Getting risk management right

Thursday, March 27, 2014

Getting offshore risk management wrong can prove disastrous, but how easy is it to get it right? 

Insurance professional Robert Armstrong is hoping to demystify some of the issues in a talk organised by Aberdeen’s SPE Young Professionals on 2 April. 

Armstrong has spent a career understanding contractual risk management, most recently as former global insurance director for Subsea 7. He is now an advisor to Siem Industries and several other oil and gas contractors. 

He says the biggest challenge for Risk Management professionals is integrating Risk Management into business’ management systems and processes.

He says: “Throughout all stages of contract negotiations, not only oil and gas contracts, there are risk exposures that demand attention, and management, if companies are to avoid unforeseen consequences that could destroy any return on investment or, even worse, have the potential to put them out of business. Risk allocations, as set out in the indemnity and insurance clauses, within the terms and conditions of any proposed contract, are critically important and need to be reviewed with great care.

“When a contract risk has materialized, and if a loss has occurred, it is too late to attempt to change the risk allocation between the parties. Contracts may be drafted by lawyers, but good contractual risk management is not just for our legal colleagues. Contracts “per se” will always have a legal dimension, but risk management is not solely about legal risks.

“The foundation of good contractual risk management is the merger of technical, financial, territorial, implementation knowledge, and skills, as well as legal, through cross-professional collaboration. A contract can support this collaboration, but the contract alone cannot build it.

“The risk exposures can be endless. Not just the traditional physical loss or damage and potential third party liabilities, but also asset availability, political risks, security, climate change, and environmental issues.

“The most significant challenge faced by Risk Management professionals today is considered to be establishing Risk Management as an integrated component of the management systems and business processes of their companies.

“And if you get it wrong? Just look at the claims costs arising from the Deepwater Horizon, or Macondo, rig explosion in the Gulf of Mexico in 2010. The latest figures seem to be US$42 billion for fines, pollution clean-up costs, and third party damages, plus $16 billion for breaches of the Clean Water Act... and these claims keep coming.

“No one is saying that better contractual risk management, alone, would have avoided these costs, but somewhere along the way it may have helped.”

Armstrong will start his talk by introducing the world of insurance with reference cases from the claims made for the Titanic (1912), Costa Concordia (2012 and the Deepwater Horizon oil rig accident (2010).

The presentation is based on Armstrong’s own experience in managing the different phases of project risk, from risk assessment and mitigation at project concept followed by project execution and post project execution risk management using such tools as the alignment with company and industry contracting and bidding principles, specific cases of “FAIR” project risk allocation between the project stakeholders, the legal framework, and the availability of insurance solutions for contracting deviations when these arise.

This presentation will help the audience understand how the contractual risk management function integrates with the inter-disciplinary risk management approach of any company, and how it combines with enterprise risk management, strategic risk management and insurance procurement.

Robert’s talk will be on Wednesday, 2 April, from 6.30pm, at the Station Hotel, Aberdeen. To attend, email: george.grangeon@reefsubsea.com or ross.taylor@maerskoil.com or go to: http://www.spe-uk.org/aberdeen/events/

Biography:

Robert Armstrong was the global insurance director of Subsea 7 for five years, up to the end of 2013. He continues to provide consultancy services to a number of oil and gas contractors and Siem Industries, as well as several brokers and underwriters in the London insurance market. During his time with Subsea 7, he was an active member of the Contracts and Insurance committee of IMCA.

He provides advisory services to several key underwriting syndicates and brokers. With more than 35 years of international experience, across Europe, Asia, China, the Middle East, and the Americas, he has acted on behalf of clients, lenders, operators and contractors on many global oil and gas, energy and infrastructure development projects. He is also a founder director of the South Africa – Thai Chamber of Commerce, and maintains a network of contacts in many economic sectors and regions of the world.

Categories: Insurance Europe North America Gulf of Mexico

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