspresentsaseriesofuniquetechnical

challenges,includingfunctioningofelectromechanicalandhydraulicequipmentat temps as low as 500C and ice scour of platforms from pack ice. An additional technicalchallengehasbeentheproductionfromreservoirshighineithertoxicor greenhousegases(i.e.H2SandCO2),possiblyrequiringseparationandsequestration

• technology. NTRs can also become nontechnical opportunities that can be

influential in swaying the communal attitude in favour of a project despite there being significant potential NTRs. The key here is to identify them early in the project development lifecycle such that they can be evaluated and built into the business case for project sanction. Large gas reservoirs high in CO2 for example havebeendifficulttodevelopprimarilyforNTRandultimatelyfinancialreasons, butrelativelytechnicallystraightforward.Possiblycombiningsuchaprojectwith broaderindustrialCO2sequestrationneedsmayenablesuchagasdevelopmentto beviable–therealisationofanontechnicalopportunity.

• The technology associated with the deployment of remotely operated vehicles

(ROVs) has played a major role in enabling the IOCs to operate at water depths downto3000m.

• Finallyproducttransportationfromdeep,remoteorhostilelocationsposesaunique

setofchallengesfortheindustrytoprogress.Thisiswellillustratedbytherapid growthinproductionachievedbytheUSShaleGasindustry–untilfiveyearsago, conventionalwisdomsawfutureUSproductioncomingfromAlaskaviapipelines withpricetagsofinexcessof$50bn.ShalegasinTexas(EaglefordandBarnett)and Pennsylvania(Marcellus)isdeliveredshortdistancestotheexistingEastCoastor GulfCoastpipelinenetworks.

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• UNCONVENTIONALRESOURCES

Thelastdecadehasseenadramaticincreaseinthedevelopmentofunconventional resources.Theseinclude:

• ShaleGas/TightGas&Liquids
• CoalSeamGasorCBM
• OilSands–MiningandInsitu

Inthecaseofshalegasandcoalseamgas,thissuddenincreaseindevelopmenthas been facilitated by advances in horizontal drilling and hydraulic fracturing stimulationtechnologies.ThebigadvancesinproductivityfromOilSandsareyetto be realised from insitu gasification technologies. We will return again to look at theseissuesandriskinmoredepth.

• POLITICALINSTABILITY

Access to global resources is always a function of political stability. Traditional areas of significant resources limited by political turmoil are exemplified by Iran, Nigeria,Venezuela,YemenandIraq.MorerecentlytheArabSpringuprisingshave createdproblemsfortheindustryinareassuchasLibyaandSyriathathavebeen previouslyrelativelystable.YoucouldalsotaketheviewthatBPmayhavethought itwasoperatinginapoliticallybenignorbipartisanenvironmentintheUSprevious totheMacondoincident.

• PoliticalinstabilityNTRsarenotnecessarilysolelyencounteredincountiesinastate
• frebellion.Weakorunderpressuregovernmentsinstrongdemocraciescanuse

NTRissuestodeflectormanipulatepressandcommunityscrutiny.

• 17.UCR

18.CBM 19.OilSands 20.Political

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• REMOTELOCATIONS

Increasingly, the residual nonsovereign future reserves are being discovered in relativeremotelocationssuchastheArctic,PNG/TimorSeaandWestAfrica.Each pose technical, logistic and of course social and political issues. Operating quasi failed states pose a range of complex risks associated with security, lack of infrastructureandperceivedequitabledistributionofgovernmentexpenditureina predominantlytribalenvironment.

• SCALEOFPROJECTS

Thecombinationoftechnicalchallenges,increasedlogisticalcosts,politicalriskand dwindling nonsovereign resource availability has driven IOCs to dramatically increasethesizeofnewprojectstoachieveviability.Twentyyearsago,alargeLNG project(inRankinonAustralia’sNWshelf)wasbetween$2bn$5bn.Fiveyearsago, theaveragenewprojectwasoftheorderof$10bn,butwithChevron’sWheatstone LNGat$35bn–thoughtoKashaganatover$100bn,thisaveragehasescalatedto $3050bnrange.Asaresult,nosingleIOCcancarrythefinancialriskalone,leading to more complex shareholder structures, especially where sovereign NOCs participate.

• DuringthelastdecadepreMacondo,theindustryhasbeenconfrontedwithhowto

ensure longterm business value and competitiveness associated with each of the precedingissues.Invaryingways,theyhavebeentryingtointegratesustainability intotheircorebusinesspractices–witharangeofsuccess.

