Negotiation-Commercial Commercial Academy COHOT ... - Petronas · PRE Negotiation - Preparation 14...

© 2010 PETROLIAM NASIONAL BERHAD (PETRONAS)

Module 5

Negotiation-Commercial

Commercial Academy – COHOT 14

11 March 2017

Updated/revised by : Faziah Talib Head Commercial – Sudan

Date: 1 March 2017 1Open


Module 5

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MATEO CUP CAKES…..


Module 5

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MATEO CUP CAKES…..

Observe the following:

The deal

Negotiation Style

Body language

© 2010 PETROLIAM NASIONAL BERHAD (PETRONAS) 4Open

Presenter

Faziah Talib

Head Commercial (Sudan)

Strategy and Commercial

Upstream Business

PETRONAS

Negotiation - Commercial


According to Gerard Nierenberg

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NEGOTIATION MODULE


PRE

DURING

POST

1

2

3


“ In a successful negotiation everybody wins”

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1. PRE

• WHAT IS NEGOTIATION

• WHY NEGOTIATION

• NEGOTIATION PREPARATION

• TRAITS OF GOOD NEGOTIATOR

• NEGOTIATION TEAM

© 2010 PETROLIAM NASIONAL BERHAD (PETRONAS) Open 7


What is negotiation ?


According to Gerard Nierenberg

Negotiation……………

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• A joint decision making process between 2 or more parties

• Each party has something The Other Side WANTS/NEED

• Involves a process of resolving conflicts between parties

• The intent is to reach a mutually agreed solutions or mutually satisfactory objectives (win-win and happy with the agreement)



Why do we negotiate ?


To achieve desired results of Win-Win positions in order to…

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Why do we negotiate ?

To achieve desired results of Win-Win positions in order to…

Contribute to growth and success

Build better relationship/rapport

Reach mutually agreeable solutions together

Negotiations play a major role in all aspect of our professional and personal lives.

PRE Negotiation - Preparation

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Clear objective on the DEAL

Know your opponent

Formulate Strategies& Tactical Plan

Build Negotiation team

Set clear Agenda and execution plan –be in control

Lack of preparation often result in unexpected outcome which may not in our favor- Rule of thumb is to Invest at least 3X you expect to negotiate

5 Essential Steps


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Know and understand exactly what your want and need

How to achieve the deal

1. Clear objective on the DEAL


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Know and understand your TOS want and don’t want

Insights on TOS negotiation team and the team leader

i.e. profiling

Ability and know how to manage TOS

2. Know your opponent (the other side –TOS)


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Defining the goal and set a limit (negotiation ‘blanket’)

Availability of relevant data/record , risks analysis and

mitigation plan, valuation analysis based on organization

approved assumption, economic market, geopolitical etc.

Develop options/Deal Design

Trading plan or concession (if required)

Negotiation Style and internal team syndication

Obtain mandate/authority from management

3. Formulate negotiation strategies and tactical plan

Skilled negotiators should always be ready to alter/tweak their planned strategy/tactics in light of new information.


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Build cohesive negotiation team

2 Teams

– At the negotiation table negotiating with TOS

- Back room analysis team e.g. research group, strategic

planners, accountant, economics, technical team,

strategic communication team, risk profiler etc.

4. Negotiation Members/Team


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Defining and set clear agenda and execution plan from

start through closing

Be in control by willingness to take minutes of negotiation

and drafting the agreement

Agree on timeline and duration of the negotiation

5. Set clear agenda and execution plan (be in control)



Not studying up on all the issues and procedures necessary to accomplish the negotiation goals can be very costly.

i. Buys the wrong companyii. Buys it at the wrong timeiii. Pays the wrong price for the acquisitioniv. Deal aborted

Inadequate preparation can leave the negotiation team with an information deficit, which The Other Side party may be only too happy to take advantage of the situation.

Toll of not preparing


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Knowledge Skill

Attitude

• Listening• Effective Communication• Problem Solving • Rapport building• Sense of Humour

• Commercial Savvy i.e in depth knowledge of your respective ‘functional’ and to have a breath of other arrears (legal, finance, global view, operation etc.)

