A User’s Guide to Policy Implementation

Perspective of the Author
Presented at

The 6th Young Leaders Program University of Hawaii Scott M. Shemwell, D.B.A.
August 6, 2011

Copyright © 2011 Knowledge Ops, Inc. All Rights Reserved.

The views, opinions, positions or strategies expressed by the author and those referenced organizations and/or individuals are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of the Northeast Asia Economic Forum, The 6th Young Leaders Program, University of Hawaii, sponsors, Knowledge Ops, Inc., or any employee thereof. The author make no representations as to accuracy, completeness, suitability, or validity of any information contained herein and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its use. Moreover, the author does not endorse any of the organizations or products referenced in this discussion. Links to their web sites are provided only as a courtesy for those interested in additional information/research. Knowledge Ops, Inc. is an Oracle partner.

About Knowledge Ops, Inc.
Field Operation Processes & Decision Support
 Field Based Information Infrastructure  Operations & Maintenance  Logistics

Principals have extensive experience in upstream field operations
 Acknowledged expertise  Published  Senior executives with major industry players  Industry  Military

Vetted Solutions

Knowledge About Operations Spinout

 Business Process Modeling (BPM)  Information and Data Flow  Established professional services firm  Extensive tested and documented methodology

Discussion Points
Two Brief Energy Case Studies
 Gulf of Mexico Drilling Moratorium  Marcellus Shale, New York

Policy Automation
 One Solution

Marcellus Shale

BP Macondo aka Deepwater Horizon Incident
 April 20, 2010
    Game Changing Incident More than just another industrial accident Eleven deaths Lost of Transocean drilling rig ~$750 million asset

 Six Month “Deepwater” Drilling Moratorium

 Economic Impact –
     

 De facto ALL Gulf of Mexico shallow water drilling too
J.R. Mason

 New / Onerous Regulatory Reform
 BOEMRE October 12, 2010

Up to 19,000 jobs lost Wages lost ~ $1.1 billion ~ $500 million lost tax revenue At least one drilling company bankruptcy Environmental impact still unfolding + BP staggering costs!

Compliance Influencers
 Health, Safety, Environmental (HSE)
 Heightened Visibility  License to Operate

U S Deepwater Regulatory Compliance Landscape
Interested Constituents
US Federal Elected Officials
Commissioned Panels President Congress U.S. Department of the Interior; BOEMRE

Regulatory Authorities

Federal Deepwater Drilling

Industry Groups
U.S. Chemical Safety and Hazard Investigation Board API IADC SPE ISA

Capital Markets Insurance Rating Agencies

HSE Compliance

Key State Agencies
Texas Railroad Commission Louisiana Office of Conservation and the Office of Mineral Resources

 Changing Landscape
 Regulations  Other influences

Governments Groups Other Industry Segments Population

Best Practices
Project Management institute DNV WCID Safety Case

Key Federal Agencies
U S Coast Guard U S Dept of Labor (OSHA) U S EPA Natural Resource Damage Assessment (NRDA)

 The New Reality

Federal State Local


Media Academic Think Tank

Disclaimer: EXAMPLE ONLY The constituents depicted on this graphic are not all inclusive, but are typical and only shown to address the complexity of this issue. The company and/or its authors shall not be responsible or liable for the accuracy, usefulness or availability of any information herein, and shall not be responsible or liable for any decisions made based on such information.

Copyright © 2011 Knowledge Ops, Inc. All Rights Reserved.

Oil & Gas Deep Water Drilling Regulations Compliance
October, 14, 2010, BOEMRE’s “Increased Safety Measures for Energy Development on the Outer Continental Shelf” (75 FR 63346) released.

• Extensive new regulations, tracking, and reporting requirements • Offshore drilling has changed forever • How will energy companies respond to this wave of increased regulation, control, and oversight? • How will energy companies quickly understand these new regulations, model the risk, and communicate to the organization?

• Liability of Macondo Accident over $35B

Analogous to Sarbanes-Oxley

License to operate requires…

Drilling Risk Assessment Process

Operating Procedures Task Force: Well Construction Interface Document (WCID)

Industry Best Practices
Drilling Contractor’s Safety Management System
W Construction ell Interfacing Docum ent

Well construction interface / Basis of design
Lease Operator’s Safety Management System

Well Basis Of Design

 Location & environment  Geologic and geophysical  Well design  Well barriers (with much detail)  Casing design  Well execution plan (with detail)  Critical well Risk Assessments  Operator’s MOC

Drilling contractor safety case and lease operator SMS interface
 Management structure / RR’s / Acct  Drilling Contractor MOC  Personnel management  Well control procedures  Risk management processes  Emergency response  Monitoring, auditing and review

Drilling Contractor’s Safety Case

Risk Analysis & M itigation M anagem of Change ent Personnel Com petency

Well Execution Plan

Critical Well Activity Risk Assessments

Energy Industry Compliance Matrix
Probable License-to-Operate Regulatory Compliance Matrix
Hydrocarbon Value Chain
Offshore (maritime operations) Firm / Function
Operators Drilling Contractors Engineering Companies Service Companies Manufacturers Suppliers Drilling 2011

Onshore Midstream Downstream
Refining 2011 Manufacturing 2011 Transportation 2011 Storage 2013?

