risk management cycle; risk mitigation or response because if effective mitigation plans are

judge the attributes of every risk. The attributes were two in number and are: the frequency

of occurrence, represented by ‘Fr’, and the degree of impact, represented by ‘Im’. Shen

(2001) and Raftery, (1994) represent this using the equation below:

R = Fr x Im …………………………………… equation 4.1

Where; R = Risk

Fr = Frequency of occurrence of risk; and

Im = Degree of impact of risk;

All the attributes above will be measured numerically and the respondents will make their

judgments by using the five level scale of judgment which uses very low, low, medium,

high and very high for representing both the degree of impact and frequency of occurrence

of risks. The model is applied by converting the opinion judgment scale into numerical

scales. This research will apply values as suggested by PMBOK (2000), which assigns a

value of 0.1 to ‘very low’ and values of 0.3, 0.5, 0.7 and 0.9 to ‘low’, ‘medium’, ‘high’, and

‘very high’ respectively. Data will be collected and the weightings of all the risks from each

respondent’s assessment are called the risk score; and will be calculated using the formula

Thuyet, et al. (2007):

Rij = Fri

j x Imij………………………………… equation 4.2

Where; Rij = Risk Score

Frij = Frequency of occurrence for risk i assessed by respondent j

Imij = Degree of impact for risk i assessed by respondent j

An average score for each risk is determined by calculating the average scores from all the

respondents. This is called the ‘risk-index score’, which is used for ranking the risks. The

risk-index score is then calculated with the following formula:

N

R

RI

N

1j

ji

i∑

== …………………………………… equation 4.3

Where; RI i= Risk-index score for risk i

Rij = Risk score assessed by respondent j for risk i

N = Number of respondents

The risk ranking will be done by ordering the risks in increasing numerical order of (1, 2,

3…….), with the major risk having the value of ‘1’, the second major risk having the value

of ‘2’ and so on.

4.1.3 Graphical Illustrations:

Pictorial and graphical presentations will be used as another technique for conveying the

results and findings of the research in a non-verbal manner. Graphs and charts will be used

as forms of graphical illustration in the research because of their advantage of making

research results easy to interpret.

4.2 Questionnaire survey response:

A sum of forty (40) questionnaires were sent out to four different types of company groups

that specializes both in upstream and downstream activities in oil and gas projects in

Nigeria as follows: 10 questionnaires to public sector companies, 10 questionnaires to

private (multinational) companies and 20 to private (indigenous) companies. 20

questionnaires were distributed to the private indigenous companies because there are more

companies in this category than any other category. Out of 40 questionnaires that were

distributed, 30 questionnaires were returned. Table 4-1 shows the details of the distribution

and rate of questionnaire responses as presented below:

2

Table 4-1: Distribution of survey responses

S/No Company typeNos of questionnaires Return rate

(%)Distributed Return

1 Public sector 10 5 50

2 Private( Multinational) 10 7 70

3 Private (Indigenous) 20 18 90

Total 40 30 75

The table above shows that a 75% return rate was recorded in the questionnaire survey. The

rate is high as compared to the lower response of 60% (Nguyen, et al., 2007) as realized in

a related study. The table above also shows the percentage distribution of respondents in

the survey as follows: Public sector companies 50%; Private (Multinational) companies

70% and Private (indigenous) companies 90%.

4.3 Section 1: General/background information

In line with the objectives of the research, the first section of the questionnaire will analyze

the effects of the background and general information of the respondents in the survey. This

establishes a clear insight into the activities of the companies answering the survey

questions with respect to their staff experience and number, company history and their

general perception to types of risks and the risk effects on risk management as practiced in

oil and gas projects in Nigeria.

4.3.1 Respondent’s job position:

In distributing the questionnaires, a deliberate effort was made to incorporate more

managers in the research due to the fact that managers will have a more comprehensive

knowledge about risks and risk management practices in numerous aspects of oil and gas

projects. From the survey, it was found that 46.67% (14) of the respondents were managers

which comprised of operations, project and marketing managers; while 53.33% (16) were

employees which comprised of project, safety and discipline engineers. The figure below

shows their distribution:

3

Table 4-2: Results of respondents’ job position

S/NoRespondents job

position Frequency Percentage (%)

1 Project managers 10 35

2 Operation managers 1 3

3 Safety managers 2 7

4 Project Engineers 7 24

5 Safety Engineers 2 7

6 Discipline Engineers 7 24

Figure 4-1: Distribution of respondents’ job position

Project managers35%

Operation managers3%

Safety managers7%

Project Engineers24%

Safety Engineers7%

Discipline Engineers

24%

The above table and chart (Table 4-2 and Figure 4-1) shows that the percentage

distributions of the respondents’ job position in the survey are as follows: 35% (10) are

Project managers; 3% (1) are Operation managers, 7% (2) are Safety managers, 24% (7) are

Project engineers, and 24% (7) are Discipline engineers. From obtained results, it can be

4

inferred that the respondents to the questionnaire are individuals who make significant

contributions to the risk management practices in Nigerian oil and gas projects.

4.3.2 Working experience:

Table 4-3: Results of respondents’ years of working experience

S/NoYears of working

experience Frequency Percentage (%)

1 0 to 5 years 4 13

2 6 to 10 years 10 33

3 Above 10 years 16 54

Figure 4-2: Distribution of respondents’ years of working experience

Above 10 years54%

6 to 10 years33%

0 to 5 years13%

The above table and chart (Table 4-3 and Figure 4-2) shows that the percentage

distributions of the respondents’ years of working experience in the survey are as follows:

13% (4) have 0 to 5 years working experience; 33% (10) have 6 to 10 years working

experience; and 54% (16) have above 10 years working experience. From the obtained

results, it implies that risk management practices in Nigerian oil and gas sector involves

people who have high industry experience.

5

4.3.3 Educational qualification:

The questionnaire results obtained with respect to educational qualification show that each

of the respondents possessed at least a form of higher educational qualification (MBA,

Msc, Bsc and Beng). This implies that the decision makers who are involved in carrying

out risk management practices in Nigerian oil and gas projects are educated.

