MBA - ITB | BUSINESS | SCHOOL

MM6029 – Corporate Risk Management

Mid Test Assignment

Pertamina EP

Risk Analysis

Surya Agung W H 29109355

MASTER OF BUSINESS ADMINISTRATION

INSTITUT TEKNOLOGI BANDUNG
MARCH 2011
Surya Agung w H / 29109355

Executive Summary

PT Pertamina (Persero) (formerly known as Oil and Gas Mining Company) is a

state-own company that is responsible for managing the extraction of oil and gas in
Indonesia. Managing Director (CEO) who served at this time was Karen Agustiawan
inaugurated by the Minister for State Enterprises Syofan ministers on February 5, 2009
replaces the old CEO Ari Soemarno Hernanto. Karen Agustiawan inauguration of this
important historical record since he became the first woman to successfully occupy the top
positions in largest state owned companies. Pertamina in conducting business activities in
the field of energy and petrochemicals, is divided into upstream and downstream sectors,
and supported by the activities of subsidiaries and joint ventures.

Consider the size of the company, Pertamina facing many risk exposure that can
endangere the company. With risk management, it can help company to mitigate the risk,
increase the fund for the investment. There are some framework that we can use to manage
the risk, which are Risk Identification, Risk Measurement, Risk Management, Risk Mapping
and Risk Calculating.

PERTAMINA's scope of business incorporates the upstream and downstream

sectors. The upstream sector covers oil, gas and geothermal energy exploration and
production both domestically and overseas. The foregoing is pursued through own
operations and through partnerships in the form of joint operations with JOBs (Joint
Operating Bodies), TACs (Technical Assistance Contracts) and JOCs (Joint Operating
Contracts), whereas the downstream sector includes processing, marketing, trading and
shipping. Commodities produced range from Fuel (BBM) and Non Fuel (Non BBM), LPG,
LNG, petrochemicals to Lube Base oil.

In this assignment, we only discuss about the subsidiary of Pertamina which called
Pertamina EP. To reach the company’s goal, Pertamina facing several risk related with
financial risk, operational risk, strategic risk and externality risk. With this assignment,
writer try to analyze several risks that Pertamina EP faced and provide recommendations to
mitigate several risk that could occur.

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I. PT. Pertamina EP Profile

Pertamina is the combined result of the company PERTAMIN with PERMINA

which was established on December 10, 1957. This merger occurred in 1968. PT
PERTAMINA (PERSERO) was established under Notarial Deed of Lanny Janis Ishak, SH
No. 20 of September 17, 2003, and ratified by the Minister for Law & Human Rights under
Decision No. C-24026 HT.01.01 on October 9, 2003. The above proceeded in accordance
with the provisions set forth in Law No. 1 of 1995 relating to Limited Liability Companies,
Government Regulation No. 12 of 1998 relating to Public Companies (Persero), and
Government Regulation No. 45 of 2001 relating to Amendment to Government Regulation
No. 12 of 1998.

PT Pertamina EP (PEP) is engaged in managing the upstream oil and gas production
through a more manageable exploration and exploitation activities. Adding to that, PEP has
been undertaking other supporting businesses, which have been intended to back up the
main business directly or indirectly.

Presently, Pertamina EP production level for oil is around 120 thousand barrel oil per
day (BOPD) and around 1,003 million standard cubic feet per day (MMSCFD) for gas.
Pertamina EP Working Areas of 140.000 km2 were once largely PT Pertamina (Persero)’s
Oil and Gas Mining Authority Zone. The working areas are managed through own operation
and partnership cooperation, comprise 3 contracts of Joint Operating Body Enhanced Oil
Recovery (JOB-EOR) and 33 contracts of Technical Assistant Contract (TAC). Thus
geographically, Pertamina EP operates in nearly all territory of Indonesia, from Sabang to
Merauke.

Pertamina EP Working Areas consist of three regions namely Sumatra, Java and
Eastern Indonesia Regions. All JOB EOR and TAC operations are managed from
Headquarter while own operations are managed by each region respectively.

