E&P Business Process Life Cycle

Upstream, Midstream & Renewables

Capital Projects VALUE ASSURANCE

in THE New Energies Sector
Overview of Front-End Loading
Concept by A. Dougans (Cairn Energy) Revised in March 2021 by Angus Macleod MAPM (Freelance PMP)
Presentation contents & fel agenga

1 HSE Briefing & Introductions

2 Background & Generic OBS
3 Objective of Gated Process
4 Summary of Process
5 Industry Standards
6 Organisational / Decision / Key Submission Alignment
7 BU (Business Unit) Structure & Philosophy
8 Business Process Structure
9 Select Phase – Definition / Key Deliverables / Gate Review
10 Define Phase – Definition / Key Deliverables / Gate Review
11 Key Documents
12 Planning
13 Cost
Cost Estimating
Estimating
14 Cost Control & Forecast
15 Schedule Risk Analysis
FEL (Front-End Loading is an accepted Industry Standard……
 CPDEP - Chevron Project Development and Execution Process
 OPREP – Woodside Opportunity and Project Realisation Process
 ORP – Shell Opportunity Realisation Process
 CVP – BP’s Capital Value Process
 OM - Exxon-Mobil’s Opportunity Management Process
 VAF – BG Group Value Assurance Framework
 ACES - Anadarko Capital Effectiveness Systems
 CVP – Statoil’s Capital Value Process
 SGM – OMV Stage Gate Manager
 MPMP - Marathon Project Management Process
 SQAD - Santos Quality Asset Development Process
 AGP - Apache Gate Process, in development
 Stage Coach – Mustang Engineering’s method to support Owners systems
 IPA - Stage Gate Capital Value Processes (FEL 1 -5) – Independent method of measurement 
 PMBOK ( Project Management Book of Knowledge ) – 4th Edition Chapter 2
 SPE – Recognised by the Society of Petroleum Engineers ( SPE 102926 )
FEL POST INVESTMENT REVIEWS – OPPOrTUNITY VALUE EROSION

 Historic P3O Studies on Capital Ventures have revealed

 Capital project performance (i.e opportunity realisation performance) has often caused
erosion of opportunity value identified at FID Final Investment Decision

 Capital Projects value erosion is still continuing high a rate for many opportunities.

 Post Investment Reviews reveal failure to obtain predicted opportunity value is

due to FEL decisions affecting opportunity realisation lifecycle, well before FID.

 Findings revealed if OPCOs were to realise full potential value of opportunities, then;
It is essential front-end thinking, planning & objective setting be properly performed.

 Energy markets (2023 – 2028) opportunities must be realised competently with increasing demand on schedule “accelerati
(especially leading to FID/Sanction)

 Conclusion to assure opportunity & realisation consistently on capital projects

 Utilise FEL knowledge management, new thinking, refined processes, timely competent application of FEL processes are
managed by an expert VAR team
from the moment that an opportunity is generated.(F
Front End Loading utilisation across project lifecycle
A principle that must be recognized is front end loading (FEL).

 FEL enables ability to influence value hence meet the guiding principles
Decision Gate Influences are greater at FEL 0~2

 Once concept is selected, define phase begins the ability to influence final outcomes (i.e concept quality in economic
performance, cost /schedule) is exponentially reduced.

 Once project execution is underway teams primary responsibility keep project within those conditions (cost /schedule
control, quality control, etc ).

 Retrospective performance analysis often identifies problems in Execute Phase arise out of poor preparation in first
three Phases up to FID.

 Mainly because objectives were not clear, risks not properly recognised /managed or failure to bring competences to
Front End processes

However, FEL is not an invitation for excessive studies / Staffing it is about assigning

optimal resources, using value assurance decision tools with competence

Minimise regret and maximise R.O.A.C.E.

