Oil exploration is a major global economic activity. Most states in the world are entirely dependent on oil as their only sole revenue-generating unit. In the recent moment many countries are either in cold war over ownership of oil deposits or are actually in serious physical conflicts. This trend is likely to continue with the increasing population pressure and that the ever scarce economic resources continue to remain more limited. This paper has actually highlighted possible risks and the remedies, identified the ecosystems which include Land, Water, Vegetation/forests, and air. It has also identified the relevant legislation affecting each ecosystem i.e. land and Acts and applied them in the exploration process. Consideration should be taken for further reading and understanding this coursework.
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Oil exploration has made economies of countries like Ecuador, Nigeria, Colombia, Kuwait, Kazakhstan and Azerbaijan maintain a stable growth despite the global crisis that has sent some of the giants packing down to the mire of hopelessness. However the presence of oil has turned into calamities in certain countries since these countries have been turned into constant battlefields. (Peak Oil News 2008)
In this paper we take a critical analysis of several environmental regulations and the social impacts on the entire environment of the whole process of exploring how it can be a stumbling block in an organization especially in its bit to position itself well in the industry. In many management topics environmental management has hitherto made frequent appearances. Several authors have synchronized the emerging issues that become or appear to be the bone of contention in this area and criticized the actions taken by different organizations in environment management. (Peak Oil News 2008)
Risk assessment procedures
Risk refers to the probability that an uncertain event will occur and is likely to cause adverse impacts on the operations of the company. In each and every organization there is a specific department charged with risk assessment. Businesses would want to be assured of their continuous performance regardless of the nature of uncertainties that may face them. (Wilso&, McCutcheon2003) In this case this is an oil industry and the different types of risks are discussed below. Being a company consultant I will provide the following as the risk assessment document:
- Identify inherent risks in the industry: The manager should be able to identify the risks associated with carrying out a project before the work commences. This will help the manager to know which mechanisms can be arranged to mitigate the impact. (Fert Research 2007)
- Assess the organization’s methods for detecting risks: Organizations should have a formal procedure for handling risks; if the methods used are inadequate I will give my advice on which method is the most appropriate. (Fert Research 2007)
- Understand the risks: Before any further step is taken a firm must understand the risk, this will provide an overview of the nature of the risk and give hints as to the solution. (Fert Research 2007)
- Determine the probability of risk occurring: Determining the probability of risk occurrence will give the firm adequate time to prepare itself to deal with such circumstances accordingly. If the organization fails to prepare then it can be very consequential. (Window security.com 2009)
- Measure the impact of risk on the organization: Measuring the magnitude of the risk will reveal necessary pieces of machinery to be put in place in order to deal with such risks and reduce them to an acceptable level. (Window security.com 2009)
- Set adequate procedures to reduce or eliminate the risk.
As an independent consultant my responsibility will be to advise the company accordingly, give accurate data that will help the company to make valid assumptions before any exploration begins. The different environments that are likely to be affected here include, land, waters, forests, and finally air. We are all aware that oil exploration is normally associated with harmful effects on the above-identified ecosystems. Since the topic is about environmental issues my main responsibility will be to carefully analyze the extent of the impact imposed on the above ecosystems and to provide a procedure of how they can be reduced or prevented where possible. (HENRY &HEINKE 1996) The risks that are likely to be associated with this project include, exploration, regulatory, discovery, contract, pricing, environmental compliance, reserve, production, operational, title and tenement risks.
There are quite some regulations and legislations on environmental issues. They include:
Fisheries Act: This statute applies where there may be harmful alteration, disruption or destruction of fish habitats as a result of oil and gas exploration. Any mining activities should never be a threat to the future survival to fish. The firm should therefore not attempt to violate this act. If the firm fails to comply with this act then it will be liable for prosecution. (Federal statutes 2007)
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Environmental protection Act, 1999: this is a federal statute that controls the manufacture, storage, transportation, use and disposal of designated substances and biological materials that may be detrimental to human life, health or environment. The company should be able to observe this to avoid being prosecuted. (Fert Research 2007)
Environmental Assessment Act: this is a statute that requires exploration companies to submit reports on environmental assessment of projects. In issuing this report public consultation is required. Companies must ensure that they adhere to all relevant environmental regulations before the report is tabled to the concerned authority. (Fert Research 2007) This will ensure that every aspect of a single statute that is a responsibility is complied with.
