Risk Management in Oil and Gas Construction Projects in Developing Countries: the Case of Iraq

Table of contents




Introduction 6

Chapter 1. Theoretical aspects of risk project management and risk management in

oil and gas construction projects 10

1.1. Project management and risk management 10

1.1.1. Concept and importance of project and project management 10

1.1.2. Concept and importance of risk and risk management 13

1.1.3. Risk management processes 18

1.2. Review of project risk management in oil and gas construction projects 26

1.2.1. Risk management in construction industry 26

1.2.2. Risk management in oil and gas industry 30

1.2.3. Relevant literature of investigation risk management processes in oil and

gas construction project 32

1.2.4. Review of oil and gas construction project in Iraq 34

Chapter 2. Research methodology 37

2.1. Development of research problem, research aims and research hypotheses 37

2.1.1. Research problem statement 37

2.1.2. Research aim and tasks 39

2.1.3. Research hypotheses 40

2.2. Research design and research strategy 41

2.3. Identification of risk factors affecting oil and gas construction projects in

Iraq using semi-structured interviews 44

2.4. Current situation of oil and gas construction projects in Iraq 49

2.5. Analysis of risk factors affecting oil and gas construction projects in Iraq

using questionnaire survey 65

2.5.1 Risk analysis method 65

2.5.2. Survey design and data collection 66

2.5.3. Methods and processes of data analysis 68

2.6. Implementation risk responses and strategies to mitigate major risk factors in

oil and gas construction project in Iraq using informal interviews 72

Chapter 3. Findings, discussion and recommendations 74

3.1. Results of analysis and discussion 74

3.1.1. General statistical analysis 74

3.1.2. Analysis of respondent’s perceptions and ranking risk factors 80

3.1.3 Comparison analysis of respondent’s perceptions and test hypotheses .. 87

3.2. Suggestion risk responses and mitigation strategies for major risk factors in

OGC projects 95

3.3. General recommendations 103

Conclusion 106

References 109

Appendix 1 114

Appendix 2 120

Introduction

In the recent decades, there has been a continuous increase in energy consumption and demand for oil and gas as a result of the continuous growth and development in the world and population growth. It is expected that the energy consumption and the demand for oil and gas will increase significantly in the future. Therefore, there is a great pressure on oil and gas sector in developing countries to increase the production capacity of oil and gas. The increase in production capacity is through the implementation of construction projects to expand and upgrade the existing facilities in oil fields and build new facilities in existing oil fields and newly explored fields. OGC projects require effective management at organizational and project levels to meet the desired result of these projects.
...

1.1.1. Concept and importance of project and project management

There are many problems and needs that we face in our life that require their solution by conducting certain activities that lead to creation of a product or a specific result to solve this problem or meet this need. These activities are either continuous, and they are continuously accomplished to achieve the relevant continuous goals for people or organizations and this is called an operation, or that its nature is not continuous and ends with the desired result or product and this is called a project. The main idea of the project is to create a solution to a specific problem that has been cleared at present or it is an old problem that has not been solved yet. In the literature, there are several definitions of the project. According to the Project Management Institute (PMI), the project can be defined as “a temporary endeavor undertaken to create a unique product or service” [PMI, 2017].
...

1.1.2. Concept and importance of risk and risk management

Currently, every organization faces many uncertain events that occur at different levels and environments within the organization and its project with varying degrees and impacts on the project objectives and strategic objectives of the organization [Aven, 2011]. Some of these events may have a positive impact and others have a negative impact on the outcomes and objectives of the enterprise and its projects. These events are related to their size and probability, as the event is certain if the probability ratio is 100%, and if the probability of occurrence is 0%, it is not certain entirely, and between these two possibilities the uncertainty occurs on a large scale [Jaafari, 2001]. The events with negative impact called risk.
...

