After nearly five years of stability, crude oil prices have dropped over 50% in recent weeks. According to the “Global 2015 E&P Spending Outlook”, exploration and production spending by North American Oil and Gas companies could drop 30% in 2015, affecting budgets across the industry.1 However, despite potential budget restructuring, oil and gas companies should not sacrifice regulatory compliance and safety for profitability. Environmental, health, and safety programs must be viewed as an investment in the sustainability of a company, rather than as a subordinate expense.
Profitability, shareholder value, and cost control measures may initiate management to implement cost control measures. Regulatory compliance and response planning initiatives are often sacrificed during this process. However, the reality is that one emergency or crisis situation occurring because of noncompliance, or prolonged due to ineffective responses can cost a company many times the cost of implementing and maintaining an effective program.
In order for the oil and gas industry to continue to be one of the safest operating industrial sectors in the United States, the industry must continue to audit, test, and update preparedness endeavors and response capabilities. In the face of decreasing profits, many HSE programs involved in oil and gas, refining, petrochemical, manufacturing, and others, will encounter challenging operational environments and cost cutting initiatives. But in addition to fulfilling a moral responsibility to protect employees, the community, and the environment, an effective and exercised emergency management program must be prioritized in order to meet certain key strategic and tactical objectives. These include, but are not limited to:
- Facilitating compliance with Federal, State, and Local regulatory requirements, eliminating the threat of potential fines.
- Reducing property damage (ex. buildings, contents, pipelines)
- Enhancing the ability to recover from business interruption and loss (ex. damaged industrial, commercial, and retail facilities)
- Reducing indirect business interruption loss (ex. supply chain “ripple” effects)
- Reducing environmental damage (ex. wetlands, parks, wildlife)
- Enhancing a company’s image and credibility with employees, customers, suppliers and the community.
- Reducing other nonmarket damage (ex. historic sites, schools, neighborhoods)
- Minimizing societal losses (ex. casualties, injuries, layoffs)
- Reducing need for emergency response (ex. ambulance service, fire protection).
- Reducing exposure to civil or criminal liability in the event of an incident.
- Potentially reducing insurance premiums (check with individual insurance providers for associated savings).
The emergency response and crisis management planning investment becomes much more strategic when considering of the total cost of actual emergencies and incidents. In business, these terms and financial impacts are not discussed often, but emergency response and incidents have some of the gravest and most serious moral consequences regarding humanity and the environment. When an emergency can be prevented from escalation and/or affecting the lives of employees, communities, or the environment, a company must make every effort to prevent harm.
If government regulations are applicable to operations, companies must prioritize regulatory compliance in order to minimize financial burdens resulting from fines, negative public perceptions, and potential government mandated shutdown of operations. The increasing number of stringent regulatory compliance standards compounds the complexity of sliding oil prices and cost-cutting operations. Most companies believe they have the regulatory compliance component of their business under control. However, agencies such as OSHA, EPA, and DOT, continue to inspect and fine companies for non-compliance for a variety of infractions.
Companies can reduce overall costs associated with HSE programs by easing day-to day administrative processes, ensuring regulatory compliance, and implementing and maintaining effective response capabilities. Streamlining these efforts with enterprise-wide, web-based response planning technology and best practices formats can reduce overall costs associated with variegated plans and processes across multiple locations.
- Dittrick, Paula. Barclays Sees Likely Downside to North American E&P Budgets. Oil and Gas Journal. January 9, 2015.