of risk management oil and gas construction projects in nigeria.doc

8/13/2019 of RISK MANAGEMENT OIL AND GAS CONSTRUCTION PROJECTS IN NIGERIA.doc

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RISK MANAGEMENT IN OIL AND GAS

CONSTRUCTION PROJECTS IN NIGERIA

DARLINGTON CHUKWUDI JIDEOFO

A dissertation su!itted in "artia# $u#$i##!ent o$ t%e re&uire!ents $or t%e

de'ree o$ Master o$ S(ien(e )Ms(* in Constru(tion Mana'e!ent )Pro+e(t

Mana'e!ent*

T%e S(%oo# o$ t%e ,ui#t En-iron!ent. Heriot/Watt Uni-ersit0

Se"te!er. 1223


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I, Darlington Chukwudi Jideofo, confirm that this work submitted for assessment is my

own and is expressed in my own words. Any uses made within it of the works of other

authors in any form (e.g. ideas, euations, figures, texts, tables, programmes! are properly

acknowledged at the point of their use. A full list of the references employed has been

included.

"igned# $$$$$$$$$$$$$$$$$$

Date# $$$$$$$$$$$$$$$$$$

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Ta#e o$ Contents

&ist of figures'igure %)# Distribution of oil and gas fields and related infrastructure in *iger

Delta area of *igeria$$$$$$$$$$$$$$$$$$$$$$

'igure )%# +epresentation of risk management process. $$$$$$$$$$$..'igure %# 'ramework for risk management tools

'igure -)# Distribution of respondents /ob position

'igure -%# Distribution of respondents years of working experience'igure -# Distribution of respondents age group

'igure --# Distribution of pro/ect types executed by respondents

'igure -0# Distribution of pro/ect ser1ices rendered by respondents

'igure -2# Distribution of respondents organi3ations years of experience'igure -4# Distribution of respondents organi3ations employee si3e

&ist of 5ables5able -)# Distribution of sur1ey responses

5able -%# +esults of respondents /ob position

5able -# +esults of respondents years of working experience5able --# +esults of respondents age group

5able -0# +esults of pro/ect types executed by respondents

5able -2# +esults of pro/ect ser1ices rendered by respondents5able -4# +esults of respondents organi3ations years of experience

5able -6# +esults of respondents organi3ations employee si3e

5able -7# +isk ranking for *igerian oil and gas construction pro/ects

5able -)8# 5op ten risks statistics for *igerian oil and gas construction pro/ects


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Astra(t

+isk management is a 1ital decision making process that is useful for the successful

deli1ery of pro/ects carried out by 1arious organi3ations. >owe1er, the practice is still notoften carried out during the implementation of pro/ects in de1eloping countries? which

includes *igeria.

5he purpose of the research dissertation is to identify the ma/or risks affecting oil and gas

construction pro/ects in *igeria and to determine suitable risk response strategies to

mitigate the ma/or risks.

A uestionnaire sur1ey was carried out on employees and executi1es working in *igerian

oil and gas construction organi3ations so as to identify the ma/or risks that emanate on oil

and gas pro/ects 1ia statistical analysis. Informal indepth inter1iews conducted with topmanagers? were also used to deri1e strategies so as to mitigate the identified risks.

+esults of the research found that security threats from neighboring residents?incompetence of pro/ect team members? poor designs? late internal appro1als from clients?

and poor and inadeuate tendering, were the topfi1e ma/or risks that emanate in oil and gas

pro/ects in *igeria. 5he pro/ect executi1es proposed amending compulsory land use act and

paying compensation fees to owners of acuired oil and gas fields? enforcing corporatesocial responsibility (C"+!, enforcing laws on waste disposal, staff training, partnering,

adeuate contractor selection, using concurrent engineering and total uality management

practices on pro/ects, and reduction in gas flaring? as suitable strategies to mitigate thema/or pro/ect risks in *igerian oil and gas pro/ects.

5here ha1e been 1arious risk management researches on the management of pro/ects inde1eloping countries. >owe1er, the research into the risk management practices in oil and

gas construction pro/ects in *igeria is 1ery significant considering that the sector is the

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most important contributor to the total re1enue of the *igerian economy? the 1olatile nature

of products? and characteristics of the pro/ect en1ironment where the operation and

processes are carried out, in a constantly changing dynamic en1ironment which is exposed

to enormous risks.

C%a"ter 67 Introdu(tion

6868 Resear(% a(4'round7

9lobally, in the contemporary economy, oil and gas are 1ery 1ital elements that determine

economic forecasting and performance. Crude oil plus other refined petroleum products are

the largest single article in international trade either measured by 1alue or 1olume ("te1ens,

%880!