• 21.Remote

22.Scale

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• 4)EMERGINGISSUES
• Atthisjunctureinlate2011,IwouldliketoreviewtheEmergingHSEIssuesthatare

challengingtheindustrytoday.Thekeyareaswheretheseissuesariseareasshown here:

• OffshoreDrilling
• ArcticExplorationandDevelopment
• UnconventionalResources
• AgeingAssets
• Decommissioning
• Energy&CarbonManagement
• SocialLicencetoOperate
• Within the limitation of today’s timeframe, I will focus in more detail on what is

happeninginthetopthreeareas.

• OFFSHOREDRILLING

IntheUS,theMacondodisasterhasprecipitatedmajorrevisionsintheregulationof

• ffshore activities in US waters (OCS). Five months after the Macondo well was

sealed, the US Bureau of Ocean Energy Management Regulation & Enforcement (BOEMRE)issuedtwonewregulations

• DrillingSafetyRule(DSR)
• WorkplaceSafetyRule
• 24.Emerging

Issues 23.Overview

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• The DSR imposes requirements that are expected to enhance the safety of O&G

drilling operations on the Outer Continental Shelf (OCS). It addresses both well boreintegrity(firstlineofdefenceagainstablowout)andwellcontrolequipment andprocedures,incaseablowoutoccurs.

• TherootcauseinvestigationintotheMacondodisasterhasshownthattheeventwas

a result of a complex set of failures around well bore integrity and well control caused by human factors, equipment processes and management of change processes.

• InOctober2011,BOEMREwasformallysplitintoentities
• BOEM
• }
• BSEE(Safety&EnvironmentEnforcement)

}

• AsaresultofMacondo,BPhasestablishedanorganisationcalledBP’sGulfCoast

Restoration Organisation. The objective of it will be to manage BP’s long term responsetotheoilspill.

• TheindustryasawholehascreatedanorganisationinGOMcalledtheMarineWell

Containment Company, initially funded by a $1bn contribution from COP/CVX/XOM/SHELL/BP.Itspurposeistocapturethetechnologyandknow howdevelopedduringtheMacondoresponsetogetherwithconstructingauniversal well containment device capable of containing 100,000bbls and operate at 3000m (10,000ft).

• 25.DSR

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• InEuropeinOctober2011,theEUpublishedaproposednewregulationtargetedat

setting the highest HSE standards for European operations, but which also have implicationsforworldwideoperationsofcompaniesbasedintheEU.

• ThemainpostMacondodriversinEuropearethreefold.

1) Increasing awareness of North Sea Member States of the oil spill consequences in an “enclosed” North Sea (80% of EU production in North Sea) 2) UKandNorwayareengagedinDeepwaterdrillingintheNorthSea 3) 13 Member States (UK, Netherlands, Denmark, Germany, Ireland, Italy, Spain,Greece,Romania,Bulgaria,Poland,MaltaandCyprus)haveawarded

• ffshore O&G exploration licences with HSE regulations varying greatly.

ThereisalsoconcernregardingIncreasingactivityintheBlackSeadeepwater region.

• Currently, the North Sea is considered well regulated and managed. This in the

mainwasaresultofthe1988PiperAlphadisasterandtherecommendationsthat were implemented following the Cullen Inquiry. Likewise the Norwegian regulatoryregimeisconsideredoneoftheworld’smostprogressive.Underpinning both regulatory regimes is a risk based approach typified by the UK Safety Case process.KeyaspectsoftheproposedEURegulationwillinvolve:

• EstablishmentofaNationalCompetentAuthority
• UseofIndependentVerifiersfortechnologyassessment
• RiskBasedApproach
• InspectionsbyNCA
• Transparency–freedomofinformationaccess
• EmergencyResponseCapability
• AdequateLiabilityCapacity

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• In the UK, a month after the Macondo disaster an inclusive combined

industry/regulator/union group called Oil Spill Prevention & Response Advisory Group(OSPRAG)wasmobilisedtoconductareviewofdrillingpracticesontheUK Continental Shelf to determine if it was safe to continue to operate and what enhancementsmightbepossiblefortheexistingpreventionandresponsepractices.

