A Dissertation Report

On
“RISK ANALYSIS IN OIL AND GAS SECTOR”

A Capstone project report is submitted in partial fulfilment of requirements for

Bachelor of Business Administration (Oil & Gas Marketing) April, 2019

Under Guidance of

Mr. Rajesh Tripathi

Assistant Professor - Senior Scale
School of Business
University of Petroleum & Energy Studies

Submitted by:
PRABHU AGRAWAL
SAP ID: 500050555
Enrollment Number: R170216033
BBA (Oil and Gas Marketing)
2016-19
School of Business, UPES
 Certificate

This is to certify that the “Risk Analysis in Oil and Gas Sector" dissertation report is
completed and submitted by Prabhu Agrawal in fulfilling the requirements for the award of
Bachelor's Degree in Business Management (oil and gas marketing), is a bonafide work
practiced by him under my guidance.

To my knowledge and belief, this work is based on an investigation, collected and analysed
data from it, and this work is not carried out elsewhere, since no other university or institution
for granting Graduated.

Mr. Rajesh Tripathi

Assistant Professor
School of Business
UPES, Dehradun
 Student Declaration

I declare that this presentation is my own work and that to my knowledge it does not contain
materials previously published or written by another person nor materials that have been
accepted for awarding another degree or other institute for higher education, except in cases
where the necessary recognition is given in the text.

PRABHU AGRAWAL
SAP ID: 500050555
Enrollment Number: R170216033
BBA (Oil and Gas Marketing)
2016-19
School of Business, UPES
 Acknowledgement

I would like to express my deepest gratitude to Mr. Rajesh Tripathi for his trust and
reluctance to teach and inspire by his guidance. Without a guiding hand and stubborn support,
this work of mine will not be possible.
I would like to thank Mr. Ankur Mittal (Head of the Dept. BBA Oil and Gas Marketing)
for supporting and facilitating the relationship between academics and industry by teaching
me to lead me in this work and I will continue to do so.
I would also like to sincerely thank my friends and class fellows for their ideas and the
maintenance of a warm environment and support.
 Table of Contents

Topic Page no.

1. Introduction
2. Literature Review
3. A New Era in Petroleum Exploration and Production Management
4. Risk and Uncertainty
4.1 Risk and Uncertainty defined
4.2 Types of Risks
4.3 What is Credit Risks?
4.4 What is Liquidity Risk?
4.5 What is operational Risk?
4.6 What is Political Risk?
4.7 What is Market Risk?
4.8 Foreign Exchange Risk and Risk Management
5. Top Ten Risks in Oil and Gas Industry
6. Risks in Upstream Sector
7. Risks in Midstream Sector
8. Risks in Downstream Sector
9. Risks Management
9.1 Need for Risk Management
9.2 The Risk Management Process
9.3 Types of Risk Management
 PREFACE

Risk assessment and management are important for each organization, but this is
important for companies that work in the oil and gas industry.
Despite the best techniques for earthquakes and geologic expertise, this research is
unclear. Demand analysis is needed to generate averages and market prices for
decades. The extraction of oil or gas requires more investment, greater experience
and greater risk to potential obligations and compliance requirements. As
international economic and political events are increasingly affecting business,
such issues are a problem for the oil and gas companies.
There are five key risk factors for all enterprises: market risk (interest rate
changes, exchange rates, stock price, or unexpected commodity price).
Operational Risk (Rejection of Cheat Tool) Payment Risk (Inability to Buy or Sell
at quoted price). And political risks (new regulations, removal of ownership).
Cooperation in the oil, gas and electricity industries is prone to market risk or, in
particular, the price risk caused by changes in energy prices.
High risk contracts, especially risk pricing, for those who can and are absorbed.
The way they are transferred is complicated and often misunderstood. Financial
instruments are also associated with some major financial losses and suspicious
financial statements.
Forex Market is different than any other market! The speed, variation and size of
the Forex market is different from anything else in the financial world.
Oil and gas companies now focus on asset management and business processes to
increase profits. Although the barrel price has risen sharply over the past few
months, the industry has been reminded of disruptions in the 1990s and worries
about current high prices. As a result, stocks of oil and beans rose. The barrier to
the oil and gas industry is to control the political risks and other risks that cannot
be avoided in the industry with effective return.
 Chapter 01

