02 Preliminary Studies
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Management of Medium-Size / Revamping Projects Oil & Gas Downstream Projects 2. Preliminary Studies
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Foreword The management of projects is not an exact science. The elements of the process are not complex. However : • The management of projects is based on multiple human contacts. Inside and outside the project, conflicts and contradictions may arise
• There are many interfaces to manage. The most delicate technology issues are often dealt by people coming from different cultures • Management of Projects keeps changing… but basic principles remain, and must be rigorously applied for projects to be successful © 2011 - IFP Training
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Management of Medium-Size / Revamping Projects: course content I.
Introduction
II.
Preliminary Studies
III. Basic Engineering (or FEED) IV. EPC Contracting
V.
EPC Organisation, Engineering Management
VI. Procurement Management VII. HSE, Quality and Risk Management IX. Construction and Fabrication Management X.
Completion / Commissioning / Startup / Closure
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VIII. Project Control (cost/schedule)
Module 2 Contents 1. Scope and Objectives
04 - 07
2. Technical studies
08 - 19
3. Project Team Organization
20 - 22
4. Deliverables
23 - 26
5. Preliminary Project Planning
27 - 49
ATTACHMENTS (slides 50 to 66)
II. Progress control
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I. Economic justification
Scope and Objectives
Scope: • • • •
Confirmation of technical feasibility Project justification (economic and HSE) Technical schemes or concepts Execution Plan principles
Objectives: • • • •
Select the overall technical solution Evaluate Project cost and schedule Appraise uncertainty and risks Prepare approval dossier to move to next step (Basic Engineering) © 2011 - IFP Training
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Scope and Objectives Key elements
Technical studies
Risk reduction
Phases definition Appraisal Development Schemes & concept Budget and Schedule Execution Principles
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Dossier for Project Decision to move to FEED
Scope and Objectives Key elements
1. Select the “best” technical scheme for the Project (based on technical, cost, risks & economical criteria) in coordination with, and input from, Company concerned parties 2. Evaluate Project risks, starting with HSE, and manage them 3. Study how the project will be performed (Project Plan) with recommendations for next Project stages 4. Document the technical studies, Project Risks, Project Definition (“SOW”: Scope Of Work) and Project planning 5. Obtain Owner and Project Stakeholders Approvals © 2011 - IFP Training
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Technical studies Disciplines
Process basis • Base Case Process study for facilities to be built • Plant performance tests (revamping/debottleneck) • Utilities additional requirements, available resources
Physical configuration • Plot Plan & Lay-out studies (particularly for Revamping) • Structural & foundations outlines for revamping
Project philosophy
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• List of possible alternates to evaluate • Electrical & Controls impacts, philosophy • Modularisation concept if applicable
Technical studies First reviews
Project Reviews • • • • • •
Conceptual design review Value Engineering / Cold Eye Review Safety review Constructability review Coordination review Economical and procurement reviews
HSE & Risk Reviews
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• Depending on Project size/impact: HAZID, HAZOP, QRA, other • Preparation of Project Risks register • First draft of Environmental Impact Statement
Technical studies First reviews
Workshop or series of meetings with Project Team participants • Should include site Operations and Technology people • Engineering Contractor participation may be useful
Discuss project basis, expectations, execution constraints • Focus on consistency with site infrastructure and operations − Reliability performance, shutdown constraints and schedule − Available space, utilities and infrastructure resources − Competence and professionalism of Owner and Operator
• Consider resources aspects (quantity/quality) for future operation
Brainstorm on possible alternates
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• Selecting a limited number of realistic cases • Preferring existing know-how to innovation • Define further analysis to be performed
Technical studies Sample Review checklist
Infrastructure Execution Environment
Process 1.
Capacity (flow rate)
1.
Layout & constraints
2.
Technology selection
2.
Electrical Distribution & Power Management System
3.
Treatment of feed
3.
Control Systems
4.
Fractionation
4.
Buildings
5.
Power Generation & Heat Integration
5.
Construction & constructability
6.
Utilities, catalysts, chemicals
6.
Modularisation
7.
Effluents, flare
7.
Civil Works
8.
Water Treatment & Disposal
8.
Air Emissions
9.
Product storage
9.