The operation of those regions comprise 12 Field Areas, namely Rantau, Pangkalan
Susu, Lirik, Jambi, Prabumulih and Pendopo in Sumatra, Subang, Jatibarang and Cepu in
Java as well as Sangatta, Bunyu and Papua in Eastern Indonesia. Beside the management of
working areas as stated earlier, other business pattern is management through projects, such
as gas development project of Pagar Dewa in South Sumatra, Gundih in Central Java and
Matindok in Sulawesi.

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Fuel Products:
o Biopertamax,
o Pertamax,
o Biopremium,
o Pertamax Plus,
o Premium,
o Solar,
o Bio Diesel,
o Pertamina DEX,
o Kerosine,
o Pertamax Racing. Figure 1. Fuel Products of Pertamina

Other than oil, Pertamina also produce:

o Non-oil: Minarex, HVI 90, HVI 160, Lube Base, Green Coke, Asphalt,
o Gas: LPG, Fuel Gas (CNG), Vigas, LPG, CNG, Musicool
o Lubricants: FASTRON lubricating oil is basic ingredient engine with Prima
XP Semi-synthetic SAE 20W - 50 is produced by Pertamina lubricants for
gasoline engines Mesran Super SAE 20W-50 is a gasoline engine oil-LEVEL
2T Super-X is a two-stroke gasoline engine lubricant such as outboard engine
cooling water or speed boat. This oil is produced by Pertamina. Also suitable
for use in outboard motors and engines of smaller crabs, saw machine, three-
wheel and bemo.

The objective of the Public Company is to:

1. Exploit profits based on the principle of effective and efficient PERSERO
management.
2. Contribute toward improvement of economic conditions for the welfare and
prosperity of the people.

In order to achieve the above aims and purposes, the Public Company engages in the
following:
o Oil and gas exploitation and the processed products and derivatives thereof.
o Geothermal energy exploitation existing at the time the PERSERO was established,
including Geothermal Power Plants (PLTP) in the final stages of negotiations and
which the Perseroan has managed to gain possession of.

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o Liquefied Natural Gas (LNG) exploitation and other products generated by LNG
refineries.
o Other exploitation associated with or in support of the undertakings referred to in
points above.

Vision, Mission and Values

Pertamina EP has split its visionary aspirations into a three-year strategic planning period:

1. Three-Year Development Plan I Vision (2006-2008): "Respectable Cost Effective

and Efficient Oil & Gas Producer".
2. Three-Year Development Plan II Vision (2009-2011): "No.1 Oil & Gas Producer in
Indonesia".
3. Three-Year Development Plan III Vision (2012-2014): "PEP World Class".

In order to achieve those visions, Pertamina EP states its mission as follow: To run
the oil and gas business efficiently, effectively, and within a safe and healthy environment,
thus increasing value for the stakeholders.

Figure 2. PEP’s top 10 oil and gas producer.

PT Pertamina EP (PEP) is an operating subsidiary business unit that focuses on

managing the upstream oil and gas production through a more manageable exploration and
exploitation activities. Adding to that, PEP has been undertaking other supporting
businesses, which have been intended to back up the main business directly or indirectly.
PEP has been dedicating to undergo its core business with strong commitment, to work hard

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and be productive, have motivated PEP in elevating Indonesia’s position as a net oil
importer. Consequently, PEP has strived to constantly increase the oil and gas production
capacity, to which its daily capacity of production indicate 120 thousand of barrels oil per
day (BOPD) and 1,000 million standard cubic feet per day (MMSCFD) of gas.
Supported with the capacity of oil production, PEP feels confident to reach the raw
oil production targeted by the
government for export. Meanwhile, PEP’s gas production is fully produced to support
domestic industry needs, as part of PEP’s contribution to add to Indonesia’s competitive
advantages within the industry.

