MANAGING RISKS IN OIL&GAS INDUSTRY

Transcription

1 MANAGING RISKS IN OIL&GAS INDUSTRY 27 th April 2016 George Dragne Deputy Sales Director Marsh Romania

2 Global Leader 1 in more than 400 offices worldwide, in over 130 countries Specialization in 26 industries and 14 risk categories 87% of Fortune Global 500 companies are clients of Marsh Global leader in insurance brokerage and risk consulting Approximatelly 49 billion USD in premium placed 29 April

3 Marsh Capabilities A world leader in delivering risk and insurance solutions, from assessment of risks exposures to negotiating and placement services. Our expertise in Oil & Gas sector: o 350+ Oil & Gas Insurance professionals o Over 30 Specialist risk engineers all having previously worked in the Oil & Gas industry o Representing > 2,000 clients 2

4 Agenda Impact of the Price of Oil Business Interruption Losses Distribution of the Property Damage Losses Energy Industry Risk Maps by Subsector o Upstream Exploration & Production oupstream Services omidstream Pipelines odownstream Petrochemicals and Refining 3

5 Impact of the Price of Oil Over the past 20 months, oil prices have fallen by around 70%. The fall in price from US$115 (in June 2014) has had a significant impact on the global Oil & Gas industry Slowing of economies like China caused a lower demand As a result: major projects has been postponed or even canceled significant reductions in staffing numbers There were reductions in investment in safety measures and training. Today, there is a concern that some of these may have resulted in an increase in the risk of major accidents 4

6 DO COST SAVINGS RESULT IN MORE LOSSES? CORELATION DOES NOT MEAN CAUSATION: the fact that a relationship is observed between two variables does not always mean there is a direct linkage between them. 5

7 LEARNING LESSONS FROM THE PAST It is important that the industry looks to the past for lessons on how best to manage cost savings in a measured manner that limits any potential downside: taking decisions based on the conclusions of assessments to ensure that any risks of major losses introduced by changes to safety expenditure are reduced and mitigated effectively. For example, any significant organizational changes as a result of staffing reductions should be subject to an organizational management of change assessment including a risk assessment to ensure that any risk introduced as a result of loss of knowledge or expertise due to staffing changes is mitigated. When carried out in ways such as these, cost-saving initiatives will have long-term value and impact, rather than simply transferring savings today into major costs tomorrow. 6

8 Business Interruption Losses Typically, business interruption claims following losses in the energy sector are two or three times the size of the property loss value, and, in some circumstances, can be much more than that. It is important that, When reviewing critical items of plant and machinery for inspection, maintenance, and spare parts, consideration is given to the potential for loss of business in the event of equipment failure. 7

9 Property Damage Value of 100 Losses by Sector (Source: Marsh Research) 8

10 Distribution of the Property Damage Losses by Sector UPSTREAM, REFINERIES, AND PETROCHEMICALS DOMINATE PROPERTY DAMAGE VALUES The gas processing and distribution sectors account for a much smaller fraction of the total value. 9

11 Distribution of the Property Damage Losses by Event Type EXPLOSIONS ACCOUNT FOR NEARLY TWO THIRDS OF LOSSES Due to explosions accounting for such a high proportion of property damage loss values, significant effort and investment is currently being put into updating the methodology to estimate potential losses as a result of explosions. 10

12 Energy Industry Risk Maps by Subsector Upstream Exploration & Production Upstream Services Midstream Pipelines Downstream Petrochemicals and Refining April 29,

13 Typical Risks Faced by Upstream E&P Companies Type of Risk Sub-type of Risks Typical mitigation measures Operational Risks Equipment/manpower availability Dry Hole Risk (production volume risk) Subcontractor default/failure Fires or Blowout Equipment failure/accidents Title risk Pollution & environmental risks Terrorism risk Cyber security risk Auto/Fleet Liability Risk Business interruption risk Cargo Loss/damage risk Employee and Contractor Health & Safety risk Catastrophic Property damage risk Contingent Business interruption risk (equipment/manpower) Construction risk Financial Risks Commodity price risk Debt financing rate risk Undeveloped acreage valuation risk Subcontractor credit risk Contract disputes risk IP risk Regulatory/Strategic risks GHG legislation risk Hydraulic fracturing regulations risk Water and waste disposal regulations risk Operational excellence HSE excellence Supply chain and vendor management Business Continuity & Resilience Policy and practices Property & Casualty Insurance Other Insurance Financial derivatives/swaps Interest rate derivatives Internal controls/risk Committee/ E&O insurance D&O insurance Industry wide policy advocacy Industry coalitions April 29,

14 Risk Map for a Typical Upstream E&P Company (I) Unmitigated Risks Frequency 5 Equipment/ manpower availability Legend Size of bubble implies volatility Red color implies critical risks 4 Equipment failure/accident Subcontractor failure/default Commodity prices 3 Auto/fleet liability Title Credit Dry Hole Hydraulic fracturing regulations Business interruption 2 Construction Cargo Loss IP Contract disputes Interest rate Health & Safety Fires/ Blowout Pollution & Environmental 1 0 Water & waste regulation GHG legislation Contingent BI Cyber Undeveloped acreage valuation Crisis response & Catastrophic Property Damage reputation April 29, 2016 Terrorism Severity/ Risk bearing Capacity 13

