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AVEVA ProCon FPSO Europe Congress 2016


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Rock, Paper, Scissors
A Case Study on complementing cost-savings with strong governance and capital discipline

A recent survey* of 9 FPSO projects identified a combined 38% cost overrun totaling $2.5bn in wasted capital. One of the identified causal factors behind this dead-weight additional capital was “a lack of clarity regarding contract responsibilities”.

8over8 presented a case study where efficiency gains were generated in the world’s first FLNG project by implementing a proven system of strong governance and commercial discipline. The result was connected decision making and reduced incidence of conflict and claims amongst stakeholders in the world’s first FLNG project.

*Source: Douglas Westwood“ FPSO Industry at a Crossroads”- An Industry Whitepaper

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AVEVA ProCon FPSO Europe Congress 2016

  1. 1. FPSO Congress ROCK, PAPER, SCISSORS A Case Study on complementing cost-savings with strong governance and capital discipline. February 2016
  2. 2. Introduction to 8over8 FPSO 2nd Annual Congress | 2016 • Founded in 2000 • Acquired by Aveva AVV (LON) in Jan 2015) • Combined Revenue of £345m (FY 2014) • Software author of ProCon delivering a Complete Contract Control solution to complex projects in: • Oil & Gas (upstream, midstream & downstream) • EPC • Petrochemicals, Chemicals • Mining & Minerals • Utilities • Complex Infrastructure ( Rail, Airports, Smart Cities, Construction) 2 250 Capital projects, $500bn of managed assets => up to 5% saving on project costs
  3. 3. Context: The Cost /Price Gap facing the industry FPSO 2nd Annual Congress | 2016 3 Re-base the cost and price index at 100 in 2004 Price Index now below 100 But Cost Index now above 170!
  4. 4. Context FPSO 2nd Annual Congress | 2016 4 A B C A Group • Projects sanctioned in an inflationary world of both price and cost B Group • At Risk- High cost base projects sanctioned in the expectation of higher prices C Group • Many cancelled projects FEED stage projects seeking to re negotiate cost to completion
  5. 5. Context FPSO 2nd Annual Congress | 2016 5 Price per barrel in 2004 was $45 Project execution needs to capture efficiency gains from governance and capital discipline How to close this gap? Price per barrel now BELOW $40
  6. 6. Context: linked to Case study FPSO 2nd Annual Congress | 2016 • At below $40 oil, labour and materials need a drop of 40% to 50% to breakeven. • These comprise 75% of projects costs - a downward shift in cost of this quantum will not happen. • Essential that the industry finds efficiencies elsewhere outside of supply chain. 6 Enhanced Capital discipline & Strong governance are an essential part of the solution
  7. 7. Context FPSO 2nd Annual Congress | 2016 7 Outside our Control • Capital discipline and strong governance • Defined Business Processes for all contractor/operator interactions. • Structured Communications via a single channel. • Advance Warning Indicators. • Collaborative Change Control Management. • Audit Trail. Inside our Control
  8. 8. Case study 8over8 & Prelude FPSO 2nd Annual Congress | 2016 • March 2010 - Shell awards EPCI for its first FLNG platform to Technip Samsung consortium. • Pioneering project - essential to look at innovative ideas to mitigate against cost overruns and delays, protect against claims, provide leading indicators and manage all change order requests. • 8over8’s Procon selected at Shell’s corporate contractual risk management solution. • Contract execution best practice business processes embedded in Shell’s corporate ProCon platform and available to the global Prelude Team. • 1300 ProCon Users across Shell globally at present. 8
  9. 9. Case study Prelude FPSO 2nd Annual Congress | 2016 9 Global supply Chain • South Korea - Hull and Topsides • Dubai - Turret Mooring System (SBM) • Malaysia - subsea Christmas trees, manifolds, and control equipment. • France - Loading Arms ( FMC) • Spain - Anchors ( Mooring Chains)
  10. 10. Case study Prelude FPSO 2nd Annual Congress | 2016 10 • March 2010-EPCI awarded to Technip Samsung – construction /installation • EPCI plus all sub-sea contracts (FMC,SBM..) awarded by Shell managed in ProCon • December 2012- 8over8’s ProCon implemented • 14,000 + contractual communications managed in Procon
