Oil & Gas Solution Handbook Unified E&P Workflow and Key Processes

Oil & Gas Solution Handbook Unified E&P Workflow and Key Processes Section 13 Solution Approach vs. Software Approach

Section Contents An exchange of ideas… • Solution approach • SBC Assess & Plan engagement model • Sample project tools • Workshops: Facilitation Hints • “To Dig Deeper”… Websites & References

Solution Approach – Key principles Much more than a sum of decline curve forecasts… • Define the problem we are trying to solve • Set a business model to frame analysis • Use a process-workflow approach • Ensure line-of-site across entire decision chain • “Get the math right” - use the most appropriate method • Define the best tool(s) to run the analysis • Test, test, test for reasonableness … in business to make money, not just find oil & gas

Set Strategy and Vision • E&P CEO • Manage the Business Reserves Mgmt Process Business Planning Process Capital Allocation Process AcquireProspect ExploreProspect AppraiseProspect DevelopProspect ProduceProspect AbandonProspect • CXO Portfolio Focus • Asset Life Cycle • APO Key Citations • Domain Expertise PDO - Oman Portfolio Analysis Shell Global Process / Platform Standardization Kerr McGee Reserve Management Benchmark Experience Across Upstream Asset Life Cycle Get background on related citations…

DTK Decision & Risk Analysis Cap Plan Volts PEEP Reserves Management Rules, Goals, Optimization for Portfolio Analysis Project Economics MMRA Decline • Probabilistic reserves estimation • Production forecasting ResBro – Results Broker Standardized Result Calculations Domain Perspective is Invaluable Asset Leveraging Merak solution set and citations… 1 2 3 Manage the E&P business Capital Allocation Process Reserves Mgmt Process Business Planning Process Fiscal Modeling Current Merak application architecture Economic reserves Alliance Partner

Relating E&P Processes to the Life Cycle This has been a real challenge for Merak teams… Ideal Solution As-Is Constrained Solution • Match to • Strategy Decision Model • Process Model • Organizational Model • Logical Business-Data Model Reserves Maturity

Workflow Approach is Fundamental Starting point process models available… Upstream IBPM Integrated Business Process Model Strategy • (Very) long term shareholder value • Portfolio alignment Process • Integrate process workflows • Leverage third party partners • Clear limits of authority Organization • Competency assessments • Performance management • Organization structure • Change readiness & acceptance Technology & Applications • Open to third party applications • Appropriate tool for the job • Access control & audit trail • Documentation & Control Manage Business Manage Reserves Manage Exploration Manage Appraisal Manage Development Define Best Practice Themes • Strong governance principles • Clearly understood strategy • Integrated, standardized workflows • Accommodate third parties • Align competencies & authorities • Security centric architecture • Data integrity demanded Manage Production

Global Financial impact Remote prospects are the rule not the exception… • Understanding fiscal & regime modelling is the key to project forward economics North West Europe (6) North East Europe (2) United Kingdom (1) Central Asia (4) U.S. Lower 48 (1) Southern Europe (4) North America Frontier (3) Middle East (8) North Africa (7) South China Sea (9) West Africa (8) Southern Asia (5) Central Africa (4) South America Atlantic (9) Australasia (4) Southern Africa (6) South America Andean (8) Total: 89 models

Motivatedand Competent Team SuitableTools and Data Appropriate Process Successful Integrated Project Evaluation Requires three key components… Precise Production Forecasting for Improved Portfolio Management, London, 28th – 29th April 2005

A Different type of Project Suggested team components and skills available…… In 2004, we had… Projects Need… Experience Level 3&4 Total: 21 Domain Calgary 5 MEA 6 Consulting Modeling or Configuration ECA 3 NSA 7 Determining the right mix?