• Influence Technique• Conflict Management• People Management

• Professional and credible• Assertive and decisive• Self discipline and creative• Patient and careful listener• Open minded • Self Discipline• Flexible • Highly ethical

PRE- Traits of Good Negotiator

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Chaos reigns in the New York City subway system when heavily armed criminals, led by a mastermind named Ryder (John Travolta), hijack a subway train and threaten to kill everyone on board unless a large ransom is paid. Dispatcher Walter Garber (Denzel Washington) uses his extensive knowledge of the transit system in a bid to outwit the hijackers and save the hostages

What can you learn from the Video?

GENERAL DISCUSSION

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What are your observations about this

negotiation that are relevance to E&P Core

Commercial negotiation?

How would you define negotiation?

OBSERVATIONS

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1. 2 parties or more2. Small Talk (Breaking the Ice)3. Discussion/Negotiations4. Proposals & counter proposals5. Demands6. Profiling7. Threats8. Bluffing9. Power of Silence10. Seeking Mandates


What is your negotiation style ?

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PRE- Negotiation


What is your negotiator style ?

Which Are you ….

A Donkey ?

A Sheep ?

A Fox ?

An Owl ?

Administer the questionnaire

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Who are you ?

So which profile reflect

you ….

Answer

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Please answer the questionnaire provided in the manual.


Not

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PRE – Build Negotiation Team

Negotiation Members & Team – Everyone has important role to play……

Team Leader

Technical Expert

Commercial Expert

Other functional team e.g. Legal, Finance, Tax. PEC,

Strategic Planning, Risks, M&A etc.


PRE – Negotiation Team

Negotiation Roles in a Team

Team Leader

Critic

(Bad Cops)Observer

(Watch the temperature

of TOS)

Builder

(Deal creator / consolidator)

Recorder

(Scriber)

Expert

(Provide evidence)

Relater

(Relationship & Mediator)

There are many roles to be played in negotiations especially high-value stakes , international politic etc.


Team Leader (TL) - Coordinate of the team - The main ‘face’ of negotiation team- Senior person who has authority to make decision

Critic - “Bad Cop” of the team- Internal team (in private) & the other side (TOS) focus

Relator - “Good Cop” of the team- Relationship & may act as mediator

Expert - Provide evidence- Part time only

Recorder - Scriber of the team- Confirmation of the exact deal agreed

Builder - Putting a package deal in exchange with TOS- Seeks the truth and act s sounding board to Leader

Observer - Attention to subtleties of words & non-verbal body language

- Temperature of the TOS & internal

Neg

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sPRE – Negotiation Team



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2. DURING

• NEGOTIATION STRATEGY & PLAN

– POSITION VS INTEREST

• WHAT IS YOUR ‘BATNA’ ?

• NEGOTIATION TEAM ROLES


DURING …..

POSITION

1.WHAT?

2.WIN/LOSE,LOSE/WIN,

LOSE/LOSE

3. SCARCITY MINDSET

4.DEFENSIVE- GET PERSONAL

5.COMPROMISE

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INTEREST

1.WHY?

2.WIN/WIN

3. ABUNDANCE MINDSET

4.OPEN - SOLUTION FOCUS

5.RESOLUTION

VS


NEGOTIATION METHODS

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DURING ….

PEOPLE vs PROBLEM

INTEREST VS POSITION

OPTIONS

CRITERIA- OBJECTIVE


NEGOTIATION METHODS

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DURING …..

CRITERIA- OBJECTIVE

1.QUANTITATIVE

STANDARD

2.QUALITATIVE

(INTEREST)

PROCEDURE


Power and Need move opposite directions. Power and tend to play power game.What can you do?

Develop BATNA.—point at which you walk away.Song—“The Gambler”. Before going in already set BATNA.

