Have we underestimated the complexity of third-party risk management in the oil and gas industry? As our global supply chains change, we face a big problem. Many organizations struggle to handle the risks from external suppliers.
With 60% of companies managing over 1,000 suppliers, the risk is huge. The pandemic made things worse, with oil prices dropping below $20 a barrel. Companies tried to cut costs by 30%, but it’s not enough.
Cyberattacks, like ransomware, have increased by 102% this year. This shows how third-party risks can hurt our money and reputation. Understanding why third-party risk management fails is key to protecting our businesses.
Key Takeaways
- 60% of organizations manage over 1,000 suppliers, increasing exposure to risk.
- Traditional cost-cutting measures are inadequate for the current financial landscape.
- Ransomware attacks have surged by 102% this year, underscoring cyber threats.
- 80% of organizations lack sufficient resources for effective third-party risk management.
- Nearly 50% of enterprises have been compromised by a vendor’s data breach.
- 65% of organizations face reputational damage when a supplier is involved in scandals.
The Complex Risk Environment of Oil & Gas
The oil and gas industry faces many risks. These include operational dangers, market ups and downs, and political instability. To deal with these, companies need to be proactive and have good strategies.
Understanding the Landscape of Risks
Knowing the risks means seeing the importance of third-party relationships. Companies often work with these partners to fill gaps. It’s key to keep an eye on them and talk regularly, even after deals are made.
Checking third parties before working with them is important. This helps avoid problems with their integrity and skills. Using questionnaires, like those for the Foreign Corrupt Practices Act (FCPA), can spot issues early.
Factors Contributing to the High-Risk Environment
Political instability and ESG failures make things harder. Engineers and operators also face communication challenges. These issues show the tension between business goals and safety needs.
Recent data shows 53% of companies have faced data breaches from third-party vendors. This highlights the need for strict management. As companies grow, managing third-party risks becomes more complex. It’s important to balance partnership efficiency with risk, using a strong supply chain strategy.
Why Third-Party Risk Management Fails in Oil & Gas
In the oil and gas sector, finding and managing risks from third parties is hard. We work in extreme places, like water up to 12,000 feet deep. This makes it tough to spot all the risks from our partners.
When we don’t watch closely enough, big problems can happen. These can cost a lot of money and make projects late. Knowing these challenges helps us do better at managing risks.
Challenges of Identifying Third-Party Risks
Our work is complex, with many parts to keep track of. A design mistake in a tool used for 30 years cost a lot. A subsea problem cost $80 million, showing how big risks can be hidden.
About 41% of companies have had big data breaches from partners. This shows we need to find and manage risks from partners better.
Limitations in Risk Mitigation Strategies
Our usual ways to manage risks don’t always work with partners. As projects get bigger, so do the risks. Old methods like spreadsheets and emails can miss important issues.
We need new ways to find and fix problems. Using tools like Failure Modes and Effects Analysis (FMEA) helps us see risks we missed before. This shows we need better, more flexible ways to manage risks.
| Key Statistics | Insights |
|---|---|
| 41% | Companies experiencing significant third-party data breaches in the last 12 months |
| $80 Million | Loss from a subsea operation failure linked to identification challenges |
| 25% | Businesses affected by financial failures in suppliers within a year |
| 60% | Organizations facing increased regulatory scrutiny on third-party cybersecurity risk |
| 800%+ | Increase in actively managed vendors after implementing risk management solutions |
The Importance of a Robust Supply Chain Strategy
In the oil and gas industry, a strong supply chain strategy is key. It covers the upstream, midstream, and downstream parts. Each part has its own risks and needs special care to work well.
Components of the Oil and Gas Supply Chain
The oil and gas supply chain has three main parts:
- Upstream: This includes finding, drilling, and producing oil and gas. It deals with rules, managing resources, and avoiding corruption.
- Midstream: This part is about moving and storing oil and gas. It faces problems with logistics and how it looks to others.
- Downstream: This is about refining and getting oil and gas to people. It needs to check quality and keep up with market changes.
Risks at Various Stages: Upstream, Midstream, and Downstream
Each part of the supply chain has its own upstream midstream downstream risks. For example, upstream might face rules about the environment. Midstream could get hit by world events. Downstream needs to follow laws and keep good relationships with suppliers.
