Upstream Training

1. Upstream Training Section 8 In an Oil & Gas Company: Who does what – the people And why – the process

2. Section Objectives In this section, participants will discuss… • Integrated Oil Companies (IOC’s) and Independents • Typical organizations • Discipline structure vs. Asset Team structure • Team building concepts needed • The key planning processes in an Oil & Gas company • Relating to the oil & gas well lifecycle • Lifecycle and “Key Work Products” • Relating to the E&P management workflow • “To Dig Deeper”… Websites & References

3. Integration Integrated Oil Companies Integrated companies cover industry from well head to consumer... • What do we mean by “integrated”? • What are the benefits of integration? • How are they organized?

4. Organization of Integrated Oil Company Integrated oil companies are complex, massive organizations... Exploration & Production Develops promising properties Transportation Delivers raw materials Refining Processes Marketing Sells to consumer Raw Materials Raw Materials Finished Product Support Supply & Trading Planning Research & Development Admin. & Finance

5. XOM Org Chart

6. Who are the independents? How are they organized? Integrated Independent Independent Oil Companies Independents focus on finding and delivering Oil & Gas ….

7. Typical USA Independent E & P Organization Executive President & CEO Chief Compliance Officer Finance N. America & Core Assets E & P International & Growth Assets E & P Corporate Affairs & Law Human Resources Marketing Strategy & Planning

8. Typical International E & P Organization International Asset Organization International Sr. VP, E & P Chief Geophysicist – Technical Chief Engineer – Technical Operations Chief Petrophysicist Chief Geologist – Technical Exploration Intl. Negotiations – Land Intl. Engineering Exploration Planning Basin Studies

9. (+) Strong discipline control Strong discipline quality control Good discipline mentoring (-) Limited view of project / task Ineffective communications between disciplines Fiefdom mentality Traditional Organization – by Discipline Division Manager Division Exploration Manager Division Production Manager Division Geologist Division Landman Division Geophysicist Division Production Engineer Division Drilling Engineer Division Reservoir Engineer Geologists Landmen Geophysicists Production Engineers Drilling Engineers Reservoir Engineers

10. An Asset Team Organization Field / Region or Key E&P Asset Play General Manager Asset Operations G&G Manager Project Petro-physical Advisor Reservoir Engineering Manager Land Manager

11. (+) Clear goals shared by team: results focused High integration of technical skills Fosters communication (-) Quality control must be “built in” Hierarchy career path reduced Individual “success” less visible Integrated Asset Team Organization Division General Manager Leader – Team 1 Leader – Team 2 Leader – Team 3 GeologistsLandmen Engineers Geophysicists EngineersGeophysicists GeologistsLandmen Geophysicists Geologists LandmenEngineers

12. Key Challenges for Asset Teams • Sustain & improve production efficiency • Bring clarity to the range and value of new opportunities • Promote implementation opportunities when they mature • Continuous asset value creation, through: • Application of best practices • Sustainable team behaviors • Capture the possible distribution of remaining reserves

13. Team Building – A Critical Success Factor Team building a social activity – harder than it looks… Success Ingredients • Recognition of teams • Commitment from top • People • Trust • Friendship • Contribute • Communicate • Achievement • Management style • Flexible organization • Participation • Pull together

14. Set Strategy and Vision • CEO • Manage the Business AssetMgmt Process Business Planning Process Capital Allocation Process • CFO Portfolio Focus • Asset Life Cycle Research Opportunity Evaluate Opportunity Develop Opportunity Operate Abandon or Modify • Asset Portfolio Optimization (APO) • Key Citations • Domain Expertise Shell Europe Standardized & Integrated Processes Anadarko Benchmark for Project Effectiveness BG Application Across Enterprise Planning the Integrated Asset Life CycleRelevance to V&R Implementations…

15. Upstream Value Chain & Asset Lifecycle The Strategic Planning Process must focus on the upstream value chain and asset lifecycle… Asset Acquisition Asset Life-cycle Value Vs.Time Exploration Drill & Complete Production Asset Divestment

16. Relating the Process to the Life CycleThis has been a real challenge for consulting teams… Ideal Solution As-Is Constrained Solution • Match to • Strategy Decision Model • Process Model • Organizational Model • Logical Business-Data Model Reserves Maturity

