Drawing on all his reserves

From Deepwater Horizon to the Fukushima disaster, you don’t have to look far to read about a major safety incident in the energy sector. Indeed, “safety is the core value for all oil and gas companies”, says Takashi Kubo, managing executive officer, senior vice president, logistics and information management technology at Japanese oil and gas exploration and production (E&P) company INPEX.

‘Anzen dai ichi’ or ‘safety first’ is the way INPEX thinks, acts and promotes safety. Accidents still happen, however.

Days before StrategicRISK’s interview with Kubo, INPEX found itself on the front pages following the death of a 56-year-old worker. The tragedy took place at the construction site of the onshore gas liquefaction plant of the Ichthys LNG Project, operated by INPEX just outside Darwin in Australia’s Northern Territory.

Kubo, who is based at the company’s headquarters in Tokyo, says “safety is INPEX’s most important priority” and they are working hard to investigate the circumstances.

He adds: “Whenever an accident happens, we will first examine the root cause and then take steps to ensure it doesn’t happen again, and also promote safety amongst not only our employees but also

the many contractors and subcontractors that work with us.”

EARLY DAYS
Kubo has worked at INPEX for more than 36 years, so this isn’t the first incident he has dealt with. The Japanese native was just 23 when he joined the company, drawn to the industry by the appeal and reputation of global heavyweights such as BP and ExxonMobil. He was recruited to INPEX shortly after completing his engineering degree and was given a role in logistics and supply chain management.

At the time, the company had relatively minor oil and gas operations, mainly in Indonesia. But Kubo was attracted to INPEX’s growth potential and international expansion plans. It’s also what’s kept him in the job for more than three decades: today the company is involved in approximately 70 oil and gas projects spanning more than 20 countries.

“I had a strong conviction from the beginning that INPEX had a big potential to expand its operations worldwide and it continues to do so,” says Kubo. After his initial assignment in logistics, he developed his career in procurement, contracts and cost and schedule control through its oil and gas exploration and development operations in Indonesia (where he was stationed in Jakarta), Australia (Perth) and Iran (Tehran).

 “Indonesia is the country I stayed in the longest – for five years in total. It’s the first country I was assigned to internationally [and so] I have good memories of my time there,” he says.

“The people are very kind and there was already a very high potential for oil and gas in the country 30 years ago, so life was good.”

Fast-forward to 2018 and Kubo is back in Japan, where his remit includes insurance, logistics and IT. He reports directly to the company’s chief executive and is in charge of a 65-strong team.

PARIMA ROLE
In case he wasn’t busy enough, he is also on the board of the Pan-Asia Risk and Insurance Management Association (PARIMA), representing members from Japan. When he took on the post two years ago, he was the country’s first representative. Today there are 89 PARIMA members based in Japan, from 50 companies.

Membership in the country can grow even further, he says. Indeed, he is hoping to double the numbers again in time for Japan’s first-ever PARIMA conference in late October 2018.

“The goal for myself and PARIMA is to deepen [the opportunities] for networking among risk managers, where we can share knowledge and wisdom among professionals,” he says.

“The risk manager function is not [currently] commonly recognised in Japan. But it is increasing because many Japanese companies are trying to improve risk management systems, so this is an issue for Japanese companies right now.

“European and American companies fully understand the necessity of the risk management system. But it is very much limited in Japan and I think there is lots of potential.”

Asked to name the top risks on most Japanese companies’ risk registers, he lists cyber risk, loss of reputation and brand value, environmental risk, and natural catastrophes such as earthquakes and typhoons as the most common themes. They largely mirror the top risks at INPEX, he says.

PRIORITIES
After safety, another major factor influencing business is the fluctuating price of oil and gas. However, with price movements largely outside the company’s control, Kubo instead focuses on cyber, environmental and country risks.

Turning to cyber, Kubo says the threat is threefold. First, there is the risk that a cyber attack on the company’s facility control system could halt production lines, in the same vein as the attack on Ukraine’s electrical transmission station in Kiev that caused blackouts across the city in December 2016.

The second risk is for material damage caused by a cyber event. “If a cyber attack causes [an] explosion or fire or damage to facilities itself, it’s a big concern,” Kubo says.

In addition, INPEX is concerned – like most companies – about losing sensitive data or information through a cyber breach. “In the oil industry, information is one of the big assets, so there is a risk of people stealing or hacking information,” he says. “It is not only for the oil companies but other industries too.”

To tackle the risk, INPEX has a dedicated cyber crisis management plan and a cyber security incident response team, responsible for running simulations and ensuring business continuity plans include provisions for cyber attacks.

To date, the company has not purchased a cyber insurance policy, preferring to largely self-insure its risks. However, considering the increasing threats, cyber insurance may be one of the options to consider in the near future.

GREENHOUSE GASES
Environmental risk is another significant concern for the company.

“CO2 [emissions] and the greenhouse gas issue is big agenda globally,” Kubo says.

This is a significant challenge for oil and gas companies, whose major by-product is hydrocarbon energy – a key composite that contributes to the amount of CO2 in the atmosphere.

To counter this, INPEX – like most oil and gas companies – is investing in renewable energy. In its 2017 sustainability report, INPEX says it generated 12,289MWh of renewable energy this fiscal year, about three times as much as it generated two years ago.

 “We aim to set new environmental benchmarks through our achievements, innovations and commitment to improving environmental management,” the company’s website states.

The corporate social responsibility targets are also a useful lever in countering another key issue that all global oil and gas E&P companies face: political risk.

“Changing regulations, country risks, terrorism, conflict … all of those are political risks that we face,” Kubo says.

This will hardly come as a surprise, given that the company operates in some particularly volatile economies, including Iraq, the Democratic Republic of Congo and Venezuela.

In 2018, the company is looking to continue its expansion plans – but for now, Kubo is happy to keep calling Japan his home. It’s a good thing too, as his ambitious targets for PARIMA membership and the conference are sure to keep him busy.