Solution

Executive Summary

This Corporate Award Program Integrative Report generates a basis for commercial negotiation for Petroleum Development of Oman (PDO). Through a focus on integrated petroleum engineering services spend category, available factual data, techniques and strategies guiding the negotiation have been reviewed. The basis of the negotiation plan is supported by reference to different models, theories, tools and techniques. Their use is informed by their relevance in the different negotiation plan phases. The integrated petroleum engineering services (IPES) has been used as spend category owing to its relevance in subsurface field review and modelling activities in Oman. This is for maturating oil resources which directly impact on the oil and production and field recovery. Also, effective negotiation of IPES assists in management of complexity and uncertainty in oil and gas exploration and production. This lead to optimisation of oil fields productivity, maximisation of oil-field revenues, minimising cost-intensive interventions and increasing recoverable resources.  Also, IPES has a direct implication in enhancing a long-term performance with an increased collaboration and continuous tracking of progress in the entire oil-gas operations (exploration, development and production).

The outcomes of this integrative report evidence that PDO negotiation plan is a combination of various steps (Plan, Open, Propose, Bargain, Agree and closure), different considerations made and a set of guidelines pursued. The internal factors and external factors in their business environment have similarly been reviewed by application of SWOT analysis and STEEPLE, Porter’s 5 Forces have been used. The importance of different stakeholders including the suppliers and other players in the negotiation process has been revied by application of Mendelow Matrix analysis,  5 Rights of Procurement, 3P’s triple bottom-line among others. In PDO, the PS&M is used in guiding the entire process of negotiation with collaboration with different stakeholders. This has informed the need for capacity development for improving their capacity to manage the processes. By having the appropriate skills and knowledge, they would manage the achievement of BATNA from the negotiation process.

Based on the gaps identified in this integrative report, various recommendations have been generated which are;

• To provide capacity development opportunities for the PS&M teams to improve their BATNA technique
• Effectively restructure their PS&M system to clearly stipulate the different stakeholders roles in the negotiation process
• Develop specific terms and conditions specifications to guide the negotiation process which would increase the success of negotiation with minimal dispute
• For harmonising the negotiation process, negotiators financial viability, risks management and leveraging on the competitive advantage in oil and gas sector need to be prioritised as part of setting the pace of negotiation. Plan

Table of Contents

1.0 Introduction. 4

1.1 Purpose of this Report 4

1.2 Petroleum Development of Oman Organisation Background. 5

1.3 Selected Categories of Spend by PDO. 6

2.0 Negotiation Plan. 8

2.1 RACI Framework. 9

2.2 Stakeholders Analysis. 11

3.0 Negotiation Plan for PDO IPES Spend Category. 14

3.1 Preparation and Planning. 14

3.1.1 SWOT Analysis (Internal Factors Analysis) 15

3.1.2 STEEPLED Analysis. 16

3.1.3 Best Alternative to Negotiated Agreement (BATNA). 17

3.1.3 Negotiation Approaches 18

3.2 Definition of ground rules (Opening) 20

3.3 Clarification and Justification (Testing) 21

3.3.1 4R’s Model Adoption Analysis. 22

3.4 Bargaining and Settlements. 24

3.5 Agreement and Closure. 24

4.0 Developing Contracts. 24

5.0 Conclusions and Recommendations. 25

5.1 Conclusions. 25

5.2 Recommendations. 25

References. 27

Appendices. 30

Appendix 1: PDO Terms and Conditions Summary. 30

Appendix 2: Appropriate environment strategy. 34

Appendix 3: Kraljic Matrix Analysis. 34

Appendix 4: Phases of the Procurement Approach. 34

Table 1:PDO IPES Category of Spend Sub-Categories. 8

Figure 1:PS&M Negotiation Reasons. 5

Figure 2:PDO Summary of PS&M Organisation Structure. 7

Figure 3:PDO Summary of PS&M Organisation Structure. 8

Figure 4:Key Considerations of the Procurement and Supply Strategy. 10

Figure 5:Summary of the RACI Matrix. 11

Figure 6:Summary of the Stakeholders Types. 13

Figure 7:PDO Stakeholders Analysis Summary. 14

Figure 8:Negotiation Phases Summary. 15

Figure 9:Preparation and planning for negotiation. 16

Figure 10:SWOT Analysis Summary. 17

Figure 11:BATNA Agreement 19

Figure 12:5 Rights of Procurement Model 22

Figure 13:PDO IPEs Category Management 4R’s Model Summary. 23

Figure 14:Supplier Preferencing Matrix. 24

1.0 Introduction

In modern business environment, contracts management is important for organisations success. Despite of this, Abdalslam (2023) report note that 80% of organisations have had challenges in contract management at some point. This is with 70% of organisations noting on struggling in accessing and managing contracts efficiently while 60% have failed in terms of negotiations contributing to lost/unenforceable agreements.  According to CIPS (2023), these hindrances to successful contract management narrows down to success in stakeholders relationship and coordination in their operations. For all these stakeholders, negotiations ought to be used in ensuring that they achieve a mutual understanding and agreement. A summary of the reasons of negotiations and the factors put into account is as illustrated in figure 1;

Figure 1:PS&M Negotiation Reasons

Hence, as illustrated in figure 1, by focusing on aspects of costs, value, performance, conflicts, problem, quality and agreement, negotiations are instrumental for an organisation. For instance, in PDO, these reasons aid success in ethical delivery of majority of commercial outcomes of PS&M strategies enabling the organisation in delivery of their business objectives.