Navigable waters protection’s Act: This statute governs the protection of navigable waters; any project that is likely to interfere with the waterways is authorized prior. (Fert Research 2007)
Land settlement Act: This act provides that the land obligations are fulfilled before any activity is commissioned. It is therefore important that the extracting firm observes all the land obligations at the initial stage to avoid disruption of the major activity once commenced as this is likely to lead to insurmountable financial losses. (Window security.com 2009)
Species at Risk Act
This is a federal statute that protects the rare species cohabiting a given ecosystem. The regulations require that the extraction of oil or gas does not threaten the survival of the rare animal and plant species. Any activity that violates this will be tantamount to legal prosecution. (BOYLE 2009)
Operation Stages: at this stage the company will have commenced extraction and the following are the risks that the company is likely to face, and how they are likely to be mitigated.
Compliance risks: These are events and uncertainties that may befall the firm by failing to adhere to the environmental regulations set by the state or international bodies. They may include environmental protection and biodiversity council. The role of the management is to give direction compliance and to ensure that all regulations whether local or international are complied with. Before the company begins exploration I will ensure that proper procedures are put in place to ensure that there are friendly ways of dumping wastes, and that emission of toxic substances is thorough. (Wilso&, McCutcheon2003)
Regulatory risks: When carrying out such projects the company should obtain relevant documents regulating such activities. This is to ensure that the company is not prosecuted for failing to obtain licenses for such projects. States normally require that such operations undergo thorough scrutiny to determine their authenticities. By doing this the firm shall have eliminated the risk that it may be sued. (BOYLE 2009)
Exploration risks: It is not certain that the company’s exploration process will be positive; many explorations which have been carried out have always proved unviable as a result of failure to find oil deposits. It is therefore in the interest of the firm to decide which methods give the desired outcome. My responsibility will be to employ experienced individuals with relevant professional and technical qualifications to achieve the desired results. This will help the company to reduce the risk of inadequate exploration skills. I will also advise the company to use consider using technological methods in carrying out research for the exploration. Obsolete equipment has always led to failure. (Wilso&, McCutcheon2003)
Production risks: These refer to the probability that the firm may not be able to produce adequate inventory to counter the anticipated market demand. Production is usually influenced by technology employed and the workforce available. If the firm employs maximum use of the current technology then it will be able to reap early benefits that are conversant with the shareholder’s wealth maximization objective. My responsibility will be to advise the firm to introduce tight production targets and then provide the necessary motivation for the staff to achieve. (BOYLE 2009)
Price risks: The oil industry is price volatile; in fact price volatility is one major problem that has left many oil countries in a tug of war. Since the price of any given commodity is controlled by the demand and market forces in any industry it will be difficult to predict price movement however certain measures may ensure price stability i.e. adequate stocks, regular supply and demand control. I will therefore encourage the company to produce enough stock and appoint a reliable distributor with credible distribution channels and outlets. This will ensure steady supply into the market and thus avoid adverse price fluctuation in the market. (Wilso&, McCutcheon2003)
Safety risks: These are risks that the firm may not be able to set safety and regulation rules. In the workplace there are injuries caused to employees as result of failing to observe safety rules. They can be easily avoided by communicating the general importance to the employees and the entire environment. Serious injuries caused to staffs reduce production to a considerable. I will ensure that each and every employee is provided with a copy of safety rules upon entry into the worksite. This can go a long way in reducing safety risks on the site. (BOYLE 2009)
