Compliance – Oil + Gas Monitor http://www.oilgasmonitor.com Your Monitor for the Oil & Gas Industry Mon, 15 Aug 2016 06:57:26 +0000 en-US hourly 1 https://wordpress.org/?v=4.6.9 Utilizing Technology to Comply with Regulations http://www.oilgasmonitor.com/utilizing-technology-to-comply-with-regulations/ Fri, 20 Nov 2015 12:00:17 +0000 http://www.oilgasmonitor.com/?p=10489 Donald Fisher | Software AG It’s no secret that greenhouse gas emissions and pollution are continuously becoming a problematic environmental issue. Therefore, in August 2015, the Environmental Protection Agency (EPA) proposed a suite of requirements under President Obama’s Climate Action Plan to reduce methane and VOC emissions from oil and natural gas production, processing and […]

The post Utilizing Technology to Comply with Regulations appeared first on Oil + Gas Monitor.

]]>
November 20, 2015
Donald Fisher | Software AG

It’s no secret that greenhouse gas emissions and pollution are continuously becoming a problematic environmental issue. Therefore, in August 2015, the Environmental Protection Agency (EPA) proposed a suite of requirements under President Obama’s Climate Action Plan to reduce methane and VOC emissions from oil and natural gas production, processing and transportation activities. According to the EPA the proposed rules are, “a suite of commonsense requirements that together will help combat climate change, reduce air pollution that harms public health, and provide greater certainty about Clean Air Act permitting requirements for the oil and natural gas industry.”

In targeting methane emissions reduction, the new proposed rule expands coverage within the source category to additional processes, and equipment such as storage vessels, compressors, and pneumatic controllers used in upstream and downstream operations. Where the 2012 New Source Performance Standards were applicable to volatile organic compounds applied to hydraulically fractured gas wells, the proposed rule will cover both hydraulically fractured oil wells and gas wells. The proposed rules will also implement requirements for fugitive emissions survey and repair in accordance with a Leak Detection and Repair program.

While the rulemaking process will be championed and challenged on the merits of its potential economic impact on the industry and society, several technological trends in the industry could greatly lessen the operational and compliance cost impact. The application of new sensor-equipped valves and optical imaging devices have set the stage for oil and gas companies to ensure their equipment, completion processes and systems, as well as refining processes, transportation systems, and repair and reporting activities are effective and compliant, while not incurring large long-term costs or having to hire more personnel.

Monitoring health through IoT

The industry’s digital oil field efforts have been aimed at developing technology and organizational structures capable of leveraging advancements in sensor and communication technology. While much work is left to be done, the industry has foreseen the increasing environmental regulations aimed at decreasing greenhouse gas emission and improving air quality. Along with the industry’s desire to ensure the safety of its operations, this view has helped shape the DOF efforts of the industry.

Rather than performing periodic manual inspections and follow-up engineering assessments before being able to get the right personnel and equipment on station to conduct repairs, leveraging sensor technology can position the industry to remotely monitor its emissions, detect problems and automatically dispatch personnel and equipment needed to facilitate compliance.

Coupled with the leak detection and imaging capability of optical technologies, these systems can be further leveraged in condition-based monitoring applications where sensor data is used to monitor vibrations, temperatures and pressures. Sensors also monitor thermal representation of pumps, compressors, and other key system components to measure the overall “health” of drilling, transportation and refining systems. With each vibration or temperature change, sensors alert appropriate personnel of conditions which change the emission factors of the equipment.

Sensors also provide the key inputs required for predictive maintenance applications. Similar to condition-based monitoring, predictive maintenance uses advanced analytics from data released by the sensors. The data alerts personnel if any maintenance needs to be done on the drills, which reduces any downtime. A drill that is not working properly, may release more methane than the EPA allows.

With the right use of sensor and monitoring technology, the oil and gas industry will see a change in their processes and allow them to stay compliant with the new regulations.

The post Utilizing Technology to Comply with Regulations appeared first on Oil + Gas Monitor.

]]>
DOT COMPLIANCE RESPONSIBILITIES INCREASE FOR RAIL SHIPMENTS OF CRUDE OIL IN THE AFTERMATH OF TRAIN DERAILMENTS http://www.oilgasmonitor.com/dot-compliance-responsibilities-increase-rail-shipments-crude-oil-aftermath-train-derailments/ Fri, 20 Jun 2014 14:43:40 +0000 http://www.oilgasmonitor.com/?p=7369 Karyn A. Booth and Jason D. Tutrone | Thompson Hine In the wake of recent freight train derailments involving crude oil, U.S. regulators have issued various advisories and alerts that companies need to incorporate in their assessment of the hazardous nature of their crude oil rail shipments and proper tank car packaging. Specifically, the tragic […]

The post DOT COMPLIANCE RESPONSIBILITIES INCREASE FOR RAIL SHIPMENTS OF CRUDE OIL IN THE AFTERMATH OF TRAIN DERAILMENTS appeared first on Oil + Gas Monitor.

]]>
June 20, 2014
Karyn A. Booth and Jason D. Tutrone | Thompson Hine
In the wake of recent freight train derailments involving crude oil, U.S. regulators have issued various advisories and alerts that companies need to incorporate in their assessment of the hazardous nature of their crude oil rail shipments and proper tank car packaging. Specifically, the tragic Lac-Mégantic train accident in Quebec on July 6, 2013, followed by additional crude oil train derailments in the United States, triggered a flurry of regulatory activity designed to increase the safe rail transportation of crude oil.

The Department of Transportation (DOT), through the Federal Railroad Administration (FRA) and Pipeline and Hazardous Safety Administration (PHMSA), have issued multiple safety advisories and a safety alert advising shippers who offer crude oil to rail carriers for transportation to reevaluate their processes for testing, classifying and packaging crude oil. Under DOT regulations, “offerors” of hazardous materials are responsible for properly classifying, describing and packaging hazardous material shipments.

The safety advisories emphasize the importance of proper classification and description of crude oil shipments, including packing group designations under the Hazardous Materials Regulations (HMR). Class 3 crude oil shipments may qualify as packing group (PG) I, II or III depending on the commodity’s characteristics, and the PG designation can affect packaging requirements, trigger safety and security plan requirements, and impact emergency response activities. The increased scrutiny of crude oil descriptions caused some offerors to designate all shipments as PG I, which subjects them to the most stringent HMR rules. The voluntary assignment of PG I to their crude oil shipments was presumed by some offerors to eliminate the need for routine testing of crude oil shipments for classification purposes as required by the HMR.

Noting that Bakken crude may present an increased flammability risk and other hazards, PHMSA later advised in a Safety Alert that it may be prudent to expand crude oil testing to address additional hazards, such as corrosivity, sulfur content and dissolved gas content, even though such testing is not specifically required under the HMR. This raised questions not only as to proper PG designations, but also as to whether all “petroleum crude oil” shipments are appropriately classified as Class 3 material.

