Deciding where to drill

Evaluating potential locations globally

It's no secret that the oil and gas industry is enjoying a new era of energy abundance. As a result, exploration and production companies have a greater number of global locations that are candidates for drilling .

 Suggestions regarding where to do business come from a variety of sources: exploration teams, operational partners, banks, internal business units, and consultants as well as people within the group charged with overseeing this monumental undertaking, the ConocoPhillips Business Development team.

How does the team determine where ConocoPhillips will operate?

"In a nutshell, we identify global opportunities that fit the company's skills, technologies and functional expertise and are consistent with our organic growth strategy," said Mike Gustafson, vice president, Business Development.

"We want to create strong partnerships, sustainable commitments and scalable programs. Countries sanctioned by the U.S. government are immediately off the block, as are those with unacceptable security risks. We won't send our people into an area unless we are confident of their safety," said Gustafson.

Conflicting business models disqualify some countries, including many in the Middle East with a service contract-for-fee approach. We also won't pursue opportunities in countries where political risks are considered to be excessive or where we are unable to protect our investments long-term.

Host country governments play a role. "Each has its own unique objectives and issues," said Chuck Weidig, manager, ConocoPhillips Global BD Ventures. "For example, Colombia recently signed a free trade agreement with the U.S. and is currently very pro-investment."

The Business Development group uses a variety of methods to gather information. "If we're considering entry into a country for a global new venture, we try to get some on-the-ground truth serum by talking to everybody we can, even competitors," said Gustafson.

While an exploration team evaluates the potential of what lies beneath the surface, the Business Development team determines the potential "surface issues" – political climate, commercial risk, infrastructure and security.

"People think we travel all over the world and engage in exciting negotiations all the time," said Bill Burkett, manager, Business Development – Commonwealth of Independent States, Europe, North Africa and Middle East. "In reality, business development is 90% preparation. Maybe 10% of it is actually sitting across the table from a host government or national oil company in negotiations."

Burkett reiterated that relationships are still critical to successful deal-making, even though the dynamic has changed over time. "Twenty-five years ago, there weren't many companies with the ability to do large international deals. Now there are thousands. The tie breaker is still relationships."

Bill Lafferrandre, vice president, Business Development – Asia Pacific, points out that deciding where to operate is a time-consuming process. "It's all about finding a fit. You have to be patient, try a lot of different options and hope that some of them will work. Here in the Asia Pacific region, we've had success starting from scratch in places like Vietnam and Malaysia."

"We recently did a deal onshore in Indonesia," Lafferrandre continued. "It's a very interesting exploration opportunity with significant oil potential, which is unusual for Asia. We have also begun looking at opportunities in Myanmar (also known as Burma), a country that has been off limits for 20 years. In the last 2 years the government has made tremendous changes, implementing political reforms and opening up to foreign investment. The U.S. government responded by issuing a general license allowing U.S. companies to invest."

Another example is the recent Senegal deal, where the company signed an agreement to participate in a deepwater exploration project. "This is the first new activity in West Africa associated with smart, organic growth," said John Schell, manager, Business Development – Africa. The first wells will be drilled in the first half of 2014.

"It's important to note that every country is significantly different in terms of development, infrastructure, security and how they manage their government affairs," Schell added.