Risk management is an integral part of all business activities of Seplat.
Managing risk in protecting our business
Risk management is an integral part of all business activities of Seplat. The Company’s risk management policy is focused on the early identification of risks and future risks that are central to achieving its strategy, corporate objectives and annual business plans; their possible impacts on the business and measures that can be implemented to mitigate the identified risks so that Seplat can continue to operate safely and effectively. Seplat recognizes that risk management is a continuous journey of improvement and not a destination and will continue to develop its risk management processes to ensure the Company is fully equipped to deal with the constantly evolving operating and business environment of the oil and gas industry.
Risk management system
The Company’s risk management system is based on guidelines provided in ISO 31000, the international standards for risk management. The system is built on top-down and bottom-up approach with the Board of Directors (Board) determining the right risk appetite necessary to achieve the Company’s corporate objectives while the business units identify and mitigate risks at the unit and asset levels.
The Risk Management and HSSE Committee assists the Board in overseeing the Company’s risk management framework and the risk/reward strategy as determined by the Board. The Committee ensures that the Company has adequate risk management system in place to manage the diverse and changing risks and opportunities faced by the Company as it creates value for shareholders. It meets at least three times in a year to analyze and evaluate the Company’s key risk profiles, proposed mitigation strategies, mitigation actions taken by management and any residual risk exposures. The meetings are attended by Executive Directors who have accountability for ensuring that risk identification is comprehensive and proposing mitigating measures that are effective in achieving the desired objectives. Reports on the Company’s corporate risk register, key risk exposures in the business operations and reviews of its risk management systems are compiled and presented to the Board of Directors.
While key risks and associated risk appetites are determined at the top, the business units and functional managers are accountable for the respective risks within their areas. The Company’s enterprise risk management (ERM) system, coordinated by the Head, Enterprise Risk Management and overseen by the Risk Management and HSSE Committee, supports risk management across the business and functions. The Company’s ERM includes a robust risk identification, assessment, reporting and monitoring mechanisms and approaches that include maintenance of both corporate and functional/operational levels risk registers, risk dashboard, mitigation actions monitoring and risk reporting.
In a bid to continually embed risk management across the business and functions, the Company utilises specially appointed and trained Risk Champions to ensure common methodology, language and approach in the way risks are managed across the business.
The Internal Audit unit undertakes periodic audits of the various business units including the Company’s corporate governance systems and risk management processes.
Key principles that underpin the Company’s risk management framework and system:
• Strong focus on safety throughout the organization.
• Close oversight by senior management in day-to-day business operations.
• “Risk owners” throughout the business.
• Accountability of staff and/or key personnel.
• Regular and timely reporting.
• Clear line of sight on the system of internal controls.
• Monitoring and independent reviews.
Activities in 2020
During the year 2020, our risk landscape remained largely stable with respect to existing exposures since our last update in 2019. Howbeit, an unprecedented infectious disease outbreak which escalated during the middle of quarter 1, and leading to WHO declaring it a pandemic, introduced a new outlook to the risk landscape. Accordingly, the key highlight of this update is on the infectious diseases outbreak (COVID-19), a new risk item now included for monitoring and management on the enterprise risk dashboard. We also introduce two new risk items, viz, Opec Quota Restriction, as well as Climate Change, a risk drawing increasing global attention.
Outbreak of the SARS-CoV-2 virus that causes COVID-19 illness was first declared by the World Health Organization on the 31st of December 2019. Since that date, the virus has infected over 104 million and killed more than 2.2 million persons. Responses from around the world vary but has been largely non-pharmaceutical until about August 2020 when the first vaccine against the virus was produced and deployed in Russia. To date the world is still struggling with the virus which has now mutated into different variants originating in South Africa and the United Kingdom.
Various governments around the world have responded differently to the management of the pandemic. While some countries followed directive of the World Health Organization on recommended preventive measures, some others chose to approach it differently. In one or two other instances, the leaders chose to do nothing for a long time. These discretionary approach to management of the pandemic resulted in the level of infection and casualties that the illness has claimed to date.
The Federal Government of Nigeria (FGN) through the Presidential Task Force (PTF) on COVID-19 introduced several measures to manage the pandemic locally. These measures worked to a large extent for the first wave of the pandemic until when the second wave set in around November 2020 and the number of infected persons and casualties escalated thereafter.
NAFDAC has indicated that no vaccine has been approved for use in Nigeria except those that have been imported by FGN. In the wake of the ongoing pandemic, Seplat Leadership through the COVIMOG and in collaboration with Human Resources and the Operations teams have sustained the company business throughout the pandemic period and observed all recommended preventive measures advised by both the PTF and State Governments. Accordingly, the company operations were therefore not significantly impacted during the year 2020, as production operations, as well as delivery of target capital projects and new production wells, continued unabated.
Overall, in 2020, the Committee analyzed and evaluated the various key risk exposures for the Company. In doing so, the Corporate Risk Register was reviewed, and the risk reports presented by management. These reports detail the key risks, the potential impact of the risks and the likelihood of occurrence. Mitigating strategies were comprehensively considered, including but not limited to those related to the stability in the Niger Delta, oil price volatility, export line breaches and alternative crude oil evacuation options. Other risks considered are Government and JV relations management, liquidity, market, contractual and litigation risks. The status and effectiveness of mitigation actions were reviewed, and any residual gaps or follow-up actions were identified. Key performance indicators as well as other risk indicators and trends were monitored. Key risks requiring risk tolerance considerations and strategic actions were presented to and debated by the Board.
The Committee reviewed the risk management systems including the risk dashboard and assessment tables. The Committee gave further consideration to the achievements made by the Risk Champions appointed with a view to unify risk management approaches and embed risk culture across the organization.