optimizing investments to achieve corporate growth objectives · evaluate overall risked success of...
TRANSCRIPT
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Optimizing Investments to
Achieve Corporate Growth
Objectives
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Corporate Growth
“The ideal situation”
Optimum programs and processes in place
Ideal risk/prize profile
Predictable results supported by opportunity inventory
Investment initiatives meet Corporate goals and objectives
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Key Considerations
Strategy & Alignment
Investments aligned with Corporate goals
and objectives?
Goals supported by historic performance?
Opportunity inventory sufficient to meet
growth objectives?
New growth focus areas?
Competitive advantages relative to market
opportunities
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Key Considerations
Work Processes
Organisation and portfolio management best
practices?
Predictable, reliable and sustainable results?
Appropriate measurement and stewardship
processes?
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Key Considerations
Capabilities and Execution
The optimum organization?
- people, structure, work processes
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Five Steps for Successful Growth
1. Develop & validate opportunity plans and
inventory
2. Selections based on Corporate needs
3. Assess risks/results of project outcomes
4. Address growth shortfalls
5. Ensure alignment, optimum work processes,
organizational capabilities and structure to
deliver results
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Materiality (Reserves Potential)
Economic Attractiveness (Profit Potential,
Play Investment Efficiency)
Timing Considerations
Competitive Position
Risk Profile of Opportunities
2. Selection Based on Corporate Needs
Subjective Composite Ranking
Economic
Potential
Reserve
Potential
Play Invest
Efficiency
Timing/Risk
Factors
Competitive
Position
40% 10% 20% 15% 15%
Building a Business Model for Play Ranking
Parameters & Weightings
Determined by Company Needs
Subjective Composite Ranking
Economic
Potential
Stakeholder
Impact
Invest
Efficiency
Timing/Risk
Factors
Competitive
Position
% % % % %
Criteria to Rank and Select Projects/Plays
Parameters & Weightings
Determined by Company Needs
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Example showing typical projects
Project 1 – Modest size but low risk and short cycle
time
Project 2 – Medium size, moderate risk but cost
plus technology challenges
Project 3 – Large size, medium risk but timing and
cost uncertainties
Project 4 – Largest size but highest cost and risk
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Portfolio Ranking CriteriaProject selection is dependent on company situation
Ranking
Highest
Lowest
Ranking
Best
Worst
Project Impact Materiality (PV)
Project Investment Efficiency (PVPI)
Risk Aversion
Total Size
$ PV
Project Size
Risked Size
$ at Risk
Risked $ PV
$ at Risk
$ per
opportunity
Program
COS
$ at Risk
Technical, Commercial, Political Risk
4 4 4 3 3 1 1 1 1 3 3 3 4 2 2 2 2 4
2 2 2 2 4 3 3 3 3
1 1 1 1 1 4 4 4 2
Program
Size Program
$ PV Average
Size Impact
Risked Size
$ at Risk (walk away exposure)
Risked $ PV
$ at Risk
$/Unit Cost
Chance of
Program Success
Total $ Exposed
(walk away)
Commerciali-zation or
Political Risk
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3. Assess Project OutcomesResults based on 12 opportunites with risks of 5 to 20%
Revenue Forecast
Rev
enu
e p
er d
ay
0
100
200
300
400
500
600
700Growth Gap
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Probability of Success (or failure) vs number of wells drilled
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 5 10 15 20 25 30 35 40
at least one success
First 5 wells have Chance of success =
10%,20%,5%,15%,10%
All additional wells Chance of success = 20%
at least two successes
failure - all dry holes
Probability of SuccessHow do we assess our chance of success ?