On March 6, 2014, the DOT issued an Amended and Restated Emergency Order (DOT-OST-2014-0025), which promulgates binding requirements for rail shipments of crude oil transported in tank cars and provides greater clarity as to offerors’ compliance obligations. First, it requires shippers to properly test and classify their crude oil shipments with reasonable frequency. Second, it requires shippers to treat all PG III crude oil as either PG I or PG II, except for hazard communication purposes. This essentially prohibits shippers from using AAR 211 tank cars to ship crude oil. Finally, it prohibits shippers from reclassifying their crude oil shipments to avoid the order’s testing and PG III requirements. Thus, offerors of crude oil for rail transportation cannot simply designate their shipments as PG I to avoid having to regularly test and class their crude oil.

Although the Amended Emergency Order requires regular testing of crude oil, it fails to establish bright-line testing standards. Instead, the DOT indicated that “testing must have been conducted within the reasonable, recent past to determine flash point and boiling point in order to assign a proper PG”; the “offeror must continue to test with sufficient frequency to ensure data regarding the characteristics of the petroleum crude oil subsequently offered for shipment remain accurate and current”; and the “frequency of testing should account for the variability of the material, including time, temperature, and location of extraction.” Thus, the DOT requires each offeror to evaluate the circumstances and data associated with their individual crude oil shipments and to develop appropriate testing protocols consistent with its broad testing parameters.

In addition to testing to determine PG designation, the Amended Emergency Order suggests additional classification testing. PHMSA issued supplemental guidance on the Amended Emergency Order indicating that testing crude oil for the following hazard classes would be “appropriate”:

▪          Division 2.1 (Flammable Gases)

▪          Division 2.2 (Non-Flammable Gases)

▪          Division 2.3 (Gas Poisonous by Inhalation)

▪          Class 3 (Flammable Liquids)

▪          Division 6.1 (Poisonous Materials)

▪          Class 8 (Corrosive Materials)

Based on the increased regulatory actions described herein, an offeror of crude oil should consider developing a testing program that minimizes compliance risks by obtaining sufficient data to reasonably determine the hazard class and packing group for each of its crude oil shipments transported by rail in tank cars.

The program should test samples in a manner that accounts for all variations of the shipper’s crude oil. For example, it is advisable for a shipper to establish baseline data for the crude oil it ships and factor into its sampling plan that oil from different wellheads and terminal storage tanks may have different characteristics. A shipper’s sampling plan should also reflect that comingled crude oil may not exhibit the same characteristics of its source oils. This would ensure that the shipper has adequate data to properly classify, describe and package each of its crude oil shipments.

Also, the program should call for initial testing at an increased frequency to establish the crude oil’s variability. By evaluating its oil’s variability, the shipper can better determine whether to reduce or increase testing frequency. For example, a shipper who loads railcars from a single storage tank that the same wellheads supply may start testing with increased frequency, but reduce the frequency upon finding that the oil’s characteristics were consistent over the initial testing period.

Moreover, a shipper does not need to conduct all of the required tests at the same interval. If the shipper determines that the variability of certain hazard characteristics is low, the shipper could reduce the frequency of tests for those characteristics. A shipper should not, however, completely eliminate any required testing for the hazard classes that PHMSA identified in its supplemental guidance.

Ultimately, each testing program should be well documented. Each crude oil shipper should document both its test data and its rationale for its testing decisions. If a shipper incorrectly classifies a crude oil shipment, it could use this documentation to establish that its efforts to comply with regulatory obligations were reasonable and seek a mitigated penalty.

The future path regulators will take to address the safety of crude oil transportation remains ambiguous, but it will have significant implications for shippers. Regulators are under intense political pressure to take prompt action to reduce the safety risks of crude oil transportation. Until now, they have addressed these risks primarily through emergency orders, rather than the traditional rulemaking process, since issuing an emergency order allows for a quick response to safety issues. But using emergency orders does not offer a sufficient opportunity for industry input and often results in uninformed regulation.

The post DOT COMPLIANCE RESPONSIBILITIES INCREASE FOR RAIL SHIPMENTS OF CRUDE OIL IN THE AFTERMATH OF TRAIN DERAILMENTS appeared first on Oil + Gas Monitor.

]]>
Managing Regulatory Compliance Risk in Energy Markets http://www.oilgasmonitor.com/managing-regulatory-compliance-risk-energy-markets/ Mon, 18 Nov 2013 09:35:39 +0000 http://www.oilgasmonitor.com/?p=6210 Austin Morris
Digging Deep: A Consultative Look at Oil & Gas

The post Managing Regulatory Compliance Risk in Energy Markets appeared first on Oil + Gas Monitor.

]]>
November 18, 2013
Austin Morris | SunGard Global Services
With the recent implementation of the Dodd-Frank Act and other federal and local market regulations, regulators like the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), Federal Energy Regulatory Commission (FERC), and Department of Justice (DOJ) are now armed with a more aggressive toolkit to identify and take to task those companies that they believe have attempted to manipulate prices in the U.S. energy and commodity markets.  Prior to the adoption of new rules, the regulators not only had to prove that individual traders or companies were in the position and intended to manipulate energy prices to their advantage, they also typically had to prove that the person or company was in fact successful in doing so and was somehow enriched in the process.

Now, the regulators only have to prove that “manipulative and deceptive devices, i.e., fraud and fraud-based manipulative devices and contrivances (were) employed intentionally or recklessly, regardless of whether the conduct in question was intended to create or did create an artificial price.”

This new lower burden, combined with regulators strengthening their analytical capabilities to better identify anomalous trading patterns and activities, places additional pressures on all market participants to constantly monitor their businesses to ensure none of their personnel, or their business lines, are involved in trading or marketing practices that can have even the appearance of market manipulation, either through intent, negligence or ignorance.

Specifically, market regulators will be looking for any activity that may be perceived as intending to have an impact on prices that could benefit another commercial or trading activity, including attempting to manipulate daily market settlement prices or indices or manipulating physical energy prices that may be used to set financial instrument prices and vice-versa. Examples of these types of activities include transacting heavily on the close of the financial market, then immediately covering the transactions after the price is set; falsely reporting transactions and prices to an index publisher; or taking a large position in an underlying instrument that sets an index to benefit the pricing of another speculative position.

Armed with their new rules and tools, market regulators have become more aggressive in seeking out potential manipulation. For example; the CFTC more than doubled its formal enforcement actions from 2009 to 2012, and recovered almost $1B in fines and illicit profits last year.  Included in the list of recent regulator targets are oil and gas producers, energy traders, and banking institutions.

