Qatar Petroleum, the integrated state owned petroleum company of Qatar, is the custodian of Qatar’s oil and gas reserves, both onshore and offshore. Its principal activities include exploration, production, sale of crude oil, natural gas and gas liquids, refined products, synthetic fuels, petrochemicals, fuel additives and liquefied natural gas (LNG).
As of 2018 Qatar Petroleum was the third largest oil company in the world by oil and gas reserves and revenues from oil and natural gas combined amounted to over 60% of the country’s GDP.
The State of Qatar is an 11,586 sq. km peninsula bordering the Persian Gulf and Saudi Arabia, with a population just below 2.75 million. The country has the world’s highest per capita income level, and enviable levels of state spending on public entitlements.
Vast crude oil and natural gas reserves (of 25.24 billion bbl and 24.07 trillion cu m respectively as of 1st January 2018) are its main revenue source, making the country highly vulnerable to global oil market fluctuations. This became evident during the exceptional volatility in crude oil prices between the peaks of 2011 to 2013, and the sharp fall in 2015.
Nationally, the Qatari government – in common with countries across the Middle East – was faced with an urgent need for fiscal tightening to reduce the budget deficit (not a simple matter given Qatar’s obligation to deliver the 2022 World Cup).
The result was widespread redundancies in central government, public administrations and state-owned enterprises including Qatar Petroleum.
Appreciating that the years of double-digit economic growth may be over, the Qatari government aims to reduce economic reliance on oil and natural gas. It has significantly diversified into non-oil sectors (notably manufacturing, construction, financial services, tourism and leisure) which now account for just over half of GDP.
Fulcrium’s upstream oil and gas benchmarking training project arose directly from these volatile market conditions. For the first time in generations, Qatar Petroleum was experiencing austerity. By deploying international strategic consultancy firms, it had cut overheads and headcount (30% of upstream staff including senior management) and made a number of process efficiencies. In common with the other top international petroleum companies, it had continued to purchase consortium-provider template benchmarking reports, but it was increasingly obvious that these did not provide the means to translate data into measurable value.
Invitations to tender were issued to a number of international strategy consultancies, to consortium benchmarking providers, to oil and gas industry specialist training course providers – and to Fulcrium.
It was clear from the start of the tender process that the highly sophisticated and astute senior team at Qatar Petroleum were looking for an entirely new approach. They had moved well beyond needing incremental improvements in efficiency and cost reduction. And they certainly did not want training to be an end in itself. They had already established an Upstream Benchmarking Centre of Excellence, but wanted to ensure that this translated to identifying value.
They therefore wanted a methodology that would equip their own staff and the staff of their joint venture partners to build benchmarking excellence into every aspect of the business. They explicitly wanted to acquire – and subsequently implement – the levers that would drive exceptional value and create value excellence.
Following the awarding of the engagement, Fulcrium spent four weeks developing a customised training course.
The requirements were for an in-depth, granular course for one hundred delegates from Qatar Petroleum; and for higher-level methodology insights for one hundred delegates from joint venture partners QatarGas, RasGas, ExxonMobil, Shell, BP, Chevron, Total, GE Oil & Gas, and ConocoPhillips. This was delivered over four days in Doha.
Delegates were from many ethnicities and both genders, and were drawn from across the businesses including: drilling and completions, reservoirs and wells, maintenance and reliability, subsea losses, geology/seismic, projects and engineering, operations, logistics, assets, finance, legal, HSSE, and Technology.
Although its primary focus was on Upstream Benchmarking, the course also drew in other aspects of Fulcrium’s total benchmarking services, including Performance Benchmarking for Value Excellence.
Qatar Petroleum delegates were amongst the most enthusiastic, bright and professional people to whom Fulcrium has ever delivered training. The company overall was immensely impressive and progressive, clearly committed to radical improvements in its culture and performance to fully equip it for the 21st Century. It certainly lives up to its reputation as the “jewel of Qatar”.
Since the training was delivered the company has developed its own benchmarking methodologies, and Qatar Petroleum is more than happy with what the training course empowered:
Fulcrium was commissioned by the in-house specialist division that provides exploration and production technology (EPT) services to the business units of a Supermajor.
The brief was to undertake a wide-ranging benchmarking assignment comparing the strategy, systems, processes, organisation, human resources, charging structures, and commercial strengths of the EPT division with those of peers at IOCs, NOCs and service companies.