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DURING……

POWER

NEED

BATNA

B

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LTERNATIVE

O

EGOTIATED

GREEMENT

Power and Need move opposite directions

IF YOU DON’T WANT TO PLAY

Develop BATNA - point at which you

walk away.Higher Power

Play power game & a ‘bully’Can you afford to

walk away?Higher need less power. Case: In properties market -

look for motivated sellers


Power and Need move opposite directions. Power and tend to play power game.What can you do?

Develop BATNA.—point at which you walk away.Song—“The Gambler”. Before going in already set BATNA.

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DURING……

POWER

NEED

BATNA

B

A

T

N

A

EST

LTERNATIVE

O

EGOTIATED

GREEMENT

IF YOU DON’T WANT TO PLAY

Power and Need move opposite directions.

• Higher need less power. Case: In properties market - look for motivated sellers

e.g. upgrading house and need cash, divorce etc.

• Higher the Power - tend to play power game & a ‘bully’

What can you do?

Develop BATNA — point at which you walk away.

e.g . Hijackers—they know your BATNA is to storm them. In their interest they will not to cross the line.

Can you afford to walk away?

Case: IOC – ranges of investment portfolio namely other deal await, soft dollar - provide training, technology transfers, assets trade off


DURING ….

• Open discussion on neutral subject

• When holding back, assure The Other Side (TOS) that efforts are

made to reach a mutually agreeable turn-out.

• Respect The Other Side’s experience and expertise

• Frame the task positively, “ as a joint effort “

• Emphasize your openness to The Other Side’s interests and

concerns.

• Present clear explanation for any complex issues

Bridges of Rapport…


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1. Aim for the best deal

In summary……

Negotiation Team

2. Get the other person’s ‘shopping list’

3. Keep the whole package in mind.

4. Keep Searching for Variables

Always maintain good relationship with TOS……



Some of the Guiding Principles …..

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55%38%

7%

Visual body language( gestures, postures, facial expressions)

Non Verbal /Vocal( tone, pitch, pace)

Words ( content)

Body language speaks louder than words

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Research revealed 3 elements…

DURING …..


‘Body language’ is core for Ice Breaking and rapport building

“SOFTEN”

S :

O :

F :

T :

E :

N :

Immediate signal that your purpose is not to do harm

body posture make you appear relax and accepting others

Proximity sends a message of liking and responsiveness

Appropriate pat indicate empathy and can bolster negotiations

Reflect that you are trustworthy, believable and responsive.

Shows you are listening , processing and encouraging the deal conversations.

Source: Successful Negotiation by Ginny Pearson Barnes, Ed.D.

Smile

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Forward lean

Touch

Eye Contact

Nod

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51Source : Slideshare Mohamed Mahmoud , Teaching Assistant at Egyptian E-learning UniversityOpen


4 Tips for reading body language in a negotiation

Dr Carol Kinsey Goman, Author of the silent language of leaders i.e. How body language can help or hurt how you lead.

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DURING …….


4 Tips for reading body language in a negotiation

Key Observations/Discussion:

1. Pay Attention

2. Identify A Baseline

3. Consider the Context

4. Evaluate Gestural Clusters

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DURING ………

© 2010 PETROLIAM NASIONAL BERHAD (PETRONAS) Open

Non Verbal Negotiation Gestures

Nervousness ThinkingAcceptance

Suspicion

Alertness Expectancy

Frustration

Frustration Boredom

Suspicion

Confidence

Thinking

Suspicion


ObservableSigns

Dominance and Power• Placing feet on desk• Making piercing eye contact• Putting hands behind head or neck• Placing hands on hips• Giving a palm-down handshake• Standing while the other side is seated• Stippling (fingertips touching)

Non Verbal Negotiation Gestures

Submission and Nervousness• Fidgeting• Making minimum eye contact• Touching hands to face, hair, etc• Using briefcase to “guard” body• Giving a palm-up handshake• Clearing throat

DURING ……


DURING …….

