Addressing the Oilbarrel conference, a monthly gathering of senior executives of junior oil companies and institutional and private investors, Daniel highlighted the value opportunity that awaits resource firms and investors who get a stronger handle on the political risks and stakeholder issues facing resource projects.
Below is the review of Daniel’s presentation from the Oilbarrel website:
“Explaining the thinking behind Critical Resource, director Daniel Litvin, a former advisor to McKinsey & Co and Rio Tinto, said it was becoming clear that understanding the politics of resources helps investors become smarter and companies avoid making decisions that could destroy value. There are many threats to oil companies, including fiscal erosion, environmental issues, labour problems, community resistance and resource nationalism, and the question is are they minor irritants or is value at stake, asked Litvin.
He was able to supply many examples from the natural resources sector where events have hit value, from BP’s Macondo blow-out in the Gulf of Mexico, which wiped out half the value of one of the biggest companies in the world, to Cairn’s sale to Vedanta in India which is still held up by political resistance, to Shell’s curtailed production volumes in Nigeria due to protracted community unrest.
“There’s an opportunity here, both for companies and investors, to get an even more strong handle on these issues than they have,” said Litvin. “It’s very time consuming and can be quite laborious and difficult to look across the whole range of potential issues out there for every project a company has and to make a judgement on how those investments will be affected.”
This is where Critical Resources’ LicenseSecure tool comes into play, which is underpinned by a database of 100 resource projects. “It’s a rigorous framework for assessing the full range of political and stakeholder risks facing resource assets,” said Litvin. “What’s the strength of the socio-political “license to operate”?”
The tool rates an asset from a hazard grade, where an asset is at risk, to vigilance grade, to preference grade, where the licence is secure. “The model has predictive power, by understanding in more depth the interactions between local, national and international issues we can get a better handle on what’s likely to happen,” said Litvin. “Our approach helps companies to be proactive on issues, rather than fire-fighting, by understanding what has worked elsewhere and what has not worked.”
(To see the full conference review, please follow:www.oilbarrel.com/nc/news/display_news/article/conference-report-1-petroceltic-international-showcases-world-class-gas-discovery-bowood-energy-hi.html)