As Global
As It Gets
Two-way knowledge
pipeline links Thunderbird
to oil and gas industry
as
GLOBAL
as it gets
Two-way knowledge pipeline links
Thunderbird to oil and gas industry
By Daryl James
E
d Barrett didn’t inherit much when he took over Thunderbird
executive education in 1990 after arriving from Southern Methodist University in Dallas. A staff of two or three people worked
out of a trailer on the edge of campus, and Barrett needed new
corporate clients to jump-start revenue.
“I had contacts in the oil and gas industry, so that’s where I started,” he
says. “I knew who the players were.”
Barrett worked with Gulf Oil in Geneva while on the faculty at Harvard
Business School and then taught for more than a decade at SMU’s Maguire
Energy Institute. He followed his friend, Roy Herberger, to Thunderbird
when Herberger became president of the school in 1989.
Barrett picked up at Thunderbird where he left off in Dallas, bringing
rising stars in the oil and gas industry to the Arizona desert — far from any
oilfields or refineries. Things went better than expected.
“The tie was stronger than we thought,” says Barrett, an emeritus professor who remains active in executive education. “It’s hard to find an industry more global, and therefore more complex, and therefore more interesting than oil and gas. It affects every country in the world, and that ties very
nicely to who we are at Thunderbird.”
Global partners such as Chevron, Shell, British Petroleum, TNK-BP and
ExxonMobil started coming to Thunderbird — along with oilfield services
companies such as Baker Hughes, Integra and Smith International, and
state-owned enterprises such as the Oil and Natural Gas Corp. of India.
Thunderbird Corporate Learning, which grew out of the cramped trailer
on the edge of campus, has modern facilities today that include the Thunderbird Executive Inn, four auditoriums and a two-story administration/
classroom building.
A second site in Geneva oversees operations in Europe, Africa and the
Thunderbird Emeritus
Professor Ed Barrett,
Ph.D. opened the
pipeline connecting the
school to the oil & gas
sector. Photo by
Tim Clarke.
oil & gas connection
Middle East.
Many factors have contributed to Corporate
Learning’s growth, but the specialization in oil
and gas remains key. Professors such as Kannan
Ramaswamy, Michael Moffett, Andrew Inkpen
and William Youngdahl have joined Barrett over
the years as industry experts who speak the language of global energy executives.
“We’re doing something right, or they wouldn’t
keep coming back,” Barrett says. “We’re winning
contracts with oil and gas companies because we
understand the complexity with which they live
and can offer them some hope or help in trying
to deal with that.”
Relationship managers
Jan Mueller, Thunderbird’s vice president of
global business development, says many oil and
gas companies seek out Thunderbird. But competition for corporate clients has grown fierce
in recent years, with an increasing number of
business schools and consulting firms claiming
global business expertise.
“We can’t just sit around and wait for the business to come to us,” she says. “We need to be aggressive in explaining what makes Thunderbird
Tim Clarke
different.”
Mueller arrived at Thunderbird 20 years ago
and moved to Corporate Learning in 1997 —
after going back to school and earning a degree
as a widowed mother. She says Barrett hired her
and taught her how to nurture relationships
with corporate clients.
She eventually took over the ExxonMobil account and helped expand the partnership into
its current form. She meets with senior executives on a regular basis, gathers feedback and
resolves concerns.
“Relationship management is a significant part
of the business development team’s job description,” Mueller says. “Our business development
directors touch their clients six or seven times a
week. We’re never done.”
A Thunderbird industry
Oil and gas companies are never done, either.
Their search for new energy deposits often leads
them to remote locations that other industries
simply ignore. Geopolitical, cultural and organizational complexities come with the territory.
“A lot of times when people talk about going global, when you drill down, they’re talking
about doing business in prominent places like
Singapore, London, Tokyo or Shanghai,” Barrett
says. “The oil and gas industry is everywhere, including some very culturally and socially different places in very difficult regions. You’re likely
to find new oil in places like Turkmenistan,
which, as best as I can tell, is on nobody’s vacation list.”
Ramaswamy, a native of India who now has
U.S. citizenship, has spent much of his career
studying emerging markets and the business
challenges they face. He says this research led
naturally to a specialization in the energy sector.
“It is probably an industry that is tailor-made
for our mission at Thunderbird to educate global
leaders who create sustainable prosperity worldwide,” he says. “The resources in this industry
are concentrated in the developing world, and
the customers are concentrated in the developed
world. It’s a fascinating industry to look at.”
Moffett has come to a similar conclusion. “I
can’t think of an industry that represents more
what the Thunderbird challenge is all about,” he
says. “It’s a global industry. It’s got a unique history, and it’s integral to every human on Earth.”
