risk management at pertamina ep

M B A - I T B | B U S I N E S S | S C H O O L

MM6029 – Corporate Risk Management

Mid Test Assignment

Pertamina EP

Risk Analysis

Surya Agung W H 29109355

MASTER OF BUSINESS ADMINISTRATION

INSTITUT TEKNOLOGI BANDUNG

MARCH 2011

Surya Agung w H / 29109355

1 | P a g e Risk Management Mid Test

Executive Summary

PT Pertamina (Persero) (formerly known as Oil and Gas Mining Company) is a

state-own company that is responsible for managing the extraction of oil and gas in

Indonesia. Managing Director (CEO) who served at this time was Karen Agustiawan

inaugurated by the Minister for State Enterprises Syofan ministers on February 5, 2009

replaces the old CEO Ari Soemarno Hernanto. Karen Agustiawan inauguration of this

important historical record since he became the first woman to successfully occupy the top

positions in largest state owned companies. Pertamina in conducting business activities in

the field of energy and petrochemicals, is divided into upstream and downstream sectors,

and supported by the activities of subsidiaries and joint ventures.

Consider the size of the company, Pertamina facing many risk exposure that can

endangere the company. With risk management, it can help company to mitigate the risk,

increase the fund for the investment. There are some framework that we can use to manage

the risk, which are Risk Identification, Risk Measurement, Risk Management, Risk Mapping

and Risk Calculating.

PERTAMINA's scope of business incorporates the upstream and downstream

sectors. The upstream sector covers oil, gas and geothermal energy exploration and

production both domestically and overseas. The foregoing is pursued through own

operations and through partnerships in the form of joint operations with JOBs (Joint

Operating Bodies), TACs (Technical Assistance Contracts) and JOCs (Joint Operating

Contracts), whereas the downstream sector includes processing, marketing, trading and

shipping. Commodities produced range from Fuel (BBM) and Non Fuel (Non BBM), LPG,

LNG, petrochemicals to Lube Base oil.

In this assignment, we only discuss about the subsidiary of Pertamina which called

Pertamina EP. To reach the company’s goal, Pertamina facing several risk related with

financial risk, operational risk, strategic risk and externality risk. With this assignment,

writer try to analyze several risks that Pertamina EP faced and provide recommendations to

mitigate several risk that could occur.



I. PT. Pertamina EP Profile

Pertamina is the combined result of the company PERTAMIN with PERMINA

which was established on December 10, 1957. This merger occurred in 1968. PT

PERTAMINA (PERSERO) was established under Notarial Deed of Lanny Janis Ishak, SH

No. 20 of September 17, 2003, and ratified by the Minister for Law & Human Rights under

Decision No. C-24026 HT.01.01 on October 9, 2003. The above proceeded in accordance

with the provisions set forth in Law No. 1 of 1995 relating to Limited Liability Companies,

Government Regulation No. 12 of 1998 relating to Public Companies (Persero), and

Government Regulation No. 45 of 2001 relating to Amendment to Government Regulation

No. 12 of 1998.

PT Pertamina EP (PEP) is engaged in managing the upstream oil and gas production

through a more manageable exploration and exploitation activities. Adding to that, PEP has

been undertaking other supporting businesses, which have been intended to back up the

main business directly or indirectly.

Presently, Pertamina EP production level for oil is around 120 thousand barrel oil per

day (BOPD) and around 1,003 million standard cubic feet per day (MMSCFD) for gas.

Pertamina EP Working Areas of 140.000 km2 were once largely PT Pertamina (Persero)’s

Oil and Gas Mining Authority Zone. The working areas are managed through own operation

and partnership cooperation, comprise 3 contracts of Joint Operating Body Enhanced Oil

Recovery (JOB-EOR) and 33 contracts of Technical Assistant Contract (TAC). Thus

geographically, Pertamina EP operates in nearly all territory of Indonesia, from Sabang to

Merauke.

