Practical and Value-driven Management of Non-Technical Risks

1. Society of Petroleum Engineers
Distinguished Lecturer Program
www.spe.org/dl
Primary funding is provided by
The SPE Foundation through member donations
and a contribution from Offshore Europe
The Society is grateful to those companies that allow their professionals to serve as
lecturers
Additional support provided by AIME

2. Society of Petroleum Engineers
Distinguished Lecturer Program
www.spe.org/dl
2
Christiaan Luca, MSc PE
Community Wisdom Partners, Associate Partner
PetroSkills Oil and Gas Training, Course Director and Instructor
Practical and Value‐driven Management
of Non‐Technical Risks

3. Presentation outline
1. What are Non‐Technical Risks?
2. Why are NTRs so relevant?
3. Why are they difficult to manage?
4. How can we organise ourselves better?
5. Case studies
3
A solid external response requires a solid internal organisation

4. 1. What are Non‐Technical Risks?
4

5. Non‐Technical Risks are related to External
Stakeholders
● Are related to external stakeholders:
○ Who influence the ability of your organisation to achieve its aspirations and goals
○ The organisation has no control over external stakeholders.
● Can be negative but also positive
● Are different from technical and commercial risks
● Play at all organisational levels: project, asset, country, corporate
5
Non‐Technical Risks:

6. Some examples of Non‐Technical Risks
6
The local community blocks the
construction road due to lack of jobs
The government may not approve
your local content plan
Your equity partner may not comply
with your business principles
The bank may not approve
project funding if it does not
meet IMF standards
Your fresh water needs may create
conflict with the farmers
The regulator is not familiar
with your new technology
An NGO opposes your
environmental impacts

7. 2. Why are NTR’s so relevant?
7

8. Non‐Technical Risks can dramatically impact
the bottom line
IPA detailed review (2011):
‐ 2/3 megaprojects fail,
‐ 78% failure rate for O&G
Goldman Sachs review top 190 oil
and gas projects, globally ‐ 2008
Edward W. Merrow, IPA, ´Industrial
Megaprojects, Concepts, Strategies
and Practices for Success´.
8
ING Bank valuing NTR
performance
(2017):
$1bln loan, NTR performance
dependent

9. NTRs impact the bottomline in various ways
Schedule Cost Volume Price Gov Take
Business
Opportunities
NTR
Project
Value
Portfolio
Value
Project Level Manifestation
Corporate / Industry Level Manifestation
Reputation
Retail Interest
9

10. Just good community relationship, or more?
10
Community Feedback
Mechanism Implemented
Community Feedback
Mechanism Implemented
Unconventional gas development.
Courtesy Shell

11. 3. Why are NTR’s so difficult to manage?
11

12. ´Trust Me´ ‐ a limited number of relationships
12
HSE, Legal and
External Relations deal
with the rest of society
‘TRUST ME’

13. ´Tell me´ ‐ stakeholders want to be informed
13
‘TELL ME’

14. ´Show me´ ‐ taking the external complexity
inside
14
‘SHOW ME’

15. ´Involve Me´ ‐ new partners in the business!
15
‘INVOLVE ME’

16. ´Join us´ ‐ business is serving society
16
‘JOIN US’

17. 4. How can we organise ourselves better?
17

18. Address the people and their processes
1. Set accountabilities and responsibilities
2. Use the Enterprise Risk Management framework
3. Make it tangible: quantify NTRs
4. Follow the capital project delivery process
5. Align the externally facing functions, appoint a NTR Coordinator
6. Create regular dialogue between technical, commercial and non‐technical
7. Educate and involve the senior decision makers
18

19. 19
● Appoint an NTR
Integrator
● Bring non‐technical
departments together
● Integrate with
Technical &
Commercial: NTR
Integrator joins the
Project Mgt Team
● Link with country team
Facilitate decision-focused dialoguesFacilitate decision-focused dialogues
NTR Coordination
Meeting
Project
Management
Team
Investment
Review Board
Country Office

20. Example: analyse key NTRs using the Bow‐Tie
20
Uncertain
event
Causes
Risk
Consequences
Downside
Upside
Range of outcomes
Issues, circumstances,
opportunities/threats
Barriers

21. Bow‐Tie example: step 1 ‐ risk path analysis
21
Well Site
Blockade by
Community
Revenue Loss
Damage to
Plant
Injuries
Construction
Traffic
Lack of
Trust In Company
Lack of Jobs
at Site
Entry into
plant
Use of
violence
# jobs
Lack of skills
Single access
road
Perceived non‐delivery
on promises
Time to
negotiate

22. Bow‐Tie example: step 2 ‐ preventive barriers
22
Well Site
Blockade by
Community
Revenue Loss
Damage to
Plant
Injuries
Construction
Traffic
Lack of
Trust In Company
Lack of Jobs
at Site # jobs
Single access
road
Entry into
plant
Use of
violence
Perceived non‐delivery
on promises
Lack of skills
Training
program
Micro‐financing
Refurbish school before
drilling starts
Agreed Social
Investment Plan
Rehabilitate
road
By‐pass
Time to
negotiate

23. Bow‐Tie example: step 3 ‐ containment barriers
23
Well Site
Blockade by
Community
Revenue Loss
Damage to
Plant
Injuries
Construction
Traffic
Lack of
Trust In Company
Lack of Jobs
at Site # jobs
Single access
road
Entry into
plant
Time to
negotiate
Use of
violence
Perceived non‐delivery
on promises
Lack of skills
Community
Committee
Crisis Plan
Training of guards
Access
barriers
Security