Some key areas the regulators are focusing on include:

  • Inter-market Manipulation — aforementioned transactions where one index or market is traded at a loss or manipulated to benefit another set of transactions.
  • Wash Trading – where a transaction occurs (bought or sold) and is immediately offset (sold or bought) to give the false impression of a larger volume of transactions or to set a price to benefit the settlement price or stimulate interest in a thin market.
  • Austin Morris_insiderAustin Morris is a managing partner at SunGard Global Services’ Energy Consulting Business and is based in Houston, Texas. He has over 21 years of experience in information technology and management consulting.

    Featured Articles

  • Capacity Release – when natural gas capacity is traded to avoid shipper must have title requirement and other capacity and transportation regulations.
  • “Banging the Close” or “Painting the Tape” – a large volume of transactions entered to manipulate the closing price or weighted market index.
  • False Index Reporting – reporting prices to indices that do not reflect the actual market or actual transactions in order to influence index settlement.
  • Market Power – exceeding position limits or violating capacity rules to affect the market.
  • Fraudulent Activities – collusion with other trading organizations, front-running customer business, or exceeding risk capital limits.

The new authorities granted by recent regulations and an aggressive posture by the regulatory leadership should be a call-to-action for all companies that engage in energy and commodities markets, both large and small, including producers, banks, merchants and marketers, to ensure that they have a systematic and programmatic approach to compliance. This means ensuring that their personnel are fully aware of their responsibilities under the new regulations, to upgrading existing controls and systems (or implementing new ones where necessary), to ensuring that manipulative activities, either intentional, incidental or perceived, are prohibited; or where they cannot be prohibited, are quickly identified, rectified and reported.

Having a robust, formalized and comprehensive compliance program is not only important in preventing manipulative activities, but is also an important tool in mitigating regulatory or financial risks should a regulatory investigation occur.  As regulators look at potential manipulative activities, their demands will be far-reaching and any company under investigation will be expected to cooperate fully, and make available all data and information in a clear, concise and timely manner.  Failure to do so will result in increasingly aggressive actions and fines, and will subject those companies to intense scrutiny for years to come.

Specifically, organizations should be seeking to establish or upgrade their compliance programs to meet proactive standards expected by regulators and shareholders, alike. Areas of focus include:

–          Establish, or revise, trading and compliance policies to reflect the new rules under the Dodd Frank Act, as well as, other emerging High Frequency Trading (HFT) rules, recent interpretations of existing rules in the Commodity Exchange Act; and any recent rules interpretations set as a precedent by the Federal Energy Regulatory Commission (FERC)

–          Revise pre- through post- transaction lifecycle procedures and daily business processes so as to reduce the possibility and/or appearance of regulatory violations and assure adequate and regular regulatory compliance oversight through monitoring and reporting

–          Establish regular and formal training programs to ensure all personnel understand their individual responsibilities under the company compliance program and market regulations

–          Monitor, record and archive all communication channels utilized by traders, including phones, instant message applications, emails, and even social media such as Twitter; and have tools to data mine for key words and verbal records of transaction processes

–          Deploy a trading surveillance system and analytics which can actively monitor and perform analytical studies on transaction data to identify suspicious or manipulative behaviors for investigation into potential regulatory violations

While no company can absolutely prevent malicious or unintentionally non-compliant behaviors by any employee, having a comprehensive and robust compliance program in place will act as a potential deterrence to such behaviors, provide quick identification and remediation of a potential issue, and establish a positive reputation of your business in the eyes of regulators and shareholders.

Austin Morris_insiderAustin Morris is a managing partner at SunGard Global Services’ Energy Consulting Business and is based in Houston, Texas. He has over 21 years of experience in information technology and management consulting.

Featured Articles

The post Managing Regulatory Compliance Risk in Energy Markets appeared first on Oil + Gas Monitor.

]]>
Did EPA’s New Carbon Emissions Rules Put Coal Industry on Life Support? http://www.oilgasmonitor.com/epas-new-carbon-emissions-rules-put-coal-industry-life-support/ Wed, 02 Oct 2013 08:37:32 +0000 http://www.oilgasmonitor.com/?p=6028 Chris Faulkner
Breaking Ground: Insights from the Frack-Master

The post Did EPA’s New Carbon Emissions Rules Put Coal Industry on Life Support? appeared first on Oil + Gas Monitor.

]]>
October 2, 2013
Chris Faulkner | Breitling Oil and Gas

It’s not dead yet, but the Environmental Protection Agency’s (EPA) new limits on carbon emissions has all the appearances of putting the U.S. coal industry into a medically-induced coma with the slimmest hope of recovery coming in the uncertain form of carbon capture and sequestration (CCS) technology.
 
Appearances Can Be Deceiving
 
The EPA’s new carbon emissions rules apply only to new power plants. That means that it’s unlikely we’ll be seeing many, if any, new coal-fired power plants in the works. But that was already the case, even before the EPA’s new limits, because lower prices on cleaner-burning natural gas have made natural gas-powered plants a more attractive option.
 
Coal consumption had already fallen by about 5 percent last year, according to the Energy Information Administration (EIA), due to low gas prices driving U.S. utilities away from coal. With natural gas plants emitting about half the carbon dioxide as coal plants and the precedent of these new EPA limitations, don’t expect to see those plants returning to coal any time soon.

CCS an Uncertain Technology to Hang Coal’s Hopes On

Several new coal-fired plants using CCS were in the works before the EPA rules were announced. It remains to be seen which of these comes to fruition, but the Southern Company’s Kemper County plant in Mississippi is looking the most promising. Slated to begin operation in 2014, the Kemper plant is a standout because it was built with the help of a $270 million federal grant and it will sell captured CO2 to nearby oil producers for use pressurizing depleted oil wells.

Whether other plants can rely on the revenue generated by selling captured CO2 will depend on their proximity to existing oil wells or pipelines that are primarily still on the drawing board. And finding ways to sell the CO2 will be critical: power plants using CCS will cost around 75 percent more than traditional coal plants. At present, CO2 injection is used to produce only about 6 percent of the nation’s crude.

Market for CO2 Could Buoy CCS Investment

The good news for the coal industry is that the EPA is optimistic that there will be a large enough market for CO2 to make investments in new CCS coal plants attractive. According to the EPA: “There are currently 23 industrial source CCS projects in 12 states that are either operational, under construction, or actively being pursued which are or will supply captured CO2 for the purpose of enhanced oil recovery.”

In addition, the Energy Department has found that the market for CO2 for oil recovery will be the equivalent of “93 large, 1000-megawatt coal-fired power plants operated for 30 years.”

Whew. The Coal Industry is Saved, Then, Right?

Not so fast. A possible fly in the EPA’s and Energy Department’s optimistic ointment comes from Steven Chu, former energy secretary for the Obama administration, who called for caution in the development and use of CCS. The problem is in the early stages of storage, when the CO2 is an unstable mass of gas that could leak to the surface. In the concentrations expected with CCS, such a leak would be fatal to any humans nearby. Cue the anti-CCS environmental lobby.

