University of Warwick: November 15, 2012 Glen Burridge NDB – New Digital Business Ltd INTERCULTURAL ISSUES IN THE UPSTREAM OIL & GAS INDUSTRY

Structure of Presentation 1. Overview of Upstream Oil & Gas business 2. The Three-Way Intercultural Challenge 3. The Consequences 4. Possible Solutions

1. Overview of Upstream Oil & Gas Business

The Upstream Oil & Gas Industry

2. The Three-Way Challenge

Algerian-American Living in US Algerian British Living in Hungary British Living in Australia British Living in Indonesia British Living in France American Portuguese Living in UK Egyptian Pakistani 7 Production Engineers 6 Reservoir Engineers 7 Geologists 3 Managers 2 Geophysicists 2 Admin Support 2 Software Support 1 Petrophysicist 1 Data Manager A. The NATIONAL Challenge

Operating Company Operator Partner 1 P2 P3 P4 Government Service Co 1 Contractor 2 Contractor 3 ……Contractors n …………..…………Sub-Contractors x many n? C4C5 C6 Consultants Advisors Project 1 Project 2 B. The ORGANISATIONAL Challenge

C. The TECHNICAL Challenge

The Technical Challenge I - People Knowledge Transfer: Knowledge Transfer: - Professional operational status: 5+ years - Project-specific expertise: 6 months+ - High degree of training, but poor mentoring of new staff - Poor knowledge capture & transfer from experienced staff Geoscientists (“Geo’s) vs Engineers: Geoscientists (“Geo’s) vs Engineers: - Large-scale, 4D conceptually-driven thinking of geoscientists - Focused, measurement & building-driven view of engineers The Big Crew Change: The Big Crew Change: - Large number of highest experience staff to retire in coming decade - Missing Generation of mid-career professionals - Budding economic powers providing increasing share of workforce - Steadily more gender-balanced professional workforce

So, an Engineer, a Geologist & Geophysicist are in a room with the Boss. EngineerGeologistGeophysicists The Boss asks the Engineer “What’s 2+2?” The Engineer replies “ ″. Then the Boss ask the Geologist the same question. The Geologist replies” Oh, somewhere between 3 and 5 ″. Finally, the Boss ask the Geophysicist the same question. The Geophysicist replies ” What would you like it to be?”

Geologist Geophysicist Reservoir Engineer PetrophysicistWell Engineer / Driller Production/Facilities Engineer

The Technical Challenge II - Process Project Governance: Project Governance: - Nationalisation of JV projects often written into Production contracts - Ability of host country to effectively manage resources - Training and technology transfer aspects often poorly executed - National identity strong in management, but workforce diverse - Major disparities in remuneration, roles and expectations - Mentality conflict of operational expediency vs project management - Office-based vs Operations (off-shore vs on-shore) Long, complex, projects with multiple partners & web of contractors: Long, complex, projects with multiple partners & web of contractors: - Differing perceptions of lines of command - Matricial vs hierarchical decision-making structures - Opposing motivations -> poor integration - Vastly different psychological contracts (Handy, 1999)

EFFORT Time or $$ Knowledge Comprehension Application Analysis Synthesis Evaluation Expertise Experience DIFFICULTY Application of correct technology, people & skills VALUE RISK The Asset Learning Curve KNOWLEDGE 20

ExploreDevelopProduce “Cloud Thinking”

ExploreDevelopProduce

ExploreDevelopProduce

The Technical Challenge III - Technology Unrelenting levels of: - Heterogeneous technology development - Complex infrastructure testing & deployment - Potentially massive data overload (which patterns, trends important?) - Residual risk and carried uncertainty (the subsurface is never “known”) Increasingly difficult targets: - Geopolitical constraints - No Elephants Left to Discover? - Extreme physical environments (deeper water, arctic) - Multitude of environmental considerations - Rarely a “silver bullet” technology