Inkpen, who arrived at Thunderbird in 1995,
says the discovery of energy resources in remote
Thunderbird Professor Michael Moffett teaches a global
energy class in April. Thunderbird first offered the elective
course in 2008 for full-time degree students.
locations around the world has required the development of a new set of management skills to
deal with political and operating uncertainties.
“God didn’t make much oil in France,” he
says. “So you’ve got to go find it where it is.”
Oil and gas companies have plenty of practice
executing massive projects in unstable political
environments, Inkpen says. The Nobel brothers
from Sweden helped turn Baku on the Caspian
Sea into the oil capital of the world more than
100 years ago in Azerbaijan. The region later became ensnared in the Russian Revolution, and
things got ugly.
“Doing business in difficult environments
goes back to the beginnings of the commercial
oil and gas industry,” Inkpen says.
Ramaswamy says Thunderbird, which started
in 1946 as the first graduate school focused on
global business, can make a similar claim.
“Oil and gas is one of those industries that was
global way before everyone else became global,”
he says. “So in some sense the industry is like
Thunderbird.”
Theory and practice
Benefits from Thunderbird’s long relationship
with oil and gas flow in both directions. From
Thunderbird’s perspective, professors gain valu-
able real-world experience.
“We are focused on managing in a global setting,” Barrett says. “To understand what is different about global, you’ve got to be involved with
people who are global, who have to wrestle with
the issues on a regular basis.”
Thunderbird professors teach oil and gas programs on at least three continents on a regular
basis, and this involvement often puts them in
the middle of the action. Moffett and Inkpen
traveled to Central Africa in January, for example, to observe an oilfield and pipeline project
managed by one of their clients.
“When you become heavily involved in Corporate Learning activities,” Moffett says, “you
move from 10 miles behind the front lines to
giving lectures in the foxhole.”
Moffett says much of this knowledge returns
to the classroom and benefits Thunderbird’s
full-time degree students. “There are times when
I learn things from working with the executive
participants, that I can’t wait to develop further
and take into the classroom with my degree students,” he says.
One outcome has been the development of
a new global energy class that Moffett, Inkpen
and Thunderbird Professor Gregory Unruh
teach together.
Companies such as
Chevron, Shell, British
Petroleum, TNK-BP,
ExxonMobil, Baker
Hughes, Integra and
Smith International turn to
Thunderbird for its unique
global expertise in the oil &
gas sector.
Thunderbird Professor
Kannan Ramaswamy,
Ph.D., says oil and gas
companies that want
to thrive must learn to
understand state-owned
companies, which
often care about social
performance as much as
the bottom line. Photo by
Kristen Jarchow.
The class covers everything from engineering,
economics and markets to career opportunities and company cultures. “The students get a
chance to see how all the different elements are
combined in one industry,” Moffett says.
The knowledge pipeline that brings real-world
practice to Thunderbird also carries classroom
theory in the other direction.
“We stay on the relevant edge of theory,” Moffett says. “Our executive participants don’t always have time to acquire that because they’re
busy with the brushfires. They’re busy with the
practice. So they look to us for the theory.”
To Africa and beyond
The brushfires that keep oil and gas executives
up at night increasingly happen in Africa, the
former Soviet Union and the Middle East. Inkpen says those three regions will be the hot spots
for the industry on the production side of the
global value chain in the future.
This will require oil and gas managers to pay
close attention to cross-cultural issues — especially in places where corporate strategy involves
local hiring to “indigenize” the company.
“You have to make that work,” Barrett says.
“You have to make a combination of highly technical people from Europe, America, Singapore
or Australia learn to work with not-so-technical
people from Turkmenistan who just came out of
a socialist economy.”
He says the increased emphasis on doing business in unstable regions also will create challenges in corporate governance — especially for
companies from places such as the United States
that must follow high standards. Contracts that
are binding in the United States, for example,
are not always binding in different parts of the
world.
“You’ve got to succeed while being very clean
in an industry that deals in parts of the world
that are not always seen as being — in a political
sense — clean,” Barrett says. “It’s either frustrating or exciting, depending on the day.”
Another major trend that will shape the future of the industry is the emergence of national
oil companies as more than just guardians of
their resources. Petrobras in Brazil, for example,
has emerged as a world leader in deep-water
drilling.
“Some of these national companies have become truly global companies doing a lot of business outside their own countries,” Inkpen says.
Lifting the resource curse
Ramaswamy says multinational oil and gas
companies that want to thrive in the future
must learn to understand these state-owned
oil & gas connection
companies, which often care about social performance as much as the bottom line.
“The challenge is moving from a culture that
is shareholder value-driven to stakeholder valuedriven,” Ramaswamy says. “National oil companies function in a different world.”
He says he has gravitated toward working with
these national companies in his career. “That is
where we make the greatest impact, by giving
them exposure to the right kind of tools, techniques and strategies,” Ramaswamy says. “It’s a
great role for Thunderbird to play.”
