Integrity & Regulatory Compliance Management: Challenges of the 21st Century Energy Industry PMI Houston Process Industry Focus Group: Energy Corridor

Integrity & Regulatory Compliance Management:

Challenges of the 21st Century Energy Industry

PMI Houston Process Industry Focus Group: Energy Corridor

Scott M. Shemwell, D.B.A.April 25, 2011

Copyright © 2011 Knowledge Ops, Inc. All Rights Reserved.

OvertureIn the Good Ole Days Today

Houston, We Have A Problem Societal

Legitimate Concerns Not Just Poor Perception or

Misunderstanding Not Just the USA

Political Both Sides of the Aisle State & Local

Engineering Process Systemic & Complex Extending Across Supply Chain

Risk ManagementNow Bet-Your-Company!

Apollo 13 DamagedService Module

Systemic Risk Management Systemic vs. Occupational Only

Systemic Man, Machine, Process, Environment

Interface Holistic - More than Fault Tree

Analysis Linkages are Weak Points

Include Supply Chain Linkages The Best Perspective

Occupational Simplistic Slogans and OSHA “like” reporting Good not Great (or acceptable

today) Systemic is ONLY Viable Approach

Real Time Systems Appropriate Human Training

Compliance Influencers Health, Safety,

Environmental (HSE)

Heightened Visibility

License to Operate

Changing Landscape

Regulations Other

influences The New Reality

HSECompliance

Interested Constituents Regulatory Authorities

Copyright © 2011 Knowledge Ops, Inc. All Rights Reserved.

Disclaimer: EXAMPLE ONLY

The constituents depicted on this graphic are not all inclusive , but are typical and only shown to address the complexity of this issue.

The company and/or its authors shall not be responsible or liable for the accuracy, usefulness or availability of any information herein, and shall not be responsible or liable for any decisions made based on such information.

President

Congress

US Federal Elected Officials

U.S. Department of the Interior; BOEMRE

U.S. Chemical Safety and Hazard Investigation Board

Federal Deepwater Drilling

Key State Agencies

Texas Railroad Commission

Louisiana Office of Conservation and the Office

of Mineral Resources

U S Coast Guard

U S Dept of Labor (OSHA)

U S EPA

Key Federal Agencies

Best Practices

Project Management

institute

DNV

WCID

Safety Case

Industry Groups

API

IADC

SPE

ISA

Local

Governments

Groups

Other Industry Segments

Population

Other

Media

Academic

Commissioned Panels

U S Deepwater Regulatory Compliance Landscape

Natural Resource Damage

Assessment (NRDA)

Federal

State

Local

Judiciary

Capital Markets

Insurance

Rating Agencies

Financial

Think Tank

US NTSB

Oil & Gas Deep Water Drilling Regulations Compliance

• Extensive new regulations, tracking, and reporting Extensive new regulations, tracking, and reporting requirementsrequirements

• Offshore drilling has changed foreverOffshore drilling has changed forever• How will energy companies respond to this wave of How will energy companies respond to this wave of

increased regulation, control, and oversight?increased regulation, control, and oversight?• How will energy companies quickly understand these How will energy companies quickly understand these

new regulations, model the risk, and communicate to the new regulations, model the risk, and communicate to the organization?organization?

• Liability of Macondo Accident over $35B

• Extensive new regulations, tracking, and reporting Extensive new regulations, tracking, and reporting requirementsrequirements

• Offshore drilling has changed foreverOffshore drilling has changed forever• How will energy companies respond to this wave of How will energy companies respond to this wave of

increased regulation, control, and oversight?increased regulation, control, and oversight?• How will energy companies quickly understand these How will energy companies quickly understand these

new regulations, model the risk, and communicate to the new regulations, model the risk, and communicate to the organization?organization?

• Liability of Macondo Accident over $35B

October, 14, 2010, BOEMRE’s “Increased Safety Measures for Energy Development on the Outer Continental Shelf” (75 FR 63346) released.