15 Risk Map for a Typical Upstream E&P Company (II) Post mitigation by operational measures/insurance Frequency 5 Equipment/ manpower availability Legend Size of bubble implies volatility Red color implies critical risks 4 Equipment failure/accident Subcontractor failure/default Commodity prices 3 2 Auto/fleet liability Title Construction Cargo Loss Dry Hole Credit IP Contract disputes Interest rate Health & Safety Hydraulic fracturing regulations Business interruption Fires/ Blowout Pollution & Environmental 1 0 Water & waste regulation GHG legislation Contingent BI Cyber Undeveloped acreage valuation Terrorism Crisis response & Catastrophic Property Damage reputation April 29, 2016 Severity/ Risk bearing Capacity 14

16 Material Risks Faced by Upstream Oil & Gas Field Service Companies Type of Risk Sub-type of Risks Potential mitigation measures Macondo well incident resolution (if applicable) Operational Risks 1. Alleged Class-action lawsuits involving pollution damage claims, personal injury lawsuits (drilling rig and first responders) and investigations by several regulatory agencies (e.g. Bureau of Safety and Environmental Enforcement) 1. Operating risks (blow-outs, fires, collisions, weather etc..) 2. Catastrophic property damage and business interruption risk 3. Retention of highly skilled personnel 4. Environmental pollution risk 5. Terrorism, piracy, political instability risk 6. Employee and Contractor Health & Safety risk 7. Supplier and sourcing risks 8. Cyber security risk 9. Auto/Fleet Liability Risk 10. Contingent Business interruption risk Financial Risks 1. Commodity prices and E&P spending risk (oil & gas) 2. Demand-Supply of service contractors and equipment (pricing risk) 3. Long term contract price risk 4. Contract disputes risk 5. Foreign exchange and tax risk Regulatory/ Strategic risks 1. Increased hydraulic fracturing regulation risk 2. Broader increase in regulatory requirements for drilling (e.g. additional testing of BOP equipment, cementing, casing, oil spill contingency plans etc.) 3. Greenhouse gas and climate change regulation risk 4. FCPA compliance risk 5. Broader E&P Technology evolution risk Loss contingency reserve Contract design and indemnification provisions Operational excellence HSE excellence Supply chain and vendor management Business Continuity & Resilience Policy and practices Property & Casualty Insurance Other Insurance FX hedging Internal controls/risk Committee/ E&O insurance D&O insurance Industry wide policy advocacy Industry coalitions Compliance training Internal controls/risk committee April 29,

17 Risk Map for Oil & Gas Field Service Companies (I) Unmitigated Risks Frequency 5 4 Supplier & sourcing Cyber security Contract disputes Operating risks (blow-out, fires etc..) Health & Safety Demand/ supply of contractors Legend Size of bubble implies volatility Red color implies critical risks High skilled employee retention Environment al risk GHG legislation LT contract risk Auto/fleet liability FX and taxation risk E&P Tech. evolution Increased drilling regulations Terrorism/ political risk FCPA compliance Catastrophic property damage & BI Increased Hydraulic fracturing regulations Contingent BI Commodity prices/ E&P spending 0 Macondo resolution (if applicable) April 29, 2016 Severity/ Risk bearing Capacity 16

18 Risk Map for Oil & Gas Field Service Companies (II) Post mitigation by operational measures/insurance Frequency LT contract risk Auto/fleet liability Supplier & sourcing Cyber security Contract disputes Increased Hydraulic fracturing regulations Health & Safety Operating risks (blow-out, fires etc..) Demand/ supply of contractors High skilled employee retention Environment al risk Legend Size of bubble implies volatility Red color implies critical risks Commodity prices/ E&P spending 2 1 FX and taxation risk GHG legislation E&P Tech. evolution FCPA compliance Terrorism/ political risk Catastrophic property damage & BI Increased drilling regulations Contingent BI 0 Macondo resolution (if applicable) April 29, 2016 Severity/ Risk bearing Capacity 17

19 Typical Risks Faced by Midstream Companies Type of Risk Sub-type of Risks Typical mitigation measures Operational Risks Financial Risks Regulatory/ Strategic risks 1. Operating risks (fires, explosions, spills etc..) 2. Catastrophic Property damage and business interruption risk 3. Retention of highly skilled personnel 4. Construction cost risk 5. Terrorism risk 6. Employee and Contractor Health & Safety risk 7. Supplier and sourcing risks 8. Cyber security risk 9. Auto/Fleet Liability Risk 10. Contingent Business interruption risk 11. Railcar risks 1. Commodity volume flow (gas/oil/ngls ) 2. Pipeline tariffs 3. Capital investment risk (new pipes, M&A) 4. Customer concentration risk 5. Contract disputes risk 1. Permitting and approval risk (delays, moratorium or suspension) 2. Increased regulatory requirements (e.g. additional testing of equipment, contingency plans etc.) 3. GHG and climate change regulation risk 4. Broader technology evolution/stranded asset risk April 29, 2016 Operational excellence HSE excellence Supply chain and vendor management Business Continuity & Resilience practices Talent management Property & Casualty Insurance Other Insurance Internal controls/risk Committee Investment committee E&O insurance D&O insurance Industry wide policy advocacy Industry coalitions Compliance training Internal controls/risk committee 18

