RISK MANAGEMENT IN OIL AND GAS CONSTRUCTION PROJECTS IN NIGERIA

DARLINGTON CHUKWUDI JIDEOFO

A dissertation su !itted in "artia# $u#$i##!ent o$ t%e re&uire!ents $or t%e de'ree o$ Master o$ S(ien(e )Ms(* in Constru(tion Mana'e!ent )Pro+e(t Mana'e!ent*

T%e S(%oo# o$ t%e ,ui#t En-iron!ent. Heriot/Watt Uni-ersit0

Se"te! er. 1223

I, Darlington Chukwudi Jideofo, confirm that this work submitted for assessment is my own and is expressed in my own words. Any uses made within it of the works of other authors in any form (e.g. ideas, e uations, figures, texts, tables, programmes! are properly acknowledged at the point of their use. A full list of the references employed has been included. "igned# $$$$$$$$$$$$$$$$$$ Date# $$$$$$$$$$$$$$$$$$

Ta #e o$ Contents

&ist of figures
'igure %()# Distribution of oil and gas fields and related infrastructure in *iger Delta area of *igeria$$$$$$$$$$$$$$$$$$$$$$ 'igure )(%# +epresentation of risk management process. $$$$$$$$$$$.. 'igure %(,# 'ramework for risk management tools 'igure -()# Distribution of respondents. /ob position 'igure -(%# Distribution of respondents. years of working experience 'igure -(,# Distribution of respondents. age group 'igure -(-# Distribution of pro/ect types executed by respondents 'igure -(0# Distribution of pro/ect ser1ices rendered by respondents 'igure -(2# Distribution of respondents. organi3ations years of experience 'igure -(4# Distribution of respondents. organi3ation.s employee si3e

&ist of 5ables
5able -()# Distribution of sur1ey responses 5able -(%# +esults of respondents. /ob position 5able -(,# +esults of respondents. years of working experience 5able -(-# +esults of respondents. age group 5able -(0# +esults of pro/ect types executed by respondents 5able -(2# +esults of pro/ect ser1ices rendered by respondents 5able -(4# +esults of respondents. organi3ations years of experience 5able -(6# +esults of respondents. organi3ation.s employee si3e 5able -(7# +isk ranking for *igerian oil and gas construction pro/ects 5able -()8# 5op ten risks statistics for *igerian oil and gas construction pro/ects

A(4no5#ed'e!ents All thanks goes to 9od Almighty who by his infinite power has made it possible to complete the research dissertation successfully. I attest to your steadfast protection and guidance in my life. 5o my lo1ing wife, :aka and my son ;melie for perse1ering, suffering and supporting me during the process of studying for this degree and in writing the research dissertation. 5o my dad and mum, Daniel and 'lorence, thank you for bringing me up to this stage of my life. <ncle <che, Aunt Chioma, my brother ;meka and my best man, Chi/ioke, without you guys I would not ha1e made it this far to reach this point of my life. 5hank you all for being a wonderful family. I acknowledge the close contact moti1ation, assistance and guidance gi1en to me by my dissertation super1isor, Dr. 9raeme =owles. All thanks to the entire faculty staff in the "chool of the =uilt ;n1ironment that has assisted me during my stay at >eriot(watt <ni1ersity. I gi1e special thanks to all who has contributed as respondents to the research dissertation. I hope that this research adds 1alue to your risk management practices in your 1arious pro/ects and organi3ations. &astly, I recogni3e all my friends and well wishers in *igeria and <nited :ingdom who has been a second family to me. I thank you for all your kindness and lo1e.

A stra(t +isk management is a 1ital decision making process that is useful for the successful deli1ery of pro/ects carried out by 1arious organi3ations. >owe1er, the practice is still not often carried out during the implementation of pro/ects in de1eloping countries? which includes *igeria. 5he purpose of the research dissertation is to identify the ma/or risks affecting oil and gas construction pro/ects in *igeria and to determine suitable risk response strategies to mitigate the ma/or risks. A uestionnaire sur1ey was carried out on employees and executi1es working in *igerian oil and gas construction organi3ations so as to identify the ma/or risks that emanate on oil and gas pro/ects 1ia statistical analysis. Informal in(depth inter1iews conducted with top managers? were also used to deri1e strategies so as to mitigate the identified risks. +esults of the research found that security threats from neighboring residents? incompetence of pro/ect team members? poor designs? late internal appro1als from clients? and poor and inade uate tendering, were the top(fi1e ma/or risks that emanate in oil and gas pro/ects in *igeria. 5he pro/ect executi1es proposed amending compulsory land use act and paying compensation fees to owners of ac uired oil and gas fields? enforcing corporate social responsibility (C"+!, enforcing laws on waste disposal, staff training, partnering, ade uate contractor selection, using concurrent engineering and total uality management practices on pro/ects, and reduction in gas flaring? as suitable strategies to mitigate the ma/or pro/ect risks in *igerian oil and gas pro/ects. 5here ha1e been 1arious risk management researches on the management of pro/ects in de1eloping countries. >owe1er, the research into the risk management practices in oil and gas construction pro/ects in *igeria is 1ery significant considering that the sector is the 0

most important contributor to the total re1enue of the *igerian economy? the 1olatile nature of products? and characteristics of the pro/ect en1ironment where the operation and processes are carried out, in a constantly changing dynamic en1ironment which is exposed to enormous risks.

