Overview of Operational Risk /
Liability
U.S. Maritime and Offshore Oil &
Gas Industries
What is risk?
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Set of All Possible Hazards
Likelihood of Occurrence of Hazards
Consequence of each Hazard
– what can go wrong?
– how possible is it?
– how bad can it get?
RISK = PROBABILITY x CONSEQUENCE
Hazards of Business
• Operational:
– Scope of Work
• Indefinite
• Beyond capabilities
– Project management
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Resources
Planning and logistics
Execution
Delays, productivity,
competing projects
• Reliance on third parties
– Deliverables
• Time
• Quality
– Changing expectations
– Accidents
• Property or equipment
• People
– Acts of God and Nature
• Legal / Financial:
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Pricing risks
Payment risks
Delay costs
Claims for defective
deliverables
– Termination risks
Offshore Oil & Gas Activities
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Exploration
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Seismology
Seafloor surveying / Mapping
Drilling
Transporting supplies, equipment or personnel
Development
– Drilling
– Construction
• Wells
• Structures / facilities
• Pipelines
– Pipe-laying
– Transporting supplies, equipment, or personnel
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Production
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Operating structures / facilities
On-site processing
Transporting oil, gas, & gas condensates
Transporting supplies, equipment, or personnel
Maritime & Shipping Activities
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Shipping
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Logistics
Managing inventory on-shore
Loading
Transporting, navigation, & pilotage
Off-loading
Customs
Vessels / Assets
– Newbuilding/commissioning
– Operation and Maintenance
– Salvage
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Cargo
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Bulk
Container
Human transport (Cruise ships)
Special purpose (FPSO, LNG, Tenders, Tugs, etc.)
Port
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Navigation
Stevedoring
Cranes
Drydocking
Probabilities & Consequences
For Example:
• Late arrival at designated location:
– Probability:
– Consequence:
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Employee Error:
– Probability:
– Consequence:
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medium to high
- no material delay to others: no impact
- delays overall project: $$ impact
low to medium
- not material error: no impact
- material error: $$ impact
- critical error: impact to life, property, or project viability
Collision at Sea – Our negligence:
– Probability:
– Consequence:
low
- injury to customer personnel & property
- injury to third parties or 3rd party property
U.S. General Common Law concepts
• Intentional Acts
– Assault, Battery, Trespass, False Imprisonment, Defamation
– Fraud, Wrongful Interference with Contract or Business Relationship
– Intentional Infliction of Emotional Distress
• Negligence
– Acts that a person exercising ordinary care would not do under similar
circumstances; or
– Fails to do what a person exercising ordinary care would do under
similar circumstances.
• Negligence per se
– Violation of a statute or ordinance that provides criminal penalty and
that violation causes injury to another
• Strict Liability in Tort
– Abnormally Dangerous Activities
– Product Liability
More Specific Law concepts
• Unseaworthiness
– Ship owner’s duty to maintain its vessel in a seaworthy manner
– Vessel’s equipment, masters, and members of the crew can
render a vessel unseaworthy
• Jones Act
– Vessel owners’ liability for injuries to seamen
• Oil Pollution Act
– Responsible party liability for response costs to oil spills
• U.S. Admiralty Law
– Affect ship owners, cargo owners, marine insurers, and crew
– Pertain to salvage claims, marine pollution, and collisions at sea
• Anti-Indemnity Statutes of TX, LA, NM, & WY
Risk Management - Key principles
What can go
wrong?
How often?
How big?
• Risk Quantification
– Likelihood
– Consequence
Is that OK?
What can be done?
Is it being done?
• Risk Mitigation Measures
– Risk acceptance criteria
– Barrier identification and
monitoring
Mechanisms for Controlling Risk
• Shift Risk to someone else
– Buy Insurance
– Seek Contractual Protections
• Employ operational excellence
– Employ the best people
– Maintain state of the art operations
– Provide best on-going training, and
– Keep highly motivated