• Thereviewwasstructuredintofourelements
• TechnicalReview
• OilSpillResponse
• Indemnity&Insurance
• EuropeanIssues
• Themajoroutcomesofthismultipartyreviewwere
• OSPRAGCappingDeviceDevelopedandDeployed–itsexistenceevidenced

inthepicture

• WellLifeCyclePracticesGuidelinesandForum
• EnhancedOSRToolkit
• Improved Oil Pollution Emergency Planning (OPEP) process and Testing

NationalContingencyPlan

• IncreasedLiabilitycap(OPOL)at$250m.
• There are a number of key issues that are subject to ongoing evaluation and

resolutionwiththeregulators–namelysubseadispersantuseandinsituburning.

• 26.OSPRAG

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• ARCTICEXPLORATIONANDDEVELOPMENT
• The Arctic region is estimated to contain 22% of the worlds undiscovered

hydrocarbonresourcesmostlyin5relativelyundisputedeconomiczones.

• Norway
• Russia
• US
• Canada
• Greenland
• AccesstotheArcticforexplorationpurposesintheUSsectorhasbeenacontentious

issueforthelastdecade,withShellforexamplereportedlyspendingover$2bnin preparationfordrillingintheChukchiSeabeforereceivingapprovals.Someofthe keyissuesinvolvedwereprotectionofmarinemammalsandlivelihoodsandsocial impactofnative/indigenouspeople.

• FollowingtheMacondospill,therehasbeenalotofscepticismwithregardstothe

industry’s ability to respond to incidents in challenging environments. This is exacerbated by the lack of consistency in regulators acceptance of alternative strategies,especiallyinvolvingtheuseofthelikesofsubseadispersantsandinsitu burning.

• Thekeycontingencyplanningissueswhichlimittheeffectivenessoftheresponsein

arcticenvironmentsincludelackofinfrastructureforequipmentdelivery,personnel supportandwastemanagement.

• 27.Arctic

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• SPE recently held an Arctic Oil Spill Conference in Moscow with broad

representation from the 4 Arctic member regulators, the oil and gas industry, researchinstitutes,environmentalspecialistsandNGO’s.Thekeyissuesaddressed atthisconference,asshownhere,were:

• EnvironmentalRiskAssessment
• EnvironmentalImpacts
• FateandBehaviourofOil
• ResponseStrategies
• In terms of risk assessment, one of the biggest challenges is the difficulty in

extrapolatingresultsfromopenwatertoiceladenenvironments.Prespillbaseline information is scarce and what is available is sometimes dated. The dosage and exposure time in past studies are frequently outside the range observed in actual spillevents.

• AssessingenvironmentalimpactsintheArcticisatwoedgedsword–whereasmost

arcticecosystemsareconsideredmorefragilethanthoseintemperateclimates,arctic coastalresourcestypicallyhaveasensitivitythatislimitedintimeandspace,iein specificlocationsthataregenerallysmallinareaandaresensitiveforashortseason

• ftheyear.
• There is sufficient knowledge on the fate and behaviour of oil in cold water to

predictthelikelyopportunityofdifferentresponseoptions.However,oneareaof uncertaintyconcernsthebehaviourofoilspilledundermultiyear(old)ice.Mostof the information to date has come from laboratory scale testing with only a few historicallargescalefieldexperimentsbeingconductedinthe70’sand80’s. 28.SPE

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• Thekeylimitationstothesuccessoftheresponsestrategiesarecoldtemperatures,

darknessinwintermonths,availabilityandlogisticsassociatedwithpersonneland equipment,andsupportforoperationsinremotelocations.

• Going forward, the oil and gas industry is funding a Joint Industry Partnership

research project, to run over 4 years at a cost of $20m. The objective of the internationalresearchprogramistofurthertheindustry’sknowledgeandcapability in arctic oil spill response. Six working groups will be established for each of the specialistareasasshownhere.

• Dispersants
• EnvironmentalEffects
• Modelling/Monitoring
• MechanicalRecovery
• InSituBurning
• ExperimentalSpills
• UNCONVENTIONALRESOURCES
• The explosion in the output of the US shale gas industry is underscored by its

growthtoprovideapproximatelyaquarterofUSgasproductioninabout5years. This is graphically illustrated in this map of the US deposits which are predominantlylocatedinthemorepopulouseasternhalfofthecountry.