Effluent Water Treatment & Disposal
10. Environmental Impact Assessment
11. Interconnecting with pipe networks
11. Interfaces 12. Authority Approval, permits and authorizations 13. Local Content 14. Project Execution Strategy
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10. Offsite storage, transfer, loading
Technical studies Sample Review checklist (Power Plant) Process units energy requirements • Type of energy required, steam vs power selection • Turbine overhaul frequency, duration, backup supply • Load flexibility, steam shedding / power shedding constraints
Energy Cost Effectiveness: • Most energy-effective cycle (open, combined, cogeneration) • Heat integration limits, energy value assumptions • CO2 penalties and other environmental taxes • Regulatory reporting requirements, metering
Technology questions: • Best gas turbine type with regard to equipment reliability/cost • Environmental protection parameters (low NOx, flue gas temp) • Equipment metallurgy (resistance, cost, corrosion)
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Technical studies Comparison of alternates
Alternates comparison: key aspects • • • • • • • •
HSE advantages & drawbacks Technical advantages & drawbacks Compatibility with existing facilities, future expansions Operability, maintenability, future flexibility Economic justification (cost difference vs benefits) Compatibility with expected budgets (CAPEX/OPEX) Project risks (proven process vs technical innovation) Execution risks (schedule, cost, field construction)
The sooner alternates and considered/evaluated, the better
Alternates considered too late cost more than they save
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Technical studies Capex commitments Investment 100%
50%
Construction Basic or FEED engineering
Major commitment generated by early technical decisions Conceptual Preliminary studies studies
On-site operations
(Pre-FEED) Actual commitments towards suppliers
0%
Time
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PRODUCTION START-UP
Technical studies Capex commitments
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Technical studies Value engineering / Cold eye review
How can we select the best project design ?
If project “deserves” it (medium-size, or complex), perform: • « Value Engineering » Review: − − − −
once the base concept is established includes the Project Team members and Site representatives added value in having an external Consultant as Chairman the team questions each functionality using a formal procedure
• « Cold Eye Review »: − similar process to the Value Engineering Review − includes « Peer » representatives not being project team members
There are always several possible answers to a technical problem
Be prepared to accept constructive critique and modify your view
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Technical studies Value engineering / Cold eye review process
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Technical studies Sample Cold eye review report Description of proposals issued in March, 2012
Leader
Target date
1
Evaluate one-stage reactor at high pressure, instead of HP+LP (simpler and lower CAPEX, but energy cost increase)
Technology
June, 2012
2
Once-through water cooling for compressor (vs air cooler)
Engineering
April, 2012
3
Conceptual cost / reliability benefits of spare compressor
Production
May, 2012
4
Standardization of exchangers (vs « optimized design » for each)
Engineering
April, 2012
5
Pump standardization: same pump casing for various impellers
Engineering
May, 2012
6
Full automation of demin water resins regeneration system, including PLC, ROV and manpower impact
Production
May, 2012
7
Pre-investment on oil tank size for future capacity debottleneck
Marketing
June, 2012
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N°
Project Team organization Highlights
Owner may perform or partly contract preliminary studies, depending on: • His knowledge of related processes • His technical resources available • The feasibility studies required • The use of proprietary processes or technology (licensors)
Risks are more important in existing facilities (Debottlenecking, Revamping)
Owner experience and site knowledge is very useful at early stages
Various organizations, more or less strong, can be built (see next pages)
Even when preliminary studies are contracted out, Owner remains the leader
The Owner Project Team has to manage, coordinate and take decisions © 2011 - IFP Training
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Project Team organization Multidisciplinary team coordination HSE & Sustainable Development
Economics
Construction
Operations
Procurement
Coordination
Engineering
Infrastructures Design & Layout
Commissioning
Completion & Start-up
Cost Estimate/Schedule
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Research & Development
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New Technology
Process Design
Engineering
Operations
21
Project Team organization Example of Integrated Team Owner
Contractor (on-site)
Rotating specialists
Site Manager
Production
Maintenance
Contractor (off-site)
Project Manager
Computer resources
Drafting offices
Legal experts
(piping, E/I, civil)
etc. Process
Purchasing
Support Sces
Construction supervision
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QA/QC
Equipment suppliers Field subcontractors
22
Deliverables Preliminary studies (typical)
Basis of design (and basic design data) specification, Scope Of Work
Preliminary Study Technical Report, including documents: • • • • •
Process material balances Main utility requirements Process description, PFD, preliminary P&ID List of main equipment Preliminary plot plan
Project Review Reports
List of alternates considered, evaluation and proposed decision
Design philosophy (modularization, standardization, process controls)
Operating philosophy (principles, staffing, start-up)
Permanent buildings: type, approximate size, function
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Deliverables Preliminary studies (specific to Revamping projects)
Process description: • Marked-up PFD / P&ID (installation & dismantling) • Increase in utility requirements, by main utility (steam, power, N2) • Known capacity limits, plant test results
List of tie-ins and tie-in strategy
Position of new equipment on existing Plot Plans: • • • •
Main pressure vessels Pipe racks, underground networks Storage tanks, modification of product loading facilities Safety facilities (fire fighting, gas detection)
Electrical and Process Control changes: • Electrical substation and cable path drawings • Controls Architecture Diagram
Existing buildings mark-up for modification
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Deliverables Scope Of Work (SOW)
Summarizes the Technical Plan for the Project facilities defined in the preliminary study; it formalizes the “Scope Of Work”
Ensure that approvers (Designer, Project Manager, Operator) have understood and agreed the fundamental project choices
Subsequent purposes: during project life • It will allow Owner to check that the Project actually designed remains in line with the approved initial requirements • It will serve as a basis to evaluate and record main scope changes proposed and agreed during the Project execution • It will be used, after closure, to verify that the Project has actually reached its business objectives, and if not, eventually improve it © 2011 - IFP Training
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Deliverables Scope Of Work (SOW)
The document will cover technical description: • Process Units, heating & cooling media • Power Generation & Utilities Units • Offsite units, storage, transfer, loading, unloading • Interconnections with existing facilities • Upgrading / revamping requirements
Key elements of the project scope will be addressed: • Feedstocks, Technology/Process, Capacity of each process unit • Utilities (air, water, chemicals, …)
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• Storage, key equipment size & type, sparing philosophy, phasing
Preliminary Project Plan
Justification (economic and/or HSE)
Preliminary project schedule
Conceptual CAPEX estimate
Project Execution Plan
Risks analysis & management © 2011 - IFP Training
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Preliminary Project Planning Economic justification Invest or not in a Project? What is the preferred solution among alternatives?