Corporate Values:

Clean, professionally managed, avoid conflict of interest, never tolerate bribery, respect
trust and integrity based on Good Corporate Governance principles
Competitive, Able to compete both regionally and internationally, support growth through
investment, build cost effective and performance oriented culture.
Confident, Involve in national economic development as a pioneer in State owned
Enterprises' reformation, and build national pride.
Customer Focused, Focus on customers and commit to give the best service to customers
Commercial, Create added values based on commercial oriented and make decisions based
on fair business principles.
Capable, Managed by professional, skilled, and high quality leaders and workers,
committed to build research and development capability.

Pertamina Transformation Agenda

- Paradigm change on management and human resources.
- Activities transformation in upstream sector as the main profit generator.
- Activities transformation in downstream sector as the front line to interact with
customers
- Corporate restructuration transformation on Finance, Human Resource, Legal, IT and
General Administration including Asset Management.
The objectives of the transformation are to create corporate management as: Confident,
Clean, Customer-focused, Competitive and efficient and To be a role model company in
Indonesia. Achieved targets with continuous improvement since July to December 31, 2010:

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- Phase I of Breakthrough Projects in 100 days has generated income of + USD 15

million.
- The potential cost reduction of Rp.2 trillion in supply chain through the improvement
on field distribution efficiency.
- 5 gas station have met the standards of "Pertamina Way".
- The roll out of gas stations quality and quantity assurance.
- The cooperation with world-class oil & gas companies.

Pertamina EP Excellence Values

In order to create a harmonious working environment, Pertamina EP workers always
refer to commonly agreed basic values as excellence values. These excellence values are
expected to build synergetic strength in order to become the propeller toward Pertamina EP
World Class vision through Company's strategic mission. The values are guidance to realize
Company's vision and mission, comprise Focus, Integrity, Visionary, Excellence and Mutual
respect (FIVE-M).

In line with Pertamina EP's transformation program, FIVE-M values were further
developing into FIVE-M GO PEP with additional values of Good Corporate Governance,
Optimization, Personal Quality, Empowerment, Peerless Shareholder Value and Proper
HSE.

Corporate Business Strategy

The company’s corporate strategy was constructed to reach the company’s goal,
which is achieve its vision and mission using the corporate value. There are three corporate
strategy related with the company’s goal, which are expansion, synergy, and excellence.
Here is the explanation of every corporate strategy.

A. Upstream: Exploration and Production

 Increasing production from existing fields.
 Expanding business activities and operations, including using inorganic methods
(acquisitions).
 Developing the potential of CBM in Pertamina areas.
 Forming strategic alliances to support the expansion and building specific skills.

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Figure 3. PEP’s top 10 oil and gas producer.

B. Upstream: Non Exploration and Production

 Increasing the domestic gas trading business while taking the opportunity to expand the gas.

 Transport and process business through synergy with other Pertamina subsidiaries.

 Being pro-active in formulating pricing policy, in accordance with national policies.

 Building capacity and specific skills in drilling services to support oil and gas expansion
plans.

PEP Working Areas are those previously managed by PT PERTAMINA

(PERSERO) through its Oil and Gas Mining Zone Authority. The Company's exploration
and production activities cover nearly every part of Indonesia territory, from Sabang to
Merauke.

Figure 4. Working Area of Pertamina EP

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Presently, the Upstream Directorate managed 6 subsidiaries in the oil, gas, and
geothermal business, namely: PT Pertamina EP (PEP), PT Pertamina Hulu Energi (PHE),
PT Pertamina Gas, PT Pertamina Geothermal Energy (PGE), PT Pertamina EP Cepu (PEP
Cepu), and PT Pertamina Drilling Services Indonesia (PDSI), as well as developing the
upstream support technological function carried out by the Exploration & Production
Technology Center (EPTC).

