Non-operated stakes in oil and gas projects are on the rise, but a review of the system has highlighted a “systemic lack of trust” between partners.
Boston Consulting Group has published a forensic report, highlighting that by improving management of their non-operated stakes, companies could reduce general and administrative costs by 30%.
However, among top trends BCG found across the sector was a “systematic lack of trust in one´s partners was a persistent problem”.
It said: “Many companies shared with us that they entered the relationship with an inbuilt lack of trust for their partners, and so needed to double-check everything.”
Other issues included over-estimating the amount of influence non-operated partners have on the asset operator, which “can often be duplicative and rarely yield materially better outcomes”.
BCG also pointed to companies “over-intervening” which, rather than mitigating risk, “they were legally exposing to higher risk from perceived involvement than they would if they had been more hands-off and only intervened on key issues”.
Taking non-operated positions is on the rise, particularly for majors which now make the bulk of their portfolios (54% on average of their combined volumes), according to the report.
Matches made in heaven (and hell)
The North Sea has seen its fair share of successful and strained partnerships in recent times, particularly as decommissioning costs come around.
RockRose Energy was ousted as operator of the Brae area after a legal challenge from Taqa and partners.
Elsewhere, in 2019, Neptune Energy and Spirit Energy got into a dispute around the Cygnus facility and the Pegasus West development.
Perhaps one of the best positive partnership examples in the UK North Sea would be Exxon Mobil – no longer an operator, but continues to have a sizeable non-operated interest across Shell’s assets.
Hands-off approach can deliver rewards
Non-operated portfolios are “often overlooked and under-exercised as a source of value creation”, says report co-author Shiva Kant, partner at BCG.
Some of the best practices set out by the firm include targeted influence on high-value assets where companies can materially alter or improve plans.
Adopting a lean approach is also important, said BCG, pointing to the example of a company of just 70 people which manages minority assets with a portfolio of one million barrels per day.
“Some of our clients have realised upwards of 30% G&A cost efficiency by adopting these best practices”, said the report, “but we see only the top companies who adopt this lean way of managing their assets really capturing this advantage”.
It adds: “In the longer term, rethinking the approach to non-operated management paves the way for a more attractive and effective non-operating specialist company – one that is able to attract and retain a unique blend of techno-commercial talent and generate value through direct and indirect influencing of the operating partners.”