4.3.4 Respondents age group:

Table 4-4: Results of respondents’ age group

S/NoRespondents age

group Frequency Percentage (%)

1 25 to 30 Years 2 7

2 31 to 35 Years 12 40

3 36 to 40 Years 3 10

4 41 to 45 Years 7 23

5 46 to 50 Years 5 17

6 >50 Years 1 3

6

Figure 4-3: Distribution of respondents’ age group

31 to 35 Years40%

36 to 40 Years10%

41 to 45 Years23%

46 to 50 Years17%

>50 Years3%

25 to 30 Years7%

The above table and chart (Table 4-4 and Figure 4-3) shows that the percentage

distributions of the respondents’ age groups in the survey are as follows: 7% (2) are 25 to

30 years; 40% (12) are 31 to 35 years; 10% (3) are 36 to 40 years; 23% (7) are 41 to 45

years; 17% (5) are 46 to 50 years; and 3% (1) are above 50 years. From the obtained

results, it was noticed that the age group with the highest frequency (modal age group) were

between 31 to 35 years of age. Also, all the respondents from 41 years and above were

managers. It can be inferred that a considerable number of managers are actively involved

in risk management practices in Nigerian oil and gas industry.

4.3.5 Types of projects executed by respondents:

The Nigerian oil and gas industry was identified from extant literature to be divided into

two sectors and as indicated in the questionnaire; respondents were requested to select the

sector where they carry out their project activities. Table 4-5 shows the survey results.

7

Table 4-5: Results of project types executed by respondents

S/NoType of projects executed by

respondents FrequencyPercentage

(%)

1 Only upstream 0 0

2 Only downstream 3 10

3 Both 27 90

Figure 4-4: Distribution of project types executed by respondents

Only dow nstream

10%

Only upstream0%

Both 90%

The above table and chart (Table 4-5 and Figure 4-4) shows that the percentage

distributions of the respondents’ with respect to the oil and gas sector; where they carry out

their projects activities are as follows: 3% (10) carry out only downstream project

activities; 90% (27) carry out both upstream and downstream project activities; and none of

the companies carry out only upstream activities. From the obtained results, it was noticed

that only respondents’ working with companies that engage in retail and marketing of

petroleum products carryout only downstream project activities while others

(design/construction, inspection, and drilling/exploration) companies; carry out their project

activities in both sectors which may be offshore or onshore. It can be inferred that risk

management practices carried out on most of the projects in both the upstream and

downstream sectors of Nigerian oil and gas industry.

4.3.6 Services rendered by organizations:

In the questionnaire survey; respondents were requested to select the type of projects

services that their individual organizations where they carry out their project activities;

render in Nigerian oil and gas industry. The table below shows the survey results.

8

Table 4-6: Results of project services rendered by respondents

S/NoType of projects services rendered by respondents Frequency

Percentage (%)

1 Inspection 4 13

2 Design/construction 18 61

3 Retail/marketing 4 13

4 Drilling/exploration 4 13

Figure 4-5: Distribution of project services rendered by respondents

61%

13%

13%13%

Inspection

Design/construction

Retail/marketing

Drilling/exploration

The above table and chart (Table 4-6 and Figure 4-5) shows that the percentage

distributions of the respondents’ with respect to the services that their individual

organizations render in Nigerian oil and gas industry are as follows: 13% (4) are involved

in inspection activities; 61% (18) are involved in design and construction activities; 13%

(4) are involved in retail and marketing activities; and 13% (4) are involved in drilling and

exploration activities. From the obtained results and from in-depth telephone interviews, it

was gathered that; Nigerian government owned public sector companies like DPR, were

involved in inspecting and regulating the way the other companies (design/construction,

inspection, and drilling/exploration) carry out risk management practices in both upstream

and downstream oil and gas projects. This they do by giving them guidelines on the risk

assessment methodology and when to use them on projects. (DPR, 2006) The retail and

marketing companies were private indigenous companies that carry out their project

activities only in the downstream sector. Most of the drilling and exploration companies

were private multinationals that have joint ventures with NNPC (the owner of and Nigerian

government representative; in all oil and gas projects). (NNPC, 2008) This is because of

the inability of the private indigenous companies’ lack of finance and expertise to carry out

9

these high technology and huge capital intensive projects. 61% distribution was comprised

of mostly the private indigenous companies that carry out most design and construction

projects which were sublets from the multinational companies. This large percentage is

because of the new Nigerian Local content policy to carry out 70% of all design and

construction projects in the oil and gas sector by the year 2010. (Nwachukwu, 2008) This

boosted the springing up of new design and construction companies. With respect to the

objectives of the research, it can be inferred that risk management practices carried out by

the various companies in Nigerian oil and gas projects are regulated and monitored under

strict guidelines by Nigerian government bodies responsible for ensuring that project risks

are effectively managed and responded to; at the various key stages of oil and gas projects.

4.3.6 Organizations years of experience:

Table 4-7: Results of respondents’ organizations years of experience

S/NoRespondents organizations

years of experience FrequencyPercentage

(%)

1 Less than 5yrs 0 0

2 5 to 10yrs 2 7

3 10 to 20yrs 6 20

3 20yrs and above 22 73

Figure 4-6: Distribution of respondents’ organizations years of experience

20%

7% 0%

73%

Less than 5yrs

5 to 10yrs

10 to 20yrs

20yrs and above

The above table and chart (Table 4-7 and Figure 4-6) shows that the percentage

distributions of the respondents’ individual organizations years of experience in Nigerian

oil and gas industry are as follows: 7% (2) have 5 to 10 years; 20% (6) have 10 to 20 years;

10

and 73% have above 20 years of experience. Two companies involved in design and

construction were in the 5 to 10 years of experience range. The rest had above 10 years

experience in the Nigerian oil and gas industry. With respect to the organizations that

participated in the research survey, it can be seen that most of the companies have been

operating in the oil and gas sector for long. Thus, it can be inferred that most of the

organizations that partook in the survey are very experienced in oil and gas projects.