ComplianceAnalogous to Sarbanes-Oxley

License to operate requires…

Drilling Risk Assessment

Business & SOP’s

Gov’t Mandates, Regulations and Legislation

Contractual Obligations

Industry Practices

Tribal Knowledge

Embedded in Legacy Systems and Documents

Company Culture

Operating Procedures Task Force:Well Construction Interface Document (WCID)

Well construction interface / Basis of design

Location & environment Geologic and geophysical Well design Well barriers (with much detail) Casing design Well execution plan (with detail) Critical well Risk Assessments Operator’s MOC

Drilling contractor safety case and lease operator SMS interface

Management structure / RR’s / Acct Drilling Contractor MOC Personnel management Well control procedures Risk management processes Emergency response Monitoring, auditing and review

Risk Analysis & MitigationManagement of ChangePersonnel Competency

Well ConstructionInterfacing Document

DrillingContractor’s

SafetyManagement

System


SafetyCase

LeaseOperator’s

SafetyManagement

System

WellBasis

OfDesign

WellExecution

Plan

Critical WellActivity RiskAssessments

Risk Analysis & MitigationManagement of ChangePersonnel Competency

Well ConstructionInterfacing Document


SafetyManagement

System


SafetyCase

LeaseOperator’s

SafetyManagement

System

WellBasis

OfDesign

WellExecution

Plan

Critical WellActivity RiskAssessments

Industry Industry Best Best

PracticesPractices

Corporate Governance; circa 2002Public companies fought Sarbanes Oxley

Now the Law of the LandAdditional Benefit of SOX

In 2002, McKinsey / Global Corporate Governance ForumOver 75% of 200+ fund managers would be willing to pay more for stock in

companies with strong governance.North America and Europe market value averaged 12-14% higher for firms with

strong shareholder rights By 2005 this gap had closed

Now the Same for

Drilling Compliance!

Return onCapital

Employed

OperationalExcellence

Growth fromExisting

Asset Base

Lack ofPricing Power

Return onCapital

Employed

OperationalExcellence

Growth fromExisting

Asset Base

Lack ofPricing Power

Transparency&

Internal Control

Liquidity&

Sustainability

Business Continuity&

SecurityCost

Management

ShareholderValue

Compliance

M&A

Transparency&

Internal Control

Liquidity&

Sustainability

Business Continuity&

SecurityCost

Management

ShareholderValue

Compliance

M&A

Energy Industry Compliance Matrix

Hydrocarbon Value Chain

Firm / FunctionDrilling Production Gathering Transportation Storage Refining Manufacturing

Operators 2011 2012 2011 2011 2013? 2011 2011Drilling ContractorsEngineering CompaniesService CompaniesManufacturersSuppliers

LegendCompliance Criticality

Most Critical Year

Least Critical Source: Knowledge Ops, Inc.

Probable License-to-Operate Regulatory Compliance Matrix

MidstreamE&P Downstream

Offshore (maritime operations) Onshore

Originally published by Shemwell, Scott M. (2011, January) The Blast Heard Around the World. Petroleum Africa Magazine. pp. 32-35.

Final Thoughts Complex Energy

Infrastructure Critical for the Global Economy

Societal Intolerance License-to-Operate At

Risk Cost of Failures are

High & Real

Apollo 13Splashdown

About Knowledge Ops, Inc. Field Operation Processes &

Decision Support Field Based Information

Infrastructure Operations & Maintenance Logistics

Key Partners General Dynamics

GroundTruth—Operations Management Solution

40,000 Users Oracle

Oracle Policy Automation Panasonic

Toughbook TASC

$1.6 Billion Northrop Grumman Spinout

Maritime Logistics Management

Principals have extensive experience in upstream field operations

Acknowledged expertise Published Senior executives with major

industry players Vetted Solutions

Industry Military

Knowledge About Operations Business Process Modeling (BPM) Information and Data Flow

Spinout Established professional services

firm Extensive tested and documented

methodology

Solutions Available NOW! No Testing on Your Part Required – Low RISK

For More Information

Knowledge Ops, Inc.512 Knipp RoadHouston, TX 77024Phone: +1.281.414.6958Email: [email protected]