Executives in the oil, gas and renewable energy businesses operate and make decisions in an extremely complex environment. This complexity involves working across multiple areas, like technical, commercial, markets, environmental, stakeholders and political, to name but a few. The types of decisions are similarly complex and include where to focus (geographically, geological play, business sector), resourcing and deployment, appraisal strategies, acquisition or divestment / farm-downs, and multi-million, sometimes billion-dollar investments. For the decision-maker, each of these presents uncertainties and questions, for example, is there a developable resource, how much resource, what production rates can be achieved, what price can be secured for the product, what is the cost and timeframe to develop and operate, what commercial and political arrangements will apply?
Needless to say, there are no simple, predictable, deterministic answers or solutions to these questions! This can lead to ‘analysis paralysis, where a quest for more detailed information and analysis, in the hope that it will better frame the problem and indicate ‘the answer’, can itself lead to further delay. This is not desirable when many such decisions are sought at pace.
At the opposite end of the scale are ‘careless decisions’. These can result when insufficient recognition is given to some critical aspect(s) which can lead to a poor result for investors. For example, additional time and cost may be required to accommodate specific project requirements such as environmental limitations to construction, or attaining the support of local or indigenous communities or securing partner and government approvals.
Seemingly carefully made decisions can be subject to ‘cognitive biases’. This is where ingrained views can stand in the way of an unbiased and objective judgement. Such biases can include unfounded optimism, for example, higher recovery factors than the data and analogues together would apparently justify, higher uptime than experience would support for facilities or wind power generation, project delivery according to a simple benchmark and not reflecting specific challenges, or just strong organisational desire to undertake such a project or deal.
Being aware of the pitfalls – the above are just some – is a critical first step to managing the decision-making process. But what then?…
Decision-making in such circumstances requires a holistic and integrated view reflecting the range of uncertainties and possible options. This does not mean that everything needs to be analysed in detail and laboriously trawled through, to the extent and timeframe that opportunities are missed. It does, however, require the most important criteria to be identified, quickly, and options and uncertainties assessed.
One way to assess the most appropriate way forward is to employ ‘options analysis’. Rather than try to identify and define an optimum, deterministic solution, which will typically turn out not to be the optimum considering actual reserves and production, the options approach attempts to harness the uncertainty. A range of scenarios is taken across a breadth of future possible conditions, for example, resource size, development scale, development phasing and timing, and outcomes in terms of project delivery, production and income/profitability. The inputs to such analysis need to be well thought through and biases mitigated.
The options approach may for example identify the benefits of a ‘modular’ development strategy, especially when there is significant uncertainty. Such an approach would be able to deliver quickly – providing a valuable income stream – and then to adapt with the hindsight of improved knowledge and reduced uncertainty. This could be, for example, additional well tie-ins or facilities such as FPSOs – a strategy used to good effect offshore Brazil, or later expanded facilities and/or field compression.
The area of decision-making is one in which energy consultancy, ValVestris, provides executive-level support. This is through a deep understanding of the elements required to inform and evaluate a decision, and also knowing the type of questions to ask to understand an organisation’s capability and capacity to make key business decisions, and to assist where those areas are not so strong.
ValVestris has developed a proprietary tool which takes the learnings from numerous (hundreds of) development projects and assimilates them into a database of questions and graded answers reflecting increasing maturity levels. This by itself is useful to gauge an organisation’s decision management capability, but with the added insight of actual experiences, this becomes a very powerful tool.
The principle is that previous, actual experience, can help to inform us now to make more robust decisions. But knowing the outcomes is in itself not enough – it is also necessary to understand the context and significant drivers of these past experiences to ensure their relevance as learnings for the situation being assessed. Other, more statistical approaches can give a view of likely success based on work accomplished, but this can miss the detail needed to learn from past issues, which ValVestris considers brings significant added value.
Similarly, the development of unbiassed scenarios in options analysis, mentioned above, can be strengthened using the database of questions and learnings.
The final and most important element in the provision of decision support are the personnel who are able to offer such a service. In this regard, ValVestris is uniquely placed, comprised of personnel who have been in senior positions in operating companies and have made similarly complex decisions in their careers.
A stronger result
Together, a stronger and more rigorous approach to decision making, combined with a structured input of learnings from past experiences and the insights and support of an expert, senior personnel who are familiar with such situations, can offer significant business benefits.
An article by Martin Freeman