Capability Assessment Business Case Solution Architecture Implementation Plan Assess & Plan Outline - SBC Framework below identifies the key solution drivers… Solution Components A&P Solution Outputs Improved Business Results Process 2 $ Risk External business drivers Internal business strategy Oil & Gas Portfolio Strategy Organization 3 1 Technology 4 • Regime economics • Political risk • Compliance • Technology advances • Risk reduction goals • R/P Ratio • Acquisition • Align solution strategy with overall business direction • Global in scope • Meet compliance • Inc. third parties • Reduce risk • Improve return • Improve consistency

The Quick Start Template Helps rapidly identify problems and opportunities…… 1 2 3 4 Strategy Process Organization Technology • Preconditions: • Business drivers • Standards • No de-configuration • business • technical • Compliance requirements • Planning process definition • Performance monitoring • at what level(s) • of what data • Business archiving • Structure • virtual asset teams • co-located asset teams • departmental silos • centralized services • Roles • titles • number of people • reporting / decision structure • responsibilities • Competency • skills assessment • Logical data structure • Tools • use of • inputs • outputs • Data storage / access • working data • archived data • Security model • Strategic drivers/goals • Regime economics • Political risk • Corporate risk tolerance • Guidelines and principles

How to do it? – Together with Client Assess & Plan project, a typical route map… Assess AS IS Plan TO-BE Processes & Rules Define Solution Architecture Mobilize, set up and initiate project • Define business decision models: • Midstream • E&P • Downstream Cross functional work sessions to design “To Be” Level 2 processes, organization, data,& technology features • Define • process details • people requirements • technology features Define solution architecture Recommend Best Commercial Option • Evaluate • processes • decision rules • physical capabilities • External market issues • IT systems OPTION: Performance measures and methods Industry best practices & external research options Develop next stage work and timing Assess organization Assess other key client initiatives Assess adequacy of current data & systems Manage organisation & people development • Implement effective communications • Build employee commitment • Assess change barriers • Manage conflicting agendas

What does client get? In addition to the software, typical deliverables & work products… • Deliverable: Categorized business drivers along the client portfolio • Work Product: Issues, gaps, themes, drivers • Work Product: Summary of applicable best practices and "To-Be" key performance measures • Work product: Summary of Level 2 "to be" processes, including current & proposed owners. • Deliverable: Individual project descriptions to get from “As-Is” to the “To Be” • Deliverable: Final management presentation. What’s next.

How to go about it? Approach: Maximum client involvement…. Validate Business Model Identify Issues Quantify Benefits • Example • 5 Workshops • 60+ Employees Participated • Supplier-Owner-Customer • Front Line/Cross-Functional Teams • Identified 350+ Issues Select Projects

Sample Business Model Determining what’s in and out of scope… Pemex Others Equiva Experience EquilonOperatingGroup Shell Oil Products Crude & Products Physical Trading TTTI Domestic Crude Physical Trading (30,000 Leases) Pectin Vessels Physical/Paper Cargo Trades Trading TRMI Products Exchanges STAR Products Exchanges Shell - Pemex Koch S&T Stasco OTI BPUSA Koch Supply Star Enterprise MotivaOperatingGroup Stasco TOTS

Upstream Business Process Planning Model How the Merak team sees the world… Upstream Business Planning Process Model Reservoir Analysis (capture physical & behavioral properties w/uncertainty to estimate OVIP) Store technical reserves Depletion Planning (production and cost forecasts w/uncertainty)<Prod & Fac Eng> Corporate Reserves Management Store rate Modify / update Project Optimization (analyze options and uncertainties) Modify based on monitoring results Project Economics (incorporate lease, regime and economic details wit production and cost forecasts) Store economic reserves Modify based on monitoring results Analyze / optimize Corporate Optimization Strategic Planning Modify Performance Monitoring

Reservesdatabase Alignment of Reserves with Project Data Start Cycle Project economicsdatabase Integrateddata sources Well costs Facility costs Production forecasts Capacity/ullage Etc. Project/Opportunity (create/update) Approval Process Optimization feedback Portfolio Optimization (synch short term decisionwith long-term goals) Resource scheduling / do-ability feedback Iterate Reality Check (resource scheduling, do-ability) Final Submission Sample V&R Work Product Data integration with planning cycle… Idea Planning Cycle (data perspective)

How to go about it? From model to process - concentrate on the links… Supplier(s) Process Goal: Activities: Owner: Artifacts: What is going on? What is going wrong? Sizing (How big, how much, how many?) e.g. KPIs, # of wells, # of people, dates…) Consumer(s) Inputs Outputs

Model the System Identify “Pinch Points” Define Variability Integrating the Answer: Use Holistic Project Model Must capture all the factors driving the analysis… Integrated Planning: End-to-End Line of Sight The Reservoir The Well Bore The Facilities The Market SPE 49092

