OGP Risk Management - IBP34701

IBP34701

A practical approach to SH&E risk assessments within exploration and production operations
Brian R. McC ulloch1

Abstract
Risk Management is a common element within industry SH&E Management Systems. Expectations for assessing risks are often defined within these management systems; however, the process and techniques required for completing risk assessments are often misunderstood by operations personnel assigned with this responsibility. This paper describes a process used by Texaco Worldwide Exploration and Production to effectively evaluate the SH&E risks associated with its operations. Risk categories included those associated with people, environment, reputation and assets. Application of this practical, integrated SH&E risk assessment process has had a positive impact on the Business Units where it has been employed. The assessments are focused on risks with higher probability and consequence (more than regulatory compliance issues), as well as a means to set SH&E strategies and objectives to reduce risk. Full integration of Business Unit representatives into the risk assessment process allows them to gain a common understanding of the risks, as well as reinforce the commitment to take risk management action.

Introduction
Risk Management is a commonly found element within the Safety, Health, and Environment (SH&E) Management Systems of leading oil and gas companies. Trade associations such as the International Association of Oil & Gas Producers (OGP) and the UK Offshore Operators Association (UKOOA) have also recognized risk management as a key component of an effective management system process. The expectation to perform risk assessments to effectively identify the risks associated with oil and gas operations is critical to a successful risk management process. However, the techniques chosen to conduct risk assessments and the process used to communicate risk assessment results to senior management can be problematic. This paper discusses the practical approach developed by Texaco Worldwide Exploration and Production to perform risk assessments and integrate the results into the Business Unit strategic plans.

Risk Assessment Process Developing the Strategy

The SH&E risk assessment process was developed by Texaco Worldwide Exploration and Production, with assistance from Pilko & Associates, Inc., to meet the Texaco SH&E Management System expectations. Pilko & Associates, Inc., a leading management consulting firm serving the energy industry, was retained to provide insight during the risk assessment protocol development, facilitate the effort, and provide an independent third-party perspective.

Figure 1: Risk Assessment Processes Development of a SH&E risk management strategy was the first step. This strategy development involved determining the appropriate level of SH&E risk to be evaluated as well as the identification of specific areas of SH&E that could pose potentially significant risks. Risk assessment processes may vary greatly and can be viewed as extending along a qualitative-quantitative continuum, as illustrated in Figure 1. Decisions on the appropriate level of risk assessment (e.g., qualitative, semi-quantitative, quantitative) to use, as well as the appropriate level of risk to evaluate, can be difficult. Additionally, communicating identified risk issues and their relative risk priority to senior management unfamiliar with risk terminology can be a challenge. A qualitative risk assessment approach was selected by Texaco Worldwide Exploration and
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Production due to the level of SH&E risk that would be evaluated. The four categories of risk set forth in the Texaco SH&E Management System, people, environment, reputation, and assets, were selected for review.

Risk Assessment Protocol and Matrix

Once the strategy was set, a risk assessment protocol was developed for assessing the desired level of SH&E risk. The protocol included topics and guidance questions designed specifically for evaluating SH&E risk at the Headquarters level, Business Unit level, and Field Operations level. Examples of risk topics selected include: People Organizational C ulture for Risk Taking Management Stability and C ommitment to SH&E Transitional SH&E Risk Issues Occupational Safety Public Safety and Health Legal and Third Party Liability C ultural Barriers and Accepted Norms Environment Regulatory Regime Maturity Susceptibility to Natural Phenomena Sensitive Habitats Adjacent/Nearby Facilities Past and Retained Liabilities Due Diligence Practices Reputation C ompany Image/Branding of SH&E Public Perception, C ommunity Relations and Social Issues Environmental Justice SH&E C ommunications (Internal and External) Assets Mechanical Integrity Design C omplexity C oncentration of Asset Value Management of C hange Business Interruption and Insurance Risk matrices were developed for assisting the risk assessment team in determining the qualitative risk rankings of potential issues. As illustrated in Figure 2, the matrices utilize a traditional probability versus consequence format and were developed for the four categories of risk established in the risk assessment protocol. Each identified potential risk would be evaluated against the matrices of all four risk areas (people, environment, reputation, and assets). This approach provided a broader perspective of how each potential risk was reviewed.