Figure 5. Working Region of Pertamina EP

At this stage, PEP owns four main backbone fields for their high production
capacity. As a consequence, any impacts resulted from those fields will eventually affect the
whole PEP production. The four working fields are Tambun, Limau, Sukowati and Poleng.
Capacity wise, total production of Tambun field is 14,000 BOPD, Limau field is 8,000
BOPD; Sukowati field is 19,000 BOPD, and Poleng field is 8,500 BOPD. In total, all the
four main fields contribute 49,500 BOPD or 40 percent of the targeted 125,000 BOPD.
The main focus of each subsidiary and of the supporting function is as follows:

PERTAMINA EP
PEP was established on 13 September 2005, to manage oil and
gas operations (own operations) based on a Cooperation Contract
(KKS) with BP Migas signed on 17 September 2005. As an upstream sector subsidiary, PEP
carries out exploration and production of oil and gas in domestic working areas covering
140,000 km² formerly managed by PERTAMINA. PEP’s working area is divided into three
regions: The Sumatra, Java, and Eastern Indonesian (KTI) Regions. The Sumatra Region
covers the Rantau, Pangkalan Susu, Jambi, Pendopo and Prabumulih Fields, as well as the

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Pertamina EP Business Units (UBEP) at Jambi, Limau, Lirik, and Adera (ex JOB-EOR
PERTAMINA Lekomaras, 22 April 2009). The Java Region covers The Cepu, Jatibarang,
Subang and Tambun Fields. The Eastern Indonesian Region (KTI) covers: The Bunyu,
Sangatta and Sorong Fields as well as the Tanjung and Sangasanga-Tarakan UBEPs.

PERTAMINA GAS
Pertamina established PT Pertagas on 23 February 2007, and it became PT
Pertamina Gas in 2008. The company undertakes gas transportation, trading and
processing. In the gas transmission business, Pertamina owns a gas pipeline
network with a total volume of 34,000 km-inches in Northern Sumatra, Central
Sumatra, Southern Sumatra, Western Java, Eastern Java, and East Kalimantan
In January 2009, PT Pertamina Gas obtained a Transportation Permit and in February 2009,
it received a Exclusive Right from BPH Migas for gas transportation along 43 transmission
routes. These Permit and Exclusive Rights complemented the Business Permit that had been
issued previously (in September 2008). By obtaining a business license and special rights,
PT Pertamina Gas now has a regulatory basis to play the principal role in the gas business in
Indonesia.

PERTAMINA GEOTHERMAL ENERGY

PGE was founded on 12 December 2006. This Pertamina subsidiary
carries out geothermal exploration and
exploitation in 15 working areas (WKP) in Indonesia, namely: Sibayak-Sinabung, Sibual-
buali–Sarulla, Sungai Penuh-Sumurup, Tambang Sawah-Hululais, Lumut Balai, Waypanas-
Ulubelu, Cibereum-Parabakti, Pengalengan (Patuha-Wayang Windu), Kamojang-Darajat,
Karaha-Telagabodas, Dieng, Iyang-Argopuro, Tabanan-Bali, Lahendong-Tompaso and
Kotamobagu.

PERTAMINA EP CEPU
PEP Cepu, which was established on 14 September 2005, is a
subsidiary of PT Pertamina (Persero) that focuses on the upstream
oil and gas business. In the Cepu Block, Pertamina has a 45% interest in partnership with
Mobil Cepu Ltd (as the operator) and the Regional Owned Enterprise (BUMD) that manages
the KKS for the Cepu Block.

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PERTAMINA DRILLING SERVICES INDONESIA

PT PDSI was established on 13 June 2008 as a drilling service
management business entity. The services provided comprise
drilling, workover activities, and drilling services that use a Daily Rate and Integrated
Drilling Management (MPT) system for oil, gas, and geothermal wells. Presently, PT PDSI
owned 34 drilling rigs (28 owned by PT PDSI and 6 transferred from PT Usayana).
PERTAMINA UPSTREAM ENERGY
PHE is one of the Upstream Directorate subsidiaries working
in the oil and gas upstream business, and is also an upstream
business vehicle for managing the domestic and overseas cooperation portfolio in the form
of: Production Sharing Contracts (PSC), Joint Operating Body-Production Sharing Contracts
(JOB-PSC), Indonesian Participating / Pertamina Participating Interests (IP/PPI) and Badan
Operasi Bersama (BOB). PHE’s overseas working areas covered: Western Desert Block
3,Iraq; Block 10&11.1, Offshore South Vietnam; Block SK-305, Offshore Sarawak,
Malaysia; Sabratah 17-3 Block, Offshore Libya; Sirte 123-3 Block, Libya; Block 13, Red
Sea, Offshore Sudan; Block-3, Offshore Qatar; and Basker Manta Gummy Block, Australia.

