Abstract
Strategic risks attend any and all business ventures. They arise from the nature of the particular business being pursued and the environment in which that business is being conducted. In the petroleum industry, considerable attention is devoted to quantifying technical risks, i.e., the risk of finding and producing hydrocarbons. However, strategic risks often impact economic viability more than technical risks. Accordingly, strategic risk analysis is critical to realistically evaluating petroleum ventures in today's turbulent business environment. While difficult to assess and quantify, strategic risks must be accorded equal status with technical risks. Competitor activity, contract terms, environmental sensitivity, political stability and market forces are typical strategic risks.
A strategic risk system correlates a company's capabilities with the quality of possible ventures. Internal strengths and weaknesses are thus matched against external opportunities and threats. This is known in the business literature as a SWOT analysis.
The degree of strategic risk is then proportional to the mismatch between the SWOT elements. Such a mismatch was not recognized during exploration of the West Africa Aptian Salt Basins play in the 1980s. Angola, Congo and Gabon all contain examples where failure to consider strategic risk ultimately resulted in "Gambler's Ruin".
