Abstract
In 2009, four of the top ten Fortune 500 companies were classified within the oil and gas industry. Organizations of this size typically have an advanced Enterprise Risk Management system in place to mitigate risk and to achieve their corporations’ objectives. The companies and the article utilize the Enterprise Risk Management Integrated Framework developed by the Committee of Sponsoring Organizations (COSO) as a guide to organize their risk management and reporting. The authors used the framework to analyze reporting years 2009 and 2010 for Fortune 500 oil and gas companies. After gathering and examining information from 2009 and 2010 annual reports, 10-K filings, and proxy statements, the article examines how the selected companies are implementing requirements identified in the previously mentioned publications. Each section examines the companies’ Enterprise Risk Management system, risk appetite, and any other notable information regarding risk management. One observation was the existence or non-existence of a Chief Risk Officer or other Senior Level Manager in charge of risk management. Other observations included identified risks, such as changes in economic, regulatory, and political environments in the different countries where the corporations do business. Still others identify risks, such as increases in certain costs that exceed natural inflation, volatility and instability of market conditions. Fortune 500 oil and gas companies included in this analysis are ExxonMobil, Chevron, ConocoPhillips, Baker Hughes, Valero Energy, and Frontier Oil Corporation. An analysis revealed a sophisticated understanding and reporting of many types of risks, including those associated with increasing production capacity. Specific risks identified by companies included start-up timing, operational outages, weather events, regulatory changes, geo-political and cyber security risks, among others. Mitigation efforts included portfolio management and financial strength. There is evidence that companies in later reports (2013) are more comprehensive in their risk management and reports as evidenced by their 10-K and Proxy Statements (Marathon Oil Corporation, 2013).
Highlights
Enterprise Risk ManagementI mplementing and using Enterprise Risk Management is a necessary and growing activity in today’s unstable economy
While several industries have taken steps to implement the role of Chief Risk Officer, the oil and gas companies analyzed used Management/Board/and members of the Audit committee to handle such tasks
The position of Chief Risk Officer grows more prominent in businesses as the regulations regarding risk management increase
Summary
I mplementing and using Enterprise Risk Management is a necessary and growing activity in today’s unstable economy. Fortune 500 oil and gas companies included in this analysis are ExxonMobil, Chevron, ConocoPhillips, Baker Hughes, Valero Energy, and Frontier Oil Corporation. In the 2009 Annual Report, Valero released a statement mentioning every investment, every action, must be directly and efficiently tied to the achievement of the company’s vision This serves as evidence of the use of a risk management process to base the corporation’s decisions. The responsibility of reviewing the guidelines and policies on Enterprise Risk Management falls upon the Audit and Ethics Committee, including risk assessment and risk management related to the company’s major financial risk exposures and the steps management has taken to monitor and mitigate such exposures. The fact that Frontier has a section in the annual report dedicated to risks is a promising attribute among a small scaled company; the first step to producing a well-developed Enterprise Risk Management system is to identify the company’s major risk areas. Frontier Oil Corporation is similar in risk management organization as others included in this investigation
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