infrastructure strategy development
TRANSCRIPT
Midstream Strategy Development
Strategic GamingTM Approach
Contents◦ About Dragonfly
◦ Game Theory and Strategic Gaming for Midstream Strategy
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Background
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Our work has spanned the globe • Company &
Business Unit
Strategy
• Portfolio
Management
• Growth Strategy
• Investment &
Capacity Decisions
• Alliance & Joint
Venture Strategy
• Competitive
Positioning
• Market Entry
Strategy
• M&A and Licensing
• Strategic Sourcing
• Bidding Strategy
• Negotiation
Strategy & Tactics
• Product & Pricing
Strategy
• Governmental
Affairs & Political
Risk Assessment
We have helped
clients with a wide
range of strategic
challenges:
Our work has enabled our clients to capture billions of dollars in value from a wide range of projects
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Services and Capabilities
Strategy Support
DecisionTools
Coaching & Training
Process Development
Typically our work involves a combination of our services and capabilities; our leading game-theoretic approach provides our clients with a competitive edge…
Strategic Gaming™
Decision Analysis
Real Options
Portfolio Analysis
Political Analysis
War Gaming
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Contents◦ About Dragonfly
◦ Game Theory and Strategic Gaming for Midstream Strategy
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Why game theory for midstream
• Interdependent systems cutting across value chain
• Future options that others may or may not exercise
• Competitive-Cooperative dynamics with other (potential) infrastructure and players
• Tariff negotiations
• Value of control questions
Decision
Analysis
Game
Theory
Game
Theory
Influence Potential
Yes
Yes
No
No
Decision
Analysis
(with options)
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Strategic Gaming™: A Practical Game Theory Approach
• Players
• Choices
• Sequence
• Uncertainties
• Structure
• Strategic thinking
• Qualitative
evaluation
• Provide direction
• Quantify
uncertainties
• Compute
payoffs
• Anticipation of
others’ moves
• Initial evaluation
• Evaluate game
changers
• Develop tactics
• Ensure alignment
• How to change the
game
• Effective signaling
• Dynamic road map
• NegotiationReady™
Steps:
Deliverables:
Dynamic
Framing
Strategy
Evaluation
Execution
Planning
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Framing to capture interdependenciesA fried-egg diagram can help bring a more holistic frame and understanding of key interrelationships that are common to midstream strategy issues
Broader considerations
Out of scope, but may be strategically related
Broad scope on alternatives
Pipelinealternatives
A vs. B
Other pipeline
alternativesC, D, & E
Upstream projects
Broader portfolioissues, concerns
Refinery issues
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Schematics are very useful in framing
Existing
In progress
ProposalShangri-La
Babylon
Eden
Asgard
Olympus
Key fields, prospects and discoveries
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A timeline helps understand what decisions and uncertainties are important and when
Stage 2 Stage 3 Stage 4 Stage 5
May2013
Stage 1
Sept/Oct2013
Nov/Dec2013
2015-2016 2017
Evaluate, discuss terms, ownership potential with
pipeline sponsors
Open Season, bid/negotiate terms, ownership
Pipe 6 and Pipe 8 completed
Babylon storage expansions?
Babylon storage expansions?
Various uncertainties that impact value get resolved
These and increasing production determine capacity in the system as of 2016
Commitments to Shangri-La Gulf Coast plant destinations may deter some potentials
New pipeline projects go through permitting and construction. First
deliveries to Shangri-La 2017+
Our focus decisions, though later stages should impact our decisions
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Several important stakeholders are typically involved/impacted
• IOC 1
• IOC 2
• PipeCo A
• PipeCo B
• FERC
• Environmental groups
• Other producers
Potential Key Players Other Players
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Schematic trees help structure choices
Wait
Project sponsors
Move (have binding OS)
First mover advantages and concerns?