three
discoveries
three
discoveries
at least four
successes
Exploration Probability of Success @ 5-20% Success Rate
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
5 10 15 20 25 30 35 40 45
Number of Wells
Overa
ll P
rob
ab
ilit
y
Total Failure Chance of 1 Discovery Chance of 2 Discoveries
Chance of 3 Discoveries Chance of 4 Discoveries Chance of 5 Discoveries
at least three successes
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Program Summary and AssessmentExample shows shortfall of existing inventory
Plan requires 3 new successes to meet growth targets
– 12 unit program has only a 35% chance of 3 discoveries
– 22 unit program required for 80% confidence
Inventory Shortfalls
Given high risk per project, requires 10 more projects to achieve acceptable
chance of success
Existing program has late revenue startup
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4. Address Growth Shortfalls
1) Build a Corporate Opportunity Inventory
“Inventory allows choice & selectivity”
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New Growth Area Considerations
1. Business Fundamentals
2. Industry Historic Performance
3. Business Environment
4. Company Financial Situation
5. Competitive Factors
6. Your Company’s Strengths versus Area Success Factors
7. Entrance Strategies
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Portfolio management prerequisites
Consistent quality input
All opportunities assessed utilizing “best
practices”
Quality control “support” system
Corporate-wide selectivity process
Multiple performance indicators
Variable selection criteria
Performance based on delivering inventory &
results
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Average initial productivity
Productivity (10
3m
3/d) 3
3
0
5
10
15
20
25
30
35
40
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Portfolio Inventory Examples
Development Inventory
•Recent exploration discoveries
•Static resources
•Possible resources
•Enhanced recovery inventory
•Probable reserves
•Proven undeveloped reserves
Exploration Inventory
• New basins/plays potential
•Risked prospects/ leads
•Land base
•Drill ready risked locations
•Present year drilling program
Corporate Inventory
•Corporate/property
acquisition inventory
•Exploration inventory
•Development inventory
•Production Inventory
•Other growth inventory
•Strategic plan
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4. Address Growth Shortfalls
2) Improve Quality of Inventory
Review project inventory / quality / ranking for all growth
opportunities
– Funding requirements
– Ongoing staff training
– Formal project review process
3) Expand Inventory to Meet Growth Targets
Utilize Corporate-wide inventory for ranking , risk balance
Add new opportunities after testing against existing inventory
and ranking criteria
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Expanding the InventoryNew Growth Area Considerations
i. Investment Fundamentals
ii. Industry Historic Performance
iii. Business Environment
iv. Company Financial Situation
v. Competitive Factors
vi. Your Company’s Strengths versus Area Success Factors
vii. Entrance Strategies
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i. Business Fundamentals
- Existing project, remaining growth potential
and project maturity
(total potential/specific item, maturity, etc.)
- Identified new opportunities and average
revenue per opportunity
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ii. Industry Historic Performance
- What has industry accomplished?
- Is this acceptable?
- Can you do better?
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iii. Business Environment
- Spending patterns, revenue and profit adds and
costs
- Commodity prices and area specific netbacks
- Resulting economics
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iv. Company Financial Situation
- Financial strength and available capital
- Short term cash flow needs
- Earnings pressure
- Long term reserves needs
- Shareholder risk tolerance
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v. Competitive Factors
- Key players in area
- Area activity levels
- Infrastructure access
– Availability
– Etc.
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vi. Your Company Strengths versus
Area/Play Success Factors
- Do you have what it takes to succeed in this new
area/opportunity?
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vii. Entrance Strategies
Internal growth strategies
- Company sales, joint ventures
Acquisition driven growth strategies
- Corporate, opportunity based
Proactive versus opportunistic?
- Lower risk by capitalizing on quick pay out
opportunities
- Best opportunities often result from financial
problems with opportunity owner
-Integration opportunities can give competitive
advantage
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5. Test Strategy & Alignment
Alignment Align opportunities with Corporate needs
Achievable Evaluate growth inventory including size, risk, and
ranking criteria
Test Corporate goals & objectives with track record, financial capabilities, competitive position plus growth inventory
Alternatives Compare new opportunities with existing opportunities
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5. Test Work Process
Evaluate existing processes and practices for
“best risking and assessment practices” and for
consist use
Evaluate overall risked success of portfolio –
minimize variability of outcomes while
optimizing potential
Apply portfolio approach to investments ensuring
quality input and consistency for selection,
pursuit and exit decisions
Monitor performance against targets
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5. Test Organizational Design
Functional Model
Benefits: technical excellence, career
development, portfolio prioritization
Issues: handoffs between functions, differing
performance indicators, cycle time
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5. Test Organizational Design
Business Unit Model
Benefits: integrated multi-disciplined teams, shared performance indicators, reduced cycle time, improved financial performance
Issues: narrow focus, risk aversion, technical quality, portfolio management of people and $ investments, career development and mentoring
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Conclusions
Increased competition is driving higher costs and lower netbacks
Emerging new players are changing the game
Understand our competitive position
- capitalize on our advantages
- address our problem areas
Understand area specific potential and industry results and trends
- focus on attractive areas for new growth
How and where do we add economic value?