SPE ATCE: Decision quality key to improving multicompany project results

Highlights of a draft technical report on the importance of decision quality in multicompany upstream projects was presented to the Society of Petroleum Engineers’ Annual Technology Conference & Expo (ATCE) in Houston. The goal of the report was to help operators work more seamlessly with joint-venture partners to mitigate cost overruns and schedule slippage by making better, quicker decisions that add more value.

Recent large-scale upstream projects underperformed 80% of the time relative to expected results when the projects were sanctioned, according to the report. About 30% ran overtime or over budget, while 64% had trouble reaching production goals after start of oil production. Most of these projects are multicompany JVs, and a lack of quality decision making between co-owners has been cited as a key contributor to underperforming projects.

Technical reports

SPE technical reports are published when there is a clear need to evaluate the state of the oil and gas industry’s technology or to give guidance on issues important to the industry. The issue of decision quality was deemed to have risen to this level.

Unlike technical papers, technical reports are written by an anonymous committee that collects information from multiple companies, functions, and stakeholders, creating guidelines to address the issue or technical problem.

This is then given to SPE members for review and their input is considered in the final version of the report. The draft of “Decision Quality for Upstream Projects” is available for review now on SPE’s web site.

At ATCE, an overview of the report’s findings was offered as well as comment from industry leaders.

Decision-quality guidelines

The report proposed guidelines to improve decision alignment between multiple partners on large projects. Critical to these projects’ success is decision quality, speed, effort, and effectiveness. Failure to gain timely alignment on pivotal decisions can negatively affect project delivery.

The problems the report’s guidelines attempt to solve stem from misalignment on projects. There is huge value in aligning and making the right decisions early in the process, but the oil and gas industry presents unique problems.

Generally, there is “operator dominance” in the JV decision-making structure and underrepresentation from nonoperating co-owners. This “operator-centric” perspective is limited by one company’s experience and there is a loss of diversity of perspective.

Projects and ownership structures are complex. There are multiple functions, from multiple partners, often from multiple countries and cultures. This creates barriers to making quality decisions.

There can also be general disagreement between technical experts from each partner company. And there are on sharing information based on legal and competitive barriers.

These challenges were recognized by SPE contributors about 2 years ago and the seeds of the current technical report were sown. The goal was to come to a common understanding or expectation for a decision-quality process that brought to bear expertise of subject-matter experts across the spectrum of the industry.

Bill of rights

The process, available in full on SPE’s web site, is based on a foundational idea: to give decision makers what they need for the clarity of thought that leads to clarity of action. At the core of this idea was what the report writers call a “decision makers’ bill of rights.”

In short, decision makers have a right to a decision frame, creative alternatives, and relevant and reliable information. They also should be able to understand all potential consequences. They have a right to logical analysis from which to draw meaningful conclusions, and effective facilitation to gain alignment and a commitment to action. By setting these expectations to underpin decision quality, there will be a consistent approach to evaluating specific project opportunities and an opportunity to improve multicompany decision making.

With these “rights” in mind, a process was developed and is now available for SPE-member review. At ATCE, a panel of industry leaders was given a chance to comment publicly about both the problems and solutions pertaining to decision quality.

Complex JOVs

Janeen Judah, general manager, Chevron Southern Africa business unit, and 2017 SPE president-elect, said there can be disconnects that effect decision making at many levels of a JV.

International oil companies (IOC) are not as monolithic as they seem and can have different perspectives and objectives that they bring to the table, Judah said. Smaller oil companies with different economic imperatives may have equally different goals for production and financial targets. And national oil companies (NOC) often take a longer term view and have responsibilities to their country first as guardians of a national resource. These are very different views of the world, Judah said.

Making an already complex situation more difficult is when there is a material change, like the recent drop in oil prices, that affects each partner differently, skews the dynamics of a partnership, and makes alignment and agreement that much tougher, Judah said.

For her, the proposed process in SPE’s decision quality technical report is that it tries to account for these disparate views and find a “sweet spot where we can all live.” She said, “Recognizing differences, facilitating collaboration, but being ready to leave a deal when a project just isn’t right.”

John P. Chaplin, vice-president, ExxonMobil Production Co. and UK lead country manager, echoed Judah’s comments on the complexity of JVs, adding that NOCs are often also regulators on a project and there can be a disconnect between clear commercial objectives and a country’s needs. This complexity means that JVs are often “less than the sum of their parts” and partnerships are not harnessing the collective ability of a JV.

Bias vs. trust

Jacek Jaminski, exploration manager, BP Brazil South Margin, said what gets in the way of decision quality is that operators often default to biased views that are strongly held. He said the industry needs to make an attempt to include stakeholders in the decision making process earlier. We are trying to solve the problem together, he said, early engagement and trust are important.

The proposed decision-quality process provides a more systematic approach to decision making, using standardized tools that help recognize bias and rise above it by brining contrarian views to the table, said Jaminski.

Keith Henderson, vice-president, Nexen USA, said the need for a decision quality process is very clear. What gets in the way is the time required to do it. It can seem to take too long and deliver unclear results. The new process will take time, he said, but it will be well worth it because decisions will be better, ultimately saving money.

What is stopping this from being universally adopted, he added, is misalignment and mistrust. Operators need to give nonoperators a seat at the decision-making table, but nonoperators need to earn their seat as well by providing valuable ideas to a framing session. “Once you show that it’s easier to get invited back,” Henderson said.

Contact Michael T. Slocum at michaels@ogjonline.com.

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