Episode Transcript
[00:00:00] Speaker A: Take the best of both companies.
Just because they're maybe smaller does not mean that they have not figured something out.
[00:00:08] Speaker B: When you leverage peer information and say that there's, you know, show that they are an anomaly in that area, then they become more willing to consider a change.
[00:00:23] Speaker C: Welcome to the next imperative, a podcast hosted by A. M. Energy leaders tackling key issues and trends in the industry.
[00:00:32] Speaker D: Welcome back to the next imperative. In recent years, investors have been forcing oil and gas companies to generate free cash flow and return capital. This shift has led to capital efficiency becoming one of the key success factors across the industry.
On today's episode, we're going to talk about how the integrated oil companies are thinking about capital efficiency and some of the leverage they've been pulling to make it work for them.
Joining me in this conversation are industry thought leaders and a. M. Colleagues, Riyadh Nasser, Ben Jackson, and Alan Pender. And I'm your host, Jeff Angulo.
Riyadh, can you get us started by explaining what we mean by capital efficiency for the purpose of this?
[00:01:16] Speaker E: Surely, you know, capital efficiency is going to have various interpretations and definitions, depending on who you ask. When we talk about capital efficiency, we're really describing what goes into capital investment decisions. On the road to optimizing returns, I would say that the industry has changed over the last decade. And previously, oil and gas companies and strategies would really focus on producing as much as possible, growing production, replacing reserves, and accordingly, what would go into investment decisions was a little bit different than it should be now. Now the investment community is demanding returns, and so the industry really needs to focus on optimizing returns to shareholders, et cetera. So as a result of that, operators really need to look at doing things differently in terms of their well designs, completion designs, facility designs, to kind of optimize returns, and also balancing that with commercial structures and strategies with suppliers, and then also making efficiency improvements in their drilling and completions process. Balancing all of those things together on the road to optimum returns is what we talk about when we refer to capital efficiency.
[00:02:35] Speaker D: Fantastic.
[00:02:37] Speaker A: And I think just to add to what Riyadh had said, I think it's important to define what it is we mean by capital efficiencies, because if we had ten executives in a room and asked them that, you'd get ten different questions.
It's a broad term at the sea level, return on invested capital that exceeding your cost of capital is kind of tried and true across industries.
It's kind of hard to rally the troops around. Like, how do you cascade that down into the organization right. Same with recycle ratio, which is really just a measure of your ability to internally fund development. But again, all three are high level metrics. And really, the point back to what Riyadh is saying is maximizing the use of capital to extract the most recovery as you can.
But ultimately, it's like, how do you cascade the applicable metrics to the organization? Because if you do it the right way, all are going to look good anyway, right?
[00:03:37] Speaker B: I think that's what we've seen from investors. I was talking with an activist investor who made the comment, some of what you just said, that the numbers can be made to look good quarter to quarter in reports. And management teams, like Alan said, are getting pressure on improving capital efficiencies. But how does that equate down to the organization? So I think what we're seeing is it's really important to leverage what you can beyond just what public companies report on, to dig into specifically where there are opportunities to improve capital efficiencies.
[00:04:14] Speaker D: Kind of how do you deliver that corporate metric, the sea level metric? Guys down below have to do different things to be measured on different things to achieve it, right?
[00:04:24] Speaker B: That's right.
[00:04:26] Speaker A: So where that could manifest itself is capital efficiencies can be different. For a vp of development, which could look at capital cost over EUR, or estimated ultimate recovery, that could cascade down to a drilling lead where they're optimizing for a drilling cost per foot, or TMD, you all got to hold that in a healthy tension because you can drill a cheap well, but if the barrels aren't there, it's not good. So the point is being able to back to Riyadh's point, balancing all of those. But when we say capital efficiencies, it means one thing at the exec level, but it's got to be well defined at a lower level. And the point is finding those solutions and being able to drive towards opportunities.