1.1.3. Risk management processes

Effective and successful project risk management can be obtained from a comprehensive risk assessment. In this regard, many studies have proposed a range of project risk management processes. In the process of establishing risk management in general, the events surrounding the risks must be considered to understand their nature and sequence. Risks inherently consist of a sequence of three events: cause, event, and consequences. Gradually, these events have been transformed into risk management processes. In general, risk management processes can be divided into risk identification, classification, risk assessment and risk response [Cagliano et al., 2015]. Risk management processes also were classified by [Althaus et al.
...

1.2.1. Risk management in construction industry

Construction industry is one of the most important and oldest industries and has attracted the attention of many researchers since ancient times. Projects in the construction industry are unique and have their own characteristics that distinguish them from the rest projects of other industries, and therefore have their special applications, practices, goals and barriers. In literature, many researchers and guides discussed these special characteristics of construction industry which increase risks and uncertainties of construction projects and limit the success of these projects. Many researchers in the literature in several studies have agreed on the most important of these characteristics, which are as follows:

1) Most of the current construction projects are large, complex and strategic in nature [Baker et al., 1998, p. 567; BSI part 1, 2006].
...

1.2.2. Risk management in oil and gas industry

At present oil and gas industry is considered one of the most important industries and has received great attention from countries and international institutions. This attention is because of the oil and gas industry is considered one of the most demanding and challenging industries in terms of technology and engineering, every facility of this industry has unique requirements, and also because it plays a major role in building developing countries and economies. In the past decades, oil and gas industry has taken on growth and is expected to grow significantly in the future compared to other industries. This growth is because of the demand of oil and gas processing and extraction capacity is increasing and this demand is expected to double in the next few years and global investment in energy projects will also increase [Berends, 2007, p. 4260].
...

1.2.3. Relevant literature of investigation risk management processes in oil and gas construction project

In literature, there is a fact that oil and gas industry compared to the construction industry is existing in a harsher and hostile financial environment and more beneficial. Therefore, oil and gas industry is more conscious, the trend towards risk management is greater and the risk management practitioners are more than the construction industry. Construction projects in oil and gas industry are a combination of the two industries and therefore contain high levels of risk due to the large investment, advanced and complex technology, the involvement of many stakeholders, the dynamic environment of these projects, and the highly

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competitive financial environment in both industries.
...

oil and gas construction project in Iraq using informal interviews 72

Chapter 3. Findings, discussion and recommendations 74

3.1. Results of analysis and discussion 74

3.1.1. General statistical analysis 74

3.1.2. Analysis of respondent’s perceptions and ranking risk factors 80

3.1.3 Comparison analysis of respondent’s perceptions and test hypotheses .. 87

3.2. Suggestion risk responses and mitigation strategies for major risk factors in

OGC projects 95

3.3. General recommendations 103

Conclusion 106

References 109

Appendix 1 114

Appendix 2 120
Abstract

There is great pressure on oil and gas sector in developing countries to increase production. Production can be increased by executing oil and gas construction (OGC) projects for new facilities or upgrade existing facilities. OGC projects are complex, risky and often contain cost and time overruns. Therefore, this research aims to identify, assess and derive responses for risk factors affecting OGC projects in Iraq.
...

1.2.4. Review of oil and gas construction project in Iraq

Iraq is facing many political, economic and social challenges as a result of wars and political conflicts which occur in varying periods and from a long time. In a recent study by [IEP, 2019], Iraq was ranked among the five worst countries in the world in terms of peace and security among 163 countries. As a result of these wars and security crises, Iraq has incurred many debts and remains indebted to many countries and banks. In addition to the security risks in Iraq also suffers from corruption as the Transparency International places Iraq in the Corruption Perceptions Index (CPI) as at forefront of countries where administrative and financial corruption and lack of transparency exist [TI CPI, 2019].
...

2.1.1. Research problem statement

The world is in constant development and growth and the population is increasing continuously, therefore there is a continuous increase in energy consumption and an increasing demand for energy sources. Currently, the most important and most requested sources of energy are oil and gas. There is an increase in oil and gas demand and this demand is expected to increase in the coming years and decades. Therefore, there is pressure on oil and gas sector in each country that contains oil and gas to increase production and develop oil and gas fields by establishing new projects that will increase the capacity to produce oil and gas more and are called oil and gas construction projects. These construction projects require to be managed them effectively and efficiently to achieve the desired project results on time, with the specified budget and with the desired quality.
...

