The El Merk processing facilities in Algeria. Image courtesy of Anadarko.
Opportunities to influence joint ventures and partnerships from a minority equity position can reap considerable value. A recent example shows why positive engagement should become the norm.
The Maersk Oil non-operated production, also known as Operated by Others (OBO), has historically been dominated by production in Algeria. In recent years the focus on non-operated production has increased thanks to projects such as Golden Eagle (UK) or Jack (US) coming on-stream. In fact, our non-operated production will continue to develop in the future as we reap the benefits of our current investments in Norway (Johan Sverdrup), Kurdistan (Sarsang) and East Africa (South Lockichar).
The partner role in an OBO setup can vary significantly from one partnership to the next. In some circumstances supporting the operator and meeting financial commitments may suffice, whereas in others, a more proactive approach may be more applicable, especially where Maersk Oil's technical and commercial expertise can add value to the whole partnership.
As non-operating partner, Maersk Oil has recently been able to offer expertise and concepts in ‘Master Development Planning’ (MDP) to our Joint Venture partners in Algeria. This approach to long-term strategic asset planning was initially developed for our block in Qatar and has since been adapted across other assets. The idea was to leverage our global capability to create alignment with partners on long term technical opportunities and strategies. This was a testimony that even from a minority stake position Maersk Oil can influence the operator and other JV partners as well as create significant value by using methods and insights derived from other projects and business units.
Diego Tejada Evans, Managing Director of the Algeria Business Unit explains how the Master Development Plan (MDP) initiative came about.
“We realised that additional value for both the JV and the Algerian state could be captured. By looking at the fields in such a way that our thinking wasn’t clouded by the constraints of the existing licenses, we managed to develop insight to the optimal future of these fields. Around this we were able to align with our JV partners, and best of all provide the content for discussions amongst all stakeholders,” explains Tejada Evans.
“Because we were proposing a solution that we felt would be in the best interests of the partnership, JV partners were happy for Maersk Oil to take the lead and undertake the work, funded equitably by all of us.”
Tasked with investigating the scope for future development of our existing licenses and assessing the value impact of different technical scenarios, Maersk Oil tapped into internal resources in the Corporate Technology & Projects, Commercial and Economic departments and was able to present a consolidated proposal guiding future decisions within the JV. “During this process we gained critical insight we did not have before. For example, our study revealed some below ground outcomes which, under present conditions, were the opposite of what the partnership had long-assumed to be the case.
Also, we have been able to consider what the 30-year horizon looks like, how recovery could be optimized based on what we now know and how that would generate earnings under different fiscal scenarios, should the terms for late-life field operations be improved,” says Tejada Evans.
The Algeria team received a strong endorsement from partners – with testimonials citing the quality of the work, and its recommendations.
“The partnership has been enriched through this process and we all share a better understanding of risks and opportunities when proceeding with any future investment. All of the above has built a very robust platform for the JV to move forward,” he adds.
“Bringing in specific expertise and knowledge from Maersk Oil operated projects and using these methods to evaluate the future opportunities and value in the Algerian assets and co-funding from partners is certainly an example of best practise. It is a great example of how Maersk Oil can play a dynamic role in shaping the future of our most valuable OBO positions and create stronger partnership,” observes Torben Krarup, Vice President, Global Production and Development.