[00:05:09] Speaker E: Just to add to that, it really permeates the entire organization, because if you're making capital investment decisions to optimize returns, you also need to take into consideration the operating costs that are going to support that completion design or that package of wells. The operating costs need to be taken into consideration. The gathering, processing, transportation costs need to be taken into consideration to get a total understanding of value and returns that are going to inform the capital investment structure.
[00:05:40] Speaker B: And another example that we've seen of late is a real focus on cost per well, dollars per well, and capital spend on facilities, and getting a really good understanding of for every dollar that you might cut on a facility is designed, does that have a downstream impact to your downtime, and is it worthwhile to do that?
So that's another way of looking at it, that it is going to span your whole organization. You're going to need to involve your folks on the Loe side to weigh in on things like facilities designs as well.
[00:06:19] Speaker A: And that's where it goes back to a sea level metric like roic or recycle ratio that has all that woven into it, too. So it's a good point.
[00:06:29] Speaker D: A lot of moving parts, and everybody needs to do their piece to make sure it comes together and does the right thing.
What's some of the context, historical context, maybe last 510 years that have led us to this focus?
[00:06:42] Speaker A: Yeah, I mean, this is well known, but just to state the obvious, stateside, much of the capex is obviously heavily pivoted to onshore. This is well known. And so over the last ten or 15 years, that percent of capex has hovered around 80 or 90% onshore versus offshore.
I believe a lot of what we'll talk about principles can be applied to both, but there will be a bit of a bias towards onshore because that's where the activity is. But everyone knows the story, right?
Some years ago, fracking technology, the advancements in fracking technology unlocked resources within shale formation. Right? So you had a big inflow of capital.
A large number of operators began to fragment and develop it. Starting around 2017 to 2018 is where you saw capital providers starting to want a return of capital, not just a return on capital, back to what you stated at the first.
And so really for the independence, what that meant was really created a lot of ingenuity, like, quite honest, you can see the metrics, like, from 2017 to current efficiencies on a completion square foot basis are upwards of 70% to 80% better. Like, they had to figure out in a disciplined environment how to move faster, how to make it work. The initial rates of IP are up around 7% to 10%. This is public data, anyone can see it.
I think where we are today is you have, in a lot of basins, the supply base on the service provider side has contracted. So these are facts. These are very real things. And so that's coming into really headwinds, which is inflation. Costs are up on real physical items, steel fuel. These are real costs that get passed through in combination with that and diminishing, well, productivity and mature basins. So you have all this happening all at once, which really kind of puts us where we are today and why? We've quite frankly, done a lot of work around capital efficiencies and working with operators to find ways to make it.
[00:08:58] Speaker D: Work, help them find ways to get it, to get the changes they need.
[00:09:02] Speaker E: Question on that, Alan. You talk about improved recoveries seven to 8%. It sounds like there's a lot more room to go there.
Where is that going to come from? Is it technological advances? Is it learning from others and taking best practices and putting that all together? What do you think?
[00:09:21] Speaker A: Yeah, the general consensus out there is what's left back in the ground is upwards of around 90%. So they're actually just like non time based. What is actually recovered is around 10%. So you have a lot left back in the ground, and that's validated by other operators and multiple people that arrive at that number.
And so when it comes to efficiencies, the number I quoted of 7% to 10%, that's on a lateral foot basis. So yes, longer laterals have led to cost efficiencies.
When it comes to getting the efficiencies on the production side, sometimes really long laterals, if you just extrapolate the design that you've been doing on a two mile, doesn't really work on a production per foot basis. And so a lot of the techniques are really optimizing stages and cluster spacing to basically get an even recovery from heel to toe.
That is the way to solve the recovery problem. As you get to the longer laterals, we'll talk a little bit more about optimizing. We'll call like job size and mix.
Job size and mix is fluid proppant and how much of each. So the ratio of the two and then how much do you do of each? We know that, well, productivity responds better with more fluids in some areas. These are known. We work with subsurface teams to understand that other areas at prop, but both have a cost. We're all bound by the very real universal principles of economics. At the end of the day, fluids are more expensive than profit. Fluids in some areas have a really good impact on getting the well productivity.