Then there’s the fact that we don’t yet know what carbon emission limits will be set for existing plants. Under the Clean Air Act, the EPA will have to address emissions from the 6,500 existing power plants operating in the U.S., which are responsible for about 40 percent of U.S. CO2 emissions.

How far the EPA will go in clamping down on emissions from existing plants is difficult to predict, for two reasons: the EPA cannot tell existing plants how to meet the new standards (i.e., it can’t mandate that existing plants be retrofitted with CCS systems), and regulation of emissions from existing plants falls to the states to enforce.

All this may be moot, at least for awhile, with utility companies challenging the new limits in court (the regulations don’t have to be approved by Congress).

NatGas Enjoying Rare Respite From EPA’s Laser Scope

Whatever the eventual impact of the EPA’s carbon emission rules on the coal industry, it’s all a bit of rare good news for those in the natural gas industry. For once, natgas producers aren’t in the EPA’s sights and natgas plants won’t need any additional pollution controls to be in compliance with the new rules.

The new EPA rules limit emissions from natgas plants to 1,000 pounds of CO2 per megawatt hour of electricity produced, which most natgas-fired plants already easily meet with existing technology. Meeting the limit of 1,100 pounds for coal plants is a much steeper challenge, with existing plants currently producing up to 1,800 pounds.

According to the EPA: Compared to the average air emissions from coal-fired generation, natural gas produces half as much carbon dioxide. As utilities look at the costs involved in trying to meet the new EPA CO2 emission limits, natgas can only be looking better and better, while coal’s struggle to become a “clean” energy is sounding more and more like a raspy death rattle.

 

 

The post Did EPA’s New Carbon Emissions Rules Put Coal Industry on Life Support? appeared first on Oil + Gas Monitor.

]]>
Enhancing Employee Compliance with Personal Protective Equipment http://www.oilgasmonitor.com/enhancing-employee-compliance-personal-protective-equipment/ Wed, 20 Feb 2013 09:39:47 +0000 http://www.oilgasmonitor.com/?p=4101 David Hoeller | Kimberly-Clark Professional It’s no secret that the oil and gas industry can be a dangerous place to work: the occupational fatality rate for oil and gas extraction workers is more than seven times greater than the rate for all U.S. workers.[1] In fact, in 2008, the most recent year for which data […]

The post Enhancing Employee Compliance with Personal Protective Equipment appeared first on Oil + Gas Monitor.

]]>
February 20, 2013
David Hoeller | Kimberly-Clark Professional
It’s no secret that the oil and gas industry can be a dangerous place to work: the occupational fatality rate for oil and gas extraction workers is more than seven times greater than the rate for all U.S. workers.[1] In fact, in 2008, the most recent year for which data are available, 120 people were killed while performing oil and gas extraction and non-fatal incidents occurred more frequently.[2] The most recent information from the Bureau of Labor Statics found that in 2007, there were 4,200 cases of non-fatal injuries of full time oil and gas drilling workers, and they don’t stop at the drilling site. 2 Injuries are prevalent in many refineries as well, which can present a different set of hazards to workers.

Hazards specific to drilling are present throughout the entire process, including during exploration of the drill site, preparation and establishment of the site, and then day-to-day drilling and extraction work on the rig. Offshore drilling in more remote areas can be especially dangerous due to extreme weather conditions and temperatures. Potential hazards while on the rig deck include slips and falls, fire and explosion, hand and eye injuries and noise-related hearing loss. In refineries, common injuries are associated with material handling, fire, chemical splashes and exposure to harmful chemicals, gases, vapors and fumes. One thing that’s common, however, across the industry and work environments is that choosing and donning the right personal protective equipment (PPE) is critical to ensuring the safety of oil and gas workers.

Innovations in PPE

To help ensure worker safety, safety managers should consider safety in a comprehensive manner and determine what the best safety solution may be for their people and their specific work environment. Eyewear to protect against splashes and other hazards; head and face protection; hand protection particularly for workers who come into contact with moving machinery on drilling rigs; hearing protection; and respiratory protection are all areas to consider, as are the unique protection needs of welding personnel working on pipelines.

While the hazards of our industry’s work may seem obvious, workers do not always take the necessary steps needed to keep themselves and those around them safe. For many people, getting the job done quickly and efficiently takes priority over safety, and their perception is often that PPE just slows them down. In surveys, workers report that the most common reason for not wearing PPE is that it’s uncomfortable and cumbersome. Workers may also be less compliant while out of view of company safety officials.

What they may not appreciate, however, is that recent advancements in PPE are starting to address the root causes of compliance issues because equipment now offers features aimed at enhancing comfort while increasing efficiency. Examples include apparel with increased breathability for temperature control and stretch fabric for better range of motion; cut-resistant gloves that offer better dexterity and grip; ergonomically designed welding headgear with auto darkening filters for arc flash; and eyewear with a range of lens options, such as anti-fog, polarized, smoke/mirror and clear.

Addressing Compliance Issues

While some companies choose to take a reactive approach and address issues as they come, poor safety practices, starting with not enforcing PPE compliance and proper training, can lead to increased injuries. Those injuries translate into higher workers’ compensation costs, larger insurance premiums and sometimes fines from OSHA. In a competitive market such as ours, it’s in the company’s best interest to enforce PPE compliance and to provide protective equipment that workers don’t mind wearing. For example, when a worker is injured on a remote rig, it can be challenging to quickly replace them, resulting in lost productivity. In fact, according to the most recent data from the Bureau of Labor Statistics, the median days away from work rate, a key measure of the severity of injuries and illnesses, for drilling oil and gas workers is 30, much higher than the median of seven for all industries.2

While workers must take responsibility for safety on the job, employers are accountable for providing safe work environments. Companies serious about keeping their workers safe should create safe work environments that begin by taking stock of the hazards present, provide for proper PPE, continuously train employees on its use and monitor safety programs over the long term to ensure their ongoing effectiveness.

The oil and gas industry is in a growth phase, hiring more people who are likely new to the industry and unfamiliar with tasks until or unless trained. This means new employees may be at risk of being injured. Seasoned employees are also at risk, as they become accustomed to tasks, potentially set in routines and look to find shortcuts to streamline work to make deadlines. While the greatest potential for injury results from choices employees make, employees also have the potential to reduce injuries on the job site with the right encouragement from their employer. Physically addressing hazards in the workplace and talking about the importance of PPE compliance daily can help keep safety top of mind and reduce the risk of injury to oil and gas workers, helping keep them safer, healthier and more productive.



