Marsh survey: NOCs face riskier world but are not well-prepared

London, 1 August 2008

A report published today by Marsh, the world’s leading insurance broker and risk adviser, has identified limited oil and gas resources; the recruitment and retention of a qualified workforce; and, energy price volatility as the most critical risk issues currently facing the world’s national oil companies (NOCs). The report also identifies a gap between the importance of these risks and how well they are managed.

The findings are detailed in the Marsh Oil and Gas Risk Report: 2008, which contains the results of a survey of NOCs conducted at the Marsh National Oil Companies’ conference in Dubai earlier this year. Over 400 delegates were asked to rate the relevance of risks identified by the World Economic Forum and how effectively they felt they were managed by their firms.

Participants ranked the top five risks, in order, as:

• Availability of oil and gas resources
• Recruitment and retention of a qualified workforce
• Energy price volatility
• Environmental impact of operations
• Political/regulatory risk issues

The survey found that the overall level of risk facing the industry had increased from 2007. Marsh’s NOC Risk Index score rose from 4.49 out of a possible 6 in 2007 to 4.51 in 2008. By contrast, the Risk Management Effectiveness Index score was put at 3.8. On the topics, availability of oil and gas resources as a risk issue was rated at 5.3 out of a possible 6. It was also the top-ranked risk in 2007 but with a rating of 4.9.

Andrew George, Marsh’s Energy Practice Leader for Europe, the Middle East and Africa, said: “It is no surprise that our survey has found that National Oil Companies are facing a riskier business environment. However, of more concern is the gap between the importance of the risk and how well it is managed. As the custodians of 90% of the world’s oil reserves, it is vital that these companies develop strategies that deal effectively with most important risks facing their business.

"While the relationship between the importance of the risks and management’s effectiveness in tackling them has remained relatively stable between 2007 and 2008, this gap is increasing in some instances, most notably among those risks identified as the most critical."

As well as the NOC survey results, the report includes articles from the following leading industry commentators:

• Dr Erol Hakanoglu, Lehman Brothers – ‘Enterprise Risk Management’
• Matthew R. Simmons, Simmons & Company International – ‘National oil companies and declining production risk’
• Dr. Mohammed Benayoune, The Achievement Centre, Middle East – ‘The Middle East’s talent management issue and what to do about it’
• Adrian Slywotzky and Bob Orr, Oliver Wyman – ‘How vulnerable is the value in energy industry business models?’
• Eddie McLaughlin, Michelle Jakes and James Maxwell, Marsh – ‘Key risks for national oil companies’
• Jonathan Groves, Marsh – ‘National oil companies and captive insurance companies’
  

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