Pertamina EP Working Areas consist of three regions namely Sumatra, Java and

Eastern Indonesia Regions. All JOB EOR and TAC operations are managed from

Headquarter while own operations are managed by each region respectively.

The operation of those regions comprise 12 Field Areas, namely Rantau, Pangkalan

Susu, Lirik, Jambi, Prabumulih and Pendopo in Sumatra, Subang, Jatibarang and Cepu in

Java as well as Sangatta, Bunyu and Papua in Eastern Indonesia. Beside the management of

working areas as stated earlier, other business pattern is management through projects, such

as gas development project of Pagar Dewa in South Sumatra, Gundih in Central Java and

Matindok in Sulawesi.



Fuel Products:

o Biopertamax,

o Pertamax,

o Biopremium,

o Pertamax Plus,

o Premium,

o Solar,

o Bio Diesel,

o Pertamina DEX,

o Kerosine,

o Pertamax Racing.

Other than oil, Pertamina also produce:

o Non-oil: Minarex, HVI 90, HVI 160, Lube Base, Green Coke, Asphalt,

o Gas: LPG, Fuel Gas (CNG), Vigas, LPG, CNG, Musicool

o Lubricants: FASTRON lubricating oil is basic ingredient engine with Prima

XP Semi-synthetic SAE 20W - 50 is produced by Pertamina lubricants for

gasoline engines Mesran Super SAE 20W-50 is a gasoline engine oil-LEVEL

2T Super-X is a two-stroke gasoline engine lubricant such as outboard engine

cooling water or speed boat. This oil is produced by Pertamina. Also suitable

for use in outboard motors and engines of smaller crabs, saw machine, three-

wheel and bemo.

The objective of the Public Company is to:

1. Exploit profits based on the principle of effective and efficient PERSERO

management.

2. Contribute toward improvement of economic conditions for the welfare and

prosperity of the people.

In order to achieve the above aims and purposes, the Public Company engages in the

following:

o Oil and gas exploitation and the processed products and derivatives thereof.

o Geothermal energy exploitation existing at the time the PERSERO was established,

including Geothermal Power Plants (PLTP) in the final stages of negotiations and

which the Perseroan has managed to gain possession of.

Figure 1. Fuel Products of Pertamina



o Liquefied Natural Gas (LNG) exploitation and other products generated by LNG

refineries.

o Other exploitation associated with or in support of the undertakings referred to in

points above.

Vision, Mission and Values

Pertamina EP has split its visionary aspirations into a three-year strategic planning period:

1. Three-Year Development Plan I Vision (2006-2008): "Respectable Cost Effective

and Efficient Oil & Gas Producer".

2. Three-Year Development Plan II Vision (2009-2011): "No.1 Oil & Gas Producer in

Indonesia".

3. Three-Year Development Plan III Vision (2012-2014): "PEP World Class".

In order to achieve those visions, Pertamina EP states its mission as follow: To run

the oil and gas business efficiently, effectively, and within a safe and healthy environment,

thus increasing value for the stakeholders.

PT Pertamina EP (PEP) is an operating subsidiary business unit that focuses on

managing the upstream oil and gas production through a more manageable exploration and

exploitation activities. Adding to that, PEP has been undertaking other supporting

businesses, which have been intended to back up the main business directly or indirectly.

PEP has been dedicating to undergo its core business with strong commitment, to work hard

Figure 2. PEP’s top 10 oil and gas producer.



and be productive, have motivated PEP in elevating Indonesia’s position as a net oil

importer. Consequently, PEP has strived to constantly increase the oil and gas production

capacity, to which its daily capacity of production indicate 120 thousand of barrels oil per

day (BOPD) and 1,000 million standard cubic feet per day (MMSCFD) of gas.

Supported with the capacity of oil production, PEP feels confident to reach the raw

oil production targeted by the

government for export. Meanwhile, PEP’s gas production is fully produced to support

domestic industry needs, as part of PEP’s contribution to add to Indonesia’s competitive

advantages within the industry.

