Risk Management Study Case
Content
RISK MANAGEMENT STUDY CASE CHAPTER 3: Managing Corporate Risk
By Devina Anindita, NPM: 1006666702 Group 4 Faculty of Economics University of Indonesia
Study Case Exxon Sets Indonesia Sales : Gas Fields on the Block Are at Center of Human-Rights Suit Against Company By Isabel Ordonez And Deden Sudrajat AUGUST 9, 2011, Exxon Mobil Corp. is selling some depleting natural-gas assets in Indonesia that are at the center of a human-rights lawsuit against the company, but the energy giant said it will maintain a presence in the country. The properties being marketed in Aceh province have been at the center of a suit brought by villagers that seeks to hold Exxon, the world's largest oil company by stock-market value, liable for alleged killings and torture committed by Indonesian soldiers guarding the assets. The lawsuit was thrown out by a trial judge in 2009, but a U.S. federal appeals court reinstated the case in early July, saying the suit had been wrongly dismissed. Exxon said Monday the assets being offered include the Arun field and satellite fields, and the North Sumatra Offshore field. Gas production from these fields—which started operations several decades ago—has been dwindling, and last year they produced an annual average of 215 million cubic feet of gas a day plus associated liquids, the company said. Exxon spokesman David Eglinton said the decision to sell the assets is in line with the company's longstanding practice of continually reviewing assets for their contribution to the company. He said the properties being marketed include those associated with the court case but said the move "has nothing to do with the lawsuit." Exxon, based in Irving, Texas, said it continues to have an active presence in the exploration-and-production and refining-and-marketing sectors in the Southeast Asian country. "Exxon Mobil continues to seek and evaluate new opportunities in Indonesia," it said.
Its current projects in the country include the Cepu oil block, the East Natuna developmental gas field and a coalbed-methane project being evaluated in Kalimantan. Last month, Exxon said it was seeking partners for half of its interest in three blocks where it is exploring for the coalbed methane in Kalimantan. The Indonesians' lawsuit against Exxon dates back to 2001. A group of villagers alleged that Indonesian soldiers, serving as Exxon's security forces, murdered, tortured, raped and kidnapped local residents. The alleged abuses took place from 1999 to 2001, during a period of civil unrest in the region. The plaintiffs said Exxon had authority over the soldiers and provided them with material and logistical support that aided the alleged abuses. Not all of the villagers' claims are based on international-law violations. They also sued Exxon for wrongful death and assault and battery, among other things. Exxon recently has said the plaintiffs' claims were baseless and that the company was reviewing the July ruling of the U.S. Court of Appeals for the District of Columbia Circuit, which reinstated the lawsuit. Exxon has said it has worked for generations to improve the quality of life in Aceh through employment of local workers, provision of health services and community investment. "The company strongly condemns human-rights violations in any form," Exxon said in July after the lawsuit was reinstated. Exxon shares fell 6.2% to $70.19 in New York Stock Exchange composite trading as petroleum equities were hit by a 6.4% drop in oil prices.
The gas from the fields to be sold is delivered to the Arun LNG processing plant, which is operated by PT Arun NGL Co.—a joint venture between state-owned Pertamina, Mobil Oil Indonesia Inc. and Japan Indonesia LNG Co. Commentary: In Chapter 3 Managing Corporate Risk, the first rule we learn is to take action after the company managed to identify its risks. If it leaves them in place the company and its directors may be legally liable because they knew the risks yet failed to take action to prevent further damages. With ExxonMobil what they do first is to diversify their risk by creating 3 companies that are especially made for Indonesia-- Mobil Exploration Indonesia, ExxonMobil Oil Indonesia and Mobil Indonesia LNG. By doing this, when there are problems arising in one of the countries they invested in, they can sell the shares for companies on that area only; without affecting directly of their own main company. After accumulating potential corporate risks in Aceh, starting from separatist act, depleting resources and accusation of violations of human rights, they finally decide that they need to share the risks by selling their shares. By acclaiming that the decision to sell was "consistent with ExxonMobil's long-standing practice of continually reviewing assets for their contribution to ExxonMobil's operating and financial objectives”, the