[00:11:03] Speaker B: So I think that's what we're seeing, folks, we're helping folks through right now, is figuring out what is the point of diminishing returns on capital put down hole, whether it's a two mile versus a four mile lateral, or the number of stages per well, or zipper frac versus simul frac.
In the case of the latter, looking at how are your water costs impacted for simulfrack, at what point are you trying to get so much water or supply to location that the costs become exorbitant or there's not a return that make that worthwhile. And the other thing I'd say is that we've seen a lot of the international companies in Australia, South America. This is both international and iocs starting to look at how can we leverage what's happening in West Texas or in north american shale and apply those principles? Maybe different basins. Well, obviously different basins, but what characteristics down whole are similar that we should be trying to learn from. It's reminiscent of the early shale days when there were revolutionary horizontal wells in the barnett that then they leveraged those learnings in the Haynesville and then onto the Eagleford and well beyond that today. But we're seeing a lot of folks try to leverage what's happening in north american shale across the globe, taking advantage.
[00:12:39] Speaker D: Of their giant portfolios for the integrated. And this worked really well here. I'm going to take it Europe, Australia, wherever.
[00:12:46] Speaker A: In that same concept, we work with operators, we bring that view. Right. So given the amount of work we've done to space, have a lot of proprietary data, afe data, well attributes and all these things. And one lens that we'll work through with operators is to say, what if we took the best of everything? Just take the best of everything. And oftentimes you end up maybe trading off some things where you're over in one cost category. But a lot of times we work through, rationalize it with the team, drive towards solutions.
That's a way we do it. But for iocs with a large portfolio, it's a great fresh set of eyes.
[00:13:29] Speaker D: To use that approach to bring out outside eyes to look at it.
[00:13:32] Speaker A: Absolutely.
[00:13:33] Speaker D: With the benefit of every other operator we've seen and what they're doing and.
[00:13:37] Speaker A: What they've learned in its human nature, we do this, too. I'm going to likely want to keep doing the same thing that I'm comfortable with.
[00:13:45] Speaker B: Where we've seen really good results is with what Alan's describing. We call it the Frankenstein model. To take the best of each lever.
It takes a really open mind to not fall back on old ways of thinking. Each well is a unicorn or each basin is a unicorn. I think companies are coming around to the fact that there are a lot of similarities that we can and should be leveraging when we're designing for optimal returns.
[00:14:12] Speaker E: Right.
Standardization is something that we've seen working with our clients, that maybe previously it was more important to standardize and replicate and so on. I think now it's important to be open to different designs, still standardized to a point, but you can create and model out a higher number of derivative models and then use those on a case by case basis so that they're fit for purpose, for the need. So that's sort of one trend that we see and hope to continue to see is that openness. The other or another may be to have the organizational support that would be required to support and implement those new directions.
And that's something that's just required in order to take any sort of a transformational effort from an operational design standpoint, which is what we believe is required to meet this new returns focused world.
[00:15:14] Speaker A: Yeah.
For a lot of the work we've done in this space on capital efficiencies, we asked the question and just challenge our clients a bit, is, why do the same level of design, which could be higher spec casing, higher spec rig, whatever it may be, and you stamp every well the same, even if it's an infill well. So we asked the question, why are we drilling a $12 million infill well? And usually the answer lies somewhere in between. Standardization does give a lot of scheduling flexibility, which is really good to have in shale.
The challenge is when you do introduce some new variables on maybe despecking some design, you have to challenge the assumptions of, I design every well to last for 30, 40 years to this well, 30 to 40, these ten to 15. And really conforming the capital to lesser productive zones with the expected production, that's the challenge going forward. And to be able to currently in a very large IOC or a large independent, that's a challenge in the process because you're introducing a whole new variable that does hamper the flexibility a little bit. Yeah.
[00:16:32] Speaker D: And as you move to tier two, tier three acreage, you're going to have to change anyway.
[00:16:36] Speaker A: In the insights, there's good in both worlds with smaller operators. Right. We've worked with small operators and we say, how do you step out into fringe acreage or infill acreage and your capital cost over barrels hasn't moved much? And they say, well, we make it work.