Corporate Values:

Clean, professionally managed, avoid conflict of interest, never tolerate bribery, respect

trust and integrity based on Good Corporate Governance principles

Competitive, Able to compete both regionally and internationally, support growth through

investment, build cost effective and performance oriented culture.

Confident, Involve in national economic development as a pioneer in State owned

Enterprises' reformation, and build national pride.

Customer Focused, Focus on customers and commit to give the best service to customers

Commercial, Create added values based on commercial oriented and make decisions based

on fair business principles.

Capable, Managed by professional, skilled, and high quality leaders and workers,

committed to build research and development capability.

Pertamina Transformation Agenda - Paradigm change on management and human resources.

- Activities transformation in upstream sector as the main profit generator.

- Activities transformation in downstream sector as the front line to interact with

customers

- Corporate restructuration transformation on Finance, Human Resource, Legal, IT and

General Administration including Asset Management.

The objectives of the transformation are to create corporate management as: Confident,

Clean, Customer-focused, Competitive and efficient and To be a role model company in

Indonesia. Achieved targets with continuous improvement since July to December 31, 2010:



- Phase I of Breakthrough Projects in 100 days has generated income of + USD 15

million.

- The potential cost reduction of Rp.2 trillion in supply chain through the improvement

on field distribution efficiency.

- 5 gas station have met the standards of "Pertamina Way".

- The roll out of gas stations quality and quantity assurance.

- The cooperation with world-class oil & gas companies.

Pertamina EP Excellence Values In order to create a harmonious working environment, Pertamina EP workers always

refer to commonly agreed basic values as excellence values. These excellence values are

expected to build synergetic strength in order to become the propeller toward Pertamina EP

World Class vision through Company's strategic mission. The values are guidance to realize

Company's vision and mission, comprise Focus, Integrity, Visionary, Excellence and Mutual

respect (FIVE-M).

In line with Pertamina EP's transformation program, FIVE-M values were further

developing into FIVE-M GO PEP with additional values of Good Corporate Governance,

Optimization, Personal Quality, Empowerment, Peerless Shareholder Value and Proper

HSE.

Corporate Business Strategy The company’s corporate strategy was constructed to reach the company’s goal,

which is achieve its vision and mission using the corporate value. There are three corporate

strategy related with the company’s goal, which are expansion, synergy, and excellence.

Here is the explanation of every corporate strategy.

A. Upstream: Exploration and Production

Increasing production from existing fields.

Expanding business activities and operations, including using inorganic methods

(acquisitions).

Developing the potential of CBM in Pertamina areas.

Forming strategic alliances to support the expansion and building specific skills.



B. Upstream: Non Exploration and Production

Increasing the domestic gas trading business while taking the opportunity to expand the gas.

Transport and process business through synergy with other Pertamina subsidiaries.

Being pro-active in formulating pricing policy, in accordance with national policies.

Building capacity and specific skills in drilling services to support oil and gas expansion

plans.

PEP Working Areas are those previously managed by PT PERTAMINA

(PERSERO) through its Oil and Gas Mining Zone Authority. The Company's exploration

and production activities cover nearly every part of Indonesia territory, from Sabang to

Merauke.

Figure 4. Working Area of Pertamina EP

Figure 3. PEP’s top 10 oil and gas producer.



Presently, the Upstream Directorate managed 6 subsidiaries in the oil, gas, and

geothermal business, namely: PT Pertamina EP (PEP), PT Pertamina Hulu Energi (PHE),

PT Pertamina Gas, PT Pertamina Geothermal Energy (PGE), PT Pertamina EP Cepu (PEP

Cepu), and PT Pertamina Drilling Services Indonesia (PDSI), as well as developing the

upstream support technological function carried out by the Exploration & Production

Technology Center (EPTC).

At this stage, PEP owns four main backbone fields for their high production

capacity. As a consequence, any impacts resulted from those fields will eventually affect the

whole PEP production. The four working fields are Tambun, Limau, Sukowati and Poleng.

