EP Strategy Class

EP Strategy & Portfolio Selection

A masterclass by Dr Daniel Zweidler

 

Introduction to the class

This short section will set the expectations for the class as well as explore the concept of Exploration Prowess defined by strategic discipline and organizational ability.

Oil & Gas Commodity Markets and Pricing

This section start by analyzing de worldwide distribution of oil and gas reserves and its implication on global geopolitics and growth strategies of emerging economies. After having painted a picture of the “haves and have nots”, the class will explore the dynamic of oil price since the creation of OPEC and also analysis our predictive ability when it comes to forecasting commodity prices like oil (global) and gas (regional).

The Growth Challenge

This section explores the basic concepts of sustainability and growth in an EP organization, as well as the concept of value, which proves to be widely is different between an Integrated Major, an Independent and a National Oil Company. This chapter draws heavily on my experience working with many players of the EP sector including major national oil companies in Latin America.

Introduction to Strategic Analysis

This section presents a simple approach to strategic analysis based on the historic work of John Nash, Michael Porter and Bruce Greenwald, adapted specifically for an exploration focused organization. After an in depth presentation of the concept of barrier to entry as a competitive advantage as well as the importance of operational efficiency, the class will explore the various competitive advantages they believe they have in their business environment.

Business Models & Growth Strategy

The first part of this class will explore the various macro business models on which the current definition of Independents, Majors, Super Majors and NOC are based on. Later we will discover that not all business models are - nor have to be - a full cycle E to P model, and that it is important understand what these models are and how they create value. The exercise for this section will take the students out of their comfort zone as I will ask them to create a new EP company with what they believe will be a winning business model.

Introduction to Scenario Analysis

In the Strategic Analysis section we have learned how to best deal with competition/partners and competitive advantage (or the lack thereof). In this section we will explore how to best deal with the unknown unknowns or in an another words, the very low probability events, which shape our future. This class is based on a scenario planning approach defined by the Rand Institute and Global Business Networks. After having learned the basic concepts, the students will define their own scenarios based on a business question they have defined and relevant to their own business.

The Hunt for Opportunities and their Evaluation

This section will focus more on the evaluation part than the hunting part (buy vs. explore), but this could be changed based on client feedback, as typically this is the place where we can discuss play based exploration. The evaluation part focuses on the flaw of averages as defined by Savage, Scholtes & Zweidler (2006), illustrated by the importance of dependencies in just about everything we are doing (subsurface, surface, geopolitics and fiscal regimes).This section also stresses the importance of analogues and nomograms for volumetric and economic evaluation of opportunities.

Portfolio Theory & Investment Decisions

This part will start by exploring the basic portfolio theory as defined by Harry Markowitz for securities. After understanding these concepts we will explore what is applicable to the oil and gas sector and how best to approach this. Too many “efficient frontier” implementations have failed because of the lack of in depth understanding of the oil and gas exploration business. Once the class is fully mastering these concepts they will embark on a hands on exercise based on our PortfolioPath methodology. The students will define a portfolio of their choice based on multiple possibilities and defend it in front of their peers.

Summary and Conclusions

What have we learned during these three days and how will it apply to your job.