Deter others, influence destination
Question about whether producers would sign up/need incentives
to A via Babylon
to B via Babylon
to C via Babylon
Key decisions in stages 1 and 2
Other shippers likely to have to do take or pay – no real choice
Ownership, to have maximum influence, would be best secured before open season
Tariff amount/tiered capacity also key-use tariff calculator as first cut
There are a number of tactical and strategic choices we and others could make prior to support of projects, including P/L or other ownership (e.g., refinery, upstream deals).
Nash, Kahuna, Rover, Black Dog
Ownership (operator?, %)
Take or pay
Sizing and expansion capability of pipeline alternatives also is important to specify
Projects we/other shippers can support/not
Pipe 11
Pipe 5
Pipe 3
Pipe 2
to Babylon
to Shangri-La
Not mutually exclusive
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Qualitative insights from framing midstream issues are typically quite insightful
◦ Coordination of P/L development is crucial to realizing full value
◦ Uncoordinated P/L development will lead to insufficient storage capacity at Babylon
◦ However, Babylon storage companies can be persuaded to commit to expansion if they are guaranteed adequate delivery
◦ Partner selection is critical
◦ Nash-Black Dog partnership offers win-win opportunities but Black Dog has other attractive partnerships to consider
◦ Threat of Nash-Kahuna partnership could preempt Black Dog from pursuing these other options; further analysis should focus on ways to make this threat credible
◦ Rover at first appears to be an attractive partner, but framing indicates that Rover has large incentives to deviate from partnership for its own advantage: modeling should evaluate whether potential upside offsets likely complications due to partner misalignment
◦ Timing is of the essence
◦ Wait-and-learn is an option, but waiting almost certainly will eliminate partnership options because other players are motivated to act quickly
◦ Pipe co’s wield more influence than initially assumed
◦ Though pipe co’s are not as strong as the integrated majors, they have some power to block or inflict damage/loss of value to Nash (expansions, reversals, new P/L’s)
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Transparent, transportable models are key to decision-making
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Economic ModelIntegrate alternatives and
uncertainties to see volume balancing, economic payoffs for
each player, tradeoffs across alternatives Pricing Models
Regional Supply
Other Supply
Other Supply
Other Supply
B Capacity
S-L Capacity
Nash Refinery & Pipeline Capacity
S-L Pricing
B Pricing
Pipeline Modeling
Plant Model
Illustrative
Assessments
• CAPEX• OPEX• Production scenarios• Etc.
P/L expansions in 2 stages
Volume flows are of central importanceEconomic measures typically follow
in a straightforward manner from
volume flows, but 80-90% of the
answer, if not more, often comes
from volumetric analysis alone
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Midstream Project Examples
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Benefits Project 1 Project 2 Project 3
The right frame, structure, clarity Linkage of alternatives for A&BClient and non-client acreage, discoveries and prospects
Full value chain: upstream, pipelines, refining
Findings contrary to base case beliefs, prior studies
Area A p/l expansion could get blocked/not preferable & Area B p/l made lower priority
Single “Fit-for-purpose” line doesn’t fit the purpose, and two lines can be better for upstream economics
Timing premature unless change game
Identification and assessment of power and leverage
Client is relatively big, but needs partners of a key field
Client has strongest position in area and first mover advantages, can create barrier to entry
Client is small but can change the game via buy-sell contracts and p/l ownership
Showed best alignment targets Company X is keyCompany Y, and perhaps Company X or Z, are key
Company X is key; if not, Z
Pipeline ownership has economic andstrategic value
Ownership in key export lines would ensure capacity on the lines, reducing export risks
To own contract carrier lines captures lots of value, reduces export risks
Enabling contract carrier line can have high returns, ensure capacity, and bring marketing uplift
Prioritization – an understanding of how to proceed
Focus on Area A more than Area B, and get IOC alignment
Make BD case to key partner targets, update information on prospects and CAPEX, and reevaluate, prior to decision
Tactics for engaging Company X drafted and implemented
Team alignment fostered, facilitating execution
Consolidated two team efforts working at cross purposes; new team aligned and implementing
Team has developed and implemented tactics for the “business development” case
Team agreed and implemented a contingent strategy and tactics for execution
www.DflyStrategy.com
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