Leveraging a Dynamic Management Model for Success in Upstream

Transcription

1 Leveraging a Dynamic Management Model for Success in Upstream 3esi-Enersight 2017 Upstream Planning Conference October 2017

2 Several transformative factors are impacting the upstream oil and gas sector Transformative Factors Unconventional Boom Commodity Price Downturn Capital Performance Challenges Field Innovation and Productivity Data & Analytics and Technology 2

3 Unconventional Boom Both independents and majors have made the shale asset class a priority investment % Company CAPEX in Shale ( ) Sources: IHS Vantage; KPMG Analysis Notes: (1) CAPEX is the net investment in new projects as a percentage of total company Upstream spend. Includes shale, oil sands, conventional (onshore and offshore), LNG, GTL. 3

4 Unconventional Boom There are fundamental differences between conventional and unconventional asset classes, requiring new approaches Example Differences Conventional Unconventional Smaller number of large projects Unique, highly engineered Longer cycle portfolio considerations Large number of small projects Similar, repetitive (e.g., pad drilling) High degree of optionality in portfolio 4

5 Commodity Price Downturn The upstream sector is facing a challenging price environment Commodity price futures ( ) D&C cost inflation estimates (2017) The 2018 oil market balance now points to rapid levels of inventory build which, absent continued OPEC support, should depress oil prices JPMorgan, June 2017 There is an impending cost inflation avalanche coming from the service industry, which continues to operate at unsustainable pricing Schlumberger, March 2017 Sources: Analyst Reports, Earnings Calls, Woodmac, KPMG Analysis, NYMEX Futures, Schlumberger, CNBC 5

6 Commodity Price Downturn Industry leaders are voicing longer-term concerns about the upstream sector and its future "Lower for Longer" "Lower Forever" "I do think that the [Oil & Gas] industry needs to prepare for lower for longer the industry will work through it." Bob Dudley, CEO of BP "We're operating under what we call a lower forever mindset if policies and innovation work well, I can see liquids peaking in demand in the early 2030s Ben Van Beurden, CEO of Shell Source: EIA, Woodmac, Goldman Sachs; KPMG analysis 6

7 Capital Performance Challenges Unconventional producers have yet to achieve positive free cash flow Sources and uses of cash for U.S. onshore-focused E&Ps 1 ( ) CAPEX vs. Operating cash flow ($B) Outside sources of cash $B) Sources: U.S. Energy Information Administration, based on Evaluate Energy Notes: (1) Data consists of 44 publicly traded, U.S. onshore-focused E&Ps 7

8 Capital Performance Challenges The upstream industry is failing to deliver acceptable returns Capital Efficiency of Independent E&Ps 1 ROCE ( ) Summary Most return levels are lower than common investor benchmark Issue before commodity price collapse Wide differential between best and worst performers Note (1): Analysis conducted on 17 of the largest independent shale producers Source: CAP IQ 8

9 Field Innovation and Productivity Upstream sector is achieving significant productivity gains New Well Production per Rig Permian ( ) % Example Productivity Levers Longer laterals Better well designs Tighter intervals Higher intensity fracs More proppant Geosteering capabilities Rigs Production per Rig (oil bbl/d) Source E.I.A. Drilling Performance Report 9

10 Field Innovation and Productivity Continued field innovations show promising potential Example Shale Technology Advancements Subsurface Engineering Conventional Methods Reliance on seismic data to predict stimulation techniques (e.g. pools of oil) New Methods Being Applied Significant investments in statistical analysis to model previous completions and incorporate learnings into future wells Artificial Lift Optimization Monitoring of a relatively smaller number of wells with steady production declines, determining when to intervene Deployment of proprietary apps to evaluate when and what artificial lift method to use, reducing costs and optimizing production (e.g. Oxylift) Facilities Management Construction of individual well site facilities to manage production on a per well basis Implementation of technology to enable central, comingled well facilities and remote monitoring to create operational scale 10

