The pandemic put Risk Management in Oil & Gas to the test

Risk management has always been one of the most important aspects of management of energy infrastructure and oil and gas installations.

Companies and service and equipment providers manage a wide range of potential risks—from the health and safety of workers in harsh environments to the security of energy supply and smooth running of operations. Firms have process and equipment safety protocols to ensure asset integrity and quick and efficient response to potential failures in systems. In addition, the energy industry has to assess risks to financial performance and plans of capital expenditure stemming from the volatility in oil and gas prices.

In 2020, the robustness and readiness of the risk management procedures were put to the test by the black swan event, the COVID-19 pandemic, which upended company plans for spending and operations this year and forced firms to adapt to changing rotation schedules on offshore platforms to ensure maximum possible protection of workers from the coronavirus.

The companies adapted—they recalibrated investment plans, delayed drilling campaigns, and implemented additional safety protocols and procedures to protect personnel while ensuring the essential supply of energy in the form of oil, gas, or renewable energy.

Managing Price Risks

Energy firms across the world, including those operating in the UK North Sea, grappled with a plunge in oil demand and oil and gas prices.

“Lower prices will affect the revenues of all companies, further stretch balance sheets and impact investment rates,” the leading UK offshore industry body, OGUK said in its Business Outlook 2020 in the spring.

The impact was felt by supply chain companies almost immediately as the lower-than-anticipated levels of activity started to take effect. Many companies in the supply chain already had limited scope to absorb further cost reductions, OGUK said.

Exploration and production (E&P) companies reassessed their investment plans and re-phased projects and planned capital expenditure. Drilling activity was severely hit by the pandemic as many companies chose in the initial aftermath of the COVID-19 pandemic in the spring to defer activity, in order to minimise operational risk and uncertainty over the supply of critical equipment.

As a result, OGUK anticipated in the spring that there could be a 20–30% reduction in revenues across the supply chain along with similar levels of decline in earnings before interest, tax, depreciation and amortisation (EBITDA) margins.

Total expenditure in the UKCS is expected to drop by around 30% this year as companies reduced activity levels, OGUK said in its Autumn Snapshot of the Business Outlook 2020.

“It could take two to three years to restart much of the capital investments that have been lost. This is reflected in the low business sentiment expressed by OGUK members as companies look to 2021,” OGUK said.

Managing Health & Safety Risks

While the UK offshore industry was grappling with disrupted and/or delayed activity due to the pandemic, it also had to ensure the health and safety of workers.

As early as in March, OGUK teamed up with Step Change in Safety, the industry’s recognised safety organisation, to offer support to the tens of thousands of workers keeping the UK running with secure and affordable energy during the pandemic. The organisations created an online hub with guidance, videos, and FAQs to address concerns on the prevention and protection against coronavirus in around 150 manned installations across the UKCS as well as the onshore workforce.

“Working tirelessly with governments, regulators and our industry we have secured clear arrangements on the safe removal of suspected cases from offshore, on establishing our workforce as key workers so they can continue to send their children to school if they have to and to continue to travel to work and on temperature testing as standard at all heliports,” OGUK Chief Executive Deirdre Michie and Step Change in Safety Executive Director Steve Rae said in a joint statement in March.

When the UK went into lockdown in March, the number of workers on offshore oil and gas installations decreased by around 4,000, official figures from OGUK showed in early November. Average weekly personnel on board decreased from around 11,000 on the 8th of March to just over 7,000 a month later, with drilling and engineering construction segments hardest hit.

Since the lowest point in April, there has been some recovery in personnel on board (POB) numbers, but they remain below the pre-lockdown level. OGUK believes that the testing of all offshore workers for COVID-19, and not just those presenting with symptoms, will be key to enabling more workers to return, the industry body said in its Workforce Insight 2020 report.

“Our figures confirm the initial operational impact of the lockdown back in March this year, with the number of workers offshore decreasing considerably in the space of a month as companies reduced to minimum manning in a bid to control the spread,” report author, OGUK workforce engagement and skills manager Dr Alix Thom said, commenting on the report.

Still, OGUK warned that signs of significant job losses emerged and called for a North Sea Transition Deal as the recruitment and retention of diverse and talented people will be essential as industry works to support UK energy needs both now, and in a lower-carbon future.

Although offshore personnel numbers have increased in recent months, staffing levels have not yet reached those seen prior to the pandemic, OGUK said.

“Looking to 2021, 40% of E&P companies and half of supply chain companies have indicated that more than one-third of their 2021 plans are contingent on being able of increase offshore personnel levels,” it noted.

OGUK’s Health, Safety and Environment Report 2020 published in early November analysed industry performance in those metrics for 2019, while it also provided insights into the response to the pandemic.

The report showed encouraging signs of improvement across a broad range of HSE indicators in 2019. The number of total hydrocarbon releases increased last year, but the more serious RIDDOR-reportable releases decreased year-on-year, from 85 to 67, OGUK’s report showed. In aviation safety, last year saw a third consecutive year of accident-free flying in the UKCS, and for the second year running, the five-year fatal accident rate per 100,000 flying hours remained at zero.

In the COVID-19 response, OGUK’s Pandemic Steering Group (PSG) was formed and focused on ensuring the risk of offshore transmission of COVID-19 was minimised, that helicopter transport for personnel and suspected COVID-19 cases were maintained, existing health, safety and environmental risks were managed, and the movement of essential personnel and equipment was maintained, even during the strictest phase of lockdown.

Commenting on the report, OGUK’s health, safety and environment director Trevor Stapleton said:

“The COVID-19 pandemic has had a significant impact on oil and gas operations in the North Sea. However, this virus should not and will not distract industry from focusing on its key goal of maintaining safe operations while continuing to provide the energy society needs – however challenging that might be.”

Read the latest issue of the OGV Energy magazine HERE.