Unfortunately, he says, many underdeveloped
countries with rich endowments of oil and gas
have failed to tap into these reserves fruitfully
for their populations. Industry observers call this
the “resource curse.”
“Many national oil company advocates believe that the international oil companies are
here to rape, pillage and plunder their resources,” Ramaswamy says. “Well, that’s a one-sided
perspective that originates in nationalism. The
other side of the story is the fact that many of the
national oil companies are not adept at managing the energy resources they control.”
He says state-owned oil and gas companies
seeking a role model might look at the Abu
Dhabi National Oil Co. in the United Arab
Emirates. “They have done a good job of managing resources, investing in the right kinds of
things, building the right kinds of partnerships
with foreign oil companies and helping to uplift
the local population,” Ramaswamy says.
One of his current Corporate Learning clients
is Libya’s National Oil Corp., which operated for
years with limited exposure to the outside world
due to United Nations sanctions.
The repeal of these sanctions in 2004 triggered
opportunities for Libya to collaborate with companies from around the world, especially from
Europe, Australia and the United States. Thunderbird’s role is to help develop senior management programs to kick-start the talent development process within the company.
“It is a very exciting opportunity for us,” Ramaswamy says. “Assignments such as this will
help us bridge the mindset of national oil companies and their international counterparts.”
Land of the giants
Emotions often run high when people talk
about oil and gas, which can hinder reasonable
discourse.
“The industry is wildly misunderstood and
somewhat demonized,” Barrett says. “The role of
a university of this stature is to try to understand
the different perspectives. The alternative would
be to remain ignorant of one of the most important parts of the worldwide economy.”
The sheer size of oil and gas giants triggers
some of the cynicism. The world’s three largest nonstate-owned energy companies generate
more than $1 trillion a year in combined revenue. That kind of money brings power and influence, but also close scrutiny.
“It’s hard to find anybody who’s big and visible and important who is universally loved,”
Barrett says.
But size is unavoidable in oil and gas. Companies that run long-term projects involving sophisticated technology and huge capital investments in unstable political environments need
deep pockets to survive.
Inkpen says a single setback, such as nationalization of assets, would kill a small company
doing a single project in a remote country
“Size is a necessary part of the business,” Inkpen says. “If we didn’t have big oil, we wouldn’t
have oil.”
The industry is full of examples of what can go
wrong. The Soviet Union confiscated private oil
wells and factories in Azerbaijan after the revolution started in 1917. Iran kicked out British Petroleum in the 1970s. As recently as two years
ago, Venezuela seized ExxonMobil assets in that
country.
“This is why you don’t put all your eggs in
one basket, which is why you need very large oil
companies,” Inkpen says. “Very large oil companies can afford to be involved in multiple projects around the world.”
Oil and gas companies also need capital to develop technology and invest in massive projects
with long-term horizons. “You have to be very
well-capitalized to wait 20 years to see your billions of dollars invested today come to fruition,”
he says.
The stakes are high in oil and gas, which is one
reason Inkpen welcomes Thunderbird’s involvement.
“It is probably the most global industry in
the world,” Inkpen says. “And it touches on all
sorts of elements of what we do at Thunderbird
— managing political risk, financial risk and setting up organizations necessary to run a global
business.”
Enroll now
Thunderbird’s “Advanced Management Program for
Oil and Gas Industry Executives” will be offered Nov.
9-20 in Glendale, Ariz. For more information, contact
program director Joe Patterson ’08 at 602-978-7437. “The indus­
try is wildly
misunder­
stood and
somewhat
demonized.
The role of a
university of
this stature is
to try to un­
derstand the
different per­
spectives.”
oil & gas connection
Know your energy
Q&A with Thunderbird Professor
Andrew Inkpen
Andrew Inkpen
Professor of
Management and
the J. Kenneth and
Jeanette Seward
Chair in Global
Strategy
P
eople heat their homes and drive their
cars using oil and gas products. But many
people lack basic understanding about
where these products originate. “We don’t
know much about the energy we consume, where
it comes from and the impact it has on our lifestyle,” says Thunderbird Professor Andrew Inkpen, Ph.D. Here is a quick primer to boost your
“energy literacy.”
Q:
A:
Why do gasoline prices vary so much
around the world?
Prices vary because of government intervention in the markets. Gas taxes in the
United Kingdom make up more than 70 percent
of the retail price, which means gas prices in 2009
are more than $6 a gallon. In the United States,
taxes vary by state and represent about 25 percent
of the retail price in 2009. In Venezuela, the government caps the price of gasoline at about 16
cents a gallon.
Government intervention in the fuels market
leads to some strange regulations. For example,
customs officials check the fuel gauges of vehicles
leaving Singapore and require that fuel tanks be
at least three-quarters full, in order to limit the
importation of lower-taxed fuel from Malaysia.