INTRODUCTION
Introduction
Hydrocarbon exploration and production is a hazardous enterprise. The geographical concept
is unclear about the structure of the reservoir and hydrocarbon building. On the other hand,
uncertain economic speculation about the value of finding and producing tanks may have
economic potential and oil prices. Even the stages of development and production
engineering parameters represent the degree of uncertainty regarding their key variables
(infrastructure, production schedule, quality, cost, operational cost, etc.). These uncertainties
come from geographical sources and include economic and engineering models, including
high-risk solutions, without warranties of hydrodynamic detection and successful
development.
Business managers often face major solutions to the lack of scarce resources among
investments that are determined by geographical and financial risks and uncertainties. For
example, in the oil industry, managers use analytical methods to improve their decisions. In
this regard, the oil industry has a stinging solution. It provides a good environment for the
investigation of corporate risk behaviour and its impact on the company's business. The
Fallout solution is a simple example of how to analyse textbooks.
Apart from inland waterway and inland waterways, there is a danger of the average pipe and
pipeline. The new study also revealed that there is a risk of Internet piracy that affects
business operations and oil and gas companies. At the bottom of the supply chain are the
most dangerous components, with some gaps in the supply chain due to company and internet
losses that attack consumer information that affects the company's reputation. Loss of
goodwill.
Future trends in access to oil resources will largely depend on the balance between the result
of cost increases and the reduction in costs for new technologies. Based on this scenario, sand
dams and hydropower dams are an important example of risk mitigation and decision
making. This trend has been observed over the last two decades. New research strategies and
international goals are driven by the rapid development of new technologies. Progressive
technology allows exploration in good tanks as well as in new border areas, such as the deep
water. This internationally-oriented research and production strategy is integrated with the
new and unique strategic component that risk analysis and decision making are an essential
element of some investment decisions.
In this case, this guide covers a summary of the previous program, including the following
topics: (1) risk analysis and decision-making on oil exploration. (2) evaluation and
development of land, vague productivity, (3) decision making and value of information, and
(4) portfolio management and valuation Options Approach. This introduction describes some
of the main trends and challenges and presents a discussion of methodologies that affect the
present level of risk applications in the petroleum industry aimed at improving the decision-
making process.
Oil and gas exploration is an open and complex system that requires large investments and
long-term plans. There are several risk factors that can affect the system and the relationship
between these factors is so complex that exploration of oil and gas is irregular, meaning that:
(1) Geologists and geologists should analyse the possibility of saving oil and gas in the given
area.
(2) The availability of oil and gas should be limited.
(3) It is unknown whether oil and gas can be exploited for economic reasons.
Consequently, by applying risk management knowledge, project managers can avoid risk
changes and mitigation or sharing with other stakeholders. Now the basic method for risk
analysis for oil and gas exploration includes probable methods, three-stage risk assessments
and Monte Carlo et al, but they have the following weaknesses.
(1) These approaches do not form the whole framework of the problem being considered.
They cannot combine the knowledge of decision makers, administrators, and technical
experts to analyse the research system. They cannot be based on the geographical, design,
and economic factors involved in the survey, including oil and gas assessments, project
evaluations and economic assessments. They cannot determine the relationship between
stochastic factors in the learning process. So it is not suitable for system analysts to
communicate with decision makers and experts, and to modify models based on the latest
issues that arise in the system analysis process.
(2) Will have difficulty solving the relationship between risk factors. Some methods may be
relatively easy to relate to a particular problem, but generally it is assumed that: Common risk
factors will only occur, but Operation or Operation additionally multiplication and
independence factors and factors. Independent or Extraordinary Linear. As a result, the
results based on these assumptions will be specific.
(3) These approaches may not have significant implications for variables that are not included
in the study or mathematical model. In addition, when using traditional risk analysis methods,
risk analysts are required to register their project variables and relationships. However, the
random number of random variants affecting this risk is not included in the mathematical
model and it is included in an ambiguous risk assessment.
 Chapter 02
LITERATURE REVIEW

Risk analysis is the most powerful tool for running a few engineering processes. Especially
good performance shows some fuel oil shows how you can use the risk analysis method to
increase the probability of making the right decision for this particular operation. For boring
operations, though not widely used, many programs have been created. This area gives an
outline of these key applications.

Newendorp and its Root2 Study Using the Risk Accessibility Approach The decision to
invest in the drilling involves a significant commitment to capitalizing on extreme
uncertainties. The authors have shown that perceptions of selective qualities under the
influence of their own personal and intuitive objects can be used as a technique of decision-
making, which allows for quantitative and risk-related risk assessment.

Since the risk of investing in uncertainty due to geographical and engineering factors
affecting the profitability of the investment, it is appropriate to evaluate the size and
distribution of the possible outcomes of the investment in drilling a profit perspective.

According to the method will reduce the author's decision on the topic and conclusions of the
investment project for drilling. Using this method can analyse the effects of some variables
on speculation for unlimited drilling, analysis, and variables that have a profound effect on
profits, and may be better analysed separately. Many of these approaches have been
significantly improved, proven, precise, objective assessment of drilling expectations, not the
kind of quality analysis that is usually used in the publication of articles.

Although this article is not specifically intended to operate specific drilling operations, it
provides a process for dealing with uncertainty, which cannot be extrapolated to a situation
that involves regular, frequent work with fantasy.

Risk analysis can clearly see the results and compare the investment options with different
levels of risk and uncertainty.

Enterprises such as cars and housing are considered to be the labour force. Many employees
need to produce and collect products. Many parts of the oil and gas industry also have a large
labour force, such as engineering in the oil sector.

However, the added value chain for oil and gas requires more capital than the labour force to
achieve so it is called capital-intensive industries. The highest capital requirements are
billions of dollars.
  Demand for oil and gas for earthquake and geophysical research is estimated to be
millions of dollars. Good research can cost the US $ 100 million to 200 million, but
the development of production fields (especially in the Gulf) can be in the billions of
dollars in the field of 50 to 60 years.
 Processing facilities are in USD. Billion dollars, a gas-to-liquid plant (GTL) in Qatar,
the world's largest company, was first assessed in the United States. 5 billion. The
final price is expected to reach $ 19 billion.
 Conversely, the market needs lower capital requirements. Although the good location
of the gas station may be expensive, it is cheap compared to other investment in oil
and gas.
 Transport assets can range from the US $ 100 million (in a ship) to the US $. Billion
for new pipelines.
The life cycle of the asset is another important factor that affects the project's risk because
most oil and gas projects have a cycle of decision-making. An important aspect of strategic
planning and decision-making in oil and gas companies is the different levels of risk involved
in existing asset investment options. The module examines whether the oil and gas companies
plan and assess the risks in this wide range of options.
 Chapter 03
RISK AND UNCERTAINITY

"Any uncertain events that can improve or hinder the company's ability to achieve its current
or future goals, including the inability to take advantage of the opportunity ..."
(Risk is an opportunity)

The potential event will not equal the expected result

(Risk is unclear)

Threat of bad things

(Risky Risks)
Table 4.1: Risk and uncertainty defined
4.2) TYPES OF RISKS:
In general there are TWO broad categories of risk
Systematic Risk - Systemic risk affects a large number of assets. For example, an important
policy may affect some of your portfolio assets. It is impossible to protect yourself from this
type of risk.
Unsystematic Risk - Non-systemic risks are called "specific risks". This kind of risk affects
a handful of assets. An example of this is information related to certain stocks, such as an
immediate strike of employees. Diversification is the only way to protect you from the risk
without a system. (We will discuss later diversification in this lesson).

Systemic risk affects a large number of assets. For example, an important policy may affect
some of your portfolio assets. It is impossible to protect yourself from this type of risk

In all the projects in the oil and gas industry, there are three types of risk: economic risks,
financial risks, and environmental risks. These risks apply to large and long-term capital
projects in industries such as:

• Drilling equipment
• Shipboard or semi-ship
• Operation for the device
• Oil and gas extraction system
• Refined plants
• Liquefied natural gas plants
In addition, Research and Production Project (E & P) has one of the most important elements
is geographical risk. Industrial Risk Management Chart is an index of the size of economic
risk related to capital and expenditure disclosures and affects the company's financial
performance. Risk should be measured as part of investment preparation and evaluation.