4.3.7 Employee size:

Table 4-8: Results of respondents’ organization’s employee size

S/NoRespondents organization's

employee size FrequencyPercentage

(%)

1 1 to 100 0 0

2 100 to 250 0 0

3 250 to 1000 4 13

4 1000 to 5000 18 60

5 Above 5000 8 27

Figure 4-7: Distribution of respondents’ organization’s employee size

1000 to 500060%

250 to 100013%Above 5000

27%

The above table and chart (Table 4-8 and Figure 4-7) shows that the percentage

distributions of the respondents’ individual organizations employee size are as follows:

13% (4) have 250 to 1000 employees; 60% (18) have 1000 to 5000 employees; and 27%

have above 5000 employees. Medium sized design and construction companies were the

respondents in the third category (250 to 1000) employees; while large sized indigenous

multinationals, public sector government organizations and retail and marketing companies

11

had from 1000 to 5000+ employees. This is because these large sized organizations have

been in existence for many years and carry out oil and gas projects in their subsidiaries

which are spread around the nation. Thus, it can be inferred that since the large sized

organizations constitute a total of 87% of the survey; they are more organized and have

abundance of employees who carry out risk management on their various oil and gas

projects.

4.4 Section 2: Risk management rationale

In line with the objectives of the research, this section of the questionnaire will be used to

analyze the risk management practices carried out by the respondents in the survey. The

questions seek to find out how organizations identify the sources of risks; the risk response

techniques they use; and an analysis of the major risks that emanate in Nigerian oil and gas

projects will be carried out so as to determine the five major risks that impede the projects.

This will be further analyzed so as to determine suitable response strategies for these risks.

4.4.1 Organizations and risk management system:

In the questionnaire survey results; all the respondents agreed that their individual

organizations maintained a risk system. All also agreed that the identified risks are stored in

a risk management database either by recording the risks in a risk register, documenting

and storing them as hardcopy files; or by storing them as folders electronically, inside

computer hard discs, floppy drives or compact discs. This implies that oil and gas

organizations pay significant attention to risk management practices so as to effectively

mitigate risks on projects.

4.4.2 Risk ranking for Nigerian oil and gas construction projects:

In the questionnaire survey; the respondents which were thirty (30) in number; were asked

to rate a list of twenty (20) risks which were identified from extensive phone interviews to

be the most common sources of risks that emanate in Nigerian oil and gas projects. The

average risk scores from the 30 respondents was used to derive the risk index score by

putting the numerical values as proposed earlier in equation 4.3. This is represented with

the formula below:

12

30

R

RI

30

1j

ji

i∑

== …………………………………… equation 4.4

Where; RI i = Risk-index score for risk i

Rij = Risk score assessed by respondent j for risk i

30 = Number of respondents

The ranking of the identified top twenty (20) risks was carried out with respect to the risk

index score so as to determine the top five (5) major risks so as to further analyze and

develop suitable mitigating strategies for these risks in line with the research objectives.

This is similar to a study carried out by Thuyet et al., (2007). The questionnaire results can

be shown in table 4-9 as follows:

Table 4-9: Risk ranking for Nigerian oil and gas construction projects

13

RankRisk Code Risk factors RI

1 R12.15 Security threats from neighboring residents 0.5621

2 R12.5 Incompetence of project team members 0.3823

3 R12.6 Poor designs 0.375

4 R12.7 Late internal approvals from clients 0.2974

5 R12.9 Poor and inadequate tendering 0.2811

6 R12.14 Inadequate project organization structure 0.2744

7 R12.10 Changes in design 0.2458

8 R12.11 Inadequate budgeting and poor project planning 0.2378

9 R12.13 Poor project feasibility studies 0.2278

10 R12.3 Inefficient and poor performance of constructors 0.2125

11 R12.17 Reduced quality in procured materials 0.2098

12 R12.18Poor coordination amongst sub-contractors and

contractors 0.1965

13 R12.1 Damage to work by third party 0.1764

14 R12.8Bureaucratic project and government approval

procedures 0.1665

15 R12.12Differences in practices between local and foreign

contractors 0.1638

16 R12.2 Environmental protection pressure of other groups 0.1592

17 R12.4 Poor relationship with government bodies 0.1452

18 R12.16 Late provision or delivery of materials 0.1452

19 R12.20 Working conditions deferring from contract specification 0.1112

20 R12.19 Lack of experience in design and construction 0.1086

A comprehensive list of the ranked risks as deduced from a combination of in-depth

telephone interviews and questionnaire survey is shown in the table above. The twenty (20)

risks are sorted accordingly, in ascending order of their overall impact on oil and gas

projects in Nigeria. The top ten risks will then be analyzed further to determine their

14

features, characteristics and causes; so that adequate strategies can be proposed to mitigate

the risks.

4.4.3 The analysis of the top ten risks in Nigerian oil and gas construction projects:

In line with the objectives of the study, the top ten major risks in Nigerian oil and gas

projects will be analyzed thoroughly. In order to analyze these top ten major risks; the mean

of occurrence and the mean of impact degree for each individual risk identified by the

respondents where determined. This can be seen as shown in table 4-10 as follows:

Table 4-10: Top ten risks statistics for Nigerian oil and gas construction projects

15

RankRisk code Risk Factors

Mean of Occurrence Frequency

(Fr)

Mean of Impact Degree

(Im)

Risk Index Score (RI)

1 R12.15Security threats from neighboring

residents 0.7 0.76 0.5621

2 R12.5Incompetence of project team

members 0.5133 0.6533 0.3823

3 R12.6 Poor designs 0.4933 0.68 0.375

4 R12.7 Late internal approvals from clients 0.26 0.4833 0.2974

5 R12.9 Poor and inadequate tendering 0.5333 0.5267 0.2811

6 R12.14Inadequate project organization

structure 0.4267 0.5933 0.2744

7 R12.10 Changes in design 0.4667 0.48 0.2458

8 R12.11Inadequate budgeting and poor project

planning 0.56 0.4267 0.2378

9 R12.13 Improper project feasibility studies 0.4267 0.4867 0.2278

10 R12.3Inefficient and poor performance of

constructors 0.42 0.4733 0.2125

11 R12.17 Reduced quality in procured materials 0.4267 0.4533 0.2098

12 R12.18Poor coordination amongst sub-

contractors and contractors 0.6067 0.3267 0.1965

13 R12.1 Damage to work by third party 0.2733 0.7 0.1764

14 R12.8Bureaucratic project and government

approval procedures 0.34 0.4667 0.1665

15 R12.12Differences in practices between local

and foreign contractors 0.38 0.3067 0.1638

16 R12.2Environmental protection pressure of

other groups 0.2533 0.56 0.1592

17 R12.4Poor relationship with government

bodies 0.2733 0..4933 0.1452

18 R12.16 Late provision or delivery of materials 0.32 0.4067 0.1452

19 R12.20Working conditions deferring from

contract specification 0.2333 0.3133 0.1112

20 R12.19Lack of experience in design and

construction 0.2533 0.2933 0.1086

From table 4-10 above, it can be deduced that ‘security threats from neighboring residents’

risk take up the first position with a risk-index score (0.5621), to become the risk with the

highest risk score-index. This is an external risk and has both the highest mean of impact

