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PDF Risk Management in Petroleum Industry Construction Projects in Malaysia


Academic year: 2023

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It is also intended to emphasize the importance of risk management and to make suggestions for its improvement based on the analysis of current practice in the country. The identification of major project risks occurring in the country and their analysis are carried out on the basis of rank.


  • Project Background
  • Problem Statement
    • Problem Identification
    • Project Significance
  • Objective
  • Scope of Study
  • Companies Background
    • Petronas Carigali Sdn Bhd
    • APEX Energy Sdn Bhd
    • PT. Rekayasa Industri
  • Case Study Background of Downstream Business: SAMUR Project
    • Project General Information
    • Contract Formation
    • Scope of Works
    • Risk Identification
    • SAMUR Project Activities in Pictures

Furthermore, Petronas' progress in achieving their vision of being a leading oil and gas multinational may be held back by a lack of effectiveness in the risk management system implemented in their construction projects in particular. The target group for this study consists of people involved in Petronas' construction projects in Malaysia in the upstream and downstream companies. The target respondent in the upstream business is Petronas Carigali Sdn Bhd, while the target respondent in the downstream business is contractors APEX Energy Sdn Bhd and PT Rekayasa Industri (Rekind).

Petronas Carigali Sdn Bhd (PCSB) is a minor subsidiary of Petronas for its Exploration & Production (E&P) business in the upstream business.

Table 3: SAMUR Project Lump-Sum Work Scope
Table 3: SAMUR Project Lump-Sum Work Scope


Risk Management in Petroleum Industry Overview

  • Risk Analysis
  • Strategies and Measure
  • Discussion

These types of risks include improper use of exploration methods, inaccurate interpretation of seismic data and inaccurate positioning of the exploration wells in the exploration process. Due to, for example, an incorrect understanding of the layer, damage to the casing, too high formation pressure and a lack of proper control awareness, the protection will be subject to high risks. As a result, different views, attitudes and actions among the petroleum activity sectors may also emerge, which may contribute to further disadvantages.

This is because it immediately affects the progress of petroleum activities in the process of oil and gas exploration and development. This entails a number of compensation costs, and may affect the progress of well construction and further risks for economic losses. The uncertainties such as financing, fund turnover, interest rate and exchange rate during petroleum activities are among the factors classified as economic risks.

Uncertain market factors such as rising material and fuel prices lead to higher necessary costs and further cause a reduced efficiency of petroleum operations. Petroleum companies should strengthen their quality accident management, pay attention to the report, investigation and treatment of the accident, and analyze the mass loss in time to minimize accidents. The development of an oil company is relevant to whether they own personnel capable of controlling the dominant heights of the industry.

The Importance of Risk Management

  • In Global Pipelines Project
  • In Malaysia’s Petroleum Operation

Yanting & Liyun (2011) are very specific: “Risk management is not a method to eliminate all risks. Risk management can also provide compensation for the risks to get more social resources and funds to flow fairly to the desired sectors." Yusuwan, Adnan & Omar (2008) specify that the construction industry in Malaysia is one of the country's significant contributors to the country's growth in the economy, as the activities include specific construction projects in the oil industry, such as pipelines and oil refineries.

This single fact is representative enough to show how important the efficiency is to carry out the construction projects in Malaysia's oil and gas industry. In addition, there are numerous journals and research that show a high level of awareness among organizations regarding risk management and believe that risks can affect productivity, performance, quality and the project budget. The construction industry in Malaysia is one of those industries most subject to diverse risks (Yusuwan, Adnan & Omar, 2008).

These risks can adversely affect the productivity, performance, quality and budget of the project. Consequently, for the sake of the certification of the project's success, it is desired to have a precise and orderly risk management strategy in place. Subsequently, it is hoped that a risk management with certain characteristics will also be carried out in order to manage the risk factors in the most effective way.

Petronas as Main Stakeholder in Malaysia

  • Company Overview
  • The Relation of Petronas to the Malaysian Economy
  • Petronas and Risk Management

Although it is 100% state-owned, Petronas is considered a well-run company free from corruption. The company has been free from Malaysian government interference in its day-to-day business, but has significantly supported government-sponsored mega-projects outside its interest, such as the Twin Towers and Putrajaya (Mehden & Troner, 2007). Starting out as a major exporter of tin and manufacturing products, Malaysia has now become a country where its oil resources have continued to bring healthy income to its economy since the late 1970s and 1980s.

Not only that, a study by Mehden & Troner (2007) shows that Petronas, as the main source of oil in the country, also contributes to 20% of all total government revenue through the income tax payment system. With its business strategy focused on maximizing returns for the Malaysian government as shareholders, Petronas is willing to become a foreign investor, both in the upstream and downstream sectors, and also promote the foreign investments coming into Malaysia. In addition, Petronas is also trying to take advantage of local demand by offering a long-term business involving Malaysia, host countries and other companies (Mehden & Troner, 2007).

As one of the key players in the country's energy development, Petronas' actions in managing risks exposed to their business have become truly essential not only to its own business performance but also Malaysia's economic growth. Mehden & Troner (2007) also draw attention to the time during Asian Energy Forum in 2005, when the vice president of Petronas insisted that it was essential for Petronas to have good partners for several reasons, including risk mitigation.