[1] Centers for Disease Control and Prevention, NIOSH Program Portfolio, Oil and Gas Extraction: http://www.cdc.gov/niosh/programs/oilgas/risks.html

[2] United States Department of Labor, Bureau of Labor Statistics, Injuries Illnesses and Fatalities, Oil and Gas Fact Sheet, April 2012, Oil and Gas Industry Fatal and Nonfatal Occupational Injuries: http://www.bls.gov/iif/oshwc/osh/os/osar0013.htm

The post Enhancing Employee Compliance with Personal Protective Equipment appeared first on Oil + Gas Monitor.

]]>
IECEx Scheme: A Key Development in Oil and Gas Equipment http://www.oilgasmonitor.com/iecex-scheme-key-development-oil-gas-equipment/ Wed, 30 Jan 2013 15:37:29 +0000 http://www.oilgasmonitor.com/?p=3936 Patricia Pasemko | Intertek The rapid globalization of the oil and gas industry and other hazardous industries has made the safety and reliability of equipment increasingly important for manufacturers and end users. Since product requirements and standards differ across the world, global compliance can be cumbersome and costly for manufacturers.   A key development in […]

The post IECEx Scheme: A Key Development in Oil and Gas Equipment appeared first on Oil + Gas Monitor.

]]>
January 30, 2013
Patricia Pasemko | Intertek
The rapid globalization of the oil and gas industry and other hazardous industries has made the safety and reliability of equipment increasingly important for manufacturers and end users. Since product requirements and standards differ across the world, global compliance can be cumbersome and costly for manufacturers.
 
A key development in this industry continues to be the IECEx Scheme, the International Electrotechnical Commission (IEC) system for global certification to standards for electrical equipment in hazardous locations. With 30 countries as members, the IECEx Scheme plays an important role in the global certification of hazardous locations equipment and has continued to demonstrate overall annual growth in the number of Certificates of Conformity (CoC) issued since 2003. There has also been continued growth in many countries as well including North America, Europe, United Kingdom and Asia Pacific, demonstrating its increase in acceptance and adoption.

The IECEx Scheme is dedicated to reducing the time, cost and requirements for global hazardous locations certification (of which a majority are in the oil and gas industry) by harmonizing the standards manufacturers must meet for their products to be sold. The international certification is achieved by meeting IEC 60079 (electrical installations in hazardous areas) and IEC 61241 (electrical apparatus for use in the presence of combustible dust) series of standards. Member countries like Canada, China, Brazil and others are harmonizing their standards to align with those of the IECEx, making global trade more achievable. Other countries like Australia accept IECEx certification as their national certification without any deviations, mandating that products have the certification to sell products and equipment in the country.

This global regulation is fostering a more consistent set of industry requirements and standards while also allowing technology and equipment to move faster and more freely from one region to another. As a key development in the oil and gas industry, the IECEx Scheme offers countries the following key benefits:

Advancement of International Trade

Globalization has led to an increase in imported products, creating a more challenging and competitive market for manufacturers that do not export products. Despite these challenges, the mission statement of the IECEx focuses on facilitating global trade and international growth for equipment used in hazardous locations like oil and gas sites. Specifically, the IECEx Scheme seeks to simplify and advance the export of equipment through its harmonized international standards, which provide advantages across the entire supply chain including the manufacturer, distributor, purchaser, installer, end user and regulator.

Since the IECEx certification is recognized globally, stakeholders can easily identify the requirements, standards and product markings as well as download a certification report from the IECEx website. This allows a purchaser sourcing products with IECEx certification from the U.S., Canada, China, India or elsewhere to easily identify what safety requirements have been met. The international certification guarantees that a product from the U.S. has met the same requirements as one from India.

Certification of New Technologies

Globalization has also led to an increase in the speed of sharing technologies across multiple regions. As a result, the IECEx Scheme keeps pace with changing technologies and innovative product developments more than many other certification schemes. This is done through Technical Committee 31, a proactive industry group that regularly evaluates current standard requirements against the latest products and innovations. The committee also writes and reviews IEC standards to ensure they are updated regularly.

When the committee identifies a gap in requirements, which could prevent a full-certification or evaluation, they quickly work to update the standard. This allows new products to get to market faster and be traded globally, also supporting the previous benefit of the advancement of international trade. This ultimately improves and advances the efficiency of onshore and offshore oil rigs, pharmaceutical plants, food mills, processing plants and other hazardous locations requiring equipment.

International Acceptance of Requirements

As countries around the world are developing quickly and the rate of globalization is increasing, manufacturers can be challenged to keep up with infrastructure developments, environmental regulations and safety standards. In the oil and gas industry, prospecting and drilling for potential oil resources is taking place all over the world. However, in some countries there are inadequate or outdated safety requirements for equipment that is used to find, test, extract and process oil and gas. Because of this, the IECEx is working to increase the safety of these processes by providing an international certification for countries without established national requirements. This harmonized set of international standards allows manufacturers to gain access to 30 different countries.

Manufacturers who produce equipment for use in hazardous locations—process control equipment, industrial control equipment, industrial lighting and others—will increasingly look to the IECEx Scheme as a path to greatly expand product reach and grow market share. Manufacturers all over the world look to those in other countries to keep pace with market changes. As a result, the IECEx Scheme offers the simplest, quickest and most cost effective route to international market entry and global growth.

The post IECEx Scheme: A Key Development in Oil and Gas Equipment appeared first on Oil + Gas Monitor.

]]>
The Application of Quantitative Risk Analysis Techniques in the Oil and Gas Industry http://www.oilgasmonitor.com/application-quantitative-risk-analysis-techniques-oil-gas-industry/ Tue, 25 Dec 2012 13:48:47 +0000 http://www.oilgasmonitor.com/?p=1966 Rafael Hartke
Oil & Gas Risk Analysis

The post The Application of Quantitative Risk Analysis Techniques in the Oil and Gas Industry appeared first on Oil + Gas Monitor.

]]>
December 25, 2012
Rafael Hartke

Investment projects in the oil and gas industry involve great technical challenges, considerable risks and massive financial resources. Given the inherent obstacles required to make any project successful, this industry has served as a proving ground for cutting edge project valuation methodologies and tools, such as quantitative risk analysis. As oil and gas organizations attempt to maximize the value of each project and optimize their portfolio of investment opportunities, it is imperative that all risks are properly identified and quantified, to maximize value and increase the effectiveness of mitigation strategies.

