Riding out the Waves

Aug 2011

Source: Oilweek Magazine


Riding out the waves


Business cycles come and go, but Nexen’s strength and experience prevails to carry it through


by R.P. Stastny



You could say it was the best of times and it was the worst of times. January 2009 was a personal high note for Marvin Romanow as he took over from Charlie Fischer as Nexen Inc.´s new president and chief executive officer. In terms of the business cycle, though, it couldn´t have been a tougher time to take the reigns.

In the first month of Romanow´s tenure, oil prices tanked to below $40 a barrel, financial markets went into hiding, the world economy was grinding to a halt while a host of other challenges for Nexen were still in the oven.

Soon its Long Lake oilsands facility would encounter technical difficulties and balk at reaching its production design capacity target of 72,000 barrels a day. The Macondo oil spill made a mess of the U.S. Gulf of Mexico in the spring of 2010, casting a long shadow over the region´s regulatory process and complicating Nexen´s prospects for its deepwater work with Royal Dutch Shell plc.

And this past spring, the U.K. government increased its supplementary tax on North Sea production to 32 per cent from 20 per cent, a disappointing development particularly for Nexen, which has almost half of its total company production in the North Sea.

In Nigeria, where Nexen has offshore operations, the government is reviewing its royalty regime. In Yemen-a historic engine of growth for Nexen over the last 20 years-negotiations to extend the company´s agreement with the government seem stalled as the Arab popular uprising sweeps through the Middle East.

So as one market analyst put it, "It could be worse for Nexen, but not much."

View from the corner office
Romanow recalls the biggest challenge for him in 2009 was "having the calm to not overreact when commodity prices crashed." Nexen´s experienced board of directors played a crucial role at the time, ensuring the company took a measured and longer-term view of the situation.

To some extent, that long-term focus still prevails today in the midst of challenges Nexen faces and provides the backdrop for Romanow´s leadership.

"In our business, there can be long cycle times to our investments," he says. "For example, we´re bringing on stream with Exxon [Mobil Corporation] and Chevron [Corporation] and Total [E & P Canada] a $10 billion project in West Africa. That was from a discovery that we made in 1998. That was three CEOs ago. So my job is to develop that asset to production and my job will also be to leave a few jobs for the next guy to develop because of the cycle times."

In the context of Nexen´s three-course strategies-conventional oil and gas, shale gas and oilsands-gas production from Nexen´s attractive shale gas prospects in the Horn River Basin may well become the responsibility of Romanow´s successor. So will any subsequent phases of Nexen´s oilsands development at Long Lake because, in the meantime, Romanow has his work cut out for him.

Long Lake
In the oilsands, Nexen arguably gambled on an innovative technology that uses the heavy bottoms of bitumen rather than natural gas to generate steam for its steam-assisted gravity drainage wells and is now paying the price. But taking the longer view, Nexen started working on Long Lake more than a decade ago, and is now part way through ramping up to a production level that will continue for decades to come during which time natural gas prices will wax and wane.

Romanow concedes that in retrospect some of the decisions Nexen made in 2001 would have been made differently today. "We made a very large investment and we should´ve phased it a bit more," he says. "But now, the upgrader we have, the gasifier and the steam is about 80 per cent of the total investment, and those are going to create value. We just need a few more wells. Which take time to drill, but they´re also the cheapest part of the development.

"So here´s the vision," he says. "We didn´t have quite enough wells and we didn´t have the wells located in some of our best resource because we´ve been able to define more resource quality since then. But now we can show investors that we have a game plan and that we can execute on it."

On leadership
Romanaow´s leadership is characterized by collaboration. That doesn´t mean he is any less a captain of industry. It just means he fully taps the resources available to him.

"In a company like ours, it´s not going to be the CEO who sits in his office that creates value," he says. "We have 4,500 employees to create the ideas and to implement those ideas. That´s what leads to world-class performance."

Romanow´s leadership style recognizes that today´s oil and gas industry is more complicated than ever. Whether it calls upon technical expertise to drill beneath 3,000 metres of water, produce gas from tight rock or manage large investments in the oilsands, that complexity requires a lot of talent sets. The CEO, the ultimate generalist, in Romanow´s view, needs to ensure that all the talent sets throughout the organization are engaged and can make their contribution in effectively charting the company´s course.

To this end, Romanow does plenty of listening through formal and informal forums within Nexen, from town halls and weekly or biweekly events called Breakfast with Marv, where eight to 10 Nexen employees from all areas and ranks of the company get a chance to chat about everything from what´s concerning them about their job to what´s going on in their lives.

This level of collaboration also makes the job of getting buy-in almost instantaneous, because those same people actually had a hand in crafting the strategy.

Romanow knows that good ideas come from all ends of the company because he has worked with many people in different roles over the course of his career. He spent time as an engineer in reservoir management and he worked in finance (which eventually earned him a Canada´s CFO of the Year award in 2007 and, in September of the same year, a Petroleum Economist Energy Executive of the Year award).

He has worked with companies that enjoyed enormous success but also with ones that had big challenges, including Dome Petroleum Limited, where he witnessed the power of one financing miscalculation that unravelled at all.

As for riding out the near-term challenges, Nexen is busy drilling additional wells at Long Lake. Its highly profitable U.K. production is set for a 25,500 barrels of oil equivalent per day expansion by 2014. In Yemen, Romanow is confident negotiations "will be resolved." In West Africa, Usan remains on track for first oil next year and more oil is being found in deeper horizons. And in the Gulf of Mexico, Nexen´s discovery with Shell US has the potential to blossom into one of the most significant discoveries in the basin.

With all those irons in the fire, of course, comes risk. But as Romanaow sees it, "If you´re not in the oilsands or you´re not in the deep water or you´re not in risky areas, you´re probably not in the high-hydrocarbon places."