Risky business

Jennifer Pallanich
Tuesday, October 26, 2010

In a ‘brutally costcompetitive environment,' KBR has been looking at multiple ways to provide its services at an increasingly lower cost, said KBR chairman, president and CEO William P ‘Bill' Lutt during the 2010 Rice Global E&C Forum.

Lutt told the Houston gathering on 14 September: ‘We are a recovering bad projects company. We set out every day saying we're not going to do it again. I'm not saying that we had systematic failure across the organization, but we didn't spend a lot of time thinking about commercial risks.'

Now, he added, that has changed and KBR is working to be ‘best in class' for risk awareness as part of its ‘project acquisition process'. The six steps, he said, involve identifying, measuring, pricing, and managing the risks, reporting on the steps, and learning from the process.

‘I don't mind paying tuition once, but I don't want to pay tuition twice on risks,' Lutt said.

Identified risks may fall into one of several categories, including technical, financial, political and commercial, among others. Once KBR has identified risks, Lutt said, the company works to measure them. ‘There are some risks we won't take. Others, we can do one of three things: we can manage the risks, we can price the risks, we can mitigate the risks.'

Other strategies at KBR include breaking up from two business units into 13 and becoming more regional in approach with locals heading up operations around the world ‘instead of parachuting in expats, which has been the way of doing business for 25 years', Lutt said.

Michael Economides, chemical and biomolecular engineering professor at University of Houston and author or multiple books including The Color of Oil, said he expects the price of oil, now hovering in the upper $70s/ bbl, to continue to increase. ‘I think the price of oil is going to go back to $100 before too long, for the same reasons it went up to $150,' he said.

Spiking demand and dropping production will play their parts in that. China's demand for energy, which has grown by 20% per year for three years, last month outpaced US demand, Economides explained. ‘China has a problem. Energy is going to be its choke point. It has no indigenous energy source, and its demand has gone crazy.' Iraq's production levels are likely to decrease, he said. ‘It's very difficult to produce oil when people are shooting at you.'

Economides also lambasted Venezuela as ‘a basket case', and he observed that Russia has such systemic corruption that a recent report on corruption ranked the country somewhere between Indonesia and Nigeria.

He saw shale gas as a bright spot on the horizon, even though it's necessary to ‘frac the hell out of it'. The fraccing industry, a $13 billion/year industry, sees the second largest portion of the oil & gas spending pie, behind only drilling, he said. OE

Categories: Energy Oil Production

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