Body Language – Do’s & Don’ts/Good Manners


DURING ……

Body Language – Do’s & Don’ts/Good Manners

Key Observations/Discussion:

1. Position Of Shoulders

2. Hands/Fingers Actions

3. Standing Still/Stationary

4. Feet Position.


DURING …

Typical Agreements - Negotiations in the Upstream Business

are:

• Production Sharing Contract (PSC/EPSA)

• Joint Operation Agreement (JOA)

• Gas Sales Agreement (GSA)

• Common Facilities Sharing Agreement (FSA)

• Pipeline and Transportation Agreement (COPA/COTA)


PSC /EPSA – Blocks Acquisition

1. Direct negotiation with NOC

2. Participate in the Open Bidding

3. Acquire the company (target co.) having the block

(M&A)

DURING ….

Organic Growth

Inorganic Growth


DURING …….

Example: Areas open for negotiation in the PSC

PSC Fiscal Terms – Subject to law of the country

• Cost Oil and Profit Oil rate between Contractors

& Government

• Petroleum Income Tax rate and payment

• Minimum PSC Commitment & penalty

• Abandonment & Decommissioning arrangement


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DURING …….

Typical PSC Split (Host Government and PS Contractor)

Total Production (TP): 100 Barrels

Cost Oil (CO) : 60% (TP) = 60 Barrels

Royalty (R) : 10% (TP) = 10 Barrels

Profit Oil (PO) : TP - R – CO =30bbl

Petroleum Income Tax: ??% X (Profit)

[Profit = Revenue – Tax deductible exp.]

e.g.40% x 69 bbl. = 27.6 bbl.

Contractor PO:

30% = 9 Bbls.

Government PO:

70% = 21Bbls.

Gov.- 10+21+27.6 Cont.- 60+9-27.6

CO Increase ?? - Cost oil tranche- Cost Mark up- Reduce Capex

amortization period

Contractor PO Increase ? - Higher %

Contractor Taxation ? - Government waive

- Ministry oil pay- Reduce rate

- Tax holidays or credit


DURING ……

Example:- Negotiation in the M&A

• The equity stake of acquired company

• Purchase consideration

• Condition Precedent (CPs) e.g. subject to Board approval,

stock exchange, government approval etc.

• Long Stop Date i.e. completion of the transaction


DURING ……

Purchase consideration

• Purchase consideration i.e. purchase price.

i. Quantitative (numerical) e.g. NTA, DCF, PE, Mark to

market etc. )

ii. Qualitative (non numerical) e.g. Operating

environment (Africa vs Europe) :- SLEPT

SOCIAL, LEGAL, ECONOMIC, POLITICAL, TECHNOLOGICAL)


30%

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DURING ……

Example: JOA agreement

• Agreement on sharing of cost, liabilities and revenue allocation as

per agreed participating interest (PI) e.g. PETRONAS :40%, CNPC

30%, ONGC 30%

• Decision making and voting rights: Eg Unanimous, passing mark of

65% or any 2 partners

• Work Program & Budget, Cash call payment and Default process eg

Forfeiture PI and Parent Company Guarantee (especially during

Abandonment & Decommissioning)


DURING ……..

GSA : Key Commercial Terms

Contract Quantity

Daily Contract Quantity

Maximum Daily Contract Quantity

Annual Contract Quantity

Shortfall gas

Excessgas

Undertake gas

Take or Pay Quantity

Carry Forward

Make Up


• Gas Price

0.3 Ln,

where Ln = the weighted average price of LNG sold to LNG CustomersOpen 67

DURING ……..

Gas Sales Agreement - Sales Terms

• Natural Gas can be sold through:

I. Joint Dedicated Sales (JDS)

II. Aggregator basis

PS Contractors PETRONAS End Customer

PETRONAS

& PS

Contractors End

Customer

UGSA GSA

GSA


DURING …….

