Advancing the capabilities in Risk Management at Statoil The IT challenge 1 - SAS 31.5.2017
Who we are Energy company present in 35 countries with 23,000 employees Producing 2 million barrels of oil equivalent (boe) per day in 2012 (equity production) One of the world s largest net sellers of crude oil The world's largest operator in waters deeper than 100 metres World leader in carbon storage The second largest exporter of gas to Europe 2 -
Embedded in our values
A «GRC» Governance, Risk & Compliance or a Mirage? Do the governance structure allow a true Risk & Compliance with sufficient integrity? A true GRC with skilled people could be seen as strait jacket from the administration point of view! Do we have the system support to do it? 4 -
5 Risk appetite The level of uncertainty a corporate is willing- and able to take on to execute their activities and realize their long term goals. Risk appetite is about both willingness and ability! «Risk gaps» huge gaps between risk and reward
6 - Auditors looking for Risk in all the wrong Places, what about RM
Strategic Risk Appetite Bars shows stacked risk figures (not showing combined risk) Positive asymmetry is preferable Less variance in outcomes are preferable over high variance Different strategies for the portfolio: An assessment of different strategic choices Goal Compare risk across segments Compare risk between strategic choices and scenarios
The risks that matter Statoil s value chain Upstream Downstream Market Crude oil Crude oil Market risks NGL Refining Fuel oil Gas oil Jet kero Gasoline Naphtha LPG Natural gas Methanol Methanol Dry gas Currency and interest Accidents Catastrophes HSE risks Operational risks Project risk Production risk Reservoir risk Country risks Tax risks Reputational impact
Why Enterprise Risk Management, some examples? Know what to manage BU A BU B BU A BU B + 10 musd Portfolio perspective Avoiding suboptimization - 10 musd BU A decides to hedge their currency position - 10 musd Utilizing correlations + 10 musd - 10 musd BU A BU B Net risk = 0 Net risk = -10 Expenses: 180.000 NOK (10 musd * 6,00 * 30 points) Individual Risk versus portfolio risk 0,7-1 bn NOK Brent 0,6 + 1 bn NOK Gas oil Risk (standard deviation) 0,5 0,4 0,3 0,2 Gas oil Correlation (Brent and gas oil): 0,94 0,1 Brent Net risk =? - Total Individual risks Doing nothing Double hedge 9 -
Market Risk (illustrative figures) Risk = Exposure x volatility (annualized) St.dev. in musd 20.0 HSE 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Gasoil Fueloil Crude Pre-tax Post-tax Total market risk post tax and including correlation effects Distribution of USD EBIT in MUSD (pre-tax) -52 Effect on 2008 results (NOK bn) -16 Oil price - 20 USD/bbl -24-7 Gas price - 57 øre/sm3-16 -16-6 -5 Entitlement oil prod. - 110 000 bbl/day NOK/USD average -0,60 NOK 3 NOK/USD close -0,60 NOK Net income Profit before financial items 10 -
Do we understand operational risk? Operational risk is more than HSE High Impact Low Probability events have to be acknowledged! Insurance is a risk adjusting tool, and Statoil has one of the biggest Captives in the world!
The need for system support A new VAR system is beeing implemented! VAR is just a part of ERM! What kind of information do we really need from a 2nd generation ERM system? What kind of functionality do we need based on our long experience? Is it possible to simplify? 12 Classification: Internal 2011-12-05
More than a VAR system??? A modern system contains a lot of optionality and flexibility, but do we really utilize the potential? How difficult is it to transform embedded optionality into useful functionality? A transformation require a true competence about what it is possible to get out of a modern system architecture and ERM professionals! 13 Classification: Internal 2011-12-05
The level of accuracy Example calculation XX.YY.2011: Ca. 100% oil price exposure hedged at strike 80 USD/bbl for a premium of 0.9 USD/bbl Benchmark at X bnusd Market risk: -389 musd E(probability) -0.8%-points E(shortfall) 1 bn USD Shortfall risk: -110 musd (42%) Cost of an oil hedge post-tax is 83 musd Net Income
Impact (incl. reputation effect) Impact Category Proba bility 200 150 100 50 0-50 -100-150 -200-250 -300 Market Impl. Market Market Market HSE Market Impl. HSE Market Impl. HSE Country 1 Country 2 Country 3 Country 4 Country 5 Market Impl. Impl. Market HSE Market Impl. Impl. Market HSE Activity Corporate Risk Management main products Corporate perspective Secretary function to the Corporate Risk Committee Process owner role of Risk Management Risk reporting Detailed analyses Total risk Risk adjusting actions Equity production Risk communication Mill. USD RISK MAP FOR XXX Acc Oil Gas Prod Mat Pro 17.Feb.2011 3, 3, 2, 5 2, 1, 50 1, 0, 5 0, 50 5 0 1,6 Expected Value 1,7 1,8 1,9 2,0 2,1 5 5 5 5 5 External Forec Targ Guiding ast et Trading Risk - VaR Country Risk Total risk Corporate hedge planning Probability 1% 5% 10%15% 25% 50% 75% Pro Mat Spill HMS1 GT Prod Oil Gas Acc + 1 2 3 4 5 6 7 8 p m 50 p 85 Debt optimization Fixed assets distribution 2012 Other Europe Other 6 % USA 1 % 4 % Canada 8 % Norway Azerbaijan 61 % 3 % Russia 4 % Algeria 2 % Angola 5 % Unspec. INT Venezuela Nigeria 5 % 1 % 0 % low medium risk high risk risk Catastrophic scenarios Cash flow, Net Profit etc. BCM E m e r g e n c y r e s p Business o n recovery s Time e Corporate Insurance risk policy and strategy Squares: Significant Reputational Risk Tax asymmetry Strategic Risk Risk figure in musd Risk specifications; countries in Africa Impl. Impl. Impl.
Nice to have vs need to have Start with risk that matters Make it transparent Keep the analythics simple A new system is a prosess! 16 -
Risk management in Statoil Summing up Risk is originated from the activies in the value chain In Enterprise Risk management risk is seen in relation to Principal Objectives Create sustainable value Avoid incidents Risk management as an Integrated part of management in general Chapter 4 Case: Statoil