24. Positive
evidence
No or
inconclusive
evidence
Negative
evidence
Example: steer action by using the Italian Flag
● Define the risk event
● Collate evidence
○ Green supports risk not materialising
○ Red supports it will materialise
○ White: inconclusive
● Agree on likelihood statement
● Convert to probability
● Agree Actions and assign Action
Parties!
24

25. 25
Positive evidence Inconclusive evidence Negative evidence
Gasseltenijerveen
WKI Schoonebeek
Communication journey
positive
Municipality willing to
cooperate
Cooperative landowners
Provincial Authorities
willing to cooperate
1st response
communities not
negative
Vendor: “I will meet the
noise standards"
NAM has long standing,
solid reputation in area
Municipality supporting
location de Wijk 15
Number of neighbour
voiced concerns
Technical specifications
for noise
Formal concerns
expressed on ESHIA
Tibben
Hoogezand
Ranum
Environmental advisor
municipality critical
Example: steer action by using the Italian Flag
Risk: Not obtaining permits
Case: DeWijk‐20
Excluded 0%
Extremely unlikely 5%
Very unlikely 15%
Unlikely 33%
Equivocal 50%
Likely 66% 75%
Very likely 85%
Extremely likely 95%
Certain 100%
Conclusion:

26. 5. Case studies
26

27. The Wadden Sea case
27
● Largest nature reserve in Europe
● A single major wetland system of 10,000 km2
islands, tidal flats and channels
● Along North Sea coasts of the Netherlands,
Germany and Denmark
● Over 10 mln visiting migrating birds per year
● Important spawning ground for fish
● UNESCO World Heritage Site since 2009

28. The Wadden Sea case
28

29. The Wadden Sea case: how to get yourself into
a drilling moratorium
29
¨Hands off the
Wadden gas¨
¨Hands off the
Wadden gas¨
¨(Island of) Terschelling
gas free¨
¨(Island of) Terschelling
gas free¨
¨No gas from (the
island of) Ameland¨
¨No gas from (the
island of) Ameland¨

30. The Wadden Sea case: ….. and how to get out
again
30
Cockle fishing
Mussel fishing
Climate change
Shipping disasters
Exotic species
Harbour extension
Discharge of micropollutants
Shrimp fishing
Dredging for bait (lugworms)
Recreation
Extraction of natural gas
Military exercises
Windmills
Visual amenity
Change in nutrient load
Average score Standard deviation
Average score per intervention

31. Case study
Competition for fresh water
31
Data: Eagle Ford Shale Play, Texas ‐ Study by Texas Resources Water Institute (2014)
Main issue:
● Competition for water in arid situation
● Established water users protest new users
Opportunity:
● Oil industry water demand is relatively small
● Water value to oil industry is relatively high
● Significant scope for water use optimisation

32. Case study
Dawson Creek Reclaimed Water Project
32
Opportunity:
● Re‐use municipal wastewater dumped
● Partner with City of Dawson Creek
● Co‐financed construction of wastewater
treatment plant to deliver grey water to local
industry
● Laid pipeline to replace trucking traffic
● Opened in September 2012
Main issue:
● Groundbirch using scarce potable water
resources for fracking operations
● Trucking water 48‐km to ops (2 mln miles per
year)

33. Case study
Rigs‐to‐Reefs Gulf of Mexico
33
Facts:
● US National Artificial Reef Plan 1985
● > 4,500 platforms in GOM; 532 platforms reefed as of
Apr 2018
● 50% of costs savings are donated to the program (GOM)
● Similar schemes in California, Brunei and Malaysia
● Prohibited in North Sea by Ospar Convention
Opportunity:
● Important hard strata are preserved for the ecosystem
● It saves decommissioning costs
● It supports the offshore sports fishing and diving
industry

34. Case study:
Obio Health Insurance Scheme
34
Facts:
● Partners: Obio Community, Government, Rivers
State Government, NGO (FHI360), SPDC, National
Health Insurance Scheme (NHIS)
● Covers 95% of community health care needs at a
base premium of 36$ per year
● Started in 2010 ‐ today > 30,000 insured patients
Main issue:
● Only donating bricks (a hospital) is not useful
● Health care is not oil company´s core business
● A self‐financing health care system is needed
multi‐partnership centred around a health
insurance scheme

35. Conclusions
1. Organise and integrate inside to deal with the outside:
a. Set accountabilities, agree roles and responsibilities
b. Use existing structures, tools and processes
c. Align, coordinate and integrate; appoint a NTR coordinator
d. Do the work: identify, analyse, prioritise and act
1. Be early and pro‐active to your stakeholders; engage and co‐create
2. Mitigate downside risks ‐ and harvest upsides
3. This is more than a process update; it requires a true culture change!
35

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37. References
37
1. Internal analysis of Goldman Sachs, ´Top 190 projects to change the world, April 2008, courtesy of Shell.
2. Davis, Rachel and Franks, Daniel: Costs of Company‐Community Conflict in the Extractive Sector, 2014.
3. McKeeman, Ryan and Brewer, Linda: Non‐technical risk leadership: Integration and execution –SPE‐2012
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process. Proceedings of IAIA Annual conference, Nagoya, Japan, 2016.
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HSSE Conference, New Orleans, April 2017.
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presented at SPE ATCE, Amsterdam, October 2014.
7. ISO 9001 Framework for Quality Management.
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for HSE. SPE Paper presented at HSE Conference, Stavanger 2000.
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12. Porter, M.E. and Kramer, M.R. Strategy and Society, the link between Competitive Advantage and Corporate Social Responsibility, Harvard
Business Review, issue Dec 2006.
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at SPE International Conference on HSSE& SR, Abu Dhabi April 2018.