16

degree (0.76) and the highest mean of occurrence frequency (0.7). It implies that oil and

projects in Nigeria are highly prone to this major risk. It was gathered from the conducted

interviews that the main causes of this risk were disturbances from the local residents and

militants in the Niger Delta region in the form of assault and kidnapping of oil and gas

companies employees; vandalizing of oil and gas pipelines; and sabotage (fire and

explosion of oil and gas facilities). It was also gathered that due to lack of compensation

payment which was supposed to be paid to the poor rural dwellers of these oil rich regions

for the compulsory acquisition of their lands for oil and gas exploration; always generates

crisis in the area. (Ogedengbe, 2007)

The second to the fifth risks are as follows: ‘Incompetence of project team members’ with a

risk-index score (0.3823); ‘poor designs’ with a risk-index score (0.375); ‘late internal

approvals from clients’ with a risk-index score (0.2974); and ‘poor and inadequate

tendering’ with a risk-index score (0.2811). From the second down to the tenth (2nd to

10th) ranking risks are all internal risks.

Within this limits were risks which also occupied high positions in the risk ranking and

were associated with the management activities of the client. They are as follows:

‘Incompetence of project team members’ as the 2nd; ‘late internal approvals from clients’ as

the 4th; ‘inadequate project organization structure’ as the 6th; ‘inadequate budgeting and

poor project planning’ as the 8th and ‘improper project feasibility studies’ as the 9th. The

fact that these management associated risks have high ranking signifies that clients and

employers in Nigerian oil and gas construction projects are failing in their duties of

directing; motivating employees; organizing; controlling; and planning oil and gas projects.

From the interviews conducted, it was revealed that the reason for these lapses accrue to

lack of a defined system in projects’ structure and incompetent workers being used on

projects. Thus, it can be inferred that; in order to manage these risks, there should be a

focus on improving clients’ management skills, abilities and knowledge as well as

employees capabilities.

It is worth noting that two risks which had high risk ranking; and found their places as the

3rd and 7th in the top ten risk ranking were associated with the designs. They are: ‘poor

designs’ with a risk-index score (0.375); and ‘changes in design’ with a risk-index score

17

(0.2458). ‘Poor designs’ risk although occupied the overall third position, had the second

highest mean of impact degree (0.6533). This is because design works which are done at

the early stages of oil and gas projects have a very huge impact on the total outcome of

projects. A little flaw in a design can cause enormous changes in the construction phase and

in allocating resources; thus, reducing quality and causing cost and time overruns on

projects. (Thuyet, et al., 2007)

‘Changes in design’ risk is common in oil and gas projects and the earlier it occurs, the

lesser it has impact on the total project outcome. It usually occurs in the construction phase

of Nigerian oil and gas projects. This risk had 0.48 as the mean of impact degree and this

implies that changes in design in Nigerian oil and gas projects have a medium effect or

impact on the overall project outcome. From the interviews, it was gathered that this risk is

usually caused by changes in design specifications, scope changes and poor quality designs.

To curb these risks, design standards are put in place to enable regulators, clients and

contractors to reach a mutual understanding about the way to carry out designs. (Snell,

2008)

‘Poor and inadequate tendering’ risk had the ranking position as 5th; with a risk-index score

(0.2811), mean of impact degree (0.5267) and mean of occurrence frequency (0.5333). This

means that this risk has a severe impact on project outcomes. From the interviews, it was

revealed that risks associated with tendering in oil and gas projects in Nigeria are attributed

to poor contractor selection by clients. Incompetent and unreliable contractors end up

winning bids due to inadequacies in the evaluation processes and selection criteria which

lacked ‘due processes’. Thus, contractors are appointed by public and private sector clients’

not on merit but based on whom they know. (Ogunsemi and Aje, 2006) This makes

contactor and client ethics during contractor selection and evaluation processes a complex

and sensitive issue yet to be addressed in Nigerian oil and gas projects.

The 10th risk ‘inefficient and poor performance of constructors’ with a risk-index score

(0.2125); mean of impact degree (0.4733); and mean of occurrence frequency (0.42). This

risk was identified to be a very sensitive risk that needs to be addressed in Nigerian oil and

gas industry. Clients’ projects often end up suffering from overruns in cost, delays in time,

poor quality services and decreased productivity due to poor performance on the contractor

18

side. In-depth interviews revealed that lack of sufficient equipments and technology;

appropriate experience; financial capability; trained employees; available resources; good

quality construction methods; and efficient management skills; were the causes of

contractors poor performance on projects. Besides, Nigeria oil and gas projects which are

usually large and complex, requiring huge capital investment, modern technologies and

ever changing up to date construction methods; attracts multinational companies.

Consequently, conflicts that impede project successes are often generated due to the

differences in technology know how between the employees of multinational and

indigenous companies.

4.5 Risk response strategies for mitigating the major risks

In the previous section, the top ten major risks in Nigerian oil and gas projects were

identified with their frequency of occurrence and degree of impact. In line with the

objectives of the study and due to the time constraints and limits of the research; qualitative

method of research was used via telephone interviews with experienced personnel of the

Nigerian oil and gas industry; to find out the characteristics and causes as well as to

propose efficient strategies to effectively mitigate only the five major risks on the risk

ranking developed from the quantitative analysis because of the severe impacts they have

on oil and gas projects in Nigeria. This section will focus on analyzing each individual risk

thoroughly.