Part of the brief was to provide tangible evidence of what constituted a world class EPT organisation and how such insights could translate into Capex and Opex value. Fulcrium was also required to provide evidence of the resources needed to fund a centralised EPT facility to ensure full capabilities to support global field operations.
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This global supermajor operating under unstable conditions in an African nation appointed Fulcrium to benchmark the upstream oil and gas business processes and practices against its comprehensive exploration and production database for the region.
Fulcrium also identified opportunities for remodelling the organisation for optimum exploration, appraisal, development and production performance.
Fulcrium Chief Executive Raju Patel writes in the Financial Times.
The five largest, non state-owned energy companies worldwide (ExxonMobil, BP, Royal Dutch Shell, Chevron and Total) are termed supermajors and hold about 3 per cent of global hydrocarbon reserves. They were created from the late 1990s to hedge against oil price volatility, achieve economies of scale and reinvest cash reserves. While the supermajors got bigger, so did the challenges they face, with implications for their survival.
The good news is that scale is an advantage when exploring for hydrocarbon resources in the most inhospitable and inaccessible parts of the world, in developing technology, in undertaking mega-projects.
The bad news is that “diseconomies” were inherited with consolidation. These include issues of corporate governance, and trying to manage merged behemoths; the reduced accuracy of information flow; slower decision-making; greater responsibility for the safety of staff, contractors and for the environment; and increased emphasis on performance management.
The supermajors are now going to have to up their game to avoid being relegated to lower-value service providers – or eventually face extinction.
“Winning” is often defined as gaining access to and exploring the largest hydrocarbon basins, replacing the produced reserves, successfully developing mega-projects, optimising production, and managing reservoir decline. In addition, decommissioning mature fields, health, safety and the environment have become more important. “Winning” is also defined as being able to strike partnerships with host governments, national oil companies (NOCs), other international oil companies (IOCs), and contractors.
The supermajors are positioning themselves to win by renewing their strategies for corporate governance, organisation, technology, projects, engineering and contracting.
ExxonMobil, for example, is known for its centralised management, while some supermajors give greater autonomy to business units. Both models can work, but the decentralised approach will need robust delegation and accountabilities, otherwise there is a risk the corporate centre, business units and the functions will end up tripping over each other.
BP has embarked upon an aggressive simplification programme. Shell’s corporate mantra over the last few years has been ESSA – eliminate, simplify, standardise, automate.
As part of the simplification drive, every division, function and business unit will need to become a focused contributor to the business. Functions in particular, such as technology, procurement/supply chain, finance, human resources and legal must be organised and managed to world-class standards.
Technology is critically important, but the supermajors do not have exclusive influence over it. The value they add is in screening it in the marketplace, R&D and testing.
Having outsourced some core skills and competencies, the supermajors have become “super contractors” and “super project managers”, bringing together partners, managing and integrating huge programmes and disciplines. In effect, they are managing budgets, risk, delivery, health and safety, quality, timescales and pushing technical limits.
Whether or not they are relegated to becoming low-margin service contractors, they will still need to foster a service mindset. This means becoming agile, responsive and competitive in order to be selected as partners of choice by NOCs and host governments.
The oil-producer cartel Opec and the NOCs are growing sophisticated. They, too, are hiring the best technology and brains in the industry. The supermajors will be obliged to offer propositions that are a lot more compelling when compared to near competitors – pure service companies such as Schlumberger or Halliburton.
When all is said and done, one question remains: are the supermajors just too sluggish to leverage their scale profitably?
Raju Patel is chief executive of Fulcrium (a London-based global benchmarking specialist).
Management consultancy firms would have us believe they possess a diverse expertise and track record for solving business problems. I believe this is not always the case.
Many a client has learnt through expensive, often irrecoverable hiring mistakes that appearances can be deceptive.
Moreover, consultants are constantly reinventing the services they offer, entering new service lines and exiting from others – and clients find it difficult to keep up with all these changes. To optimise the value from engagements, clients should cut through the glossy websites and sales pitches, and really understand the capability and experience of consultants.
For example, it may not be common knowledge that McKinsey has made a big push into the lucrative information technology advisory arena over the past three years, and that IT, organisation and operations engagements combined have taken on a higher prominence compared with pure corporate strategy work.
