Regulatory Implementation towards Risk Minimization

MiCRA CONFERENCE 2017 10TH AUGUST 2017

Regulatory Implementation towards Risk Minimization for Host Country in Upstream Oil and Gas Industry PRESENTER: Zahidah Binti Jahidi AUTHORS: Zahidah Jahidi1, Saipol Bari Abd Karim2 , and Mohd Suhaimi Mohd Danuri3 1 Postgraduate Candidate, Master of Project Management, Faculty of Built Environment, University of Malaya. 2,3 Centre for

Building, Construction & Tropical Architecture, Faculty Of Built Environment , University Of Malaya.

OUTLINE 

Introduction



Literature Review



Aim of Study



Problem Statement



Research Objectives



Methodology



Conclusions



Contributions

INTRODUCTION Subdivision in O&G, encompasses 3 value chain activities: upstream (exploration), midstream (refining and production), & downstream (marketing and distribution) [1].

RISK

REGULATORY

Identify the risks associated with the operational activities. i.e. operational challenges in ensuring better integration to balance its operation and hence reduce uncertainty and risks [2].

Exploration & production processes become heavier by strict environmental legislation [5] – led to the need for improvement to ensure proper procedures.

2014 – the downfall of O&G industry tragically [3] Malaysian – the prices falling over 60% from highs could be tough to maintain the momentum of upstream growth.

As an effort to minimize such impact to the environment & to the human as well as the organization, legislation implementation has forced O&G companies to comply [6].

Minimizing the cost of production & fully utilize the resources could be the main focus – minimizing risks associated with work processes. Failure – may result in slowdown/shutdown of the complete facility [4].

Studies conducted on the function of the regulatory process that can be implemented in risk management practice [7]. However, it is not in Malaysia context.

Despite companies & consultancies that done their best to follow the requirements, multiple sources of uncertainty remain along the process [8]. [1] Reddy & Xie, 2017; [2] Prpić, 2017; [3] Bank Negara Malaysia, 2015; [4] Straub, Goyet, So̸rensen, & Faber, 2006 and Thodi, Khan, & Haddara, 2013; [5] M. Arruda, 2014; [6] David, Gollasch, Hewitt, & Jakomin, 2007, M. Arruda, 2014, Čulin & Mustać, 2015, N. Zhang et al., 2016, and Cozzarelli et al., 2017; [7] Lorenza and Valentin, 2012; [8] Johansen & Rausand, 2015 and Guedes & Santos, 2016

LITERATURE REVIEW Project Risk Management (PRM)

•PRM plans deal with the risk of project identification, project risk analysis and evaluation of project risk response & risk monitoring (Creemers et al., 2011; Gonen, 2011; Q. Zhang, 2010). •Operating in different countries is always risky, partly because of the overlay of risk in the countries & because of the effectiveness or lack thereof of legal protection and enforcement of property rights (Clarke et al., 2016; M. Arruda, 2014).

Oil & Gas (O&G) in Malaysia

•Malaysia is the 2nd largest O&G producer in the ASEAN and one of the world’s top LNG producers. •The O&G industry contributes more than 20% of the country’s gross domestic product, - identified as a key economic area & became central to the plans. •Given its location and economic climate, Malaysia can become a cost competitive place for investors to establish offshore operations for regional and international markets (MIDA, 2015).

Regulations in Upstream Operation

•The urgent need for extensive research for the development of regulatory controls, dynamic accident modelling & quantitative risk assessment for O&G production process to fully address its impacts on workers, public & environment (Nabhani, Khan, & Yang, 2016). •The design of policies, regulations, and initiatives needs some monitoring of vulnerability – quantitative information is required, in particular, on the relative risks involved (Fernández, 2016).

Regulations Towards Risk Minimization

•3 importance of risk to regulation; (i) the need to respond to new risks; (ii) the growth of regulatory frameworks; (iii) the use of the risk instrument (Rothstein, Huber, & Gaskell, 2006) – assessment of alternative policy options available to organization in minimizing risk within the upstream sector. •For complex risks & involves cross boundaries, a comprehensive, systemic, and strategic capability must be developed and applied through the regulatory implementation (Shuen et al., 2014).

AIM OF STUDY This study aims to develop a regulatory framework in accordance with risk minimization to host country for Malaysia oil and gas industry.

RESEARCH MATRIX PROBLEMS/ GAPS

Few other risk that could be potential affecting factors particularly be seen within offshore activities. (Jin-lou, Yi-fei, & Zhao, 2011) Many regulatory bodies understand the importance of taking a risk-based approach and work together to draft new regulations.

RESEARCH OBJECTIVES

DATA COLLECTION & ANALYSIS

EXPECTED OUTPUTS

To explore the country risks in upstream operation activities.