Looking at these risks, we see why being ready is important. Companies need a strong supply chain strategy. They should use tech for smart planning, find different suppliers, and make local chains to be more ready for problems.
Having a solid plan for the oil and gas supply chain is very important. It helps deal with the risks at each stage. This way, we can get better at handling the changing world of oil and gas.
Regulatory Framework and Its Impact
The rules we follow are key in the oil and gas world. Knowing these rules helps keep things running smoothly and builds trust. With more rules coming from governments and green groups, following these rules is more important than ever.
Overview of Key Regulations Affecting the Industry
Many rules control the oil and gas field. These include the Oil Pollution Act and global marine pollution rules. They make sure we protect the environment by following strict safety rules.
If we don’t follow these rules, we could face big fines. For example, BP had to pay over $4.5 billion after a big spill. This shows how important it is to follow the rules closely.
The Role of Compliance in Risk Management
Following the rules is the base of a good risk plan. Keeping our rules up to date is key to facing new risks. For example, we must tell the U.S. government about cyber attacks within 72 hours.
A good compliance plan also checks on partners to make sure they are safe. This is important in places where corruption is common. Following the rules is not just about avoiding fines; it’s about doing well in business.
| Key Regulations | Description | Impact on Compliance |
|---|---|---|
| Oil Pollution Act | Establishes liability for oil spills and requires preparation for handling spills. | Mandatory disaster response strategies to avoid penalties. |
| Foreign Corrupt Practices Act | Prohibits bribery of foreign officials to obtain business benefits. | Essential for maintaining ethical standards and avoiding legal actions. |
| Data Breach Notification Laws | Requires cybersecurity incidents to be reported within set timeframes. | Demands immediate action plans and communication channels. |
Emerging Risks: Cybersecurity and Technology Challenges
The oil and gas industry is getting more digital. This brings new cybersecurity risks. Things like the Internet of Things (IoT) and big data analytics make it harder to keep data safe.
The Rise of Digital Threats in Oil & Gas
About 90% of a company’s value is in data. This makes keeping data safe very important. A 2014 cyberattack on a German steel mill shows the dangers.
In 2021, hackers changed chemical levels at a Florida water plant. This shows how serious cyber breaches can be. The cost of a data breach is about $4.45 million.
Need for Cybersecurity Risk Management Strategies
Companies need strong cybersecurity plans. Training employees on how to stay safe online is key. Using AI and Machine Learning helps catch problems fast.
Putting cybersecurity into ESG plans makes companies stronger against cyber threats. Most data breaches come from suppliers. So, it’s important to check them well. Keeping security teams on duty 24/7 helps too.
| Threat Type | Impact Examples | Preventive Measures |
|---|---|---|
| Data Breaches | Loss of sensitive data, financial penalties | Employee training, incident response plans |
| Cyberattacks on Infrastructure | Disruption of operations, physical damage | 24/7 security monitoring, AI detection |
| Third-Party Vulnerabilities | Increased risk of compromise from suppliers | Strict vendor management policies |
| Ransomware | Operational shutdowns, data ransom | Regular simulations, strategic communications |
Our industry must act fast to keep up with technology challenges. By doing so, we can make our operations safer. For more info, check out cybersecurity best practices for oil and gas
Conclusion
We face big challenges in third-party risk management in the oil and gas industry. But, we can overcome these challenges. By understanding the complex risks, we can improve our risk management.
Strengthening our supply chain and following rules are key steps. The Deepwater Horizon disaster shows the dangers of poor risk management. BP paid nearly $65 billion for its mistakes.
To manage risks well, we must keep improving our methods. This is true for new risks like cyber threats and data privacy. Doing thorough hazard checks helps find weak spots.
Tools like AuditComply’s platform help us act fast to protect our work. Following standards like ISO/TS 29001:2010 and ISO 9001 keeps us safe and compliant.
By focusing on risk management, we can make the oil and gas sector safer. With careful planning and regular checks, we can face challenges boldly. This shows our dedication to safety and responsibility in a changing world.
This Article is Reviewed and Fact Checked by Ann Sarah Mathews
Ann Sarah Mathews is a Key Account Manager and Training Consultant at Rcademy, with a strong background in financial operations, academic administration, and client management. She writes on topics such as finance fundamentals, education workflows, and process optimization, drawing from her experience at organizations like RBS, Edmatters, and Rcademy.
