How a Norwegian oil major with little US onshore experience integrated a Texas independent and its Bakken shale assets seamlessly into the company.
In December 2011, Statoil acquired Austin, Texas-based Brigham Exploration bringing with it the third major shale asset to its US onshore portfolio after entering the Marcellus in 2008 and Eagle Ford in 2010. The all-cash $4.4 billion acquisition was a milestone in Statoil's strategy to accelerate operatorship experience in the US onshore as well as enhancing the portfolio with light tight oil in North Dakota's prolific Bakken formation.
While the Norwegian-based company is one of the world's largest deepwater offshore operators, Statoil was relatively new to the US onshore. To ensure that the key success factors in creating a top tier US onshore business would be fully ingrained, Statoil carefully designed a post-acquisition integration strategy which aimed at retaining the flexibility of an independent, but with the consistency and resources of a major. With the Statoil-Brigham integration almost 100% complete, this article outlines the strategy and approach utilized by Statoil.
Statoil's Global Strategy and Business Development team and Brigham Exploration's management had been in talks for almost a year before closing the acquisition. While there were other suitors, Statoil was one of the preferred acquirers. Brigham's management team not only liked the distinct technology profile and health, safety, and environment (HSE) orientation of Statoil, it also trusted that Statoil's plan for the business and particularly the personnel was robust.
Statoil's value visualization of the acquisition was strategic, with access to strong industry talent and technological know-how, prime Bakken acreage, and a growing and valuable midstream business. In addition, upsides included: the application of enhanced oil recovery techniques; identifying new shale horizons; applying new technology in the basin; and combining Statoil's robust management system with an experienced onshore operating capacity that could be applied to new shale operatorships.
Brigham Exploration had approximately 100 employees based in Austin and in Williston, North Dakota. To absorb this business into a 21,000-employee company while accessing, learning, and retaining key personnel required a specific integration strategy. With the "people dimension" a strong part of the deal, there was an emphasis on retaining key talent, and transferring competence to the rest of Statoil was emphasized.
The foundation for the acquisition was strong. It was a friendly takeover, thus removing the headlines and entrenchment often associated with hostile acquisitions. Executive management from both companies had met on several occasions. The time from announcement to closing was less than six weeks. With such a rapid timeframe, it was essential from the start to build relationships with the legacy Brigham management team and develop mutual trust.
The key strategic direction from Statoil's executive management and board of directors was clear:
- From Day 1, the Brigham organization would become an integrated unit in Statoil's US Onshore Business Cluster, and would be called the Bakken Business Unit.
- Safe and continuous operations must remain a priority. Statoil's HSE and financial standards should be the first corporate functions to be integrated.
- The integration should win the "hearts and minds" of the former Brigham organization and build positive connections and networks with the greater Statoil.
- Experienced Statoil personnel were to be recruited into an integration team and inserted into the organization to learn the business as well as teach Statoil's management system.
- Fit for purpose processes were to be designed, together with the Marcellus and Eagle Ford asset teams, to provide a common operating model for US and global shale operations.
- Finally, the integration should be gradual and continuous over a two-year period.
The most important first step in the integration was to ensure that the right team was in place. Statoil's integration team consisted of 10 legacy Statoil employees covering health and safety, legal, land, subsurface, drilling, midstream, human resources, finance, communications, and the integration manager. Each was picked from the company's talent pool from six different locations where they had exhibited expertise within their disciplines. These individuals were also picked based on their own personalities including a cultural understanding for the specific integration context.
"Statoil's integration team consisted of 10 legacy Statoil employees covering health and safety, legal, land, subsurface, drilling, midstream, human resources, finance, communications, and the integration manager. Each was picked from the company's talent pool from six different locations where they had exhibited expertise within their disciplines."
Winning hearts and minds starts with people and personalities, essentially understanding how others perceive you and how you can best influence others. To gauge lessons learned from previous M&A experiences (including Hydro's acquisition of Spinnaker Petroleum in 1999, Statoil's acquisition of North American Oil Sands Corp. in 2007, and the Statoil-Hydro merger in the same year), an internal study was undertaken to interview legacy employees from all companies. The key highlights included:
- Be transparent at the very beginning about the plan for the business and seek early involvement from important stakeholders.
- Do not underestimate the people perspective as a success factor.
- Ensure business continuity through a multi-faceted retention strategy.
- Carefully orchestrate the implementation and consider carefully the pace and amount of change.
With these lessons as a basis, the integration team also ensured that there was an external orientation to the integration strategy. With support from Statoil's corporate strategy team, a competitor analysis was developed to look at strategies, successes, and failures among industry competitors. The external orientation was also maintained through engaging the consulting firm Accenture to advise on the integration strategy, based on the firm's considerable experience, as well as supporting the project office.
There was also the personal humility dimension to the integration. Most of the integration team, in the course of their careers, had experienced the effect of M&A activity. Reflections on their own personal experiences were encouraged: What did they feel when hearing the announcement of an acquisition or merger? What was the reaction of their colleagues? How did management communicate this process? How long did the process take? What were personal experiences of "Day 1" and meeting new colleagues? All these personal reflections helped add that element of self-insight which is a central management theme within Statoil and resonated particularly strongly in an integration context.
The integration team's strategy was a phased approach. This choice was supported by the new Bakken management team, consisting mainly of legacy Brigham employees. Ensuring support from this management team across all aspects of the integration was a consistent principle throughout the integration work and proved to be a key success factor.