@il and gas is the most important energy source and it has -8 share in worldwide energy

consumption and 74 in the transport sector. @il and gas infrastructures both indirectly or

directly? pro1ide employment to a lot of people? and contribute a ma/or part of the world

9ross Domestic Broduct (9DB!. (=a/pai and 9upta, %884! 5herefore, it could be argued

that the world economy depends on oil and gas.

*igeria is the most significant oil producer in est Africa. 5he @il and 9as Journal (@9J!,

in %882, estimated *igeria as the largest owner of natural gas reser1es in Africa and the

se1enth largest worldwide (@9J, %882 cited in 9albraith, %886!? with an estimated crude

oil reser1es totaling .7 billion barrels. In %880, there was an a1erage oil production of %.2

million barrels per day (bbld!. *igeria declared in @ctober %88-, a record of natural gas

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(5huyet, et al, %884! argues that in the construction industry, risks usually cause cost and

time o1erruns on pro/ects because of the inability of pro/ect managers in managing pro/ect

risks effecti1ely, thus, delaying the planned schedule or exceeding the planned budget of

pro/ects. >owe1er, it has been re1ealed that the oil and gas industry has greater riskmanagement experience when compared with the construction sector because e1idence has

shown that risk management is routine within the oil and gas industry while only few

companies employ it in the construction industry. (&ock, )77% cited in =aker, et al, )777!

5he benefits and opportunities risk management offer to stakeholders of oil and gas

construction pro/ects are enormous? although, there are some challenges encountered

during the processes and practices which could hinder the reali3ation of the pro/ects

ob/ecti1es. 5herefore, the central focus of the research dissertation is to use risk

management practices to explore the ma/or sources of risks that emanate while construction

acti1ities are carried out on oil and gas construction pro/ects in *igerias oil and gas sector.

6818 Ai!s and o+e(ti-es o$ resear(%7

5he research aims at identifying the risk factors that affect oil and gas construction pro/ects

and deri1e suitable risk responses for them with a focus on the *igerian oil and gas sector.

5he research ob/ecti1es set out for reali3ing the aim of the study are as follows#

%.) 5o determine the ma/or sources of risks affecting oil and gas construction pro/ects

in *igeria

%.% 5o in1estigate the freuency of occurrence and the degree of impacts of the

identified risks in oil and gas construction pro/ects in *igeria.

%. 5o in1estigate if most oil and gas organi3ations carry out risk management

practices in their 1arious oil and gas construction pro/ects in *igeria.

%.- 5o determine effecti1e risk management strategies to efficiently mitigate the

identified ma/or risks so as to pro1ide suitable recommendations for enhancing risk

management practices in *igerias oil and gas construction pro/ects.

6898 Re#e-an(e o$ t%e resear(%7

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5he research into the risk management practices in *igerias oil and gas construction

pro/ects will be 1aluable to upstream and downstream oil and gas construction stakeholders

(clients, contractors, researchers and all interested in1estors in the sector! as follows#

). "takeholders will be pro1ided with necessary information for enhancing riskmanagement practices.

%. Construction industry and oil and gas industry stakeholders will gain knowledge

from each others experiences and lessons learnt

. It will pro1ide in1estors with an insight of contemporary risk management practices

and appropriate risk response strategies to adopt for future pro/ects.

-. +esearchers will be pro1ided with a body of knowledge for carrying out future

studies.

68:8 Stru(ture o$ dissertation7

Chapters %# 5he chapter will consist of a re1iew of literature which will pro1ide useful

knowledge with the help of past research publications into the nature of pro/ects? oil and

gas pro/ects? and a background o1er1iew of the features and characteristics of the *igerian

oil and gas industry with emphasis on both the upstream and downstream sector.

5he risk concept, types and sources of risks that originate in oil and gas construction

pro/ects will be in1estigated while critically analy3ing the freuency and impact of these

risks. 5he concept of risk management as practiced in oil and gas construction and the tools

and techniues that are commonly used will be in1estigated. 5he secondary data for the

research literature will be sourced from newspapers, /ournals, books, and electronic media.

Chapters # 5he chapter will explain the systematic processes which will be used for

carrying out the research sur1ey so as to determine the ma/or risks that affect oil and gas

construction pro/ects in *igeria. 5he general methodology will 1alidate the chosen researchinstruments, methods, population sample and the techniues used for analy3ing data in the

research. 5he section will also discuss the research delimitations and ethical issues.