Discounted Cash Flow, Sensitivity and Scenario Analyses

The Discounted Cash Flow (DCF) method is the most commonly used tool for decision analysis in project valuation. It is based on the estimation of the net present value (NPV) of the cash flow of the project under consideration, discounted at the company’s hurdle rate. Easy to implement and widely used in the oil and gas industry and management schools, DCF acknowledges the time value of money, provides a common language for valuation, establishes clear decision criteria and allows comparison of projects based on metrics. However, DCF fails to address a number of key factors:

  • The uncertainty of future cash flow (assumptions about cash flow components are all static)
  •  The recognition of explicit project risks (risks are all assumed to be accounted for by the discount rate)
  • The valuation of risk mitigating strategies

Sensitivity analysis and scenario analysis attempt to address these issues by acknowledging uncertainty over the project’s inputs and evaluating their impact on the project, thus generating ranges for the project’s metrics in the form of spider graphs, sensitivity tornadoes, and other outputs. Unfortunately, neither sensitivity analysis nor scenario analysis appropriately provides probabilities for the ranges of possible outcomes of the project. For project managers and other decision makers, there is a clear need to fill the gaps left by these processes.

Quantitative Risk Analysis, Probability Distributions, and Monte Carlo Simulation

Quantitative risk analysis goes further than the traditional DCF method, moving the analyses beyond the static world. With quantitative risk analysis, uncertainty in the project’s future cash flow is explicitly acknowledged, risks are objectively assessed based on probabilities and impacts and relevant inputs are modeled as probability distributions. Static models used in traditional DCF, sensitivity and scenario analyses use point estimates as inputs, whereas stochastic models used in quantitative risk analysis utilize probability distributions as inputs.

Quantitative risk analysis introduces a new layer of complexity – and accuracy – to the valuation problem by acknowledging that there are multiple possibilities for each of the inputs’ values. The analyst must describe each input, not only through a number but through a group of characteristics that effectively represent each input’s possible values, that is, its probability distribution. Typically, probability distributions are described by parameters like most likely value, expected value, minimum and maximum values, standard deviation, percentiles or shape parameters. At this point, historical data, expert opinion and time series are the best sources for estimating the probability distributions’ parameters.

Quantitative risk analysis also combines all of the computed inputs’ distributions in a meaningful way inside the valuation model, including their correlated interdependencies to properly assess the project’s possible outcomes. This is where Monte Carlo Simulation (MCS) becomes a vital tool for properly forecasting risk.  MCS is a very powerful, straightforward and robust numerical method for sampling random numbers. In this case, each of the inputs’ possible values from its probability distributions is considered. MCS allows the evaluation of multiple probability distributions (including correlations) in practically any kind of problem, regardless of size or complexity. Static models typically require only minor changes, if any, to be suitable for MCS.

 Examples of Risk Analysis in the Oil and Gas Industry

With quantitative risk analysis, uncertainty in relevant inputs is explicitly modeled as risks, using probability distributions and stochastic processes. Determining which inputs are relevant relies on the nature of the project being evaluated and the business environment surrounding it. Typical risks observed and modeled in the oil and gas industry include exploratory success chance, oil, gas and water production curves, capital expenditures (CAPEX) and operational expenditures (OPEX). Quantitative risk analysis also addresses commodity prices and demands, which are more challenging to model, as they often rely on elaborate stochastic processes and political/regulatory risks, where data to estimate the model is always an issue.

In the oil and gas industry, quantitative risk analysis is usually undertaken at different stages of a project, shifting the focus to the specific tasks at hand:

  • Integrated project risk analysis forecasts the risks surrounding the oilfield projects and considers the probability distribution of the project’s NPV as its main output
  • Cost risk analysis focuses on the cost structure of the project, explores the deeper details of cost inputs and provides the probability distribution of the CAPEX as its main output
  • Schedule risk analysis focuses on the time required to complete each task, and its main outputs are the probability distribution of the project’s first oil and its possible critical paths

Some risks have a compound effect on schedule and cost that need to be acknowledged, like the drilling time in an offshore oil project, for example. Larger, more complex models can even combine the three analyses simultaneously.

Benefits of Quantitative Risk Analysis for Decision Making

Quantitative risk analysis acknowledges uncertainty project outcomes, offering new metrics to project valuation in terms of ranges and probabilities, including the probabilities of achieving target values, correlation tornadoes and statistical contingencies. Quantitative risk analysis also allows identifying the key risk drivers underlying a project, which is not possible using traditional DCF, sensitivity or scenario analysis. Clearly identifying a project’s key risk drivers is crucial to effectively designing and evaluating risk-mitigating strategies according to their cost and benefits. Usually, the benefits of a risk-mitigating strategy are not better expected values, but better risk profiles, in the form of a lower standard deviation of the project’s NPV distribution, a higher probability of positive NPVs, reduced downside and so forth. Ultimately, decisions are based on the probability distributions of the project outcomes, their expected and extreme values, available mitigation strategies and remaining risks.

Conclusion and Further Uses of Quantitative Risk Analysis

Quantitative risk analysis is the natural evolution of the traditional DCF method, moving the analyses beyond the static world. Investment projects in the oil and gas industry, where risk is plentiful, offer an abundance of examples of successful application of risk analysis. This method allows the identification of the key risk drivers underlying a project and the design and evaluation of risk mitigating strategies. Ultimately, decisions are based on the probability distributions of the project outcomes, their expected and extreme values, available mitigation strategies and remaining risks.

A good quantitative risk analysis model is also the starting point of other more advanced analyses common in the oil and gas industry, like value of information (widely used in exploration and early production projects), optimization under uncertainty (used in refining projects, portfolio allocation and corporate strategic planning), and real options (complex production projects, expansion, abandonment and acquisitions). The challenges involved in any project are great, and utilizing the analysis that forecasts not only risk, but risk’s probability, will enhance the ultimate success of any venture.

The post The Application of Quantitative Risk Analysis Techniques in the Oil and Gas Industry appeared first on Oil + Gas Monitor.

]]>
Security and the Emerging Digital Oil Patch http://www.oilgasmonitor.com/security-emerging-digital-oil-patch/ Mon, 06 Aug 2012 17:20:23 +0000 http://www.oilgasmonitor.com/?p=2690 Ernest N. Hayden The global energy infrastructure is changing.  Offshore drilling rigs, shale platforms and refineries are becoming more and more “digitized” as old fashioned analog systems – such as simple pressure gauges and flow meters – are replaced with new, digital sensors and high-speed communications networks to move real-time data back to headquarters. However, […]

The post Security and the Emerging Digital Oil Patch appeared first on Oil + Gas Monitor.

]]>
August 6, 2012
Ernest N. Hayden

The global energy infrastructure is changing.  Offshore drilling rigs, shale platforms and refineries are becoming more and more “digitized” as old fashioned analog systems – such as simple pressure gauges and flow meters – are replaced with new, digital sensors and high-speed communications networks to move real-time data back to headquarters. However, with these advances in technology, new data and system security issues are surfacing for the digital oil patch.

