Tag Archives: Oil & Gas

Updates from McKinsey

Ten principles for successful oil and gas operator transitions
Incoming operators face several challenges when taking over an asset, including managing the transition, improving performance, and capturing value. Ten principles can guide the way.
By Pat Graham, Maximilian Mahringer, and Andy Thain – In the past five years, many oil and gas assets experienced an operator change after concessions expired and new operators or national oil companies acquired the rights, or after international oil companies divested or acquired assets. Regardless of the circumstances, a transition between operators represents a critical inflection point for an asset. On one hand, it gains a fresh lease on life through better access to capital, the adoption of new operating methods, or the application of new technologies that enhance its value. On the other hand, an operator change can trigger instability and increase risk before and after the transition. Indeed, many new operators fail to capture the value they expected.

From our analysis of production profiles following upstream operator transitions, we found that only about 20 percent were executed successfully, meaning they maintained or improved production levels throughout the transfer phase. Between 15 and 20 percent stagnated, while 60 to 70 percent declined.

Why were failure rates so high? We identified several reasons why incoming operators struggled to maintain production output:

Lack of collaboration between acquirer and incumbent. Failing to establish an effective working relationship can lead to multiple issues, such as reluctance among incumbents to invest in areas that fail to yield an economic payback before exit, decline in employee engagement, and challenges in the transfer of data and operating procedures.

Excessive level of change from day one. Transferring operatorship always involves changes to governance, operating processes, and IT systems—some of which will need to be implemented from day one. However, tackling too much change too soon can be disruptive, destroying good incumbent practices and cultural features that the acquirer should seek to retain.

Loss of essential capabilities. When exiting an operatorship, incumbents often relocate critical talent to more attractive prospects in their portfolios. This is particularly true of asset-leadership teams, specialists, and those with scarce skills. Replacing such capabilities can be costly and time consuming for the incoming operator.

Lack of attention to cultural differences. Every operator has their own way of aligning the organization’s vision, translating that vision into reality, and finding ways to create business value. No matter how similar ways of working may appear on the surface, different companies often interpret key terms such as “respect” or “risk-taking” in different ways, with different expectations of the behaviors needed to support them. Bringing these differences into the open and deciding which ones need to be addressed, and how, is a vital step in any transition. more>

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What Comes After Putin Could Be Worse

Bloomberg – The Russian president is taking his country straight down a path that could lead to a regime much worse than his.

The sanctions to some extent play into his hands, allowing him to cast economic suffering as a necessary consequence of standing up to the West, rather than a result of his own mismanagement. In one stroke, Putin has rewritten Russia’s social compact, justifying the Kremlin’s grip on power not with the promise of prosperity but with an appeal to nationalist pride.

The longer Russia’s economic malaise lasts, the greater the chances that the opposition to Putin will turn into something more virulent. more> http://tinyurl.com/lggzx5q

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Americans Gaining Energy Independence With U.S. as Top Producer

By Rich Miller, Asjylyn Loder and Jim Polson – Domestic oil output is the highest in eight years. The U.S. is producing so much natural gas that, where the government warned four years ago of a critical need to boost imports, it now may approve an export terminal. Methanex Corp. (MX), the world’s biggest methanol maker, said it will dismantle a factory in Chile and reassemble it in Louisiana to take advantage of low natural gas prices. And higher mileage standards and federally mandated ethanol use, along with slow economic growth, have curbed demand.

The result: The U.S. has reversed a two-decade-long decline in energy independence, increasing the proportion of demand met from domestic sources over the last six years to an estimated 81 percent through the first 10 months of 2011. more> http://tinyurl.com/7ogzl8e