Chapters -# 5he chapter will in1ol1e analy3ing and discussing the findings from the

research sur1ey that was carried out on the stakeholders of *igeria oil and gas industry in

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1iew of determining the ma/or risks that affect oil and gas construction pro/ects? and

effecti1e strategies will be pro1ided to effecti1ely mitigate the risks.

Chapters 0# 5he chapter will briefly re1iew the aims and ob/ecti1es of the research as

compared to the findings in the research carried out on the stakeholders of *igeria oil andgas industry. =eneficial and useful strategies to mitigate the ma/or risks will be

recommended for effecti1e risk management practices in *igerian oil and gas construction

pro/ects. Also, opportunities for future research and research limitations will be

acknowledged.

C%a"ter 17 Literature re-ie5

186 Pro+e(ts. ris4s and ris4 !ana'e!ent in Ni'erian Oi# and Gas Industr07

5he main purpose of the chapter is to gi1e an o1er1iew of oil and gas pro/ects, *igeria oil

and gas industry, the types and sources of risks that emanate on oil and gas construction

pro/ects in *igeria with emphasis on both the upstream and downstream sector. Also, the

sub/ect risk management as practiced, and the techniues used in carrying out risk

management processes in oil and gas construction pro/ects will be discussed.

181 ,a(4'round7

BEI (%88-! defines a pro/ect, as a temporary undertaking for creating a uniue product or

ser1ice. 5hese uniue ser1ices are created when clients, contractors and all stakeholders

collaborate to deli1er construction acti1ities both in construction industry pro/ects and in oil

and gas sector construction pro/ects.

Bro/ects are embarked on by companies and corporations in order to achie1e a strategic

ob/ecti1e or a business need. Bro/ects are relati1ely complex, usually ha1e short time span,

a start and finish date, defined cost, time and uality (performance! ob/ecti1es and in1ol1es

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the collaboration of multidisciplinary teams working together as one team. (+oberts, et al,

%88!

5here are many factors that cause delays to the successful deli1ery of construction pro/ects

as re1iews and careful appraisals by lots of scientific reports and /ournals show it. &uu, et al(%886! re1eals that the delay factors are grouped into nine categories which are? owner,

contractor, consultant, design, material, workforce, euipment, en1ironment and pro/ect

related factors. 5hese are caused by to mention a few by? clients, contractors,

consultantsdesigners, materials, workforce, euipment, go1ernment regulations and laws,

and pro/ect deli1ery system respecti1ely. All these are potential sources of risks which oil

and gas construction pro/ects are exposed to.

About 68 of *igerias capital and recurrent expenditure and 78 of the countrys

earnings from foreign exchange all come from petroleum (Adewusi, )776! 5his came as a

result of the first exploration of crude oil in )702, at @lobiri and from then onwards, crude

oil sales has risen from 8.)6- billion barrel of oil and %.%28 billion cubic feet of gas in )706

to %0.7 billion barrels of oil, .68 billion barrels of condensate and )06 trillion cubic feet

of gas, as at December, %888 (**BC, %886!. 5hus, making the oil and gas industry the

strength of the *igerian economy.

@il and gas construction pro/ects in *igeria are usually implemented through /oint 1enture

partnerships which in1ol1e multinational companies like ;xxon Eobil, Che1ron,

5otalfina;lf, "hell, Agip, "chlumberger, >alliburton, etc? teaming up with indigenous

companies like **BC, DB+, *;5C@, Conoil, AB, etc. 5he multinational partners supply

high technologies and large capital needed for carrying out construction pro/ects which the

*igerian partners still lack. 5he presence of the foreign partners, expose the pro/ects to

risks like financial risks, political, policy and legal risks, differences in practices between

foreign and indigenous partners, etc. (5huyet, et al, %884!

*igerias national currency (*aira! is relati1ely weak internationally? while the inflation

rate is uite high. In this 1iew, oil and gas construction pro/ects in *igeria pose 1arious

risks which can cause ad1erse effects on the nations economy, if there are lapses with

respect to good strategic and operational pro/ect implementation techniues.

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5he construction processes adopted in the oil and gas sector in1ol1es se1eral stages which

are as follows# Clientowner inception stage? 'easibility stage? @utline design stage?

Detailed design stage? Contracts and Brocurement stage? 'abrication and Construction

(onshore! stage? >ookup (@ffshore! stage? Commissioning stage? @peration stage? 'inally,assembling of a decommissioning document stage.

