MADRID—This year’s opening EAGE forum, “Nontechnical Risk in the Upstream Business,” featured a panel of speakers who gave varied opinions on what those nontechnical risks are.

Moderator Mike Daly, formerly of BP and now of Macro Energy Partners, pointed out that the oil and gas sector today is working “in an increasingly fragmented world” in which western technology is increasingly being used by its enemies to fight the West, whether through cyber attacks or online social-media campaigns.

Spanish operator CEPSA’s Jagoba Cubes San Salvador, however, talked about viewing risk also as an opportunity. “E&P is a risky business,” he said, “but as an industry we can manage it.” He highlighted that the industry is currently adjusting today to a new era of lower oil prices, and warned that “our industry cannot stand still. We need to adapt.”

Better Integration

This can be done through better E&P integration within companies, more diversity and more flexibility to adapt to change, along with continued use of new technologies and know-how. “It is only the most efficient operators that will be successful,” he told the packed audience.

Catherine MacGregor of Schlumberger discussed nontechnical risk issues related to local content. These included noncompliance risk, risk to market access, risk to revenues and profits, and risk to ethical standards and reputation. She went on to highlight that companies such as Schlumberger “can add real value to a national workforce” as part of local content programs.

She also pointed out the company’s ongoing work to address the problem of recruiting new petrochemical professionals, a resource which she said the industry was currently in short supply of.

Albert Paardekam of Shell highlighted work he had done for the company on deepwater projects offshore Brazil, such as the BC-10 development with Petrobras. “Apart from the technical risks, there are all the nontechnical risks that must be managed as well. Deepwater projects span offshore, onshore and further field, and risks can be triggered by many different events,” he said. Early targeting of negative issues related to a project is a key aspect, Paardekam added. “The technical and nontechnical risks are fully integrated and linked. We need to relish the nontechnical challenges just like we would a technical challenge and accept there is no ‘one-size-fits-all’ solution.”

Oil Price Evolution

According to Repsol’s chief economist, Pedro Antonio Merino, risk starts with the oil price itself. He discussed the “evolution” of the oil price over many decades and how it tracks very differently (and much less stably) than the food or metal commodities markets. “The only really big difference between them is that we have Mother Nature and OPEC,” he said. Merino highlighted the changing face of the oil market from one dominated by OPEC to one influenced by unconventional oil price dynamics.

He went on to highlight that non-OPEC conventional oil production has been “pretty stable” since the 1980s but that today there is still “a lot of risk.” This is largely due to living in a world where there are many different financial policies existing simultaneously.

When it comes to the upstream industry’s performance on delivering oil projects, Dr. Marcos Gallego of ERM flagged nontechnical risks as the chief culprit for the often-documented schedule delays and cost overruns on major developments.

“When nontechnical risks are introduced to oil and gas project developments, such as health, safety, environment and community-related issues, this normally leads to project delays, cost overruns and lost deals,” he said. “Nontechnical risk is the main source—70% to 75%—of the delays and overruns.”

The biggest cause of delay was often related to environmental issues, he added.

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