• Likewise, the map of potential European shale gas basins raises similar urban

proximityissues. 29.JIP 30.USMap 30.UKMap

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• ThekeyissuesassociatedwithshalegasandCBMextractionare:
• UrbanProximity
• WaterResources–Volumes
• GroundwaterContamination
• ChemicalTransparency–FracFluids
• WastewaterTreatment
• Seismic,trafficandnoiseissues
• CumulativeImpacts
• Priortothisevening,theSPEhashadanextensivepresentationonissuesassociated

withUGresources.Iwillsimplyoutlinethemainriskissueshereanddrawyour attentiontohowmostofthemareclearlyinthenontechnicalriskcategory.

• Sowhataretherisks?
• UrbanProximity–Lowoilfieldtolerance
• WaterResourcesCompetition
• GroundwaterContamination
• HazardousChemicalsSpill
• SurfaceEcologicalDamage
• HeavyVehicleTraffic
• Perceived“HARM”Issues
• SocialLicensetoOperate
• Over a million gas producing wells have been drilled in the US since the 1950s.

Overthelastdecade,themajorityofwellshaveinvolvedsomeformofhydraulic 32.ShaleGas 33.Risks

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• stimulation(Fracking)toenhanceproduction.TheUSEPAhasconductedasurvey

in conjunction with the states’ drilling/licencing authorities to determine the frequencyofoccurrenceofgroundwatercontaminationissuesassociatedwiththese

• activities. Theresults indicate very small occurrence of contamination by drilling

andfrackingfluids.

• However this is not the perception gained by the community. A combination of

initial entrepreneurial developers with limited financial backing, lack of understandingoftheroleofNTRsingainingaSocialLicencetoOperateandaloss

• ftrustbynondisclosureofthenature/compositionofthematerialsbeingusedfor

fracking – has resulted in an industry that could possibly make North America petroleum resource independent within 1520 years being put at risk. Both New YorkStateandFrancehaveimplementedbansonhydraulicfracturing.

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• 5)SUSTAINABILITYRISKINMAJORO&GPROJECTS
• Thehighlightingoftheemergingriskissuesraisedintheprecedingdiscussionon

Offshore Drilling, Arctic E&P and Unconventional Gas Developments identified a seriesofchallenges.Themostcriticaloftheseareerosionoftrust,understanding NTR,issuesandMarginErosion.

• ErosionofTrust
• Regulations
• MarginErosion
• NonTechnicalRisk
• StakeholderScrutiny
• LicencetoOperate

Theseallconvergeonacommontheme–recognisingnewsourcesofbusinessrisk that demand fresh approaches to resolve. These approaches involve engaging stakeholders, fully assessing the Enterprise Risk and finally ensuring that major capital projects are sufficiently advantageous. The ultimate opportunity is to achieveSustainedCompetitiveAdvantage.

• HoweverthegrowthinthescaleoftheseMajorCapitalProjectsoverthelastdecade

has resulted in them becoming substantially more complex and hence potentially impacted by a range of enterprise risks. These impacts are usually manifest as delaysincompletion,increasedcostbutultimatelyinerosionofNPV.

• 35.NewRisk

36.MCPs 34.Overview

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• Theoccurrenceofdelaysintheoil&gasindustryissurprisinglycommon,butwhat

ismoresurprisingisthecause.GShavepreparedregularandexhaustivereviewsof all major capital projects in the industry, and an analysis of this data shows that sustainabilityissuesornontechnicalrisksarebyfarthemainreasonfordelays.

• →
• Even more dramatic is the likely cost of these delays – measured in billions of
• dollars. The real costs play out in a multitude of ways across the value chain of

majorcapitalprojectdelivery.

• ThechallengeforcompanieswithaddressingNTRsinmajorprojectdeliveryisthat

the problem is typically a perceived issue – quite often there is little correlation betweenpublicconcernandactualharmtohealth,safetyandenvironment.

• Weoftenfindthatattheheartofthesetypesofproblemsareacommonsetofroot
• causes. These root causes are most effectively tackled by engaging leadership at

corporate and asset level – in defining the real business case for change and establishingcommitmenttoact. 37.Delays 38.Costs 39.ImpactsProject Delivery 40.Problem 41.RootCauses

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• 6)THENEWREQUIREMENTSONTHEBUSINESS
• These factors have led to an important shift in understanding of the drivers

necessary to integrate nontechnical performance into a company’s core business. For progressive companies which have already made significant investments in developingandintegratingprograms,valuablestakeholderandmarketrecognition hasresulted.Othersarestillseekingtounderstandthelinkbetweennontechnical performance and positive market recognition as a key precursor to building reputationalcapital.Theyarebeginningtoaskakeysetofquestions:

• WhatisthevalueofNTRattheportfolioandprojectlevel?Isitmaterialto
• urbusiness?
• Do we have the right systems in place to manage and improve our non

technicalperformance?