*igeria is internationally recogni3ed for its oil and gas exploration and production

acti1ities. 5he oil and gas industry comprise of two uniue sectors? the downstream and the

upstream sector which are all in the *iger Delta region. @il and gas construction pro/ects

acti1ities are carried out in both sectors. 5he distribution of oil and gas fields and the

related infrastructure in the *iger Delta region is shown in figure %) as follows#

Fi' 1/67 Distriution o$ oi# and 'as $ie#ds and re#ated in$rastru(ture in Ni'er De#ta

area o$ Ni'eria8 Sour(e )A4or and I'%o. 1221*

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I. Ci1il works Gconstruction of mud pits, concrete works at rig sites

II. "ur1eying G tropical and planimetric? and sea bottom sur1ey

III. "eismic data collection and interpretation

IH. Crude oil storage and transportation

H. BipeliningHI. Drilling operations

HII. ;xploration and production of oil and gas products

HIII. ;xploration for the de1elopment of local substitutes for substances such as pumps,

medium pressure 1al1es, drilling mud, shallow drilling euipment, bits drilling

cement, fittings, etc.

I. Eanufacturing of consumable materials in exploration such as explosi1es,

detonators, steel casting, magnetic tapes, etc. (**BC, %886!

18: T%e Do5nstrea! Se(tor7

5he downstream sector of the *igerian oil and gas industrys acti1ities in1ol1es? refining

and distribution in addition to marketing of all petroleum products. 5he refining of crude

oil is regulated and operated by the *igerian go1ernment under the directi1es of the

*igerian *ational Betroleum Corporation (**BC!. During the refining process, crude oil is

con1erted into end user products like dual purpose kerosene (DB:!, automoti1e gas oil

(A9@!, base oils, premium motor spirit (BE"!, and bitumen.

5he marketing and distribution of petroleum products comprises the transfer of petroleum

products from storage depots and refineries and the sales to the end users at storage tanks,

ser1ice stations and offshore users. 5hese are done by either pri1ate or public companies.

(**BC, %886!

5he downstream oil and gas sector of *igeria initially, was regulated )88 by the

go1ernment, with the go1ernment owning the controlling stake in almost all downstream

industry businesses. 5he go1ernment controlled and fixed the retail and whole sale prices of

these petroleum products. 5he reduced competition and low le1el in1estment generated

abnormalities which were potential sources of risks. 5hey are as follows# (BBB+A, %886!#

). Eonopolistic practices in the supply system

%. Betroleum products smuggling

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. Boor maintenance of facilities and infrastructures

-. ;xistence of subsidy from the go1ernment

0. Irregularities in distribution and supply of products which generated scarcity of

petroleum products, long ueues at filling, etc.

In search of a lasting solution to the abo1e setbacks, the *igerian go1ernment carried out a

phased deregulation of the downstream sector which in1ol1ed? pri1ati3ation or

commerciali3ation and liberali3ation of the industry.

5he pri1ati3ation was carried out by the go1ernment transferring )88 of all go1ernment

owned enterprises and facilities to pri1ate indi1iduals on shareholding grounds. 5he

liberali3ation was carried out by the go1ernment in1ol1ing pri1ate company participation in

downstream acti1ities by promotion of increased competition? eradicating monopoly? fair

pricing and a1ailability of products to end users? and efficiency and re1i1al of the

refineries.

5he downstream sector has se1eral established in1estment opportunities that abound in the

petroleum industry which attract foreign multinationals to tender for future pro/ects. 5hey

are as follows (**BC, %886!#

). Broduction and Earketing of &iuefied *atural 9as (&*9! for domestic use

%. Eanufacturing of &B9 cylinders for domestic use, installation of filling plants,

regulators and 1al1es, retail de1elopment and distribution of simple, flexible and

less expensi1e gas to burners so as to encourage the use of gas instead of wood.

. ;stablishment of processing plants and industries for the production of#

+efined mineral oil, grease and petroleum /elly.

=ituminous based waterdamp proof building materials e.g. floor tiles,roofing sheets, tarpaulin,

=uilding of asphalt storage, blending and packing for exportation

-. ;stablishment of chemical industries e.g. distillation units for the production of

*aphtha and other special boiling point sol1ents used in food processing.

0. Carbon =lack, &inear Alkyl =en3ene and Bolypropylene producing industries.

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A clear understanding and knowledge of risks, the types and the 1arious forms in which

they take in *igerias oil and gas pro/ects is 1ery essential and important for the successful

management and deli1ery of pro/ects. 5hus, an urgent demand is reuired for effecti1e risk

management in oil and gas construction pro/ect management in both the upstream anddownstream sectors of *igerian oil and gas industry.

18; O-er-ie5 o$ Ris47

+isks are usually ine1itable and inherent parts of indi1iduals public and business life.

