# EP-Council — Trap Screen T0–T10 The Council Trap Screen is run by the Green Team after **every red-team round**. Any trap firing halts progress until the issue is addressed. Traps are named after the supermajor whose institutional failure most clearly exemplifies the risk. --- ## Trap Table | Trap | Name | Named After | When It Fires | Enforcer Question | |------|------|------------|---------------|-------------------| | **T0** | Strategic Drift | — | Opportunity contradicts Strategy Brief on any of 7 dimensions | Does this opportunity contradict the Strategy Brief? If yes → STOP immediately | | **T1** | Strategy Whiplash | BP | Proposing to pivot the Strategy Brief because of price pressure or a single opportunity | Are we changing strategy to fit the opportunity, or finding opportunities that fit the strategy? | | **T2** | Tier-2 Masquerade | Chevron | Below-tier-1 asset being assessed as if it were tier-1 | By what measurable standard is this a tier-1 asset? | | **T3** | Integration Illusion | TotalEnergies | Integration thesis substituting for standalone asset economics | Does this asset generate acceptable returns at $30/bbl without the integration thesis? | | **T4** | Complexity Creep | Shell | Adding business segments, geographies, or asset types without removing any | What are we removing from the portfolio to make room for this? | | **T5** | Concentration Kill | QatarEnergy | Single geography or asset type exceeds 40% of portfolio exposure | What is the portfolio concentration by geography and asset type after this commitment? | | **T6** | Distraction Decision | ExxonMobil | Opportunity is not in the Strategy Brief and no brief amendment has been proposed | Is this in the Strategy Brief? If not, why are we spending council time on it? | | **T7** | Shale Plateau Cliff | ConocoPhillips | Short-cycle allocation at cycle peak without a plan to rotate to long-cycle as the cycle turns | What is the production decline rate, and what is the re-investment rate required to maintain it at $50/bbl? | | **T8** | Exploration Cost Trap | ENI | Funding conventional exploration with balance sheet capital when a carry, FLNG, or satellite structure exists | Is there a carry or satellite structure that funds this without balance sheet exposure? | | **T9** | Acquisition Leverage Trap | Occidental | M&A financed with debt that cannot be serviced from the target's standalone FCF at $30/bbl for 24 months | What is the target's standalone FCF at $30/bbl, and can we service the acquisition debt at that price for 24 consecutive months without an equity raise or dividend suspension? | | **T10** | Duration Drift | Shell | Distributions funded before/instead of best organic reinvestment; R/P shortening materially faster than production; M&A used as primary reserve-replacement mechanism without a working organic engine (acquired duration ≠ created duration) | Are we funding distributions before the best organic reinvestment is funded, and is R/P shortening materially faster than production? | --- ## T0 — Strategic Drift **The non-negotiable stop.** T0 fires whenever the opportunity contradicts the Strategy Brief on any of the 7 Strategy Brief dimensions: geography, asset type, capital envelope, return thresholds, portfolio philosophy, financing posture, or mandate constraints. **What happens when T0 fires:** 1. The council halts immediately 2. The contradiction is documented explicitly 3. The user must choose: (a) reject the opportunity, or (b) formally amend the Strategy Brief before proceeding 4. If the Strategy Brief is amended, Phase 0 re-locks before any further assessment T0 cannot be overridden by strategic rationale, timing pressure, or council consensus. It is a structural check, not a vote. --- ## T9 — Acquisition Leverage Trap (New in v9) **The Occidental lesson.** T9 fires when an acquisition is financed with debt that cannot be serviced from the target's own cash flows at $30/bbl for 24 consecutive months without an equity raise or dividend suspension. **The $30/bbl / 24-month test:** > *Can the target's standalone FCF at $30/bbl service the acquisition debt for 24 consecutive months?* > *Yes → proceed to further analysis.* > *No → T9 fires. No synergy premium, no integration argument, no strategic rationale substitutes for this test.* **What T9 does NOT prohibit:** - Leveraged acquisitions where the target's own FCF passes the $30/bbl / 24-month test - A second acquisition after the first acquisition debt is substantially retired - CrownRock-style re-entry (Occidental, December 2023) — a chastened acquirer with substantially retired debt, targeting a standalone tier-1 asset **Why the Chevron walkaway price matters:** If a competing bidder walked away at a lower price, that price is a data point. The premium paid above the walkaway is not proof of quality — it is evidence of price discipline failure. Occidental paid $38B when Chevron walked at $33B. The $5B premium nearly destroyed the company. **Scale adjustment:** The T9 test applies at any scale. The absolute numbers differ; the logic is identical. One tier-1 asset at low leverage beats two tier-2 assets at high leverage in every downturn. --- ## T10 — Duration Drift (New in v9.1 / Skill v1.7) **The Shell lesson.** T10 fires when a major funds distributions before/instead of the best organic reinvestment, allows R/P (reserve life) to shorten materially faster than production, or uses M&A as the primary reserve-replacement mechanism without a working organic engine. **The core distinction:** *acquired duration ≠ created duration.* A buyback flatters EPS for a quarter; a producing barrel underwrites the next decade. When the shell of distribution discipline replaces the substance of organic renewal, the portfolio drifts from compounder to harvest vehicle without anyone naming the shift. **What T10 watches for:** - Distribution policy fixed first, then organic capex sized to whatever remains - R/P shortening materially faster than production (i.e. reserves consumed faster than replaced) - M&A as the primary reserve-replacement mechanism — acquiring barrels because the organic engine isn't producing them **What T10 does NOT prohibit:** - High distributions where organic reinvestment is fully funded first - M&A to add tier-1 acreage alongside a functioning organic program - Buyback programs in genuine harvest-vehicle strategies that have been explicitly chosen (rare, and must be in the Strategy Brief) **Relationship to T4 (Complexity Creep):** Both are Shell-named, both are portfolio-shape traps. T4 catches *additive* drift (segments added without removal). T10 catches *subtractive* drift (organic renewal starved to fund distribution). A major can pass T4 and still fail T10. --- ## Running the Trap Screen The Green Team runs the trap screen after every red-team round. The screen covers all 11 traps in sequence. For each trap: 1. State whether it fires: **CLEAR** or **ACTIVE** 2. If **ACTIVE**: document the specific evidence and halt until addressed A round cannot close with any trap in **ACTIVE** status unless the full council votes to acknowledge and explicitly accept the risk — and the Enforcer documents the override. --- *See also: [Council Members →](EP-Council-Council-Members) | [Walkthrough →](EP-Council-Walkthrough) | [EP-Council main page →](EP-Council)* Go back to the [Main README](../README.md).