Economic Risk

The international economic risks of international projects include:

 Oil prices have collapsed

 Capital cost excess
 High operational costs
 Loss of search from the website
 Some overlaps with political risk when evaluating factors that may affect the
economy of the project:
 Stability in the tax system (regime)
 Opportunities for repatriation
 The stability of the exchange rate

Political Risk

Political hazard is a point by point evaluation of the considerable number of dangers of

working together in a given nation.

Changing nation administration or political reasoning can frequently prompt new evaluations
of oil, gas and product stocks. A few instances of conceivable changes are:

Arrange monetary conditions

 The trading of commissions and the structure of expense rates

 Improvements to item dissemination

 Chance to satisfy benefit, profit, and profits

History has appeared there is an immediate reliance between host nation costs and assets and
the relationship of the host nation with the oil and gas organizations. With the expanded
estimation of assets, mortgage holders have a solid position to control their advantage riches.

The best arrangement for global oil and gas organizations is by all accounts set up when the
estimation of assets is low. In any case, the understanding is frequently consulted as the cost
of assets increments. The last political hazard is the capacity to deny the proprietor of the
property without paying pay. There are numerous instances of immense oil riches changes
before. Venezuela has a long history of the hardship of oil with previous President Hugo
Chavez (yet proceeds in the new routine). As of late, Russia and Ecuador additionally utilized
this system to oversee vitality assets.
Environmental and Safety Risk

Another major factor is the risk to the environment. The Environmental Impact Statement is
an important part of the new project, including a detailed focus on the carbon dump of the
project.

Apart from what is widely regarded as environmental hazards such as environmental

pollution or other disintegration of the environment, elements such as safety, staffing, fire
alarms, floods, and disasters are also important. All environmental risks that can affect the
economy, the project must be addressed and quantified.

Another important element of the current environmental impact of the upper current is what
the government of the host country calls "tolerance". In principle, the operator cannot
produce oil unless there is a place for the associated gas that is burned or burned in the well.
The green policy environment has become an important and valuable capital for the
development of a new production outlook.

However, this policy is also research on the use of the lost resources. Nowadays, diesel
engines provide the power needed to pump engines and other equipment at the well. The use
of existing natural gas to produce this device can save a lot of money while reducing
emissions.

Many companies have already applied environmental risk assessment technology and as a
result of economic measures for international business solutions.

Geological Risk

In evaluating geological risk, it is important to remember that there is a high degree of uncertainty in
E & P, a lack of true visibility of a tank of oil or gas. What can be evaluated by maps and quake data
is crucial to the success of future projects.

Even with today's quake technology and today’s highly-rated and highly-computational computer
models, perspectives can still be:

 Poor source
 There is no reservoir
 Without commas
 Closed or broken containers
 Thick sand
All of these factors influence the final economic efficiency of the well. However, none of
these factors are well-known while spending on mining drilling and digging wells that can
cost tens of millions of dollars.
Chapter 05
TOP TEN RISKS IN OIL AND GAS INDUSTRY
All risks are related to business decisions in the future. As a result, a lot of work has been
done in recent years and risk management resources are invested in the oil and gas industry.
Financial risk and regulation are at the core of the effort. But new companies have begun to
introduce operational risks by prioritizing them and thinking about managing and managing
all risks through a coordinated approach. Collaborating with Oxford Analytical, Ernst &
Young has addressed the strategic risks faced by oil and gas companies. This study is not an
accidental test, but a structured consultation with industry leaders and global experts. The
next 10 risks identified risk for oil and gas companies.
1. Human Capital Deficit
An ever-increasing number of human capital shortages in the part have turned into an
essential key risk to the business. "The limit of the oil and gas area to grow the interest to
react to rising interest needs, later on, is at any rate suspicious," said a reporter, including that
postponing and surrendering venture results from Capacity limitations, for example,
budgetary estimations, however, both have a cosy relationship.