move "has nothing to do with the lawsuit" and "the company strongly condemns human-rights violations in any form," ExxonMobil tries to reassure all the stakeholders about the condition of Aceh counterpart of it. Although, we know that something must be wrong with the company if after so many years, ExxonMobil has only decided to sell its shares now and not before. At least we can tell that the need to share the risk is higher nowadays with the selling action from ExxonMobil. This action most likely based in its theoretical guidelines, although perhaps its previous actions may have crossed the principles in its system. As one of Multinational Corporation, ExxonMobil already has its own risk management strategy that is called Operations Integrity Management System (OIMS). OIMS prepares for a systematic, structured, disciplined framework for the management and reduction of SSH&E risk with
corporate-wide commitment with high degree of ownership and involvement that complies fully with international standards for occupational safety, health, and environmental systems which seeks safe and environmentally responsible operations and compliance with all SSH&E laws and regulations. OIMS includes Corporate Framework of 11 Elements and 65 Expectations that used to identify key management areas and to set out what is expected in each area; Business Unit level Guidelines, a specific guidance on meeting expectations; and Functional/local Management Systems that filled with implementation of expectations and guidelines. OIMS Elements consists of 3 main parts: Driver, Operations, and Evaluation. Driver section is based on “Management Leadership, Commitment and Accountability”. It means that the big push comes from the leaders. The leaders have to be highly committed, accountable, and able to lead with proper standard and values. Operations includes “Risk Assessment & Management”, “Facilities Design and Construction”, “Information/Documentation”, “Personnel and Training”, “Operations and Maintenance”, “Management of Change”, “Third Party Services”, “Incident Investigation and Analysis” and “Community Awareness and Emergency Preparedness”. All the ingredients needed in an operation system to ensure that corporate risks are in their minimum level in any situation or length of time. Last but not least, Evaluation that based on “Operations Integrity Assessment and Improvement”, so that the company can have sustainable and continuous growth. These guidelines are still theoretically speaking of course, but these guidelines seem to lead ExxonMobil to sell the shares of its companies. That means that there is already a meticulous calculation between the risk of keeping them and the opportunity cost of selling them that concludes it is better-off for ExxonMobil to sell their shares now.
Bibliography http://online.wsj.com/article/SB10001424053111904007304576496300706125550.html http://www.thejakartapost.com/news/2011/08/09/exxonmobil-sell-interests-aceh-gasfields-and-lng-plant.html http://www.exxonmobil.com
By Devina Anindita, NPM: 1006666702 Group 4 Faculty of Economics University of Indonesia
Study Case Exxon Sets Indonesia Sales : Gas Fields on the Block Are at Center of Human-Rights Suit Against Company By Isabel Ordonez And Deden Sudrajat AUGUST 9, 2011, Exxon Mobil Corp. is selling some depleting natural-gas assets in Indonesia that are at the center of a human-rights lawsuit against the company, but the energy giant said it will maintain a presence in the country. The properties being marketed in Aceh province have been at the center of a suit brought by villagers that seeks to hold Exxon, the world's largest oil company by stock-market value, liable for alleged killings and torture committed by Indonesian soldiers guarding the assets. The lawsuit was thrown out by a trial judge in 2009, but a U.S. federal appeals court reinstated the case in early July, saying the suit had been wrongly dismissed. Exxon said Monday the assets being offered include the Arun field and satellite fields, and the North Sumatra Offshore field. Gas production from these fields—which started operations several decades ago—has been dwindling, and last year they produced an annual average of 215 million cubic feet of gas a day plus associated liquids, the company said. Exxon spokesman David Eglinton said the decision to sell the assets is in line with the company's longstanding practice of continually reviewing assets for their contribution to the company. He said the properties being marketed include those associated with the court case but said the move "has nothing to do with the lawsuit." Exxon, based in Irving, Texas, said it continues to have an active presence in the exploration-and-production and refining-and-marketing sectors in the Southeast Asian country. "Exxon Mobil continues to seek and evaluate new opportunities in Indonesia," it said.