Production 2012 Gathering 2011

Legend Compliance Criticality
Most Critical Year

Least Critical

Source: Knowledge Ops, Inc.

Originally published by Shemwell, Scott M. (2011, January) The Blast Heard Around the World. Petroleum Africa Magazine. pp. 32-35.

Issues in the Marcellus
 Primary concern is ground water contamination from Hydraulic “frac” fluid
 Multiple municipal, state, & federal regulations  Pennsylvania generated $2.3 billion in total value added, more than 29,000 jobs, and $240 million in state and local taxes during 2008. – Considine et al

 New York
 Stronger regulatory requirements – New York  Viewed by some in the industry as less attractive state in which to invest

Managing Complex Regulations
Challenging Evolving Required

Enterprise Policy Automation
 Business & SOP’s  Contractual Obligations  Company Culture  Industry Practices  Mandates, Regulations and Legislation  Tribal Knowledge  Embedded in Legacy Systems and Documents

Available to All Across the Extended Enterprise Network

Regulatory Case Study:
Compliance & Beyond – It's 2011, Are You Ready For Enforced Compliance
 NERC's mission is “to ensure that the bulk electric system in North America is reliable, adequate and secure.”  Founded in 1968, the North American Electric Reliability Corporation (NERC) is the selfregulatory Electric Reliability Organization (ERO) that spans North America, with Federal Energy Regulatory Commission (FERC) oversight.
 develops and enforces reliability standard  monitors the bulk power system;  assesses future adequacy;  audits owners, operators, and users for preparedness;  educates and trains industry personnel.

Governance, Risk, Compliance is the “New Normal”
Requirements Increase in Number and Complexity
Service Level Compliance Compliance & Ethics Programs IT Governance Records Retention Anti-Money Laundering

Financial Reporting Compliance

Audit Management

Supply Chain Traceability

Legal Discovery

Data Privacy

Finance Suppliers R&D Mfg Sales HR Legal Customers

Enterprise Data Applications Warehouse Database Mainframes Mobile Devices Apps Server





Patriot Act







Source: Open Compliance and Ethics Group

The “tipping point…”
“Biggest Blackout In U.S. History” August 14th, 2003

Does this sound familiar?

Concluding Comments
 For a variety of reasons and over a very long time, the oil & gas industry has earned greater scrutiny  However, the process is manageable  Industry can demonstrate to agencies this solution  Should NOT affect profitable operations and value to the society
"The Democrats are right that the oil companies can make money even with tighter regulations. We can require them to meet those regulations. And the Republicans are right that there are more places we can and should be drilling to find oil and gas," says Amy Myers Jaffe, Director of the Baker Institute, Houston, TX.
- Wall Street Journal, June 9, 2011

Contact Us
Knowledge Ops, Inc. Dr. Scott M. Shemwell Email: Sshemwell@KnowledgeOps.com www.KnowledgeOps.com

Scott M. Shemwell, D.B.A.
Dr. Scott M. Shemwell is an acknowledged authority and thought leader in field operations and risk management with over 30 years in the energy sector leading turnaround and transformation processes for global S&P 500 organizations as well as start-up and professional service firms. He had been directly involved in over $5 billion acquisition and divestitures as well as the management of significant projects and business units. Most recently, he worked at Wescorp Energy, Inc. as Chief Operating Officer after merging Strategic Decision Sciences, Inc. in 2007 where as CEO he helped global clients tackle difficult strategic problems and attain operational excellence. Mr. Shemwell’s unique background and expertise in oil-field management make him highly qualified to guide oil and gas companies in creating economical and efficient oil fields of the future. Prior to starting Strategic Decision Sciences in 2003, he directed Oracle’s Energy Practice as vice president responsible for driving the strategic direction and business development efforts for Oracle’s global energy and chemical business sectors.

In 1997, Mr. Shemwell was brought into MCI Systemhouse to expand its energy practice where his most notable achievement was the development and implementation of the firm’s Y2K practice with a focus on the realtime systems responsible for both upstream and downstream petroleum production operations.. He also has industry leadership experience as CEO of Real-Time Data Solutions, Inc., director at Halliburton Corporation and head of its Information Technology line of business. While serving on the Halliburton Energy Services Leadership Team, he was directly engaged in the transformation of the company into its Integrated Solutions business model as well performing as the CIO of the $2 billion Terra Nova project.
Mr. Shemwell is recognized as an authority in risk management, technology, knowledge management, industry change, process change management/modeling and simulation, and logistics and operational supply chain management, having authored over 300 articles and presentations on these subject matters. He is the author of Essays on Business and Information, a collection of short essays focusing on the relationship between business processes and information technology, written from his perspective as an energy industry executive and adviser. Formerly a Commissioned Officer in the United States Army Air Defense Artillery, he holds a Bachelor of Science in physics from North Georgia College, a Master of Business Administration from Houston Baptist University and a Doctor of Business Administration from Nova Southeastern University.

Additional Resources
Two recent articles by the author address these issues further
 The Blast Heard Around the World, January 2011  A Date Which Will Live, October 2010  OPA Maturity Model, July 2011