Risk Assessment Team Members

Texaco representatives with experience/educational backgrounds in operations, SH&E, and risk management were selected for the risk assessment team. Third-party representatives (Pilko & Associates, Inc.) were also included based on their risk management experience. Pilko also provided insight on industry best practices associated with any identified risks.

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Figure 2: Risk Ranking Matrix

Conducting the Assessments

In December 2000, key representatives from Texaco departments, including Texaco Worldwide Exploration and Production SH&E, Human Resources, Public and Governmental Affairs, Security, and Risk Management were interviewed by the risk assessment team. SH&E-related document reviews were also conducted in the Headquarter offices. These interviews and document reviews helped to establish a basic understanding of organization, structure, and key SH&E risk issues in anticipation of the Business Unit visits. Texaco Business Units from the United States production operations were selected for the risk assessment pilot study. Visits to the Business Unit Headquarters, as well as representative field operations, were conducted by the risk assessment team. Field operation visits were included to ensure a thorough understanding of the risks identified as a result of the employee interviews. During the Business Unit visits, the following risk assessment activities were completed: Evaluation of SH&E risk through employee interviews and review of work processes and procedures, work practices, and management/control mechanisms; Establishment of a baseline SH&E risk profile in the categories of people, environment, reputation, and assets; Determination of SH&E risk management performance, including gaps in management processes; Delivery of potential risk observations; and Development of a preliminary action plan for future risk management. SH&E and operations representatives from the Business Units were included in all aspects of the Business Unit reviews. Incorporation of Business Unit representatives was deemed critical to gain ownership and acceptance of the process, as well as to determine if the conclusions developed by the risk assessment team were accurate. Business Unit management, operations, and SH&E representatives were included in the risk assessment team discussions to reach consensus on the potential risk issues. Their input was also used to assess the Operating Units not visited during the risk assessment to confirm whether or not similar or additional risk issues are present in those areas. Following the risk assessment field visits, the Business Units are responsible for further analyzing the potential risk issues and developing appropriate risk management plans. Incorporation of the risk management plans into an overall action plan with milestones and assigned responsibilities, as well as the tracking of progress toward completion of the action plan is also required. This process coincides with the concept of a total quality management system, i.e., the Plan, Do, C heck, and Act management cycle.

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Figure 3 illustrates the risk assessment process described in this paper.

Results/Conclusions
Although most of the potential SH&E risks identified during the pilot risk assessment studies were already known within the Business Units, the benefit of this structured risk assessment process was to provide the Business Unit management with a broader perspective of each potential risk. Use of the four matrices developed for people, environment, reputation, and assets to assess each potential risk helped the Business Units to understand the total risk for each particular issue. The risk assessment process also helped to align the understanding of SH&E risks throughout the Business Unit Leadership Team. This resulted in a better prioritization of the risk areas so that resources could be appropriately allocated. The value of incorporating third-party perspective into a company's risk assessment process should not be understated. During this initial risk assessment activity, the benefit of gaining industry best practice information from the third-party representatives resulted in the identification of control measures that focused on risk prevention, rather than strictly risk mitigation or emergency response. The qualitative risk assessment process discussed in this paper, although simplistic in technical terms, was easily communicated and understood within all levels of management. It provided a consistent approach to meet the company expectations for the identification, evaluation, mitigation, and management of SH&E risk within company operations. The intent of this initiative was to provide a screening assessment that could then evolve into a more detailed quantitative assessment on specific risk issues as warranted. The process also provided a view of the potential business impact from SH&E issues, which resulted in a prioritization of SH&E risk issues for integration into the Business Unit strategic plans. COMMENTS:
1

Master's Degree, Environmental Health - Texaco Worldwide Exploration and Production

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