Capacity wise, total production of Tambun field is 14,000 BOPD, Limau field is 8,000

BOPD; Sukowati field is 19,000 BOPD, and Poleng field is 8,500 BOPD. In total, all the

four main fields contribute 49,500 BOPD or 40 percent of the targeted 125,000 BOPD.

The main focus of each subsidiary and of the supporting function is as follows:

PERTAMINA EP

PEP was established on 13 September 2005, to manage oil and

gas operations (own operations) based on a Cooperation Contract

(KKS) with BP Migas signed on 17 September 2005. As an upstream sector subsidiary, PEP

carries out exploration and production of oil and gas in domestic working areas covering

140,000 km² formerly managed by PERTAMINA. PEP’s working area is divided into three

regions: The Sumatra, Java, and Eastern Indonesian (KTI) Regions. The Sumatra Region

covers the Rantau, Pangkalan Susu, Jambi, Pendopo and Prabumulih Fields, as well as the

Figure 5. Working Region of Pertamina EP



Pertamina EP Business Units (UBEP) at Jambi, Limau, Lirik, and Adera (ex JOB-EOR

PERTAMINA Lekomaras, 22 April 2009). The Java Region covers The Cepu, Jatibarang,

Subang and Tambun Fields. The Eastern Indonesian Region (KTI) covers: The Bunyu,

Sangatta and Sorong Fields as well as the Tanjung and Sangasanga-Tarakan UBEPs.

PERTAMINA GAS

Pertamina established PT Pertagas on 23 February 2007, and it became PT

Pertamina Gas in 2008. The company undertakes gas transportation, trading and

processing. In the gas transmission business, Pertamina owns a gas pipeline

network with a total volume of 34,000 km-inches in Northern Sumatra, Central

Sumatra, Southern Sumatra, Western Java, Eastern Java, and East Kalimantan

In January 2009, PT Pertamina Gas obtained a Transportation Permit and in February 2009,

it received a Exclusive Right from BPH Migas for gas transportation along 43 transmission

routes. These Permit and Exclusive Rights complemented the Business Permit that had been

issued previously (in September 2008). By obtaining a business license and special rights,

PT Pertamina Gas now has a regulatory basis to play the principal role in the gas business in

Indonesia.

PERTAMINA GEOTHERMAL ENERGY

PGE was founded on 12 December 2006. This Pertamina subsidiary

carries out geothermal exploration and

exploitation in 15 working areas (WKP) in Indonesia, namely: Sibayak-Sinabung, Sibual-

buali–Sarulla, Sungai Penuh-Sumurup, Tambang Sawah-Hululais, Lumut Balai, Waypanas-

Ulubelu, Cibereum-Parabakti, Pengalengan (Patuha-Wayang Windu), Kamojang-Darajat,

Karaha-Telagabodas, Dieng, Iyang-Argopuro, Tabanan-Bali, Lahendong-Tompaso and

Kotamobagu.

PERTAMINA EP CEPU

PEP Cepu, which was established on 14 September 2005, is a

subsidiary of PT Pertamina (Persero) that focuses on the upstream

oil and gas business. In the Cepu Block, Pertamina has a 45% interest in partnership with

Mobil Cepu Ltd (as the operator) and the Regional Owned Enterprise (BUMD) that manages

the KKS for the Cepu Block.



PERTAMINA DRILLING SERVICES INDONESIA

PT PDSI was established on 13 June 2008 as a drilling service

management business entity. The services provided comprise

drilling, workover activities, and drilling services that use a Daily Rate and Integrated

Drilling Management (MPT) system for oil, gas, and geothermal wells. Presently, PT PDSI

owned 34 drilling rigs (28 owned by PT PDSI and 6 transferred from PT Usayana).

