Developing and Evaluating Risk Governance Framework in the Oil and Gas Industry

Abstract

Objective: Numerous stakeholders with divergent perspectives have complicated the risk management process in the oil and gas sector. Additionally, systemic risks such as population growth in industrial areas or the severe decline in oil and gas prices have cast doubt on the effectiveness of organizational risk management strategies. As a result, an appropriate framework should be used that incorporates the expertise, values, and interests of many stakeholders into the risk management decision-making process. Although the International Risk Governance Committee (IRGC) framework has been widely implemented in different contexts, it should be customized for different purposes due to cultural and geopolitical concerns. This paper customizes the IRGC framework to propose a modified framework for the oil and gas industry in Iran. Then, it defines a set of criteria to measure the risk governance framework's performance. Methods: To carry out this research, a fuzzy hybrid multi-attribute decision-making method was applied to prioritize the elements of distinct phases to offer valuable information for resource allocation in different aspects. A risk-governance performance index was then proposed to calculate the performance of such a framework based on the prioritization of the elements. Different interviews were also conducted to collect the required information for the determination of the framework’s elements and calculate their relative importance as well as the selection of evaluation. The model was validated through the face validity method. A case study at three oil and gas industrial sites was conducted to test the applicability of the proposed framework. Results: To determine the relative importance of each element and optimize resource allocation for the success of the IRGC framework, it is necessary to assess the impact of each element. This article used the DEMATEL-Fuzzy ANP method for this purpose. Two important parts of the risk governance framework include the "realization of selected options" and "identification of options". The oil and gas industry should communicate with all stakeholders regarding the various risk mitigation options, as the options presented usually impact the operation of industrial sites. Implementing the selected options will ensure the framework's survival and contribute to the continuity of operations at industrial sites, while minimizing strategic, operational, safety, and environmental concerns. Additionally, according to the results of this article, "interaction with evaluators and consulting companies" significantly affects the success of the risk governance framework. Therefore, companies in the oil and gas industry should specify the areas of communication and how to communicate with evaluators and consulting companies in writing and evaluate the effectiveness of these communications. Conclusion: To support all stakeholders, the organization should conduct a thorough exploration of the drivers and advantages of a risk governance framework. Integrating managerial decision-making and risk management, allocating shareholder capital, maintaining production continuity, minimizing safety and environmental risks, and managing emerging risks are all critical in this context. Our proposed framework considers all these drivers to determine the importance of risk governance elements for oil and gas companies. Moreover, this study proposes a set of criteria to measure the risk governance framework's performance.

Keywords

• risk management
• risk governance
• risk assessment
• oil & gas industry
• fuzzy decision making