The four integration phases
Phase 1: The people dimension
This was all about first impressions. The integration team had to build trust with new colleagues and explain who they were, their backgrounds and personal experiences in Statoil. From Day 1, management outlined the Statoil values inherent in the company: courageous, open, hands-on, caring. These values are at the core of Statoil's management system. The values resonated extremely well with legacy Brigham employees and became an anchor to align culture across the two companies. The newly formed Bakken business unit was also ring-fenced to avoid overwhelming the organization. Complete focus on safe and continuous operations was essential. Full access to Statoil systems was to come later.
Phase 2: Understand the business
To really embed the integration team fully and get to the heart of understanding the business model, each member had to be a team player and contribute in their functional departments. The objective was that the integration team could learn the business, and perform an "as is" assessment of the business to highlight best practice and where improvements could be made. After assessing the work processes and systems, and in consultation with the other assets, Statoil management defined the "to be" solutions which would set the standard across Statoil's US onshore assets.
Phase 3: Change management
In Phase 3 the ring-fence around the Bakken asset was removed, which allowed for full access to Statoil systems. In addition, the "to be" systems were implemented. Within the first year of the acquisition, Statoil had doubled Bakken oil production and increased the headcount by 50%. The existing Brigham systems were insufficient for this business scale, and lacked integration into key Statoil IT solutions. After identification of fit for purpose US Onshore IT systems, a project team from Statoil's Global Business Services unit, were tasked with full systems integration across the US onshore business. During this process, intense focus on change management was essential to ensure acceptance, implement best practices and capture efficiency gains.
Phase 4: Post-integration continuity
In the final phase of the integration, it was important to guarantee that once the integration team was pulled out of the project, that post-integration continuity was ensured. The emphasis was about processes, people and networks. For the process side, pattern recognition with Statoil's management system was essential and had been institutionalized throughout the entire integration period through training and consistent use of Statoil performance tools which focus on individuals and their influence on the goals of the business unit. For people, ensuring robust onboarding of new Statoil employees was emphasized as well as encouraging talent rotation across US onshore assets. For networks, functional teams across assets and locations started to meet regularly to share learning and manage consistency and best practice. A continuous message during this phase was that integration is a journey, not a destination.
To check the progress of the integration, within six months all Bakken employees were invited to participate in an anonymous survey on their satisfaction with the integration. Over 80% of respondents believed that "the integration was going well and that the overall effect of the changes since the start of the integration on my day-to-day work has been positive." Around 91% "positively identified with Statoil as a company" and over 80% felt that the "frequency and quality of communication concerning the integration met needs and expectations." By the end of the first year focus groups, organized by Human Resources, were established to allow for more nuanced reflections and suggestions on the direction of the integration. A repeated comment from these focus groups was that they wanted to accelerate the pace of the integration, reflecting a pull towards integration rather than a push.
In many respects, the Brigham integration was not the only integration within the US onshore business area during 2013. The build-up to operatorships in the Eagle Ford and Marcellus meant recruitment at the Houston office was increasing rapidly. With the accent on previous US onshore business experience and a preference to build a local staff, most new recruits into Statoil's US onshore business came from other companies. Pulling together this "melting pot" of corporate profiles in Houston, Austin, and Williston and ensuring consistency and interaction with corporate staffs in Norway represented a distinct challenge. Promoting a "One Statoil" culture remained a continuous goal for Statoil's US onshore management team.
To embed the Statoil culture within the US onshore business a special initiative inspired from the company's Brazil office was established to engage the organization around a distinct theme and shared vision for US onshore. As part of this initiative regular off-sites were arranged to bring together staff across all locations to ensure a common understanding of the business strategy and goals. These events were very successful for building informal networks and fostering integration in its broadest sense.
At the beginning of the integration in late 2011, Statoil's integration team outlined a number of success factors that they wanted to realize two years down the line, once the integration was complete. These goals included: a strong retention rate; safe, profitable production growth; extracting best practice and knowledge-sharing with other assets; becoming a top tier operator in the Williston basin and foster strong community relations; become a recognized and strongly admired asset in Statoil's global portfolio; drive returns through technology and cost efficient operations; provide shareholder confidence that Statoil has a distinct M&A skill set.
On reflection, the success of the integration had gone beyond expectations with an extremely high retention rate, production more than doubling, a clear management model, and a talent pool ready for Statoil's growing international shale business, new technologies being applied in the Bakken through Statoil's global experts, but most of all an energy level and 'pull' on integration from the legacy organization which has exhibited a distinct "x factor" within this integration project which will drive value for years to come.
About the author
Stephen Bull is vice president for the Bakken Integration in Statoil's US Onshore business area. He has worked with all Statoil's shale assets as the commercial vice president and has a background in strategy and business development. He holds a masters degree from the London School of Economics in the UK.
Statoil is an international energy company with operations in 36 countries. Building on more than 40 years of experience from oil and gas production on the Norwegian continental shelf, the company is committed to accommodating the world's energy needs in a responsible manner, applying technology and creating innovative business solutions. Statoil is headquartered in Norway with about 21,000 employees worldwide and is listed on the New York and Oslo stock exchanges.
Statoil in the United States
One of the largest holders of deepwater acreage in the Gulf of Mexico with production from three fields and participating in seven field developments.