Glossary of Technical Terms Used in Drilling & Well Completion: Concession Making, in negotiating

Concession Making, in negotiating

Concessions in Oil & Gas Negotiations: Balancing Value and Partnership

In the high-stakes world of oil and gas, negotiations are a constant dance of give and take. One key strategy employed is concession making, a process of offering something of value to the other party in exchange for something you need. While it might seem counterintuitive to offer concessions – essentially giving up something beneficial to you – they are crucial in building trust, achieving consensus, and ultimately securing a successful deal.

Understanding Concessions in Oil & Gas:

Oil and gas negotiations often involve complex technical details, financial intricacies, and competing interests. Here's where concessions play a pivotal role:

  • Unlocking Deadlocks: When negotiations stall due to disagreements over specific clauses, terms, or conditions, making concessions can break the impasse. Offering flexibility on certain points can create a path forward and encourage the other party to compromise as well.
  • Building Trust and Rapport: Demonstrating a willingness to make concessions shows the other party that you are serious about finding a mutually beneficial agreement. This fosters a collaborative spirit and encourages a more constructive negotiation process.
  • Securing Long-Term Partnerships: In the oil and gas industry, long-term relationships are essential. Making strategic concessions can signal a commitment to the other party and set the stage for future collaborations.

Types of Concessions in Oil & Gas:

Concessions can take various forms depending on the specific negotiation. Some common types include:

  • Price Adjustments: Offering a lower price for exploration rights, production sharing, or other services.
  • Timeline Flexibility: Extending deadlines for completion of certain tasks or adjusting project schedules.
  • Technical Specifications: Compromising on certain technical specifications, such as the type of equipment used or the environmental standards adhered to.
  • Payment Terms: Offering more flexible payment terms, such as longer payment periods or more favorable interest rates.

Strategic Concession Making:

Effective concession making requires a strategic approach:

  • Identify Key Priorities: Understand your non-negotiable needs and areas where you can offer flexibility.
  • Analyze the Other Party's Needs: Research the other party's priorities and potential pain points. This will help you tailor your concessions to maximize their value.
  • Gradual Approach: Start with small concessions and gradually increase the stakes as the negotiation progresses. This demonstrates a commitment to compromise without undermining your core interests.
  • Link Concessions to Desired Outcomes: Each concession should be linked to a specific objective you want to achieve. This ensures that you are not giving away value unnecessarily.

Concession Making is Not a Sign of Weakness:

While it may feel like a compromise, concession making is a powerful tool for success in oil and gas negotiations. It demonstrates your commitment to a fair and mutually beneficial agreement, builds trust, and opens the door to long-term partnerships. By strategically employing concession making, you can navigate the complexities of the oil and gas industry and achieve your desired outcomes.


Test Your Knowledge

Quiz: Concessions in Oil & Gas Negotiations

Instructions: Choose the best answer for each question.

1. What is the primary reason for making concessions in oil & gas negotiations? a) To demonstrate power over the other party.

Answer

Incorrect. Concessions are about finding common ground, not asserting dominance.

b) To avoid a stalemate and reach a mutually beneficial agreement.
Answer

Correct. Concessions help break deadlocks and foster collaboration.

c) To get the other party to agree to all of your terms.
Answer

Incorrect. Concessions involve give and take, not dictating terms.

d) To signal weakness to the other party.
Answer

Incorrect. Strategic concessions demonstrate flexibility and a commitment to a deal.

2. Which of the following is NOT a common type of concession in oil & gas negotiations? a) Price adjustments.

Answer

Incorrect. Price adjustments are a frequent concession.

b) Timeline flexibility.
Answer

Incorrect. Adjusting timelines is often part of the negotiation.

c) Technical specifications.
Answer

Incorrect. Compromising on technical details is common.

d) Offering a free vacation to the other party's CEO.
Answer

Correct. This is unlikely to be a relevant or effective concession in oil & gas negotiations.

3. What is the most important step in strategic concession making? a) Making the largest concession first to show your commitment.

Answer

Incorrect. Gradual concessions build trust more effectively.

b) Identifying your non-negotiable needs and areas of flexibility.
Answer

Correct. Understanding your priorities is crucial for strategic concession making.

c) Offering the exact concession that the other party requests.
Answer

Incorrect. Concessions should be linked to your desired outcomes.

d) Refusing to make any concessions.
Answer

Incorrect. Refusing concessions can lead to a stalemate.

