Israeli off-shore exploration and development. How to manage the risks?

Transcription

1 Israeli off-shore exploration and development How to manage the risks? Eitan Glazer, Partner Energy Practice Leader Israel April 28, 2013

2 Helping energy companies succeed With over 5,300 industry-dedicated professionals located in strategic energy centres, we can help companies everywhere they operate. can help energy companies evaluate priorities, assess risks, and build stakeholder confidence. 2

3 Dealing with risk is a critical business priority No industry is immune from the risks that can bring down a business!!! 3

4 Jump in BP Credit Default Swap rates Implied credit rating reduced by 6 levels to Ba May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Graph: BP 5-year CDS price during the third quarter of

5 What is risk?

6 Likelihood Risk is the possibility that an event will occur and adversely affect the achievement of objectives A more common way to express risk magnitude Very Likely Extreme Likely High Possible Medium Unlikely Low Very Unlikely Minor Moderate Major Severe Critical Impact /Consequence 6

7 Risks effect all 3 sectors of the industry Upstream Midstream Downstream 7

8 TECOP Model For Risk Evaluation Identifying Risks by Categories Technical Risks Economics Risks Commercial Risks Organizational Risks Political Risks 8

9 TECOP Model For Risk Evaluation Risks related to the Reservoir: Geological risks(dry holes, Missing target layers) Development (Duration and costs of construction) Technical Risks Production (Accelerated depletion, Estimated life ) Aging infrastructure (Maintenance, Oil spill) Storage facilities (Blowouts, leaks) Backup pipe (Lack of redundancy) Maintenance (skilled manpower) Safety (endangering lives IT and Cyber 9

10 TECOP Model (Cont ) Drilling and production Cost estimation (ROI) Capital raising and financing Exchange Rates Economics Risks Price and pricing (Supply & Demand) Regulation (Antitrust, Price control) LNG market Taxes, Levy and royalties Export permits 10

11 TECOP (Cont ) Long term contracts Regulation Energy prices Commercial Risks Customers Competition Legal Insurance 11

12 TECOP (Cont ) Supply chain (weak link) Cooperation between teams along the chain Internal and External Experience Organizational Risks Professionalism Project management IP Fraud 12

13 TECOP (Cont ) Government involvement Regulatory Environment Environmental issues Political Risks Construction permits Stake holders Geo-political risks 13

14 Risk Universe Technical Economical Commercial Organizational Value Chain: Development Sourcing Production Distribution Exploration Infrastructure Business Continuity Physical Assets: Maintenance Plant and Equipment Inventory Storage Pipes Knowledge: Intellectual Property Advanced Technology Data Management Knowledge Transfer Information Technology: IT Security and Controls IT Availability and Continuity IT Integrity IT Infrastructure Disaster Recover Budget Market: Interest Rate Foreign Currency Commodity Economic Performance Liquidity and Credit: Cash Management Borrowing Hedging Credit and Collections Insurance Accounting and Reporting: Reporting and Disclosure Control Environment Tax & Taxation Accounting Capital Structure: Debt Equity Regulatory: Trade Foreign Regulations Labor SEC Environmental/Cli mate Change Privacy Product Integrity Healthcare Emerging Regulation Legal: Litigation Contracts Liability Legal Market Dynamics: Competition Socio-Political Economic Factors Market Movement Globalization Emerging Markets Governance: Board Structure & Performance Tone at The Top Corporate Monitoring Organizational Structure Standards of Business Conduct : Ethics Integrity Corporate Social Responsibility Fraud Legal: Litigation Contracts Liability People: Culture Recruitment & Retention Compensation & Benefits Development & Performance Health and Safety Knowledge: Intellectual Property Advanced Technology Data Management Knowledge Transfer Political Planning and Resource Allocation: Business Strategy Regional Strategy Planning & Forecasting Due Diligence Acquisition and Divestiture Political/Charitable Contributions Stakeholders: Shareowner Business Partner Distributor System Integrator Customer Supplier 11

15 Heat Map Risk Map (Example) 5 - OS5 4 S4 OP15 S3 C2 F5 F3 F4 C4 OS6 S7 S2 F2 OS3 OP3 F7 OS4 OS2 OS1 C1 S5 3 OP10 S1 OP8 F6 F1 OP5 OP14 OP12 S6 OP9 OP13 OP2 2 OP1 OP11 OP4 OP7 C3 OP

16 What is risk management?

17 Risk management is: The systemic, structured and transparent process of : identifying, analysing, managing, monitoring and reporting risks, to ensure the nature and amount of risk taken by the organisation is aligned to the pursuit of its objectives. 17

18 Likelihood Inherent risk, current risk and target risk Inherent risk Current risk Target risk The level of risk before the effects of any controls in place to mitigate the risk. The level of risk after the effects of any controls in place to mitigate the risk. Controls can mitigate the likelihood and/or the consequence of a risk. The level of risk expected after implementation of planned additional mitigation actions / controls. Very Likely Likely I Possible C Unlikely Very Unlikely T Minor Moderate Major Severe Critical Impact /Consequence 18

19 Risk management phases Evaluation Risk survey Risk universe Heat Map Work Plan for risk framework Development Risk policy Risk procedure Organizational infrastructure for risk management Implementation Key Risk Indicators (KRI) Reporting Mitigation and remediation plan 19

20 The Targets and Goals of Risk Management Proactive Mechanism to identify Risks Establishing Business Flexibility to Survive Risk Events Connecting the Business Strategy to the Risks It is exposed to 20

21 key messages to Executives and Management Understand risk better 1 2 Raise readiness to respond 3 Strengthen checks and balances 4 Understand what s really going on Clarify investor risk appetite Review asset portfolio vs. appetite Focus beyond safety and operations Consider supply chain risk Monitor early warning risk indicators Run integrated, worst case scenarios Challenge technical readiness to respond Identify key roles and prepare individuals Review Board capability and involvement Clarify personal accountabilities for risk Create one approach to risk Build risk capability in the line Spend time on risk issues with your teams Encourage staff to raise issues openly Reward people for silent running not for heroism 21

22 What are the four key lessons? Understand risk better Be prepared Strengthen checks & balances Understand what s really going on

23 Be Aware! Be Prepared! Be Proactive! Eitan Glazer Energy Practice Leader Israel 2013 Kesselman & Kesselman. All rights reserved.