5here is always a probability that things will go contrary to laid down plans. Eany

tragedies, incidents and disasters occur on pro/ects because people did not know about?

underestimated or ne1er knew how to respond to the risk e1ents and uncertainties

surrounding the /ob functions they carry out. +isks are prominent in all aspects and at all

le1els of a pro/ects or organi3ations acti1ities. (5chanko1a, %88%! A typical risk example

is to imagine an offshore platform operator smoking in the production process area or non

smoking area in an offshore platform. *e1ertheless, imagine a situation whereby the

unuenched cigarette mistakenly falls down and lands on the highly combustible petroleum

process plant Definitely, an unpleasant result will emanate out of the incident. 5he

pre1ious example buttresses on the fact that the existence of risks are often underestimated

because people usually are indifferent towards risks. @n the contrary, in recent times,

people can now work with uncertainty because risks can now be managed rationally.

'lanagan and *orman, ()77! re1eals that the construction industry is sub/ected to more

uncertainty and risk as compared to many other industries because the processes by which

pro/ects take from the initial capital in1estment appraisal stage up to the completion stage

and operational stage are 1ery complex? in1ol1es a lot of time consuming design and

production processes, a lot of skilled labour force with different cultures and interests

which demands effecti1e coordination of a wide range of 1arying but yet, interrelated

acti1ities. ('lanagan and *orman, )77! 5hese complex acti1ities expose pro/ects to both

external and internal risks which may be controllable or uncontrollable. 5hus, the

management of these risks is the key factor that makes risk management concept, essential

to the successful deli1ery of pro/ects.

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;1en though systematic research with respect to risks and risk management can be said to

be a new approach to the business and academic world, there still seems to exist enormous

literature which ha1e been written on the topics for the past two decades because a lot of

academic research papers, go1ernment publications, textbooks, /ournals and dissertations

refer to the sub/ect risk and risk management.

18< Ris4 De$inition7

(Cer1one, %882! defines risk, as a problem which has not yet happened. 5his simple

definition some how really gets to the foundation of the issues which pro/ect managers face

while performing their functions on pro/ects. 5hey deliberate on these issues and try to

de1elop methods or techniues on how they can a1oid them. ;1en bearing in mind the

critical nature of risks and the probability of their occurrence on pro/ects, pro/ect managers

do not really gi1e issues related to risks the attention it reuires, they rather than often

perform superficial assessments of the risk issues and then add a margin for the risk.

(:iel, et al, )776 as cited in Cer1one, %882! proposes that the common risks that occur

freuently on most pro/ects are#

). &ack of stakeholders commitment

%. &ow le1el top management commitment

. &ack of understanding of technical reuirements by stakeholders

-. Inadeuate stakeholders in1ol1ement on the pro/ect

0. Inadeuate management of end users expectations

5he abo1e listed risk classification is more generic, the next section will further break the

risks down into more detailed categories with respect to the way they occur and their

sources on most pro/ects.

18= T0"es and Sour(es o$ Ris4s in Ni'erian Oi# and Gas Pro+e(ts7

5he total number of potential sources and combinations of risk sources is way beyond

classification. Eoreo1er, there ha1e been different typologies by different writers on risk

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classification and types. illiams, ()776!, classifies risk sources by the nature of the

en1ironment where they originate as follows# social en1ironment? physical en1ironment?

cogniti1e en1ironment? operational en1ironment? political en1ironment? legal en1ironment?

and economic en1ironment.

In oil and gas pro/ects, social en1ironment risk sources come in the form of peoples

attitudes and 1alues? physical en1ironment risk sources are floods, high winds and storms,

land slides, etc? cogniti1e en1ironment risk sources in1ol1es how the pro/ect team members

percei1e risks and uncertainties? operational en1ironment risk sources can be damages or

failures in installation processes, poor designs, etc? political en1ironment risk sources are

policy changes which may generate high taxation, land acuisition, etc.? legal en1ironment

risk sources may be disparity of present and new laws which affect pro/ects ob/ecti1es? and

economic en1ironment risk sources can come in the form of market increases in the prices

construction materials thereby, leading to cost o1erruns on pro/ects. (5chanko1a, %88%!

5he research dissertation will focus on the classification of risk types by +oberts, et al,

(%88!? because of the explicit way by which risks were categori3ed with respect to the

nature of risks and the origin of risks on pro/ects. 5he risks will be critically analy3ed to

throw light into how they emanate on oil and gas pro/ects in *igeria

+oberts, et al, (%88!, proposes that risks should be classified in two basic ways#

). =y differentiating the risk with respect to the Krisk le1elL within a pro/ect or an

organi3ation which it impacts on.

%. =y the exact nature of the risk, the characteristics of the risks, the origin of the

risks and finally, by the extent of dependency or linkage of the risk to other

risks.

