and Risk Management (R2M) – Hernando Gómez de la Vega Mogollón, President – Mexico
In an insightful and revelatory interview, the president of R2M is joined by Elisaúl Materán Linares, CEO and Fanny Guedez Sayago, Advisor of the Board & New Business Development Director, as they describe the dynamics of risk and uncertainty across the oil and gas value chain. Using concrete examples from their client accounts, they seek to demonstrate how sound management of latent risk can produce rapid performance leaps and a much stronger return on investment. They also describe why the Mexican oil and gas market is the perfect place to pioneer new ways of how to conceptualize risk and reliability.
We understand that R2M has established itself as a major player in the probability, risk assessment and reliability segment. Could you please tell us a little bit about the company’s origins and the most significant milestones and achievements to date?
Elisaúl Materán Linares: R2M has been in the market for more than a decade. The business originally started out in Venezuela before expanding into Colombia and Mexico where we currently maintain two offices including our corporate headquarters. We have conducted projects across a wide geographical reach encompassing locations as diverse as Saudi Arabia, India, Bolivia, Peru, Ecuador and Romania.R2M specializes in the assessment and management of risk at different stages of the oil and gas value chain from the acquisition of information, going through the production process, up to the marketing of the final product. One of our headline offerings to date has been the development of tools and training for asset value assessment using a multidisciplinary approach andstochastic methodologies.
Hernando Gómez de la Vega: One distinctive advantage with our methodologies, which are copyrighted, is that they don’t just take into account the visible risks that can be easily measured, but also the intangible risks such as those embedded in human personality. The oil and gas exploration, production and commercialization process is highly complex and thus exposed to many different forms of uncertainty which renders it highly appropriate to the sorts of analytical techniques that we employ. Our first activity in Mexico was an online training course in 2004 which very soon led to our being awarded Pemex contracts and thus the decision to relocate our head office over here.We have additionally enjoyed considerable success servicing private sector actors. For example, to date, we have trained around 250 Schlumberger engineers in probabilistic risk assessment.
What steps can oil and gas sector companies in the Mexican market take to improve the reliability and performance of their projects?
Hernando Gómez de la Vega: In conducting probabilistic risk assessments, R2M focusses on what we consider to be three primary components that will determine end outcomes: physical reliability, process reliability and human reliability. All too often, however, enterprises concentrate the bulk of their efforts on the physical aspect while being largely inattentive to the human dimension. They will channel resources towards inspecting their installations and upgrading machine parts, but will ignore the psychological wellbeing of the workforce and how this directly impacts human performance. Meanwhile our studies consistently demonstrate that it is actually the human reliability which accounts for 70 to 90 percent of the overall reliability of an entire process. If there is human error in the design phase, then those mistakes will be multiplied right the way down the chain of operations creating a cascade effect.
Elisaúl Materán Linares: The most important asset in many companies is the human capital. When you analyze the root causes of human error it may be down to factors such as personality or motivation which can be hard to change, but it may equally be down to the organizational mindset and corporate culture of conduct and it is in this area that considerable improvements can often be made. Many companies in the oil and gas sector are under a lot of pressure to up their performance and, despite investing large amounts of capital in state-of-the-art, latest generation hardware, the gains that they are registering are only incremental and modest. R2M, by minimizing latent risk and helping bolster corporate codes of conduct can assist its clients in realizing rapid performance leaps and a much stronger return on investment.
Could you, perhaps, give some concrete examples of this?
Hernando Gómez de la Vega: We have noticed examples where the workforce of a company has become so accustomed to irregular occurrences that this abnormal situation is regarded as the norm and the new status quo. If, for instance, on a petrochemical plant, a certain type of equipment part is frequently failing, the workers may become so habituated to this scenario that it ceases to bother them and then that tolerance of failure becomes gradually institutionalised and ingrained in the corporate culture with very negative implications for performance and productivity. We have modelled tools for identifying these kinds of latent risks and work with our clients to correct them.
Fanny Guédez Sayago: To give a specific example from my client accounts, I recently visited an offshore oil platform where alarm bells were frequently malfunctioning and ringing when they were not supposed to. The operating personnel had become so habituated to this happening that they routinely ignored some of them. Such a situation could potentially be highly dangerous in the event of a real incident. A much more mundane example would be where personnel are turning up late for their shifts and over time that too has become to be regarded as business-as-usual.
You have provided some good insights into the sorts of concepts you are seeking to introduce across the oil and gas value chain. Which segments currently constitute the core drivers of R2M’s business? And what are the emergent trends over time?
Hernando Gómez de la Vega: Consultancy, training and project development constitute the mainstay of R2M’s workload. Our project development offerings are increasingly popular because of the sheer superiority of our methodologies, tools and techniques. For example, the traditional way to formulate a ‘maintenance and contingency management plan’ for a refinery is very time intensive. This is because it doesn’t just involve analyzing the lifecycle of the plant’s working assets, but additionally the risks and uncertainties inherent within all surrounding supply and distribution networks. At R2M, we have managed to condense the whole process down to around only six months by reverse engineering and drawing up generic templates. Once we’ve surveyed the unique characteristics and operational context of a specific refinery, we will then determine which aspects from the templates apply and this allows for significant savings in time and cost. By deploying an ‘inductive’ rather than ‘deductive’ approach, our client can commence operations much more swiftly than would otherwise be the case.
Fanny Guédez Sayago: We have a growing role to play in the valuation of assets. On the one hand, the government is in the process of deciding which of Pemex’s assets to relinquish under round zero and at what price. The state is especially keen to avoid the sort of Venezuelan scenario where some oilfield in the Maracaibo Lake was sold on the basis of producing 3,000 barrels a day only for production to rise to 42,000 barrels thus leading to accusations that the assets had been undervalued and national resources ‘given away’ cheaply. On the other hand, incoming independent E&P companies will want to know the real value of fields being offered during subsequent bidding rounds and which areas represent best value for their investments. R2M can assist these decision makers in making the right choices because we have devised models to calculate Net Present Value across the entire value chain of exploration, production and commercialisation under a whole range of possible scenarios built with complex criteria such as technical parameters, operational, socials, and environmental, with information scarce, fuzzy and uncertain.
What are R2M’s priorities and aspirations going forward?
Hernando Gómez de la Vega: Regionally, we will be looking to expand into other countries such as Brazil and Argentina. Brazil’s Petrobras, for example, is very interested in what we have been doing in Mexico to support growth through assisting the government assign fair value to oil and gas assets. We also intend to introduce our concepts into the mining sector which is a very different type of business, but nevertheless one where many of the generic tools and techniques that we have been developing can still be applied.
Fanny Guédez Sayago: We are always seeking to develop our knowledge. We are never scared of sharing our technology and methods with our clients, because it is by sharing that we can refine our techniques and tailored solutions. Continuous developmentand technology transfer remains a core fundamental of our future strategies.
What piece of advice would you give to future participants in Mexico’s post-reform oil and gas market?
Hernando Gómez de la Vega: Risk and uncertainty are two elements that are born and die with all of us. Companies have to learn how to to handle and manage uncertainty to support sound decision making. Exploration and production is about risk and reward, and those companies that tackle the issue of uncertainty proactively rather than reactively are those that stand to benefit the most.