Okay.
[00:16:56] Speaker E: Right.
[00:16:56] Speaker A: That's the answer.
And the challenge is, how do you do this in a larger organization?
[00:17:01] Speaker E: Right. The larger independent can afford to be more nimble. Right. And they can afford to make decisions more quickly and change more quickly. And I think there's some learnings there that the IOCs can adopt, learning what some of the more nimble operators are able to do.
[00:17:21] Speaker D: So where are we today?
[00:17:25] Speaker A: We touched on where we are today with kind of coming into on the supply side, a contracted supply base and ofs provider. So that just obviously puts upward pressure on pricing.
Where we are today also is just, you have inflation costs that acutely hit capital cost items, very acutely hit those items and also diminishing, well, productivity in those areas. And so some of the things that we discussed are really kind of critical for going forward. Like now, what now what do we do? Well, I think the broad response is doing the same things we did in the past can't work going forward. It just won't. So there's a revisit of some of the things you have to do and I just open it up for first starts a development strategy and how you're going to develop a field. Those are the more material strategic decisions that should be revisited on a field.
[00:18:20] Speaker D: Basis, not a pad basis basis.
[00:18:22] Speaker A: Yeah, we know and people know, right? Like rock quality, spacing, big deals. Right?
That's a fact.
But as you step out, some of the things that are more controllable within an operation are things like we mentioned earlier, like job size and mix. What's the ratio of fluid versus profit and the amount of which, and how do you vary that at accounting formation level? And then lastly, lateral length and the ability to do it. Those are really the kind of the big structural things. And I think that the point there is to, once you get that recipe right and roll it through a process, there's a lot of good tools out there that do this is really understanding the rollover point on some of those major design decisions. I'd even throw in infrastructure and facilities too, in that these aren't huge dollars, but we're getting to the level of mature basins. Those have to be solid. And ultimately, when you're kicking out a plan that's got to be set and.
[00:19:27] Speaker D: Sound to kind of Ben's point earlier around, if you're doing simulfrax, you've got to have so much water on site to start with. That's a lot of infrastructure and a lot of things that have to happen. And where are the benefits? Are you looking at that additional cost structure as well?
[00:19:41] Speaker E: To what extent are you guys seeing that it's trial and error and taking data from existing wells that were just developed, et cetera, versus modeling out and using technology and AI to do preventive analytics or predictive analytics to optimize returns? You're limited, right? If you're trying to optimize returns and you're using your actuals, you're limited on what you can model out, because some of it is years in advance. So is it a modeling exercise using technology? Is it an actual exercise, some combination thereof?
[00:20:19] Speaker A: Curious to hear your thoughts on this.
[00:20:22] Speaker B: Well, I would say that we've had the best results. When we start with really analyzing the designs, the overall capital cost off, afes that are going downhill and into facilities and looking at the production, the returns that are coming back, and using that as a barometer to how well a business unit is performing, where there are opportunities, then digging into, okay, well, what was unique about that design?
And did you get a return, or is your casing spec giving you the uplift and the downtime, or avoiding downtime like you think it will in the case where it's not, that's where we're having really good discussions and results of companies. They're willing to go from five and a half or six inch to five and a half, or to tweak something that's not a high risk on their design and their specs. I'd say on the completion side, if it's a completions design where you're really coming into question the number of stages and the spacing, that's a tougher discussion. To convince completions engineers that their assumptions should be challenged. There's not really good big data or predictive analytics that we've seen folks be able to use that can give them comfort to go ahead and change the design that they've had in place for a year or two.
But when you leverage peer information and say that show that they are an anomaly in that area, then they become more willing to consider a change.
[00:22:09] Speaker A: Right. I'm glad you simplified it down to when we come in, we start unbiased. We come in with facts and data, a lot of which is proprietary, and we use that with operators to just find things, find gaps, and then seek to understand what's going on. So it's a great method.
A lot of the stuff does come down at the end of the day to trial and error. Right. You get comfortable with enough information and that's the operations world. At some point, you step out and you try some new techniques.