• Arewestructuredcorrectlytodeliveroptimalnontechnicalperformance?
• Howwillbetternontechnicalperformancehelpbuildandprotectoursocial

licencetooperateandlicencetogrow?

• The new business context creates a new set of demands for the leadership of
• rganisationsandcreatesarippleeffectfeltacrosstheentireupstreamoilandgas

industry.Theimpactsareevenfeltacrossotherindustries–eachtryingtoanticipate itsownunforeseeableincident.Insummary,demandsonthebusinessinclude:

• Balancingshorttermversuslongtermbusinessneeds
• Integratingtechnicalandnontechnicalriskmanagement
• Makinginformednontechnicaldecisionsgroundedinfacts
• Addressinginternalorganisationalinterfacesandfragmentation

42.Overview 43STvsLT

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• While these rather common management techniques are definitely in use across
• rganisations, the consistency of their application is the more significant concern,

requiring a review of our ability to effectively implement, especially in the post Macondoworld.

• Balancingshorttermversuslongtermbusinessneeds

While business has long been aware of the potential imbalance of the shortterm focusonnumbers,recenteventsacceleratetheneedtorebalancethisfocuswitha moreproactive,strategicandlongertermview.

• ThecallforalongertermviewalsomeansmovingtoaproactivestanceonNTRs

andadeeperexplorationofthenontechnicalopportunities.

• IntegratingTechnicalandNonTechnicalriskmanagement

Overthepastyearwehaveseenagreaterrequirementforaligningtheorganisation tocrisplymanageriskinanintegratedfashion.Theorganisationmusthaveclear visibility of both the technical and nontechnical risks, and the interconnections betweenthem.ThisinterconnectednesscanshowupastechnicalsolutionstoNTRs

• rnontechnicalopportunities.
• Making informed decisions grounded in fact (42) – important for woolly

NTRssothattheycanbechallengedandbelievable.

• Addressing internal organisational interfaces & fragmentation (42) –

alignmentintheorganisationatalllevels Thekeytoensuringlongtermbusinessvalueandcompetitivenessisbyintegrating sustainabilityintothecorebusinessprocess.

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• Identifying the leadership team’s NTR strategy is critical for guiding the

performanceoftheportfolioofprojects.Athoroughapproachtothiscanbedone byanindependentnontechnicalassessmentacrosstheportfolioofproducingand developing assets and this factfinding mission will allow for leadership decision makingandaclearviewoftheNPVerosionthatiscurrentlytakingplace.

• However, matters can be expedited by taking an executive level look at the
• rganisationalcommitmentandrelationshiptoNTR.Theleadershipteamcanbe

challenged as to what its level of ambition is with regard to NTR; is it to be Compliant,FragmentedorTransformational?

• A “Discovery Engagement” process can help the leadership team determine the

appropriatelevelofambitionfortheirbusiness.Theapproachprovidesastrategic perspectiveandbuildsalignmentintheseniorteamaroundtheNTRstrategyand howtoimplementtoachievethetransformation

• TheDiscoveryprocesscanbeachallengingjourneyfortheleadershipteamasnew

insightsarerevealed,establishedthinkingischallengedandtheextentoftheNTR businessopportunityisunderstood.

• 44.BusinessIntegrated

Risk 45.Discovery 46.Discovery Process

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• The approach is both thorough and factual, monetising the NTR’s thus allowing

them to be integrated into the Business Case which the executive can absorb to understandthemagnitudeandsubstanceoftheissues.

• Underpinningthediscoveryprocessisahighdegreeoforganisationalengagement

whichbuildstheappetiteandwillingnessofleadersatalllevelstosupporttheshift inthinking,attitudesandbehavioursthatwillberequiredduringimplementation.