5he risk classification with respect to the risk le1el is further broken down as listed below#

). strategic +isks?

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%. change risks?

. operational risks?

-. unforeseeable risks

5he risk classification with respect to the nature, characteristics, origin and dependency ofthe risk to others is further broken down as listed below#

). knowledge and financial risks

%. external and internal risks

. speculati1e and static risks

-. risk interdependency

5he 1arious risks mentioned abo1e will now be discussed consecuti1ely in the following

sections to highlight where they emanate on pro/ects.

18=86 Strate'i( ris4s7

5his is the type of risk that e1ol1es at the corporate le1el of an organi3ation or management

le1el of a pro/ect and affects the de1elopment of a pro/ects strategy. =royd, (%88)! re1eals

that the construction industry has de1eloped both flexibility and good skills in problem

sol1ing but lacks the capability of Mplanning for the future. (D5I, %88), p. -! In *igerian

oil and gas construction pro/ects, the risks due to poor strategic planning are related to the

long term performance of the pro/ect e.g. risks relating to the de1elopment of a poor pro/ect

brief or strategic pro/ect plan at the on set of any pro/ect will lead to pro/ect team members

not understanding the ob/ecti1es of the pro/ect. 5his generates conflicts, poor uality

designs and construction works, etc, during the implementation stage of the pro/ect,

because the strategic ob/ecti1e or decisions was not effecti1ely communicated to the pro/ect

team members and stakeholders at the briefing stage of the pro/ect. Also, risks due to poor

forecasting or assessment of the market conditions or economic characteristics of the

country or the countries in which an oil company will carryout its operations is a 1ital

strategic risk which should be gi1en due consideration 1ia feasibility studies of prices of

materials, economic policies and stakeholders (business partners, local communities and

suppliers!

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18=81 C%an'e ris4s7

5hese are the types of risks that relates to imposed or planned changes which occur on

pro/ects. A planned change arises when new strategies are formed while an imposed change

arises due to external and internal forces. A typical example is? during the design process

for oil and gas structures in *igeria, any shortcomings with respect to materials, productgeometry, functional specifications, etc, expose pro/ects to change risks which results to

excesses of materials being used? extra incurred costs due to pro/ect delays? resource

reallocations, additional operations and rework. (Ahmed, et al., %884! 5hese internal

changes generate operational risks which are contrary to the strategic plan of a pro/ect.

Also, external factors like flooding and landslides can cause change risks by leading to

losses on a pro/ect thereby, adding extra cost for rectifying the damages.

18=89 O"erationa# ris4s7

@perational risks are the risks coming from failed or inadeuate internal production

processes, systems and people as well as coming from external factors or e1ents.

5hese are the types of risks that relates to the production processes in1ol1ed on a pro/ect

and in1ol1es the working techniues used by pro/ect team members? the asset base of the

pro/ect? the stakeholder relationships (human resources and staff de1elopment! within the

pro/ect team and legal risks (contractual issues, statutory obligations and liability (internal

processes!. &ee, et al., (%88-! re1eals the most freuent causes of accidents are due to

human errors. (&ee, et al., %88- cited in Dastous, et al., %886! Also, the effect of external

e1ents on the internal processes of a pro/ect (e.g. local communities, militants and terrorist

actions! all make up operational risks because they cause disruption of pro/ect acti1ities and

ob/ecti1es which causes delays on pro/ects? thereby, leading to time and cost o1erruns.

18=8: Un$oreseea#e ris4s7


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5herefore, companies cater for this by building in contingencies for these risks into the

o1erall strategic plan with respect to time, cost and uality ob/ecti1es for their pro/ects. In

cases where the company cannot contain the impacts, like cases of flood, fire or any natural

disaster? companies pay 1ery high premiums to insurance companies so as to transfer

liability for such e1ents to the insurance companies because of the ha3ardous nature of theoil and gas operations. Hariation in interest rates for bank loans, inflation and increases in

go1ernment taxes are so common in *igeria.

18=8; Kno5#ed'e and Finan(ia# ris4s7

:nowledge risks are the risks coming from a pro/ects information that is stored using

information technology (I5!, software and hardware, information management, knowledge

management and planning. Jones ()77-! re1eals that most pro/ects that in1ol1e the use of

information technology are usually sub/ected to the risks of? slow user reuirements? excess

schedule pressure? low uality of work? cost o1erruns and inadeuate configuration control.

