Managing Non-Technical Risk in Oil and Gas Operations: The Stakeholder Alignment Imperatives

Abstract

Abstract Non-technical risks (NTR) refer to all risks and opportunities that arise from the interactions of a business with its broad range of external stakeholders (Adekoya & Ekepnyong, 2016). Interactions that could potentially result in stakeholders discontent represent the downside risk dimension while interactions that could potentially result in stakeholders satisfaction represent the upside opportunity dimension. The oil and gas industry is faced with significant NTRs at project and portfolio levels due to the complex operating environment and challenging stakeholder interfaces in regions and geographies where natural resource reserves are found. This paper discusses stakeholder misalignment as being the root cause of key NTRs that oil industry operations have to contend with. The stakeholder web around oil and gas business has become more complex and closely knit with conflicting/overlapping interests. Added to this is the increased sophistication of external stakeholders in terms of real time access to information and the ease with which they build coalition/alliances to challenge oil companies. This is further accentuated by increased public scrutiny. Dealing with NTRs to prevent value erosion in oil and gas operations will require a strategic retrofit of the way the industry currently views and manages stakeholder issues. As the frontier of oil & gas exploration move to very challenging geographies including deepwater, the artic, other pristine environments and countries and regions with complex socio-political structures, management of non-technical risk is increasingly defining the ability of oil companies to extract and sustain value in their portfolio. A number of authors, including Ernst & Young (2014) and Goldman Sachs (2008) have tried to quantify the value erosion suffered by the oil and gas industry in recent years due to poor management or inability to anticipate non-technical risks.