[00:22:44] Speaker E: Yeah, I like that. It's an actuals game. There's nothing that can replace the value of actual data, can't hide from it. I like that. And if you have multiple sort of peer data points on those actuals and all of the dimensions and design components that contribute to that, you can really start to assess differences. Because even if you have operator one and operator two with the same exact designs, entirely. There are going to be sort of execution differences across the two totally. And that will only show once you start looking at the outputs, the productivity that result from those designs. So looking across operators is equally important.
[00:23:23] Speaker B: I would say one thing that's important to note there is when we're talking about peer data points, we use a mix of public information. We use Rystad, for example, to classify a tier of a well, one versus three. But when it comes to the designs, we're working with those operators. They're providing us their actual designs, the actuals from afe's not budget and what they're expecting to see. So you're really getting a true look at the actual design. That's downhill, and you're not going to get that through a public source.
[00:24:04] Speaker D: You're getting it from multiple companies. So you're seeing it across the field and operating philosophies and everything else.
[00:24:09] Speaker B: That's right.
[00:24:10] Speaker A: We augment them together to get to an answer. And these are all actuals. They are all facts.
Ben said something, you said something interesting earlier about development strategy. Those are big bet decisions. They're key to understand.
When you take that and you look at generally, think about it as a one line report, you got a list of wells, times, economics pinned to them.
From there, we'd say the process doesn't stop there. Ben said something earlier. Discern between those capital costs that are increasing production, there's some in the middle and those that are lower risk to impact production and rationalizing those. And through that process, being able to take an infill well that doesn't have the best rate of return to rationalizing the cost down and making it more competitive, that is the challenge. We've had success with operators doing this method. It does work, but it requires a fresh set of us, either from us or internally.
[00:25:25] Speaker E: It's not that our operators aren't looking at these things, but I think just to make the point, they may be looking at one, they may be looking at two components of this entire sort of complex puzzle, but looking at all of them sort of at the same time, and understanding the trade offs and how making adjustments, impact returns is rarely sort of covered with an oil and gas company. I think that more of the individuals need to get involved, not just the completions engineer, but also the drilling, the production folks and everything else. And so using data and facilitating a cross functional process, you really get to understand where the gaps are.
[00:26:09] Speaker A: Organizationally, it's very powerful, and our clients do a lot of things very well.
If we walk into a situation. We come in unbiased with facts. We always find something. It's just like you could walk into our own organization, someone with a fresh set of eyes. That's how nobody's got the perfect solution. They don't. And so when you come in with fresh set of eyes, fresh data, challenging how things are currently working today, and then a method that we talked about earlier saying, what if we took the best of everything when drilling completions and facilities, what does that look like? Facilities, for example, is another great one. Ben talked about this earlier. We've seen it somewhat neglected. And being able to rationalize facilities costs there, we think that's we're not talking huge capital dollars, but we see that as a lot left on the table.
But make sure you're not hindering long term NPV and it could hit downtime when your loe goes up. So these are all things to consider. But that's definitely one that I'd put in the bucket of not really risking the production like job size and mix, but probably sits in that middle area of we can rationalize the cost there, but let's make sure we don't hurt ourselves down in time.
[00:27:33] Speaker B: We've talked a lot about some of the larger capital or higher capex wells.
We've also seen iocs working in. We've worked in business units where they're trying, they've got an aging asset and these are much lower cost wells, more conventional wells that they're being challenged. How do we get 20% uplift in our production with the same capital plan to compete for dollars within the broader portfolio? And in that case, it's similar exercise to look at what return you're getting, but more operations improvement focused to see how can we leverage some of the shale factory type designs, propagate those over to a more conventional asset.
We've seen a lot of good results there as well.
[00:28:37] Speaker A: One other point on that note is differentiating between IOCs and independence. And one thing that shale operators do well, particularly independents, is the scheduling and the complexity of it.
And IOCs do this well as well. But a lot of the independents have some. They've been ahead, they've been doing it for a bit longer.
