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Procurement the “Apache Way”
PESA Supply Chain Forum
June 27, 2007
David French – Dir. of EH&S,
Procurement, and General Services
The following discussions contain certain “forward‐looking statements” as defined by the Private Securities Litigation Reform Act of 1995 including, without limitation, estimates,
expectations, plans and goals regarding Apache’s production, reserves, financings, acquisitions, exploration and exploitation prospects, energy prices, operating costs, and results of
operations. Such forward‐looking statements involve estimates, assumptions and uncertainties. No assurance can be given that Apache’s expectations or goals will be realized, and actual
results may differ materially from those expressed in the forward‐looking statements. For reconciliations of non‐GAAP financial measures, see our web site www.apachecorp.com.
Procurement the “Apache Way” CORPORATION
CORPORATION
The Apache story
Why our DNA makes procurement (particularly strategic
supply chain efforts) hard
What we chose to do…
Building to Last
Building to Last CORPORATION
CORPORATION
$1,500
$1,500 $3,000
$3,000
$1,000
$1,000 $2,000
$2,000
$500
$500 $1,000
$1,000
$35
$35 $177
$177
$0
$0 $0
$0
1991
1991 2006
2006 1991
1991 2006
2006
Note:
Note: Apache
Apache relocated
relocated headquarters
headquarters to
to Houston
Houston in
in 1992.
1992.
Time‐tested growth
Time‐tested growth CORPORATION
CORPORATION
MMboe
1,000 80
500 40
0 0
1991
1993
1995
1997
2005
1999
2001
2003
Reserves Production
Balanced Portfolio with International Presence
Balanced Portfolio with International Presence CORPORATION
CORPORATION
100%
100% %
% U.S.
U.S. Production
Production %
% Oil
Oil Production
Production
50%
50%
80%
80%
40%
40%
60%
60%
30%
30%
40%
40% 20%
20%
20%
20% 10%
10%
0%
0% 0%
0%
D
D FF G
G A
A B
B C
C H
H E APA
E P
APA
P APA
P
P B
APA B C
C A
A E
E FF G
G H
H D
D
Peer
Peer group
group consists
consists of
of APC,
APC, CHK,
CHK, DVN,
DVN, EOG,
EOG, NBL,
NBL, NFX,
NFX, PXD,
PXD, XTO
XTO
Portfolio Snapshot
Portfolio Snapshot CORPORATION
CORPORATION
Argentina
Argentina Argentina
Argentina
5%
5% 5%
5% US Offshore
US
US Offshore
Offshore Egypt US Offshore
Egypt
Egypt
Egypt 17%
17% 13%
13%
12%
12%
19%
19%
Australia
Australia
9%
9%
US
US Onshore
Onshore US
US Onshore
Onshore
Australia
Australia 20%
20% 27%
27%
N
N Sea
Sea
9%
9%
9%
9%
N
N Sea
Sea
12% Canada
Canada Canada
Canada
12%
18%
18% 25%
25%
Argentina 10.9 MM
Australia
2.5 MM
Full
Full Cycle
Cycle ROI
ROI 2002-2006
2002-2006 $/BOE
$/BOE 2002-2006
2002-2006
0%
0% 50%
50% 100%
100% 150%
150% 200%
200% 250%
250% $0.00
$0.00 $5.00
$5.00 $10.00
$10.00 $15.00
$15.00 $20.00
$20.00 $25.00
$25.00
Company
Company FF Company
Company BB
Apache
Apache Company
Company DD
Company
Company HH Company
Company G
G
Company
Company EE Company
Company CC
Company
Company G
G Company
Company AA
Company
Company CC Company
Company EE
Company
Company AA Company
Company HH
Company
Company DD Apache
Apache
Company
Company BB Company
Company FF
Peer
Peer group
group consists
consists of
of APC,
APC, CHK,
CHK, DVN,
DVN, EOG,
EOG, NBL,
NBL, NFX,
NFX, PXD,
PXD, XTO
XTO
Source:
: Bear
Source: Bear Stearns
Stearns &
& Co.
Co.