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Figure 6. Pertamina EP Structure

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II. Risk Management Process

2.1 Risk Analysis

There are many kinds of corporate risk, depends on the nature of the company and its
exposure to risk. To simplify, corporate risk can be divided into four main risks which are
financial risk, operational risk, strategic risk, externality risk, and other risks.

Financial risk is the risk that faced by a company which related with the financial matter.
There are several risks which categorized into financial risk, such as:
 Market Risk
Market risk is the risk of loss due to changes in market prices. This includes interest
rate risk, foreign exchange risk, commodity price risk, and share price risk.
 Liquidity Risk
Liquidity risk is the risk that amounts due for payment cannot be paid due to a lack
of available funds or cash.
 Credit Risk
Credit risk is the risk that a counterparty may not pay amounts owed when the due
date comes.
 Funding Risk
Funding risk is the risk that the company may not be able to finance the investment
fund needs.
 Equity Risk
Equity risk is the risk that one's investments will depreciate because of stock market
dynamics causing one to lose money.
 Commodity Risk
Commodity risk refers to the uncertainties of future market values and of the size of
the future income, caused by the fluctuation in the prices of commodities. These
commodities may be grains, metals, gas, electricity etc.
 Forex Risk
Foreign exchange risk is the risk that the exchange rate will change unfavorably
before the currency is exchanged.
 Interest Rate Risk

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Interest rate risk is the risk borne by an interest-bearing asset, such as a loan or a
bond, due to variability of interest rates. In general, as rates rise, the price of a fixed
rate bond will fall, and vice versa.

Operational risk is the risk that faced by a company which related with company’s daily
operation. There are several risks categorized into operational risk, such as:
 People Risk
People risk is the risk of loss that caused by the company’s human resources
condition, capacity, or capability.
 Productivity Risk
Productivity risk is the risk of loss due to having ineffective or inefficient process
and the risk of having under utility.
 Technology Risk
Technology risk is the risk of loss due to technological development or improvement
inability.
 Innovation Risk
Innovation risk is the risk of loss when the company launch a new innovation, both
process and product / service innovation
 System Risk
System risk is the risk of loss that caused by the lack of company’s information
system, communication system, control system, etc.
 Process Risk
Process risk is the risk of loss due to rejected products or high overhead cost caused
by inappropriate process.

Strategic risk is the risk that faced by a company which related with company’s strategic
decisions. There are several risks categorized into strategic risk, such as:
 Business Risk
Business risk is the risk of failing to achieve business targets due to inappropriate
strategies, inadequate resources, or changes in the economic or competitive
environment. The risk also means that a company will not have adequate cash flow to
meet its operating expenses.
 Leverage Operational Risk

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Leverage operational risk is the risk of loss due to highly leverage operation cost
structure which caused by the condition of having a high fixed cost.
 Strategic Transaction Risk
Strategic transaction risk is the risk of loss due to the effect of strategic transaction
which can be foreign exchange risk, commodity price risk, etc.

Externality risk is the risk that faced by a company which not directly caused by the
company itself. There are several risks categorized into externality risk, such as:
 Environmental Risk
Environmental risk is the risk that an organization may suffer loss as a result of
environmental damage caused by themselves or others which impacts on their
business.
 Reputational Risk
Reputational risk is the risk that the reputation of an organization will be adversely
affected.
 Legal Risk
Legal risk is the risk of loss that a company may suffer due to legal matter or changes
in regulation. The loss caused by this risk including the additional legal expenses,
trial expenses, fine, etc.
 Political Risk
Political risk is the risk that there will be a change in the political framework of the
country which may suffer the company.