4. Why is building trust important in oil & gas negotiations? a) It makes it easier to win a legal case later on.

Answer

Incorrect. Building trust focuses on collaboration, not potential litigation.

b) It helps to secure long-term partnerships.
Answer

Correct. Trust is fundamental to lasting relationships in the industry.

c) It guarantees that the other party will always be honest.
Answer

Incorrect. Trust is a process, not a guarantee of perfect honesty.

d) It eliminates the need for any written agreements.
Answer

Incorrect. Formal agreements are still necessary, even with trust.

5. Which of the following is NOT a benefit of strategic concession making? a) It can help to unlock deadlocks in negotiations.

Answer

Incorrect. Concessions can be crucial for breaking impasses.

b) It can signal a commitment to a long-term partnership.
Answer

Incorrect. Concessions can demonstrate commitment to the deal.

c) It guarantees a successful outcome for every negotiation.
Answer

Correct. Concessions are a tool, not a guarantee of success.

d) It can build trust and rapport between parties.
Answer

Incorrect. Trust is a key benefit of strategic concession making.

Exercise: Concessions in a Joint Venture

Scenario: Your company is negotiating a joint venture with a foreign partner to develop an offshore oil field. The partner wants a 60% ownership stake in the venture, while your company is aiming for a 50/50 split. You are also facing disagreements about the timeline for completing the project.

Task:

  1. Identify your company's key priorities in this negotiation.
  2. Develop a strategy for making strategic concessions that can help you achieve a more favorable agreement. Include specific types of concessions you might consider and how you would link them to your desired outcomes.

Example of a possible solution:

Exercice Correction

1. Key Priorities: * Secure a 50/50 ownership stake in the joint venture. * Ensure a reasonable timeline for project completion that aligns with your company's capabilities. * Maintain control over key aspects of the project, such as environmental standards and technology selection. 2. Strategic Concession Strategy: * **Concession 1:** Offer a 55% ownership stake to the foreign partner. This concession addresses their primary concern about a larger share, while still maintaining a significant stake for your company. * **Linked Outcome:** Achieve a more equitable ownership structure and secure a mutually acceptable partnership. * **Concession 2:** Offer flexibility on the timeline for completing the project by proposing a range of acceptable dates. This shows commitment to working together while ensuring your company can meet its commitments. * **Linked Outcome:** Facilitate a timeline that accommodates both parties' needs and ensures a successful project launch. * **Concession 3:** Consider compromises on specific technical aspects of the project, such as agreeing to use certain equipment preferred by the partner, while still ensuring that your company's environmental standards and technology expertise are incorporated. * **Linked Outcome:** Maintain control over crucial aspects of the project while demonstrating a willingness to collaborate on technical details. Important Considerations: * **Gradual Approach:** Present concessions progressively, starting with smaller ones and building up to larger offers as the negotiation progresses. * **Link to Outcomes:** Clearly explain the benefits of each concession for both parties, ensuring a clear understanding of the value exchange. * **Evaluate Potential Risks:** Assess the potential risks associated with each concession, ensuring that they don't compromise your core interests or long-term goals.


Books

  • Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher and William Ury: A classic guide to principled negotiation, emphasizing the importance of focusing on interests rather than positions.
  • Negotiation Genius: How to Get What You Want From Any Situation by Deepak Malhotra and Max Bazerman: Offers practical strategies for successful negotiation, including the art of making concessions effectively.
  • The Art of Negotiating: How to Get What You Want by Herb Cohen: A detailed analysis of negotiation dynamics, with specific advice on how to navigate concession making in different contexts.

Articles

  • "The Art of Concession Making" by Harvard Business Review: Provides insights on strategic concession making and how to maximize value in negotiations.
  • "The Power of Concessions in Negotiation" by Negotiation Journal: Explores the role of concessions in building relationships and reaching mutually beneficial agreements.
  • "How to Make Concessions in Negotiations" by Forbes: Offers practical tips for making concessions effectively, including when to say "no" and how to package them strategically.

Online Resources

  • Harvard Negotiation Project: A leading research center with extensive resources on negotiation, including articles, videos, and training materials on concession making.
  • Negotiation Skills: Negotiation Strategies & Techniques: A comprehensive website with in-depth information on various negotiation aspects, including a section dedicated to concession making.
  • The Negotiation Institute: Offers online courses and workshops on negotiation, covering topics like concession making, BATNA development, and dealing with difficult negotiators.

Search Tips

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  • "Types of concessions in negotiation" + [specific negotiation type]: For example, "Types of concessions in negotiation contract negotiation", "Types of concessions in negotiation salary negotiation", etc.
  • "Strategic concession making" + [specific negotiation goal]: For example, "Strategic concession making building trust", "Strategic concession making achieving consensus", etc.
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