Risk management in Statoil Kuwait – Risk conference November 2012 1-
Corporate Risk Management (CRM) - two roles in Statoil •Staff function •Support process ”Risk Management” CEO Helge Lund
CFO Business area
Torgrim Reitan
Process areas HSE
RISK and INSURANCE
CRM
Risk Management
Petter Kapstad Information technology
Ethics and anti-corruption
Business area
Business area
Business area
Embedded in our values‌
Risk management in the Management system in Statoil 1
2 WHAT to do FR08 Process areas
3
HOW to do it Risk Management process - WR2404
Statoil’s value chain Upstream
Downstream
Market
Crude oil Crude oil
The risks that matter
Refining
Market risks NGL
Natural gas
Fuel oil Gas oil Jet kero Gasoline Naphtha LPG
Methanol
Methanol Dry gas Currency and interests
Accidents Catastrophes HSE risks
Operational risks
Project risk Production risk Reservoir risk Country risks Tax risks Reputational impact ‌
Annual Risk Assessment vs Risk in Business Review
Light update if significant changes
Annual Risk Assessment - ARA QA Asset & Function based entities
Risk Management on Corporate level Consolidate to Statoil level
CEC & Board
Jan
Feb Business Review
Risk Management on BA level
Mar
Apr Business Review
May
Jun
CEC & Board update?
Jul
Aug
Sep
Oct Business Review
Nov
Dec
Risk and uncertainty in Statoil • Risk is a deviation from a specified reference value and the associated uncertainties (the magnitude of the deviation is unknown)
Typical a Base case or a Most Likely case
• Risk is measured in: • Impact • •
(in mUSD or in accordance to a predefined impact scale) Probability (understood as a knowledge-based probability) and Uncertainty factors
• Risk factors are causes or sources that
The uncertainty factor is judged as high if: • The assumptions made represent strong simplifications • Data are not available, or are unreliable • There is lack of agreement/consensus among experts • The phenomena involved are not well understood
influence the risk.
Risk = probability
• “We live by taking risk”
Risk = What is threatening the goal ?
Corporate Risk Management – main products • • • •
Corporate perspective Secretary function to the Corporate Risk Committee Process owner role of Risk Management Risk reporting
Risk adjusting actions Total risk
Detailed analyses Equity production Probab ility
3, 3, 2, 50 2, 00 50 1, 00 1, 0, 50 0,1,6 00 1,7 505 00Expected 5
Risk communication
RISK MAP FOR XXX
Mill. USD
17.Feb.2011
Value Acc
Mat
Prod
1,8 5 External Guiding
1,9 5
2,0 5 Forec ast
2,1 5 Targ et
Oil
Gas
Trading Risk - VaR
Pro
Total risk Country Risk Fixed assets distribution 2012 Other Europe Other 6% 1%
USA 4%
BCM
C anada 8%
50%
75%
—— 1 —— 2 —— 3 —— 4 —— 5 ——
Pro Mat Spill HMS1 GT
Prod Acc
Oil Gas
6 ——
+
p50
m
p85
Azerbaijan 3%
Norway 61 %
Russia 4%
Debt optimization
Algeria 2% Angola 5% Unspec. INT 5%
Venezuela Nigeria 0% 1%
low risk medium risk high risk
Activity
Probability
1% 5% 10%15% 25%
Impact Category
Impact (incl. reputation effect)
Corporate hedge planning
Catastrophic scenarios
E m e r g e n c y r e s p o n s e
Business recovery Time
Cash flow, Net Profit etc. Corporate Insurance risk policy and strategy
7 —— 8
Squares: Significant Reputational Risk
Tax asymmetry Strategic Risk Risk figure in mUSD
Risk specifications; countries in Africa
200
150
100
Coun. Market
Coun. Market
50
Impl.
-50
-100
Coun. Market Impl.
Coun. Market Impl.
Impl.
Impl.
Impl.
Market
Market
Market
0
Impl.
Coun. Market Impl. Impl. Market Coun.
Market
HSE
Coun. HSE
-150 Coun. -200
Impl.
Coun.
Coun.
HSE HSE
HSE
-250
-300 Country 1
Country 2
Country 3
Country 4
Country 5
Corporate Risk Committee • Purpose − Assess and discuss measures to manage the overall risk profile for Statoil
CRC advisory role
Information to CRC / education
• Responsibility − CFO: oversee and develop Statoil’s Enterprise Risk Management (ERM) and propose appropriate risk adjusting measures at corporate level − CRC: advisory body in ERM mainly to the CFO, but also to the BA management on specific issues
Subject Minutes last CRC meeting Production risk 2009 - update Statoil - core risk, oil prices and hedging Correlation analyses Germany Strategy - Developing of a second balancing and trading market AOB Subject
• Authority − The CFO is the head of the CRC •
9-
Participants from the Business Areas and corporate staffs (including corporate HSE)
Minutes last CRC meeting Risk management process Production risk update Peregrino - call option Country risk: Russia AOB
Why Enterprise Risk Management ? BU A
• Know what to manage
BU A
BU B
BU B
+ 10 mUSD
− Portfolio perspective
BU A decides to hedge their currency position
- 10 mUSD
− Avoiding suboptimization − Utilizing correlations
BU A
- 10 mUSD
+ 10 mUSD
Net risk = 0
BU B
- 10 mUSD
Net risk = -10 Expenses: 180.000 NOK (10 mUSD * 6,00 * 30 points)
Individual Risk versus portfolio risk 0,7
- 1 bn NOK Brent
0,6
Risk (standard deviation)
0,5
+ 1 bn NOK Gas oil
Correlation (Brent and gas oil): 0,94
Gas oil 0,4
0,3
0,2
0,1
Brent Total
-
Net risk = ?