The justification is the first thing to validate before starting to work
Value of the Project is best reflected by the Net Present Value (NPV)
NPV is the Sum of Discounted Cash Flows generated by the Project
NPV will depend on: • Technical options • Economic Assumptions • Tax situation © 2011 - IFP Training
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Preliminary Project Planning Economic justification
CAPEX estimate • Total Erected Cost of the project
Internal Rate of Return (I.R.R) is the main economical item or way used to decide a downstream investment
OPEX estimate • Raw materials cost • Fuel and Utilities cost • Operation cost, Maintenance cost
Revenues estimate • Estimated products prices
Above elements are used to determine Project NPV and profitability
They are also used to compare alternates profitability (« Delta NPV » can be calculated, integrating only CAPEX & OPEX differences between alternates)
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Preliminary Project Planning Justification
On Medium-Size projects, there may be other more important factors: • Pay-Back Time (when short-term profits are critical) • Profitability Index (when financial resource is a constraint)
HSE justification (semi-quantitative) is also very important • Matrix used to evaluate project HSE justification • Project should allow to move from high-risk to lower • Matrix can also be used to evaluate project changes
Economic and HSE justifications may be combined
If justification borderline, this may be the key to obtain approval
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Preliminary Project Planning EHS Justification LEVEL
Safety
Envirt
I
No significant personnel injury
No impact on environment
Never heard of any occurrence in the world
Has already occurrred in Petrochemicals
Occurred once in company, but not here
Several times per year in the company
Occurs often of permanently in our plant
Low Risk
II
Minor injury, no long-term impact
Slight impact, hard to perceive
III
Major injury with longterm impact
Significant impact, local perception
IV
Fatality
Major impact on area, national perception
Medium Risk
V
Several fatalities
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Massive impact, worldwide perception
© 2011 - IFP Training
High Risk
Preliminary project schedule
At Conceptual Stage, a Project Schedule will be prepared using a simple software such as Microsoft Project to show the Project Phases to Completion: • Basic or FEED • Contracting for EPC • Time for Approvals by Company • Foreseen Long Lead Items (LLI) • EPC phase • Planned shutdown duration (if known) for revamping projects Plant shut-down times & durations is a key issue. • A first approach of required Plant S/Ds & their duration will be made. A preliminary S/D schedule (PERT Chart) will preferably be prepared to identify the critical path.
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• A critical activity such as column retraying, compressor replacement, furnace revamp… may set the shut-down duration while other activities can be performed in parallel.
Conceptual CAPEX estimate Highlights
CAPEX estimate accuracy desired at this stage: +/- 30 % Accuracy may be hard to reach on Medium-Size projects, depending on: • • • •
Project complexity and location Onshore with offshore extension projects Concerned facilities More difficult for projects with modifications to existing facilities
The CAPEX estimating method will depend on: • Cost database completeness and adequacy at that specific location, recent local experience from Engineering Contractor, prices volatility • Facilities involved by the project (onshore, new or revamped units, utilities, interconnections with brown field) • Experience of the company, quality of the available data
At this stage, assumptions/uncertainties/risks are critical to document See AACE methodology and Nelson Farrar indexes.
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Conceptual CAPEX estimate Structure
By courtesy of Exxon and Shell Main Equipment Bulk Fabrication/Construction(onshore/offshore) Transportation Temporary Facilities Construction camps Engineering Services Management & Supervision Surveys
Insurance Commissioning
Direct Costs
+ Indirect Costs
+ General Expenses
+ Associated Expenses
+ Contingencies
= Facilities Cost Estimate
Fabrication / Construction cost are the highest costs and the most difficult to estimate, in particular for works in revamped process units and brown field; they are very site dependent (productivity) RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
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Direct Costs + Indirect Costs = Technical Costs
Conceptual CAPEX estimate Methodology
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Conceptual CAPEX estimate Methodology
Estimating methods are global or by factorisation as long as project details such as P&IDs are not prepared; the estimating methodology will combine available cost data base and toolbox tools
Estimate cost data breakdowns, unit costs etc. from similar recent project units at the location, or a similar (in terms of cost) location with corrections, escalation, and other foreseen different project conditions. Often the estimators will use units information from several projects.
