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Most of today’s leading oil and gas companies can attribute much of their success to properly insulating themselves from business interruption risk. These companies strive to convert effective risk management into business opportunities and this ability helps them to gain a competitive edge. The price for not properly assessing risk oftentimes is unanticipated operational downtime. The cost of downtime ranges in the millions of dollars per hour. These costs are driven by direct and indirect expenditures, such as lost opportunity and production. Additional expenses accrue when factors such as safety and company reputation are considered.
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A core element behind the execution of successful risk management is the development of a comprehensive business continuity plan. Given the numerous operational risks that oil and gas companies face, an important first step toward formulating a business continuity plan is proper risk assessment. Listed below are some key assessments that will help in providing initial data around which to build a business continuity plan:
- Hazards assessment – This process defines hazard-prone areas within the vicinity of upstream, midstream or downstream operations. These hazards can include wild fires, mudslides, tornadoes, hurricanes, railroads, gas lines, floods, etc. The hazard assessment estimates the probability and severity of the hazard risks and evaluates existing mitigation efforts. The hazard assessment should address the location and boundaries of the hazard, the potential magnitude of an event, and the likelihood of each event.
- Vulnerability assessment – This assessment estimates the disaster potential in terms of susceptibility to damage. A thorough vulnerability assessment should evaluate such crucial issues as the number of people at risk, the value of property, the number and function of the exposed critical systems, and the dangers of secondary hazards.
- Power assessment – This determines the adequacy of back-up power systems, surge suppression, primary power source reliability, power routing diversity, connector systems and other energy reliability factors. This assessment is critical because a lack of power can neutralize control and mitigation systems, increasing the likelihood of cascading failures and a catastrophic outcome.
- Risk assessment – In this assessment the likelihood of a hazard event is combined with the probable degree of damage that would result. It should also account for secondary damage such as the ripple effects of a pipeline break, for example, on commodity delivery schedules and on environmental impact. Another important secondary impact is that a loss of power can result in fires and explosions, substantially raising the overall risk profile.
- Disaster recovery assessment – This process examines the adequacy of back up plans and procedures, equipment replacement prioritization, vendor lists, emergency response planning, plan exercising, and additional procedures that will expedite recovery from a disaster event.
- Fire safety assessment – The most frequent cause of declared disasters is fire. Fire codes are designed to ensure that structures and occupants are safe and that occupants can be evacuated. However, a fire safety objective limited only to compliance to code is inappropriate. The various codes represent a minimum standard, and depending on risk and exposure additional measures should be considered.
- Security and alarm assessment – This assessment evaluates the adequacy of both security and equipment alarming, facility accessibility, security breach rates, alarm center routing, and alarm response procedure issues.
- Environment assessment – This assessment examines settled and airborne contamination, air filtration, environmental impact on equipment, occupant comfort level and overall facility cleanliness, as well as the outdoor air source and ventilation rate, and the vulnerability of support systems such as the HVAC (Heating, Ventilating and Air-Conditioning).
Assessment is only the first step in adopting a comprehensive business continuity plan. Other critical steps that involve technological, economic and political analysis also need to be integrated into the plan. Once the plan has been developed, it must be subjected to rigorous testing. The testing process itself should be carried out in an environment that realistically simulates authentic conditions. A test plan could, for instance, specify that primary power is gone and backup power is being used. Staff would then have to execute a recovery operation under varying circumstances to restore power in time to prevent further problems.
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