Enterprise Risk Management at Statoil
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Case Details:
Case Code : ERMT-025
Case Length : 14 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Statoil
Industry : Oil and Energy
Countries : Norway
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Risks in Acquisitions
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Statoil pursued attractive growth opportunities, sometimes by acquiring
businesses or properties that complemented or expanded its existing portfolio.
Statoil's ability to implement this strategy successfully depended upon a
variety of factors, including its ability to:
• Identify acceptable opportunities;
• Negotiate favorable terms;
• Develop the performance of new market opportunities or acquired properties or
businesses promptly and profitably;
• Integrate acquired properties or businesses into its operations;
• Arrange financing, if necessary...
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Risks in Operations
Statoil was exposed to various operations risks, including reservoir risk, risk
of loss of oil and gas production and offshore catastrophe risk. All
installations were insured, So the replacement cost would be covered by the
captive insurance company, which also had a reinsurance program. Under this
reinsurance program, as of December 31, 2002, approximately 70% of the
approximately NOK 110 billion total insured amount was reinsured in the
international reinsurance markets...
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Political Risks
Statoil had assets located in unstable regions around the world. There had been
war and civil strife in the Caspian region through much of the 1990s.
In addition, the states bordering the Caspian Sea disputed ownership and
distribution of proceeds from the Caspian's seabed and subsoil resources.
Statoil's activities in the Persian Gulf were vulnerable to disruption due to
war and terrorism... |
Health, Safety, Environmental & Catastrophe Risks
Statoil incurred substantial capital and operating costs to comply with
increasingly complex laws and regulations covering the protection of the
environment and human health and safety. These included costs to reduce air
emissions and discharges to the sea and to remediate contamination at various
owned and previously owned facilities and at third-party sites where products or
wastes were handled or disposed. Statoil was subject to statutory liability in
respect of losses or damages suffered as a result of spills or discharges of
petroleum from manufacturing facilities...
Financial Risks
Market Risks
Statoil had established an Enterprise-Wide Risk Management (ERM) Program for
managing market risks. The Corporate Risk Committee (CRC) met on a regular basis
to review the existing policies and implementation of the guidelines.
Statoil used a "top-down" approach to risk management, which highlighted the
most important risks and then used a sophisticated risk optimization model to
manage these risks...
Exhibits
Exhibit I: Statoil Income before Financials
Exhibit II: Statoil Sensitivity Analysis
Exhibit III: Statoil Market Risk of Equity Securities
Exhibit IV: Statoil Source of Fair Market Value
Exhibit V: Statoil OTC Derivative Asset is Split by Counterparty Credit
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