FEL Ability to Influence VALUE ASSURANCE

Identifying, Maximising & ,Improving Value Assurance across Asset Life-Cycle

Acquire & Explore 1 Appraise/ 2 Assess & Select 3 Define 4 Execute 5

Ability to Influence final outcome at

greatest when initial objectives, strategies
and concepts are set.

Set Planning ( Decision driven )

Objectives Decisions ~ ability to meet objectives
Definition ~ ability execution targets

Cost / Schedule
Crash Point

Level of Technical/Design Maturity Execution ( Delivery driven )

Quality of Delivery secures Objectives
Plan, Do, Monitor, Review
The Importance of Front End Loading
Introduction of Phases & Stage Gates

Ability to control from start to finish, to assess risk, to assign roles & responsibilities more clearly
Concept
GATE Discovery Commerciality Select FID RFSU
1 2 3 4 5
Appraise/
Explore Select Define Execute Operate
PHASE Assess
Identify leads, Confirm Generate, select Define concept Design, build Safe start-up final
prospects and commerciality over concept (Reservoir finalise cost, commission asset
within agreed
approval to
acquire acreage range of likely evacuation and schedule technical
Objective
outcomes specifications and parameters and hand- facilities steady
Facilities)
obtain project over to operations state
sanction
Project closeout

Key Do G&G results “Do we have one “ready to start up

commercially “Have we selected “Is everything in
Question align with the and is everything Final hot
business feasible optimal concept?” place to ensure
Gate Closure safe?” commissioning &
objectives ? development?” success?”
introduction of
Define range of Concept selection Deliver facilities,
hydrocarbons
Technical Definition
Prospect evaluation handover operations
reserves and studies
award detail design Production and
Data acquisition, economic range of Operations readiness
Key development options
Contracting strategy contracts optimisation of
and feasibility Regulatory approvals
activity Approach market for Establish sales plant operating
studies Data acquisition key contracts agreements
feasibility studies methods
Obtain sanction
Business Unit Structure aligned in Gated Process
FDP (with Concept) Final
Decision to Ready for
Decision to Intent to Investment
Decision to Prepare & submission after Board Start-Up
Appraise Develop Decision
DECISIONS

Submit approval Commit

Spud
FDP risked
LLI
4a
Explore 1 Appraise 2a
/ Assess 2 Select 3 Define 4 Execute 5
Opportunity Feasibility Concept FID RFSU
Select

Director Exploration & Subsurface Director Projects

Exploration Manager Development Manager Project Manager
KEY DOCUMENTS

Head
Exp-Mgr Exp-Mgr
Dev- OU
Head
OU #1 OU #3 Mgr
OU #4 Prj Mgr
OU #3 Prj Mgr
OU #5
OU #7
FDP Approval span
Explore Appraise/Assess Select Define Execute
Approved appraisal
programme Board Execution
Statement of MC Approved
Approved Project AFE
Approved Requirements approved BOD & FDP
Exp WP&B BFWD Execution
Risked, Ranked & reviewed DOC FDP (+WP&B)
Plan
portfolios
Over-Arching Structure - Project Controls Hierachies
Level 1 - Framework Governance

Gate Reviews Gate Definitions

Level 2 – Business Processes

Peer Reviews RACI per Phase

• Controls Processes
• Work Processes
• Processes • Interface Management
• Portfolio Management
Level 3 – •
•
Strategy Formation •
•
Work Planning
Scheduling
• Exploration
Opportunity Frame Strategy Asset Planning
Processes • Operations Philosophy • Risk analysis
•
•
Well Engineering
Concept Engineering
• Execution Planning • Cost Management
• Design Management
• Contracting Strategy • Commitment Control
• Contracts & Procurement
• Technology Planning • Trending & Forecast
• Construction
• Risk Management • Contract Management
• Commissioning
• Improvement / Value Engineering • HSEQ / Audit / Review
• Operations Preparedness
• People • Information Management
• Operations
• Stakeholders / Community / Government • Change Management
FEL DECISION GATE PROCESS LEVEL 1