4.5.1 Security threats from neighboring residents (R12.15)

The risks accruing to security threats from neighboring residents on Nigerian oil and gas

projects are enormous. These are external risks that inhibit the achievement of a project’s

cost, time and quality objectives. It was gathered from the conducted interviews that the

agitating youths and militants activities on oil and gas fields in the form of assault and

kidnapping of oil and gas companies employees (Eweje, 2007); vandalizing of oil and gas

pipelines; and sabotage (fire and explosion of oil and gas facilities). It was also gathered

that due to lack of compensation payment which was supposed to be paid to the poor rural

dwellers of these oil rich regions for the compulsory acquisition of their lands for oil and

gas exploration; always generates crisis in the area. (Ogedengbe, 2007)

19

In this light, the respondents to the interview that were carried out proposed several

strategies which include:

1. The compulsory land use act should be amended so that adequate compensation fees

should be paid to the owners of the acquired lands by oil and gas companies or the

federal government.

2. Corporate social responsibility (CSR) (Evuleocha, 2005) should be enforced by the

federal government so as to increase the development of these oil rich communities

by oil and gas companies.

3. The federal government of Nigeria should seek to enforce stringent laws on waste

disposals so as to stop the oil spillages from activities from oil and gas construction

activities. (Essoka, et al., 2006)

4. The LNG production should be introduced fully so as stop the flaring of gases

which cause harm to human, animals and the entire ecological environment in the

Niger Delta region. (Galbraith, 2008)

4.5.2 Incompetence of project team members (R12.5)

From the phone interviews, it was gathered that the Nigerian oil and gas projects lack

individuals with skills, knowledge and ability to perform their duties efficiently. Even

though most project team members possessed at least one form of higher education degree,

there is still that lack of insufficient skills needed to manage oil and gas projects.

In this view, the following strategies were proposed by the interviewees as follows:

1. Effective teamwork should be enhanced via staff training to update them with the

new technologies and industry skills.

2. Good staffing by effectively matching project team members to the right projects

where they can function efficiently to achieve optimum productivity.

4.5.3 Poor designs (12.6)

The risks of poor designs by contractors in Nigerian oil and gas projects are enormous, and

usually cause the non-achievement of projects’ cost, time and quality objectives. Who

absorbs the extra cost of incomplete or unclear scopes and specifications, ambiguous design

and designers’ incompetence? This question usually causes a lot of conflict between clients

20

and contractors. In Nigeria, indigenous companies have little experience in design of oil

and gas facilities, thus there exists a dominance of foreign multinational companies that

have more experience but still run into design difficulties due to the complex nature of the

designs in the industry.

In this light, the respondents to the interview that were carried out proposed several

strategies which include (Thuyet, 2007):

1. Indigenous companies partnering with the multinationals to improve cost

effectiveness; efficiency; quality of products and services; transparency and transfer

of technology, long term commitment and enhanced opportunity for innovation.

2. Contractor selection to be based on experience and previous performance so that

competent and experienced manpower will be carrying out design works efficiently.

3. Using concurrent engineering to improve constructability and time savings.

4. Design standards put in place to enable regulators, clients and contractors to have a

mutual understanding about the way to carry out designs. (Snell, 2008)

4.5.4 Late internal approvals from clients (12.7)

This is an internal project risk that usually originates in clients organization. The interview

respondents revealed that this risk emanates on Nigerian oil and gas projects due to

managers lacking the authority to solve problems and lack of employee commitment.

Project managers are usually faced with the problem of slow responses from the top

management to pressing project issues e.g. allocating resources. This leads to time and at

times lead to cost overruns on projects. (Thuyet, 2008)

In this light, the respondents to the interview that were carried out proposed the following

strategies:

1. Using TQM (Total Quality Management) practices for enhancing the involvement

of all project employees to share in the project vision and goals.

2. Empowering project managers with approvals authority so as to make on time and

faster decisions which enhances innovation and successful delivery of projects.

21

4.5.5 Poor and inadequate tendering (12.9)

The risk accruing to poor and inadequate tendering usually, can deviate a project from

meeting up with its objectives. Oil and gas projects usually adopt one of the following

methods; restricted tendering, open tendering, restricted accelerated, competitive

negotiated, competitive negotiated accelerated tendering and dialogues. (Palaneeswaran and

kumaraswamy, 2001) The interviews revealed that lack of ‘due processes’ (unethical

attitudes of bidders) and ‘inadequate evaluation criteria’ are the main sources that pose

tendering risks in Nigerian oil and gas industry. Public sector clients often accept lowest

price tender so as to show accountability and in defense for criticisms. (Wong, et al., 2000)

Moreover, these bidders submit low prices to win and after winning, they negotiate with

clients at later stages to mark-up their tender. Another identified source is the collusion of

bidders like withdrawal, bribery, and false inflation of covering and tender prices.

In this light, the respondents to the interview that were carried out proposed the following

strategies:

1. The technique, MCDM (Multiple criteria decision making) should be used for

evaluating contractors.

2. Clients increasing legal enforcement of collusion by improving the detection of

bidders during prequalification and final stages of evaluation.

3. Clients using selective tendering by inviting only credible and professional

contractors

4.6 Summary

The quantitative and qualitative approaches were used to assess the major risks that

emanate in Nigerian oil and gas construction projects. The findings from results from the

background information of the questionnaire survey reveals that risk management practices

in Nigeria oil and gas industry involves people with high industry experience; educated;

and mostly carry out projects in both upstream and downstream sector. Most of the

organizations have experience in oil and gas activities because they have been in existence

long enough in the industry; with adequate staff strength.

The second part the questionnaire revealed that all organizations in Nigerian oil and gas

industry maintain a risk management system as well as store identified risks in a risk

22

management database either as hard copies or electronic copies in computer hard drives,

compact discs and floppy drives.

The top ten major risks that emanate on oil and gas construction projects both in the

upstream and downstream oil and gas sectors are:

5.2 Security threats from neighboring residents

6.2 Incompetence of project team members

7.2 Poor designs

8.2 Late internal approvals from clients

9.2 Poor and inadequate tendering

10.2 Inadequate project organization structure

11.2 Changes in design

12.2 Inadequate budgeting and poor project planning

13.2 Improper project feasibility studies

14.2 Inefficient and poor performance of constructors

Qualitative method was used via in-depth telephone interviews; to further analyze the top

five major risks due to their high mean of impact degree and high risk index score

thoroughly. The causes and characteristics of the top five major risks; as well as mitigating

strategies were developed to curb the top five major risks that emanate on Nigerian oil and

gas projects.

