Leaders surveyed by Marsh Inc., a risk and insurance services firm, indicates that less than 10 percent of National Oil Company (NOC) believe they have a complete understanding of the risks they face and how to effectively manage them. National Oil Companies are currently defined as an oil company fully or majority public owned.
The study, The Impact of Risk on National Oil Companies examined risks and operational challenges among state-owned oil enterprises and concludes that NOCs and their corporate leadership lack the security knowledge needed to protect their assets and facilities from growing threats of:
• terrorist acts
• major natural disasters
• an epidemic outbreak, and
• operational, reputation, strategic, and financial risks
The Spectrum of Risk
Marsh Inc.’s survey highlights the need for NOCs to improve their ability to assess and manage risk. We believe that it is more important for NOCs to understand the changing global-landscape in which they operate, not simply the economic and financial factors that play a role in their business. In doing so, NOC leaders will be able to combat risk by improving long-term investing and forecasting techniques that will allow for a competitive advantage in the industry.
For example, recent events have shown that elections in an African nation (Previous Report), potentially unnoticed a decade ago, now have far reaching economic effects on businesses and countries across the globe. The digital age of streaming media and live telecasts has allowed remote incidents to have instant effects on consumers and investors.
In this globalized industry, the need for efficiency and attention to detail is great. NOCs must be able to quickly digest and understand the linkages and consequences of political turmoil, civil unrest, crime, insurgency, and a myriad of other threats to their industry in order to protect their facilities and assets. Without a comprehensive worldview, operational changes made to facilities or procedures could be outdated in mere minutes. Intelligence gathering and analysis is important for NOCs as they face both conventional and non-conventional challenges.
Strategic Planning and Management of Risk
Forcing workers to follow safety precautions on job-sites is easily regulated, while preparing for major hurricanes or potential Avian Flu outbreaks is more complicated. Add to these risks the current geopolitical concern for environmentally friendly energy, alternative fuels (Previous Report), and terrorists attacks and the NOCs ability to mitigate risk has gone from controllable to difficult.
With close examination of the geopolitical landscape along with increased preparedness, the greatest risks can be addressed. NOCs need to become increasingly proactive in assessing risk. With increased intelligence and analysis of international situations, preemptively addressing potential problems at the operational level will become easier. For example, if data suggests that NOC facilities are located in a region with high terrorist activity, increased security will be needed to combat attacks. The implementation of early warning advisories for threatening weather systems or funding additional research to combat disease outbreak are additional examples of preventative ways to manage risk.
The Shift Forward: Seizing Opportunity
Risk should be managed not purely as an operational function, but rather incorporated into overall strategic planning. While it is important for NOCs to develop the knowledge and skill set to assess and combat issues they presently face, innovation in risk assessment will allow for operational and economic growth. For example, increasing on-site security of all operations should allow NOCs to explore territories seen previously as unsafe and consequently too risky.
Risks facing NOCs have far reaching implications for both the profit margins of each individual company and also the global economy. It is vital that NOCs assess and mitigate risks in order to keep the global economy stable due to the impact NOCs have in shaping the worldwide financial market.
Energy consumers will be negatively affected by any disaster that strikes world oil industries. With shifting risks, NOCs must continue their innovative search to contest the ever-changing world in which they operate.