Phase Sub-Gates – Handover Points Gates – Key Decision Points

Objective of Phase

Key Decision to be made

Key Activity

Resource Category

Class of Estimate

Focus Activities ( Level 1 )

Peer Reviews

Key Deliverables
VALUE ASSURANCE - DECISION GATE REVIEW PROCESS

ExCo advise Board

Decision Executive
Decision Gate Review Review Team present of Decision
Recommendation presents
Meeting Recommendation
to Decision Executive
To ExCo

Review Carryout Review Issue DG review

Deliverables Session Report

Seek ExCo
endorsement of This part is
OU leader, supported by decision & approval relevant to
Deliverables to be issued prior team, present Gate Keeper firms up Review Team present
to review meeting to allow “Case to Proceed” on DG Recommendation
of action plan Key
sufficient time for the review specific GATE . . Decision
review report. to OU Lead & Team
time varies per Showing all key If no concurrence,
size/complexity of the project. deliverables. DE and Review Team
Gates
Review forum runs Provide Feed
Review team members to structured Q/A session back to OU to meet OU lead and
review and bring observations facilitated by Gate Lead/Head on revisit action plan.
to review meeting Keeper. observations
Observations are
recorded. OU Lead & Team
closeout actions in line
Key Roles: with agreed plan
Present / Discuss
Decision Executive: Takes overall accountability on Decision Gates
Gate Keeper:
findings and insights
Chair DG review sessions. and agreement with
Presents to DE on recommendations OU lead on plan of
DG Review Team: action.
Review and provide key gaps if any and recommendations from their respective
areas. Final Report
Governance Manager to Governance manager
FEL JOINT VENTURE FINANCE & COST INTERFACES

Corporate Financial Control

JV
ORACLE BI
Expenditure Statement
/ SAP HANA

AFE Process Accounts Payable

Level 1 Cost Manager
(Budgets,
Level 2 Estimate,
Forecast)
Level 3
Dashboard
Cost / Forecasts
Finance & JV Group Estimate Models Schedule
IHI Phasing

Monthly Reports
Cost /
Cost / Schedule
Schedule
Risk Model
Trends
Areas of Focus

 Development proposals are aligned with Company’s Business objectives

 Possible subsurface outcomes have been considered

 Agreement has been reached on Concept proposed, meeting needs of SoR.

 FDP has been prepared, internally approved and issued to JV in alignment with this concept

 An integrated package of sufficiently mature work has been delivered to underpin this decision.

 Project Objectives clearly defined, plans for subsequent phase in place aligned with those Objectives.

 Key Stakeholders are aligned with plans & their ongoing engagement/management roles in place

 Initial PEP , contract strategy and plan are aligned with the development concept.

 Schedule to Gate 4 (sanction) is appropriate and realistic and includes adequate resources

 Roles, responsibilities and accountabilities are assigned, understood and documented.

 Verify team used FEL, peer assists, benchmarking or appropriate method to assure quality of work.

 Risks are identified, included in a Risk Management Plan,

DEFINE PHASE ACTIVITIES & DELIVERABLES
“Is everything in place to ensure success?”
2 3 4 5
Appraise/
Explore Select Define Execute Operate
Assess
• Key Decisions
• Objectives • Gate 4a – Handover from Developments to Projects
• Gain approval of FDP • Gate 4 – Agree state of readiness to proceed
• Fully define concept incl FEED & ITT of main packages. • Authorise funds for full sanction of Project

• Deliverables (Subject to Project Size & Complexity)