The advantage the IOCs have is one just balance sheet like some of the megaprojects, 15 well pads, three four mile laterals. We're talking 200 million dollar outlays of.
[00:29:17] Speaker D: Capital before you see a penny back.
[00:29:19] Speaker A: Yeah, you're outlaying the capital. And so it takes time and it takes the balance sheet to be able to see it. The IOCs are very used to that method.
The independents, they are under more of a microscope and are in a bit more of the quarterly cash flow cycle that they've been placed under. And so all that to say the positive on that end, it's driven them to a lot of ingenuity and a lot of things that have worked very well. And being able to make things work can produce short term behavior in a way, because you are optimizing calendar year financials, where the benefit of the IOCs is they see through a calendar year. That's what they're optimizing for. So for IOCs, it's, how do you keep that, obviously, and then take the best of what the independents do.
[00:30:09] Speaker D: And I've seen some of that in recent announcements from consolidation transactions where the IOC, who's buying the company, know they've done great, they've got better acreage than we do, but our methodology, we've produced equally to them, and we're going to apply it to this new acreage that we required and do even better. The benefits of having a lot of really smart people on payroll that smaller companies just can't afford to keep, to think through those things.
[00:30:36] Speaker A: And always the advice to them is take the best of both companies.
Just because they are maybe smaller does not mean that they have not figured something out.
[00:30:46] Speaker D: Exactly.
[00:30:47] Speaker E: And just because the IOCs can afford to take a longer term outlook on development doesn't mean that they should.
[00:30:55] Speaker A: Yeah, it goes the other way because you can hide things. You may not develop things the most efficiently, is obviously the other side of that.
[00:31:03] Speaker D: Yeah, the gold plating.
What other levers have you guys seen? The ISC's pull for success in this.
[00:31:11] Speaker A: Area, one we lightly touched on was, say, more commercially, and this touches a bit organizationally, I'd say more than anything is going out and asking for rate concessions doesn't work. You got to contracted supply base like we discussed, but programmatically and leading commercially with supply chain, the engineering team and the vendors, and partnering with all three is the go forward method. And when you do that, that's where you're able to make spec alternative decisions. When we talk design versus market competitive rates, what historically has happened with other operators is engineer does a design hands over the fence to supply chain and go get me best rate. And if it's high spec, it's high spec. Now you have supply chain that's starting with a higher floor.
So that's a very one way relationship, whereas we see as successful is programmatically doing it. Engineers, supply chain and vendors to partner on solutions.
[00:32:21] Speaker E: Yeah, make supply chain or make the supply base part of the solutioning process.
[00:32:26] Speaker A: That's it.
[00:32:27] Speaker E: And you can bring in a number of suppliers as you're trying to figure out who you want to partner with on a long term basis and encourage them all to bring those alternative ways of thinking into the fold based on the strength of that, that may play into which supplier you decide to partner with over time, but it's got to be sort of a middle ground of finding value between operator and service provider.
[00:32:52] Speaker B: Yeah, I would just add that I think that the best results are driven when you going back to having a target in mind, knowing how you're performing relative to others, when engineering and supply chain are aligned in what those targets are and they take that out to the market.
The incumbents aren't always the best to seek advice on how to get to the target because they prefer the status quo with likely a higher margin. But you get really good ideas and you see who wants to be your longer term partner when you open it up and then work through different design considerations, not just designs and specs, but how we're going to deploy resources. Are we going from lump sum to managing on time materials basis?
You see very quickly where different service providers are willing to be transparent with how they're managing their own resources and equipment and how they're going to propose to help optimize and be a part of the longer term solution.
[00:34:03] Speaker A: I think organizationally, on another point, is executives really challenging status quo thinking and challenging what we've done in the past and really challenging the team to use a fresh set of eyes or seek ways to use a fresh set of eyes, but also to be able to have the organization incentivized to do so.
We all know that this is how people work. Well, when they have more carrot to chase and they will work towards solving those problems.
[00:34:35] Speaker B: Sorry, go ahead.
[00:34:35] Speaker A: No, go ahead.