2.2 Risk Measurement and Mapping

After analyze of the done, the next step is measure the risk. When we talk about the
measurement, then we talk about the number. In order to understand the risk, first we need
to know how the risks impact the company, than we able to make meaningful decisions
about risk issues.
Each risk that may happen in the company, risk should be measured objectively.
Risk measurement has two components. The first component is to measure risk impact. The
second component is to measure risk probability. The measurement of risk should be done
by the risk owner and decide what to do next after mapping it since the risk owner is the
expert and know the most about the company. As an example, in the case of Pertamina EP

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and in the next section would be used to measure any kind of risks. Here are the risk
probability and impact classification.

Point Criteria Parameter

1–2 Low Certainly will never happen

3–4 Unlikely Unlikely to happen

5–6 Moderate 50% happen 50% not happen

7–8 Likely Likely to happen

9 – 10 High Certainly happen

Table 1. Probability classification.

Point Criteria Parameter

1–2 Insignificant Work still can be done
3–4 Minor Lower specification
5–6 Medium Reducing area of work
7–8 Major Staging procurement
9 – 10 Catastrophic Work must be stopped

Table 2. Impact classification.

After we done measured the risk, the next step that we need to do is make the
available risk and make the plotting out of it. Risk metric would show the analyst the risk
position, whether it low, medium, high or critical, such as:
10

6
Impact

0 1 2 3 4 5 6 7 8 9 10
Probability

Low Risk Medium Risk High Risk Critical Risk

Figure 7. Risk Mapping

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To know it better, let us see the risk level with this image:

Low risk Medium risk

High risk Critical risk

2.3 Risk Mitigation

And for the last step of risk management process is the risk mitigation or people
usually call risk management. This step objective is the way for manager to manage the risks
that have been mapped before. The company usually retains the risk with low probability of
occurrence and low impact. The company can transfer the risk with high impact but low
probability of occurrence, while the risk with high probability of occurrence with low impact
can be controlled. The last kind of risk is the risk with high probability of occurrence and
high impact. This kind of risk should be avoided by the company. There are four ways to
manage risk that could be implemented:

1. Retain the Risk:

- Capital Allocation
- Post Loss
- Contingent Capital
- Self-Insurance
2. Transfer the Risk:
- Transfer by Contract
- Transfer by Subcontract
- Transfer by Insurance
- Transfer by Hedging (Derivatives)
3. Control the Risk:
- Prevention System
- Detection and Control System
- Protection System

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- Administration
- Engineering
4. Avoid the Risk:
- Avoidance by Substitution
- Avoidance by Termination
- Avoidance by Process Change

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III. COMPANY’S RISK ANALYSIS

First of all, this is the list of risks and perils that company have and the lost that they
make to the company:

No Peril Risk Group Loss

1 Planning do not appropriate with the law Prosecuted by law
2 Existing product look bad Many people claim
Externality
3 Oil spill Extra expense in cleaning
Risk
4 Marine pollution due to garbage Extra expense in cleaning
5 Bad company service Losing clients
6 Price of commodity rise Extra expense in fuel
7 High HR cost Lower the margin
8 Declining market share Lower market share
9 Economic crisis Financial Decrease source of fund
10 High account receivable Risk Decrease source of fund
11 Fail claiming the insurance Losing source of fund
12 Increase of company debt Increase of WACC
13 Customer cancel the agreement Decrease source of fund
14 Lack of human resource No innovation
15 New trend in renewable energy Lower market share
16 Asset manipulation Losing money
17 Suppliers cannot meet demand Decrease productivity
18 Material Surplus Higher storage cost
19 Data manipulation Losing money
20 Work accident High injury level
21 Material loss Decrease productivity
22 No obvious career path Instability of production
23 Extra workforce to hired Decrease source of fund
24 Technology stealing by competitor Operational Reduce competitive advantage
25 Internal system failure Risk Decrease productivity
26 Low integrity of worker Decrease productivity
27 Incompatibility of construction Decrease productivity
28 Worker strike Decrease productivity
29 Employee fall into the sea High injury level
30 Damage of the ship Operational delayed
31 Breakdown of oil pump Decrease productivity
32 Crane breakdown Operational delayed
33 Gas explode Extra expense in cleaning
34 Platform burn because of short-circuiting Extra expense
35 Arrival of the uninvited Decrease productivity

