Overview of Contractual Risk Management Essay Example | Topics and Well Written Essays - 3000 words

Overview of Contractual Risk Management - Essay Example These factors are even prevailing when it comes to upstream oil and gas operations. A typical example of such factors has to do with contractual risk management. Generally, contractual risk management has to do with an integrated process and responsibility of reviewing, analyzing and evaluating contractual risks of pending agreements so that once the agreements are executed, there would not have any repelling risk effects for the parties involved (Taverne, 2008, p. 32). Upstream oil and gas operations is one that is commonly plagued with series of disaster based occurrences that put upstream companies in so much risk of facing liabilities. It is in this direction that both operators and contractors, mainly the government has involved each other the signing of contracts that seek to protect the interest of all people involved. Even though on from a broader perspective, it would be seen as a great idea that there are contractual risks, the absence of an effective and efficient manageme nt system would result in a situation whereby the contract favors one side to the detriment of the other and it is for this reason that contractual risk management is always important. ... ncentrate so much on contractual liabilities whereby there is an adjustment in the liabilities that defaulting companies pay (Gordon and Paterson, 2011, p. 232). The cause of the changes has also panned around two major factors. In the first instance, economic disposition has been identified as a strong factor that influences the contract landscape. Often times, when the market is weak in terms of falling global prices of oil, suppliers most cases become highly desperate towards their work and strive to overcome their negotiating position as they often have weaker negotiating positions at such times when the market is weak. Subsequently, oil and gas companies would be highly defensive on the liabilities involved in the contracts they enter into. Such weak markets is characterized by low revenues and profits for the oil and gas companies and so the best ways they try to stay within their means of operation is to avoid further risks including contractual risks. Apart from the strength of the market, events of increasing oil spills and other forms of upstream oil and gas accidents and disasters also affect the contract landscape. A typical example of this can be cited with the Macondo incident in the Gulf of Mexico, which resulted in several concerns from stakeholders of the type of risks that upstream oil and gas companies should be dealing. Certainly, during such times, contractors become defensive by increasing liabilities associated with prevailing risks. Role of Operators and Contractors Ideally, in the effect of contract risk, there are two major sides of stakeholders identified. These sides are operators and contractors. As expected, the operators are the upstream oil and gas companies who take up the responsibility and task of drilling and transporting oil and gas