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Implementing Risk Management Within Middle Eastern Oil and Gas Companies

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Enterprise risk management (ERM) is a new paradigm for managing business risks, which is highly strategic in nature and is an array ofcomponents, put together through due process within anorganization that work together to manage risk over time efficiently and effectively and is purposefully broad in its definition

ERM now is a hot topic and a contemporary area intraditional risk management discipline.

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MECO is a national oil company established in 1940 when a Middle Eastern government granted a concession to a Western company in preference to a rival bid from a variety of Middle Eastern oil companies. It is among the world's most valuable companies, with an estimated value of $5 trillion to $10 trillion (U.S

dollars). MECO has some of the largest proven crude oil reserves, and is one of the largest daily oil producers across more than 100 oil and gas fields in the Middle East. Currently, MECO has an exclusive right to explore in key countries across the Middle East, although there has recently been a huge interest in entry to the countries by large international oil companies (IOCs). This interest comes despite the political unrest across the region and the constant threat of wars. Additionally, while in the past there has been little threat of IOCs receiving rights to explore, recently there has been pressure on MECO to improve efficiency, as it lags significantly behind the IOCs. Despite having exclusive rights, there is also the concern about diminishing reserves, and therefore a key focus for the organization is exploration and finding new oil fields.

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Many forms of risks are involved in the field of O&G and most of them are exposed to risks, suchas government policies, environmental incidents, operational, survival circumstances, and marketthreats. These risks should be managed in an effective manner or else it will lead to a huge effecton firm’s value (Nguyen et al. 2007)

Risks that occur frequently in O&G industries are political risk,environmental risk, operational risk, market risk; climate change risk, financial risk; regulatory risk;and, strategic risk, and these risks are increasingly evident, particularly during and after financial crises(Jalal-Karim 2013; Othman and Ameer 2008). Financial rises 1997–1998 have badly affected Malaysiancompanies and it is mainly due to the poor risk management (Yazid and Muda 2006).

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To summarize, with this increase in risk oversight came fragmented risk and control activities, resulting in increased demands on the business, and “risk fatigue” as business units were asked for the same or similar information from different departments for different purposes. Understanding and defining a clear organization wide risk picture became close to impossible, with duplication of effort and potential gaps in risk coverage. The resulting struggle of executives and boards to determine the adequacy of risk and control efforts led to the birth of ERM.

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Nguyen, Van Thuyet, Stephen O. Ogunlana, and Prasanta Kumar Dey. 2007. Risk management in oil and gasconstruction projects in Vietnam. International Journal of Energy Sector Management 1: 175–94.

Nocco, Brian W., and René M. Stulz. 2006. Enterprise risk management: Theory and practice. Journal of AppliedCorporate Finance 18: 8–20.

Hoyt, Robert E., and Andre P. Liebenberg. 2008. The Value of Enterprise Risk Management: Evidencefrom the U.S. Insurance Industry.

Jalal-Karim, Akram. 2013. Leveraging enterprise risk management (ERM) for boosting competitive businessadvantages in Bahrain. World Journal of Entrepreneurship, Management and Sustainable Development 9: 65–75

Walker, Paul L., and William G. Shenkir. 2008. Implementing enterprise risk management. Journal of Accountancy205: 31–33.

Yazid, Ahmad Shukri. 2001. Perceptions and Practices of Financial Risk Management in Malaysia. Ph.D. thesis,Glasgow Caledonian University (GCU), Glasgow, UK

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