PERTAMINA UPSTREAM ENERGY

PHE is one of the Upstream Directorate subsidiaries working

in the oil and gas upstream business, and is also an upstream

business vehicle for managing the domestic and overseas cooperation portfolio in the form

of: Production Sharing Contracts (PSC), Joint Operating Body-Production Sharing Contracts

(JOB-PSC), Indonesian Participating / Pertamina Participating Interests (IP/PPI) and Badan

Operasi Bersama (BOB). PHE’s overseas working areas covered: Western Desert Block

3,Iraq; Block 10&11.1, Offshore South Vietnam; Block SK-305, Offshore Sarawak,

Malaysia; Sabratah 17-3 Block, Offshore Libya; Sirte 123-3 Block, Libya; Block 13, Red

Sea, Offshore Sudan; Block-3, Offshore Qatar; and Basker Manta Gummy Block, Australia.



Figure 6. Pertamina EP Structure



II. Risk Management Process

2.1 Risk Analysis There are many kinds of corporate risk, depends on the nature of the company and its

exposure to risk. To simplify, corporate risk can be divided into four main risks which are

financial risk, operational risk, strategic risk, externality risk, and other risks.

Financial risk is the risk that faced by a company which related with the financial matter.

There are several risks which categorized into financial risk, such as:

Market Risk

Market risk is the risk of loss due to changes in market prices. This includes interest

rate risk, foreign exchange risk, commodity price risk, and share price risk.

Liquidity Risk

Liquidity risk is the risk that amounts due for payment cannot be paid due to a lack

of available funds or cash.

Credit Risk

Credit risk is the risk that a counterparty may not pay amounts owed when the due

date comes.

Funding Risk

Funding risk is the risk that the company may not be able to finance the investment

fund needs.

Equity Risk

Equity risk is the risk that one's investments will depreciate because of stock market

dynamics causing one to lose money.

Commodity Risk

Commodity risk refers to the uncertainties of future market values and of the size of

the future income, caused by the fluctuation in the prices of commodities. These

commodities may be grains, metals, gas, electricity etc.

Forex Risk

Foreign exchange risk is the risk that the exchange rate will change unfavorably

before the currency is exchanged.

Interest Rate Risk



Interest rate risk is the risk borne by an interest-bearing asset, such as a loan or a

bond, due to variability of interest rates. In general, as rates rise, the price of a fixed

rate bond will fall, and vice versa.

Operational risk is the risk that faced by a company which related with company’s daily

operation. There are several risks categorized into operational risk, such as:

People Risk

People risk is the risk of loss that caused by the company’s human resources

condition, capacity, or capability.

Productivity Risk

Productivity risk is the risk of loss due to having ineffective or inefficient process

and the risk of having under utility.

Technology Risk

Technology risk is the risk of loss due to technological development or improvement

inability.

Innovation Risk

Innovation risk is the risk of loss when the company launch a new innovation, both

process and product / service innovation

System Risk

System risk is the risk of loss that caused by the lack of company’s information

system, communication system, control system, etc.

Process Risk

Process risk is the risk of loss due to rejected products or high overhead cost caused

by inappropriate process.

Strategic risk is the risk that faced by a company which related with company’s strategic

decisions. There are several risks categorized into strategic risk, such as:

Business Risk

Business risk is the risk of failing to achieve business targets due to inappropriate

strategies, inadequate resources, or changes in the economic or competitive

environment. The risk also means that a company will not have adequate cash flow to

meet its operating expenses.

Leverage Operational Risk



Leverage operational risk is the risk of loss due to highly leverage operation cost

structure which caused by the condition of having a high fixed cost.

Strategic Transaction Risk

Strategic transaction risk is the risk of loss due to the effect of strategic transaction

which can be foreign exchange risk, commodity price risk, etc.

Externality risk is the risk that faced by a company which not directly caused by the

company itself. There are several risks categorized into externality risk, such as:

Environmental Risk

Environmental risk is the risk that an organization may suffer loss as a result of

environmental damage caused by themselves or others which impacts on their

business.

Reputational Risk

Reputational risk is the risk that the reputation of an organization will be adversely

affected.

Legal Risk

Legal risk is the risk of loss that a company may suffer due to legal matter or changes

in regulation. The loss caused by this risk including the additional legal expenses,

trial expenses, fine, etc.

Political Risk

Political risk is the risk that there will be a change in the political framework of the

country which may suffer the company.

