Getting Deepwater Development Right: Strategies for the Non-Operator
Authors: Jefferis Rober G. , Waters Susan A. 
Published: October 2008

Deepwater developments continue to be large, complex projects, with new technology, significant financial exposure, and a mixed industry track record. Shell was one of the early pioneers in deepwater, almost exclusively as operator. Now, most majors and many large independents have operator roles in deepwater. Shell has gained recent experience in several large deepwater projects worldwide in the role of nonoperator. The lessons learned and strategies developed as a non-operator to increase project value are described.

Introduction

The initial euphoria of a deepwater discovery can quickly turn to panic for a non-operator partner when they recognize their large financial exposure is coupled with the difficulty of directly influencing the project outcome. Questions occur repeatedly throughout the project lifecycle, such as: what is most important? Where should I dedicate my time and scarce resources? How can I add value to the project? How can I avoid non-productive conflict between operator and partners? These questions are usually dealt with reactively or haphazardly, leading to a negative impact on the project. The approach outlined in this paper provides a simple structure to help guide a partnership toward making the most of each companies' strengths, smoothing the decision making process, and minimize value destroying disagreements.

Many operators view partners as a hindrance and bother, although in practice most operators can benefit from the expertise and participation of the non-operator. The same strategy that enables effective participation by a non-operator partner will conversely allow the operator to minimize the inefficiencies and maximize the value the other partners can bring to the project.

Overview

The strategy for a non-operator to increase project value consists of six main steps:Understand and align (to extent possible) the corporate business drivers that underpin the day-to-day behaviors of the project teams.Reach agreement on project objectives, including stakeholder relations and HSE principles.Clearly understand your rights under the Joint Venture Operating Agreement (JOA).Identify the key value contributors and risks in the project.Objectively assess the strengths and weaknesses of the operator and other partners.Focus your project participation on the high value and/or high-risk areas where you have a strength or the operator has a weakness (the critical activities).Agree with the operator on how to manage formal technical reviews (or gates) to minimize duplication and timing disconnects.

The main characteristics of the strategy, such as are early understanding and alignment of business objectives, assessment of project risks and company strengths/weaknesses, are not new and often used when relating to contractors, host governments, or customers, and in project management. These same techniques can and should be used when upstream companies work with each other in Joint Ventures. Detail of how these six steps can help the nonoperator enhance project value is provided below.