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36 Hearing impaired due to the gas turbine High injury level

37 Very bad weather Pure risk Whole loss
38 Many competitor arise Decreasing market share
39 Late delivery of fuel for the engines Strategic Losing productivity
40 Production do not meet target Risk Reduce sales
41 Interference of government Reduce company's autonomy

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IV. COMPANY’S RISK MEASUREMENT AND MAPPING

In the risk analysis chapter, I have identified 41 perils that could generate loss for
PT. Pertamina EP. After we had done found the perils, the next step in risk management is
to measure the risk which has identified before. We can applied the total score for each of
peril and sum it altogether to get the total company’s risk score. Risk measurement process
started with the process of collecting data and information related with the identified risk.
The information needed to measure risks consist of the information related with the
how often the perils happened and how big they will give impact to the company. Usually,
the risk owner is the most capable in giving the score in impact and probability. In this case,
I measured the risk with limited data. This is the risk measurement of the company:

No Peril Risk Group Prob. Severity Score

1 Planning do not appropriate with the law 2 4 8
2 Existing product look bad 2 7 14
Externality
3 Oil spill Risk 2 8 16
4 Marine pollution due to garbage 3 3 9
5 Bad company service 2 6 12
6 Price of commodity rise 5 6 30
7 High HR cost 2 5 10
8 Declining market share 3 6 18
9 Economic crisis Financial 3 8 24
10 High account receivable Risk 4 6 24
11 Fail claiming the insurance 4 3 12
12 Increase of company debt 4 5 20
13 Customer cancel the agreement 2 7 14
14 Lack of human resource 7 4 28
15 New trend in renewable energy 6 7 42
16 Asset manipulation 3 7 21
17 Suppliers cannot meet demand 4 8 32
18 Material Surplus 2 4 8
19 Data manipulation 5 6 30
Operational
20 Work accident Risk 3 7 21
21 Material loss 2 6 12
22 No obvious career path 2 8 16
23 Extra workforce to hired 4 8 32
24 Technology stealing by competitor 3 6 18
25 Internal system failure 6 4 24
26 Low integrity of worker 6 4 24

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27 Incompatibility of construction 4 7 28
28 Worker strike 3 7 21
29 Employee fall into the sea 3 2 6
30 Damage of the ship 3 4 12
31 Breakdown of oil pump 6 9 54
32 Crane breakdown 3 5 15
33 Gas explode 2 6 12
34 Platform burn because of short-circuiting 1 4 4
35 Arrival of the uninvited 2 3 6
36 Hearing impaired due to the gas turbine 4 3 12
37 Very bad weather Pure risk 7 6 42
38 Many competitor arise 3 6 18
39 Late delivery of fuel for the engines Strategic 3 8 24
40 Production do not meet target Risk 5 6 30
41 Interference of government 5 7 35
Total 838

Then after we get the numerical data, we can make the mapping for the whole risk
that available above. This is the risk mapping of the company:
10
31
9
3 9 17
8
22 39 23
2 16 27 41 15
7
13 28 20
6 5 8 10 6 37
33 21 38 24 40 19
Impact

7 32 12
5
34 1 30 25 14
4
18 26
35 4 11
3
36
29
2

0 1 2 3 4 5 6 7 8 9 10
Probability

Low Risk Medium Risk High Risk Critical Risk

From the Risk Metric above, we can see that how many risks that include in critical
risk, that need a lot concern from the company. Especially risk number 31 that have highest
score of risk, which is the “breakdown of oil pump”.

