Oil And Gas Companies Commerce Essay

Oil and gas companies that aspire to be better environmental stewards invest in strong wellness, safety and environmental direction, known as HSE. From an environmental point of view, it involves making a systematic attack to following with environmental ordinances, pull offing waste or cut downing harmful, toxic emanations. Successful HSE plans besides include steps to turn to biotechnologies, air quality, and other facets of workplace safety that could impact the wellness and wellbeing of employees. Typically, direction of a company needs a convincing concern instance for investing in HSE. In this study, a measure by measure attack to composing a concern instance for a little to medium size oil and gas company is mentioned foremost. This is followed by the impacts of holding or non holding a strong HSE plan. A clear statement is made of the demand to see HSE as a critical factor to accomplish concern success.


Although Health, Safety and Environment is concerned with maintaining people and the environment safe in oil and gas activities, one would inquire why one group of people who are normally unwelcome ( particularly on a rig ) are the `HSE people` . Why is this so? Over the old ages, HSE has been regarded as a faltering block to working efficaciously to run into fiscal and runing marks and seen as a manner for a group of people to merely do a life. Most oil companies merely implement HSE plans because of regulative intents without gaining its nexus to accomplishing company aims.



Simply, the concern instance answers the inquiry, why is this investing worth it? The treatment below starts by showing Burke et Al ‘s ( 2011 ) seven measure attack to developing a concern instance for HSE in a little to medium sized oil and gas company and coatings off by giving the impacts and effects of holding this concern instance.



The development of a concern instance begins with placing current HSE policies in topographic point and their impact on the productiveness of the company. A hazard appraisal is carried out to find the possible wellness, safety and environment jeopardies which need to be addressed. Examples of these could be the absence of fire asphyxiators in the office, deficiency of exigency program in instance of a well runaway and killing processs for leaks. All possible HSE issues are flagged up at this phase. If an HSE policy already exists, how is it been implemented and what are its effects?


Every company has a vision to steer it in its operation. One of those ends is to run safely while maximizing net income. This phase of the procedure considers the concern ends of the company while binding in how investing in HSE helps accomplish that end. The HSE proposal should be linked straight with company policy. State a company states that it wants to protect its workers from soft hurts ; the concern instance should include how this aim can be met.


A Long list of options to advance the wellness and safety of workers and the saving of the environment is drawn up. From this long list, research is used to shorten the list to the most of import options to assist accomplish company concern ends identified in measure 2. A list could include investing in worker compensation, alteration in work load, execution of safety direction policies, investing in excess safety valves and preparation of staff in HSE issues.


This is where the audience and positions are defined. The clip frame for implementing the options or list determined in measure 3 is explained. The execution procedure and designs are accessed. This will include feasibleness surveies and some pre conceptual designs. For illustration, if it is required to increase compensation of workers, how is it really traveling to be done? How is the safety direction system/policy traveling to be drafted and implemented? Which people would be needed to do the system efficient?


The benefits of implementing the HSE proposals are qualitatively assessed. The cost involved is estimated alongside the benefits. What effects are the chosen plans traveling to hold when implemented? Are they in line with the “ money devising ” concern ends of an oil and gas company? These will give credibleness to the analysis carried out in measure 4.


Sensitivity analysis is carried out to find the reaction the programs are traveling to have when implemented. Fiscal prosodies are used to find the fiscal impact to the company by investing in the HSE proposals. Some of the fiscal prosodies used are productivity assessment tool, Net Present Value ( NPV ) , Return on Investment ( ROI ) , Payback clip, Cost Benefit Analysis and Internal Rate of Return ( IRR ) . In an case where equipment redesign is to be undertaken to cut down the hazard of hurt on a boring rig at a cost of ?200,000, a return on investing could be carried out as: The intercession is anticipated to be in topographic point for 5 old ages. It is expected to do a discounted nest eggs of ?100,000 in averted medical measures and productiveness loss. Over a period of the 5 old ages, the nest eggs is ? 500,000 which is in consequence a “ concealed net income ” of ?300,000. Based on the fiscal prosodies and sensitiveness analysis, the options are ranked and prioritised.