G&A per BOE ‐ 2006
G&A per BOE ‐ 2006 CORPORATION
CORPORATION
A
A pa
pacche
he
C
C oo m
mpa
pany
ny D
D
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pany
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pany
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pany
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pany
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mpa
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pany
ny B
B
$0
$0 .0
.0 00 $1.0
$1.0 00 $2
$2 .0
.0 00 $3
$3 .0
.0 00 $4
$4 .0
.0 00
Peer
Peer group
group consists
consists of
of APC,
APC, CHK,
CHK, DVN,
DVN, EOG,
EOG, NBL,
NBL, NFX,
NFX, PXD,
PXD, XTO
XTO
Source:
: Public
Source: Public Company
Company Data
Data
Building procurement with our DNA
Building procurement with our DNA CORPORATION
CORPORATION
Our company has grown through …which have implications if you want
some key principles… to build a sourcing effort
Speed: we bring barrels to market • World class expeditors, pockets of
faster than anyone and we reward sourcing efforts, lots of bidding
for best‐in‐class delivery • Collaboration across regions limited
or non‐existent
Entrepreneurship: local delivery • Processes are largely local (everyone
sets the tone; do what you need to figured out way to do their work)
do to “get ‘er done” • Relationships are local and strong
2006 Apache Spend by Category
2006 Apache Spend by Category CORPORATION
CORPORATION
Worldwide Spend
(US Dollars in Millions)
Operations
Operations Svcs
Svcs
Rigs
Rigs
Well
Well Svcs
Svcs
Operations
Operations Eq
Eq
Engr
Engr &
& Construction
Construction
Offshore
Offshore Logistics
Logistics
Tubulars
Tubulars
Operations
Operations Mtls
Mtls
Commodities
Commodities Total goods and services
Corp
Corp &
& Employee
Employee Svcs
Svcs
spending is ~ $5 billion
Rig
Rig Operations
Operations
Onshore
Onshore Logistics
Logistics
G&G
G&G
00 100
100 200
200 300
300 400
400 500
500 600
600 700
700 800
800 900
900 1000
1000
**2006 Egypt data excluded due to availability.
The Strategic Supply Management Continuum
The Strategic Supply Management Continuum CORPORATION
CORPORATION
The
The Strategic
Strategic Supply
Supply Management
Management Continuum
Continuum explains
explains the
the various
various stages
stages of
of aa
procurement
procurement organization’s
organization’s progression
progression from
from reactive
reactive and
and paper-based
paper-based to
to strategic
strategic
and
and collaborative.
collaborative.
STRATEGY
• Decentralized organization • ERP system automates transactions • Consolidated systems and reporting • Real-time connectivity with suppliers
• Paper-based and standalone • Procurement roles and • Formal sourcing teams and • Organization integrated with key
procurement systems responsibilities driven by supporting structure suppliers
• Numerous suppliers performance measures • eProcurement deployed • Data used as a basis for optimized
• No reporting • Informal sourcing teams • Electronic RFx tools in place decisions
• Formalized procurement organization • Optimized procurement
• Contract management system in organization
place
• Skills and category expertise • Skills and category expertise • Skills, category expertise
Knowledge vary by business unit or site controlled centrally coordinated across businesses
and sites
• Metrics used vary by business • Standard metrics used at • Standard metrics used
Performance unit or locale corporate level enterprise-wide, but support for
local variances
Source: Aberdeen Group 2005
Procurement Philosophy
Procurement Philosophy CORPORATION
CORPORATION
Success is driven by being a low cost and efficient operator.
Success is driven by being a low cost and efficient operator.
Apache maintains a strong “Sense of Urgency”
Apache maintains a strong “Sense of Urgency” in our business practices. Projects are
in our business practices. Projects are
initiated and completed on time and on budget. On time delivery is critical for success.
initiated and completed on time and on budget. On time delivery is critical for success.
“Tough But Fair”
“Tough But Fair” ‐‐ We believe in paying a fair price for quality materials, equipment and
We believe in paying a fair price for quality materials, equipment and
services we purchase. Suppliers must be competitive and qualified to perform.
services we purchase. Suppliers must be competitive and qualified to perform.