[00:34:36] Speaker B: I think that's a really good point. It doesn't work as effectively if just supply chain says, well, these contracts are coming up, we're going to go after these categories. Or if engineering says, hey, we just came up with a new casing spec or completions design, go see what you can get.
It's got to be collaborative. And both groups, including leadership for some of the bigger categories like drilling rigs, they've got to be all aligned and at the table with the supply base.
[00:35:14] Speaker D: It's a cultural thing, right, to push it throughout the organization, the CEO, down to the COO, down to the field. Superintendent to push all these different things. And part of what we've been talking about, I think if you do that and if you partner with the suppliers, you're also going to get the benefit of what they've seen other operators do and innovations that somebody else has come up with that with your insular look.
[00:35:37] Speaker A: You'Ll never catch on to in the oil field. Secrets do not remain secrets for long.
They are propagating good practices and partner with them to do so. They have figured out some things.
[00:35:51] Speaker E: It comes back to the cascading point that we talked about upfront where there's sort of these corporate metrics that cascade all the way down to the field and every individual or group is going to have partial responsibility to fulfill their detailed functional metrics and KPIs, but also corporate. And that's what drives sort of cross functional partnership. But tying incentives to those metrics is critical. And then also it's going to have a knock on effect to the incentive structure that you have with your suppliers. Those terms are changing too, and finding ways for the supply base to do things more quickly, for instance, is going to be highly valued by operator and things like that. So we start to see the structure of those contracts change and the commercial terms change so that there's value on both sides.
[00:36:46] Speaker D: So been a great conversation. What are some of the key takeaways you'd want somebody in the audience to take from this conversation?
[00:36:54] Speaker A: Thinking forward, really seeking durable returns in that.
Again, back to the point of some independence will optimize the calendar year. Right. And the IOC's ability to see through a calendar year and make decisions that create long term value by far generates the highest value for shareholders.
[00:37:17] Speaker D: Optimizing on the whole development instead of a calendar.
[00:37:19] Speaker A: That's right. But really, really just being able to optimize durable returns through a calendar year. Again, independents get put on the focus of capex in action in year. It's a capital intensive business.
Projects flow past calendar years, but all solutions should be considered with durable returns. There is a scheduling, sometimes a scheduling game that can be played to make sure we pull as much cash flow forward into certain quarters.
That is where independents face some challenge. They are under pressure to do so. We understand, but make sure it doesn't hinder long term value.
[00:38:03] Speaker D: Ben, what do you think?
[00:38:06] Speaker B: I would say maybe it's a selfish plug for third party help, but where we're seeing step change improvements with all of our clients over the last two years have been talking about capital efficiencies and they report on that being a corporate objective every quarter.
Where we're seeing step change improvement is when a program is established across functions with your subsurface team, your operations teams, your facilities teams, even your land and your surface ops teams aligned on incentives, but really leveraging independent thinking to help analyze and provide a view into other assets, other business units, peers, that helps move the thinking along from the status quo to being open, at least more open to considering changes.
They're more impactful than just tweaking a few dials here and there.
[00:39:17] Speaker E: I would know right now, I would say the IOC should take within their business units or even within asset areas within their business units approaches to optimize capital efficiency. And they're doing that at some level.
But optimizing on that, bringing in data from peer operators to understand the best sort of combination of elements is the first step. I think the second step once that's optimized at the business unit level, is to do it across business units and understand where you have the most powerful and productive dollar being spent. And ultimately that's going to influence capital allocation, that's going to influence portfolio mix. And so starting at the business unit level, but then raising it up and looking at that more globally across an organization is the following step after that.
[00:40:14] Speaker D: Gentlemen, thank you for your time. It was really stimulating conversation to our audience. Thank you for your time. We hope you enjoyed this episode as much as we did making it, and we look forward to seeing you on a future episode of the next Imperative.
[00:40:26] Speaker C: You, thank you for listening. Make sure to subscribe to the next Imperative so you never miss a new episode. Also, visit our website, alvarez and Marsal.com to learn more and to connect with us.
