Final Frontier

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.

“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.

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