Free Risk Management in Oil Industry Essay Sample

Risk management is a very crucial practice in every business organization especially in business activities that are exposed to accidents and catastrophes. One of the most risky ventures is that of oil and natural gas production. Oil and natural gas business is among some of the ventures that make a lot of profits globally. However, it is also among the most risky businesses all through from oil drilling, refining process, transportation, storage, distribution and even during usage. Risk management refers to the process of identifying, assessing and prioritizing risks depending on their likelihood of occurrence and degree of severity.

One of the most important procedures in risk management is communication of risk. Once an organization assesses the likelihood and magnitude of a risk to happen, it is important to communicate the accurate and up to date outcomes of the assessment to the risk management of the organization so that they can take the necessary action. Therefore the main objective of risk communication is to improve decision making in terms of risk at both individual and collective levels. According to the U.S Environmental Protection Agency, risk communication should involve the public, be planned carefully, be honest, well coordinated, should meet the demands of the media, be clear and compassionate and address the interests of all stakeholders.

In offshore oil and gas industry, operational risk management is normally controlled by the safety case regime in many countries.  However, individual oil and gas companies are left with the responsibility of assessing and communicating risks within their scope in order to avoid unnecessary losses.  Unfortunately, risks have been occurring in oil and gas sector due to inadequate communication.  This normally occurs as a result of unhealthy competition among oil and gas companies whereby these companies communicate biased risk assessment information only to be granted licenses to conduct oil drilling and distribution processes that are risky and very dangerous.

One of the most affected organizations is BP oil and gas Company. BP has been manipulating its risk communication in order to improve on public relations hence becoming competitive among other players in oil and gas industry. This has led to accidents such as the April 20^th explosion that occurred in Deepwater Horizon drilling in the Gulf of Mexico. Long before this catastrophe, issue of deepwater drilling was a major public controversy. Although these arguments were presented by BP risk assessment experts, they were not correct and the company only wanted to market itself and be granted the license to carryout deepwater oil drilling on the Mexican Gulf. However, it came out clear afterwards that the activity was dangerous and BP had no means to cope with the situation. When the explosion occurred, BP could not help the situation showing how false BP’s risk communication was.

As result of this big mess, BP Company is at a risk of experiencing more risks associated with oil and gas business in future. Major risks that the company is likely to face include the, the risk of losing business to competitors as result of bad image, risk of making loses due to increased expenses, risk of supplying low quality products out of negligence, risk of having another oil spillage during drilling, risk of failing to meet the demands of its shareholders among others.

For instance, risks that have already occurred in the recent past have already caused enough damage to the company and if action is not taken, the effect might be other series of risks. BP Company has incurred a lot of losses during the MexicanGulf explosion and this has negative impacts to the financial situation of the company and shareholders benefits. BP also has dirtied its image as socially irresponsible company making it more vulnerable to competition from other players in oil industry hence less sales in future. More so, BP has sent signal to customers and other stakeholders that it has no means to cope with catastrophes and this might lower its potential to secure more oil drilling contracts in future. Generally there are many risks that BP Company is likely to face in future if it does not improve its risk communication in order to avoid some unnecessary losses associated with poor risk assessment and communication.

BP Company should identify the hazards named above and specific stakeholders that are likely to be affected.  It is very important for BP to therefore come up with a precaution to these hazards in order to ensure that no chances are taken and risks that have already occurred have little or no impact to future activities.  After all the findings on risk assessment are made BP Company should record its findings and implement the plan on timely basis to avoid time shortage. The company should thereafter review the assessment and make updates where necessary to ensure that hazardous situations are not likely to occur.

All through the process of risk assessment and implementation, risk management department should work hand in hand with other departments and communication should be made on a round table to facilitate clarification of all risk assessments findings to avoid biasness. Risk assessment department should ensure that other departments in the company are contented with its findings before they are implemented. Discussion on the suggested precautionary actions helps in clearing any doubt on whether the risk is worthy taking or not and how calculated is the risk in terms of the probable benefits and harm to both the company, environment and the general public.

 

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