Full transcript of “Project Risk Management in Oil and Gas Industry: Why Now”. Click a timestamp to open the video at that moment. Need another video? Use the YouTube transcript generator.
0:02 welcome everyone to in tabor institute's webinar project risk management and oil and gas industry why now this is a rebroadcast of the original webinar which was shown on april 25th if you're unfamiliar with the taber institute or risky project software brief introduction we show our timeline we were established 2002 2014 we released our last major version version 6. risky project is a full suite of project risk analysis and management software with two desktop versions a light and a professional version as well as an enterprise which is a
0:47 project uh portfolio risk analysis and management and risky project cloud which is a qualitative risk management tool on the on the right just a brief view of some of our clients we do have quite a few oil and gas clients as well as we work with many project consulting groups that specialize in project risk management in the oil and gas sector the information we're going to be looking at today to frame the situation that we see has been provided
1:33 to us by one of our consulting partners but is also publicly available so 30-year overview of the underlying oil and gas prices or oil prices what we can see is there is a lot of variance what does that mean is that we can't really tell what's going to happen next however what we do know is that experts within the oil industry are believed that prices will remain within the 50 to 80 dollar range for the next few years why is this significant well uh a large portion of north american production breakeven costs are above 60 dollars
2:24 so uh break even costs around the globe all the producing regions a couple things we can take away from this one is that there's a even though there's a lot of variants across the globe based on the different areas there's a lot of variants within each uh producing region and the difference are obviously physical geotechnical but a lot of times the differences in costs some of it can be attributed to the management processes of the various companies involved some companies are able to reduce costs in the face consistently as opposed to their competitors and remain more profitable
3:10 one of the other things you can see is that the north american production tends to be the variance especially in the shale it's the is quite low and we think that's because of some technical efficiencies that have come out lately the other thing is that we can see that if oil remains at sixty dollars a barrel where it is about right now uh a lot of north american production will remain profitable however if it goes down and stays around fifty dollars for uh extended period of time pretty well all of our uh conventional up to unconventional oil sands production will have to
3:55 make efforts to control and reduce costs in order to remain profitable so break even cost components um you can see this is an illustrated example contingency differential cost of capital uh planned versus actuals if risks occurred and they're not managed properly it will greatly escalate the break-even cost and cause projects either to either have a lower roi or be postponed or shut down if we put in a robust project risk project portfolio risk
4:40 management capability we can actively manage those risks and reduce the overall impact and bring down that cost and therefore in periods where we have these depressed oil prices we can remain profitable one of the examples that we do have seen lately harvest energy black oil oil sands project they took a risky project plan to develop two phases at the same time uh probably because they saw the opportunity for some economies of scale however uh it did not work out and and it turned out that the uh threats in that plan were greater
5:27 than the opportunities uh which they probably didn't uh anticipate costs escalated during the uh the construction of these two phases went over sixty dollars a barrel and those that project has now been postponed so that's a fairly um striking example of what we see can happen quickly we're going to take a look at some of the breakeven costs at some north american fields we have different different producers operating in different areas one of the things that we do see is that there's a considerable range eagle tight oil the back end a little less of variance
6:14 uh the oil sands there's variance and that variance can be again because geophysical geotechnical um other things but a lot of it is that some again some companies some producers because of management capabilities and management practices are consistently able to keep their costs lower now where does that come from well uh from the wood mckenzie report next year they're expecting to see a 33 uh reduction in exploration cost obviously some of that's going to be coming from the reduction in the cost of labor and material resources however they're also pointing out a significant portion of that
6:59 is going to be efficiency improvements now what do efficiency improvements mean efficiency improvements take in management and technical and on the management side the one of the overarching practices or disciplines is risk management risk management overall oversees all these other uh areas of practice supply chain management procurement project cost engineering human resource and communication management et cetera et cetera risk management oversees all of it and it's one of the most i'm going to say most effective and cost effective ways of accelerating projects and minimizing costs so if we can get a if we can ensure that
7:45 we have a solid risk management process in place that's been applied consistently and comprehensibly across all of your projects you should be able to affect some significant cost reduction in this environment it could be up to a dollar a barrel based on what wood mckenzie is saying and that could be mean the difference between profitability and loss so when we look at that we want to uh when we're going to go in and assess our projects we want to create our important project plan we want to identify project risk we want to assign the risk to the projects and activities and calculate the impact
8:32 of these risks on the project we want to assess the impact of the risk on the project in the portfolio and we want to create risk response plans and manage the risk during the course of the project so it's fairly straightforward and and probably no not unfamiliar to most people now what does that look like in a risky project risky project enterprise so what we have here is a simple example of a pr oil and gas project portfolio each one of these is a project and what we want to be able to answer is a couple of a couple questions um what what risks and uncertainties do each project face
9:19 what impact will they have on our project cost and schedule and other impacts and how will that affect our project portfolio so as we assess the risks at the project level we roll them up how does it affect the portfolio do do we have some projects that have become so risky that we're not um that their priority is going to go down we're not going to develop them at this time or we're going to we're going to postpone them until such a time that we're able to get a better handle on that so we want to be able to go through this process and understand how these risks are going to pack manage them and then go forward and put together a planning and development plan at the portfolio level
10:05 so how does this look well one of the things we want to get our project plan into the system so what does the project look like well it has a schedule with activities and we have you can see we have some uncertainties there we have resources and resources will have rates i'll just drag this over to show that and there we can see the rates so we can do time depending costs cost and income so fix costs and fix costs again as part of that they can be risks or they can have ons and and have uncertainties around them so we have fixed costs associated with all of these activities now a project also each project has its own risk register and risks we can see
10:53 we've identified risks and in this case as we assign them to some activities and it gives us their probability occurring and their impact impact and overall risk score so how do we assign these so now we want to we have a we've identified a risk but we haven't assigned it yet so we have it right here so what we do in uh risky project we have a we can drag and drop them so i'm going to select three major summary activities that have these activities below and then this way i can quickly drag this risk across i can give it a chance of occurring
11:39 let's say it's a very very high chance of occurring and we can assign the impacts which we call outcomes and in here i'm just going to give it a triangular and i'll say and we will say there's also going to be an impact on cost on the fixed cost and we'll say there's a relative and we'll again we'll give that a triangular and we'll say that goes from 2 to 5 and we'll say 10.