2.2 Risk Measurement and Mapping

After analyze of the done, the next step is measure the risk. When we talk about the

measurement, then we talk about the number. In order to understand the risk, first we need

to know how the risks impact the company, than we able to make meaningful decisions

about risk issues.

Each risk that may happen in the company, risk should be measured objectively.

Risk measurement has two components. The first component is to measure risk impact. The

second component is to measure risk probability. The measurement of risk should be done

by the risk owner and decide what to do next after mapping it since the risk owner is the

expert and know the most about the company. As an example, in the case of Pertamina EP



and in the next section would be used to measure any kind of risks. Here are the risk

probability and impact classification.

Point Criteria Parameter

1 – 2 Low Certainly will never happen

3 – 4 Unlikely Unlikely to happen

5 – 6 Moderate 50% happen 50% not happen

7 – 8 Likely Likely to happen

9 – 10 High Certainly happen

Point Criteria Parameter 1 – 2 Insignificant Work still can be done

3 – 4 Minor Lower specification

5 – 6 Medium Reducing area of work

7 – 8 Major Staging procurement

9 – 10 Catastrophic Work must be stopped

After we done measured the risk, the next step that we need to do is make the

available risk and make the plotting out of it. Risk metric would show the analyst the risk

position, whether it low, medium, high or critical, such as:

10

9

8

7

6

5

4

3

2

1

0 1 2 3 4 5 6 7 8 9 10

Impa

ct

Probability

Low Risk Medium Risk High Risk Critical Risk

Table 1. Probability classification.

Table 2. Impact classification.

Figure 7. Risk Mapping



To know it better, let us see the risk level with this image:

Low risk Medium risk

High risk Critical risk

2.3 Risk Mitigation

And for the last step of risk management process is the risk mitigation or people

usually call risk management. This step objective is the way for manager to manage the risks

that have been mapped before. The company usually retains the risk with low probability of

occurrence and low impact. The company can transfer the risk with high impact but low

probability of occurrence, while the risk with high probability of occurrence with low impact

can be controlled. The last kind of risk is the risk with high probability of occurrence and

high impact. This kind of risk should be avoided by the company. There are four ways to

manage risk that could be implemented:

1. Retain the Risk:

- Capital Allocation

- Post Loss

- Contingent Capital

- Self-Insurance

2. Transfer the Risk:

- Transfer by Contract

- Transfer by Subcontract

- Transfer by Insurance

- Transfer by Hedging (Derivatives)

3. Control the Risk:

- Prevention System

- Detection and Control System

- Protection System



- Administration

- Engineering

4. Avoid the Risk:

- Avoidance by Substitution

- Avoidance by Termination

- Avoidance by Process Change



III. COMPANY’S RISK ANALYSIS

First of all, this is the list of risks and perils that company have and the lost that they

make to the company:

