NOT SINCE THE interlocking corporate directorates of post-war Japan has there been such a concentration of intermingled corporate relationships as found today among oil and gas industry supermajors. When we plot producing assets by operatorship and non-operatorship, we see a pattern of extraordinary – albeit intriguingly lumpy – interconnections between the six supermajors (Exhibit 1).
Exhibit 1: Interlocking Partners
For instance, BP is the operator in 14 joint ventures where Eni is a non-operating partner, while Eni operates 10 joint ventures in which BP is a non-operator. This supermajor-to-supermajor relationship represents 5-6% of the companies’ production volumes.
Meanwhile, French supermajor Total operates 30 joint ventures in which BP is a non-operating partner – although Total is the non-operating partner in just three BP-operated assets. Indeed, when we look at the ratio of operated-to-non-operated assets, we see that BP is much more likely to be a non-operator when in a production-phase joint venture with other supermajors. This may be driven by the peculiarities of individual asset opportunities and the global shape of the BP portfolio – or it might reflect a post-Macondo effect where BP has higher operating costs relative to peers due to an understandably heavy emphasis on HSE.
The highest concentration of friendship is clearly between ExxonMobil and Royal Dutch Shell – the oil and gas industry’s equivalent of the “special relationship” forged between the U.S. and Britain, first described in 1946 by Winston Churchill. Today, Shell operates 170 production-phase joint ventures in which ExxonMobil is a non-operating partner, including many in the North Sea, while ExxonMobil operates 77 such joint ventures in which Shell is a non-operator. (One wonders whether the CEOs of Shell and ExxonMobil, Ben van Beurden and Rex Tillerson respectively, appreciate that Shell is 2.5-times as likely to operate an asset when their companies are co-venturers, or believe that this is the right balance given their strategies, skills, and risk appetite.) In addition to these 247 overlapping producing assets in which Shell or ExxonMobil is the operator, the companies are also co-venturers in numerous independently-operated or operating companies, such as Aera Energy (an additional 11 assets), and project-phase joint ventures, including those like Gorgon in Australia, in which ExxonMobil and Shell are both non-operators.
Download the pdf version of this Water Street Insight >>
This web of industry relationships carries critical implications and opportunities. We believe that when companies have multiple relationships with the same partner – whether it is with a supermajor, interdependent, or national oil company – there is an opportunity to coordinate, leverage, and optimize the relationship at a cross-asset or corporate level. For example, a non-operated asset manager trying to influence an Operator would be well-served to understand that Operator’s behaviors and capabilities in other assets in which the company is a co-venturer, not to mention understanding what strategies and tactics tend to work with that partner. Beyond gaining a better grip on asset risks and the influencing environment, the company may also find that such holistic partner thinking generates currencies and leverage points – for instance, an opportunity to “give” something to the partner in another asset in exchange for a “get” in this asset.
Such holistic partner management is a hallmark of excellence – both at the asset and portfolio level. Over the last few years, several supermajors and other industry players have woken up to this reality, establishing various practices, including partner-specific practitioner networks, centralized contract databases, executive-level sponsors of these strategic corporate relationships, and partner competitive intelligence services, to enable it. Churchill, Roosevelt, and the architects of Japan’s post-war keiretsu are no doubt applauding the efforts.
 We recognize that the number of joint ventures is only one of many lenses that can be used to study the relationship between companies. A different lens is the materiality of the ventures, as measured by capital investment or production volumes. For instance, BP operates only six joint ventures where ExxonMobil is a non-operating partner but these six ventures combine to produce 127 KBOE/D; in contrast, Chevron operates 35 joint ventures where Eni is a non-operating partner but these only combine to account for 51 KBOE/D.