Strategy for E&P

Companies

Notable Example - Apache Portfolio Transformation

Notable Example - Apache Portfolio Transformation

Notable Example - ApacheStrategic Transactions Over Last 5 Years

• Monetized GOM Shelf

• Formed Egypt JV with

Sinopec (sold 1/3 interest)

• Exited Argentina

• Divested Deepwater GOM

development projects

• Exited Australia

E&P - Reason for Failure and Success

Common Reasons for Failure

‘Scatter Gun’ approach

Extremely diversified portfolio and

failure to deliver projects

Weak balance sheet

No clear exit strategy

Common Reason for Success

FOCUS – Offset the advantage of size

through strategic differentiation

COMPETENCE – Recognize where in

the chain you have competence and

exploit it

“If you don’t have a competitive advantage, don’t compete.” ~

Jack Welch

Five key questions for smaller E&P companies

What do we want to be known for in the future? What are our aspirations regarding our reputation,

capabilities, and performance?

How big do we want to be? What should our targets be for production and reserves?

What is our target balance between operatorship and nonoperatorship of portfolio assets? What mix

will help us best realize our growth ambitions? Are we restricted by limitations in our in-house

capabilities?

What is our appetite for risk? How much exposure to geopolitical, technical, commercial, and other

risks are we willing to take on?

Which financing approach is needed to support our growth strategy? What is the right balance

between debt and equity? How should we finance capital expenditures?

Source: https://www.bcgperspectives.com/

What do we want to be known for in the

future?

Source: https://www.bcgperspectives.com/

What do we want to be known for in the

future? Integrated E&P Players (eg. Anadarko, Premier Oil, Apache)

Anadarko developed a balance portfolio of assets across technologies, geographies, and phases of their

lifecycle

Explorers (eg. Cairn Energy, Kosmos Energy)

Focus on exploration of frontier areas and early monetization of discoveries

Regional Specialists (eg. Afren, Pacific Rubiales Energy and Pluspetrol)

Concentrate on specific countries or regions where they have an established presence and high degree of

familiarity.

Non-conventional specialists (eg. Candian Oil Sands, Chesapeake Energy, Husky Energy)

Focus on development of nonconventional resources (heavy oil, shale oil and oil sands)

Operation Specialists (eg. Occidental Petroleum, Perenco, Black Elk)

Emphasize efficient extraction of resources from existing field

Non-operator E&P players (eg. Mitsui & Co., Galp Energia)

Use their relationship with NOC’s and governments to gain access to high-quality assets but do not act

as operator.Source: https://www.bcgperspectives.com/

How big do we want to be?

Volume Vs. Value

Strategic ambitions with

combination of volumes with value

creation and sustainability

Non-operating investment

- fast and less complex

- fail to create competency and

credibility

Operated investment

- create credibility and competency

that can drive future growth

- brings additional organizational

complexity, heavy fixed cost base,

responsibilities of an operator

What is our target balance between operatorship

and non-operatorship?

Desired pace of growth vs. capabilities

What is our appetite for risk?

Exposure to geopolitical, technical, commercial and other risks

Add something about annual growth rates of smaller companies

What financing approach is needed to support growth

strategy?

Up-front capital investment – how big it can support?

Cash flow from investment – how much time it takes to grow?

Lack of clear value proposition may affect funding from parent company

Thanks

Back-up slides

Integrated Oil Players

Anadarko Petroleum

Operates through three segments - Oil and Gas Exploration

and Production; Midstream; and Marketing.

In E&P it has balance portfolio of assets across technologies,

geographies, and phases of their lifecycle

Source: IHS 2010 2011 2012 2013 2014

Reserves (MMBOE)2,422 2,539 2,560 2,792 2,858

Production (BOEPD) 641,553 673,973 733,333 777,626 856,164

Revenue (US$ MM)10,507 13,060 13,149 13,913 15,540

Net Income (US$

MM) 1,750 1,327 2,496 2,366 3,565

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Explorers---- Value Vs. Volumes

Selling new discoveries is the strategy of explorers to support high returns

Prominent companies that achieved higher

returns because of disposal:-

•Cairn Energy, through spin-off of its Indian

subsidiary, sold discoveries with net volumes of

around 1,100 mmboe for US$8.4 billion

•Andarko sold discoveries with net volumes

around 600 mmboe (assets included US Gulf of

Mexico deepwater) for US$ 3.6 billion

•Repsol sold discoveries with net volumes of

around 1,100 mmboe (assets in Brazil) for US$ 4

billion

•Marathon sold discoveries with net volumes of

around 400 mmboe (assets include deepwater

Angola) for US$ 2.7 billion

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Regional Specialists

Afren

Source: ‘IHS 2010 2011 2012 2013

Reserves (MMBOE) 79.77 184.98 209.69 286.00

Production (BOEPD) 13,653 18,402 41,068 46,347

Revenue (US$ MM) 319.45 596.66 1,498.80 1,601.90

Net Income (US$ MM) 74.26 170.63 252.11 270.59

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Nonconventional Specialists

Chesapeake Energy

Canadian Oil Sands

Husky Energy

Chesapeake Energy Corp. (Chesapeake)

Canadian Oil Sand

Source: HIS

2010 2011 2012 2013

Reserves (MMBOE)759.00 724.00 693.00 651.00

Production (BOEPD)91,225 91,225 92,443 87,358

Revenue (US$ MM)3,061.54 3,917.24 3,704.48 3,916.51

Net Income (US$ MM)894.97 1,232.76 1,019.41 935.57

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Operation Specialists

Perenco

Perenco is an independent oil & gas company with a balanced portfolio of producing

fields, development projects and exploration prospects. A core component of

Perenco’s strategy has been to be the operator of its assets.

Black Elk

Black Elk Energy Offshore Operations, LLC is an independent oil and gas company

headquartered in Houston, Texas. The Company's seasoned industry executives have

extensive exploitation experience and knowledge with a demonstrated track record

of increasing reserves and production while lowering costs.

Occidental Petroleum

Occidental Petroleum Corporation engages in the acquisition, exploration, and

development of oil and gas properties in the United States and internationally. The

company operates in three segments: Oil and Gas; Chemical; and Midstream,

Marketing and Other.

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Nonoperator Specialists

Mitsui & Co

Galp Energia

Oman Oil Company

Non-operating partner with investment in Kazakhstan (Dunga), Caspian

offshore, Oman (Mukhaizna, Rima and Karim field). Signed exploration license

for Block-42 in 2011

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