Chris Seifert
December 19, 2016

Why Oil & Gas companies must plan for low-probability, high-impact events

As particularly complex organizations, oil andgas companies face a number of unique operational hazards, from day-to-day safety risks to higher-level marketplace concerns. A strong company culture is crucial to adapting to unforeseen hazards. To insulate themselves from these threats, many businesses engage in “risk management” practices that prepare them to mitigate the industry’s most common issues. As common a priority as it is, however, risk management cannot protect oil and gas companies from catastrophic events that could bring business to a screeching halt.

Risk management isn’t enough

A strong company culture is crucial to adapting to unforeseen hazards.

Ironically, it is the same complexity that inspires risk management that renders it ineffective at dealing with these low-probability, high-impact events. Risk management is effective when it comes to identifying hazards and creating strategies to limit them, or at least plans for how to react if they lead to an incident. However, oil and gas operations are often too complex to adequately predict what problems could arise.

For example, when evaluating an oil drilling site companies must not only take into account the drilling equipment, emergency procedures and safety methods they employ, but also nearby known production, geologic risks associated with the existence of an adequate oil reservoir, the existence of the oil source rock, the generation and the timing of the migration of the oil and dozens of other factors, according to an article published by the Technical Advisory Service for Attorneys.

While these focus areas might be apparent, they can be abstract enough that the possible risks they pose are more than simply the sum of their parts. And, because they cannot be known, they cannot be “managed.” This is why traditional risk management is not enough to help companies prevent low-probability, high-impact events.

Culture’s role in preventing low-probability, high-impact events
When testifying before the United States Senate Committee on Energy and Natural Resources, safety systems engineering expert Nancy Leveson identified several factors that she says contribute to most major accidents. They include:

  • Flaws in the safety culture.
  • Lack of real commitment to safety by leaders.
  • Nonexistent or ineffective management  of change procedures.
  • Inadequate hazard analysis and design for safety.
  • Flawed communication and reporting systems.
  • Inadequate learning from prior events.

We would argue that all of these factors are actually the result of the first item on that list, a flawed safety culture. A strong company culture equips a workforce to adapt to any problem as it arises, whether there is a procedure in place for that situation or not. This flexibility empowers companies to respond to the events their risk assessment would have deemed incredibly unlikely to occur, which are often those that end up doing the most damage.

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