Lesser-known firms such as Roland Berger Strategy Consultants and The Monitor Group have emerged as serious competitors.
Gone are the days when McKinsey was seen as the definitive panacea to an organisation’s strategic troubles. In fact, ask the chief executive of a large company why they would hire a strategy consultant and the response might be:
There goes the mystique surrounding work that strategy consultants really do. McKinsey is certainly a very expensive firm to hire, but if it can deliver that much more value, then clients have a good case for considering McKinsey. If it cannot, then it makes sense to go elsewhere because the consultancy landscape is rich with alternatives.
Accenture, on the other hand, has established a formidable strategy capability that it bundles into technology and outsourcing service lines – the rationale being that for outsourcing to be successful, it must be intricately tied to corporate and business unit strategies. But that thinking may be too late – it might have prevented Accenture’s NHS troubles, which stem from the doctrine that diseconomies of scale will kick in beyond a certain size.
We should therefore not be surprised that large-scale outsourcing is no longer in vogue.
The strategists now tell us the focus has turned to smaller, manageable, value-enhancing outsourcing deals.
If a client is looking for a stand-alone operations or strategy consultant, then Accenture may not be the best bet. However, if the client needs a consultant to weave strategy, operations and technology together, then Accenture is certainly a front-runner for the job.
In August 2002, IBM, the computer hardware manufacturer, acquired PwC’s consulting business, which consisted predominantly of outsourcing and systems integration services.
But I believe PwC Consulting was not a serious strategy force, and that is the service line necessary to exert influence with boards of the bigger international companies.
One wonders whether IBM would have agreed with my opinion that PwC Consulting did not have a strategy capability. And the problem with acquisitions is that they start to generate true client value only when synergies between the hardware and services businesses are fully harnessed – so for example, can IBM effectively articulate a compelling case for transforming the marketing function of a Fortune 500 company by leveraging IBM hardware? The former PwC consultants would first require proven marketing services capability as well as training in hardware, infrastructure and operating systems to even contemplate tying marketing strategy to IT infrastructure.
This is a very tall order. Clients may consider shopping for marketing advice and IT infrastructure separately.
Offshore entrants such as Tata Consultancy Services (TCS) have risen through the promise of “wage arbitrage” – offering low-end consultancy services (programming, call centres, outsourcing) at low-end prices. However, their recent ambition to diversify into the premium strategy and operations consulting segments may be misplaced.
Clients may ask: “How can TCS convince us that they have robust, consistent and mature high-end consulting processes? Why should I risk my personal reputation by awarding a key strategic assignment to TCS?”
Unsophisticated clients that initiate discussions with offshoring firms around premium services may find the cost of low-end work increases significantly, which defeats the purpose of offshoring and cost reduction.
The big accountancy firms (Deloitte, Ernst & Young, KPMG, PwC) have witnessed rapid growth as a result of reduced competition (partly because of the demise of Arthur Andersen), greater regulation (Sarbanes-Oxley, International Financial Reporting Standards), and the strong global economy which has led to an increase in the number of mergers, acquisitions and divestments.
Tony Blair stated in a speech to the Institute for Public Policy Research think-tank in 2005: “Sarbanes-Oxley has provided a bonanza for accountants and auditors, the very professions thought to be at fault in the original [WorldCom, Enron] scandals.”
To the naive client, the top accountancy firms may appear to be similar.
However, I believe that, unlike its competitors, Deloitte has not separated its accountancy and tax operations from its consulting business.
Therefore, clients may prefer to seek assurances that the audit and related services they buy from Deloitte do not cause corporate governance conflicts.
Likewise, with the Eighth European Directive (European equivalent of the US Sarbanes-Oxley Act 2002) becoming law next year, KPMG is expected to merge its fragmented franchised UK and European operations in a bid to serve multinationals seamlessly across geographic boundaries.
One of the effects of the fragmentation of KPMG, Ernst & Young and PwC was, I believe, to avoid rogue member offices bringing their whole networks of firms down.
KPMG’s clients should benefit from its planned consolidated structure because I think it will enable better knowledge-sharing and collaboration between the member firms, – but only if the distraction of the “merger integration” is managed well and avoids compromising client engagements.
This global supermajor used Fulcrium’s benchmarking services to provide unprecedented insights into service companies.
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