No Peril Risk Group Loss 1 Planning do not appropriate with the law

Externality Risk

Prosecuted by law

2 Existing product look bad Many people claim 3 Oil spill Extra expense in cleaning

4 Marine pollution due to garbage Extra expense in cleaning

5 Bad company service Losing clients

6 Price of commodity rise

Financial Risk

Extra expense in fuel 7 High HR cost Lower the margin

8 Declining market share Lower market share

9 Economic crisis Decrease source of fund 10 High account receivable Decrease source of fund

11 Fail claiming the insurance Losing source of fund

12 Increase of company debt Increase of WACC

13 Customer cancel the agreement Decrease source of fund

14 Lack of human resource

Operational Risk

No innovation

15 New trend in renewable energy Lower market share 16 Asset manipulation Losing money

17 Suppliers cannot meet demand Decrease productivity

18 Material Surplus Higher storage cost 19 Data manipulation Losing money

20 Work accident High injury level

21 Material loss Decrease productivity 22 No obvious career path Instability of production

23 Extra workforce to hired Decrease source of fund

24 Technology stealing by competitor Reduce competitive advantage 25 Internal system failure Decrease productivity

26 Low integrity of worker Decrease productivity

27 Incompatibility of construction Decrease productivity 28 Worker strike Decrease productivity

29 Employee fall into the sea High injury level

30 Damage of the ship Operational delayed 31 Breakdown of oil pump Decrease productivity

32 Crane breakdown Operational delayed

33 Gas explode Extra expense in cleaning 34 Platform burn because of short-circuiting Extra expense

35 Arrival of the uninvited Decrease productivity



36 Hearing impaired due to the gas turbine High injury level

37 Very bad weather Pure risk Whole loss 38 Many competitor arise

Strategic Risk

Decreasing market share

39 Late delivery of fuel for the engines Losing productivity

40 Production do not meet target Reduce sales

41 Interference of government Reduce company's autonomy



IV. COMPANY’S RISK MEASUREMENT AND MAPPING

In the risk analysis chapter, I have identified 41 perils that could generate loss for

PT. Pertamina EP. After we had done found the perils, the next step in risk management is

to measure the risk which has identified before. We can applied the total score for each of

peril and sum it altogether to get the total company’s risk score. Risk measurement process

started with the process of collecting data and information related with the identified risk.

The information needed to measure risks consist of the information related with the

how often the perils happened and how big they will give impact to the company. Usually,

the risk owner is the most capable in giving the score in impact and probability. In this case,

I measured the risk with limited data. This is the risk measurement of the company:

No Peril Risk Group Prob. Severity Score 1 Planning do not appropriate with the law

Externality Risk

2 4 8

2 Existing product look bad 2 7 14

3 Oil spill 2 8 16 4 Marine pollution due to garbage 3 3 9

5 Bad company service 2 6 12


Financial Risk

5 6 30

7 High HR cost 2 5 10 8 Declining market share 3 6 18

9 Economic crisis 3 8 24

10 High account receivable 4 6 24 11 Fail claiming the insurance 4 3 12

12 Increase of company debt 4 5 20

13 Customer cancel the agreement 2 7 14 14 Lack of human resource

Operational Risk

7 4 28

15 New trend in renewable energy 6 7 42

16 Asset manipulation 3 7 21 17 Suppliers cannot meet demand 4 8 32

18 Material Surplus 2 4 8

19 Data manipulation 5 6 30 20 Work accident 3 7 21

21 Material loss 2 6 12

22 No obvious career path 2 8 16 23 Extra workforce to hired 4 8 32

24 Technology stealing by competitor 3 6 18

25 Internal system failure 6 4 24 26 Low integrity of worker 6 4 24



27 Incompatibility of construction 4 7 28 28 Worker strike 3 7 21

29 Employee fall into the sea 3 2 6

30 Damage of the ship 3 4 12 31 Breakdown of oil pump 6 9 54

32 Crane breakdown 3 5 15

33 Gas explode 2 6 12 34 Platform burn because of short-circuiting 1 4 4

35 Arrival of the uninvited 2 3 6

36 Hearing impaired due to the gas turbine 4 3 12

37 Very bad weather Pure risk 7 6 42 38 Many competitor arise

Strategic Risk

3 6 18

39 Late delivery of fuel for the engines 3 8 24

40 Production do not meet target 5 6 30

41 Interference of government 5 7 35

Total 838

Then after we get the numerical data, we can make the mapping for the whole risk

that available above. This is the risk mapping of the company:

From the Risk Metric above, we can see that how many risks that include in critical

risk, that need a lot concern from the company. Especially risk number 31 that have highest

score of risk, which is the “breakdown of oil pump”.

31

3 9 1722 39 232 16 27 41 1513 28 205 8 10 6 37

33 21 38 24 40 197 32 12

34 1 30 25 1418 2635 4 11

3629

0 6 7 8 9 10

10

1 2 3 4 5

5

6

7

8

9

Impa

ct

Probability

1

2

3

4

Low Risk Medium Risk High Risk Critical Risk



V. COMPANY’S RISK MITIGATION

The last process in company risk management process is the risk mitigation. In this

step, we decide what kind of action that company should do to mitigate the effect of the risk.