• Focus Activities • Final Business Proposal inc Updated Economics
• Finalise basis of design • Approved FDP
• Finalise well basis of design • Project Specifications, Codes & Standards
• FEED/ Technical & Functional specifications • Asset/Operating Plan
• Mobilise project team / project office • PEP L3 Schedule & Class 3 Cost & Performance Metrics
• Secure land contingent on final investment decision / ROU’s • Interface Management Plan
• Execution Planning • Risk Management Plan. / Quality Assurance Plan
• Government & Environmental approvals • HAZOP / HAZID
• Implement Management of Change • HSE Plan & Contractor HSE MP
• Prepare contracts / T&C’s / Scopes of work • Emergency Response Plan (ERP)
• Finance sign-off on contracts - Tax efficiencies • CR Management Plan & Compliance report
• Tender & Review all major facility contracts • Public Consultation Plan (PCDP)
• Tender & review all drilling/wells contracts • Major Contracts recommendations
• Define long lead item commitment plan • Environmental Clearance
• Engage Operations Manager • Lessons Learned review & Compile
• Prepare Oil/Gas sales agreement(s) • AFE for Construct Phase
• Oil/Gas/LNG sales agreement (HOA)
 DEFINE PHASE TYPICAL CLOSE OUT TOPICS

 All relevant actions from previous reviews / audits have been closed out.

 FDP approved by all stakeholders with all regulatory agreements in place

to permit full execution phase and commitment of funds to take place.

 Project Objectives clearly defined , plans for execution in place aligned with Objectives.

 Key Stakeholders aligned with plans for execution: incl. their engagement/management.

 Project execution, contracting strategies & plans appropriate for the level of definition

 Residual risk & uncertainty aligned with Business Environment and market conditions.

 Planned contracting tactics appropriate covering both major and minor contracts

 Sound Business Case for pursuing the opportunity exists.

 Project ready to proceed to the next Phase.

 Key Project personnel in place to initiate execution according to the plan (PEP)
STRUCTURED RELEASE OF GOVERNING DOCUMENTS

Initial Field Development

Field Development Plan Plan

Final
Decision Based
Strategic Project Execution
Project Execution
Project Execution Plan
Plan
Plan

Operations
Philosophy Facilities
Execution
Statement of Project Contracts
Requirement FEED Specifications

Concept Selection
Report

Contract Strategy

Alignment with Key Decision Making

 STRUCTURED OF GOVERNING DOCUMENTS
• Field Development Plan (FDP)

• Describes the reservoir and the drilling and production plans for the full development and the concept

• proposed to deliver the assessed production profile.

• FDP is Fundamental basis for Partner and Government Sanction

• Concept Selection Report

• Records the screening of development concepts, the justification for the selected concept

• Gives scope, boundaries, constraints main associated risks

• Operations Philosophy

• The Operations Philosophy designed for requirements of the Basis of Design

• BOD reconcile Operations function ie critical production requirements.

• Statement of Requirements (SOR)

• Defines the boundary conditions for the development covering the key aspects

• Aspects of surface and subsurface facilities and the functional requirements.

POST FID Project planning & reporting HEIRARCHY
Post FID : HIERARCHAL LEVELS OF planning
Progress Management System (PMS)
POST FID COST / SCHEDULE EvaluatION – Actual vs. Plan + EAC

Cost forecast by PMO basis

Independent cost forecast by
commitments and trends to
PMA-60% profitability Actual versus plan
date

Current commitment
backlog

Actual Predicted
Gap between commitment plan and forecast indicates Gap between VOWD and
possible delay to project commitment – potential schedule
slippage
Front end loading CAPITAL PROJECTS

in the new energies sector

Post fid project management

ANY QUESTIONS ?
 LNG & New Energies Sector

PORTFOLIO, PROGRAM & CAPITAL PROJECTS (P3O)

