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Introduction

Possibly the single biggest investment of funds that will be made during the lifecycle of a hydrocarbon asset is that in the design, procurement and construction of the surface and sub-surface facilities to produce the resource. Yet, within the upstream industry we hear very much more about unsuccessful projects than we do about success in projects. Realistically there are many projects that ultimately meet the business objectives that generated them, and that in itself is a form of success. However, it does not necessarily mean that the capital project in itself has been a success.

The argument of this paper is that upstream companies need to create the environment within their business structure and processes to motivate and manage success in projects, or at the very least to recognise and acknowledge the context of the capital project in the overall business plans for the asset. This will contribute to the generation and realisation of value through the project, and also to safeguard against loss of value.

What is a Successful Project?

The definition of a successful project is one of those nebulous concepts that tax the minds of everyone in the industry. Success in a project is usually in the eye of the beholder, and there are many stakeholders in that success, often with competing ambitions. A very simple definition of the successful project outcome, and one that has served well over recent years is:

"a project that meets the quality, scope and business targets of the stakeholders, and does so within agreed budget and time constraints whilst complying with corporate, local and national Health, Safety and Environmental principles" (see fig.1)

That is perhaps simple to say, but not so simple to achieve, especially in view of the complex nature of the composition of stakeholders today. Such stakeholders might include shareholders, joint venture partners, executive management, national governments, local populations, customers of the resource, and not least, the project and asset team. It is therefore, vitally important to create a business process landscape within the

Figure 1 The Successful Project



Operator company that can manage all aspects of creating stakeholder success, and ensure that the expectations of all stakeholders are taken into account in the planning and execution of the project.

National and International Oil Company Perceptions of Project Success

National Oil Companies (NOC's) will very often take a different view of project success criteria than International Oil Companies (IOC's), sometimes now referred to by NOC's as International Investor Companies (IIC's). However, both are stewards on behalf of the stakeholders in their companies of funds invested. Most IOC's are answerable to their investor stockholders for the manner in which they invest capital funds, and the efficiency with which they deploy such funds. NOC's are normally answerable to their major governmental investors on behalf of their citizens, to a greater or lesser extent. Thus NOC's and IOC's share at least some common ground on project success, and in many cases, where they are in a joint venture, each must consider the success criteria of the other.

The Process Landscape

Consideration of expectations in respect of the outcome of both the business and project targets and objectives must begin early. In many upstream companies, both national and international, this is hampered by a lack of focus on the integrated nature of the processes that drive the business. In recent years, however, many of the larger international companies have moved towards the identification of their key processes, and structuring the achievement of their business targets around those processes. This has opened up the possibility for integrating the capital project into business planning at a very early stage, and especially in managing the project risks and uncertainties from that early stage.

We should begin with the process landscape. During the 80's and early 90's, many companies began to realise that there was much redundancy and confusion in the many processes they deployed to run their businesses. This drove the need for central hierarchical manpower driven structures to manage the business, rather than more efficient and better

Figure 2 Upstream Process Landscape




focussed devolved asset based organisations. Gradually the focus turned to the latter. The first objective was not necessarily to get rid of processes, rather to define and prioritise them. A typical current landscape model encompasses three process categories (see fig 2):

Core Process, which describe the main engines of driving the upstream asset business delivery through its lifecycle, and include

• Explore
• Appraise
• Develop (including the Capital Investment Project)
• Produce
• De-commission/Remove

Management Processes, which, inter alia, set out the overall business targets, manage the portfolio, define where core processes will be deployed, set out business policy/ethics

Enabler or Support Processes, which provide the essential technical, commercial, and marketing support to both the Core and Management Processes.

So, whilst it is generally acknowledged in the industry that capital projects will have to be entered into at some stage in order to realise the value of the resource, whether in fact or notionally (as in the case of asset trades, acquisitions etc.), the Process Landscape provides an insight for the first time to many as to the context, and where the Project fits into the asset lifecycle. But more importantly, it provides an opportunity to bring structure to the Develop process, and to begin to manage project expectations and success criteria at an early stage for all stakeholders.