• OurexperienceofarangeofFortune/FTSE100typeorganisationsoperatinginthe

NaturalResourcessectoristhattheytendtofocusinquicklyonthreemainoutputs fromthisDiscoveryProcess

• OperationalExcellence–BeyondCompliance
• EnterpriseRiskManagement
• SustainedLicencetoOperateinMajorCapitalProjects
• 47.3BigIssues

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• 7) IMPLEMENTATION OF THE NEW REQUIREMENTS ON

BUSINESS

• ThenewNTRassessmentprocessformajorcapitalprojectsmustbeginearlierinthe

development lifecycle, ideally starting in the prelease phase. An indepth understandingoftheecosystem,thepotentialsocioeconomicimpactsofdeveloping andthenretiringanasset,andthecommunityrelationshiptodevelopmentprojects fortheO&Gindustry,mustallbetakenintoconsiderationtoensurethatNPVwill be optimised. Proactive lifecycle assessments of regional considerations and local contentbyteamsofanthropologists,economistsandenvironmentalspecialistsand contribute significantly to necessary financial decisions by both investors and leadership.

• Thereisarationalprocesstobuildingnontechnicalcapabilitythatcanbeexecuted

withinanoil&gasorganisation.Thiscanbedoneworkingnontechnicalrisksand

• pportunitiesatthe:
• StrategicPortfolioLevel
• SpecificAssetLevel
• NTRFunctionalSupportLevel
• Theacceleratedimplementationrequiresalignmentatalltheselevels,organisational

changeandculturalchange. additional, temporary structures and working rules in order to break out of the businessasusual relationships 49.AcceleratedProcess

• 48.Overview

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• betweenbusinessandfunctionalteammembersinordertoacceleratetheresolution
• ravoidanceofsustainabilityrisksandhence,toenhanceprojectperformance.

Thenewworkingrelationshipsthatdeveloptoachievethisgoalbecomeamodelfor successful project working elsewhere, resulting in long demarcated silos being replacedwithcollaboration,andthestereotypeofthecorporateproject“tourist”is replaced by appreciated valued embedded team members. Finally, the endemic focusoninternalissuesandexternalissuesfromaninternalperspectivearereplaced byexternalinsights,changeandimprovements.

• BEHAVIOURALCHANGE

Respondingtorapidlychangingexpectationsischallenging–evermoresowhenthe key challenges are nontechnical in nature. However the expectation of various stakeholdersiseverincreasing,unrelentingandalwaysmorecomplex.

• Gettingpeopletochangetheirbehaviour,byaskingthemortellingthemto,does

notwork.Peoplewillonlythinkdifferentlybyunderstandingandrecognisingthe reasonfordoingso.

• Transformation requires behavioural change from Corporate level through to the

Assetlevel,andsupportattheFunctionallevel.Itbeginswithleader’sbehaviours, theculturetheycreateandprocessestheyuse.Thisthenfeedsdowntoinfluence the behaviours of personnel on the front line on all aspects required to drive the businesssustainably.

• The Discovery process I referred to previously is the means by which this robust

hazard and risk recognition catalyses the need for change. It needs irrefutable 51.Behaviour 52.InteractionDynamics 50.Expectations

29

• physicalevidencewhichcanthenbemonetisedtoenableittobeintegratedintothe

businesscase.

• Thisintegratedapproachtodeliveringandsustainingbehaviouralchangehasbeen

bynecessityaveryshorthighleveloverviewofthebehaviouralchangeapproach thatisnecessarytoachievea“SustainedLicencetoOperate”.

• NonTechnicalRiskisboththebiggestthreatandthebiggestopportunityfacingthe

industrytoday.Butaddressingitisatoughchallengeformostorganisations–not becauseoftheexternalissues(althoughthesedoneednewthinking)butbecauseof thedemandsitplacesontheleadersofthebusinessesandtheinternalchallenges theyfaceindrivingtheinternaltransformationthatisneeded.Asmallnumberof playershavealreadymadeastrongstartdownthatroad.

• 53.Alignment

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• 8) CONCLUDINGREMARKS

I trustthat I have shown today that theMacondo disaster has been a catalyst for increasingthemomentumforchangeintheglobalindustry,momentumthatstarted togatherpaceinthedecadeleadinguptotheincident.

• Theobviousimmediateoutcomeshavebeenincreasedregulatorycontrols,increased

costs, decreased access to some reserves and a more difficult insurance climate. However the most beneficial outcome for the industry as a whole will be the understandingandimplementationoftheNEWREQUIREMENTSONBUSINESS– thatistounderstandboththetechnicalandNTRsposedbydevelopment,andhow to integrate this enterprise risk into the core business process. The prize is a SustainableCompetitiveAdvantage,butthiscanonlybeachievediftheNTRsare understood,monetisedandformtheexecutivedecisionbasisforatransformational

• ambition. Leadership driven behavioural change underscores this corporate

transformation.

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• 54.Overview

55.Concluding Remarks