2. Worsening Fiscal Terms

The decline in fiscal conditions is seen as high risk. In some cases, this is because of national
power, though in some cases it is a purely political result of political opportunism and high
prices. Changes in tax regimes can fuel oil and gas structures in countries such as Canada,
Venezuela, Russia, and Algeria. The impact of political opportunism and high prices is a tool
that is observed in both developing and developing countries.
3. Cost Controls
The threat of third transactions is the inability to control spending. The threat is considered
large enough to have a strategic impact, and failure to manage threats can hurt the
competitiveness of the oil and gas companies. Participants agreed that the issue expanded
from the study of the entire value chain, which influenced everything from the cost of
building a refinery to the construction of a pipeline. The capital cost index, which measures
inflation for oil and gas projects, has risen 79 per cent since 2000, with most of this increase
since May 2005.
4. Competition for Reserves
The Contest for National Oil Storage (NOC) is a major threat to international oil companies
(IOC). One of the participants wrote: "The Western IOC will be difficult to compete because
the agreement is not concluded by auction or auction, but at the state level, for example, with
development aid." For such an agreement on the market.
5. Political Constraints
With respect to access to reserves, recent estimates suggest that NFCs account for 75% of
global reserves, which have proven to be a guarantee of global oil and gas supply. Unlike the
unexpected crisis, this has been publicized in recent years. For this important IOC, this may
represent a larger threat and competition, resulting from supply disruptions.
6. Uncertain Energy Policy
Risks for the oil and gas industry are unclear in the energy policy. This is determined by one
participant: "The energy policy goals, including the security of supply and thinking of climate
change, as well as more commercial purposes such as access to and meet the growth needs.
Will develop policies and lead to regional market interventions, such as carbon sequestration,
a strategic reserve requirement Ration and subsidies for preferred energy sources. Price
provisions in the form of risk mitigation measures and the achievement of safety, health and
environmental targets can lead to a negligent regulatory regime, Benefits of business
damages. "
7. Demand Shocks
The shock of demand may be due to a number of global economic recessions. The global
financial crisis comes from financial instruments and hedge funds are the highest threat of
economists surveyed. An on-going commentary observed that "the breakdown of
international bank loans has been replaced as a source of financing, with a number of
specialized, specialized credit instruments held large, with significant regulatory impact. A
difficult assessment. Funds have grown so much and so it is wise to expect more instability in
the international economy. The global economic downturn may also be caused by
interruptions in energy supply. "The [price] increase, especially if several months could drag
the global economy into a serious recession," one analyst said. "Another participant
emphasized whether additional social or political threats Can contribute to the shocking
demand.” This steady expansion of China in recent years has supported steady growth. Of the
world, but create tensions, both inside and outside. The event that casts the country off a track
will have a major impact on expectations for future growth in oil and gas demand. "8.
Climate Concerns
Our group of oil and gas can be reckoned it has a rising concern about climate change, which
is a serious risk of a critical opinion on one of our experts on this topic, experts at In the field
of science and international relations: Model and, of course, scenario related to the political
world is science conservation (most Often scientists agree). Still, scientific conservative
scenarios are not necessarily what's going to happen; The danger cannot be avoided from
normal understanding. In this case, we can see the shock of the weather, the increasing
physical response, and that is the political stubbornness of most of the currently planned
companies. "
9. Supply Shocks
Other industry risks are immediate and unexpected disturbances in global energy supply.
While our participants disagree with the possible cause of shock, they agreed that an
unexpected crisis could be a serious challenge. Possible consequences include high price
volatility, global economic downturns, and inappropriate regulatory responses as well as
potential impact on competition on affected companies.
10. Energy Conservation
Unsurprisingly, the group voted for the 10th Renaissance energy savings success. This
assessment may have been influenced by the opinion of an energy economist who wrote:
"The energy intensity of developing countries is higher than most countries of the
Organization for Economic Cooperation and Development (OECD). So the opportunity to
improve energy efficiency and the apparent denial of oil has great potential. Gas and seemed
to agree, noting that "the most powerful tool available for policymakers, energy savings, and
it is being used, at least. Although no "bullet", energy savings are similar. Uncertainty is not a
part of political failure, but a political victory. "
It is important to note that this is only a photo and the risk can change at any time. These are
not predictions, but considering it can help companies prepare. Working through scenarios
and impact studies can lead to opportunities to restrict processes and controls that lead to
dialogue and value-added action plans.
 Chapter 06
RISK MANAGEMENT AND DECISION MAKING

Risk management is
"A systematic way to protect corporate assets and earnings against losses, so the business
goals are achieved without interruption.
Risk management is a process of identifying all risks associated with the organization. •
Establishing a non-regulatory framework and risk mitigation risk should also use risk
management to increase equity. This will eliminate the prize. • The point is to do...

7.1) NEED FOR RISK MANAGEMENT

 The uncertainty in the enterprise
 Increase complexity in the business environment
 Obligation duties
 Contractual obligation
 Social obligations
 Corporate error with high profile

7.2) THE RISK MANAGEMENT PROCESS

The Risk Management Process has several steps that can be used to enforce a sustainable
decision-making process.
The components of the risk management process are summarized in Figure 7.1.
Fig. 7.1 risk management process

Step 1 Communicate and consult

This is shown in Figure 7.1 with the arrow at each step. Communications and consultations
aim to identify who should be involved in risk assessment (including identification, analysis,
and evaluation), and joining those who will participate in monitoring, control, and risk. In this
way, communications and consultations will be reflected in every step of the process
described in this guide.

As a starting point, two important aspects need to be identified to create a need for the
remaining process. These are the intended communication and advice: quarantine
information. • Manage stakeholder perceptions on risk management
Eliciting risk information

Communication and consultations can be done within organizations or between organizations

and stakeholders. Rarely, only one person has all the information needed to determine the
risks to the business or even the activity or the project. It is therefore important to identify the
circle of stakeholders that will assist in completing this information. To ensure effective
contacts, business owners may decide to develop and implement communication strategies
and / or plans as soon as possible. This should identify internal and external stakeholders, as
well as their relationships, roles and responsibilities as well as address risk management
issues. Consultation is a two-way process, generally involving dialogue with a number of
relevant groups and exchanges of information and opinions. It can provide access to
information that will not be available.

Managing stakeholder perceptions for management of risk

Small businesses will have many stakeholders that will vary depending on the type and size
of the business (Figure 7.2).

Fig. 7.2 stakeholders in small business

Stakeholder engagement can often be one of the most challenging tasks in business
management. It is important for stakeholders to identify and interact with them in the risk
management process. They play an important role in the decision-making process to
understand the risks and benefits that are perceived, understood, understood and documented.
Stakeholder engagement should include regular progress reports on the development and
implementation of risk management plans and, in particular, to provide appropriate
information on the proposed treatment strategies, their benefits and their effectiveness.
Step: 2. Establish the context

When considering risk management in small businesses, it is important to establish some

boundaries in which risk management processes will be implemented. For example, business
owners might be interested in limiting financial risk. Therefore, the information collected will
focus solely on the area of risk. Perform 5 steps to help identify the context in which risk is
defined.

1. Establish the internal context

As already mentioned, the risk is an opportunity of what's going on, which will affect the
goal. Therefore, the goals and duties of the business, project or activity must be pre-
determined to ensure that all risks are understood. This ensures that risk decisions often
support business goals and broad business. This method promotes thinking and strategy.
When creating an internal context, business owners can ask themselves the following
questions:
Is there an internal culture to be resolved? For example, are staffs resilient? Is there a
professional culture that can create unnecessary risks for businesses?
• Which group of staff are present?
• What are the business opportunities for people, processes, processes, tools and other
resources?

2. Establish the external context

This step defines the general business environment and understanding of how customers or
business customers are perceived. An analysis of these factors will determine strengths and
weaknesses, opportunities and threats to businesses in the outer environment. When setting
the context outside, business owners can ask the following questions:
• What are the regulatory and regulatory requirements of the company and regulator?
• Are there other requirements that the business must comply with? What market is running
in business? Who is the competitor?
Are there any social, cultural, or political issues to be resolved? Creating an external context
should include a study of business relationships and external stakeholders about risks and
opportunities.