All factors which can impact the concern instance are considered and a concern instance templet is drawn up. The factors which will act upon its blessing like timing or budget restraints and all after ideas are keyed in at this phase. The concluding concern instance should be converting adequate to do direction of the company to follow and implement it.


The chief intent of the concern instance is to increase protection for workers and warrant the cost of HSE investings to direction. Management has to be convinced that investings non merely make a competitory advantage but adds to the fiscal value of the company. When the concern instance is successful in having the proposed investing and support in HSE, the oil and gas company benefits in the undermentioned ways


While there is a general position that safety is a good thing to pattern and have, it does non demo a return on investing for capital undertakings. Directors do non see the demand to present new HSE policy and pass money developing workers to assist implement them because it is seen as a pure fiscal load.

When the concern instance achieves its intent of having investing for HSE, hidden costs associated with lost clip incidents are avoided. The points that constitute the greatest proportion of “ concealed ” costs include: overtime, over-employment ( excess staffing ) , developing, supervising, employee turnover, waste and rework, lost production clip, reduced productiveness, guarantee costs, care, merchandise and works harm and equipment downtime ( due to injury/accidents ) . For illustration in the North Sea, a human death will take to platform closure. If a little company bring forthing 10,000 barrels of petroleum oil a twenty-four hours at an oil monetary value of $ 100 per barrel is shutdown for say five yearss, this will be a loss of one million dollars. The mean cost of an exigency chopper trip to the rig is $ 30,000 and this cost will be paid by a company in the event of an hurt.

PTTEP Australasia, a Thai based company, was fined $ 510,000 for pleading guilty to charges of transgressing the offshore Petroleum Act in 2009. ( Weber, 2010 ) . The monetary value of the destroyed West Atlas rig and the cost of boring a alleviation good with four sidings in 51 yearss could hold been avoided if proper HSE guidelines were in topographic point.

The U.S. Department of Labour ‘s Occupational Safety and Health Administration fined Pasadena Refinery $ 115,650 for exposing workers to multiple safety and wellness jeopardies. ( US Department of Labour, OSHA 2009 ) . On 30 September, 2010, fire broke out at the same refinery taking to a closure for a few yearss. Pasadena was polishing 100,000 barrels of petroleum a twenty-four hours taking to an incurred loss of more than $ 1 million from lost production entirely.

On the other manus, Tesoro Petroleum refinery in Manda was recognised by the US Department of Labour as a star site. ( US Department of Labour, OSHA 2011 ) . This was after investing in HSE policies following the April 02, 2010 detonation that led to the fatal hurt of seven employees at the company ‘s refinery site in Anacortes, Washington. ( US Chemical Safety Board, 2010 )

Harmonizing to the World Oil magazine publication on 15th November, 2012, BP is to pay a $ 4.5 billion mulct to the United States for a jurisprudence suit in the Macondo Blowout. Such a mulct will direct a little or average sized oil company like Dana Petroleum ( deserving 3 billion ) into debt.

Entire insured cost for the Piper Alpha incident in 1988 was ?1.7 billion ( Offshore group, 2008 ) .

The tabular array below gives some of the punishments paid by little and average sized companies in the United States for go againsting HSE ordinance:

Operator Name



$ 60,000 14/7/12


$ 480,000 2/5/12

Mariner Energy, Inc.

$ 55,000 23/4/12

140,000 11/7/12

Rooster Petroleum, LLC

$ 75,000 21/9/12

Black Elk Energy Offshore Operations, LLC

$ 307,500 11/9/12

Hilcorp Energy GOM, LLC

$ 40,000 25/7/12

Table 1: HSE misdemeanors and punishments paid ( Adapted from Bureau of Safety and Environmental Enforcement, 2012 )

In hindsight, the fiscal load of covering lackadaisically with HSE without fiscal investings and direction support leads to pecuniary losingss as evidenced above.


Regulation is the enforcement of Torahs. These ordinances among other things cut down the rights of a company, add a step of duty and are used for accreditation and footing for issue or cancellation of contracts. In the oil industry, all authoritiess have in topographic point ordinances which need to be adhered to by oil and gas companies runing within that state. The operator of an seaward oil and gas installation or installing is required to supply the authorities with a safety instance which sets out identified jeopardies and issues and how the operator proposes to turn to those issues. Companies with good HSE policies and a path record of ordinance conformity enjoy monolithic support from authorities. The inability of an oil and gas company will take to a cancellation of licences, breach of contract and perchance a case.


