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Implementing Risk Management within Middle Eastern Oil and Gas Companies

ALEXANDER LARSEN

Fellow, Institute of Risk Management (FIRM) and Honors Degree in Risk Management, Caledonian University, Glasgow, Scotland

This case study is based on real-life examples of Middle Eastern oil and gas companies where risk management has been put into place. The case study is a consolidation of the various approaches and captures the challenges of implementing risk management in the Middle East. For the purposes of this case study, the name MECO has been chosen to represent the numerous companies used to gather this data. Risk management has not yet been fully implemented in any of these companies, and they have had varying degrees of success. This case study is by no means intended to present a successful risk management implementation or best practices. Instead, it is meant to show the challenges in implementing and sustaining a successful program and the types of things that can lead to a breakdown of risk management.

COMPANY BACKGROUND

MECO is a national oil company established in 1940 when a Middle Eastern government granted a concession to a Western company in preference to a rival bid from a variety of Middle Eastern oil companies. It is among the world's most valuable companies, with an estimated value of $5 trillion to $10 trillion (U.S. dollars). MECO has some of the largest proven crude oil reserves, and is one of the largest daily oil producers across more than 100 oil and gas fields in the Middle East.

Currently, MECO has an exclusive right to explore in key countries across the Middle East, although there has recently been a huge interest in entry to the countries by large international oil companies (IOCs). This interest comes despite the political unrest across the region and the constant threat of wars. Additionally, while in the past there has been little threat of IOCs receiving rights to explore, recently there has been pressure on MECO to improve efficiency, as it lags significantly behind the IOCs.

Despite having exclusive rights, there is also the concern about diminishing reserves, and therefore a key focus for the organization is exploration and finding new oil fields. This, alongside its strategic decision to expand through new ventures, from partnering with international oil companies to acquiring foreign companies, means that the organization is in a major state of change.

Being a government-run organization, one of its key objectives is to provide energy to the populations of the countries in which it operates. This is provided at no profit. Recently, there has been a boom in population alongside an increase in car ownership and country expansion plans, which have pushed MECO's profits down. The more oil required to be delivered to the countries it operates in, the less oil there is to sell. This is another reason for the decision to expand and explore.

 
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