IMAGINE YOU’RE A non-operated JV asset manager in upstream at an oil
and gas company, and it is time for your annual performance review. Typically, this would be with your boss, who reports to the head of upstream. But this year, you’ve flown to the head office and are sitting across the table from your CEO. He is showing the strain of “lower for longer” – layoffs, delayed capital investments, intense operating cost scrutiny, and dividend pressure. He has just one question for you: “What value are you delivering to our company?”
Prepared for this moment, you rattle off a long list of the asset’s strong performance indicators from the past year: production versus plan, cost per barrel, OPEX reduction initiatives, improved project performance, an extension of the production sharing contract, and other milestones. Frustrated, your CEO asks the question differently: “If you and your team packed up and went home, what would happen to the performance of this asset?” The question cuts straight to the heart of the matter: Beyond fulfilling basic governance and assurance requirements, what incremental value does your team, overseeing an asset operated by someone else, deliver to the company?
Do you have a good answer?
Make no mistake: Answering this question is not easy. The purpose of this note is to outline what questions non-operated asset managers should be asking and introduce a data-driven approach to respond.
THE NON-OP ASSET PERFORMANCE MANAGEMENT CHALLENGELet’s step back from this difficult conversation with your CEO and look at non-operated asset management in context of what has been happening in the oil and gas industry. Despite accounting for 30-60% of total production at the typical upstream company, non-operated assets have historically received far less attention than operated assets. The Macondo incident in April 2010, which involved BP as the operator and Anadarko and Mitsui as non-operators, changed that to some degree, and brought the potential risks of non-operated joint ventures sharply into focus.
Oil and gas companies responded to these and other risks with a series of corporate initiatives to improve their capabilities as a non-operator. These include: adopting stronger and more appropriate governance, risk and assurance policies for non-operated assets; establishing centers of joint venture excellence; and rolling out training programs for non-operated asset teams to sharpen their commercial acumen and build softer skills of exercising influence.
These are positive and overdue investments. But few companies have reason to thump their chests. The road to becoming a world-class non-operator is long and steep. Worldclass non-operated asset management means that these ventures, at a minimum, have a performance and risk profile as good as the company’s operated assets. And it means that, beyond fulfilling your basic governance and assurance requirements as a responsible non-operator, you generate a competitive return on the additional resources you invest in the non-operated asset team. Despite the recent proliferation of corporate standards and processes, our analysis of over 20 oil companies indicates just how difficult it remains for companies to assess the impact of their non-operated asset teams.
Our interviews with more than 100 non-operated asset managers shows that most are missing key pieces of data that would help them answer this question. Specifically, few asset managers have more than an intuitive feel for five key questions (Exhibit 1): Do you understand and is your team aligned on the key sources of value and risk in the asset? Does the team’s posture – its size, composition, and behaviors – appropriately reflect the value and risk? How much time is being spent by whom on which activities? Are these investments too much or too little; and is the time being spent on the right or wrong things? And, given the importance of relationships and stakeholder management as keys to managing risks and influencing the operator, how are you monitoring the caliber of these relationships?
Without the data to answer these questions, getting at the core question – what value does your asset team deliver to your company – is nearly impossible.
This is unfortunate and, in our view, unnecessary. Which brings us back to the discussion with your CEO.
A BETTER ANSWERYour CEO has called you to his office and asked you this question because he knows that non-operated asset management can be a good place to hide. After all, small non-operated teams often look after assets that are quite large, which means that viewed on an FTE/barrel basis, they compare quite favorably pound-for-pound with operated assets. At the same time, non-operated asset teams aren’t subject to the delivery expectations of operated assets. And finally, there’s an inherent degree of subjectivity in answering the question about how much value you deliver to the company – which makes performance management more challenging and creates an opportunity for the clever asset manager to find many ways to take credit for the Operator’s success or avoid blame for their failures.
Your CEO knows this – and also knows that he has asked you a difficult and highly subjective question. But the company’s portfolio of non-operated assets is a material source of opportunity and risk, and he believes it must perform better. What he really wants to know is given all of the various factors that make your asset unique and non-operated asset management challenging, have you created the conditions for delivering incremental value to the company? He wants to understand whether your leadership is driving the behaviors of your asset team in ways that position them to capture value for the company.
We now have a way to help.
Watch the Video: Geoff Walker shares perspectives on the
Asset Team Activity Value Analysis >>
Water Street Partners has been working with leading oil and gas companies to develop and pilot something we call the Asset Team Activity Value Analysis (ATAVA). This diagnostic tool provides non-operated asset managers with efficient and benchmarkable answers to a range of critical performance management questions. ATAVA leverages a proprietary online survey instrument that is sent to all members of the extended asset team. The output is an integrated set of analyses designed to map what is happening in non-operated assets so that asset managers can drive changes in team activities and behaviors and more clearly define the value they deliver (Exhibit 2).
ATAVA provides insights on three core areas:
- Activities – How are the members of the core and extended asset team, individually and collectively, spending their time, and what are the fully-loaded costs associated with the different categories of activities? Where is the team over- or under-investing time and energy?
- Alignment – To what extent are members of the asset team, individually and collectively, agreed on the highest-value and highest-risk areas? Are we aligned on the right posture towards the Operator, given the risk profile and untapped upside opportunity?
- Relationship Strength – Where are the strengths and gaps in individual relationships, with the Operator, with the other non-operating partners and internally?
~~~In the coming weeks, we’ll publish additional Insights describing the how the tool works, highlighting some of the various analyses, and sharing feedback from early participants.
Learn more about the Asset Team Activity Value Analysis diagnositc tool and how it can improve your team's performance >>