(Jones, )77- cited in Cer1one, %882! Eost modern companies like *ational ;ngineering

and 5echnical Company &td, (*;5C@!, a subsidiary of **BC, (**BC, %886! which is

responsible for carrying out engineering designs for oil and gas pro/ects? carry out and store

most of their pro/ects engineering designs using computer de1ices (both hardware and

softwares!. 5hey are exposed to I5based threats that may come from incessant power

failures which is 1ery rampant in *igeria presently? (Chido3ie, %886! hackers? malicious

interference? and employee sabotage. All these intrusions can hinders the progress of

pro/ects by limiting or stopping access to crucial pro/ect information thereby, not leading to

the successful deli1ery of a pro/ect with respect to time, cost and performance ob/ecti1es.

:nowledge risks can also emanate on a pro/ect when one of the key personnel lea1es the

pro/ect without a substitute to co1er up for the important role heshe plays on the pro/ect.

Bro/ect personnel usually lea1e pro/ects because of? resentment, lack or loss of authority or

power, lack of moti1ation or commitment, inability to adapt to pro/ect structure or

techniues, lack of expectation, etc.

@n the other hand, financial risks are the risks coming from the capital structure, credit

structure, market structure and cost reporting structure of a pro/ect. Eore than 08 of

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.% 5imedependent risks# 5hese are risks relating to items that ha1e a fixed time

limit on them. In *igeria, most oil and gas pro/ects especially? offshore pro/ects,

are usually fast track pro/ects. Design works usually start immediately after the

supply contracts between buyers and operators ha1e been confirmed? with theduration of the pro/ect fixed within a stipulated time. (Eohammed Ali and &ouca,

%88-! Eore so, when claims are not made within the timescale before the expiry

of insurance policies for premiums paid for insurance co1ers on pro/ects, there is

e1ery possibility that there will be a net profit loss on the pro/ect. A typical

example is the Che1ron Corporation subsidiary, Che1ron *igeria &td. (C*&!,

which completed a Mfloato1er installation at Ee/i 9as 9athering and

Compression platform (99CB! on the ;scra1os 9as pro/ect Bhase . It was the

first of its kind, type of platform being constructed in the region because of the

schedule ad1antages compared to installing the usual precommissioned,

integrated and single piece topsides due to the tight schedule deadline of the

pro/ect. ("immons and Duhaney, %886!

. Competitor risks# 5hese risks relate to changes with respect to the competition

base. It could be minor or ma/or changes which impact on companiespro/ects.

&ack of Mdue processes in contract award thereby, making the same company to

be winning most /obs. *;5C@, a subsidiary of **BC? (**BC, %886! due to

their strong go1ernment ties wins most of the oil and gas design contracts. 5his

can make established competitors to decline suddenly thereby, seriously affecting

the successful implementation and deli1ery of their pro/ects.

.- ;xposure risks# 5hese are risks associated with cases where oil companies or oil

and gas pro/ects depend on few 1ariables or on only a single 1ariable for their

sur1i1al. @il and gas pro/ects are usually exposed to financial (mortgages,

insurance premiums!? physical (machines and euipment failures! and human

(in/uries, ill health and death of staff! exposure risks. (5chanko1a, %88%! 5his is

because of the ha3ardous nature of the oil and gas products as well as the 1olatile

nature of the working en1ironment where oil and gas pro/ects are carried out.

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.0 "hareholder risks# 5hese are risks associated with cases where a company

depends on shareholders euity for the operations. In *igeria, organi3ed

corruption from politicians and soldiers who ha1e looted go1ernment funds to

make fortunes ha1e enabled their owning most of the pri1ate indigenous oil and

gas companies especially in the downstream sector. (;1uleocha, %880! If a ma/orshareholder or a considerable amount of shareholders confidence declines in any

of these companies, and heshe withdraws there shares, there will be a 1ery

significant and ad1erse effect on the companys pro/ects. It may e1en lead to

closing down most of the pro/ects.

.2 Bolitical risks# 9o1ernment of a country or of rele1ant neighboring countrys

fiscal policies can be a 1ery huge source of risk on pro/ects. Eultinational oil

companies in *igeria usually face the risk of changes in interest rates and high

taxation which may arise due to changes in go1ernment policies. 5hese risks are

usually managed by multinational oil companies 1ia strategic alliances, insurance

and partnering. (=erlin, et al., %88! 5hey are also minimi3ed by maintaining

good relationships with the go1ernment, utili3ing local personnel and suppliers as

much as possible and e1ading from geographical concentration. 5his enhances a

good economic relationship with the host country and increases the companys

chances of anticipating political and economic future changes.

