Shell is using a series of tools to manage risks. Here, Shell Norway’s Managing Director, Johan Nic. Vold shares his experiences with enterprise risk management in practice.
In Shell, we have a group standard for identifying risks, using a matrix of probability and business impact.
All items are classified in terms of level of intervention required and action parties are identified. This structure enables me and other leaders not only to have a higher awareness of risks and opportunities but also helps ensure that there are operational interventions commensurate with the identified risk. Our stakeholder management activities is subject to a similar process.
Unleashing the upside. In a similar manner new business opportunities are put forward to panels working with so-called opportunity realisation processes and value assurance reviews that act as “gates” and governance in the maturation process. This approach helps us ensure that all our functional and business expertise is tapped as we develop our business. In fact, the format we use for our group investment proposals is very much structured to capture the risks as well as the opportunities inherent with new investments. This enables us to make the risks and the opportunities more visible and to focus our resources and attention on risk mitigation as well as unleashing the upside.
A broader view. The trend for our company, and I think in the industry, is to take a much broader view than we used to do. Doing that well clearly requires a structured risk and opportunity framework.
In my mind this is coming coherently together as we now have the “exploration and production (E&P) roadmap”, i.e. our business delivery framework, around reserves replacement, production, growth and cost etc. – all underpinned by top SHE performance and a strategy around motivated and professional people.
A vast potential. The major opportunity for our Norwegian business is the fact that 2/3 of the potential total reserves on the Norwegian continental shelf is not yet produced or has not yet been discovered. (This is estimated by Norwegian Petroleum Directorate to 12.9 billion m3 oil equivalents.)
In the real world, any company with a global set of opportunities and aspirations finds itself in two competitive battles, one for a share of the internal funds and resources and one in competing with the rest of the industry for the available opportunities. A key aim for me then over the last few years has been to raise the profile and “weight” of the Norwegian business within the Shell group. This has paved the way for a consistent and long term exploration and development strategy for our Norwegian business.
Across borders. An organisational development that took place in 2003, where Shell moved from national E&P organisations to five regional E&P organisations, has in itself an important aspect of enterprise risk management. This facilitated the European E&P organisation to assess business risks and opportunities across eight European countries in a common process. Previously this was done country by country and assembled at a corporate level further away from where the business takes place.
For the European oil and gas industry there was an important change of mindset in 2002 when the oil and energy ministers of Norway and the UK stated their support for cross-border business and evaluated the business potential at a staggering USD 20 billion.
In the present Shell E&P organisation business risks and opportunities are reviewed at a regional level. This also includes cross-border issues between the various countries within the region. These issues are further documented and ranked within the business line of the region. Mapping of the issues is regularly put on the agenda for the leadership team for further assessment both on an operational and strategic level. This process enables us to address the link between operational and strategic issues both on a regional level and a corporate level.
The consequence is that this regional and cross-border structure gives the leadership level an improved overview and an opportunity to also see dependencies of business risks, threats and opportunities across national borders.
We see the following as the most important business risk issues in Norway:
- Continuous access to prospective acreage
- The ability to further develop the oil and gas industry in co-operation with other stakeholders like fisheries, fish farming and the environment
- The relative cost of development and stability of fiscal framework.
Johan Nic. Vold
Date: 2005-12-20