23

Chapter 5: Conclusion and recommendations

2.1 Conclusion:

In recent times, the concept of risk management is an essential process that cannot be

neglected in the management of projects in developed countries. Nevertheless, the practice

is still new during the implementation of projects in developing countries; which includes

Nigeria. Only the Nigerian oil and gas sector seems to be the sector amongst others; that is

keen on utilizing risk management practices during the implementation of projects because

of the volatile nature of products and characteristics of the project environment where the

operation and processes are carried out, in a constantly changing dynamic environment

which is exposed to enormous risks. Thus, this research is very significant and timely

considering the fact that the oil and gas sector is the most important contributor to the total

revenue of the Nigerian economy.

The research dissertation which aimed at identifying the risk factors that affect oil and gas

construction projects and to derive risk responses for them was accomplished via realizing

the following research objectives:

The different types of risks as well as the different environments where these risks originate

in oil and gas projects where identified from an extensive literature review. A closer

assessment via a questionnaire survey was systematically used to determine the frequency

of occurrence and the degree of impact of the major sources of risks that emanate in oil and

gas construction projects in Nigeria.

The results of the research via the risk scores of the major risks revealed that the top ten

major risks in oil and gas construction projects in Nigeria were:

1. Security threats from neighboring residents

2. Incompetence of project team members

3. Poor designs

4. Late internal approvals from clients

5. Poor and inadequate tendering

6. Inadequate project organization structure

24

7. Changes in design

8. Inadequate budgeting and poor project planning

9. Improper project feasibility studies

10. Inefficient and poor performance of constructors

5.2 Recommendations

For the successful delivery of projects, it is essential that a thorough examination of the

major risks affecting a project is examined. In the quest to develop strategies to effectively

mitigate the identified major risks; literature and in-depth interviews were carried out in the

research and were used to proffer appropriate practical strategies which where proposed for

the top five most ranked, major risks in oil and gas construction projects in Nigeria. The

research proposed recommendations to effectively mitigate the top-five major risks as

follows:

1. The compulsory land use act should be amended so that adequate compensation fees

should be paid to the owners of the acquired lands by oil and gas companies or the

federal government.

2. Corporate social responsibility (CSR) should be enforced by the federal government

so as to increase the development of these oil rich communities by oil and gas

companies.

3. The federal government of Nigeria should seek to enforce stringent laws on waste

disposals so as to stop the oil spillages from activities from oil and gas construction

activities.

4. The LNG production should be introduced fully so as stop the flaring of gases

which cause harm to human, animals and the entire ecological environment in the

Niger Delta region.

5. Effective teamwork should be enhanced via staff training to update them with the

new technologies and industry skills.

6. Good staffing by effectively matching project team members to the right projects

where they can function efficiently to achieve optimum productivity.

25

7. Indigenous companies partnering with the multinationals to improve cost

effectiveness; efficiency; quality of products and services; transparency and transfer

of technology, long term commitment and enhanced opportunity for innovation.

8. Contractor selection to be based on experience and previous performance so that

competent and experienced manpower will be carrying out design works efficiently.

9. Using concurrent engineering to improve constructability and time savings.

10. Design standards put in place to enable regulators, clients and contractors to have a

mutual understanding about the way to carry out designs.

11. Using TQM (Total Quality Management) practices for enhancing the involvement

of all project employees to share in the project vision and goals.

12. Empowering project managers with approvals authority so as to make on time and

faster decisions which enhances innovation and successful delivery of projects.

13. The technique, MCDM (Multiple criteria decision making) should be frequently

used for evaluating contractors.

14. Clients increasing legal enforcement of collusion by improving the detection of

bidders during prequalification and final stages of evaluation.

15. Clients should be using selective tendering by inviting only credible and

professional contractors

5.3 Limitations of research

With regards to the gap in distance between the author and the target population; and the

inflexible time schedule required for completing the research, the choice of telephone

interviews and the use of an electronic questionnaire was the most suitable media for data

collection for the research. However, it was recognized that the representation of the entire

target population may not be repudiated from the respondents views because; not all the

operators in the upstream and downstream sector of the Nigerian oil and gas industry may

have access to internet to facilitate the data collection process. Nevertheless, the sample

still continues to be a valid and dependable information source since most of the corporate,

public and private sector oil and gas organizations in Nigeria have internet access.

26

5.4 Recommendations for future research

Having undertaken the research on risk management in oil and gas construction projects in

Nigeria; opportunities are open for future research to be aimed at using the ascertained

major sources of risks and recommended strategies proposed in the research dissertation;

for developing a practical risk management model for future use by clients, investors,

researchers and all stakeholders that have interest in the Nigerian oil and gas industry.

27

References

Adewusi, V.A. (1998), Development of petroleum resources in Nigeria – Advances, challenges and opportunities, Petroleum Science and Technology, vol. 16, no. 7, pp. 685-695.

Ahmed, A., Kayis, B. and Amornsawadwatana, S. (2007), A review of techniques for risk management in projects, Benchmarking: An International Journal, Vol. 14, No. 1, pp. 22-36.

Ahmed, A., Amornsawadwatana, S. and Kayis, B. (2003a), A conceptual framework for risk analysis in concurrent engineering, Proceedings of the 17th International Conference on Production Research, 4-7 August, Blacksburg, Virginia, USA, (R1.6 Paper No. 86Badiru, A.B. (1996), Project Management in Manufacturing and High Technology Operations, Wiley, New York, NY.

Akor, A.J. and Igho, T.J. (2002), Effluent quality and wastes from petroleum drilling operations in the Niger Delta, Nigeria, Environmental Management and Health, Vol. 13, No. 2, pp. 207-216.

Amornsawadwatana, S. Ahmed, A., Kayis, B. and Kaebernick, H., (2002), Risk mitigation investment in concurrent design Process, Proceedings of the International Conference on Manufacturing Automation, Vol. 14, No. 1, pp. 22-36.

Alquier, A.M., Cagno, E., Caron, F., Leopulos, V. and Ridao, M.A. (2002), Chapter 21 – Analysis of External and Internal Risks in Project Early Phase, In Slevin D., Cleland, D. and Pinto, J. (eds.) The Frontiers of Project Management Research, Pennsylvania, USA: Project Management Institute (PMI).

