Oil major Kuwait Oil Company (KOC) is unrelenting in its drive to manage risks associated with its business. Aiming for an “international best practice framework”, KOC hired DNV to help develop its Enterprise Risk Management system.
From his office in KOC’s headquarters in Kuwait, Team Leader Risk Management Mr Shehab Abdullah oversees KOC’s daily operations. This is no small task: With about 6,000 employees, KOC is the source of more than 90% of income in Kuwait. Its activities include oil and natural gas exploration, and the development and production of the Kuwaiti fields.
“We take risk management very seriously,” says Mr Shehab. “By practising Enterprise Risk Management (see side bar) we adhere to our mother company, Kuwait Petroleum Cooperation (KPC) directives and also demonstrate sound governance to our stakeholders. Getting risk management wrong is not an option for us.”
According to Mr Shehab, the defining moment in the company’s ERM drive occurred when KPC’s former CEO in July 2005 issued a directive to all KPC subsidiaries stating that they should “develop and implement a risk management framework that is consistent with international best practice to manage their current and future business risk profile, and strive for continual improvement.”
“Our former CEO was spot on,” says Mr Shehab, “because our stakeholders should expect no less from us than what the industry expects of other oil companies. That is, a company which is viewed as safety conscious and with a risk management system that ensures safety 24/7. We have substantial operations and recognise that risk management is fundamental not only to good governance, but also to achieving our business aims.
Best business practice
As part of its commitment to develop a risk management framework, KOC hired DNV to help develop and implement its ERM system throughout the organisation. Mr Shehab explains, “Risk is inherent in all KOC’s business activities and employees intuitively manage many risks on a daily basis. However, more formal,systematic and enterprising approaches to risk management have become an accepted component of best business practice, and are a requirement of our leadership. Consequently, we hired DNV to help us develop and implement our ERM system.”
KOC’s risks, according to Mr Shehab, fall into several categories and include operational; financial; health, safety & environment; reputation, compliance & governance; and human resources. “By capturing the risks and applying appropriate action to reduce the impact level that is acceptable to the business, we can have the confidence in our work processes. We shall also endeavour to share our learning based upon the methodology and risk databases we have created with the help of DNV.”
Cooperation with DNV
The first phase of the ERM project started in April 2006 and involved a gap analysis and the formulation of the KOC risk management policy. From this followed phase II, which began in April 2007 and centred on a pilot workshop involving two corporate groups (Financial Services and Export & Marine Operations), using DNV’s EasyRisk software, to identify their risks and the development of a risk register. The project entered its third phase in November last year and involved a series of workshops to roll out the ERM system to all KOC groups. This phase was completed in March this year.
“Although the ERM frameworks can vary depending on the company and the risks involved, each framework describes a way of identifying, analyzing, and monitoring both risks and opportunities,” says Ali Mirzakhani, DNV’s customer service manager in the Middle East.
“It will take time to fully implement the ERM system across the company, but we’re already seeing active engagement in the initiative by all the KOC groups,” points out Mr Shehab. “We are confident that the ability to handle risk effectively will pay dividends in terms of improved safety, health and environmental performance, revenue earnings and enhanced stakeholder confidence.”
KOC’s risk management efforts have not gone unnoticed. At the recent Oil & Gas Construction Project Risk Management conference in Abu Dhabi, representatives from other oil and gas majors acknowledged KOC’s efforts to manage its comprehensive risk profile. “This recognition makes us proud. It demonstrates our pioneering spirit,” says a satisfied Mr Shehab.