Evaluating Reputational Risk and Implications of a Major Accident Hazard in E&P Activities: A Qualitative Methodology

Abstract

Abstract The Oil and Gas business is a technically challenging and risky industry where accidents can happen and have dramatic consequences. A major Accident Hazard and its aftermath can represent a catastrophe for an Oil company that will have to face production losses and asset damages, injuries to people or event worst loss of lives, environmental liabilities, fines and claims, and ultimately all the above most of the time is translated in a significant reputational damage. Reputation can be defined as the whole of expectations and perception of stakeholders towards an organization; reputational risk is the threat to compromise such complex system of expectations and perception with consequent financial and non financial implications. Reputational risk can be regarded as hidden danger that can threaten the survival of the biggest and best-run Companies therefore its effective management is crucial for companies’ long-term success. This paper proposes a qualitative methodology to evaluate reputational risk and implications of major Accident hazard in exploration and production operations. The methodology identifies primarily reputational drivers, stakeholders and risk factors that can create a deviation between expectations and perceptions. The extent of a deviation between perceptions and expectations, caused by an event and relevant consequences depends on context variables that can amplify or lower the impact of the event on the system of expectations and perceptions of the stakeholders (e.g. geographical location of the event). The above mentioned elements are used to build a Risk Reputational Model that foresees the Definition of a Country profile matrix (summarizing the most relevant reputational drivers for the specific country under evaluation), a Matrix of Risks vs. Reputational Drivers (summarizing risk factors influencing reputational drivers relevant for stakeholders) and ultimately a Technical Analysis to identify probability of occurrence of the events affecting the critical drivers. The final step is the qualitative evaluation of reputational risk through the comparison of stakeholders’ expectations and results of the technical analysis. In the paper the methodology is thoroughly explained through a real case application on a company Oil and Gas Asset.