The Development of Risk Management

The Development of Risk Management in the GCC Oil and Gas Sector

Dr. Faisal Al-Thani
November 9, 2008

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Contents Why Risk Management is important National Oil Company case study N ti l C t d The Risk Management model Conclusion C l i

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Characteristics of Oil and gas Industry
Oil and gas industry is prone to uncertainty
– – – – – –

Oil reserve uncertainty Exploration uncertainty Crude price uncertainty Product price uncertainty Demand uncertainty Supply uncertainty

Oil and gas industry is a complex industry affected by
– Global risks (political, legal, commercial and environmental) – Element risks (construction, operation, financing and revenue generation) – Both risks categories affects upstream and downstream phases

Crude oil characteristics significantly affect oil field margin and refining margin
– – – – –

API gravity Sulfur content Location of production Transportation Recovery cost

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Typical Risks in the Oil and Gas Industry
Upstream Exploration and Recovery
► ► ► ► ► ► ► Exploration Risk Design Risk Facility Risk Technology Risk Recovery Risk Environmental Risk Transportation Risk ► ► ► ► ► ► ► ► ►

Refinery & Marketing
Planning Design Risk Construction Risk Commissioning Risk Regulatory Risk Permits and License Risk Availability of Materials Financing Risks (instruments) Delay Risk Decommissioning Risk

Products Offtake

National Oil Company
(Refinery)

Crude Oil Supply: Type/Time/Quality
► ► ► ► ► Delay Risk Price Risk Quality Risk Quantity Risk Transportation Risk

► ► ► ► ►

Gasoline Diesel Heating Oil Propane Other

Operations & Maintenance
► ► ► ► Supply of materials Labour issues Environmental Risk Interruption to Refining Process Risk ► Resource Risk ► Liquidity Risk ► D bt S i Ri k Debt Service Risk

Price and Demand of Derivatives
► Demand Risk ► Marketing Risk ► Commercial Risk

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GCC National Oil Companies Main Risks Terrorism and criminal activities Availability of oil and gas