Integrity & Regulatory Compliance Management: Challenges of the 21st Century Energy Industry PMI Houston Process Industry Focus Group: Energy Corridor Scott M. Shemwell, D.B.A. April 25, 2011 Copyright © 2011 Knowledge Ops, Inc. All Rights Reserved.

Overture In the Good Ole DaysToday

Houston, We Have A Problem  Societal Legitimate Concerns Not Just Poor Perception or Misunderstanding Not Just the USA  Political Both Sides of the Aisle State & Local  Engineering Process Systemic & Complex Extending Across Supply Chain Risk Management Now Bet-Your-Company! Apollo 13 Damaged Service Module

Systemic Risk Management  Systemic vs. Occupational Only Systemic  Man, Machine, Process, Environment Interface  Holistic - More than Fault Tree Analysis  Linkages are Weak Points  Include Supply Chain Linkages  The Best Perspective Occupational  Simplistic  Slogans and OSHA “like” reporting  Good not Great (or acceptable today)  Systemic is ONLY Viable Approach Real Time Systems Appropriate Human Training

Compliance Influencers  Health, Safety, Environmental (HSE) Heightened Visibility License to Operate  Changing Landscape Regulations Other influences  The New Reality

Oil & Gas Deep Water Drilling Regulations Compliance Extensive new regulations, tracking, and reporting requirementsExtensive new regulations, tracking, and reporting requirements Offshore drilling has changed foreverOffshore drilling has changed forever How will energy companies respond to this wave of increased regulation, control, and oversight?How will energy companies respond to this wave of increased regulation, control, and oversight? How will energy companies quickly understand these new regulations, model the risk, and communicate to the organization?How will energy companies quickly understand these new regulations, model the risk, and communicate to the organization? Liability of Macondo Accident over $35B Extensive new regulations, tracking, and reporting requirementsExtensive new regulations, tracking, and reporting requirements Offshore drilling has changed foreverOffshore drilling has changed forever How will energy companies respond to this wave of increased regulation, control, and oversight?How will energy companies respond to this wave of increased regulation, control, and oversight? How will energy companies quickly understand these new regulations, model the risk, and communicate to the organization?How will energy companies quickly understand these new regulations, model the risk, and communicate to the organization? Liability of Macondo Accident over $35B October, 14, 2010, BOEMRE’s “Increased Safety Measures for Energy Development on the Outer Continental Shelf” (75 FR 63346) released.

Compliance Analogous to Sarbanes-Oxley

License to operate requires… Drilling Risk Assessment

Business & SOP’s Gov’t Mandates, Regulations and Legislation Contractual Obligations Industry Practices Tribal Knowledge Embedded in Legacy Systems and Documents Company Culture

Operating Procedures Task Force: Well Construction Interface Document (WCID)  Well construction interface / Basis of design Location & environment Geologic and geophysical Well design Well barriers (with much detail) Casing design Well execution plan (with detail) Critical well Risk Assessments Operator’s MOC  Drilling contractor safety case and lease operator SMS interface Management structure / RR’s / Acct Drilling Contractor MOC Personnel management Well control procedures Risk management processes Emergency response Monitoring, auditing and review Industry Best Practices

Corporate Governance; circa 2002  Public companies fought Sarbanes Oxley Now the Law of the Land  Additional Benefit of SOX In 2002, McKinsey / Global Corporate Governance Forum  Over 75% of 200+ fund managers would be willing to pay more for stock in companies with strong governance.  North America and Europe market value averaged 12-14% higher for firms with strong shareholder rights By 2005 this gap had closed Now the Same for Drilling Compliance !

Energy Industry Compliance Matrix Originally published by Shemwell, Scott M. (2011, January) The Blast Heard Around the World. Petroleum Africa Magazine. pp

Final Thoughts  Complex Energy Infrastructure Critical for the Global Economy  Societal Intolerance  License-to-Operate At Risk  Cost of Failures are High & Real Apollo 13 Splashdown

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