Protecting Oil and Gas Companies against Calamities --Willis Energy Chairman Speaks on the Crucial Role of Hazard Risk Management--
London, UK, April 16, 2008 – War in the Middle East, storms in the Gulf of Mexico, oil refinery explosions, gunboat terrorism and kidnapping in Africa – how can oil and gas companies plan for and mitigate against events that can threaten lives, ruin reputations and shake a company’s foundations? Speaking at the recent World National Oil Companies Congress in London, Phillip Ellis, Chairman of Willis Energy, a division of Willis Group Holdings (NYSE: WSH), presented hazard risk management as a guard against shocks that can destroy companies.
Hazard risks – low frequency, high impact events – not only send shockwaves through companies, but they also shape the oil and gas industry. As an example, Mr. Ellis illustrated how hazard risks such as the Iran-Iraq war and Hurricane Katrina have played a major role in determining oil prices throughout the last three decades.
“War, security concerns, storms and economic takeoff ushered in the last five years of unprecedented oil price behaviour,” said Mr. Ellis. “In this time, we have witnessed steady increases in prices in areas not seen before, and we have yet to see these prices slow the economy enough to reduce oil demand and drag prices back down again. No equilibrium has been reached, unlike the 1980s, 90s, or even the early part of this century.”
War and natural catastrophes aside, Mr. Ellis said that the more “normal” hazards in the industry are caused by mechanical failures, corrosion and poor design and workmanship – which have become more prevalent in a booming industry that is already stretched to maximum capacity. “The business interruption caused by these losses is often more damaging than the physical loss of the plant,” he said.
“Many national oil companies have plans to expand into new territories and to rapidly increase production. In order to do so will require a massive application of newer technologies. Coupled with the skilled labour shortage in the industry, this raises hazard risks dramatically,” said Mr. Ellis.
He explained that there are three ways a company can manage hazard risk – mitigation through improving skills and processes; transferring risks using insurance and/or financial markets; and retaining risks via a captive or your own financial resources.
Mr. Ellis concluded that, “Senior oil executives in national and investor-owned companies alike have put hazard risk assessment and management at the top of their agenda because they realise that unexpected events can ruin their companies. They realise that they cannot leave hazard risk management to middle management; and they no longer think of insurance, or business diversification or public relations as sufficient in themselves to yield the best outcome for their companies.”
Willis Group Holdings Limited is a leading global insurance broker, developing and delivering professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 300 offices in some 100 countries, with a global team of approximately 16,000 Associates serving clients in some 190 countries. Additional information on Willis may be found at www.willis.com.