Estimate must includes complexity and local coefficients.
Estimate have to include spare parts (2 years operation), material takeoff extra and surplus.
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Conceptual CAPEX estimate Methodology
Many « factors » are used for « factored estimates », mainly: • Correction using a scaling factor vs. unit or equipment capacity: P1 / Po = (C1 / Co)0.65 • For sized equipment, a “factored” estimate from equipment cost: P installed= K x P equipment
• K: 1.5 to 6, depending on equipment type & construction location. • For revamped areas another K1 factor is to be applied on top. The use of this method will depend on Owner (or assisting Contractor) practice (data base for applicable factors for equipment at the facilities).
• A global factor can be used on top of Direct Costs for Projects at the facilities: Project total cost = K x Project Direct Cost © 2011 - IFP Training
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Conceptual CAPEX estimate Methodology
Cost information is gathered from all possible sources at the time, e.g.: • Major equipment prices and special equipment or packages, towers, reactors, heat exchangers, water treatment, utilities and power equipments, etc.) from « budget » quotes from Vendors.
• Budget quotations from specialized parties (consultants, contractors..) for infrastructure works (buildings, roads, …) or for other specific packages (atmospheric tank storage, LPG storages, chemicals).
© 2011 - IFP Training
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Conceptual CAPEX estimate Methodology
Cost information is gathered from all possible sources at the time, e.g.: • Interconnecting preliminary quantities estimated by engineering from preliminary MTOs & unit costs used from previous project at the facilities for bulks procurement cost & for construction cost; quotations from vendors for large pipe / piperacks • For modules and skids fabrication, construction mhrs by ratios (volume or weight if estimated) and mhr cost from zones used (particularly if Company (site) has particular relationships established with given zones). • For specific equipments like air and water treatment: budget quotes from specialized contractors or vendors. • Engineering, construction supervision manhours may be estimated by ratios.
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• Contingencies or Profit&Loss factor, if estimate by a Contractor, added on top of the cost estimate
Project Execution Plan (PEP) Highlights
Purpose: define project objectives and strategy to reach them
Key aspects: • Organisation • Execution strategy • HSE, risks/uncertainties
Preliminary version prepared at this stage, then communicated and revised during Basic Engineering, then normally frozen
Discussed with all Project Stakeholders, needs formal approval by Owner Management at the right level © 2011 - IFP Training
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Project Execution Plan (PEP) Detailed content Executive Summary, Project Summary description
Summary of Preliminary Study report; main items to solve later
HSE aspects and risk analysis
Organisation/roles (Owner, Project Team, Operations) during execution
Authority Approvals & Regulatory administrative steps required
Global Project schedule, constraints related to shutdown and other Projects
Plan for Basic Engineering (or FEED if applicable)
Key aspects of Detail Engineering, Procurement, Fabrication, Construction, S/U
Proposed Contracting strategy
Key concerns and constraints, with proposed action plan to resolve them
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Project Execution Plan (PEP) Contracting strategy ... page 1 Preliminary Project Contracting Strategy is prepared, focusing on:
Project execution quality, cost, schedule and phasing
Project resources requirements analysis versus expected availability for the project and in the country, and resulting contracting plan / constraints in particular for: • Engineering Contractors • Transportation & Installation • Construction • Local content resources • Pre-qualification required from large and critical equipment Vendors © 2011 - IFP Training
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Project Execution Plan (PEP) Contracting strategy ... page 2
Preliminary Project Contracting Strategy is prepared, focusing on:
Local Content requirements
Contract(s) type for Basic or FEED, if required
Preliminary strategy for contract(s) for EPC phase is prepared considering work packages suited to project specifics and prequalification, discussions (as the case) with Vendors & Contractors.