Production Facility Midstream Storage Transportation Downstream Refining Suggested insights and techniques have been applied Commercial Marketing Holistic Project Description – Help is Available Where should we look in the client for lessons learned?… Exploration Classic approach may be less valuable over time E&P Production Upstream Petroleum Industry

How Long Does It Take? – Timeline Similar projects have used the following activity sequence… Activity Wk 2 Wk 4 Wk 6 Wk 8 Wk 10 Wk 12 Wk 14 Project Mobilization Step 1 – Assess AS IS Processes & systems Step 2 – Plan for TO BE Processes Step 3 – Define Target Process & People Components Step 4 – Develop Implementation Projects Initialize Teams for Next Stage of Work

How Do We Organize? Petrotrin example - Joint project team recommended… • Active full-time participation required with Petrotrin personnel to meet project schedule Executive SponsorPetrotrin TBN SteeringCommittee Project Management Petrotrin TBN Merak Senior Consultant Process Team Petrotrin TBN Merak Specialist People-Skills Team H/R – Petrotrin To be Nominated To be Nominated: Global Subject Matter Experts Upstream & Downstream Planning, Portfolio Tools, Risk & Uncertainty

Workshop: Facilitation principles Important elements of successful facilitation include… • Planning adequately • Outcomes • Agenda • Meeting Process • Contingencies • Supplementing process coaching with content expertise • Selecting facilitators appropriate to the level of the participants and challenge • Creating effective group interaction • Establishing “beach heads” and successive advances

Workshops: Establishing beachheads Try to “stage” participants through successive levels of agreement… • One approach is to establish beachheads and steadily advance. Agree to Solution Agree on Decision Criteria Agree to Alternatives Agree on the Current State Agree on the Challenge Agree on Vocabulary Agree on Desired Outcomes

Have a scribe Use examples Be visual! Encourage all to participate Limit paraphrasing, write what they say Remember personality management is important Actively listen (“What I hear you saying is?”) Move group towards a consensus Watch leading the group to your outcome Offer ridiculous ideas General Reminders: Write neatly, assign initials Look for ways to assign tables roles ex. (assign a team leader, scribe, etc) “Never underestimate the power of a stickie” Workshops: Facilitation Reminders To make a workshop a success…

Wrapping UP: Restating the Problem The business case for better planning… • In the next decades • Projects will become more complex • Global efforts are the norm, not the exception • JVs are the standard operating model • Competition for capital exists across the integrated asset chain The planner’s ability to routinely anticipate and model the key business drivers, especially those external to your company, will determine your effectiveness.

To Dig Deeper Internal - many on SBC Hub, many with V&R Teams……. • A. Market Offering Credentials for all SBC Offerings • B. The Business Case for Change (SPE Presentation) • C. Integrated Business Process Model (IBPM) • E. Methodology Version 2 • INVESTIGATE: CPAR – Center for Petroleum Asset Risk Assessment • The link to The Center for Petroleum Asset Risk Assessment prospectus http://www.cpge.utexas.edu/cparm/prospectus.html • You can select the appropriate section by changing the last two digits to reflect the chapter you want to see. • Chapter 4 is a good one .... http://www.cpge.utexas.edu/cparm/cparm_prosp_v4_04.pdf = • "The Private Sector Interest in Real Asset Risk Management for Oil and Gas"

To Dig Deeper External - Get for your office… • Key Reference: • Integrated Petroleum Reservoir Management: A Team Approach, Abdus Satter, Ganesh C. Thakur, Pennwell or Amazon • SPE Papers: • Carragher, 2000, AAPG Abstract & Presentation • Rose and Citron, 2001, AAPG Abstract and Presentation • A pdf from the AAPG 2002, Rose, Citron and McLean, E&P Portfolio Management as Best Practice • Citations: • Public testimonials regarding improved exploration performance by managing uncertainty and improving estimation methodologies • Chevron (Otis & Schneidermann, 1997), • Amoco (McMaster & Carragher, 1996), • Unocal (Alexander & Lohr, 1998), and • Santos (Johns et al., 1998) • "Risk Analysis and Management of Petroleum Exploration Ventures", by Peter R. Rose p.15, AAPG Methods in Exploration Series No 12

Oil & Gas Solution Handbook Unified E&P Workflow and Key Processes