Over the last 30 years, the oil and gas industry has developed strong and flexible processes to drive efficient business performance and become innovative at developing new products. Once a company has made a discovery with an exploration well, what usually follows is a well-defined stage gate process to appraise the resource and determine the best technical and commercial concept to develop and produce the oil and gas. Companies across the industry have different shades of the same approach to manage uncertainties and progress opportunities.
Matters become more complex when an asset is producing, however. During the asset lifecycle, the nature of each opportunity changes – debottlenecking, infill-drilling or new tie-backs might change the picture. Or new partners with new expectations might come into the project – and you need to refresh your strategy for the years ahead.
Compared to the stage gate process, there’s often no accepted approach to developing an asset strategy during the ‘operate’ phase. But without an effective strategy in place, it’s impossible to optimise the performance of assets over their whole lifespan in a joined-up way.
How renewing an asset strategy fails
With a field that’s already producing oil, there are several challenges that can complicate the path to creating an optimal asset strategy.
The first is when you have an asset that comprises of many different opportunities, all of which are at different stages of maturity. One may have had extensive engineering work done already, another might just be at the idea stage, and yet another could have a contract in place that you’re thinking of renegotiating. How those different opportunities interrelate as part of one asset makes forming a strategy far from straightforward.
Another challenge is getting alignment across the partners. Each of them will have their own priorities for the year – whether that’s maximising cash flow, reducing spend or booking reserves – and this can quickly pull an emerging asset strategy in too many directions at once.
Lastly, you have the influence of internal stakeholders. All too often they have their own firm views on what should be done with an asset. When internal politics start diluting discussions, the impact your asset strategy can have becomes incremental at best, or stalls altogether.
Find the right person to take charge and use a robust and proven approach
Because there are so many difficult trade-offs involved in creating an asset strategy, there is great value in giving one person the mandate to coordinate and lead the process. They will own the process, and make sure all parties are engaged and contribute to build alignment around a robust strategy.
Sometimes you might find the right internal person to lead your asset strategy development, though this approach comes with potential risks. Without the right mandate, internal politics can quickly stifle the effectiveness of the process, and if the person you choose is too aligned with someone on the decision board, they might not be able to lead the process with the necessary objectivity. Partners will need persuading that the person and the process works for the whole JV.
You also have to consider whether they have the right depth of interdisciplinary skill and awareness. There’s no room for strawman alternatives when it comes to planning the life cycle of an asset, and you need to be certain that the person leading the process is able to thoroughly evaluate all of the options in a holistic manner.
That involves asking the right questions of experts while staying one step removed from their preconceived biases, facilitating potentially tense meetings, discussions with leadership from each partner, and thinking of the short-term but not at the expense of the long-term.
Looking for an external expert is an effective alternative. They can bring that interdisciplinary spread of knowledge that you might not have readily available in house, as well as a fresh, independent view on the asset that isn’t driven by internal politics. At Rockflow we also bring a tried and tested process that’s fit for purpose.
An incremental approach is unlikely to unlock the full value potential
Whatever the unique circumstances of the asset in question, the fundamental principles for developing a successful asset strategy remain the same.
The first is being meticulous, but use your experience and judgement, from start to finish. An effective strategy is one that evaluates a clear range of alternatives, utilising input from all decision makers and experts to find which one is optimal. It might be that you don’t change much at the end of the process, but that doesn’t matter so long as you’ve gone through a rigorous process of asking and answering the right key questions. It will leave you with a high level of commitment and partner alignment to move forward effectively.
You also need to establish the right framework early on to steer your evaluation. Clear objectives are the foundation on which your assessments need to rest, and will help you keep the value of the asset firmly in focus.
Engage the right people
As you go through the process, it’s critical that you get the right people engaged. Even with one person leading the asset strategy development, your decision makers have to be aligned early on in order to be sure they sign off on the final proposal. All too often we’ve seen companies try to develop a strategy without involving key stakeholders, only for someone to dig their heels in late in the day and delay a decision for months.
Here again is where an external expert can smooth out the process. They will have experience in how to frame strategy development and the difficult questions that can’t go unanswered, and will be able to get input from your leadership team while keeping at arm’s length from the day-to-day running of the asset.
To learn more about how independent expertise can help develop a robust strategy, read our article on how an advisor can unblock a ‘stuck’ opportunity or head over to our Business Strategy and Governance page.