20 Risk Map for a Typical Midstream Company (I) Unmitigated Material Risks Frequency Customer concentration Contract disputes Supplier & sourcing Cyber security Increased Regulations Auto/fleet liability Contingent BI High skilled employee retention Capital investment (pipes, M&A) Operating risks Health & Safety Legend Size of bubble implies volatility Red color implies critical risks Commodity volumes 2 Permitting & Approvals 1 GHG legislation Terrorism Tech. evolution/ Stranded assets Railcar risk Construction Pipeline tariff 0 Catastrophic Property Damage April 29, 2016 Severity/ Risk bearing Capacity 19

21 Risk Map for a Typical Midstream Company (II) Post operational measures and Insurance solutions Frequency 5 Legend Size of bubble implies volatility Red color implies critical risks Customer concentration GHG legislation Contract disputes Supplier & sourcing Employee retention Auto/fleet liability Increased Regulations Construction Operating risks Health & Safety Capital investment risk (new pipes, M&A) Permitting & Approvals 1 0 Terrorism Cyber security Tech. evolution/ Stranded assets Contingent BI Railcar risk Pipeline tariffs Catastrophic Property Damage Commodity volumes April 29, 2016 Severity/ Risk bearing Capacity 20

22 Typical Risks Faced by Downstream Petrochemical and Refining Companies Type of Risk Sub-type of Risks Typical mitigation measures Operational Risks Financial Risks Regulatory/ Strategic risks 1. Operating risks (fires, explosions, spills etc..) 2. Catastrophic Property damage and business interruption risk 3. Retention of highly skilled personnel 4. Construction cost risk 5. Terrorism risk 6. Employee and Contractor Health & Safety risk 7. Supplier and sourcing risks 8. Cyber security risk 9. Auto/Fleet Liability Risk 10. Contingent Business interruption risk 11. Railcar risks 1. Refining Margins and Commodity Prices Risk 2. Debt financing rate risk 3. Capital investment risk (new projects, M&A) 4. Customer concentration risk 5. Contract disputes risk 1. Permitting and approval risk (delays, moratorium or suspension) 2. Increased regulatory requirements (e.g. additional testing of equipment, contingency plans etc.) 3. GHG and climate change regulation risk 4. Broader technology evolution/stranded April 29, 2016 asset risk Operational excellence HSE excellence Supply chain and vendor management Business Continuity & Resilience practices Talent management Property & Casualty Insurance Other Insurance Commodity/financial derivatives/swaps Internal controls/risk Committee Investment committee E&O/D&O insurance Industry wide policy advocacy Industry coalitions Compliance training Internal controls/risk committee 21

23 Risk Map for Downstream Petrochemical/Refining Companies (I) Unmitigated Material Risks Frequency Customer concentration Contract disputes Supplier & sourcing Cyber security Increased Regulations Auto/fleet liability Contingent BI High skilled employee retention Capital investment (pipes, M&A) Operating risks Health & Safety Legend Size of bubble implies volatility Red color implies critical risks Refining Margins/ Commodity prices 2 GHG legislation Permitting & Approvals 1 Terrorism Tech. evolution/ Stranded assets Railcar risk Construction 0 Interest rate Catastrophic Property Damage April 29, 2016 Severity/ Risk bearing Capacity 22

24 Risk Map for Downstream Petrochemical/Refining Companies (II) Post operational measures and Insurance solutions Frequency 5 Legend Size of bubble implies volatility Red color implies critical risks Customer concentration GHG legislation Terrorism Cyber security Contract disputes Supplier & sourcing Tech. evolution/ Stranded assets Employee retention Auto/fleet liability Increased Regulations Construction Contingent BI Operating risks Health & Safety Capital investment risk (new pipes, M&A) Permitting & Approvals Refining margins/ commodity prices 0 Interest rate Railcar risk Catastrophic Property Damage April 29, 2016 Severity/ Risk bearing Capacity 23

25 The 100 Largest Losses Get the latest issue of The 100 Largest Losses Large property damage losses in the hydrocarbon industry 24th edition March 2016 Mail to: George Dragne 29 April

26 S.A.S. Société de courtage d'assurances - Société par Actions Simplifiée Capital ,00 Euros - RCS Nanterre : n ORIAS n TVA intra-communautaire : FR Siège social : Tour Ariane - 5, Place des Pyramides Puteaux Assurance de responsabilité civile professionnelle et Garantie financière conformes aux articles L512.6 et L512.7 du code des assurances