3. Establish the risk management context

Before starting to undertake risk identification, it is important to determine the boundaries,

objectives, and extent of the activities or issues that are being considered. For example, when
undertaking risk analysis for new projects, such as introducing a new tool or a new product
line, it is important to clearly define the action parameters to ensure that all the key risks are
identified. Defining parameters and boundaries of actions or problems also have the
definition of:
• Time (for example, how long does it take to insert a new device?)
• Necessary resources
• Roles and responsibilities
Have extra skills
• Internal and external relationships (eg other projects, stakeholders)
• Reporting requirements
• The required depth of analysis. The number of analyses required for this step will depend on
the type of information risk that is related and the best way to do so.

To determine the number of analytics needed, consider:

• The complexity of activity or problem
Consequences of possible complications
• The importance of taking lessons learned to develop corporate knowledge about activity-
related risks
• The importance of action and goal
• Information that is related to interested parties
• Types of activity-related risks and accidents.

4. Develop risk criteria

Risk criteria allow a business to clearly define unacceptable levels of risk. Conversely, risk
criteria may include the acceptable level of risk for a specific activity or event. In this step the
risk criteria may be broadly defined and then further refined later in the risk management
process. It is against these criteria that the business owner will evaluate an identified risk to
determine if it requires treatment or control. Where a risk exists that may cause any of the
objectives not to be met, it is deemed unacceptable and a treatment strategy must be
identified.
The table below (Table 4.1) provides a number of examples of risk criteria for a project.

Table7.1. Examples of risk criteria for a project in small business

Define the structure for risk analysis

Separate the risk categories you want to control. This will give deeper and deeper insight into
risk. The selected risk analysis structure will depend on the type of activity or complexity and
context of the risk. An example of a risk category for a specific risk analysis is provided in
the case study below.
Step: 3. Identify the risks

Risk cannot be controlled unless it is first identified. When the context of the business is
determined, the next step is to use the information to identify as many risks as possible. The
purpose of risk identification is to determine the risks that may have a negative or positive
impact on the business objectives and the analysed activities. The following answers show
the risk: There are two main ways to determine the risk: • Backing • Forwarding.

Identifying retrospective risks

A risk is something that happened before, like accidents or accidents. Risk identification is
the simplest way to determine risk and simplify. It's easy to believe something if it's
happened before. It is also easy to determine its impact and to see the damage it causes. There
are many sources of information about risk. These include:
• Daily logs or accident registration or incidents
• Audit reports
• Customer Complaints
• Recognized Documents and Reports
• Study by staff or customer
• Professional newspapers or magazines such as magazines or websites..

Identifying prospective risks

Potential risks are often difficult to identify. These are things that have not happened yet, but
they can happen somewhere in the future. Identification should include all risks whether or
not they are governed. The reason here is to record all the risks and track or review the
effectiveness of their management.

Future risk assessment methods include:

• Inspire with staff or external stakeholders
• Explore the political, political, legislative and operational environment
• Interview with people and/or relevant organizations
• Investigate employees or clients to identify problems and issues
Schedule of proceedings
• Review system design or development of system analysis techniques.
Risk types will help to break the process of future risk determination. It is important to
remember that risk identification will be determined by the experience and expectations of
the person who carries out the risk analysis. Regional and Risk Issues can be identified by
using trusted sources.

SWOT analysis

An effective method for identifying future risks is to analyse Strengths and Weaknesses and
Threats (SWOTs). The SWOT analysis is a tool that is widely used in planning and a good
method of identifying areas of negative and positive risk at the business level.
Step: 4. Analyse the risks

During the risk identification period, business owners may be at risk and often can not handle
specific responses. The risk analysis phase will help to determine which risks are more
complicated or complicated than others. This will help to better understand the impact of the
risk or availability of risk management resources.

What is risk analysis?

Risk analysis involves the inclusion of possible complications or possible effects of the
events that will occur. The result is "Risk Level". This is:
Risks = x Possible possibilities
This is further discussed in this section. How is Risk Level Determined?

Elements of risk analysis

The risk analysis component is as follows:

1. Identify existing strategies and controls that take action to mitigate negative risks and
promote opportunities.
2. Identify the side effects or opportunities (they can be positive or negative).
Determine the possibility of any adverse effects or negative opportunities.
Assess risk level by including complications and probabilities.
Review and determine uncertainties in the evaluation.

1. Identify existing strategies and controls that act to minimize negative risk and
enhance opportunities

To ensure a clear understanding of the potential risks of the initial risk, identify the available
control measures and then analyse the risk to determine the level of "residual risk". For
example, the risk of stealing from businesses is reduced by using a safety camera. However,
this is not hazardous to risk, it is still dangerous.

2. Determine the consequences of a negative impact or an opportunity (these may be

positive or negative)

Consequences are the possible outcomes or impacts of an event. They can be positive or
negative, and can be expressed in quantitative or qualitative terms and are considered in
relation to the achievement of objectives. It is necessary to estimate the impact of a risk or
opportunity on the identified objectives. For example, the consequence of failing to maintain
a major piece of machinery may be major injury requiring hospitalization, or possible death,
of an employee.

3. Determine the likelihood of a negative consequence or an opportunity

Likelihood relates to how likely an event is to occur and its frequency. An example is the
likelihood that a non-maintained piece of machinery will malfunction and result in major
injury requiring hospitalization, or possible death, of an employee.
* Likelihood = probability x exposure
Likelihood relates to the probability of a risk occurring combined with the exposure to the
risk. This means that although the probability of a risk resulting in a negative outcome may
be deemed rare, a higher frequency of exposure to that risk can increase the overall likelihood
of a negative outcome. For example, based upon experience, the probability that an
experienced courier company will encounter an increased accident rate is low when
delivering within regional areas. However, this probability increases considerably when
exposed to heavier traffic, e.g. if the business decides to relocate to a larger city. Estimate the
level of risk by combining consequence and likelihood As previously introduced, to
determine the level of risk, risk analysis involves combining the consequence of a risk with
the likelihood of the risk occurring:
Risk = consequence x likelihood*
This is known as the ‘risk analysis equation’. Techniques for determining the value of
consequence and likelihood include descriptors, word pictures, or mathematically determined
values. These are further described later in this section. Most commonly, the overall level of
risk is determined by combining the identified consequence level with the likelihood level in
a matrix (Figure 3.4). Consider and identify any uncertainties in the estimates In all estimates
of likelihood and consequence, uncertainties will exist. This is a common limitation of the
risk management process. It is important therefore to consider and identify any uncertainty. It
may not be necessary to act on that uncertainty, but be aware and monitor any increases in the
risk level.
Analysis techniques

The purpose of risk analysis is to provide information to business owners to make decisions
regarding priorities, treatment options, or balancing costs and benefits. Just as decisions
differ, the information needed to make these decisions will also differ. Not all businesses or
even areas within a business will use the same risk analysis method. For example, a doctor’s
clinic will have very different types of risk from a software developer. As such, the risk
analysis tools need to reflect these risk types to ensure that the risk levels estimated are
appropriate to the context of the business.

