Creating & Preserving Value in Capital Projects
By Tariq Siddiqui: Upstream EP Advisors LLC (Executive Management Consultant)
Capital projects when managed well, create tremendous value and provide long-term cashflow to the investors and the companies. Here are my top 10 learnings as Front-End -Development Manager (FEDM) in managing onshore and offshore capital projects in Upstream E&P in last 20 years with Royal/Dutch
1. Frame Project/Opportunity
Framing provides early integration and alignment of objectives. It helps in understanding; value drivers, critical success factors (CSF), definition of success, risks, stakeholder engagement plans, action plans and long-term road maps.
2. Understand Subsurface Complexity
Early appreciation of subsurface complexity and uncertainty, helps in designing an effective appraisal campaign.
3. Front-End-Load Project
Front-End Loading or FEL is level of early data collection to manage subsurface uncertainty & complexity during the appraisal. The level of FEL depends on reservoir complexity. The ultimate success of the project depends on levels of Reservoir FEL, Wells FEL and Facilities FEL, which can be correlated to various project measures.
4. Use Multiple Scenarios Modeling
The discrete combination of a subsurface realization and a development option is called a scenario. Multiple scenarios are modeled to manage uncertainty in early project phases. Geoscientist and reservoir engineers develop range of geological realizations to cover range of uncertainty, and engineers develop range of development options to manage development decisions.
5. Stage-Gated Process:
All companies use decision driven, stage-gated process to manage capital projects. This helps the decision makers in making focused decisions, maintaining corporate line-of-sight and effective value assurance. There are total six project stages; Identify, Assess, Select, Define, Execute & Operate. The first four phases before Final Investment decision (FID), are referred to as Front-End, and are managed by Front-End Development Managers (FEDM). Project Execution Managers, manages the post-FID, execution phase and Asset Managers manage the operate phase after start-up.
6. Project/Opportunity Manager (FEDM)
A comprehensive training program is needed to train the FEDM’s.
Geoscientists manage the Identify phase of the project in exploration, where opportunities are matured from lead, play, prospect to discovery.
Subsurface disciplines (Petroleum Engineers & Wells engineers) usually manage the Assess and Select phases during development; where opportunity is appraised, feasibility of scenarios is evaluated and one concept, that is commercially viable is selected and matured in detail.
Finally, the surface engineering disciplines manage the Define phase in the development, where most of the Front-End-Engineering Design (FEED) is done before FID.7. Appropriately Scope Project
The development concept must be competitive and affordable. The volatility in oil prices have significantly impacted the cashflow and constrained the capital availability to fund the capital projects. In the downturns, affordability takes precedence over maximizing the Net Present Value (NPV).
8. Use Industry Benchmarking
Industry benchmarks provides a reality check on key project performance metrics (capital & operating costs, schedule and production promise etc.). They provide two broad performance measures; compare pre and post FID performance of the project and performance comparison with the industry peers.
9. Apply Value Improvement Practices (VIP)
Value Improvement practices (VIP’s) and process, especially in define phase, provides one last opportunity to create value, without making any major change in the project scope. All disciplines (technology, C&P, engineering, costing, execution), have a repository of practices worth replicating (PWR) that can improve value by 10-15 %.
10. Operated-By-Others (OBO) Project
The OBO project are important elements of corporate strategy and can; create significant value for the companies , provide opportunity to learn from partner’s expertise and reduce portfolio risk. The OBO project team can preserve their share of value in the project by Identifying Key Focus Areas (KFA), understand influencing environment and develop an engagement plan and strategy to engage the operating partner. A separate blog on his later.