2.1.2. Research aim and tasks

Based on the research questions and issues, the overall aim of the research is to identify, analyze and derive responses for risk factors affecting oil and gas construction projects in Iraq and serves as a case study for developing countries. Accordingly, in order to achieve the overall aim and answer research questions, the following task are developed:

1) Review of concept and importance of project management and project risk management.

2) Review of risk and project risk management in construction industry and oil and gas industry and subsequently in OGC projects.

3) Investigate the awareness of project management and project risk management in OGC projects in Iraq and examine the challenges that face these projects.

4) Identify the potential risk factors associated with OGC projects in Iraq.
...

2.1.3. Research hypotheses

In this research, five null hypotheses were developed to answer five research questions which are (Q3, Q4, Q5, Q6 and Q7). These five null hypotheses were chosen to compare the participants’ judgments in analyzing risk factors in OGC projects and determining the criticality of each risk factor according to job title of respondents, their educational level, their work experience, and type of their company. These five null hypotheses are as follows:

H1. There is no significant difference in judgement of the participants in OGC projects with different job title, on importance and criticality of risk factors affecting these projects.

H2. There is no significant difference in judgement of the participants in OGC projects with different educational level, on importance and criticality of risk factors affecting these projects.

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H3.
...

2.2. Research design and research strategy

To achieve the overall aim of the research and conduct research tasks, the research was divided into four stages using four methods, which are literature review, semi-structured interviews, survey questionnaire and informal interviews. The first stage consists of a review of the literature on the history, importance and concept of project management and project risk management, and a review of risk management and its challenges in the construction, oil and gas industries, and an overview of these industries in Iraq. The first stage also included a review on the relevant literature in identifying, assessing and responding to risk factors in OGC projects.
...

2.3. Identification of risk factors affecting oil and gas construction projects in Iraq using semi-structured interviews

Qualitative studies are useful in collecting information from face-to-face interaction with practitioners who have experience of the problems in the site and help to collect data from different sources, like interviews and documents review. The interviews were chosen to identify the risk factors because they allow the interviewer more freedom to control the interview, thoughts and answers are easy to express, needed simple tools such as notes and a recorder, and allow to obtain more in-depth information.

There are three kind of research interviews which are structured, semi-structured and unstructured interviews.
...

2.4. Current situation of oil and gas construction projects in Iraq

This section is conducted to investigate the current situation of OGC projects in Iraq, examine the current project management and risk management in OGC projects and investigate the most important challenges facing OGC projects. As mentioned previously that the information in this section was obtained from the responses of semi-structured interviews according to the perspectives of practitioners in OGC projects in Iraq.

Oil production in Iraq began in 1927 in Kirkuk field in Iraq, and oil production in other fields followed after that. Regarding the production of gas associated with the oil production process, recently (in 2018) Iraq starts product and export liquid gas. The Iraqi ministry of oil, represented by the Iraqi oil and gas companies like Basra Oil Company and Basra Gas Company, is the owner and responsible of oil exploration and extraction and gas production and extraction.
...

2.5.1 Risk analysis method

In order to assess the risk factors in OGC projects, a list of identified risk factors must be present. The list of potential risk factors that affect OGC projects in Iraq was defined in semi-structured interviews where 35 risk factors were identified as shown in (Table 1). There are many methods and techniques used to analyze or assess risks and are mentioned in (Section 1.1.3.). The majority of these methods to assess the two attributes of the risk, namely the probability of the risk occurrence and the impact magnitude of this risk if it occurs on the project results. The risk criticality (RC) index method was chosen in this research to assess and rank all potential risk factors in OGC projects in terms of criticality or importance. Risk criticality (RC) index is a function using for evaluate two attributes of each risk factors that are the likelihood of occurrence (L) and the magnitude of impact

(I) [Zou et al., 2007; Hwang et al., 2015].
...

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