A paradox in high technology: Working all the issues, or the important issues?

Long ago, oil and gas industry decision makers did not have high-technology analytical tools for creating detailed technical models before making decisions. Strategic decisions were made using more qualitative metrics, experience and hunches. “Strategy” had a great emphasis in those days.

Recently, these analytical tools have advanced to a great extent, leading to a scenario in which sophisticated and highly detailed technical modeling tends to occur very early in a project life cycle and well before primary strategic questions are properly considered. Analytical tools that promised to help executives make better decisions are in many cases slowing down the process without improving decision making.

The following are challenges that Caesar Systems has observed in exploration and production decision making:

• First, detailed technical modeling of hydrocarbon projects may take a very long time at great cost. When performed prior to making preliminary scoping decisions about a prospect, much of the time and money spent diving down into granular detail is misdirected and eventually lost.
• Second, organizations with multi-disciplinary teams (whether in silos or not) run the risk of working every issue with the same technical rigor at the same time. Minor value and risk drivers are fine-tuned with the same emphasis as major success drivers.
• Finally, overuse of technical analysis too early in the evaluation process leads teams to anchor on a particular approach without seeing the broader perspectives from all stakeholders. Misdirected emphasis in the early phases of a project makes it difficult to ask the right questions at the right time -- which, in turn, inhibits decision makers’ ability to position their companies for the best value and results. Important success factors frequently overlooked include corporate strategy, stakeholders’ interests, non-technical risks such as political and partner issues, fiscal arrangements, and more.

In offshore projects, many factors contribute to the complexity that tends to make this problem worse, including health, safety, and the environment (HSE), and political and commercial factors as well as technical ones. As such, the problem of over-emphasized technical analysis too early in the evaluation process is an executive management issue rather than a technical one. Leadership at the executive level will be required to solve this problem.

An alternative approach

To help remedy this situation, offshore exploration and production teams can consider an alternative approach to addressing these and other challenges. For example, it is likely to be much more beneficial to ask important strategic questions early on and to use a high-level simulation of the whole business opportunity prior to extensive, detailed technical modeling.

Here are some typical questions to consider early in a project’s life cycle:

• What is the business situation and fit with company strategy?
• What must be true (technical or otherwise) for this project to meet objectives?
• Who are the major stakeholders; which ones are important and which ones have the most power?
• What are the technical issues that have high impact on risk/opportunity?
• What are the major risks, and what decisions can be made to manage these?
• What is the fiscal arrangement? (Perhaps some costs in production sharing arrangements are not a concern)
• What are the business drivers of key partners, competitors, host governments, etc.? (Is the motivation competitive or collaborative?)

This integrative business simulation approach, early in the project life cycle, identifies the most important success drivers, which can in turn direct resources to the most pressing technical or commercial issues. This allows an evaluation team to focus its effort and aim its technical expertise on the problems with the greatest risk and value impact, and indeed work on a greater number of opportunities with more time to generate creative strategies.

Does this appear counterintuitive in a technology-driven industry? That business strategy can focus technical analysis rather than the other way around? Some say this is “working the problem backward.” At Caesar Systems, our findings are that the value to oil and gas companies of this alternative approach is high in terms of identifying and affecting key value drivers, managing risks, and improving allocation of scarce resources.

Donald Zmick
VP, Client Service
Caesar Systems LLC

This page reflects viewpoints on the political, economic, cultural, technological, and environmental issues that shape the future of the petroleum industry. Offshore Magazine invites you to share your thoughts. Email your Beyond the Horizon manuscript to Eldon Ball at[email protected].