11 Data & Analytics and Technology Many companies are leveraging 3 rd party data and analytics Data Aggregation Increasing Complexity Prescriptive Analytics Surface Sub-surface Production Equipment Drilling Land Completions Production Reservoir Aggregation of drilling and production data for reporting and management dashboards Multi-domain Master Data Management to allow access across business units to real time data Predictive failure analytics using sensor data to minimize down-time and optimize production Platform to consolidate data using existing tools and optimize well production Compilation of data to provide peer performance insights recently expanded into forecasting through Wellcast and Prodcast applications Predictive and diagnostic analytical tools to optimize production utilizing emerging technologies Utilizing Predix IoT platform to gather real time data at the asset level to enhance recovery and accelerate development DecisionSpace platform integrates existing analytical software across the E&P lifecycle to: Delineate Reservoirs Optimize Production Accelerate Development 11

12 Data & Analytics and Technology Significant advancements in planning tools are allowing E&Ps to make better, more informed decisions Enabling Tools and Technologies Advanced Enterprise Portfolio Modelling Tools Next Generation Corporate Finance and Budgeting Systems Integrated Data Systems & Architecture Adaptive Field Development Planning Models Advanced Integrated Well Planning and Execution Scheduling Capabilities 12

13 Data & Analytics and Technology Significant advancements in planning tools are allowing E&Ps to make better, more informed decisions Enabling Tools and Technologies 13

14 These transformative factors are challenging heritage upstream management approaches and planning practices Transformative Factors Unconventional Boom Commodity Price Downturn E&P Planning Challenges The game is still about capital, but the rules have changed we need to develop dynamic plans that compete with conventional projects, while retaining optionality - Global Major EVP Unconventionals Capital Performance Challenges Investor questions are increasingly granular we need to really understand our performance narrative and go forward plan - Independent E&P VP Investor Relations Field Innovation and Productivity Data & Analytics and Technology After fixing your portfolio and balance sheet, its all about execution and today, superb planning is what drives superb execution - CEO, Unconventional focused IOC 14

15 Example Client Case While a great first step, technology alone isn t the answer Typical Capital Management Issues Seven Time intensity of processes One Lack of strategic guidance needed to inform allocation process Two Data input quality Three Lack of a dynamic process (not reflecting upto-date conditions) Five Disconnect between Target and actual deployed Six Lack of corrective action rigor Seven Time intensity of processes 15

16 We believe that winning upstream companies will be those that leverage a dynamic, integrated planning process model Best Practice Integrated Planning Process Model 16

17 There are several key benefits to the more dynamic, integrated planning process model High-level scenario modeling without requiring significant asset involvement Increased inclusion of competitor data for setting targets Optimization of different planning activities at the appropriate intervals (e.g., monthly, quarterly, annually) A line of sight into asset performance, with a focus on value metrics More standardized data and increased accessibility of data across the organization More rigor around conducting program lookbacks and reappraisals 17

18 To achieve full benefits, companies will also need to align key elements of their operating model Future State Operating Model Governance New process model requires increased clarity of decision rights due to shared information, increased collaboration, as well as segmented organizational roles Metrics and incentives A common view of value drivers and performance objectives; cascading metrics through the organization fostering line of sight and stewardship; competitive comparisons Management processes A defined, integrated, dynamic and well understood process model; quarterly cycle, which allows more frequent plan updates with more forward-looking information Roles and Structures Well-defined roles in a streamlined, fit-for-purpose structure that is aligned with new process model; elimination of duplication of work tasks; clear accountabilities Behaviors and culture Adherence to agreed-upon behavioral norms and standards reflecting heightened speed and quality of decisions; increased collaboration and transparency across organization Information flow and tools System architecture tailored to accommodate unconventional requirements; standardized and accessible information; common tools with less manual work-arounds; robust management of change 18

19 KPMG - 3esi-Enersight Partnership We are looking to develop a deeper perspective on planning challenges and best practices across the upstream sector We encourage everyone here to participate! 19

20 kpmg.com/socialmedia The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.