Its current projects in the country include the Cepu oil block, the East Natuna developmental gas field and a coalbed-methane project being evaluated in Kalimantan. Last month, Exxon said it was seeking partners for half of its interest in three blocks where it is exploring for the coalbed methane in Kalimantan. The Indonesians' lawsuit against Exxon dates back to 2001. A group of villagers alleged that Indonesian soldiers, serving as Exxon's security forces, murdered, tortured, raped and kidnapped local residents. The alleged abuses took place from 1999 to 2001, during a period of civil unrest in the region. The plaintiffs said Exxon had authority over the soldiers and provided them with material and logistical support that aided the alleged abuses. Not all of the villagers' claims are based on international-law violations. They also sued Exxon for wrongful death and assault and battery, among other things. Exxon recently has said the plaintiffs' claims were baseless and that the company was reviewing the July ruling of the U.S. Court of Appeals for the District of Columbia Circuit, which reinstated the lawsuit. Exxon has said it has worked for generations to improve the quality of life in Aceh through employment of local workers, provision of health services and community investment. "The company strongly condemns human-rights violations in any form," Exxon said in July after the lawsuit was reinstated. Exxon shares fell 6.2% to $70.19 in New York Stock Exchange composite trading as petroleum equities were hit by a 6.4% drop in oil prices.
The gas from the fields to be sold is delivered to the Arun LNG processing plant, which is operated by PT Arun NGL Co.—a joint venture between state-owned Pertamina, Mobil Oil Indonesia Inc. and Japan Indonesia LNG Co. Commentary: In Chapter 3 Managing Corporate Risk, the first rule we learn is to take action after the company managed to identify its risks. If it leaves them in place the company and its directors may be legally liable because they knew the risks yet failed to take action to prevent further damages. With ExxonMobil what they do first is to diversify their risk by creating 3 companies that are especially made for Indonesia-- Mobil Exploration Indonesia, ExxonMobil Oil Indonesia and Mobil Indonesia LNG. By doing this, when there are problems arising in one of the countries they invested in, they can sell the shares for companies on that area only; without affecting directly of their own main company. After accumulating potential corporate risks in Aceh, starting from separatist act, depleting resources and accusation of violations of human rights, they finally decide that they need to share the risks by selling their shares. By acclaiming that the decision to sell was "consistent with ExxonMobil's long-standing practice of continually reviewing assets for their contribution to ExxonMobil's operating and financial objectives”, the move "has nothing to do with the lawsuit" and "the company strongly condemns human-rights violations in any form," ExxonMobil tries to reassure all the stakeholders about the condition of Aceh counterpart of it. Although, we know that something must be wrong with the company if after so many years, ExxonMobil has only decided to sell its shares now and not before. At least we can tell that the need to share the risk is higher nowadays with the selling action from ExxonMobil. This action most likely based in its theoretical guidelines, although perhaps its previous actions may have crossed the principles in its system. As one of Multinational Corporation, ExxonMobil already has its own risk management strategy that is called Operations Integrity Management System (OIMS). OIMS prepares for a systematic, structured, disciplined framework for the management and reduction of SSH&E risk with
corporate-wide commitment with high degree of ownership and involvement that complies fully with international standards for occupational safety, health, and environmental systems which seeks safe and environmentally responsible operations and compliance with all SSH&E laws and regulations. OIMS includes Corporate Framework of 11 Elements and 65 Expectations that used to identify key management areas and to set out what is expected in each area; Business Unit level Guidelines, a specific guidance on meeting expectations; and Functional/local Management Systems that filled with implementation of expectations and guidelines. OIMS Elements consists of 3 main parts: Driver, Operations, and Evaluation. Driver section is based on “Management Leadership, Commitment and Accountability”. It means that the big push comes from the leaders. The leaders have to be highly committed, accountable, and able to lead with proper standard and values. Operations includes “Risk Assessment & Management”, “Facilities Design and Construction”, “Information/Documentation”, “Personnel and Training”, “Operations and Maintenance”, “Management of Change”, “Third Party Services”, “Incident Investigation and Analysis” and “Community Awareness and Emergency Preparedness”. All the ingredients needed in an operation system to ensure that corporate risks are in their minimum level in any situation or length of time. Last but not least, Evaluation that based on “Operations Integrity Assessment and Improvement”, so that the company can have sustainable and continuous growth. These guidelines are still theoretically speaking of course, but these guidelines seem to lead ExxonMobil to sell the shares of its companies. That means that there is already a meticulous calculation between the risk of keeping them and the opportunity cost of selling them that concludes it is better-off for ExxonMobil to sell their shares now.
Bibliography http://online.wsj.com/article/SB10001424053111904007304576496300706125550.html http://www.thejakartapost.com/news/2011/08/09/exxonmobil-sell-interests-aceh-gasfields-and-lng-plant.html http://www.exxonmobil.com
