The Final Frontier: E&P's Low-Cost Operating Model

The energy industry's accelerated evolution requires visionary change The Final Frontier parses the evolution of the oil and gas sector to map out a plan for going forward. The global energy industry is huge, and it is in disarray; between low oil and gas prices, climate change, rising development costs, and ever-mounting regulations, the need for change has been made crystal clear—but planning is much easier than implementation, and stasis is not progress. This book shows how redesigning internal operating models can bring about the necessary change in the implementation of upstream capabilities-driven strategies. From integrated, national, major, and independent oil companies, to the service companies in the upstream supply chain, there isn't an enterprise in the sector that cannot benefit from reduced costs and increased efficiency. Knowing that change is necessary is not enough—this book shows you what to change, and how to change it to get off the treadmill and start moving forward. With expert guidance through each redesign element, this insightful guide provides more than simply ideas: it provides real, practical guidance on transforming operations to keep pace with the changes and create lasting advantage. Identify the most relevant organizational capabilities for your resource portfolio, as well as the changes that can translate into savings and efficiency Build a workable plan for real-world implementation Redesign the operating model most suited to the needs of your business on an organization-wide basis Learn what to do differently and how to do it differently The energy industry has made great strides: our understanding of the global resource base, the nature of ownership and principal stakeholders, new technologies for resource development, and our economics and business models have all undergone a tremendous revolution, but now the more difficult—and more valuable—task begins. The Final Frontier helps you navigate the future and implement the changes necessary to avoid getting left behind.

Table of Contents:
Acknowledgments ix Abstract x Chapter 1 Introduction 1 A Vital Industry 2 What Now? 3 Industry Evolution 6 Ten Reasons to Update Your Operating Model 9 E&P Needs a New Agenda 19 Notes 20 Chapter 2 The New Agenda 23 Upstream Cost Transformation 24 “Cut Costs and Grow Stronger” 30 E&P Capabilities 34 Resource-Based Key Capabilities 45 Notes 49 Chapter 3 E&P Operating Model Redesign 51 Internal Operating Model 55 Business Delineation and Performance Measurement 56 Organization Structure, Capabilities, and Workflows 66 Operations Management Processes 74 Delegation of Decision Rights 75 Informal Social Norms and Corporate Culture 77 Implications of Industry Evolution 80 Business Model Considerations 83 Notes 85 Chapter 4 PMI and Other Event-Driven Redesigns 87 The Search for a Perfect Ownership Model 89 Preparing to Go Public 91 Key Success Factors 92 Event-Driven Redesign 94 Note 95 Chapter 5 National Oil Company Considerations 97 National Oil Company Context 98 Sovereign and National Oil Company Strategies 103 Business Model Implications 109 Notes 114 Chapter 6 Collaborative Operating Models 117 Who Uses Joint Ventures? 118 Joint Venture Strategic Intent 122 Joint Venture Value and Valuation 124 Deal Structure 127 Joint Ventures in Practice—The “How” 132 Notes 141 Chapter 7 Financial Implications 143 Financial Strategy and Policy 145 Hedging and Trading 155 Notes 168 Glossary of Terms 171 Other Useful Links 171 Works Cited 172 About the Author 178 Index 179

About the Author :
JUSTIN PETTIT is an advisor to the oil and gas industry. He entered the industry in 1992 as Senior Business Planner with Norcen Energy Resources and went on to a successful career on Wall Street, including Partner at Stern Stewart & Company, Group Head of Strategic Advisory for UBS Investment Bank, and Lead Partner in the energy and chemicals practice of Booz & Company. He also authored Strategic Corporate Finance: Applications in Valuation & Capital Structure (Wiley) and Merge Ahead: Mastering the Five Enduring Trends of Artful M&A. Mr. Pettit is a member of the Society of Petroleum Engineers.

Review :
“This book makes the case for change and outlines the key operating model compo­nents for a winning capabilities-driven strategy in today’s difficult environment. The opportunity to both lower cost and increase productivity makes this essential reading for executives across the O&G industry.” —ERIC SPIEGEL, former President and CEO of Siemens USA, author of Energy Shift: Game Changing Options for Fueling the Future  “The Final Frontier delivers a masterful analysis of the current oil and gas industry and how it can evolve toward the future. Justin’s insights, which cover everything from discovery challenges to M&A and hedging, are a must for all industry professionals who wish to see beyond the technical side of the business.” —FABIAN VERA, Reservoir Engineer, CDEUS “This is a well-written, easily read, and well organized book. It is an excellent source for E&P companies, including NOCs, IOCs, and service companies, for planning, designing, and implementing low-cost and efficient operating models. The book presents an inclusive coverage of various business and operating models practiced in the oil and gas industry. This book is recommended for CEOs, executives, business leaders, professionals, and practitioners in the industry.” —Dr. SAUD M. AL-FATTAH, Consultant, Saudi Aramco “Mr. Pettit captures the essence of why E&P companies need to push forward with a new model. He concisely captures and underpins the historic practices that have led the industry to a point where a new path must be taken. His work has helped to reframe the operating model that I use. This book is a must for all executives in the oil industry.” —MICHAEL G. MUIRHEAD, Chairman and Chief Executive Officer, Ezra Energy Ltd.