Organizations and environment are interrelated in that organizations draw large amounts of natural resources from the environment but take back nothing. Firms mainly those that depend on environment entirely for natural resources and at the same time produce toxic substances to the environment should be at the forefront in meeting the societal expectations. Oil extraction firms depend on land and water for oil deposits, in the extraction process there are machines used that are not environmentally friendly, produce a lot of carbon. The land is also left derelict i.e. agriculturally unproductive, no vegetation, dangerous and ugly looking. The social responsibility of these firms is to harness and reduce the effects on the environment. (Ian 2008)
Importance of social responsibility
Sustainability: Most high-performance organizations are future-focused, they use the currently available resources without a compromise to the future generation. Oil exploration firms should note that exhaustive consumption of the current economic resources without regard to the future generation is actually dangerous. Resources like land, water and vegetation should be utilized with care in order to ensure future existence of other businesses. (Ian 2008)
Public image: A good firm is one that is caring about its area of operation, its clients, community and the public at large. By incorporating the needs of a society in the company’s expansive plan is a sign of professional ethics. If the public perceives an organization to be environmentally friendly it develops a positive attitude towards the company and hence may lead to increased revenue being recorded. (BOYLE 2009)
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Multiple objectives: A business is not just an investment vehicle, it has other social obligations. According to management scholars most businesses exist to make profits but Peter F Drucker argues that there are other organizational objectives including social responsibility. A wider view of organizations suggests that organizations are formed by human beings and they exist to perform more than just an economic role. (HARRISON 1996)
Interdependency: Organizations draw large amounts of natural resources from the environment, so it is important that they act with regard to the welfare of the society. They also introduce externalities into the environment. It is therefore significantly important that they take the full responsibility for harnessing these effects. (HARRISON 1996)
The major issues addressed here are environmental. The risks that are likely to befall the company in the extraction process and how the company can be able to mitigate these risks to realize a meaningful production. Several legislations that the company is likely to contravene are also highlighted in this analysis. However the success of this project will depend on the management knowledge to implement the professional assessment criteria as provided by the consultant. (Window security.com 2009)
What makes this topic to be interesting is that environmental management has become a tool for rating organizations especially those that are in the oil industry. Pollution has become a major global challenge and the associated ailments like cancer, disabilities, and climatic effects are on the increase. (BOYLE 2009)
Oil companies are also being blamed for depletion of economic resources, civil wars and disruption of environment. It should be in the interest of the management that there is maximum adherence to environmental laws and regulations. (HARRISON 1996)
When extracting firms realize that the availability of oil deposits begins to deteriorate they gradually disappear, as they prepare to leave small firms take over. However the problem has been how to deal with issues of employment and environmental impact. Small firms do not have adequate policies to address and therefore it’s the responsibility of the decommissioning firm to set proper procedures to address all problems.
Oil exploration is a capital-intensive venture firm should be assured that the exploration prospect is positive and is likely to give favorable returns to the institutional investors. If this is not done then the firm can implicate itself into big financial losses. This can be unacceptable and discouraging to young investors who may be having the same idea. The feasibility of the project should also be looked at in terms of risk assessment.
BOYLE T 2009, Health & Safety Risk Management, ISBN0−9013−5727−3
Federal statutes 2007, Federal Acts and Regulations, Web.
Fert Research 2007, Identify environmental Risks and assess their significance, Web.
HARRISON RM 1996, Causes Effects and Control, 3rd Ed. Royal Soc. Chemistry, ISBN 085045341
HENRY JG, HEINKE GW 1996, Environmental Science and Engineering, Upper Saddle River. Prentice Hall. ISBN 0131206508
Ian, T, etal 2008, The economics of ecosystems and Biodiversity, A Bason Production, Cambridge, UK.
Peak Oil News 2008, Human’s Biggest Blunder, Web.
Wilson, L, McCutcheon, D 2003, Indusrial safety and risk management, University of Alberta Press.
Winow security.com 2009, Risk assessment and threat identification, Web.