C%a"ter 67 Introdu(tion
6868 Resear(% a(4'round7

9lobally, in the contemporary economy, oil and gas are 1ery 1ital elements that determine economic forecasting and performance. Crude oil plus other refined petroleum products are the largest single article in international trade either measured by 1alue or 1olume ("te1ens, %880! @il and gas is the most important energy source and it has -8A share in worldwide energy consumption and 74A in the transport sector. @il and gas infrastructures both indirectly or directly? pro1ide employment to a lot of people? and contribute a ma/or part of the world 9ross Domestic Broduct (9DB!. (=a/pai and 9upta, %884! 5herefore, it could be argued that the world economy depends on oil and gas. *igeria is the most significant oil producer in Cest Africa. 5he @il and 9as Journal (@9J!, in %882, estimated *igeria as the largest owner of natural gas reser1es in Africa and the se1enth largest worldwide (@9J, %882 cited in 9albraith, %886!? with an estimated crude oil reser1es totaling ,,.7 billion barrels. In %880, there was an a1erage oil production of %.2 million barrels per day (bblDd!. *igeria declared in @ctober %88-, a record of natural gas 2

reser1es to be as high as 228 trillions cubic feet (tcf!. Eost of the natural gas is found in crude oil as free gas and because *igeria lacks the expertise and infrastructure to produce the constituents of natural gas, the gases are flared. 5hus, *igeria flares -, percent of the total annual natural gas produced, thus, possessing the record as the country that flares the most natural gas than any other country of the world (9albraith, %886! In *igeria, the oil and gas sector has a ma/or influence in shaping the nations economy because it plays a ma/or role as the prominent re1enue earner and contributes o1er 68A of the nations 9ross Domestic Broduct. (Adewusi, )776? DB+, %880! 5he ratio of oil re1enue to total go1ernment re1enue has increased from %2., per cent to -4.0 per cent from )748 to %888 respecti1ely, with some percentage increases and decreases in between the years. (Ibrahim, %886! 5oday, the *igerian oil and gas industry has a strong growth rate and this has increased the demands for the construction of new oil and gas structures and facilities which are capital intensi1e. 5herefore, ad1anced strategies need to be de1eloped for the successful implementation of these pro/ects which ha1e huge capital in1estment, tight schedules, large stakeholder in1ol1ement, complex technology usage, and high social and en1ironmental impact. All these characteri3e the risks that oil and gas construction pro/ects are exposed to. (5huyet, et al, %884! +isks are always present on pro/ects because of the continuous exposure to both internal risks (construction, design, contractual, financial, personal, stakeholders and operational risks! and external risks (en1ironmental, social, political, economical, logistical, public and legal risks! 5he schedule, cost and uality of, pro/ects can be influenced negati1ely by these risks. (Charoenngam and Feh, )777! Chen harmful effects emanate from risk e1ents on oil and pro/ects due to unforeseen circumstances, the pro/ects aims and ob/ecti1es are diminished or halted. +isk management endea1ors to carry out a detailed study of all the aspects in pro/ect management so as to de1elop an action or a mitigation strategy or plan for all the controllable and uncontrollable risk e1ents. (Ahmed, et al., %884! 5hus, making risk management essential to the successful deli1ery of pro/ects. 4

(5huyet, et al, %884! argues that in the construction industry, risks usually cause cost and time o1erruns on pro/ects because of the inability of pro/ect managers in managing pro/ect risks effecti1ely, thus, delaying the planned schedule or exceeding the planned budget of pro/ects. >owe1er, it has been re1ealed that the oil and gas industry has greater risk management experience when compared with the construction sector because e1idence has shown that risk management is routine within the oil and gas industry while only few companies employ it in the construction industry. (&ock, )77% cited in =aker, et al, )777! 5he benefits and opportunities risk management offer to stakeholders of oil and gas construction pro/ects are enormous? although, there are some challenges encountered during the processes and practices which could hinder the reali3ation of the pro/ects ob/ecti1es. 5herefore, the central focus of the research dissertation is to use risk management practices to explore the ma/or sources of risks that emanate while construction acti1ities are carried out on oil and gas construction pro/ects in *igeria.s oil and gas sector. 6818 Ai!s and o +e(ti-es o$ resear(%7

5he research aims at identifying the risk factors that affect oil and gas construction pro/ects and deri1e suitable risk responses for them with a focus on the *igerian oil and gas sector. 5he research ob/ecti1es set out for reali3ing the aim of the study are as follows# %.) 5o determine the ma/or sources of risks affecting oil and gas construction pro/ects in *igeria %.% 5o in1estigate the fre uency of occurrence and the degree of impacts of the identified risks in oil and gas construction pro/ects in *igeria. %., 5o in1estigate if most oil and gas organi3ations carry out risk management practices in their 1arious oil and gas construction pro/ects in *igeria. %.- 5o determine effecti1e risk management strategies to efficiently mitigate the identified ma/or risks so as to pro1ide suitable recommendations for enhancing risk management practices in *igeria.s oil and gas construction pro/ects. 6898 Re#e-an(e o$ t%e resear(%7 6

5he research into the risk management practices in *igeria.s oil and gas construction pro/ects will be 1aluable to upstream and downstream oil and gas construction stakeholders (clients, contractors, researchers and all interested in1estors in the sector! as follows# ). "takeholders will be pro1ided with necessary information for enhancing risk management practices. %. Construction industry and oil and gas industry stakeholders will gain knowledge from each others experiences and lessons learnt ,. It will pro1ide in1estors with an insight of contemporary risk management practices and appropriate risk response strategies to adopt for future pro/ects. -. +esearchers will be pro1ided with a body of knowledge for carrying out future studies.

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Stru(ture o$ dissertation7