1.1 Purpose of this Report

This integrative report offers a background of a formal commercial negotiation for integrated petroleum engineering services (IPES) spend category. The negotiation plan is backed with formal reports, data, facts and strategies and the terms and conditions of the contract implementation (see appendix 1). The effectiveness of the negotiation plan in implementing IPES sourcing on time, effective communication and engagement and sustainable stakeholders relations has been established. The tools and techniques which have been adopted include and not limited to Mendelow Matrix Analysis, 5 Rights of Procurement, Kraljic Matrix, 3P’s Triple Bottom Line, BATNA. Further, SWOT, STEEPLE, Porter’s Analysis have been used in PDO identified spend category. From the different gaps identified in this report findings and conclusions, relevant recommendations have been generated.

1.2 Petroleum Development of Oman Organisation Background

Petroleum Development of Oman (PDO) leads in exploring and production of oil and gas products in Sultanate of Oman. The main objective of PDO is to deliver in optimum Oman crude oil production and natural oil and gas supply (PDO, 2023). This is important to increase delivering, growth approaches and sustainable value development in the overall industry and all sectors in the country economy. In regard to the organisation ownership, it is majorly government owned at 60%, Royal Dutch Shell (34%), Total Corporation 4% and PTTEP (2%). The ownership of the company influence the success of contract development since they all constitute major stakeholders included in the process. In terms of the organisation operations in Oman, its target is upto 90,000km2 with more than 300 production oil fields, 60 productivity gas fields, and 10,000 actively operating oil and gas wells. Further, as illustrated in PDO (2023a), the organisation prioritise on inclusion and diversity to engage an upward of 10,000 staff from more than 50 nationalities with PS&M engaging more than 10,000 direct and indirect suppliers. Hence, the Procurement and Supply Management Development (PS&M) plays a critical role in ensuring the organisation is successful. As a best practice, the organisation embrace In-Country Value (ICV) policy in ensuring that they successfully implement their sourcing strategy, recruitment and selection of best employees (Al-Alawi & Matriano, 2021). By pursuing this approach, they maximise value in sourcing of localised goods and services hence improved ability and capacity for Omanis and local companies for maximum commercial gain by Sultanate of Oman.

The PDO PS&M department structure is classified into various tiers as illustrated in figure 2. They include the organisation procurement and supply management (PS&M) leading this structure with different affiliate and tender issuance, managing stakeholders interests and integrating technologies as part of their operations. The identified organisation structure is instrumental in maximising the organisation long-term performance with collaboration and continuous tracking of progress in the oil-gas operations (explore, develop and produce).

Figure 2:PDO Summary of PS&M Organisation Structure

1.3 Selected Categories of Spend by PDO

For PDO, similar to CIPS (2023a) classifications of spend categories, three major areas are used (see figure 3). These categories are direct materials, indirect materials and services. For the direct materials, these include an organisation daily practices including facilitating employees, health and safety measures and packaging materials. For indirect materials, these are vehicles maintenance, onshore and offshore operations. Most critically, the identified categories of spend are influenced by stakeholders relations, policy and procedure put in place, risks management and hindrances with quality and efficiency of products and services provision to meet end-users preference prioritised.

Figure 3:PDO Summary of PS&M Organisation Structure

From figure 3 summary, categories of spend identified impact ability to drive value for the procurement and supply management (PS&M) strategy. According to CIPS (2022) differentiation of distinct spend categories assist to narrow down priority and ensuring entire categories are popularised. Considering the author position in PDO which include collaborative working with PS&M to facilitate sourcing and provision of IPES category. The spend category is important since the last amount of spend was a total of OMR 2,373,890 which is a substantial amount of budget by the organisation. The related categories of spend by PDO as shown in table 1 represent the different subcategories of IPES spend category.

Table 1:PDO IPES Category of Spend Sub-Categories

2.0 Negotiation Plan

In PDO, the formal negotiation plan is informed by the procurement strategy which is adopted in an organisation. According to Gates (2022), an effective procurement process is influenced by the procurement cycle which illustrate the various phases which has a direct influence on the efficiency of the process. A significant aspect is an embrace of competency in various procurement stages and to ensure entire organisation objectives are achieved. In figure 4, the procurement cycle is provided evidencing on the most appropriate strategy. At the start of the implementation, entire specifications are noted with their alignment with organisation objectives noted.  At this stage, all needs and opportunities of the various stakeholders engaged is identified with specifications highlighted. This is inclusive of engaging different stakeholders from the start to averse potential delays and bottleneck items. The specifications development in the IPES spend category entail an evaluation of entire counterfeits, people skills, quality requirements, sustainable-based practice, all stakeholders inclusion, innovation embrace and using technology.

Figure 4:Key Considerations of the Procurement and Supply Strategy

For PDO, in majority of the requirements in figure 4, they are significantly adopted being procurement and supply cycle. The PDO phases include defining their business needs, analysis of their market of operation, planning and strategizing, documentation, issuing tenders, performance improvement and logistical challenges management. PDO ensure that their stakeholders interests are prioritised core for positioning organisation negotiation strategy and harnessing the PS&M efficiency. Further, to achieve a holistic stakeholders analysis, actively engaging different individuals and promoting a holistic sourcing plan is prioritised.

2.1 RACI Framework

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