Arthur D. Little on catastrophic risks in oil and gas industry

16 page whitepaper addresses exposure to ‘residual’ risk and long term balance sheet health.

A timely new report from consultants Arthur D. Little, ‘Improving management of potentially catastrophic risks in the oil and gas industry1’ notes that, ‘despite carefully planned and implemented risk management, residual risks can present significant damage to a company’s balance sheet. Recent events have turned attention to the assessment of Exposure to Risk (EtR), the maximum potential economic loss associated with a risk.

The 16 page report introduces ADL’s roadmap to an optimal EtR evaluation model with application to international and national oil companies and their contractors.

ADL’s thesis is that while companies have factored ‘initial risk’ into their strategies they need to improve management of ‘residual risks,’ i.e. the potentially catastrophic events.

EtR is claimed to be a new approach to evaluating such exposure with recommendations on balancing in-house and outside risk management expertise and tools. The technique also balances a company’s level of risk aversion and likelihood with the current value and profitability of each asset.

Alongside the need to adopt appropriate measures relating to an EtR portfolio, companies need to optimize risk retention and transfer strategies to assure long term stability of their balance sheets.

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