Baker, S., Ponniah, D. and Smith, S. (1999), Risk response techniques employed currently for major projects, Construction Management and Economics, vol. 17, issue: 2, pp. 205-213.

Bajpai, S. and Gupta, J.P. (2007), Securing oil and gas infrastructure, Journal of Petroleum Science and Engineering, 55, pp. 174-186

Berlin, A., Berlin, A.I. and Vrooman, LLP. (2003) Managing Political Risk in the Oil and Gas industries, Oil, Gas & Energy Law Intelligence, Vol. 1, No. 2, March, 2003.

Bharucha, K. and Holland, D. (2008), Upstream technology integration: Opportunities, obstacles, success, Offshore magazine: Drilling technology/India report, April, Vol. 68, No. 4, pp.66-69

Broyd, T., (2001), constructing the future, Foresight: making the future work for you, DTI, London.

Budget Monitoring and Price Intelligence Unit. (BMPIU) (2004), The ABC of the Contract Due Process policy, State press, Abuja

28

Cagno, E., Caron, F. and Mancini, M. (2007), A multi-dimensional analysis of major risks in complex projects, Risk Management, 9, pp. 1-18, doi:10.1057/palgrave.rm.8250014

Caillaud, E., Gourc, D., Garcia, L.A., Crossland, R. and McMahon, C., et al. (1999), A framework for a knowledge-based system to risk management in concurrent engineering, Concurrent Engineering: Research and Applications, Vol. 7, No. 3, pp. 257-267

Cervone, H.F., (2006), Project Risk Management, OCLC Systems & Services: International digital library perspectives, Vol. 22, No. 4, pp. 256-262.

Charoenngam, C. and Yeh, C.Y. (1999), Contractual Risk and Liability Sharing in Hydropower Construction, International Journal of Project Management, Vol. 17, No. 1, pp. 29-37.

Chidozie, I. (2008), Power emergency delayed again, The punch, Lagos.

Dastous, P.A., Nikiema, J., Marechal, D., Racine, L. and Lacoursiere, J.P. (2008), Risk management: All stakeholders must do their part, Journal of Loss Prevention in the Process Industries, 21, pp. 367-373.

Dey, K.P. and Ogunlana, S.O. (2004), Selection and application of risk management tools and techniques for Build-operate-transfer projects, Industrial management and Data systems, Vol. 104, No. 4, pp. 334-346

Department of Petroleum Resources (DPR), (2006), Guidelines concerning implementation and use of risk analysis in the Nigerian Petroleum Industry, DPR, Nigeria

Elms, D., (1998), Owning the Future: Integrated Risk Management in Practice, Center for Advanced Engineering, Christchurch, New Zealand

Essoka, P.A, Ubogu, A.E. and Uzu, L. (2006), An overview of oil pollution and heavy metal concentration in Warri area, Nigeria, Management of Environmental Quality: An International Journal, Vol. 17, No. 2, pp. 209-215.

Evuleocha, S.U. (2005), Managing indigenous relations: Corporate social responsibility in a new age of activism, Corporate Communications: An International Journal, Vol. 10, No. 4, pp. 328-340

Eweje, G. (2007), Multinational oil companies’ CSR initiatives in Nigeria: The skepticism of stakeholders in host communities, Managerial Law, Vol. 49, No. 5/6, pp. 228-235.

Flanagan, R. and Norman, G., (1993), Risk Management and Construction, Blackwell Science

Galbraith, D., (2008), Regional Perspective: West Africa Regional Overview, Offshore Technology International, 2008, pp. 47-49.

29

Ibrahim, M.J. (2008), Growth prospects of oil and gas abundant economies: the Nigerian experience (1970-2000), Journal of Economic Studies, Vol. 35 No. 2, pp. 170-190.

Jones, C. (1994), Assessment and Control of Software Risks, Prentice-Hall, Englewood Cliffs, NJ

Kartam, N.A. and Kartam, S.A. (2001), Risk and its management in the Kuwaiti construction industry: contractors’ perspective, International Journal of Project Management, Vol. 19, No. 6, pp. 325-335.

Khan, S.A., (1994), Nigeria: The Political Economy of Oil, Oxford University Press.

Kiel, M., Cule, P.E., Lyytinen, K. and Schmidt, R.C., (1998), A framework for identifying software project risks, Communications of the ACM, Vol. 41, No. 11, pp. 76-83.

Kieserman, B.J. (1999), Profits and principles: promoting multinational corporate responsibility by amending the Alien Tort Claims Act, The Catholic University Law Review, Vol. 4, spring, p. 881

Lee, Y.S., Kim, Y., Kim, S.H., Kim, C., Chung, C.H. and ET Jung, W.D., (2004), Analysis of human error and organizational deficiency in events considering risk significance, Nuclear Engineering and Design, 230, pp. 61-67.

Leedy, P.D. & Ormrod, J.E. (2005), Practical Research: Planning and Design, 8th edn, Collier-Macmillan, Prentice Hall, New Jersey.

Long, N.D., Ogunlana, S., Quang, T. and Lam, K.C. (2004), Large construction projects in developing countries: a case study from Vietnam, International Journal Of Project Management, vol. 22, No. 7, pp. 553-561.

Louca, L.A., and Mohammed Ali, R.M. (2008), Improving the ductile behaviour of offshore topside structures under extreme loads, Engineering Structures, 30, pp. 506-521.

Luu, V.T., Kim, S.Y., Nguyen, V.T. and Ogunlana, S.O. (2008), Quantifying schedule risk in construction Projects using bayesian belief networks, International Journal of Project Management, doi:10.1016/j.ijproman.2008.03.003.

Mills, A. (2001), A systematic approach to risk management for construction, structural survey, Vol. 19, No. 5, pp. 245-252

Mohammed Ali, R.M. and Louca, L.A., (2008), Performance based design of blast resistant offshore topsides, Part I: Philosophy, Journal of Constructional Steel Research, 64, pp. 1030-1045

Munn, P. and Drever, E. (1990), Using Questionnaires in Small-Scale Research, SCRE, Scotland

30

Naoum, S.G. (2007), Dissertation research and writing for construction students, 2nd edn, Butterworth-Heinemann, Oxford, UK

Nigerian National Petroleum Corporation (NNPC) (2008), About NNPC. Available: http://www.nnpcgroup.com/retail.htm [Accessed 25 July 2008].

