Non-Operated JVs: Does Your Asset Team Have the Right Profile?

  
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Part 1: How effectively is your asset team structured?

GettyImages-135492661.jpgHOW NON-OPERATING partners in JVs structure their asset teams – size, composition, reporting, location, and other factors – will have an enormous bearing on the company’s ability to influence the Operator. In our experience, high performing non-op asset teams can easily have a 5-20% impact on asset performance and serve as a foundational backstop to material risks. And since non-operated ventures routinely represent 10-50% of company production, revenues, or capital investment volumes across petroleum, mining, power, and other natural resource companies, opportunities for impact abound.

Unfortunately, our analysis shows few companies have a well-defined or consistent way to think about designing their non-op asset teams. As a result, companies don’t position themselves to optimize influence in this critical asset class. At the same time, asset teams are less able to adequately defend themselves against corporate pressures – such as asset team headcount reductions, or re-organizing asset-level functions into centralized corporate groups – which often further undermine influence.

We believe companies need a better way to think about non-operated asset team structure and performance. To help, Water Street Partners has developed the Standards of Non-Operated Asset Management Excellence. Based on years of experience assisting hundreds of asset teams, these Standards are designed to help owner companies assess their JV structures, practices, and contractual terms – and to compare themselves to a set of objective standards. In doing so, companies are able to diminish the gap-to-potential and pinpoint improvement areas. Specifically, our broader assessment framework includes 15 Standards related to how an individual company organizes itself internally to manage a non-operated venture (Exhibit 1). Each Standard includes specific tests to evaluate excellence, which then can be translated into a score, and benchmarked relative to other non-op asset teams. 

Exhibit 1: Assessment Against Standards of Excellence

Exhibit 1 Assessment Against Standards of Excellence v6.png 

ASSET TEAM PROFILE

Of the 15 Standards, one relates to the profile of the non-operated team – its size, functional mix, seniority, time dedication, location, reporting relationships, etc. Team profile can make all the difference in the effectiveness of a non-operator. In our experience, a small, technically-oriented team with relatively senior resources and strong communication and influencing skills usually outperforms a team that is twice as large, but half as capable and spread across locations.

When we test non-operated asset teams against this Standard, we look at eight different components to reveal the full picture (Exhibit 2). In the most general sense, these components each answer a different question:

  1. Size – Do the number of FTEs allocated to the asset reflect its current value and risk profile, and the company’s ability to influence – or are they a product of historical needs or other less relevant factors?
  2. Functional Mix – Given the relative Operator’s capabilities, the profile of upcoming asset projects, and the company’s own strengths, does the asset team have the right mix of functional support to do things that would generate influence and add value?
  3. Seniority – Does the team’s seniority profile match up with the Operator’s team profile, our influencing objectives, and the technical complexity of the asset (e.g., if the Operator is senior-heavy, are we sending junior people to try and influence them)?
  4. Time Dedication – Do members of the asset team dedicate enough time to do their work well, to understand the big picture surrounding the asset, and to feel real accountability as part of a team – or is everyone involved while nobody is accountable? 

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