Global oil companies have inconsistent and insufficient risk strategies arising from their approach to governance and controls, according to a report released at Marsh's oil company's conference in Dubai.
According to the report, many NOCs fail to to recognise that risk management is a value creator, which can maximise a firm's commercial potential and help overcome the challenges associated with global hydrocarbon exploration and production.
The report by Marsh and McLennan subsidiary Oliver Wyman says NOCs face an increasingly volatile risk landscape, but by developing an incisive understanding of the risks they face, they can avoid catastrophic errors and capitalise on new opportunities to contribute to their governments' GDPs.
Mark Robson, partner, global risk & trading, commented: "While it is not unusual for successful companies to be challenged to manage risk when making critical decisions, for NOCs the stakes are even higher. Their actions can potentially change the futures of their countries. If NOCs wish to continue funding their governments' visionary strategies in this new environment, they must develop sound risk governance practices."
Wyman's report recommends that NOCs undertake a four-step programme to create a more dynamic financial planning process, underpinned by risk management: define risk appetite; prioritise risks; aggregate risks; and link risks to strategic decision-making.
Jim Pierce, chairman of Marsh's global energy practice, said: "NOCs have faced increasingly complex risks in recent years; and the pace and scale of events which introduce uncertainty into earnings is continuing to rise. Taking a more strategic approach to risk management is a vital step in the evolution of NOCs, if they are to maintain their competitiveness and contribute to their countries' continued economic success."
by Francesca Nyman, 06 Feb 2012
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