Athabasca Oil corporation, an Alberta based company, is focused on the sustainable development of oil sands in the Athabasca region in north-eastern Alberta and light oil resources in north-western Alberta, Canada. Athabasca Oil Corporation is having many major thermal projects and Hangingstone is one from those. Hangingstone project is an oil sands steam-assisted gravity drainage project that is being developed about 20 km south-west of Fort McMurray in Alberta.
Role and Responsibilities
As an internal auditor of the company, my role in this project as risk manager is to review and assess independently the adequacy of the system of controls in place which identify and manage key business risks. Power (2007) describes that internal auditors have been encouraged to think ‘risk and survive’, to make the strategic and risk-oriented changes to their practice and to become internal business risk surveyors and ‘adders of value’. As a part of this project, my responsibilities are to look beyond financial risks and statements to consider wider issues such as the organisation’s reputation, growth, its impact on the environment and the way it treat its employees.
Risks
Regulatory and Legislative changes and increased cost of compliance
Oil and Gas industry have to comply with a lot of different regulations and legislations. Tighter safety and environmental guidelines are requiring massive investment on the industry’s part. The BP Deepwater Horizon oil spill in the Gulf of Mexico, the moratorium placed on offshore drilling in the region crippled the oil and gas industry. If Athabasca fails to comply with regulations and legislations then Hangingstone Project may have to shut down.
Operational Hazards including spills and personal injury
Operational Hazards are the most common risks that Athabasca will face. In the case of Deepwater Horizon incident, 11 men died in the explosion that led to the spill and the industry is investing heavily in safety precautions to ensure it never happens again. In another case, roughly 461,000 litres of oil from a plains Midstream pipeline leaked into a tributary of the Red Deer River from an underwater pipe cracked by high water flows. Because of this, Gleniffer Lake, a man-made reservoir popular with water recreationists, was closed for nearly 3 weeks. A marina and campground were also closed, fishing on the river was shut down and drinking water was trucked in for local people usage.
Reliance upon third party transportation and processing facilities
Athabasca Oil Corporation has contracted GE to design and supply an integrated evaporator system. The water treatment system is designed to recover 98% of the produced water and brackish water used as boiler feed water to drive the SAGD process. If this system doesn’t deliver at site on time then the Hangingstone project cannot be start on time which is not good for the reputed company like Athabasca.
Shortage of equipment, material and personnel
Shortage of equipment, material and personnel at the location can be proved as a major risk for the project. Hangingstone Project is including team work. Every employee is assigned to a specific job. Even, all the required equipment and material have to be in place for the process to start.
Access to capital
Oil and Gas corporations are having finance available that they can use to invest in their next projects. But still for their betterment, they prefer others to invest in their projects. For the funding of this project, Athabasca Oil Corporation is relying on commercial bank lenders. Company is having a good reputation so there is not chance that they will refuse to invest. But, if they refuse then company is having no other source available to rely on. This is one of the biggest risk for the company as they cannot start the project and their reputation will be badly affected.
Except from these risks, there are many other risks that face by firm in this project such as Natural Disaster and Extreme weather conditions, increased operating costs and industry competition etc.
Assess the Risks
To assess the risks, Athabasca Oil Corporation can use Cost-Benefit analysis. By using this analysis, Athabasca can estimates and totals up the equivalent money value of the benefits and costs to the community of the Hangingstone project to establish whether they are worthwhile. In order to reach a conclusion as to the desirability of the project all the aspects of the project, positive and negative, must be expressed in terms of a common unit. Money is seen as a most convenient common unit for measurement. Adams (1995) supports the idea by adding that money provides a common magnitude scale for reflecting and measuring preferences. There are many risks that are not material and not possible to measure in money. But, there is possibility that can attach some kind of cash values to the risks to see if the project is worthwhile or not. For example, in the case of this oil field, people are willing to accept increased risks in return for higher pay. These choices can be used to estimate the personal cost people place on increased risk and thus the value to them of reduced risk. This computation is equivalent to placing an economic value on the expected number of lives saved. But one thing need to keep in mind while using Cost-Benefit analysis is that reflecting and measuring preferences is not the same as an actual value only an expected value. In addition, the company can compare with and without projects results by using this analysis. This way they can see if doing this project making any difference for the value of company.
Managing the risks
The Deepwater Horizon disaster in the Gulf of Mexico, which killed 11 workers and caused America’s largest oil spill, demonstrates horrifically what can result when systems of control break down. As internal auditor of the firm, I have a responsibility to ensure that good controls are in place to manage the risks that are mentioned above. So, events like Deepwater Horizon disaster do not recur.
Regulatory and Legislative changes and increased cost of compliance
Athabasca Oil Corporation have to make sure that Hangingstone Project comply with all the current regulations and legislations. The company should stay up to date with all the news relate to new regulations and legislations. In addition to this, company should make sure that all the warnings that will get from Government take serious and select suitable actions to improve it.
To control the operational hazards including spills and personal injury
One of the reason for the occurrence of personal injury is failing to detect situational awareness. Athabasca Oil Corporation is responsible to ensure that employees are properly instructed and have gained all the information that they need for this project. The company should provide training to employees to understand the information and instructions. Cooper et al. (2011) back this suggestion by adding that it is management responsibility to provide health and safety information to workers and a right of workers to receive it. In addition to this, use Health and Safety checklist to see if the location of project meet all the requirements that are suitable for employees to work. To stop the oil spilling at land, the company should make sure that team who is responsible to clean oil spill is always available at the location. Plus, employees should inspect the pipelines often enough.
Reliance upon third party transportation and processing facilities
Athabasca has contracted GE for evaporator system. As mentioned above, it is important for the work to proceed. To get this deliver on time on site, company should keep in touch with GE and keep reminding then about the delivering time for the system.
Shortage of equipment and personnel
Shortage of equipment and personnel can be prove as one of the biggest risk as it will delay the work of the project. To control the shortage of equipment, one employee from the location should be in charge to check if all the stuff that need for the project is there. If not then, he should make sure to order it to the company to deliver it on time. To make his work easy, he can use a checklist including information about all the equipment and materials that are required at the location. To control the shortage of personnel, Athabasca should make sure that extra employees are available at the location all the time.
Access to capital
Depending on source for investment can be risk for the company’s project and reputation. Instead of waiting for Commercial Bank Lenders decision, Athabasca should look for other sources for investment such as shareholders etc. Also, they can request sources that already invested in their past projects. As they are aware about the company and the expected returns from the investment. Instead of focusing on major source for investment, it is better to focus on many minor investors.