Risk, uncertainty, chance, and related terms are regularly used in the course of daily work in the oil and gas industry. However, there are significant differences between individuals and companies regarding the definition and understanding of these terms, which makes it important to clarify them:
- is exposure to danger, harm or loss. We generally think of risk in terms of financial loss, but there are also environmental, safety and reputational risks.
- is the range of possible outcomes, such as the range for permeability or tons of CO2 injected.
- is the probability of a given event.
- are material occurrences or changes in a particular set of circumstances.
- are any source of potential damage, harm or adverse health or other effects on something or someone.
- is accomplishing a favorable or desired outcome.
- is a project outcome from foreseen or unforeseen event(s) resulting in significant financial, reputational or other losses requiring significant corrections or project cessation.
For low frequency events, a forecast that nothing will happen is likely to be correct most of the time. Except, of course, when it’s not. And if the impact is massive, we might refer to it as a Black Swan event (per Nassim Taleb’s book). Black Swan logic argues that what you don’t know is far more relevant than what you do know.
In fact, many Black Swans can be caused and exacerbated by being unexpected. We ignore or misinterpret early indications of such events and make no preparations to stop or mitigate them. Taleb stresses that time and time again we concentrate on things we know and fail to consider what we don’t know. We need to keep our apertures wide and recognize, as we study the landscape of project failures, that “if it happened, you must admit it’s possible”.