© 2011 - IFP Training
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Project Execution Plan (PEP) Risk analysis
At this stage, a first risk analysis is performed
The method used is simple (check-list based, HAZID)
More detailed methods will be used later, but are not yet applicable, mainly by lack of appropriate information
First draft of Project Risk Register prepared listing identified risks and planned mitigation measures
Revamping/Debottleneck of existing facilities
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• Importance to check data on the field (don’t trust controlled documents) • Validate raw materials and products properties (use lab data) • Precautions to preserve Safety and Reliability: consider impact on Project Execution (cost, schedule, even sometimes alternates feasibility)
Project Execution Plan (PEP) Risk categories
© 2011 - IFP Training
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Preliminary studies Key points to keep in mind
Evaluate the economic potential added value of the project
Building early a multidisciplinary team is critical to success
Technical alternates should be listed and evaluated at that stage
Economic evaluation should include CAPEX and OPEX
SHE justification may help project approval by Owner
A preliminary Execution Plan should be prepared at that stage
Revamping projects need good knowledge of actual plant
Safety and Reliability constraints should be clearly addressed © 2011 - IFP Training
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ATTACHMENTS I. Economic Justification
II. Progress Control
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ATTACHMENT I Economic Justification
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Economic Justification (Operating Period = N years)
Revenues Capex
Opex Taxes Cash Flow = Cash Inflow – Cash Outflow Operating period Present years Investment
One must “bring” all cash flows from the future to the present time, i.e., discount all the project’s cash flows. RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
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It is not valid to compare funds received or spent at different periods.
Economic Justification
Net Present Value (N.P.V) Internal Rate of Return (I.R.R)
Pay-Out Time (P.O.T) / Exposure © 2011 - IFP Training
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Economic Justification Net Present Value
Net Present Value of a Cash Flow Profile
Year Discounting at a rate i Cash Flows After-Tax
0 1
(1+i)
CF0
CF1
…
1
C
…
N (1+i)N
…
CFN
(1+i)n
…
CFn
CF0 CF1/(1+i) … CFn/(1+i)n … CFN/(1+i)N Discounted Cash Flows Net Present Value = Sum of Discounted Cash Flows N
CFn NPV n n 0 (1 i )
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i = Discount Rate = Average Cost of Capital
Economic Justification Net Present Value
If NPV > 0, the project revenues are sufficient to: • • • •
pay all costs incurred by the project reimburse the capital invested remunerate it at rate equal to the discount rate in addition, create a profit for the company
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NPV > 0 measures the value created by the project
Economic Justification Internal Rate of Return
Rate at which the project remunerates the capital invested
NPV
IRR Discount Rate
Average Cost of Capital
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If Internal Rate of Return > company Discount Rate, then project NPV >0
Economic Justification Pay-Out Time / Exposure Time needed for the project cash-flow to reimburse the capital invested
M$
POT
0
EXPOSURE
1
2
3
4
Cash Flows
5
6
7
8
10
11
12
Acc. Cash Flows © 2011 - IFP Training
Starting date to be defined: • either 1st year of investment • or start of unit operation
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9
Economic Justification Pay-Out Time / Exposure
Accumulated net cash Flows flows Cumul des Cash
Flows Nets Net Cash cash flows - Discount rate 8%
Discount rate 8%
M$
300
400
200
200
100
0
0
-200
-100
-400
-200
-600
-300
M$
-800
0
1
2
3
4
5
6
7
8
9 10 11 12 Année years
0
1
2
3
4
5
6
7
8
9 10 11 12 Année years
What is the Pay-Out Time?
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What is the Financial exposure?
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ATTACHMENT II Progress control
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Progress control
A Concept study may require 2 to 6 months and few hundreds up to 10,000 Engineering manhours. Usual « Project Control » techniques will be used, with simple tools, to:
• Prepare the study budget (mobilisation bar charts on Excel to estimate mhrs + estimates from different participants for their scope) • Prepare the study schedule with planned progress curves (Excel or Milestone Project), overall, management and disciplines
• Follow & control the study progress
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− « Broken line » progress on the schedule − Hourly progress: ratio of expended mhrs to planned mhrs − Physical progress by assigning mhrs weights to the different disciplines / deliverables-activities / milestones for deliverables-activities − Forecast for completion
Progress control
A Concept study may require 2 to 6 months and few hundreds up to 10,000 Engineering manhours. • Follow & control the study cost − Costs are basically all-in mhrs cost x mhrs number − Expended cost, planned cost, forecast cost to be established on monthly basis
• Prepare a monthly progress report indicating key events, progress, costs, areas of concern etc. and including above control elements (a short weekly progress, or bi-weekly progress are advised, in particular for subcontracted studies)
© 2011 - IFP Training
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Progress control Progress control using BS 6079
Reference BS 6079
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Foreword The management of projects is not an exact science. The elements of the process are not complex. However : • The management of projects is based on multiple human contacts. Inside and outside the project, conflicts and contradictions may arise
• There are many interfaces to manage. The most delicate technology issues are often dealt by people coming from different cultures • Management of Projects keeps changing… but basic principles remain, and must be rigorously applied for projects to be successful © 2011 - IFP Training
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Management of Medium-Size / Revamping Projects: course content I.
Introduction
II.
Preliminary Studies
III. Basic Engineering (or FEED) IV. EPC Contracting
V.
