OVER RECENT DECADES, the natural resources industry has witnessed a number of major HSE incidents, including those at Buncefield (UK), Macondo (US), Samarco (Brazil), Piper Alpha (UK), Colonial Pipeline (US), Bass Strait (Australia), Prudhoe Bay (US), Penglai (China), and Grasberg (Indonesia) (Exhibit 1). Each of these HSE incidents occurred under a joint venture structure – either in a JV operated by one company or a JV operated as an independent company with its own management team.
With each occurring event, corporate boards, industry executives, and commentators have come to wonder aloud whether the JV structure was somehow a root cause. For us, these events raise two broader and more fundamental questions: Do joint ventures have a different risk profile than wholly-owned operations? And does this risk profile differ based on the JV operating model and operator type?
Read More
NON-OPERATED ASSET TEAMS are under assault. Staring into low commodity prices, non-operated asset teams in petroleum, minerals, and other natural resource sectors are under pressure to reduce team size. Attempting to shelter their teams – and make a fair and fact-based determination of the right team size – many non-operated asset managers and executive sponsors lack the data and perspectives to do this well.
It doesn’t have to be this way.
HOW 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.
Read More
Read More
IN NON-OPERATED ASSETS, many companies are shifting from a generalist and assurance-oriented oversight posture to a strategy built around sharp-edged annual influence plans with specific key focus areas (KFAs).
Given this more active position in non-operated assets, especially among major oil and gas, mining, and power companies, we wanted to understand how leading companies are linking these influencing plans – and the KFAs within them – to the annual objectives, performance reviews, and incentives of individual members of the asset team.
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?”
SAUDI ARAMCO AND SHELL recently announced their intent to divide up the assets of Motiva Enterprises – one of the world’s largest joint ventures. The announcement marks a relatively harmonious end to a 50:50 JV formed in 1998 that refines, distributes, and markets petroleum products under the Shell brand in 26 U.S. states. Recent public data shows Motiva has more than 3,500 employees and generates more than $50 billion in annual sales. Under the proposed split, Shell will receive two older refineries located near a Shell chemical plant plus a slate of gas stations, while Saudi Aramco will gain ownership of 26 fuel terminals and a modern refinery in Texas that is the largest in North America. All that remains is to agree on a cash equalization payment from Aramco to Shell in return for the larger asset share.