Painting the Picture

When I go out to visit and talk to energy colleagues, the discussion always turns to security.  Unfortunately a recent “wake up call” for the industry was the Stuxnet worm that was targeted for the Iranian nuclear program process controllers.  Although Stuxnet was targeted for a specific purpose, it was probably the first cyber worm designed to actually cause damage to the uranium enrichment centrifuges.  Hence, Stuxnet and its cousin Duqu are new examples of attacks that can be used against industrial control systems (aka ICS) and Supervisory Control and Data Acquisition (SCADA) systems – systems that are used in the oil patch as well as at midstream and downstream operations in the oil and gas industry. Concerns over attacks to industrial control systems (ICS) or supervisory control and data acquisition (SCADA), are not the only security worries for the energy industry.

Data is at Risk — A New Security Philosophy is Brewing

For the oil and gas industry, data is extremely valuable.  For instance, exploration data on current oil fields and geologic zones represents substantial monetary value to energy companies. Theft of this information could have large negative consequences to the business.

Unfortunately, these types of attacks can occur under the guise of “Advance Persistent Threats” or APTs.  Essentially the energy company’s IT network is penetrated by an outside attacker – usually a nation-state or competitor – using a “social engineering” attack.  Then, in a very slow, methodical, quiet approach, the attacker copies the critical data and exports – or “exfiltrates’’  — it back to the attacker’s computers for analysis and use to steal the oil discoveries.

Because of the significant risk associated with this type of attack, there is a new philosophy brewing among security professionals that you should operate under the assumption that your network is already breached and penetrated and you need to focus on looking for exfiltration activities in progress so you can shut them down immediately.  In addition, some security professionals are taking the approach of “data islanding’’  — making sure critical data is protected and segregated from the other data for an added layer of  protection.

Disruptive Technologies and Trends

With the new digitized systems being installed and used at the upstream, midstream and downstream facilities, there is a new issue rising. With the large quantity of “big data” generated, it must be stored, processed and secured.  A new “disruptive technology” for the industry is deploying cloud services to handle the data. Deploying cloud computing is an increasingly viable option for the individual oil and gas companies to not only store the data, but keep it secure. Overall, we are continuing to learn more each day about the long-term security consequences and necessary practices as we move towards the cloud and the new technologies on the market.

Mobility Security

Lastly, a new area that is helping oil and gas company productivity is the increased use of mobile technologies such as advanced smart phones, tablets and mobile “hot spots.” This is a very exciting opportunity but brings with it some security challenges.  For instance with the “Bring Your Own Device” (BYOD) trend, there are increased challenges for the enterprise, including securing personally owned devices.

Conclusions

With the expanded use of new sensors and advanced technologies in the digital oil patch, the oil and gas industry can be more effective at remote monitoring to improve industrial safety in what can be hazardous working environments. However, the security challenges are arising with increased data flow and storage, clever cyber criminals with new attack vectors into digitized control systems and mobile security.  While new technologies are improving safety and productivity, the oil and gas industry must pay special attention to security and ensure that the data and systems are protected and secure.

The post Security and the Emerging Digital Oil Patch appeared first on Oil + Gas Monitor.

]]>
Above-ground Risk in Frontier Markets http://www.oilgasmonitor.com/above-ground-risk-frontier-markets/ Wed, 25 Jul 2012 22:48:24 +0000 http://www.oilgasmonitor.com/?p=2632 Eddie Everett With the hunt for frontier plays growing ever more competitive, exploration and production (E&P) operators are venturing into new and more complex environments. The expansion out of established markets around the Gulf of Guinea into wider West Africa, new opportunities both on- and offshore in East Africa, the push into the Arctic and […]

The post Above-ground Risk in Frontier Markets appeared first on Oil + Gas Monitor.

]]>
July 25, 2012
Eddie Everett

With the hunt for frontier plays growing ever more competitive, exploration and production (E&P) operators are venturing into new and more complex environments. The expansion out of established markets around the Gulf of Guinea into wider West Africa, new opportunities both on- and offshore in East Africa, the push into the Arctic and the Colombian government’s drive to expand oil output and exploration all present economically appealing examples, but come with numerous above-ground risks.

Traditionally, above-ground risk has been seen as a straightforward security risk and managed accordingly. However, security risks posed by crime and conflict are often the least of an operator’s concerns: operations in Iraq, the Niger delta and even Somalia’s semi-autonomous region of Puntland have proven that no situation is so severe that such risks cannot be mitigated with enough planning and cash.

The truly complex above-ground risks in frontier markets are now those relating to political, regulatory and reputational issues. These are often not given significant attention when considering entry opportunities, but can present substantial hurdles if not factored into planning from the outset. The following are a selection of issues which Control Risks encounters regularly when working with operators.

Policy and regulatory uncertainty

For many countries and regions coming on to the exploration radar, hydrocarbons is a nascent and unfamiliar industry. Government bodies often have very limited knowledge of how to manage processes ranging from licensing, and structuring and negotiating contracts, through to putting in place controls on exploration, and managing revenues.

In one example, Uganda has put on hold parliamentary debates of legislation governing the petroleum industry to allow technical workshops to be held to educate legislators on the workings of the oil industry. A consortium of Tullow Oil, Total and CNOOC is aiming to invest approximately $10bn into the country, but uncertainty over what shape regulations will take and how quickly they will evolve has been a significant stalling factor.

Without understanding the political and regulatory environments, and how these may change in response to events, investors risk encountering a number of stumbling blocks. These range from fiscal policy changes, to new local content regulations, to provision of public infrastructure.

Managing community expectations

An inevitable consequence of discovering substantial oil and gas reserves in new territories is the expectations generated among local populations. Although local content and infrastructure provision are increasingly national policy issues, most operators have learned that local community engagement nowadays extends well past a simple CSR program and occasional town hall meeting. If local expectations are not appropriately managed from the outset of an investment, operators can face everything from reputational damage to operational disruption caused by protests and activism.

Events in the Peruvian Amazon highlight the ability of activism to disrupt operations. Protests by indigenous groups have resulted in stoppages at exploration sites and led to policy changes as the government scrambles to keep all constituencies happy.

In Europe, even the threat of community activism has proven detrimental to the investment climate in the sector. Although the scale of public protests against shale gas exploration via hydraulic fracturing (known as ‘fracking’) has been relatively limited, they have resulted in significant policy shifts in several countries. Bulgaria is a prominent example. Chevron in June 2011 had negotiated exploration rights. However in January parliament imposed a moratorium on the use of fracking in the face of public and environmental opposition that manifested in anti-shale protests in most major cities across the country. A similar ban remains under discussion in neighboring Romania, while shale gas operators in Poland continue to face regular protests and activism at both a local and national level.