EPC Organisation, Engineering Management
VI. Procurement Management VII. HSE, Quality and Risk Management IX. Construction and Fabrication Management X.
Completion / Commissioning / Startup / Closure
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VIII. Project Control (cost/schedule)
Module 2 Contents 1. Scope and Objectives
04 - 07
2. Technical studies
08 - 19
3. Project Team Organization
20 - 22
4. Deliverables
23 - 26
5. Preliminary Project Planning
27 - 49
ATTACHMENTS (slides 50 to 66)
II. Progress control
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I. Economic justification
Scope and Objectives
Scope: • • • •
Confirmation of technical feasibility Project justification (economic and HSE) Technical schemes or concepts Execution Plan principles
Objectives: • • • •
Select the overall technical solution Evaluate Project cost and schedule Appraise uncertainty and risks Prepare approval dossier to move to next step (Basic Engineering) © 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Scope and Objectives Key elements
Technical studies
Risk reduction
Phases definition Appraisal Development Schemes & concept Budget and Schedule Execution Principles
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Dossier for Project Decision to move to FEED
Scope and Objectives Key elements
1. Select the “best” technical scheme for the Project (based on technical, cost, risks & economical criteria) in coordination with, and input from, Company concerned parties 2. Evaluate Project risks, starting with HSE, and manage them 3. Study how the project will be performed (Project Plan) with recommendations for next Project stages 4. Document the technical studies, Project Risks, Project Definition (“SOW”: Scope Of Work) and Project planning 5. Obtain Owner and Project Stakeholders Approvals © 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Technical studies Disciplines
Process basis • Base Case Process study for facilities to be built • Plant performance tests (revamping/debottleneck) • Utilities additional requirements, available resources
Physical configuration • Plot Plan & Lay-out studies (particularly for Revamping) • Structural & foundations outlines for revamping
Project philosophy
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• List of possible alternates to evaluate • Electrical & Controls impacts, philosophy • Modularisation concept if applicable
Technical studies First reviews
Project Reviews • • • • • •
Conceptual design review Value Engineering / Cold Eye Review Safety review Constructability review Coordination review Economical and procurement reviews
HSE & Risk Reviews
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• Depending on Project size/impact: HAZID, HAZOP, QRA, other • Preparation of Project Risks register • First draft of Environmental Impact Statement
Technical studies First reviews
Workshop or series of meetings with Project Team participants • Should include site Operations and Technology people • Engineering Contractor participation may be useful
Discuss project basis, expectations, execution constraints • Focus on consistency with site infrastructure and operations − Reliability performance, shutdown constraints and schedule − Available space, utilities and infrastructure resources − Competence and professionalism of Owner and Operator
• Consider resources aspects (quantity/quality) for future operation
Brainstorm on possible alternates
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• Selecting a limited number of realistic cases • Preferring existing know-how to innovation • Define further analysis to be performed
Technical studies Sample Review checklist
Infrastructure Execution Environment
Process 1.
Capacity (flow rate)
1.
Layout & constraints
2.
Technology selection
2.
Electrical Distribution & Power Management System
3.
Treatment of feed
3.
Control Systems
4.
Fractionation
4.
Buildings
5.
Power Generation & Heat Integration
5.
Construction & constructability
6.
Utilities, catalysts, chemicals
6.
Modularisation
7.
Effluents, flare
7.
Civil Works
8.
Water Treatment & Disposal
8.
Air Emissions
9.
Product storage
9.
Effluent Water Treatment & Disposal
10. Environmental Impact Assessment
11. Interconnecting with pipe networks
11. Interfaces 12. Authority Approval, permits and authorizations 13. Local Content 14. Project Execution Strategy
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10. Offsite storage, transfer, loading
Technical studies Sample Review checklist (Power Plant) Process units energy requirements • Type of energy required, steam vs power selection • Turbine overhaul frequency, duration, backup supply • Load flexibility, steam shedding / power shedding constraints
Energy Cost Effectiveness: • Most energy-effective cycle (open, combined, cogeneration) • Heat integration limits, energy value assumptions • CO2 penalties and other environmental taxes • Regulatory reporting requirements, metering
Technology questions: • Best gas turbine type with regard to equipment reliability/cost • Environmental protection parameters (low NOx, flue gas temp) • Equipment metallurgy (resistance, cost, corrosion)
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Technical studies Comparison of alternates
Alternates comparison: key aspects • • • • • • • •
HSE advantages & drawbacks Technical advantages & drawbacks Compatibility with existing facilities, future expansions Operability, maintenability, future flexibility Economic justification (cost difference vs benefits) Compatibility with expected budgets (CAPEX/OPEX) Project risks (proven process vs technical innovation) Execution risks (schedule, cost, field construction)
The sooner alternates and considered/evaluated, the better
Alternates considered too late cost more than they save
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Technical studies Capex commitments Investment 100%
50%
Construction Basic or FEED engineering
Major commitment generated by early technical decisions Conceptual Preliminary studies studies
On-site operations
(Pre-FEED) Actual commitments towards suppliers
0%
Time
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PRODUCTION START-UP
Technical studies Capex commitments
© 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Technical studies Value engineering / Cold eye review
How can we select the best project design ?