Literature review and supported with fieldwork questionnaire coded and analysed by using Atlas.ti software

Come out with a list of the country risks that exist in upstream operation, to be used as a basis for the framework development.

To identify present risk regulatory in Malaysian practice.

Literature review and supported with fieldwork questionnaire coded and analysed by using Atlas.ti software

Sort out the regulations list which related risk regulatory and will be focussing on its practice in the industry.

To assess the limitations of regulatory practice in minimizing the risks for the host country.

Output from RO1, RO2, literature review and supported with coded questionnaire and analysed by using Atlas.ti software

Comparative analysis of country risk as an integral part of regulations in practice for industry.

To develop a regulatory framework in accordance with country risk.

Output from RO1, RO2 and RO3, supported with coded questionnaire and analysed by using Atlas.ti software

The development of a regulatory framework in accordance with risk minimization for host country in Malaysia oil and gas industry.

(American Bureau of Shipping, 2000)

Lackluster regulations that triggered significant & unacceptable environmental risks. (Gulas, Downton, D'Souza, Hayden, & Walker, 2017). If regulations are risk-based, and the operators conduct risk assessments to satisfy the regulations, its benefit will improve operation and optimize resources. (Det Norske Veritas, 2003)

METHODOLOGY Defining the population of concern Specifying a sampling frame (possible to measure) Specifying a sampling method Determining the sample size

Implementing the sampling plan Conducting data collection Reviewing the sampling process Analyzing the data collected (Source: County, 2012)

Qualitative study • Conducting interviews • To find perspectives from both sides o Risk management team o Regulatory practitioners Data collection will be conducted until the data gathered is saturated. • Fresh data no longer sparks new insights or reveals new properties (Creswell, 2013). • New themes stopped emerging after about certain number of collection and an acceptable interpretative framework was constructed. (Marshall, 1996).

Questions for interview will be constructed – data from Literature Review • Will be analysed by using ATLAS.ti software • To obtain research findings

METHODOLOGY No.

OIL

GAS

1

Conoco Phillips

Carigali PTTEPI Operating Company

2

Dialog Group Berhad

Dialog Group Berhad

3 4 5

E&P Malaysia Venture EnQuest PLC INPEX Corporation JX Nippon Oil & Energy Corporation Korea National Oil Corporation Kuwait Foreign Petroleum Exploration Company

E&P Malaysia Venture EnQuest PLC ExxonMobil

INPEX Corporation JX Nippon Oil & Energy Corporation

9

Lundin Petroleum

Korea National Oil Corporation

10

M3nergy

11 12 13 14 15 16 17

Mubadala Petroleum Murphy Oil Octanex Ophir Energy Pertamina Petrofac Petronas Petrovietnam Exploration Production Corporation PTT Exploration and Production Public Company Limited

6 7 8

18 19 20

Roc Oil

21

Royal Dutch Shell

22 23 24 25

Santos Limited Sapura Kencana Petroleum Scomi Group Bhd

Hess Corporation

Kuwait Foreign Petroleum Exploration Company M3nergy Mitsubishi Corporation Mubadala Petroleum Murphy Oil Newfield Exploration Pertamina Petrofac Petronas PetroVietnam Petrovietnam Exploration Production Corporation PTT Exploration and Production Public Company Limited Roc Oil Royal Dutch Shell Santos Limited Sapura Kencana Petroleum

49 groups of interviewee • (Source: BMIResearch. (2015). Malaysia Oil & Gas Report: Includes 10-year forecasts to 2024 BMI’s Industry Report & Forecasts BMI Research.) Interviewee will be selected accordingly to the order of latest project completion. • Will be contacted through email and appointment for personal meeting

CONCLUSIONS

It is important for oil and gas companies to identify which country risks they are exposed to. As past enforcement actions have shown, solely having a risk assessment program in place may not eliminate risk completely.

Given the rise in the enforcement of various regulations for oil and gas in our nation, there may be no better time than now for oil and gas companies to assess these risks and take proactive steps to reduce them.

The analysis of these data will provide the basis of identification of the research main aims and objectives, which was to obtain feedback from practitioners on the following aspects of risk management and the risk-related regulatory that are being practiced in the oil and gas industry, where some issues may be addressed.

RESEARCH CONTRIBUTION To Knowledge •Produce theoretical and practical contributions in project risk management. “The more we know, the more we learn; the more we learn, the more we can do – the more the opportunity” (Kilduff, Tsai, & Hanke, 2006).

To Practice •Help the industry for achieving improvement in the current regime by reducing the country risk and can significantly impact the overall effectiveness of the offshore regulatory activities. •A framework for analysis, facilitates the efficient development of the academic field, and is needed for the applicability to practical real world problems.

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