APPRAISAL DEVELOPMENT & REALISATION

CORPORATE PORTFOLIO
VALUE ASSURANCE METHODOLOGY

MINIMISE VALUE EROSION TO MAXIMISE. R.O.A.C.E

DECISION SUPPORT : Stage gates concept to asset realisation
DECISION SUPPORT – ENITRE PORTFOLIO front end loading MAP
DECISION SUPPORT CORPORATE portfolio MANAGEMENT
decision support - analyses of business processes
DECISION SUPPORT – influences on PORTFOLIO PLANNING
DECISION SUPPORT - portfolio capital ASSET INVESTMENT RISKS
DECISION SUPPORT + investment RISK / RETURN ANALYTICS
DECISION SUPPORT - ASSET Value Creation / Erosion
DECISION SUPPORT - Cost Types to Optmise for Maximum ROACE
DECISION SUPPORT - Cost TYPES for portfolio ANALYTICS
DECISION SUPPORT : Systemic, Inherent & Contingent RISKS
DECISION SUPPORT – QUANTATIVE schedule Risk Analysis
DECISION SUPPORT - Qualatative Probability / Impact Matrices
DECISION SUPPORT - cost control in project life cycle
DECISION SUPPORT – example calculation of NPV at Risk
DECISION SUPPORT - cost engineering terminology & Definitions

Cost estimating An approximation of the probable cost of a Product,

Program or Project, computed on the basis of available
information

Cost estimate provides

 Clarity in scope
 Confidence in cost
 Information to support the development of
Business plans
Field development plans
Project controls
Evaluate alternate options for optimisation of design
Project controls
Evaluate alternate options for optimisation of design
 An approved cost estimate at any class becomes a control estimate
 it is fixed in cost and time
DECISION SUPPORT - Cost Control & Reporting across Life-Cycle

Explore 1 Appraise 2 Select 3 Define 4 Execute 5

Project delivery
Estimating and Budgeting
Cost Control and Reporting

Cost Control Cost Reporting .

.
• Monitor / Control Commitments • Reporting Cost Forecasts
• Managing Trends • Cost Curves (EVM based)
• Tracking Actual Costs • Cost Dash Boards
• Ascertaining the VOWD • Annual Work Program &
• Analyze the Cost to go Budget (WP&B)
• Develop Cost Forecasts • Input to Corporate Planning

Cost Control Cost Reporting

DECISION SUPPORT - Estimating Cost / Schedule/ Resouce Flow
DECISION SUPPORT - Cost / Schedule - Earned Value Metrics
DECISION SUPPORT- Earned Value Analysis - Graphics
DECISION SUPPORT – independent life cycle Risk Analysis
DECISION SUPPORT – mathematics of Monte-Carlo Simulation
DECISION support - probability distributions & Sensitivity
DECISION SUPPORT - Qualatative Risk Register
DECISION SUPPORT - Schedule Risk Analysis
DECISION SUPPORT : Uniform Cost / Value Profile
DECISION SUPPORT - COST / SCHEDULE Convergence
DECISION SUPPORT - Cost simulation Profiles
DECISION SUPPORT - Risk Sensitivities - Tornado Graph
DECISION SUPPORT - Cost / Schedule Tornado Graphs
DECISION SUPPORT - Risk Distribution Analyses (post-mitigation)
DECISION SUPPORT - Historical E&P Cost / schedule DeviationS
DECISION SUPPORT - NPV vs revenue Growth - Scenarios
Cost / Schedule Risk Deviation - Scatter Plot
pre- FID : Decision Tree Analytics
Reporting Analytics Dashboard : KPI Metrics
CORPORATE DECISION ON FINAL CAPITAL INVESTMENT (FID)
FEL : Detailed EARNED VALUE ANALYSIS & Reporting
FEL APPLICATION - IMPACT on value ACROSS PROJECT PHASES
Energy capital projects 2023 average Cost schedule deviation
FEL POSITIVE EFFECT OF CYCLE TIMES ON EXECUTION SCHEDULES
FEL : relative CAPITAL COST IMPROVEMENTs
Front-End Loading : capital PROJECT PROCESS
Front-End Loading vital to maximise value improvement
Front-End Loading effect on capital efficiency and R.O.A.C.E.
ANY QUESTIONS ?