Q:
A:
How do fluctuating oil prices affect
production and global supplies?
Q:
Besides gasoline and diesel, what other
refinery products come from crude oil?
Falling oil prices mean reduced profitability for oil producers. High-cost production areas, such as the tar sands of Alberta,
where each barrel of oil produced costs about
$50, will usually see a drop in production investment. Falling oil prices in the 1990s meant that
many marginal producers went out of business,
and other producers put projects on hold. As oil
prices rise, more production comes on stream,
although this can have the effect of increasing
supply and driving prices back down.
A:
Gasoline is the most important refinery
product in the United States, and diesel is
the most important refinery product in Europe.
Other products include heating oils; solvents;
propane; butane; kerosene for jet engines and
tractors; asphalt for roads and roofing materials;
coke for things such as electrodes and charcoal
briquettes; lubricating oil base stocks for motor
oils, industrial greases, lubricants and cutting
oils; petrochemicals used in the production of
plastics, synthetic fibers, synthetic rubbers and
other products; and residual fuels used by ships,
power plants, commercial buildings and industrial facilities for heating and processing.
Q:
A private individual or company can
own an oilfield in the United States.
How does this compare with other parts of the
world?
A:
In most parts of the world, the government owns the resources in the ground.
Companies that want access to these resources
must work through governments.
Q:
Where does the real power lie? With
big oil companies, OPEC or other sovereign states?
A:
As in any industry, competitive power
will be held by those firms and entities
that have scarce resources and knowledge. In
the oil and gas business, there are various scarce
resources: the oil and gas in the ground (the
reserves), the technology to extract the oil and
gas, the project management and logistics skills
to manage the development and production of
large-scale projects, and the people to lead the
development and production teams. OPEC
countries and other sovereign oil and gas producers have access to the hydrocarbon reserves
but, in most cases, lack the technology, management skills and leadership to develop their reserves. Thus, the power is shared between sovereign states and the large oil companies. Both
sides need each other.
oil & gas connection
Q:
A:
Why are oil and natural gas so closely
linked together?
The production of oil and gas share many
of the same technological and operational challenges. In the upstream part of the business, the exploration and drilling processes for
oil and gas are similar. As a result, it is logical that
the largest crude oil producers also have become
large gas producers.
Q:
What is the correlation between crude
oil prices and gasoline prices that motorists pay at the pump?
A:
Many people think crude oil prices drive
gasoline prices, but it generally works
the other direction. Crude oil prices rise and fall
based on the expected value of end products
such as gasoline and diesel and the available sup-
plies of crude to meet the demand for those end
products.
Reduced demand for refined products is
the primary reason crude prices have fallen
so much over the past year. In 2008, global
demand for all transportation fuels fell more
than 7 percent. Producers of crude, and OPEC
specifically, usually react by reducing production in an effort to restrict supply and drive
crude prices up.
Global oil podcast
Thunderbird Professor Michael Moffett, Ph.D.,
talked about global oil trends March 6 during
Homecoming. Listen to an extended excerpt
or download the file on the podcast page of
the Thunderbird Knowledge Network, www​
.thunderbird.edu/knowledgenetwork. Global oil & gas value chain
Upstream
Transportation
(exploration and production)
Oil and gas transportation systems require
sophisticated technology and planning.
The Chad-Cameroon project involved
laying 665 miles of 30-inch diameter pipe
buried one meter in the ground through
terrain that was environmentally sensitive.
When dealing with natural gas, the product
often must be converted temporarily to
liquid form (LNG) for storage or transport.
Long before oil and gas production begins,
companies must negotiate access to explore
in sovereign states and then to develop any
resources discovered. This process often
takes years or even decades. In the case
of the Chad-Cameroon project that came
online in July 2003, attempts to develop oil
resources in the region date to the 1960s.
Downstream
(refining and marketing)
Crude oil can be refined into a variety of
end products. Decisions are based on
market demands and the type of crude oil.
The oil and gas value chains sometimes
overlap downstream with the production of
petrochemicals.
Lease Access
Exploration
R&D
Development
Motor Fuels
(gas/diesel)
Oil Trading
Transportation
Ship, Pipeline
Refining
Lubricants
Asphalt
Production
Gas
Jet Fuel
Heating Oil
Oil
Petrochemicals
Gas Processing
Transportation
Pipeline
LNG
Liquefaction
Transportation
Ship
Specialty Chemicals
Commodity Chemicals
Gas to Market
LNG
Regassification
Source: Thunderbird professors Andrew Inkpen, Ph.D., and Michael Moffett, Ph.D., with information on Chad and Cameroon from a case study by Thunderbird Professor Ed Barrett, Ph.D.