  11. 11. Case study Prelude Example Communication Templates FPSO 2nd Annual Congress | 2016 11 • Consistent terminology across all contracts • Consistent templates and formats across all contracts • Consistent reporting across all contracts • Reduced administration for both parties • Increased clarity about outstanding issues and risks between parties
  12. 12. Case study Prelude Example Workflows FPSO 2nd Annual Congress | 2016 12
  13. 13. Case study Prelude Example Leading Indicators FPSO 2nd Annual Congress | 2016 13
  14. 14. FPSO 2nd Annual Congress | 2016 14 Enhanced Capital Discipline Manage Risk Connect Decision makers Establish Contractual Liability Complete Contract Control Case study Prelude Outcome
  15. 15. FPSO 2nd Annual Congress | 2016 • Enforced Discipline and Transparency – All contractually significant communications received, recorded, reviewed, issued via ProCon – Repeated reminders to respond to outstanding communication – All Operator to Contractor communications approved by single authority (Company Representative) – All parties share same database of communication registers and final decisions made - single source of truth • Claims Defence Readiness – No claims….yet, but – Complete audit trail of key decisions made throughout project is available • Streamlined & Connected Decision Making – ProCon available and used by all functions for contractually significant communications: • CP • Finance • Project Services • Engineering • Legal • Stakeholders • In first 2 years… – 14,000+ contractual communications – Approximately 60 Variations managed 15 Case study Prelude Outcomes
  16. 16. 16 ProCon preserves the “red thread” of personal and corporate responsibility through the chain of communications linked to contract obligations. Owner Operator ProConOperatorPortal ProConContractorPortal $ Contractor DISCIPLINE • Risks • Reviews • Schedule Impact • Who? • Responsible • Accountable • Consulted • Informed • Instructed • When? • Compliance • Supporting Documents • Decisions • Obligations Independent source of truth acts to minimize and defend against claims Claims defense – “building a better bundle” Traceability of every decision, linked to supporting evidence, in context, and time lined. Case study Prelude Outcomes
  17. 17. View from the Industry FPSO 2nd Annual Congress | 2016 17 “The Prelude deployment of ProCon has been a pathfinder for Shell and is the benchmark for other Shell projects to work against.“ Contracting & Procurement Manager Prelude FLNG “If communications problems are at the heart of the problems with a project, companies should improve the governance structure to increase oversight of the construction process.” PWC (2013) “Correcting the course of capital projects” “From this categorization, it was noticed that communication ,design, and planning represent the highest percentage in delay factors.” Research Paper Adel Al Subaih,( 2015) Senior Project Engineer in ADNOC “A recent survey of 9 FPSO projects identified a combined 38% cost overrun totalling $2.5bn in wasted capital. One of the identified causal factors was a "a lack of clarity regarding contract responsibilities." Douglas Westwood “ FPSO Industry at a Crossroads” “Samsung has revealed it is expected to make a near $1 billion loss on the Roy Hill project” Various- 2015
  18. 18. Summary FPSO 2nd Annual Congress | 2016 • Large complex capital projects in this low oil price climate require proactive contract risk management. Improve what is within your control. • Enhanced governance and strong capital discipline are value adding levers within your control. • Standardise on business processes to govern all interactions with contractors. • Manage all contractual obligations within a common shared platform with your contractor. • Establish contractual liability for each change order request AT INCEPTION of the request. • Mandate a single communication channel. • Use Early Warning Indicators to mitigate against risk. 18
  19. 19. Thank You! Questions? FPSO 2nd Annual Congress | 2016 19 Clare Colhoun CEO 8over8 Ltd. | An Aveva Group Company M: +44(0) 7748 634748
  20. 20. © 2016 8over8, an AVEVA Group company. All rights reserved. All trademarks herein are the property of their respective owners. 8over8 and the 8over8 logo are trademarks of 8over8. @8over8 /8over8