Is Risk Management and Innovation Important Element in Oil and Gas Industry?

24-09-20 Dr.Adnan 0 comment

One-third of the oil companies listed on the global financial market is threatened with bankruptcy. Globally, the oil industry ranks third place in the size of income it achieves. It has a high income and consists of three sectors; the exploration sector, that finds and drills oil and gas wells. The intermediate sector, that transports oil from wells, oil refineries. The downstream sector is to liquidate and sell final oil products such as gas, diesel, and gasoline


In oil companies, managing creativity contributes to reducing the high risks they might confront, as creativity is considered a way to offer something new or different. While risk is defined as getting unplanned results. We should take into consideration that creativity can be a risk, especially in a manufacturing operation as in the oil industry. Here, risk management becomes critical resulting from trying to achieve creativity.

This article explains much-needed creativity risk management in a high-risk industry such as the oil industry and explains how creativity develops risk management, and vice versa.


Managing the risks of creativity


Risks can be managed to start from evaluating risks the company might encounter, then develop a plan to reduce and deal with these them, and finally follow up and monitor the operational technology constantly.


Evaluating the creative risks that oil companies might face


The oil industry is considered unstable, so investing in oil companies is of high risk. Oil companies have a wide geographical reach over different countries, and the regulatory structure of oil companies is complex, yet they need to make quick management decisions.

When evaluating the risks of creativity, it is necessary to determine the risks and returns that the company can accept. There are gradual creations that are low-risk creations, and revolutionary creations that change the oil industry, and considered very high risk.

Oil companies face internal and external risks, as internal risks arise from events the oil company controls and external risks that result from events out of the company’s control.


Internal risks:


1- Oil companies confront technological risks, They invest in assets and technology putting huge amounts of money, because they depend on technology more than on labor, especially since the operating technology, the oil companies use, is usually unable to keep pace with the development of information technology or threats of information security breaches, because it is difficult for oil companies to update their operating technology continuously because of the high cost of modernization.

2- Environmental risks related to the possibility of causing harm and pollution to the environment.

3- Safety risks related to the safety of employees and workers and the safety of the equipment.


External risks:


1- Oil companies face economic risks including low oil prices, low demand and high operating costs

2-Political risks, namely, the risks of investing in a particular country, and the nationalization of government may be the most severe.

3- Risks of errors the employees do are usually high in oil companies.

4- The exploration sector faces geological hazards, which are the risks of drilling feasibility in an inappropriate location.


 Reduce the risks of creativity


The creativity risks of oil companies can be mitigated by the following:

1- The portfolio of creations should be diversified to avoid risking to invest in two or three innovations, especially since the process of selecting a creative project that deserves funding comes after eliminating many creations that failed to try.

2- Experience of creations as fast as possible and get feedback from the market to modify and improve creativity, for the ideas from the market are much useful to consider.

3- Use the Stage-Gate method, where inappropriate creations are rejected without completing the project. Each project is divided into stages, the decision-making process is based on the information available, and risk management is involved in all stages of the creative project.


Monitoring the creativity in the oil industry:


In its strategic technological plan, the British Oil and Gas Authority focused on the need for oil and gas organisations to increase their technological innovation.

Oil companies, like other companies, need creativity to be more competitive by offering new products or a distinctive experience to their customers, or by reducing their business costs to be more able to cope with lower oil prices.

The elements of creative management that enable market leadership are to set goals, plan to reach goals, pay attention to research and development, attract and select employees carefully, support their creators by forming a culture of creativity, finding the right partners to work with, especially with the difficulty of the oil company’s independence and work alone, and finally setting appropriate standards and different aspects, and the elements of creative management to measure the success of creative management and development.


Integrating risk management with creativity


Creativity contributes to the development of risk management tools efficiently and effectively. Innovators who have created companies that provide technology or services, develop risk management to operate efficiently and effectively, many tools emerge to calculate the result of a number of variables and scenarios. These variables and scenarios can be identified using the approach of the experience of innovations to manage risk in a volatile and unclear environment, as their experience reveals how the company’s environment works, discovers the potential variables, and hence predicts more about the potential risks.

Risk management encourages creativity in the light of the rapid developments that occur within the scope of the company’s acceptance of risk, where the company chooses the type of creativity it wants and its limits, in addition, the control, management, and measurement of the company’s risks of creativity make it more acceptable to take the risks of creativity and contributes risk management to the company’s creativity by identifying, analyzing and making recommendations for risk control.



The oil industry consists of various efforts that extract hydrocarbon from the ground and process them into products that can be used usefully. Risk management and creativity management can be seen as two departments between which many conflicts, considering that creativity adds risks to oil companies, especially in an environment that is unstable and facing fluctuations such as that faced by the oil industry, and the volatile environment can be seen as generating opportunities as well as threats.

Dealing with risk management and creativity management as complementary departments in their work, so that it is difficult for the oil company to be developed based on one department without the other so that the two departments act as a complementary base. Thus, we find many large companies around the world working to develop the performance of their employees by subjecting them to special training courses in risk management in the oil and gas industry in Dubai or London or Paris and sometimes in the headquarters of the companies themselves.

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