Time of transformations

Abu Dhabi

Paul Navratil, global emerging markets oil and gas leader at EY, talks to TOGY about strategies for NOCs to maintain profitability, ADNOC’s restructuring and investment strategies for the new business climate.

International professional services firm EY works with the oil and gas industry across its assurance, tax, transaction and advisory business lines. The issues covered by the company include competing and managing risk in oil and gas, navigating mergers and acquisitions, and investment decisions. In August 2016, EY announced that the UAE was among the top three markets in terms of mergers and acquisitions activities in the first half of the year.

• On NOCs: “For the national oil company to be able to maximise returns and dividends, a change of mindset to that of a yield/dividend company is needed.”

• On new business models: “If I treat my gas plant as a profit and loss centre, I will allocate capital one way. I will allocate differently if I consider it to be a cost centre, because my expectations of return will have fundamentally changed. This understanding shapes the way that capital is allocated throughout the company and across the value chain.”

• On transparency: “If you agree that the role of the national oil company is to maximise the dividend and the efficiency with which it is provided, transparency is absolutely required.”

• On ADNOC’s transformation: “ADNOC’s clarity regarding the set performance measures provides a clear direction. Ensuring the concept of efficiency is understood – and practiced – requires tremendous attention and education at every level of the organisation, and that will always be the hardest part of this transformation.”

Navratil went in depth about new technologies in oil production, consolidation among oil and gas companies, and privatisations in the regional hydrocarbons industry. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of the interview with Navratil below.

What are the benefits of implementing digital technology in the oilfield?
Digital is a word that is used far too much these days, but in its essence it means the ability to make a better informed decision. In order to drive a physically and financially optimised value chain, one needs connected information, and one must have reliable information on the performance of each element and variable in that process.
The volume of information involved can quickly be overwhelming, which is where the concept of big data comes in. Big data involves the utilisation of well-defined algorithms to help mine relevant data, to then understand and analyse, to then create reliable information. Digitalisation is about making the transmission of that information reliable, so that network efficiency can be driven. The digitalisation of the oilfield involves identifying the critical touch points in the value chain that require reliable meters and sensors to communicate. After these points are identified, we can bring in the analytics, which become essential to informed decision making.

Do you see the potential for further consolidation of assets and joint ventures in the region?
Absolutely, as a significant amount of organisational, operational and financial efficiency still can be gained. Case in point, Adma-Opco [Abu Dhabi Marine Operating Company] and Zadco [Zakum Development Company] have much in common in terms of geology, facilities, logistics and supply chains. From an efficiency potential standpoint, it comes across as something of a no-brainer. Many people understand why such companies were independently set up 40 or 50 years ago, but those reasons no longer are as valid. The efficient construct and management of value chain segments needs to be rethought.

What are the benefits and risks to privatising the assets of IPOs and national companies, especially in this region?
If one believes that the most productive role of a national oil company is to provide reliable dividends to the state, particularly in a hydrocarbons-driven economy, one should be able to implement an effective model that will drive that outcome. There is no one size fits all.
However, capital events, such as project finance, debt issuance and particularly IPOs, all require transparency. If you agree that the role of the national oil company is to maximise the dividend and the efficiency with which it is provided, transparency is absolutely required.
I need not only to understand what the capital request is, I need to be able to see how that capital is being used, then returned to me as the investor, whether I am the head office, the shareholder or the state. I need to be able to witness that process transparently.

What is your opinion of ADNOC’s transformation?
Their new strategy includes four pillars: performance, efficiency, productivity and people. This is the first time we’ve seen such a strong focus on driving total efficiency. In the past, the focus was largely on production targets. I think ADNOC’s clarity regarding the set performance measures provides a clear direction. Ensuring the concept of efficiency is understood – and practiced – requires tremendous attention and education at every level of the organisation, and that will always be the hardest part of this transformation. ADNOC’s performance will depend on its ability to create its new culture.

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