This is the list:

No Peril Risk Group Action Mitigation 1 Planning do not appropriate with the law

Externality Risk

Avoid Terminate the planning

2 Existing product look bad Control Improve product quality

3 Oil spill Control Oil spill cleaner

4 Marine pollution due to garbage Control Waste control management

5 Bad company service Control Good corporate management


Financial Risk

Transfer Forward commodity price

7 High HR cost Transfer Give employee reward system

8 Declining market share Avoid Make better process and product

9 Economic crisis Retain Capital allocation

10 High account receivable Transfer Contract the payment duration

11 Fail claiming the insurance Control Protect insurance system

12 Increase of company debt Transfer Swap contract

13 Customer cancel the agreement Transfer Forward contract

14 Lack of human resource

Operational Risk

Control Employee training

15 New trend in renewable energy Control Doing research and development

16 Asset manipulation Retain Capital allocation

17 Suppliers cannot meet demand Transfer Contract the agreement

18 Material Surplus Control Improve warehouse management

19 Data manipulation Control Using high security software

20 Work accident Transfer Give employee insurance

21 Material loss Control Using good quality equipment

22 No obvious career path Avoid Change company structure

23 Extra workforce to hired Avoid Change recruitment process

24 Technology stealing by competitor Control Secure classified data

25 Internal system failure Avoid Software backup

26 Low integrity of worker Control Give employee incentive

27 Incompatibility of construction Control Periodically review system

28 Worker strike Control Manage labor union

29 Employee fall into the sea Control High safety standard

30 Damage of the ship Avoid Another backup ship

31 Breakdown of oil pump Control Periodic check

32 Crane breakdown Transfer Equipment insurance

33 Gas explode Control Reinforce rule for employee

34 Platform burn because of short-circuiting Control Reinforce rule for employee



35 Arrival of the uninvited Control Enhance security

36 Hearing impaired due to the gas turbine Avoid Use noise reducer

37 Very bad weather Pure risk Retain Post loss

38 Many competitor arise

Strategic Risk

Retain Capital allocation

39 Late delivery of fuel for the engines Avoid Extra fuel reserve

40 Production do not meet target Avoid Find new oil source

41 Interference of government Retain Manage company structure

VI. RISK CALCULATOR

The risk management process is done. Now we know what alternative that company

can do to mitigate the risk that could happened to the company. Then, by using the risk

exposure calculator, the company’s internal risk could be identified easily; it will show the

early signal of risk. To manage the company’s risk, the only way to do is running the risk

management.

RISK EXPOSURE CALCULATORTOTAL SCORE

INFORMATION MANAGEMENT

Transaction Complexity +

Gaps in Diagnostic+

Decentralized Decision =

SCORE

CULTURE

Reward for Entrepreneurial +

Executive Resistance +

Level of Internal Competition =

SCORE

GROWTH

Pressures for Performance +

Rate of Expansion+

Inexperience of Key Employees =

SCORE

2 3 1 6

4 1 2 7

4 1 5 10

23



VII. CONCLUSION

With risk management framework which consists of risk identification, risk

measurement, risk measurement, risk management, and risk monitoring we can understand

more about the risk exposure that Pertamina EP have so that the company always has

enough funds to finance their investment. PT Pertamina EP is exposing to so many different

types of risk. Most of the risk exposed to the company, basically come from operational risk,

which can transform themselves after the company trying to handle them. This main risk is

the crucial risk that the company should dealt with, because it has the most impact and the

higher probability for Pertamina EP.

This Risk is mainly related to:

o The international exposure that effect the company a lot also come from the world oil

and gas price that tend to ascending. Whether it will increase the company’s income

or make company suffer potential loss.

o The fuel price risk that being used by the company which is gasoline, affect the

company a lot, include the availability of the fuel, the quality and the supply.

o The Indonesia current economic condition also drives the company’s operation

which is the government interferes, in international agreement, national oil and gas

demand and the law.



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risk management at pertamina ep

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