  • Project Activities
  • Tool Required
    • Questionnaire Form
  • Data Collection
    • Primary Data
    • Secondary Data
  • Data Analysis Method
  • Reporting
  • Gantt Chart
  • Key Milestone

To suggest some of the possible approaches in risk management for the Malaysian oil. Where, ß is weight given to each risk factor by respondents n is the frequency of the respondents. The report must include the analysis of data obtained by classifying the risk factors into groups of the "top five" from the ranking resulting from the survey carried out.

As shown in bold in the tables above, the number 1 risk factor in the upstream activities is RF-28 “Poor performance of the constructors”, while the number 1 in the downstream activities is RF-9 “Bureaucratic government system and long project approval procedure” is. These top five most common risks on the projects in Malaysia according to the survey respondents will be analyzed in depth in the following paragraphs. As mentioned, one of the reasons this risk can occur is due to design changes by the customer.

The constructor's poor performance may be due to a lack of leadership skills in the contracting partner companies directly managing the project. Finally, at number 5 in the ranking and with an average index score of 3.238 is the risk factor of "Equipment increase". Inadequate coordination between contractors, "Inefficient and poor performance of constructors" and "Increased cost of equipment" also appear to be some of the main factors.


Data Gathering

  • Survey on Petronas Carigali Sdn Bhd (PCSB)
  • Survey on SAMUR Project’s Consortium Contractor
  • Survey Summary (Combined Results)

The survey was conducted towards upstream companies with a total of thirteen (13) respondents who are currently working in various departments of Petronas Carigali Sdn Bhd including the Risk Management Department. The number 1 risk factors according to the study are Risk Factor, RF-18 "Design Change" and RF-28. The survey was also conducted towards downstream companies with a total of eight (8) respondents from APEX Energy Sdn Bhd and PT.

Rekayasa Industri (Rekind), making it the #1 risk factor of RF-9 “Bureaucratic government system and long project approval process”. The total number of respondents is twenty-one (21) people, including thirteen (13) from Petronas Carigali Sdn Bhd and eight (8) from APEX Energy Sdn Bhd and PT.

Table 8: Survey on SAMUR Project’s Consortium Contractor
Table 8: Survey on SAMUR Project’s Consortium Contractor

Analysis on the Top-Five Risk Factors

  • Bureaucratic Government System and Long Project Approval Procedure (Risk
  • Design Changes (RF-18)
  • Late Internal Approval Process from the Owner (RF-25)
  • Delay in Signing Contract (RF-15)
  • Inadequate Coordination among Contractors (RF-24)
  • Inefficient and Poor Performance of Constructors (RF-28)
  • Increase of Equipment Cost (RF-34)

Not only can this reduce the effectiveness of a company in terms of budget (because they have to provide additional money to reach their target within the time frame), it can also be vital for the country Malaysia itself if they want to build image good of the country that is. One of the ways that can reduce the impact as mentioned above is by implying the function of a Configuration Management (CM) methodology in the project phases of planning, design, construction, maintenance and operation (Steinberg & Otero, 2008). Also in their paper, Thuyet, Ogunlama & Dey (2007) suggest possible mitigation strategies which include increasing the empowerment of the project manager.

Moreover, in most cases where this risk has already occurred, there are possible methods that can be applied to reduce the negative impact of the risk. The most important thing is still how to achieve the goal of the project in terms of quality, budget and time frame. To ensure that the delays are recognized and documented, it is also advised to control and further study the cause of the delays and try not to repeat the same mistake in the future.

One of the actions to minimize the risk is to hold a series of meetings with the constructors to share ideas on what is being bought and what issues are happening between them that are slowing down the progress of the development project. The price of equipment in Malaysia is considered prone to increase not only because of the world economic growth, but also because of the higher demand of equipment for the same oil industry project in this country than any neighboring country. Additionally, other companies such as MLNG and Project Management Delivery of Petronas Technology & Engineering Division (T&E) are also targeted as respondents as they also represent as a client of the construction project in Malaysia.



From the results of studies presented above, it can be concluded that the most common risk factors in Petronas' oil and gas construction projects in Malaysia, from rank 1 to 5 respectively, are 'bureaucratic in the government system and long project approval procedure'. In addition to the risk types 'governmental and policy risks' and 'economic' risks, the fact that three of the top five risk factors are categorized under 'project management and technical risks' shows that there is an awareness of the importance of covering these sectors in construction to improve. project activities in the petroleum industry in Malaysia. Some mitigation strategies have been developed that could potentially be implemented by Petronas and its partner companies in the project.

The strategies are built not to mitigate the risk 100%, but instead they are developed to minimize the chance of its occurrence and reduce the impact that occurs if problems due to such risks are experienced by Petronas and its partner companies. In summary, the strategies to manage the major project risks in the petroleum industry in Malaysia are as shown in the table below.

Table 10: Summary of Main Risks Mitigation Strategies
Table 10: Summary of Main Risks Mitigation Strategies


  • Accuracy Increment in Targeting Respondents
  • Deeper Analysis


Table 4: SAMUR Project Target Cost Work Scope
Table 3: SAMUR Project Lump-Sum Work Scope
Table 5: Risk Registered by PT. Rekayasa Industri
Figure 5: Gate Installation



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