The Development Process and Project

With the establishment of a Core Process driven business, it is now possible to drill down into each of those processes and to identify sub-processes that will support and enhance the objectives to the process itself.

Again a typical set of sub-processes for Develop and its projects could include (see fig 3):

Figure 3 Phases of the Capital Development Project




A typical set of sub-processes for Develop and its projects could include (see fig 3 above):

Concept
to answer the question whether there are technical solutions that will meet the business objective(s)
Feasibility
To identify which of those technical solutions is most appropriate to meeting the business objective(s) in terms of value, risk/uncertainty management, flexibility
Definition
To define the selected concept and engineer it to a point where the definition of cost, schedule and quality/scope/business targets meets agreed criteria for a Final Investment Decision (FID).
Execution
The phase of major investment in design, procurement, construction and bringing into production of the surface and sub-surface facilities


The structure described enables the establishment of a defined set of targets, activities and deliverables from each phase in accordance with the policies procedures and guidelines for the Develop process and its projects. The development of such policies, procedures and guidelines will be facilitated by the clarity of process focus provided by the structure. They would be contained within, for example, documents such as Project Management Procedures and Guidelines.

Phase Gates for Control of Projects

The phased approach described above provides an opportunity for the establishment of decision gates at the end of each project phase. Each gate will progressively address and help to mitigate outstanding risk and uncertainty from all sources, until at FID the stakeholders will have a very clear picture of how the work to date has been carried out, and what residual risk/uncertainty remains. In that manner, their expectations can be aligned, or at least they can agree to differ, or to add in the contingencies.

It should be noted that some companies have adopted the gate process as a management tool within their management processes. In many cases, they apply it not only to capital development projects, but also to activities in other core processes such as Explore and Appraise. Again, this generates a greater degree of understanding and confidence across the whole business on what is expected at the executive level in order to obtain approval to make an investment. The basis of the targets set will be contained within the guidelines and procedures established for each process.

Benefits of the Structured Approach to Projects

To begin with, it is often argues, especially by small upstream companies, that an excess of structure and protocol introduces too much inflexibility to their methods of doing business, especially when they claim that their developments are "simple". This may be valid in some cases, but in most cases there are no "simple projects" in the upstream industry. Some degree of process and focus is to be recommended, especially with small entrepreneurial companies that could be destroyed financially by a failed project.

However, there are many benefits to be gained from the adopting the structure and processes outlined above in managing the success of capital projects. These include:

1. Provides a common template across the company in all of its locations as to what is expected by the executive and stakeholders in respect of the investment in the capital project

2. Generates alignment with corporate decision making processes not only within the operator company, but also with joint venture partners and other stakeholders.

3. Generates alignment of the objectives and expectations of the executive, the asset and the project.

4. Facilitates the establishment of standards, procedures and guidelines for the conduct of development projects, and the means to determine targets and deliverables.

5. Facilitates the establishment of common definitions of roles, responsibilities, authorities and accountabilities.

6. Promotes Management by Objectives.

7. Provides a structured and consistent basis within which to incorporate best international practice into the planning and execution of capital projects

8. Provides a consistent environment within which to identify the skills and competencies necessary to achieve a successful project outcome at all phases of the project

9. Supports a structure that promotes multi-discipline teamwork and communication to meet common targets and objectives

10. Provides a vehicle for identifying and managing risk and uncertainty on the project, thus avoiding misunderstanding on stakeholder expectations

11. Provides the environment within which each process and sub-process may be resolved into its component units, thus identifying and defining inputs, roles and responsibilities essential to achieving desired outputs.

12. Supports the definition of principles for devolution of authority to the project and asset team commensurate with the perceived need and residual risk/uncertainty.

Conclusion

In conclusion it may be argued that, if upstream companies wish to achieve success in their capital projects, and reap the value rewards that they will bring, they should look very closely at their business structure and processes, and ensure that they represent an environment that will support and promote project success, however it may defined.

By Thomas Harding, Devcor Studies LTD & Mick Small, RPS Group

Labels: Capital project success, gas, Group, Mick Small, oil, RPS Energy, Russia

posted by The Rogtec Team @ 15:36 

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