12:25 and we can also assign other impacts that are non-scheduled non-cast it could be things like reputational could be safety there we go miner and miner oh dead like that and we can say we'll also give it a quality
13:11 and therefore we've now assigned it and we've assigned not only the cost of schedule but other sort of risk impacts that we'd like to to have in our risk register we click that and if we now take a look at the risk register take a look and we can see how that's been assigned we can now calculate now the next step in that we can see now that it's dropped up we want to take a look at how this is going to impact our project we can see now this is the result gant we can see because of risk and uncertainties in the system that the project is sliding
13:59 to the right in the project summary we get to see all of our charts if we wanted to we can see all of the data associated with that statistics percentiles it gives us a overall feel for what the uncertainty in the system at the very high level we've got the different values in our original versus our wrist so p10 versus p50 and p90 and we can see here that we have approximately almost four and a half four million dollars worth of risk in the system
14:49 from the original estimate we can also take a look at the cost analysis and because the project is running longer and we have a mostly time dependent cost in here it's going to cost more now what does this look like at the at the portfolio how does it affect our portfolio so we can just going to close this and take a little while just to save to the database the new results and then we're going to take a look at what we call our project portfolio we can see uh again it's going to show us our our estimates for duration it's a risk score we can see our risk score for cost
15:38 we have what's called a risk projects now risk projects is a view a bubble chart that shows the relative risk in the project it's a very good way of pinpointing uh or identifying projects which have more relative risk uh in the card is risk in the currency the amount of costs of base cost or base schedule they have we can look at it at project cost or bridge or duration and we can see right here that we do have a couple projects here that have a lot of costs associated with them now once we've looked at this higher level at the project portfolio identified we want to take a look at which risks are driving perhaps driving these uh these results that we're seeing so we can now
16:24 take a look at the project risk portfolio risk register and we can see that that risk that we had that which is the highest on that project is also the highest on this at the portfolio level if we want to open that up and take a look at that we can see how that's been assigned across the portfolio and we want to be able to put some planning around that and because it's our most critical risk we want to put some plans in place to manage that risk to bring it down the impact and so what we can do at that point and this is one of the first place we'll put what that's the cost of that risk
17:10 and so we can say that risk is uh represents a million dollars at the portfolio level to the to our portfolio we can see what the expected value of that now once we've done that we can go to mitigation chart and we can start to put in some plants and what we do is have some uh generic examples but we can put in some activities now the activities risk which represent when they will occur when there should be completed how they will reduce probabilities so it'll take it down from there down to 30 percent how it might reduce impact and the cost of that and what we get is a waterfall chart
17:56 about how we propose to manage that risk and bring it down to to an acceptable or within our tolerance and we can see here the pre and post mitigation cubes and we can see how it's brought down and we can see the total cost of that and so when we go back to the properties we can see how that rolls out in here i'm just going to change that because we brought it down to fifty percent now so we can see that the expected loss now is fifty thousand dollars and we're going to bring that the cost of the risks now is the seventy five thousand dollars from the mitigation and here overall it's going to cost us we believe the expected value of that
18:42 residual risk is 125 000 and we're expecting to save we'll reduce our break-even costs by 627 thousand dollars so a significant portion of that if we can do this to all of our wrists click okay and we can take a look at the race matrix so this is looking a bit busy here and we'll just simplify this a bit and we can start to plan about our risk and see where the pre and post mitigation of those risks are and if we can bring that into the system assess up front manage them during the
19:28 project make sure we control them we believe that will have a significant impact on the overall break-even cost so if we can reduce that break-even cost by even a dollar in this period of where we have reduced prices on the oil that can can be significant tool in in your toolkit for for impacting the overall profitability and feasibility of their projects so in closing if you'd like to know anything more
20:15 about risky project enterprise or any of the other uh applications mentioned in the presentation or if you have any questions please feel free to contact me michael trumper at integra institute my contact details please visit our website we have many white papers and articles we have some tutorials uh we also have a couple uh two books that have been published uh project think was published in 2014 and won the david cleland pmi literature award so thank you very much for your time and we look forward to hearing from you
