Oil and gas investment decision making—what’s at risk?
N. Chipman A and R. Gray APwC.
The APPEA Journal 52(2) 679-679 https://doi.org/10.1071/AJ11093
Published: 2012
Abstract
When considering oil and gas developments in Australia, it is worthwhile to consider what’s at risk. This extended abstract considers oil and gas investment decision-making from a first-principles basis, introducing case studies and learnings from past projects. Additionally, investment decisions can examined from the following perspectives:
Setting the mould—decisions crystallise risk; therefore, decision quality is paramount. How do investment decisions serve as expression of corporate risk appetite? What is observable at the time versus what may lay silent?
Too big to fail—can the organisation withstand the risk profile of its chosen investment slate? Is the owner or joint-venture structure sufficiently resilient to undertake the set of activities in question (e.g. deep-water drilling or LNG project developments)?
Management charge—leadership and management motivations may drive projects into risky territory; are the appropriate feedback mechanisms in place?
Dealing with complexity—project execution plans, layers and sub-contracting require formal and informal communication and governance to ensure successful delivery. Has complexity been dealt with? Or does structure mask hidden risk?
Addressing human factors—human interaction and project organisational structures may drive perverse outcomes. What allowance and process reviews and assures against human motivation and influence?
This extended abstract frames investment decision-making and project execution using practical examples, and shows how investment-decision quality is a primary driver of shareholder wealth creation. This has implications for the stage-gate capital processes, governance structures, and investment review practices presently in place in the industry.
Nick Chipman—partner, member of the Australian Board of Partners. Nick has more than 25 years of experience in business—about half of which has been in an advisory/consulting capacity. He has particular interests in the oil and gas, resources, and critical infrastructure sectors. His particular skills in corporate planning, strategy review, governance and risk management, and human factors/HRO principles combine well in the development and/or reform of organisations. His abilities as a leader, facilitator, and structured thinker serve both PwC and clients locally and globally. In his extended abstract for APPEA 2012, he shares insights from his recent involvement in complex capital projects and risk-management studies at Harvard Business School. |
Rob Gray—director, risk and capital management, PwC Perth. Rob has nearly 20 years of experience in risk and value, performance improvement, and financial management from PricewaterhouseCoopers’ oil and gas, resources, and utilities sectors. He is focused on clients who build large complex projects, where he provides specific advice about the risk and control profiles of these investments and their impacts on the organisations that sponsor them. Additionally, he has focused on how risk appetite and risk resilience measurably relate to different types of project investment-decisions across a portfolio of alternatives, differentiating among compliance, risk, and return oriented investments. He wrote ‘Turning capital project uncertainty into positive certainty by better defining manageable risk’, which was presented at APPEA 2011. |
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