If project “deserves” it (medium-size, or complex), perform: • « Value Engineering » Review: − − − −
once the base concept is established includes the Project Team members and Site representatives added value in having an external Consultant as Chairman the team questions each functionality using a formal procedure
• « Cold Eye Review »: − similar process to the Value Engineering Review − includes « Peer » representatives not being project team members
There are always several possible answers to a technical problem
Be prepared to accept constructive critique and modify your view
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Technical studies Value engineering / Cold eye review process
© 2011 - IFP Training
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Technical studies Sample Cold eye review report Description of proposals issued in March, 2012
Leader
Target date
1
Evaluate one-stage reactor at high pressure, instead of HP+LP (simpler and lower CAPEX, but energy cost increase)
Technology
June, 2012
2
Once-through water cooling for compressor (vs air cooler)
Engineering
April, 2012
3
Conceptual cost / reliability benefits of spare compressor
Production
May, 2012
4
Standardization of exchangers (vs « optimized design » for each)
Engineering
April, 2012
5
Pump standardization: same pump casing for various impellers
Engineering
May, 2012
6
Full automation of demin water resins regeneration system, including PLC, ROV and manpower impact
Production
May, 2012
7
Pre-investment on oil tank size for future capacity debottleneck
Marketing
June, 2012
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N°
Project Team organization Highlights
Owner may perform or partly contract preliminary studies, depending on: • His knowledge of related processes • His technical resources available • The feasibility studies required • The use of proprietary processes or technology (licensors)
Risks are more important in existing facilities (Debottlenecking, Revamping)
Owner experience and site knowledge is very useful at early stages
Various organizations, more or less strong, can be built (see next pages)
Even when preliminary studies are contracted out, Owner remains the leader
The Owner Project Team has to manage, coordinate and take decisions © 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Project Team organization Multidisciplinary team coordination HSE & Sustainable Development
Economics
Construction
Operations
Procurement
Coordination
Engineering
Infrastructures Design & Layout
Commissioning
Completion & Start-up
Cost Estimate/Schedule
RC - 21677_b_A_ppt_01 EP PR GES - 08169_A_A--Preliminary Rev.1 - 18/07/2013 studies to pre-FEED
Research & Development
© 2011 - IFP Training
New Technology
Process Design
Engineering
Operations
21
Project Team organization Example of Integrated Team Owner
Contractor (on-site)
Rotating specialists
Site Manager
Production
Maintenance
Contractor (off-site)
Project Manager
Computer resources
Drafting offices
Legal experts
(piping, E/I, civil)
etc. Process
Purchasing
Support Sces
Construction supervision
RPCI RC - PR - PR GES GES - 08169_A_A - 01338_A_A - Rev.1 - Rev.-018/07/2013 - 14/11/2011
© 2011 - IFP Training
QA/QC
Equipment suppliers Field subcontractors
22
Deliverables Preliminary studies (typical)
Basis of design (and basic design data) specification, Scope Of Work
Preliminary Study Technical Report, including documents: • • • • •
Process material balances Main utility requirements Process description, PFD, preliminary P&ID List of main equipment Preliminary plot plan
Project Review Reports
List of alternates considered, evaluation and proposed decision
Design philosophy (modularization, standardization, process controls)
Operating philosophy (principles, staffing, start-up)
Permanent buildings: type, approximate size, function
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Deliverables Preliminary studies (specific to Revamping projects)
Process description: • Marked-up PFD / P&ID (installation & dismantling) • Increase in utility requirements, by main utility (steam, power, N2) • Known capacity limits, plant test results
List of tie-ins and tie-in strategy
Position of new equipment on existing Plot Plans: • • • •
Main pressure vessels Pipe racks, underground networks Storage tanks, modification of product loading facilities Safety facilities (fire fighting, gas detection)
Electrical and Process Control changes: • Electrical substation and cable path drawings • Controls Architecture Diagram
Existing buildings mark-up for modification
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Deliverables Scope Of Work (SOW)
Summarizes the Technical Plan for the Project facilities defined in the preliminary study; it formalizes the “Scope Of Work”
Ensure that approvers (Designer, Project Manager, Operator) have understood and agreed the fundamental project choices
Subsequent purposes: during project life • It will allow Owner to check that the Project actually designed remains in line with the approved initial requirements • It will serve as a basis to evaluate and record main scope changes proposed and agreed during the Project execution • It will be used, after closure, to verify that the Project has actually reached its business objectives, and if not, eventually improve it © 2011 - IFP Training
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Deliverables Scope Of Work (SOW)
The document will cover technical description: • Process Units, heating & cooling media • Power Generation & Utilities Units • Offsite units, storage, transfer, loading, unloading • Interconnections with existing facilities • Upgrading / revamping requirements
Key elements of the project scope will be addressed: • Feedstocks, Technology/Process, Capacity of each process unit • Utilities (air, water, chemicals, …)
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• Storage, key equipment size & type, sparing philosophy, phasing
Preliminary Project Plan
Justification (economic and/or HSE)
Preliminary project schedule
Conceptual CAPEX estimate
Project Execution Plan
Risks analysis & management © 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Preliminary Project Planning Economic justification Invest or not in a Project? What is the preferred solution among alternatives?