Pipeline and Transportation agreement

• Pipeline project scope

• Pipeline ownership/equity

• CAPEX Funding arrangement (e.g. carry)

• Recovery of total investment and profit margin

• Tariff Rate of Pipeline Users

• Priority of usage

• Transfer Ownership


Tariff is referred to as Transportation Cost Allowance (TCA)

TCA = Operating Cost Allowance (OCA) + Capital Cost Allowance (CCA)= Variable Fee + Fixed Fee

OCA is based on annual Operating Costs

CCA is calculated using the equation:CCA = (Rate Base + CCA b/f) X RORB + Depreciation + CCA b/f

Whereby:Rate Base = Mid-Year Residual Capex + Working Capital

Residual Capex = Year End Capex – Cumulative DepreciationYear End Capex = Cumulative Capex at the start of the year + New CapexAddition

Working Capital = 2 months Operating Cost (1/6 of Operating Cost)RORB = return on rate base

Block 1/2/4 Base User = 15%Block 1/2/4 Excess User = 18%Block 3&7 User = 12%

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DURING …….

Example Pipeline and Transportation investment recovery


TCA = Operating Cost Allowance (OCA) + Capital Cost Allowance (CCA)

= Variable Fee + Fixed Fee


CCA is calculated using the equation:

CCA = (Rate Base + CCA b/f) X RORB + Depreciation + CCA b/f



TCA = Operating Cost Allowance (OCA) + Capital Cost Allowance (CCA)= Variable Fee + Fixed Fee


CCA is calculated using the equation:CCA = (Rate Base + CCA b/f) X RORB + Depreciation + CCA b/f

Whereby:Rate Base = Mid-Year Residual Capex + Working Capital

Residual Capex = Year End Capex – Cumulative DepreciationYear End Capex = Cumulative Capex at the start of the year + New CapexAddition

Working Capital = 2 months Operating Cost (1/6 of Operating Cost)RORB = return on rate base

Block 1/2/4 Base User = 15%Block 1/2/4 Excess User = 18%Block 3&7 User = 12%

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DURING …….

Example Pipeline and Transportation investment recovery

Whereby:

Rate Base = Mid-Year Residual Capex + Working Capital

Residual Capex = Year End Capex – Cumulative Depreciation

Year End Capex = Cumulative Capex at the start of the year

+ New Capex Addition

Working Capital = 2 months Operating Cost (1/6 of Operating Cost)

RORB = return on rate base

Block 1/2/4 Base User = 15%

Block 1/2/4 Excess User = 18%

Block 3&7 User = 12%



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3. POST

• CLOSE

• AGREEMENT

• RELATIONSHIP

• HANDING OVER TO

EXECUTION TEAM


POST PHASE - CLOSE

Close

• Move to closure

• Agree the details

• Confirm the agreement (sign on the dotted line)

• Follow Ups

• Celebration

• Maintain good relationship

• Hand-over to execution team (e.g. Asset Team)


POST PHASE - CLOSE

Close

• Move to closure- Signal readiness to close- Move steadily and surely to close (X rush to close)

• Agree the details- Summarise the exchange- Handle final objection and doubts- Handle last minutes tricks- May refer to highest authority in the organization (if any last

minute U-turn)

• Confirm the agreement (sign on the dotted line)- Shanking hands- Written and legally binding agreement- Signing the contract/agreement (document)


POST PHASE - CLOSE

• Follow up

- Signing ceremony- Registration of agreement (if any)- Announcement and communication (media)

• Celebration

• Maintain good relationship

• Hand over to execution team

- Highlight the overall deal and the signed agreement- Share the insights and context of the deal


1

2

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Proposal – Affirm the final deal

Introduction- People, Deal, Location

Explore – Test & stretch

Negotiation Process/Stages

Close deal – Agreement, Win-Win


SHARING

Personal journey and experience sharing by ;

• Pn Rosita Abu Bakar

• Pn Faziah Talib

THANK YOU

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ApplicationClassroom Activity

“CASE STUDY” – NEGOTIATION

GOOD LUCK !



Andalusia Oil Pty won a bidding offshore block of E45 in waters of

Vietnam. Upon the award of the block, Andalusia management realized

that the production block straddles to the water boundary of Vietnam’s

neighboring country, Laos.