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V. COMPANY’S RISK MITIGATION

The last process in company risk management process is the risk mitigation. In this
step, we decide what kind of action that company should do to mitigate the effect of the risk.
This is the list:

No Peril Risk Group Action Mitigation

1 Planning do not appropriate with the law Avoid Terminate the planning
2 Existing product look bad Control Improve product quality
Externality
3 Oil spill Risk Control Oil spill cleaner
4 Marine pollution due to garbage Control Waste control management
5 Bad company service Control Good corporate management
6 Price of commodity rise Transfer Forward commodity price
7 High HR cost Transfer Give employee reward system
8 Declining market share Avoid Make better process and product
9 Economic crisis Financial Retain Capital allocation
10 High account receivable Risk Transfer Contract the payment duration
11 Fail claiming the insurance Control Protect insurance system
12 Increase of company debt Transfer Swap contract
13 Customer cancel the agreement Transfer Forward contract
14 Lack of human resource Control Employee training
15 New trend in renewable energy Control Doing research and development
16 Asset manipulation Retain Capital allocation
17 Suppliers cannot meet demand Transfer Contract the agreement
18 Material Surplus Control Improve warehouse management
19 Data manipulation Control Using high security software
20 Work accident Transfer Give employee insurance
21 Material loss Control Using good quality equipment
22 No obvious career path Avoid Change company structure
23 Extra workforce to hired Avoid Change recruitment process
Operational
24 Technology stealing by competitor Risk Control Secure classified data
25 Internal system failure Avoid Software backup
26 Low integrity of worker Control Give employee incentive
27 Incompatibility of construction Control Periodically review system
28 Worker strike Control Manage labor union
29 Employee fall into the sea Control High safety standard
30 Damage of the ship Avoid Another backup ship
31 Breakdown of oil pump Control Periodic check
32 Crane breakdown Transfer Equipment insurance
33 Gas explode Control Reinforce rule for employee
34 Platform burn because of short-circuiting Control Reinforce rule for employee

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35 Arrival of the uninvited Control Enhance security

36 Hearing impaired due to the gas turbine Avoid Use noise reducer
37 Very bad weather Pure risk Retain Post loss
38 Many competitor arise Retain Capital allocation
39 Late delivery of fuel for the engines Strategic Avoid Extra fuel reserve
40 Production do not meet target Risk Avoid Find new oil source
41 Interference of government Retain Manage company structure

VI. RISK CALCULATOR

The risk management process is done. Now we know what alternative that company
can do to mitigate the risk that could happened to the company. Then, by using the risk
exposure calculator, the company’s internal risk could be identified easily; it will show the
early signal of risk. To manage the company’s risk, the only way to do is running the risk
management.

GROWTH
Pressures for Inexperience of
Rate of Expansion SCORE
Performance + + Key Employees =
2 3 1 6

CULTURE
Reward for Executive Level of Internal
SCORE
Entrepreneurial + Resistance + Competition =
4 1 2 7

INFORMATION MANAGEMENT
Transaction Decentralized
Gaps in Diagnostic SCORE
Complexity + + Decision =
4 1 5 10

TOTAL
RISK EXPOSURE CALCULATOR SCORE
23

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VII. CONCLUSION

With risk management framework which consists of risk identification, risk

measurement, risk measurement, risk management, and risk monitoring we can understand
more about the risk exposure that Pertamina EP have so that the company always has
enough funds to finance their investment. PT Pertamina EP is exposing to so many different
types of risk. Most of the risk exposed to the company, basically come from operational risk,
which can transform themselves after the company trying to handle them. This main risk is
the crucial risk that the company should dealt with, because it has the most impact and the
higher probability for Pertamina EP.

This Risk is mainly related to:

o The international exposure that effect the company a lot also come from the world oil
and gas price that tend to ascending. Whether it will increase the company’s income
or make company suffer potential loss.
o The fuel price risk that being used by the company which is gasoline, affect the
company a lot, include the availability of the fuel, the quality and the supply.
o The Indonesia current economic condition also drives the company’s operation
which is the government interferes, in international agreement, national oil and gas
demand and the law.

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EXHIBIT 1

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EXHIBIT 2

EXHIBIT 3

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EXHIBIT 4

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EXHIBIT 5

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EXHIBIT 6

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EXHIBIT 7

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