3. Consequences

Examples of 3-Way Cultural Challenges faced by Oil & Gas Managers: Differences in interpretations / recommendations between local and expat subsurface staff: Need to reconcile & select most appropriate fitting all necessary criteria Critical Issue / Error / Risk Reporting: Face, power-distance, individual vs collective responsibility Goal Conflict: Idiocentric Corporate multinational company goals vs Allocentric National Polychronic perspective Large project planning: Point outcomes vs consensus building. Time perceptions. Delegation. Roles & Responsibilities: Power-Distance, Linear vs Circular decision-making, Matrix vs Hierarchy. Multiple projects Uncertainty handling (sub-surface environment, external constraints etc) Recognition, acknowledgement, assessment, consequence

National Technical Organisational Engineer THE INDIVIDUAL Close-knit consultancy Project Teams Solo work Client Interaction Client Staff Client Management

National Technical Organisational Yemen North Sea Russian Arctic Western European IOC (Integrated Oil & Gas Company) ORGANISATION 1

National Technical Organisational Yemen North Sea Russian Arctic Middle Eastern NOC (National Oil & Gas Company) ORGANISATION 2

Root Causes/ Failures of Macondo Well Explosion Ref: US Chief Counsel’s Report to President Most significant failure at Macondo and clearly the root cause of the blowout was a failure of industry management. BP ‟ s management process did not adequately identify or address risks created by late changes to well design and procedures. Decision making process at Macondo did not adequately ensure that personnel fully considered the risks created by time and money saving decisions. The well blew out because a number of separate risk factors, oversights and outright mistakes combined to overwhelm the safeguards meant to prevent just such an event from happening. Better management by BP, Halliburton and Transocean would almost certainly have prevented the blowout by improving the ability of individuals involved to identify the risk they faced, and to properly evaluate, communicate and address them.

“As a result of a cascade of deeply flawed failure and signal analysis, decision-making, communication, and organizational - managerial processes, safety was compromised to point the blowout occurred with catastrophic effects.” Perhaps there is no clear-cut “evidence” that someone the organizations in the Macondo well project made a conscious decision to put costs before safety; nevertheless, that misses the point. It is the underlying “unconscious mind” that governs the actions of an organization and its personnel. “Cultural influences that permeate an organization and an industry and manifest in actions that either promote and nurture a high reliability organization OR actions reflective of complacency, excessive risk-taking and a loss of situational awareness.” Root Causes/ Failures of Macondo Well Explosion Ref: US Chief Counsel’s Report to President

4. Possible Solutions

National Technical Organisational Understand Engage Communicate Cultural Intelligence Ref: E. Plum et al., 1998

What can be learnt by O&G from the world of aviation? High Reliability Organisation (HRO) foundations: High Reliability Organisation (HRO) foundations: - Standard Operating Procedures (SOP’s) - Checklisting - Licensing - Crew Resource Management (CRM) - Command, Control, Communicate (C3) Promotion of Quality Assurance, Safety & Excellence Promotion of Quality Assurance, Safety & Excellence - Non-negotiable barriers - Confidential Reporting - Pro-active RCA (root-cause analysis) - Accident Investigation High levels of accredited training all the way through an organisation High levels of accredited training all the way through an organisation - Simulation, simulation, simulation….. - Emulation of What If’s, Consequences, ….not just Deliverables Recognition of the importance of Human Factors Recognition of the importance of Human Factors - Integral to aviation industry training and culture - Established as primary factor in many incidents - Cultural factors tackled head-on with safety justification

HRO (High Reliability Organisations) accomplished by: 1)Command by exception 2)Redundancy / robustness 3)Procedures and Rules 4)Selection and Training 5)Appropriate Rewards and Punishment 6)Ability of Management to See The Big Picture Examples: Commercial & Military Aviation, Nuclear Power Stations

3-Way Cross-Cultural Management Requirements: Strong inherent understanding of and ability to distil: - complexity - risk - uncertainty - motivations - consequences Ability to enforce, engage or drive (the “stick”): - best practice goals - learning from past mistakes - non-negotiable thresholds - 3-way cross-cultural awareness - awareness into action (RACI) Encourage, steer and define (“the carrot”): - context-sensitive communication - multi-threaded, flexible management style - knowledge transfer, management & sharing - team-working as inter-cultural exercise

Q&A