The Final Frontier: E&P Low-Cost Operating Model.

AuthorDahl, Carol

The Final Frontier: E&P Low-Cost Operating Model, by Justin Pettit. (Wiley, 2017), 192 pages, ISBN13: 9781119376545.

Although oil and gas are not likely to go away very soon, recent times have seen some unexpected dramatic changes and stresses to the industry with more expected to come. This book offers business model advice to consider as the industry continues to cope with this ongoing energy transition with special attention to the upstream exploration and production sector. The author offers this advice gleaned from decades of experience in the oil and gas business. He began his career as a process engineer continuing on to corporate development, investment banking, and giving strategic advice on restructuring, business improvement, mergers, and acquisitions. His most recent position is Vice President of Upstream Energy, at IHS Markit.

Ever a volatile industry with changing resource base, resource access, fiscal terms, technology, geopolitics, and more, the industry has evolved with a focus on cost and productivity change. The author argues that this evolution has been accommodative and incremental and that with the current confluence of events, it is time to reconsider the whole business operating model. These events include increasingly more complicated resource base and choices (e. g. enhanced oil recovery from declining conventionals, increasing resource base for unconventionals, and more movement into frontier areas); U.S. shale gale, which has put downward pressure on prices and LNG projects, changed capital flows, altered composition of petrochemical feedstocks and location, and put pressure on coal and nuclear power generation; inadequate operating cash flow exacerbated by reduced prices since 2014; the need for a wider array of technical expertise; new supply chain technologies; and increasing complexity in fiscal terms, regulatory regimes, and social license requirements. The author assumes the reader knows what a company operating model is and does not give a very complete definition with description until chapter 3. It would have been helpful to have the basic elements mentioned in the introduction. These elements are later given as (1) business delineation and performance measure, (2) organizational structure capabilities of workflows, (3) formal management processes, (4) delegation of decision rights, and (5) informal social norms and corporate structure.

Chapter 2, entitled, "The New Agenda" has a strong focus on cost. There are examples of representative costs in different N. American plays and types of resources that some readers might find useful. It highlights the conflict between the short run need to cut costs and the long run need to invest in higher cost resources. The author argues the most productive cost cutting is sustainable and...

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