Members of the Deloitte Center for Energy Solutions had a problem. Increasingly, their clients were asking for services to manage risk in novel ways. But they weren’t sure where to find the answers.

“As one CEO put it to us, ‘What I need Deloitte to provide me with is a vision of what’s around the corner,’” said David Traylor, a principal with Deloitte & Touche LLP. ‘“I don’t like surprises.’”

The quest to find the answer became a personal one for John England, vice chairman and leader of Deloitte’s oil and gas practice. He said that clients were asking for practical applications.

“We couldn’t show them where we’d done this before,” he said. “The genesis of the solution was living near the Johnson Space Center. Most of my friends are NASA employees. I was complaining, quite frankly, that we had all of these great strategies, all of these great competencies that we were developing, but we didn’t have what the oil and gas industry was really looking for – proof and practical application. One of my friends encouraged me to contact NASA.”

The result of that conversation is a strategic partnership in which Deloitte will work with the space agency to tap into its 50-year history of putting people into space and bringing them back to Earth. The goal of the partnership, announced earlier this year, is to take advantage of the emerging science of predictive analysis to manage risks and prevent catastrophes.

Meeting of the minds

While tech transfer between aerospace and the oil and gas industry isn’t exactly a new concept, it’s usually a materials science type of transfer – lightweight metals for offshore applications, for instance. NASA, which has been tasked since the end of the shuttle program with finding commercial applications for its technology, also has a safety culture to rival any of the majors.

“Oil and gas and space exploration have the same types of operating conditions,” Traylor said. “They’re in harsh conditions, and they’re in remote locations – very remote, in the case of NASA. They both have complex engineering systems.

“They also have culturally diverse work forces, and there is a heavy reliance on contractors. How do you bring all of this together to operate safely?”

He added that while Deloitte has tools and technologies to address advanced risk analysis, it doesn’t have the operations. NASA does. It operates space stations and has launched rockets and space shuttles.

Initial focus areas

Traylor outlined three areas that will make up the initial offering. The first is risk culture. While acknowledging that every company has a risk culture, the reality is that these cultures can deteriorate over time, often leading to catastrophic events.

“It’s something that NASA, unfortunately, has experienced,” he said. “History is the best teacher for us.”

He added that what tends to deteriorate is not safety training; it’s a company’s ability to identify new risks.

“If you do things that are repetitive, you can rely on history,” he said. “But if you are using new technologies or are in new environments, you’re introducing potential for new risks.”

The second focus area is on risk modeling and simulation. This helps determine what can go wrong and what the consequences of that failure are. It examines the probability of an event occurring, and it helps companies determine where they should focus their resources.

Traylor said that this is an effective way to model the low-probability, high-impact events known as “black swan” events. “Risk modeling and simulation help determine how much effort you put into examining these risks by getting into the DNA of that risk. If you can measure the probability, measure the exposure, and understand what causes it, then by continuously measuring it you can see if the probability is increasing. If it is increasing, management should pay attention and take corrective action.”

The third focus area is emerging risk management. Also called risk sensing, this process examines the “moving parts” in an operation. Traylor used a well as an example. Financial records may indicate that the project has used up to 70% of its budget but is only 40% complete. This could be due to numerous factors, but it results in management making the decision to increase that well’s budget.

“The president of one of the major oil and gas companies told us, ‘What keeps me up at night is that I don’t know the cumulative effects of those authorized field exceptions that I’ve granted,’” Traylor said. “Emerging risk management identifies all of those dots from those disparate systems – HR, financial, engineering. It analyzes those written text documents, and with precursor analysis bolted onto text mining, we can start connecting those dots.”

What’s in it for NASA?

While Deloitte principals are looking for a long-term relationship with NASA to bring these services to their clients, NASA is looking forward to continued learning as it enters its next phase of space exploration.

“What we want to get out of this is knowledge and experience,” said Bill McArthur, director of the Johnson Space Center’s Safety and Mission Assurance office. “Deloitte brings in strengths from areas that complement ours, and we believe that partnering with them will help maintain the skills that our work force has, skills that we can then turn around and translate into mitigating the risks of the programs that we currently operate.”

These programs include the Orion deep-space transportation program, he added.

Overall, the partnership aims to bring an even deeper degree of risk awareness to the oil and gas industry. Given the complexity of modern E&P projects, finding the right risk management tools is an important step.

“We’re trying to understand the risks associated with these very complex systems because something that looks like a minor anomaly sometimes has significant consequences farther down the line,” McArthur said. “It’s difficult for an individual to understand the interaction between the parts. By modeling and simulation, you try to create these events in a virtual environment and then examine the parameters that can be tweaked to reduce the likelihood of a catastrophic event.”