17. Oil & Gas Project LifecycleUnderstanding is Essential… Discipline participation across lifecycle…

18. Oil & Gas Project Lifecycle - Key Work Product E&P management thinks in terms of “Key Work Products”… • They include those documents or approval steps used when an exploration prospect, a development project or facility asset moves through the Oil & Gas Project Lifecycle. • Examples of Key Work Products are the agreements that secure mineral leases, contracts to sell products and the regulatory permits that are necessary to drill a well. • Key Work Products often require (or support) management approval for the commitment of funds and/or other resources. They tie closely to the AFE (Appropriation for Expenditure) process. • Key Work Products have other features, they: • Are easily recognized by operating and senior management • Often have very long life, decades in many cases • Are used across many disciplines and are made up of multiple document types • Can be “compound” documents, with multiple: • Inputs • Formats • Owners • Often are a mixture of structured and unstructured data Source: Lehman Brothers

19. Oil & Gas Project Lifecycle - Exploration Key Work Product, by discipline & lifecycle… • Key Work Product • Field Study • Development drilling program • EOR program • Goal: Maximize existing field • recovery with today’s technology • PGN-PLN/GP • Key Work Product • Executed Agreement • Extensive attorneys & brokers • Differs onshore & offshore • Differs by state & intn’l govt • Goal: “Control the Acreage” • PDV/LC+ • Key Work Product • “Entry Plan” • Defines commercial terms • Goal: Define the play concept • PDV/RE+ • Key Work Product • AFE • Screening quality economics • Risk adjusted analysis • Goal: Corporate mgt. review • PGN/RE+ • Key Work Product • MACRO Basin Study • Development time 3-6mos • Life is Forever • Goal: New play in new area • BAN/PP+ • Key Work Product • “Certified Prospect” • New Drill Site Recommendation(s) • Goal: Size reserves; develop costs; • Either well program/one well • PGN/PP+

20. Oil & Gas Lifecycle • Key Work Product – ROWL • Release of Well Location • Regulatory approval received • Owners cleared • Goal: Clearance to proceed w/well • PGN-PLN/LA • Key Work Product • Land Well File • Operated & non-operated properties • JOA’s, easement, pooling, etc • Goal: Manage contract for “Life of the Lease” • PGN-PLN/GP • Key Work Product • Permit to Drill • Lead time differs onshore/offshore • Life is Forever • Goal: Approval to spud well • PGN-PLN/LND • Key Work Product - Total Pay • Net Pay; Net Pay by Zone • Key well success factor • Drives development & completion • Goal: Match reality to prospect • EVL/PP

21. Oil & Gas Lifecycle • Key Work Product • “Exit Plan” • Measure: Abandonment cost vs. decline curve vs. cost to enhance field • Goal: Optimize prospect by eliminating high disposition costs • ARD/PP • Key Work Product – PSA • Purchase Sale Agreement • Complex • Multiple exhibits • Goal: Document agreements with property buyer or seller • ARD/RR • Key Work Product – Production Field Well History • All well data: mechanical, technical • Volumes produced, oil, gas water • Goal: Closely track operating characteristics and improvements • PRD/RE+ • Key Work Product • Field Development Plan • Lead time differs onshore/offshore • Life is Forever • Goal: “Where to drill & why” • EXP/PP+ • Key Work Products • Marketing & Sales • Manage gas balancing • Executed contract or agreement • Goal: Routinely adjust customer oil & gas sales to field availability • EOR/MS • Key Work Products • Procurement • Sourcing studies & bid packages • Executed contract or P/order • Goal: Commit to quality vendors for field requirements • DLN/PR+

22. Relating to the E&P Management Workflow 1 G&G 2 Engineering Reserves Reporting 4 Technical Volumes Volumes Technical Volumes Economics 3 Manage Financials 8 SEC / other Guidelines Performance Metrics Historic Data: Lifting Costs, etc Pro Forma Financials Plan Bases & Assumptions Business Drivers 5 6 Corporate Plan 7 Projects, Budgets, A&D Technical Commercial Reporting & Compliance

23. To Dig Deeper References to assist in your future work... • Websites: • Individual company websites • Oil & Gas Journal – www.ogjonline.com • References: • Creating, Managing and Evaluating Multidisciplinary Teams, Paul Ching, et. al., AAPG, Tulsa OK, 1993 ISBN 0-89181-184-2 • Creating the High Performance International petroleum Company: Dinosaurs Can Fly, J. Treat, Pennwell Publishing, Tulsa, OK, 1994 ISBN – 0-87814-429-3 • Integrated Petroleum Reservoir Management, A Team Approach, A. Satter and G. Thakur, Pennwell, Tulsa, OK, 1994, ISBN 0-87814-408-0