Laos is one of the world oil producer country and Halinger International

Co has been the main operator for all its onshore & offshore E&P

activities since early 1980s.

The E45 Block estimated proven reserves was 50mil bbls and its daily

average production was expected at 150k bbls/day.

Every year, the Joint Steering Committee (JSC) will meet to discuss on

its exploration and operation activities . The JSC will meet alternatively

at Vietnam or Laos

Role Play



Shelly is a junior business executive at Andalusia Oil Pty and her job is

to manage the WP & Budget for Vietnam offshore Block 45. Shelly has

been working for 2 years in the company. She is being assigned to lead

the negotiation team with Halinger International Co of Laos.

The followings are information that Shelly discovered :-

i. Halinger Int Co negotiation team are highly experienced

technical specialist

ii. Shelly’s negotiation team members comprised 1 technical staff and

1 finance staff. All of them have less than 5 years experience.

iii. The JSC Chairmen were unhappy with the progress of the meeting.

3 years had lapsed and there were no successful effort made by the

joint technical operators to officially opened up Block 45.

Role Play…continue



The followings are the challenges that Shelly and her team need to resolve

in order to successfully negotiate for the opening of Block E4 before the

next JSC meeting which is to be held at Vietnam.

i. Her team are given 3 months to finalize the negotiation before the

official signing of the opening block agreement .

ii. Both Chairman of the JSC are expected to attend the ceremony.

iii. Halinger Int Co negotiation team are not in a hurry with the joint

operating activities as their main focus is on its onshore production

activities. Block E45 is an offshore exploration activities and it

constitutes only 10 % of Halinger Int Co total annual production

volume.

iv. All Halinger Int Co Senior Technical personnel has had an experienced

of more than 10 years in oil and gas industry worldwide.

v. Halinger Int Co meetings are usually held at top ranking hotels and

they are given VIP treatment.

vi. Apparently Vietnam has only one top ranking hotel and is situated 500

km away from Andalusia Head Office.




A group of 3 members will be :-

a) Assigned either as Andalusia staff for Vietnam or Halinger operator for Laos

b) Each individual will be expected to behave as per what is written on the play cards .

c) The negotiation team plan schedules are:-

i. 5 minutes - pre negotiation strategy ( 4 essential rules of negotiation)

ii. 10 minutes - Negotiation process ( persuasive communication & EEPC )

iii. 15 minutes – post negotiation ( group discussion & feedback)




Important Interests Basic or Underlying InterestsAsk yourself “Why “ and “ for what purpose?”

RelativeImportance( 100 Points)

Own Interest

Musts Ideals Loss leaders

The Other Side Wants

o Their Prioritieso Their Wantso Their Barriers

In the left hand column , list the more interests for you and The Other Side counterpart that you are able to identify. Ask yourself “ why “ & “ for what purpose?” Any deeper interest list in the 2nd column. Finally , rate your own interests by allocating 100 points

Interest: Probe for Underlying Interests



Alternative 1: Create Options to meet Interests

Your Interests Possible Options Their Interests

Look at your interests and list all possible ways to meet the interests on both sides.List interests in order of their relative importance.



Possible Alternatives Pros Cons

What could you do to satisfy your interests if you could not reach an agreement

My key interests:-

Alternative 2:Think of my Alternatives to the Negotiated Agreements


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Knowledge Skill

Attitude

• Listening• Effective Communication• Problem Solving • Rapport building

• Commercial Savvy• Influence Technique• Conflict Management• People Management

• Professional and credible• Assertive and decisive• Self discipline and creative• Patient and careful listener• Open minded • Self Discipline• Flexible • Highly ethical

Traits of a Good Negotiator

REFLECTIONS…..


BACK UPS


Negotiation-Commercial Commercial Academy COHOT ... - Petronas · PRE Negotiation - Preparation 14...

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Transcript of Negotiation-Commercial Commercial Academy COHOT ... - Petronas · PRE Negotiation - Preparation 14...