10 -
Individual risks
Doing nothing
Double hedge
SERIMA model; Time series analysis • Historical prices (commodities, interest rates, FX rates) • Variables (user created based on the historical prices; weighting, floor, cap, roll, lag, avg, etc.) • “Control levers” (frequency, period, average/skipping method, decay, etc.)
SERIMA model; Time series analysis ctd. • Correlations between prices and variables for chosen periods • Can show correlation both on returns (changes) and level
SERIMA model; Time series analysis ctd. • Different versions of histograms / distributions (for returns or levels)
Green line; normal distribution Red line; kernel distribuiton
Strategic Risk assessment • Risk perspectives: • Implementation • Market • Country • HSE • Pre take: • Market risk differences linked to oil versus natural gas volatility levels • Post take • The differences increase considearbly when including take filter
Graph will be shown in the presentation
Country risk – how do we do it? Model developed by Statoil and IHS Global Insight “Base case” (incl. country risk at current level)
― Country risk adjustment
Less corresponding country risk in base country
Templates with pre-defined events (scenarios)
Country risk events Country riskCountry events NPV effects risk events of country risk events
Mitigation Country risk excl. mitigation
Subjective probabilities* from IHS Global Insight (both downside and upside)
15 - Classification: Internal
2011-09-19Classification: Internal 2011-09-07
=
2011-09-07
X
= (Statoil specific standards or PSA-type of agreements)
Country risk incl. Mitigation (NPV effects)
Expected base case incl. E(NPV) of country risk outcomes
Business Continuity Management (BCM) Risk based and top-down implementation
Seamless transition from emergency response.
Major disruption
• Better prepared No BCM
• Reduced potential loss of income • Optimised insurance
Potential BCM added value
16 -
Risk Management principles in Statoil Statoil Book: •
Our approach •
Identify, evaluate, and manage risk related to the value chain to support achievement of our corporate objectives
•
Manage risk to make sure that the operations are safe and in compliance with the requirements
•
An enterprise-wide risk management approach (ERM)
From Functional Requirements:
•
General requirements:
•
Ensure that main risks are managed in accordance with ERM approach, i.e.
• • • •
managing total risk from a group perspective, utilizing correlation and reducing possible sub-optimal decisions
Risks shall be identified and analysed, including both upside and downside impact.
Value chain approach
Project Operation
Market
Country specific
HSE
Integrity
Market
Maturing
→ Acreage grab and new resources from BD or Exploration → Maturing of resources, business cases and technology → Development and execution of projects → Production and refining of products → Sales of products, trading and financing
Country specific
Operation
Access
Integrity
Project
•
HSE
Maturing
Enterprise risk management is about managing all Statoil’s risks related to its activities in the value chain In order to ensure that a complete set of risks are identified, the risks are sorted in 8 risk themes covering all activities in the whole value chain
Access
•
Main focus on value creation
→ Changes in legal/ regulatory terms, tax related disputes and litigations etc.
→ Injury to people and/or Harm to environment → Corruption and fraud, breach of competition law, errors in financial reporting and loss of sensitive information
Main focus to avoid incidents
Group perspective • Risk roles – Risk owner (the entity that gets the impact (economic or pre-defined scale) – Risk manager (the entity managing the risk for its own organisation or on behalf of another)
• Type of organisation – Asset based entities (ABE)
Assets based
Process owners
DPI
DPNA
DPN
MPR
Operation and maintenance Drilling and well Exploration
Human resources Information technology
Complete risk management shall be performed Service units (TPD, GBS etc),
– Function based entities (FBE)
Corporate Staffs
Support the ABE with relevant risk information
• The risk assessment shall reflect the asset owner perspective
GSB
Corporate Risk Map format Standard format at BA level and up
• Upside and downside (relative to a Reference value)
• The probability axis of risk map is a continuous scale
• The impact scale is either • a continuous value scale or • a pre-defined plot category according to the following risk themes:
Reference value
-1 2 -
– HSE (published) Downside impact only
3 -
– Corruption/ Fraud (published)
4 -
– Competition Law (published)
5 6
– Reputational impact (tbd)
7 8
Monetary value
Impact category
Enterprise management Balanced scorecard versus risk management Principal objective: Max value creation
Ambition level with regard to performance
Assessment of goal achievement ∑ Cash flow
KPIs in MIS “Development towards a next level”
Goal induced actions
∑ Cash flow Risk assessment of risks related in the value chain
Risk assessment of strategic risks comparing current risk with future
∑ Cash flow
Coun.
Market
Coun. Market Impl.
Impl.
Coun.
Coun. Market Impl.
Coun. Market Impl.
Impl.
Impl.
Market Coun.
Classification: Internal
2011-12-05
2020
US ( O il - D e e pwa t e r C ha lle nging)
Coun. HSE
HSE
HSE
2013
Market Coun. HSE
Market
HSE
Coun.
2012
Impl.
Impl.
Impl.
Market
Market Market
Coun. Market
Impl.
Impl. Impl.
Coun.
N o rwa y ( O il - S ha llo w Wa t e r)
Risk induced actions
Coun. Market
Market
Impl.
Impl. Market Coun. HSE
Coun. HSE
US ( S ha le G a s )
A ngo la ( O il H e a v y D e e pwa t e r)
A ze rba ija n ( G a s - S ha llo w Wa t e r - C ha lle nging)
B ra zil ( O il H e a v y - S ha llo w Wa t e r)
N o rwa y ( O il - S ha llo w Wa t e r - H a rs h)
Time
EWRM in Statoil – summing up We have an enterprise-wide risk management approach which means that: • we evaluate significant risk exposure related to major commitments • we have a risk & reward focus at all levels in the organisation • we manage and coordinate risk at corporate level