Types of analysis

Three categories or types of analysis can be used to determine level of risk:

• Qualitative
• Semi-quantitative
• Quantitative.
The most common type of risk analysis is the qualitative method. The type of analysis chosen
will be based upon the area of risk being analysed. More information regarding the semi
quantitative and quantitative techniques can be found within the Australian and New Zealand
Standard Risk Management Guidelines (HB 436:2004).

Qualitative risk analysis

This form of risk analysis relies on subjective judgement of consequence and likelihood (i.e.
what might happen in a worst case scenario). It produces a word picture of the size of the risk
and is a viable option where there is no data available. Qualitative risk analysis is simple and
easy to understand. Disadvantages include the fact that it is subjective and are based on
intuition, which can lead to the forming of bias and can degrade the validity of the results.
Methods for qualitative risk analysis include:
• brainstorming
• Evaluation using multi-disciplinary groups
• Specialist and expert judgement
• structured interviews and/or questionnaires
• Word picture descriptors and risk categories.

Step: 5. Evaluate the risks

As discussed in Section 3.3, it is important to be able to determine how serious the risks are
that the business is facing. The business owner must determine the level of risk that a
business is willing to accept. Risk evaluation involves comparing the level of risk found
during the analysis process with previously established risk criteria, and deciding whether
these risks require treatment. The result of a risk evaluation is a prioritized list of risks that
require further action. This step is about deciding whether risks are acceptable or need
treatment.

Risk acceptance

Low or tolerable risks may be accepted. ‘Acceptable’ means the business chooses to ‘accept’
that the risk exists, either because the risk is at a low level and the cost of treating the risk
will outweigh the benefit, or there is no reasonable treatment that can be implemented. This is
also known as ALARP (as low as reasonably practicable). A risk may be accepted for the
following reasons:

• The cost of treatment far exceeds the benefit, so that acceptance is the only option (applies
particularly to lower ranked risks)
• The level of the risk is so low that specific treatment is not appropriate with available
resources
• The opportunities presented outweigh the threats to such a degree that the risk is justified
• The risk is such that there is no treatment available, for example the risk that the business
may suffer storm damage.

Step: 6. Treat the risks

Risk treatment is about considering options for treating risks that were not considered
acceptable or tolerable at Step 5. Risk treatment involves identifying options for treating or
controlling risk, in order to either reduce or eliminate negative consequences, or to reduce the
likelihood of an adverse occurrence. Risk treatment should also aim to enhance positive
outcomes. It is often either not possible or cost-effective to implement all treatment
strategies. A business owner should aim to choose, prioritize and implement the most
appropriate combination of risk treatments. Figure 3.5 overviews the risk treatment process,
including what needs to be considered in choosing a risk treatment.

Treating the root cause

Before a risk can be effectively treated, it is necessary to understand the ‘root cause’ of a risk,
or how risks arise.

Options for risk treatment

The following options may assist in the minimization of negative risk or an increase in the
impact of positive risk.

Avoid the risk

One method of dealing with risk is to avoid the risk by not proceeding with the activity likely
to generate the risk. Risk avoidance should only occur when control measures do not exist or
do not reduce the risk to an acceptable level. Uncontrolled or inappropriate risk avoidance
may lead to organizational risk avoidance, resulting in missed opportunities and an increase
in the significance of other risks.

Change the consequences

This will increase the size of gains and reduce the size of losses. This may include business
continuity plans, and emergency and contingency plans.

Share the risk

Part or most of a risk may be transferred to another party so that they share responsibility.
Mechanisms for risk transfer include contracts, insurance, partnerships and business
alliances. It is important to note that risks can never be completely transferred, because there
is always the possibility of failures that may impact on the business. Transfer of risk may
reduce the risk to the original business without changing the overall level of risk.

Retain the risk

After risks have been reduced or transferred, residual risk may be retained if it is at an
acceptable level.

Identifying appropriate treatments

Once a treatment option has been identified, it is then necessary to determine the residual
risk; that is, has the risk been eliminated? Residual risk must be evaluated for acceptability
before treatment options are implemented.

Conducting a cost–benefit analysis

Business owners need to know whether the cost of any particular method of correcting or
treating a potential risk is justified. Considerations include:

• Number of treatments required

• Benefit to be gained from treatment
• Other treatment options available, and why the chosen one has been recommended
• Effectiveness of the treatment timeframe
• Total cost of treatment option
• Total reduction in residual risk
• Legislative requirements.
Business owners are required by law to provide a safe workplace. If existing work
environments need to be upgraded to fully meet codes of practice and standards, a risk
management approach should be adopted to demonstrate due diligence. A staged action or
risk treatment plan can be used to document the risks and to outline a remedy. Appropriate
consultation with stakeholders should also occur.

Risk treatment plan

A risk treatment plan indicates the chosen strategy for treatment of an identified risk. It
provides valuable information about the risk identified, the level of risk, the planned strategy,
and the timeframe for implementing the strategy, resources required and individuals
responsible for ensuring the strategy is implemented. The final documentation should include
a budget, appropriate objectives and milestones on the way to achieving those objectives.

Risk recovery

Although uncertainty-based risks are difficult, if not impossible, to predict, there are ways in
which businesses can prepare for a significant adverse outcome. This is known as risk
recovery. Businesses should consider adopting a structured approach to planning for
recovery. This planning may take many forms, including the following:

• Crisis or emergency management planning

The business anticipates what might occur in a crisis or emergency, such as a fire or another
physical threat, and then plans to manage this in the short term. This will include listing
emergency contact details and training staff in evacuation and emergency response
procedures.