Nigerian National Petroleum Corporation (NNPC) (2008), About NNPC. Available: http://www.nnpcgroup.com/potential.htm [Accessed 25 July 2008].

Nigerian National Petroleum Corporation (NNPC) (2008), About NNPC. Available: http://www.nnpcgroup.com/aboutus.htm [Accessed 25 July 2008].

Nigerian National Petroleum Corporation (NNPC) (2008), Downstream Opportunities. Available: http://www.nnpcgroup.com/downstream.htm [Accessed 25 July 2008].

Nigerian National Petroleum Corporation (NNPC) (2008), Upstream Opportunities. Available: http://www.nnpcgroup.com/upstream.htm [Accessed 25 July 2008].

Nwachukwu, C. (2008) Nigerian investors make steel, pipes for oil and gas industry, The Punch Newspaper, Thursday, May 29, 2008, pp. 23-25.

Odeh, A.M. and Battaneih, H.T. (2002), Causes of construction delay: traditional contracts, International Journal of Project Management, vol. 20, No. 1, pp. 67-73

Ogedengbe, P.S. (2007), Compulsory acquisition of oil exploration fields in Delta State Nigeria: The compensation problem, Journal of Property Investment & Finance, Vol. 25, No. 1, pp. 62-76.

Ogunsemi, D.R. and Aje, I.O. (2006), The Impact of Contractors Prequalification on construction Project Delivery in Nigeria, Proceedings of the International Conference in the Built Environment in the 21st Century (ICIBE 2006), eds. J.V. Torrance, H. Adnan & R. Takim, Kuala Lumpur: Malaysia, pp. 111-120

Okpala, D.C., Evaluation and selection of construction projects in Nigeria. Construction management and economics, Vol. 9, No. 1, 1991, February, 51-61.

Olsen, J.E. (2002), Global ethics and the Alien Tort Claims Act: a summary of three cases within the oil and gas industry, Management Decision, Vol. 40, No. 7, pp. 720-724

Palaneeswaran, E. & kumaraswamy, M.M. (2001), Recent advances and proposed improvements in contractor prequalification methodologies, Building and Environment, Vol. 36, No. 1, pp. 73-87.

Patterson, F.D. and Neailey, K. (2002), A risk register database system to aid the management of project risk, International Journal of Project Management, Vol. 20, No. 5, pp. 365-374.

31

Petroleum Products Pricing Regulatory Agency (PPPRA) (2008), Deregulation Policy: A Review. Available: http://www.pppra-nigeria.org/articledetails.asp?ArticleID=1 [Accessed 03 August 2008].

Petroleum Products Pricing Regulatory Agency (PPPRA) (2008b), Petroleum Facilities in Nigeria. Available: http://www.pppra-nigeria.org/retail_outlets.asp [Accessed 03 August 2008].

Project Management Institute (PMI) (2004), a guide to the Project Management Body of Knowledge (PMBOK guide), 3rd edn, PMI, USA

Project Management Institute (PMI) (2000), a guide to the Project Management Body of Knowledge (PMBOK guide), PMI, USA

Rafiu, I. (2005), Accidents at retail outlets, Daily Champion, Lagos.

Raftery, J. (1994), Risk Analysis in Project Management, E&FN Spon, London

Risk Management Standard AS/NZS 4360 (1999), Risk Management Standard AS/NZS 4360, Standards Association of Australia, Sydney

Roberts, A. Wallace, W. and McClure, N., (2003), Strategic Risk Management, Edinburgh Business School, Heriot-watt University, Edinburgh, UK.

Shaluf, I.M. (2008), A flare incident at an oil field, Disaster Prevention and Management, Vol. 17, No. 1, pp. 6-15.

Shen, L.Y., Wu, G.E.C. and Ng, C.S.K. (2001), Risk Assessment for Construction Joint Ventures in China, Journal of Construction Engineering and Management, Vol.127, No. 1, January/February: pp. 76-81.

Simmons, K. and Duhaney, B. (2008), Escravos float-over installation dictates platform design, Offshore magazine: Drilling technology/India report, April, Vol. 68, No. 4, pp.102-104.

Snell, R. (2008), Offshore Structures - Standardization, Offshore Technology International, 2008, pp. 167-169.

Stevens, P. (2005), Oil markets, Oxford Review of Economic Policy, Vol. 21, No. 1, pp. 19-42.

Tchankova, L. (2002), Risk identification – basic stage in risk management, Environmental Management and Health, Vol. 13, No. 3, pp. 290-297.

Toor, S. and Ogunlana, S.O. (2008), Conquering the Construction Battle: Overcoming the problems on large construction projects in a developing economy, Proceedings of the International conference in the Built Environment in the 21st Century (ICIBE 2006), eds. J.V. Torrance and Adnan, H. and Takim, R., Kuala Lumpur: Malaysia, pp. 97.

32

Thuyet, N.V., Ogunlana, S.O. and Dey, K.P., (2007), Risk Management in Oil and Gas Construction Projects in Vietnam, International Journal of Energy Sector Management, Vol. 1, Issue: 2, pp. 175-194.

Ward, S.C. (1999), Assessing and Managing Important Risks. International Journal of Project Management, Vol. 17, No. 6, pp. 331-336

Walliman, N. (2005), Your Research Project, 2nd edn, SAGE, London

Williams, C.A., Smith, M.I. and Young, P.C. (1998), Risk Management and Insurance, Irwin, McGraw Hill

Whittaker, B. (1999), What went wrong? Unsuccessful information technology projects, Information Management and Computer Security, Vol. 7, No. 1, pp. 23-29.

Wisker, G. (2008), The Postgraduate Research Handbook, 2nd edn, Palgrave, Macmillan, New York.

Wong, C.H., Holt, G.D. and Cooper, P.A. (2000), Lowest price or value? Investigation of UK construction clients’ tender selection process, Construction Management and Economics, Vol. 18, No. 7, PP. 767-774 World Bank (1997), World Development Report, World Bank, Washington, DC

Zafra-Cabeza, A.Z., Ridao, M.A., Camacho, E.F., (2008), Using a risk-based approach to project scheduling: A case illustration from semiconductor manufacturing, European Journal of Operational Research, 190, pp. 708-723.

33