Transparency in local partners

Venturing into a new market also poses problems when it comes to identifying reliable and effective partners in the country. Many companies will hire local “guides” to help them to navigate negotiations from an early stage. However, in countries where political and business elites closely overlap, finding a partner who can provide reliable advice without being politically exposed can be very challenging. This is particularly the case in Central Asia, where the closed nature of political regimes poses major integrity concerns for operators when it comes to complying with legislation such as the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. Many companies operating in these markets maintain a local national as a high-level representative in country to do business. This leaves them open to the danger of hiring politically exposed persons, not to mention the uncertainty that shifting political affiliations could alter relationships that they have spent years cultivating.

Using local subcontractors can also cause headaches. Even in countries with seemingly benign risk profiles such as Tanzania or Sierra Leone, petty corruption is often endemic among local services providers such as clearing agents, again exposing companies to integrity risks both within their country of operation and home jurisdiction.

Mitigation measures

These are just a taste of the above-ground risks to consider before entering a new and unfamiliar country. However, while daunting at first, none are insurmountable. Some examples of mitigating actions that operators can take are:

  • Playing an active role in engaging with policy-makers, as operators have done in Uganda and Ghana, which can help to allay government concerns and smooth the investment process.
  • Demonstrating a strong anti-bribery stance from the beginning and accepting the short-term delays this may entail. This can enable operators to succeed in the long term in a compliant manner by developing a reputation for not giving in to demands for bribery and collusion.
  • Maintaining an international due diligence program, including vetting all local providers and subcontractors for political exposure, local reputation and previous history.
  • Clear and open communication with local communities throughout the exploration and drilling process; the shale gas industry in the US has proven an excellent test case for such community interaction.

Above-ground risk will always be a moving target in frontier markets. It is up to the operator to get ahead of it as early as possible by ensuring that they understand local dynamics and areas of potential risk, and having robust mitigation plans in place.

The post Above-ground Risk in Frontier Markets appeared first on Oil + Gas Monitor.

]]>
Guarding Company Secrets From Departing Employees http://www.oilgasmonitor.com/guarding-company-secrets-departing-employees/ Mon, 04 Jun 2012 17:01:36 +0000 http://www.oilgasmonitor.com/?p=2398 Rachel Ratcliff Womack A longtime senior-level employee is hired away by an ambitious rival. Days before announcing his resignation and jumping ship, the worker navigates through your company’s jam-packed server, filling a small (but voluminous) USB thumb drive with details about your company’s expansion plans, vendor relationships and detailed engineering analysis of your next planned […]

The post Guarding Company Secrets From Departing Employees appeared first on Oil + Gas Monitor.

]]>
June 4, 2012
Rachel Ratcliff Womack

A longtime senior-level employee is hired away by an ambitious rival. Days before announcing his resignation and jumping ship, the worker navigates through your company’s jam-packed server, filling a small (but voluminous) USB thumb drive with details about your company’s expansion plans, vendor relationships and detailed engineering analysis of your next planned moves. The worker arrives at his new job armed with a competitive edge that allows his new employer to move swiftly and directly into your hard-earned space in the market.

In the over-charged and highly competitive atmosphere that defines companies in the oil patch today, it’s easy to think that a company’s economic health is tied simply to its ability to effectively extract commodities out of the ground or move them to the marketplace. Of course that’s important, but it’s also not that simple. The energy sector’s impressive successes are built on innovation, original techniques, scientific advances and the development of effective business models, as well as the collective knowledge of its people. Those innovations and knowledge-based business approaches are what give companies a competitive edge and are valuable specifically because they are not publicly known.

Energy sector leaders occupy that space today because they have seized on innovations but also because they have effectively protected their sensitive data and trade secrets from an increasing range of internal, external, domestic and international threats.

What is a trade secret: Trade secrets can take a variety of forms in the energy sector. They can be specific techniques and processes, formulas, industry knowledge or business plans. Their inherent value comes from the fact that they are the product of exhaustive time and effort and the result of significant investments to capitalize on knowledge-based ideas.

All along the chain of companies upstream and downstream, knowledge-based techniques, innovations and technology increasingly mean the difference between winners and losers, and any single company’s future success hinges on their ability to protect these valuable trade secrets.

The wildcatter spirit, as well as the rapid growth, consolidation, and aggressively competitive environment that define energy sector companies today are the same attributes that make them vulnerable with respect to identifying and protecting their valuable intellectual assets. Smaller operations in particular are more likely to play fast and loose with their computer networks and forgo data security as they focus on the intense day-to-day demands of competing in these markets.

Threats to these intangible assets can spring up in different forms, including:

The Bad Leaver: An employee decides to strike out on his own and start a competing venture. Before leaving, the once-loyal employee obtains key data relating to your production techniques and uses this information to start a rival startup.

The Bitter Exec: Your company makes an ambitious move to capitalize on its success by making a strategic acquisition. A longtime executive feels slighted when he’s passed over for the opportunity to lead this new venture and decides to take his talents, along with some company secrets, to a competing outfit.

The Secret Sharer: A disgruntled worker obtains company data and offers it to the highest bidder or anonymously places it on an Internet site for all to see.

The Outsider Threat: Domestic rivals or state-sponsored international operations take advantage of the fact that your business has been a victim of its own success – so busy with day-to-day matters that you have not firmed up network security perimeters. Through sophisticated social engineering email attacks, hacking, and/or comprehensive advanced persistent threat (APT) scenarios, they find a way inside your network, exposing everything from your accounts payable department to your most valuable proprietary data.  In the most sinister cases, attackers can even find ways to keep a covert presence on your network, assuring their ability to access your confidential data for weeks and months at a time.

These threats are plenty to keep you awake at night worrying about, but companies that embrace basic good habits can significantly reduce their exposure. At a fundamental organizational level, there needs to be a very basic commitment by companies to take stock of their trade secrets and proprietary information. After all, you’ll never know what’s been lost, compromised or stolen if you don’t know what you have and where it’s kept in the first place. This must be a companywide approach.

Proprietary data should be identified and segregated in a secure area of your network. There’s no good reason why all employees need to have access to all areas of your network. Meanwhile, from an HR standpoint, workers at all levels need to know the rules regarding noncompete and nondisclosure agreements – not just that you have them but what they actually mean in practice and that your company is willing and able to enforce them – as well as polices regarding accessing and sharing data and best practices for using personal devices for work purposes and vice versa.

When employees leave, particularly under questionable circumstances, companies should do more than simply ask the worker to turn in their company-issued BlackBerrys and laptops. For example, make sure that remote VPN access is turned off to ensure that the potential for additional outflow of data is cut off. Data security professionals can look for red flags by checking on recent file accesses, USB device history, and internet activity, such as access to Internet-based cloud-storage sites, in the days before a departure.

It’s only through identifying and protecting your valuable proprietary information – and communicating those values to your workforce – that energy sector companies can create the foundation and systems for protecting these intangible assets.

The post Guarding Company Secrets From Departing Employees appeared first on Oil + Gas Monitor.

]]>