.4 &egislati1e risk# 5hese are risks which pro/ects are exposed to because of the fact

that, go1ernment constantly changes old statutes and introduces new statues due

to e1er changing legislati1e decisions. 5he new statutes may not be fa1orable on

a particular pro/ect with respect to the pro/ects en1ironment. According to the

*igerian constitution, all oil, gas and minerals belong to the federal go1ernment.

(;1uleocha, %880! "tatutory reuirements like en1ironmental legislation, health

and safety legislations, local content legislation, impose direct charges on oil

companies for making use of landfill waste sites, consuming energy, disposing

refuse, flaring gases, oil spillage, etc? e1en though the oil companies claim that

there pro/ect acti1ities and operations are carried out with high en1ironmental

standards. (orld bank, )770! re1eals that the *igerian en1ironmental laws are

not strictly enforced when compared to other international eui1alent laws.

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.6 "ecurity risks# 5hese are risks which oil and gas pro/ects are exposed to because

of disruption of the pro/ects operations. @il and gas amenities, in1ol1ing natural

gas and crude oil fields, transportation (railways, trucks, pipelines, and ships!,

refineries and distribution systems are good targets for criminals and terrorists.(=a/pai and 9upta, %884!. 5his is because petroleum products are highly 1olatile,

highly flammable, and 1ery toxic and contains a lot of energy. In *igeria,

security risks on oil and gas facilities are eminent in the *iger Delta region, due

to disturbances coming from local communities, militants, community clashes or

wars, etc. +ecently, there ha1e also been regular cases of Kkidnapping and

releaseL (;we/e, %884, pp. %%6! of expatriate oil and gas workers on a week basis

both onshore and offshore due to political reasons. 5his has generated

international attention which seems to ha1e no solution yet. Eohammed Ali,

+.E., (%88-! re1eals that the intrinsic risk in offshore installations in the

upstream sector of oil and gas pro/ects? are conditions relating to explosions and

the effects of their occurrence. 5his is because an attack which is successful on an

oil and gas facility or its transportation system usually results in interruption of

gas and oil supply, se1ere economic impact, in/ury to staff or public, fatal

outcome and shut down of operations. All these ha1e serious economic impact.

5hus, the risks accruing to the intentional acts by these militants to oil and gas

facilities needs to be accessed, and appropriate emergency responses and

countermeasures need to be put in place. (=a/pai and 9upta, %884!

@n the other hand, internal risks are those risks that originate within a pro/ects

en1ironment. Internal risks are usually calculable and the pro/ect team has some degree of

control o1er them. Internal risks can be further broken down as follows#

). @perational process risks# 5hese are risks which pro/ects are exposed to because

of staff una1ailability, lack of human resources, production capacity limit being

reached on a pro/ect, and human errors. In *igeria, there has not been a ma/or or

se1ere flare incident in any oil field. A flare stack is a long pipe which pro/ects

into the air with an ignition system, a flaring arrow or an oily rag which is hoisted

up the stack on a pulley and cable system. 'lares are primarily used in oilfields

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suppliers production are usually experienced in oil and gas pro/ects in *igeria

due to incessant power failures and una1ailability of genuine construction

materials and euipments.

-. Competence risks# 5hese are risks due to poor management and employeecompetency on pro/ects. Inefficient communication can lead to

misunderstandings and errors while poor leadership leads to production losses

and reduces staff confidence. In *igeria, contracts are won by indigenous

unskilled companies either because the company owners ha1e (ethnic, family,

religion, group, etc! ties with the person awarding the contract e.g. minister,

because Mdue process (@kpala, )77)! is neglected? to the detriment of competent

multinational companies with high technical skill and financial patronage. 5hese

results to poor uality /obs being done on pro/ects, time and budget o1erruns.

0. Complexity risks# 5hese are risks that arise due to the complex nature of pro/ects.

Dastrous, et al., ()77)! re1eals that increases in complexity of euipments,

systems, processes and procedures used in carrying out pro/ects, will probably

lead to risks of technological failure which could lead to accidents. De1elopment

of complex designs for engineering pro/ects can make buildability 1ery difficult

because useful time is usually wasted in trying to understand the design concept?

that is why in *igeria, most offshore platform designs are made as simple as

possible. &ouca and Eohammed Ali, (%886! acknowledges that, due to the hostile

en1ironment which offshore installations are operated on, designs should be kept

1ery simple and at the same time the safety and protection of assets and personnel

must be considered.

2. Information technology (I5! and technology risk# hittaker, ()77)! re1eals that

one third of most software related pro/ects were terminated before their nominal

completion time. (hittaker, )77) cited in NafraCabe3a, et al., %886! 5hese are

risks that arise due to the internal risks that new technologies and information

of risk management oil and gas construction projects in nigeria.doc

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