Cycles of Oil Companies

1. Advice for Young Explorationists

2. 
This is meant to be humorous;

Stop now if you are sensitive, work in HR, work at Exxon,
work only US GoM or Lower 48 unconventionals;

All characters and events are entirely fictional, any
resemblance to real companies is entirely fictional.

My present employer has nothing to do with this
whatsoever.

3. 
I’ve been working as an explorationist for quite a few years
now, with 3 different companies;

I have lots of friends and business associates in many other
companies;

Part of my job is understanding the competition;

I have some great advice to give to young geoscientists
joining the oil industry!

4. 
One of the things that has struck me in the last few years is
the 3-5 yr cycle of exploration;

In 1980’s-1990’s it used to be bi-annual layoffs as the oil price
bounced around (so the older guys tell me);

Nowadays, bad CEO’s come and go, exploration success is
sporadic, the same “initiatives” happen in all companies, we
all have the same data, skills and technology but we all tend
to change companies every 4-5 years;

WHY is this? What is behind this apparent ‘cycle’?

5. 
I can impart my knowledge, you get free advice & avoid
making mistakes;

You’ll know when to join and when to leave or avoid a
particular company;

You’ll be ahead of the game;

You’ll laugh at the oil industry (i.e. yourselves).

6. 
You have worked in an International New Ventures Team;

You are an Exploration Geologist or an Exploration
Geophysicist;

You have heard phrases like “Play-based Exploration”, “NV
Growth”, “Refocus on Frontier Basins”, “Project Execution is
our No. 1 Priority”, “I can’t tell you, it’s a coded project” or
simply “We are reviewing our exploration strategy”.

7. 
You are an Engineer or a Development Geoscientist;

You don’t like Exploration Geologists or Exploration
Geophysicists (synonymous with the above);

You work the GoM or Lower 48 Unconventionals;

You like phrases such as “Let’s proactively engage the
management consultants”, “We should stop drilling dry
holes”, “I will set up a project framing session”, “Who are the
key stakeholders?”, “Did you read that awesome HBR article
on strategy?” or “what is the IRR of this exploration well?”

You think annual exploration budgets should go into
workovers and shareholder dividends instead of exploration.

8. 
Let’s take 10 years of an average explorationists working life;

We’ll consider the majors and independents only (no NOC’s –
they have their own cycles);

There will be 2 full CEO tenures. We’ll assume you see one
good one and CEO prior and after the good one;

We’ll classify the cycles into; Financials, Management &
Leadership, HR, M&A, Exploration Strategy & Exploration
Portfolio”.

All the following cycles are on the same timeline.

9. Oil Price
Value Creation
Good
Years
0
1
2
3
4
5
6
7
8
9
10
Bad
This one is fairly simple and represents the only things we should be worried
about;
 The reason for the shape of the value creation curve will be become clear
soon enough. Oil price increase is shown – has been the trend last few years;
 Vertical axis is unit-less (same for following plots);
 Deployment of SAP is not included here. It always happens in Years 9-10!!


10. New CEO
Effective CEO
New CEO
Effective VP Exploration
Excellence
Years
0
1
2
3
4
5
6
7
8
9
10
Idiocy




Average CEO up to year 3. Top CEO years 4-8. Bad CEO year 8 onwards.
Top CEO brings in top Exploration VP, who hits peak 2-3 years after he is
brought onboard.
All CEO’s indexed against the average CEO prior to year 4.
Good CEO takes 1-2 years to warm up. Bad CEO is destructive from first
day on job! – arrogance always surpasses listening skills!

11. Big Stupid M&A Deal (>$2b)
Relative significance of BD team
Business Unit vs Matrix Organisation
$pend
0
1
2
3
4
5
6
7
8
9
10
Years
A giant value-destructive M&A deal always done when BD team grows, gets
out of hand and reports directly to CEO (bypassing Exploration VP);
 A business-unit-centric re-org usually happens when deal done in order to
sort out the inherited chaos;
 Once stupidity of BD-led deal is “discovered”, BD undergoes a change, VP
moves on and team disbanded.


12. McKinsey & Co Management Initiaves
Staff Retention Rate
Rolling Average of Medium-Large Reorganizations
High
Years
0
1
2
3
4
5
6
7
8
9
10
Low



An average oil company loses staff. Good company (CEO-driven) attracts
staff. Staff leave in years 9 and 10, but likely masked by (i) big M&A
deal, (ii) “new” strategy, and/or (iii) key manager leaves to set up new
company or team.
Major reorganizations happen regularly, usually once every 2-3 years.
Good companies minimize this;
McKinsey is always somehow involved. A good warning is when
managers start looking at ways to “mimic” Tullow, Anadarko or Cobalt.

13. Focus on Frontier vs Proven Basins
Review Exploration Process
Project Execution vs Exploration Growth
Amount or Degree
0




1
2
3
4
5
6
7
8
9
10
Years
Companies typically swing from “proven basin focus” to a “frontier basin focus” every 2-3
years. A really bad company says one but does the other. A great company is balanced and
sticks to the strategy.
The Exploration Process is usually “reviewed” when a lot of dry wells have been drilled or a
new CEO is not an explorer and is suspicious of geologists.
Geos: keep away from the team that is responsible for updating “The Manual” (unless you
are a process-lover).
Keep away from a “project execution” phase of a company – means you’ll be drilling
appraisal wells disguised as exploration wells (or vice-versa, depending on the host
government NOC!).

14. Serendipitous Discoveries
Bad Exploration Assets
Amount or Degree
0




1
2
3
4
5
6
7
8
9
10 Years
An incoming CEO and VP of Exploration always inherits bad exploration blocks. The
trick is to ID them and dump them ASAP. Bad blocks come with any large M&A deal;
Discoveries often comes years after the well-led team has secured the acreage for the
wrong reason and thus are often serendipitous (e.g. BG in Brazil pre-salt).
Don’t believe anyone if they say they “I discovered field X”. The opposite is always true
– they probably saw the well logs on the desk of the guy that had the original idea;
Incoming poor CEO’s like to do the opposite of the prior CEO but take credit for the
good long-term good outcomes.

15. The "Join-Company-Or Not Factor"
“Hire On Factor”

Years
0
1
2
3
4
5
6
7
8
9

This is a mathematical stack of all the prior factors.
It is clear when you should join a company – in Year 4 or 5!
Quit in Year 8 or 9 (but wait for bonus payout from discoveries
made from acreage adds by good leadership team!);
 If you are unlucky enough to be there in years 9 and 10 – don’t
worry – the cycle starts itself again at year 1 anyway!



10

17. Value
Creation!
Narrow minded CEO, ex-engineer, with
medium-term outlook. Dabbles in minor
exploration, usually brownfield and
DRO focused. Often process-centric.
Dilbert™ comic strip seems somewhat
familiar.
e.g. Apache, BHPB
Good CEO, often entrepreneurial, usually
a small independent or a large
independent that has made a highly
serendipitous (or deliberate) set of
discoveries. e.g. Tullow, BG, Lundin
Bad To
Work For
Great To
Work For!
Narrow
minded
CEO,
exaccountant, with short-term outlook.
Only M&A and BD focused. Lots of reorgs. Never have talent. Might last for a
while, usually ends up in a major re-org.
Dilbert™ comic strip is your reality. e.g.
ConocoPhillips, Marathon
Driven CEO that is either fired or ends up
in jail. A lot of fun while it lasts! Usually
have a lot of talent. Work here for 2-3
years only - make $ then get out before
the shit hits the fan!
e.g. Enron, OGX, HRT
Value Destruction