• Business continuity planning

The business moves beyond the initial response of a crisis or emergency and plans for
recovery of business processes with minimal disruption. This might, for example, include
ensuring that there is sufficient documentation of processes if a key staff member is
unavailable to return to work and another staff member is required to fulfill that role,
identifying options for alternative premises if the existing premises are damaged, or
documenting alternate suppliers for key supply material if a key supplier does not fulfill their
contract.

• Contingency planning

Contingency planning can be a combination of the above. A contingency planning tool can
help to identify what should be done to minimize the impact of a negative consequence on
key business processes arising from an uncertainty-based risk. This would include the initial
response (crisis management) and the delayed response (business continuity).

Step: 7. Monitor and review

Monitor and review is an essential and integral step in the risk management process. A
business owner must monitor risks and review the effectiveness of the treatment plan,
strategies and management system that have been set up to effectively manage risk. Risks
need to be monitored periodically to ensure changing circumstances do not alter the risk
priorities. Very few risks will remain static, therefore the risk management process needs to
be regularly repeated, so that new risks are captured in the process and effectively managed.
A risk management plan at a business level should be reviewed at least on an annual basis.
An effective way to ensure that this occurs is to combine risk planning or risk review with
annual business planning.
7.3) TYPES OF RISK MANAGEMENT

Operational risk management: Operational risk management related to technical failures

and human error

Financial risk management: Financial risk management related to non-payment of interest

and increased interest rates

Market risk management: Reactions in various types of market risk, such as interest rate
risk, capital, capital risk, commodity risk, and currency risk

Credit risk management: The risk operation involves the possibility of non-payment by the
debtor

Quantitative risk management: In quantitative risk management, efforts have been made to
identify the potential for other negative financial opportunities to address the level of losses
that may arise from these situations.

Commodity risk management: It works with various types of commodity risk such as risk,
value, political risk, risk, quantity and price risk

Bank risk management: Reactions to different types of risk faced by banks such as market
risk, credit risk, cash risk, legal risks, operational risk, and reputation risk.

Non-profit risk management: This is a process where risk management providers provide
Non-Profit Services to Their Customers.

Currency risk management: Work with price changes in foreign currencies

Project risk management: Specific risk management related to the project

Integrated risk management: Risk management involves the integration of risk data into
decision making, strategies and business decisions that focus on the level of department's risk
tolerance. On the other hand, it is a credit market, credit, money management, cash
equivalents, and equivalents at the same time or at the same time.

Technology risk management: This is a risk management process associated with the
introduction of new technologies

Software risk management: It involves a variety of risks related to new applications

Chapter 08

INVESTMENT DECISION IN OIL AND GAS PROJECTS

Introduction

Evaluation and decision-making on large capital projects has been a subject of concern for
large corporations and the government in the oil and gas business, partly because of limited
resources and high investment - for example, investment can be reversed. Has been in the
development phase of billions of dollars. According to Dixit and Pindyck (1994), several
studies related to current investment theory, such as the oil and gas industry, have three main
components.

1 Uncertainty about future cash flow

2 Unavailability of investments
3 Prices or some decisions to implement the decision.

Risk Return Profiles

Profit/profit patterns for oil and gas companies vary depending on asset types in their existing
projects and plans. Here are some general assumptions:

Assets with local drivers and defined values, such as pipelines, have a low-risk profile and
generate low income but stable.

Assets that are affected by global events, such as GTLs and natural gas refineries, are
affected by higher demand and higher commodity prices.

• E & P projects are considered to be the most dangerous option in the industry and can
provide high returns if successful.

• Unexpected commodities trading. Because it is based on the wealth of knowledge, it is

considered to be the highest risk. It is difficult to predict or rely on the ability of individuals
and groups to accurately predict and follow market directions in the future.

Today, corporate planners use the principle of maximizing portfolio efficiency, and complex
mathematical models to evaluate the risky relationships. Corporate indicators and quantitative
devices are generally and affordable. Data show that planners and decision makers assessing
the risk with a probability profile rather than a single valuation make the investment decisions
even better.
MODELING

As used in the General Analysis Data table, oil and gas companies use three key analytics
tools to create risk forms for asset classes and link on-going project analysis with the
company's long-term business strategy. Analyse methods from more ways to larger
quantities.

Scenario planning was introduced by the Shell Oil Company in the 1960s to help address
uncertainties in the prospects for the future. In fact, there are three steps:

1. Creating scenarios

2. Determine the "Strong"

3. Establish specific strategic actions or strategic changes as events occur

This technique is the most subject. However, it has become increasingly popular and popular
because most of the factors affecting the industry's economy are beyond the control of oil and
gas players.

The sample model is the most common technique used by oil, gas and oil companies when
evaluating assets and equipment. The basic concept of quantitative models called "order and
deduction" is:

1. Evaluate each project with regular assumptions

2. Use the same tools and indicators as the quantities and potentials for the return of each
project. The budget of the project the company has available capital

Portfolio management is similar to the combination of the proposed project and, inter alia,
the interaction between the projects. Under this method, all potential production and
production projects have been identified and are specific in terms of cash flows, cash flows
and investment costs.

