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Making projects more integrated

Monday, October 17, 2016

Imagine planning entire development projects around a certain profit margin - rather than trying to be as effective as you can and hoping you achieve a project margin at the end of it? IO Oil and Gas explains how it could work.

Mark Dixon, COO with London consultancy IO Oil and Gas, suggested that the industry should look at development projects in a completely integrated way, and design them around achieving a certain profit margin.

He was speaking at the 'Subsea Processing and Infrastructure Session' at Subsea Expo in Aberdeen on February 3.

So the work starts with the end in mind, identifies the top level requirements, and then they can cascade down.

You can start with an understanding of the entire project, both subsurface and surface, and identify what you think are the most important issues and then cascade down. For example, you can see which contractor commitments are the most important.

If there is a concern, for example different vendors not agreeing on a standard for a subsea electrical connector, this model provides a basis to work out what the impact might be on the overall project. If it delays or increases the overall cost of subsea equipment, will that capsize the project.

This way you can 'understand how important or otherwise any piece of the project is.'

You can see what happens if you change any part of the project.

You can always see where you are, in terms of what net present value (NPV) you expect the project to be worth, and what your uncertainties are.

You can refine your 'master picture model' until you have the desired business outcome - a positive net present value of the project, and a sensitivity you can live with (ie if production is at the lower end of the expected range, you can still operate).

'You focus on things which really matter, not on the detail,' he says.

'You can see how you generate value and where the break points are. As flow goes up and down, you can see what affect it has on value. You can make sure you hit minimum returns.'

Above all, you 'understand how your system works.'

This practise is known as 'systems thinking', and is widely used in other complex industry sectors, such as aviation and defence, to understand the interdependencies and the levers, he said.

Working with vendors

This way, oil companies and contractors can work together, defining where they want to get to, and working with a common definition of value.

Instead of going to the market and saying 'right guys, what are you going to do for us' to try to get the best price, you start off with cost as an independent variable (ie how much you are able to spend) and ask the supply chain what they can do for that cost, he said.

This way you can 'take advantage of the market without taking advantage of the supply chain,' he said.


Big areas of uncertainty come from the rate of oil flows from the subsurface, and the amount of time projects will take to get onstream, both of which have a big impact on the viability of the overall project.

You can model what you think the variance is, in production rates and through life costs, using error bars. 'You can see how robust your solution is,' he said.

'Robust' is a different objective to 'optimised', and leads to a different way of looking at it, he said. 'Optimised' suggests that you work out exactly where the parameters should be. But you can't do this because of the uncertainty involved.

Improving confidence

It would be good to get certainty back. 'There's nothing more beautiful than an operator and contractor having high confidence they can deliver any time,' he said.

People are not sure if they can produce at sub $40 or maybe sub $30 oil.
'Certainty is a big word.

Doing it this way leads to higher confidence among all parties that the project will actually go ahead. This is very important. Many projects are 'recycled' in the industry - some development work goes into them and then they are shelved for a while - and people do not apply their best work to projects they don't have confidence in.

IO Oil and Gas

IO Oil and Gas is a joint venture between GE and engineering company McDermott, aiming to help the industry move forward in the current environment, and help struggling projects get going and stick to their budgets.

IO Oil and Gas used this technique in a project for a major operator, developing compression facility on a large gas field.

The company wanted to spend the right amount on compression every year during the lifecycle of the project, taking into consideration the increased requirement for compression as the field declines.

Changing behaviour

When the industry looks at what it needs to change, the focus should be on behaviour, not technology or human capital, he said.

'It is not about engineering, the sector has enough engineering,' he said.

When it comes to technology, 'the sector is incredibly good,' he said. 'We see the supply chain leading the way. I don't see that's an area we are going to stop doing.'

If the industry can work more efficiently, 'we won't have a human capital problem.'

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