We believe in competition for business based on quality products, services, and price. We
We believe in competition for business based on quality products, services, and price. We
generally avoid “sole source alliances”
generally avoid “sole source alliances” and sole source relationships that might
and sole source relationships that might
compromise competitive pricing.
compromise competitive pricing.
We expect quality in all products and services and expect our suppliers to stand behind all
We expect quality in all products and services and expect our suppliers to stand behind all
products and services.
products and services.
We believe in “transparency”
We believe in “transparency” in all business transactions. Suppliers and employees are
in all business transactions. Suppliers and employees are
held to high ethical and legal standards at all times.
held to high ethical and legal standards at all times.
___________________________________________________________________________
___________________________________________________________________________
We believe that strategic sourcing through key suppliers will reduce costs and improve
We believe that strategic sourcing through key suppliers will reduce costs and improve
overall efficiency (e.g. we actively manage spending categories regionally and globally)
overall efficiency (e.g. we actively manage spending categories regionally and globally)
Procurement Roadmap
Procurement Roadmap CORPORATION
CORPORATION
Cumulative Savings
(% spend) Collaborate and
extend reach
Underpin with
systems
Build the
structure
• Rollout updated policy and • Electronically enable procurement, • Set in place more global benefit
procedures inventory management, and contracts agreements (opt-ins)
management (SAP)
Activities • Monitor channel use
• Build spend database
• Build our market intelligence
• Develop low cost sourcing strategies
• Move to center-led organizational • Train procurement team to use SAP for • Shift operational resources into
model primary job functions supplier adoption, strategic
sourcing, and contract compliance
• Train personnel throughout • Plan for SAP admin support
Organization applicable regions
roles
Strive to leverage spending globally (where applicable) for large non‐specialty
capital items
capital items (e.g. committed tonnage for casing, tubing, and line pipe)
(e.g. committed tonnage for casing, tubing, and line pipe)
Develop a managed set of trusted suppliers for most non‐pipe goods and services,
examples include:
- long term contracts and buyback agreements at the region and corporate level
with key suppliers for wellheads
- Regional market basket suppliers for valves, fittings, consumables
Identify and exploit “value added” opportunities with motivated suppliers (e.g.
combining purchase with freight, inspection, and return privileges to reduce
costs)
Leverage our understanding of inventory at the local levels to best utilize
reconditioned and reclaimed equipment; build a common platform for reference
Key messages for supply chain partners
Key messages for supply chain partners CORPORATION
CORPORATION
Apache is investing at a strong pace
We are very committed to building local, regional and (in some cases) global
trusted supplier relationships
trusted supplier relationships with energized, dependable partners
with energized, dependable partners
We welcome all innovations
We welcome all innovations in goods supply and service models and are willing
to push the envelop to insure quality, timely delivery in support of our business
The bottom‐line: we are a company highly motivated to create value and we
welcome all comers with that same desire
Key Ingredients to Apache Over 52 Years
Key Ingredients to Apache Over 52 Years CORPORATION
CORPORATION
Raymond Plank’s basic tenets (founder and Chairman)
Values are Your Compass;
Values are Your Compass; Words to live by
Words to live by
-- Sense of urgency
Sense of urgency -- ““ Leave the world a little better than you found it ”
Leave the world a little better than you found it ”
-- Strong work ethic
Strong work ethic -- ““ Take the difficult steps first ”
Take the difficult steps first ”
-- Self‐respect
Self‐respect -- ““ Beaten paths are for beaten men ”
Beaten paths are for beaten men ”
-- Open & direct
Open & direct -- ““ Don’t build your house to look down on others ”
Don’t build your house to look down on others ”
-- Build up rather than tear
Build up rather than tear -- ““ Conduct yourself accordingly ”
Conduct yourself accordingly ”
down (“not for sale”)
down (“not for sale”) Individuals ‐
Individuals ‐ Avoid arrogance and self‐serving
Avoid arrogance and self‐serving
actions
actions
Countries ‐
Countries ‐ We’re the guest; they’re the host
We’re the guest; they’re the host
Governments –
Governments – Avoid irresistible temptation to
Avoid irresistible temptation to
micro‐manage others’
micro‐manage others’ affairs (honor their
affairs (honor their
practices)
practices)