Risk Management Strategies Required for Unconventional Oil and Gas Exploration and Development in Latin America

Abstract

Abstract Lack of information, ambiguity, uncertainty and differing risk perceptions among stakeholders have generated an atmosphere of distrust that hinders unconventional oil and gas (UOG) exploration and development E&P. The objective of this paper is to identify the risk management strategies required by E&P companies focused on UOG to control and communicate operational, HSSE and social uncertainties. Firms should use the proper risk management tools and communication strategies to effectively cope with uncertainties and generate trust to obtain the Social License to Operate (LTO). Operational risk management, resilience, antifragility and the Risk Governance Framework, with a focus on effective communication, are key to generate long-term confidence, a requirement for situations characterized by uncertainty, complexity, or ambiguity. The authors update the general matrix for risk management strategy considering the uncertainty category, with the inclusion of antifragility, as a management strategy in pursuing opportunities. An analysis of key uncertainties, taking into account social factors and mitigation plans to control such uncertainties and satisfy stakeholder perceptions is presented. This holistic risk assessment approach incorporates results from interviews and observations of top industry performers in Latin America to identify best practices successfully implemented by those companies to counter ambiguity. To facilitate its implementation, the authors propose a comprehensive five-step risk management process. We conclude that E&P companies can effectively mitigate operational, HSSE and social risks by incorporating strict regulation compliance, leading edge technologies, best practices in operations, engagement with stakeholders, effective communication and direct community investment. Moreover, together with an antifragility approach, that incorporates optionality, hormesis, nuanced risk-taking and redundancy, it is possible for companies to capture the underlying opportunities within uncertainty and position them to adapt and grow. By applying these novel approaches for risk management, we hope to increase visibility regarding the convenience of hydraulic fracturing and provide firms with more reliable risk management practices to facilitate the obtainment of the LTO.