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Understanding Risk Management in the Energy Sector: Key Insights and Takeaways

This class provides an in-depth review of risk management in the energy industry, featuring expert insights from leading professionals such as Steve England, Mitch Harless, and James Hughes. Participants engage in interactive discussions and gain valuable knowledge about risk types, the impact of natural disasters, and effective strategies for managing various risks. Expect to learn about the industry's cyclicality, economic factors, and the importance of strong insurance practices. Experience the best teaching methods, including real-life case studies and collaborative teamwork, for effective learning!

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Understanding Risk Management in the Energy Sector: Key Insights and Takeaways

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Presentation Transcript

  1. Agenda • Review of topics • Class structure INTERACT • Take-aways • Industry facts • Little fun

  2. Our Valuable Teachers • Steve England – AIG, Resident Vice President Mitch Harless – AIG, Vice President Global Energy Claims • Donna Pettersen McGinnis – Consultant for D&O at Dynegy • Cindy Chapman – Apache, Corporate Risk Manager • Robert D. Stauffer – President , OIL            • O.J. Sanchez – Principal,Decision Strategies • James Hughes – Director of Corporate Risk Management ConocoPhillips            • James Ferguson – Assoc. Gen Council and Director of Risk Management, Halliburton • Ted Gobillot – Assoc. General Council, Rowan • Bob Hixon – Managing Director, John L. Wortham & Son

  3. Class Structure How did we learn from this class? • Real-life experience of lecturers • Interaction through Q&A • Constant commitment through written assignments • Reinforcement of knowledge through presentations • Practice of team working

  4. How else could we have learned? • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • Any other ideas?

  5. Take-Aways • What did we learn from the class? • Concepts from the energy industry • Fundamentals in the oil and gas sector • Cyclicality of commodity prices • The magnitude of the operations • Notions of risk and how to insure and manage that risk • Impact of natural catastrophic events • Risk management is both an art and a science

  6. Cyclicality

  7. Gasoline Prices Source: U.S. Bureau of Labor Statistics

  8. Earth by Night Source: NASA (Nov 2000)

  9. Earth by Night

  10. Insured Loss & Claim Count for Major Storms of 2005* Hurricanes Katrina, Rita, Wilma & Dennis produced a record 3.2 million claims *Property and business interruption losses only. Excludes offshore energy & marine losses. Source: ISO/PCS as of February 8, 2006; Insurance Information Institute.

  11. Outlook for 2006 US Hurricane Season *Average over the period 1950-2000. **As of December 4, 2005. Source: Dr. William Gray, Colorado State University, December 6, 2005.

  12. Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2005) Seven of the 10 most expensive hurricanes in US history occurred in the 14 months from Aug. 2004 – Oct. 2005: Katrina, Rita, Wilma, Charley, Ivan, Frances & Jeanne Sources: ISO/PCS; Insurance Information Institute.

  13. Global Insured CAT Losses, 1970–2005(Property and Business Interruption) Billion USD, at 2004 prices There has been a huge increase in the insured value of global CAT losses in recent years Record $78 billion in insured natural CAT losses in 2005, compared to $5B in man-made disasters Source: Swiss Re, sigma No. 1/2005 & 2/2006.

  14. Types of Risks • Financial risk • Credit risk • Interest rate risk • Legal risk • Liquidity risk • Market risk • Reinvestment risk

  15. Steps in Managing Risk • Establishing the context • Identifying • Assessing • Treating • Transfer • Avoidance • Reduction (Mitigation) • Acceptance (Retention) • Creating the plan • Implementing • Reviewing and evaluating

  16. Types of Insurance • Health insurance • Life insurance • Property insurance • Casualty insurance • Credit insurance • Reinsurance • Self insurance • Travel insurance

  17. Property and Business Interruption Losses

  18. Did You Know? • History of transferring of risk • Smoking is bad! – risk and insurance • K&R insurance • Celebrities insured: • Bruce Springsteen • Marlene Dietrich • Fred Astaire • Tina Turner • Dolly Parton

  19. Famous Quotes • You don’t need to pray to God any more when there are storms in the sky, but you do have to be insured. (Bertold Brecht – german poet) • For almost seventy years the life insurance industry has been a smug sacred cow feeding the public a steady line of sacred bull. (NYTimes – Ralph Nader – 1974)

  20. Jokes The cowboy was trying to buy an insurance policy. The insurance agent was going down the list of standard questions. • "Ever have an accident?" • "Nope, nary a one.“ • "None? You've never had any accidents…" • "Nope. Ain't never had one. Never." • "That's hard to believe. No accidents at all?“ • "Well, rattler bit me one time.“ • "Wouldn't you consider that an accident?“ • "Hell no. Damned varmint bit me on purpose."

  21. Class Contest

  22. THE END

  23. Good Luck!

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