However, the likelihood that the probability of analysis is presented is a distribution of the
probability of return - not just a point or range of returns - which will be established in more
traditional ways. . This method is complicated and demanding, but it leads to better long-term
accuracy for E & P's assets over the "class and deduction" techniques.
More on Quantitative Modeling

TIME VALUE OF MONEY

An investment capacity analysis includes a time value of money. The basic premise of this
idea is that future earnings or cash flows should be discounted because it does not have the
same value as current cash.
The first step in this analysis is to develop the project's cash flow in the future. As shown in
the chart, "More about Model" shows:
• In the first year of this project, the amount needed to fund a project that improves cash flow
savings.
• Once the project is completed and processed, the net income (cash) is created.
• In the case of the Institute for Economic Development and Development, there has been
further progress since the decline in economic output. Cash flows are influenced by changes
in crude oil prices and gas prices as well as unforeseen events that affect production rates
such as hurricanes and political turmoil.
• The cash flow stops when the asset is withdrawn or sold.
CORPORATE METRICS

The normal corporate planning to analyse estimated cash flows from the project is:

 Net present value (NPV) is the point where cash flow savings from the project are
discounted using the Company's percentage. Investment is attractive if NPV is greater
than zero. The project was ranked from the highest (most attractive) NPV to the
lowest of the budget process.
 Discounted Cash Flows (DCF) or IRR is the discount rate that the cash flow saved
from the project is zero. This investment is attractive if its yield is larger than the
capital cost of the corporation or is back from the barrier. DCF and IRR measure
returns on investments against company capital spending.
 Return on Investment (ROI) is where the cash flows are divided into additional
capital (including additional capital costs such as interest expense). The ROI describes
the number of profits that are generated per capital investment.
MORE ON PORTFOLIO MANAGEMENT

In E&P companies today, usually, there is more wealth that can be created with available
capital. In the context of a long-term corporate strategy, companies must consider what assets
are invested in investment and investment mode.

The number of project options is generally a major challenge. For example, a less-based
organization of E & P 200 assets has been faced with more than 1,000 possible options to
analyse. The most important principle in E & P's portfolio management is the emphasis on
individual risk and asset interaction.
MONTE CARLO SIMULATION

Monte Carlo simulation is the simplest tool that is used to determine the amount of risk in
the E & P project. This name refers to Monte Carlo, Monaco, which is known for casinos,
wheels, wheels and dice, indicating a random behaviour.
Dangerous casino behaviour is similar to how Monte Carlo's exercise has chosen random
variable values to emulate the E & P portfolio model. When rolling, it is known that numbers
1, 2, 3, 4, 5 or 6 will appear, but any number that will appear for each book is unknown.
This is true for the E and P variables that affect the project. The variable contains a specific
range of values, but the value for each event or event is not clear:
• Crude oil or natural gas prices
• Lower production
The degree of academic success
• Spending on assets
• Tax rates and taxes on foreign income
The experiment refers to an analytical approach that is designed to emulate the real system.
This method is used when too much classical analysis is too complicated or difficult to
reproduce. The simulation gives the resulting distribution as presented in the Monte Carlo
Simulation chart, a probability profile of the project's potential value.
One or more generations of models are not stable enough to make good decisions in the
current business environment and markets.
Chapter 09
MEASURING SUCCESS IN OIL AND GAS PORTFOLIO

The ROCE and the Bankruptcy Payments are used as comments from companies and external
analysts.

The ROCE is a very simple indicator that has been used as a measure of the efficiency of
investment in the oil and gas industry.

As the graph explains, the ROCE is net income divided by average capital employed in a
business or corporation. These statistics are often reported in the company's annual report and
are used for comparative analysis purposes.

The main principle in E & P's portfolio management is the emphasis on the amount of risk in
individual assets and the interaction between assets. Profit / profit patterns for oil and gas
companies vary depending on asset types in their existing projects and plans.

In order to incorporate tools and measurement measures into the annual planning and
decision making process, most of the oil and gas company planners translate corporate
strategy as a guideline to advise business entities in project development.

Most oil and gas companies use a separate, two-tiered planning process but have been
engaged throughout the year:

• Long-term plans are used to forecast capital requirements in the period of 5 to 10 years and
plans related to the age of assets (25 to 30 years).
• Short-term plans address the impact of long-term business ideas over the next 12 to 24
months. This plan is used to determine a short-term business unit and a personal transactional
purpose called a card estimate.

Return on capital (ROCE) is the most common indicator used to gauge the efficiency of
investment in the oil and gas industry. The ROCE is the net income divided by the average
equity leased in a business or company unit.
CONCLUSION

Today, oil and gas projects are getting bigger and bigger. Taking advantage of seawater
boosts many companies considering expansion of their investments, moving from investor to
operator or entering space from neighbouring energy. At the same time, the downside of
experienced project managers reduces the chance. These factors combine the increase in the
level of risk associated with the project.
Only if the company follows a risk-aversion strategy and only within its national borders, it
will face political risk when investing abroad. So the challenge is to control the political risks
and other risks that cannot be avoided in the industry. These risks are analysed and managed
and are often the key to the success of the project. The traditional political risks in the form of
deprivation of possession and nationalization are still a threat, although it is not as prevalent
as it used to be. Please note that depriving of ownership or citizenship does not violate
international law if there is a quick, sufficient, and sufficient compensation for investors. The
risk of rejection of contracts that have been tested by Norton in India and the Internet.
While political risks can be managed through insurance, strategic alliances and partnerships,
it can be minimized by taking certain measures that are visible but often ignored. Effective
techniques include maintaining a low profile, maintaining close contact with the government,
anticipating changes and working with him to avoid geographical focus, a good corporation,
and the proper use of local supplies and staff. According to the establishment of the economic
linkage, the host country creates a centre The national election campaigns that are interested
in your continued political survival.
However, any form of policy risk insurance cannot protect the company if it participates in
bribery, corruption or pollution or the environment. Such activity will likely eliminate any
insurance policy risk.
BIBLIOGRAPHY
Energy Price risk by Tom James
Coping with strategic uncertainty, Sloan Management Review
Journal of Business Finance and Accounting, June, volume 27
Journal of Petroleum Technology
A financial calculus: An introduction to derivative pricing
Journal of Political Economy
Harvard Business Review
Risk and Uncertainty, proceedings of a conference held by the International Economic
Association, Macmillan, New York
Thinking small about oil, Management Today
Applications of Risk Analysis and Investment Appraisal Techniques in Day to Day
operations of an upstream oil company, submitted in partial fulfilment of the degree of
Master of Business Administration, University of Aberdeen.
Derivatives and Risk management in Oil & Gas industries by KPMG
Caspian Oil and Gas: Mitigating Political Risks for Private Participation
Shortages compel Asian upstream sector to focus on risk management by: Steve Cook
Risk Management in Oil & natural Gas industry by NYMEX.
The London International Petroleum Exchange (IPE)
Asian Petroleum Price Index: Tapis Crude & Dubai Crude
www.bseindia.com
www.nseindia.com
www.dghindia.org
www.ey.com