Running Head: North Sea Oil and Gas
Every business or industry is prone to various risks which include floods, earthquake, terrorists which the industry should put mechanisms in place to avoid such. Effective contingency planning has been of importance to most industries that embrace the idea. North Sea oil and Gas has for a long time been prone to the problem of changing weather conditions which is especially experienced in the sea. The companies that exploit the North Sea oil and gas have put a lot of emphasis on risk management and most of the companies have set up risk management departments (Leslie and Michaels, 1997).
Numerous deaths had occurred during the exploitation of North Sea oil and gas in the 1970s and 1980s and this called for effective contingency planning to reduce the losses incurred by loosing workforce and by spillage of oil and gas due to buckles. The companies that exploit the gas and oil have invested in the contingency planning as a way of way of managing the risks (Leslie and Michaels, 1997).
North Sea oil and gas has been a source of wealth to the countries that exploit the resource. North Sea oil has been used to refer to the oil and natural gas exists beneath the North Sea. The countries that exploit the North Sea oil and gas include Netherlands, Norway, Germany, United Kingdom and Denmark. Most countries and especially companies that have been given license to exploit the resource have taken proactive measures of risk. Mining beneath the sea has led to many deaths of the people involved and this has called for heavy investment in risk management projects undertaken by the companies.
The pipes that transfer the oil and natural gas from underground reservoirs to processing plants which are mainly located some distance from the sea must be strong to withstand the waves in the sea. Depending on weather changes, waves differ in their height and this call for contingency planning otherwise heavy losses are incurred by the particular company (Leslie and Michaels, 1997).
In the 1970s, the North Sea oil a gas companies took proactive measures to avoid heavy losses that resulted when waves exceeded the height of 3 meters. The operators laid many pipes which assumed the shape of S to maintain smoothness between the large barge and the ocean floor. The operators used bow anchors to further buckles by raising and resetting the pipes at the barges. The operators had to be keen because improper lowering of pipes would result into a pipe buckle which presented a serious threat in laying the pipes.
The excessive height of waves which exceeded the anticipated height resulted in further risk of pipe buckles due to uncontrolled lowering of pipes. The companies therefore had to purchase a large number of steel pipes to avoid delays incase of any pipe buckle and this methods was not cost effective as the company would have desired. Any proactive measure that is taken to manage risk should be cost effective, utility effective and must therefore be maximizing benefits for the company while minimizing cost (Leslie and Michaels, 1997).
An effective contingency planning in managing risks in project requires good planning and coordination of all the stakeholders in the project to ensure maximum desirable result. Risk management involves taking measures in dealing with uncertainty. The North Sea and oil contingency planning that was adopted in 19790s involves dealing with uncertainty because in favorable weather conditions, there is less cost involved in dealing with risks since pipe buckles will be few and hence very few new pipes will be required to be laid. However, since it’s hard to predict the height of the waves in the sea which can cause heavy losses if unchecked, the companies that explore the oil and gas in the areas must take precautionary measures (Leslie and Michaels, 1997).
Exploration of North Sea oil any natural gas involves making wealth for the companies that are undertaking the projects. The importance of contingency planning in the exploration project is very essential in risk management because it’s used to assess the possibility of bad weather condition which is a threat to the project. The assessment is consequently used to reduce the possibility of underperformance that may be realized when no measures are undertaken to reduce or avoid the pipe buckles. The cost of replacing buckled pipes reduces the profit margin that is realized in the project and therefore effective contingency planning help to manage the risk.
Effective contingency planning helps to capture the benefits of fair weather. Uncertainty about weather conditions is a threat that faces the North Sea offshore pipe laying. If effective contingency planning is observed, long periods of bad weather can be sustained because the project major should be able to recognize and deal with the bad condition threat which is inevitable. The project managers should ensure there is plenty supply of pipes during bad weather condition to avoid delays in replacing the buckle pipes.
The project managers should observe good contingency planning by ensuring that the oil and gas pipeline are complete before the bad weather sets in and this will assist in reducing the costs associated with contingency planning. Laying pipelines in time helps in avoiding major delays in the project which may result in heavy monetary losses.
Contingency planning for reducing possible threats that are associated with North Sea and oil exploration could be a possible way of increasing income to the companies that are undertaking the project. American project management institute (PMI) argue that there is a possible opportunity associated with the risks that threaten the project in winter, bad weather conditions has been known to lead to gas shortage in most cities which due to law of demand, the prices increase.
This could be an opportunity for those companies that are concerned with the project. Effective contingency planning in managing risk North Sea oil and gas has created an opportunity to the companies undertaking the project. This is attributed to the precautions taken by the companies in anticipation of bad weather threat. The project involves paying for delivery before the contract begins. Most companies that want to protect themselves from the deficient supply of the resources therefore buy the resources before the contract begins. The high demand has contributed to higher revenue derived from the project and this consequently results to higher profitability (Leslie and Michaels, 1997).
Contingency planning which is mainly associated with managing risks should not only focus on the threats that hamper the success of the project but should also view threats as an opportunity to achieve the objectives of the project. Achievement of objectives means the project has succeeded. Therefore effective contingency planning in addressing risks should recognize the close relationship of threats and opportunities. The actions taken by the project manager in reducing the risks should seek to create an opportunity for excellence (Leslie and Michaels, 1997).
Effective contingency planning should not focus on managing threats. Instead the project should seek to identify the different sources of risks and consequently how to manage the risks. Focus on risks draw emphasis on the anticipated failure. Therefore, assessing the various sources of uncertainty and how those uncertainties can be a threat to the project and consequently how to manage the uncertainties involves application of effective contingency planning.
North Sea oil and gas exploration is associated with many uncertainties which present various threats to the project. Focus on the opportunities created by the uncertainties management can lead to profitability and success of the project. The project manager should identify the origins of uncertainties instead of managing risk first and this will assist in addressing the root of the problem. Most projects have failed to meet the set objectives due to their failure to address the root of the problems. Superficial problem solving has led undesirable results. Therefore identification of the source of uncertainties should be considered as the beginning of the risk management process in effective contingency planning (Leslie and Michaels, 1997).
Uncertainty is present in every project and in all stages of the project life cycle (PLC). The uncertainty is contributed by various reasons which are inevitable. All projects success is based on various assumptions which are the main sources of uncertainties. Differences in the performance of project concerning cost, quality and duration that is required to complete the project bring a lot of uncertainties. In laying pipes in the ocean in a way that will avoid pipe buckles involved a lot of uncertainties. This is attributed to the changing weather conditions.
Its hard to forecast the height of the waves in the ocean in a particular season and this present source of uncertainties since its hard to know with certainty the cost of dealing with the threat since its hard to tell the amount of pipes to be knocked down and therefore requiring replacement (Leslie and Michaels, 1997).
Proactive risk management in the North Sea oil and gas project should be entrenched in both base plans and contingency plans. It’s argued that if a project focuses very much on being cost effective it’s bound to fail on risk management in some occasions. However, crisis management should only be used as principal management in some occasions. However, crisis management should only be used as principal management mode if the risk management fails completely (Leslie and Michaels, 1997).
Leslie, Keith, J. and Michaels, Max, P. “The Real Power of Real Options”. The McKinsey Quarterly 3 (1997):134-225.