Harmonizing to the World Health Organisation ( 2003 ) , “ Health is a province of complete physical, mental and societal wellbeing and non simply the absence of disease or frailty ” . The ability to pull the best people in the industry to a company comes with the worker moral and sensed sentiment that people have of the importance that direction attaches to the wellness and safety of their workers. The greatest motive for workers is to bask their work under safe conditions. Involving workers in HSE policy bill of exchange and execution creates the consciousness and assurance needed to work assiduously to accomplish set marks and ends.

Employers that implement effectual safety and wellness direction systems may anticipate to significantly cut down hurts, unwellnesss and the costs associated with these hurts and unwellnesss including workers ‘ compensation payments, medical disbursals, and lost productiveness.

HSE estimations indicate that in 2001 and 2002, the entire cost to employers of workplace accidents and sick wellness was between ?3.9 and ?7.8 billion, while the entire cost to society was between ?20 and ?31.8 billion. ( Health and Safety Executive, 2004 pp. 14 )

The safety of the worker population is of paramount importance in optimizing production end products. In the North Sea, boring rigs are mandated by jurisprudence to hold suites which accommodate a upper limit of two people to supply a degree of comfort and cut down wellness jeopardies offshore.

On April 8, 2004, at the Giant Industries Ciniza Refinery near Gallup, New Mexico, six employees were injured, with four of these employees hospitalized with serious burn hurts, when gasolene constituents were released and ignited. On January 19, 2005, another refinery incident killed one employee and caused multiple hurts to other employees at the Kern Oil Refinery in Bakersfield, California. ( American Society of Safety Engineers, 2007 ) .

Three contractors died and one contractor suffered serious hurts in an explosive fire at the Partridge-Raleigh Oilfield on June 5, 2006 due to the deficiency of safe hot work process and jeopardy consciousness preparation ( US Chemical Safety Board, 2007 ) . These hot work processs could hold been implemented with really minimal investing costs. The lives of workers lost in each of these instances are dwarfed by the 167 people who died in the Piper Alpha catastrophe in 1988. Below is a chart screening offshore hurts from 1998 to 2011.

Figure 1: Fatal and major jnjuries

Figure 1: Fatal and major hurts to offshore workers ( Offshore safety statistics bulletin 2010/11 )


Some oil companies lead and are able to get ( with comparative easiness ) entry into frontier parts of geographic expedition due to their repute built over clip. When Tullow Oil Plc. was granted licence to bore in Greenland, the imperativeness and conservationists did non oppose the move because of the repute that Tullow Oil had built over the old ages in operating with strict HSE policies. This company has operated for over 365 yearss without a lost clip incident or environmental discharge in their operations in Ghana.

To keep a societal licence to run and reconstruct public assurance in a company ‘s offshore activities, companies must be responsible keepers of their Marine environment. A little or average sized oil company has to move responsible to win over the locals in the locality of their activities. This is because, in most instances, the lives of locals ( fishermen, husbandmans etc ) are disrupted as a consequence of oil and gas geographic expedition and production and hence it is the corporate societal duty of the company to non merely give back but besides to work in an environmentally safe mode. If an oil company which owns refineries has an incidence seen as a consequence of carelessness or bad patterns, the populace will eschew purchasing gasolene and lubricators from these companies. This was apparent after the Macondo Blowout of British Petroleum and the Brent Spar catastrophe of Shell UK.


Management has a myriad of investings to see and HSE sometimes ranks close to the underside in footings of precedences because it is perceived as a non net income venture. With the aid of a concern instance, direction are made to see HSE as a requirement for company success. Investing in HSE as a consequence of this well written and converting concern instance has impacts in the fundss, conformity, repute edifice and increases the assurance with which workers do their work.

With the aid of this concern instance, direction should be cognizant of the slightly concealed fiscal deductions of pretermiting HSE in a company. For a little or average sized company, this is even more important because they may non hold the fiscal militias to absorb such mulcts and losingss that may originate from the disregard of an HSE policy and may take to the crippling of the company.


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