The justification is the first thing to validate before starting to work
Value of the Project is best reflected by the Net Present Value (NPV)
NPV is the Sum of Discounted Cash Flows generated by the Project
NPV will depend on: • Technical options • Economic Assumptions • Tax situation © 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Preliminary Project Planning Economic justification
CAPEX estimate • Total Erected Cost of the project
Internal Rate of Return (I.R.R) is the main economical item or way used to decide a downstream investment
OPEX estimate • Raw materials cost • Fuel and Utilities cost • Operation cost, Maintenance cost
Revenues estimate • Estimated products prices
Above elements are used to determine Project NPV and profitability
They are also used to compare alternates profitability (« Delta NPV » can be calculated, integrating only CAPEX & OPEX differences between alternates)
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Preliminary Project Planning Justification
On Medium-Size projects, there may be other more important factors: • Pay-Back Time (when short-term profits are critical) • Profitability Index (when financial resource is a constraint)
HSE justification (semi-quantitative) is also very important • Matrix used to evaluate project HSE justification • Project should allow to move from high-risk to lower • Matrix can also be used to evaluate project changes
Economic and HSE justifications may be combined
If justification borderline, this may be the key to obtain approval
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Preliminary Project Planning EHS Justification LEVEL
Safety
Envirt
I
No significant personnel injury
No impact on environment
Never heard of any occurrence in the world
Has already occurrred in Petrochemicals
Occurred once in company, but not here
Several times per year in the company
Occurs often of permanently in our plant
Low Risk
II
Minor injury, no long-term impact
Slight impact, hard to perceive
III
Major injury with longterm impact
Significant impact, local perception
IV
Fatality
Major impact on area, national perception
Medium Risk
V
Several fatalities
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Massive impact, worldwide perception
© 2011 - IFP Training
High Risk
Preliminary project schedule
At Conceptual Stage, a Project Schedule will be prepared using a simple software such as Microsoft Project to show the Project Phases to Completion: • Basic or FEED • Contracting for EPC • Time for Approvals by Company • Foreseen Long Lead Items (LLI) • EPC phase • Planned shutdown duration (if known) for revamping projects Plant shut-down times & durations is a key issue. • A first approach of required Plant S/Ds & their duration will be made. A preliminary S/D schedule (PERT Chart) will preferably be prepared to identify the critical path.
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• A critical activity such as column retraying, compressor replacement, furnace revamp… may set the shut-down duration while other activities can be performed in parallel.
Conceptual CAPEX estimate Highlights
CAPEX estimate accuracy desired at this stage: +/- 30 % Accuracy may be hard to reach on Medium-Size projects, depending on: • • • •
Project complexity and location Onshore with offshore extension projects Concerned facilities More difficult for projects with modifications to existing facilities
The CAPEX estimating method will depend on: • Cost database completeness and adequacy at that specific location, recent local experience from Engineering Contractor, prices volatility • Facilities involved by the project (onshore, new or revamped units, utilities, interconnections with brown field) • Experience of the company, quality of the available data
At this stage, assumptions/uncertainties/risks are critical to document See AACE methodology and Nelson Farrar indexes.
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Conceptual CAPEX estimate Structure
By courtesy of Exxon and Shell Main Equipment Bulk Fabrication/Construction(onshore/offshore) Transportation Temporary Facilities Construction camps Engineering Services Management & Supervision Surveys
Insurance Commissioning
Direct Costs
+ Indirect Costs
+ General Expenses
+ Associated Expenses
+ Contingencies
= Facilities Cost Estimate
Fabrication / Construction cost are the highest costs and the most difficult to estimate, in particular for works in revamped process units and brown field; they are very site dependent (productivity) RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
© 2011 - IFP Training
Direct Costs + Indirect Costs = Technical Costs
Conceptual CAPEX estimate Methodology
© 2011 - IFP Training
EP - 21252_a_A_ppt_03 RC PR GES - 08169_A_A- -2_Preliminary Rev.1 - 18/07/2013 studies
37
Conceptual CAPEX estimate Methodology
Estimating methods are global or by factorisation as long as project details such as P&IDs are not prepared; the estimating methodology will combine available cost data base and toolbox tools
Estimate cost data breakdowns, unit costs etc. from similar recent project units at the location, or a similar (in terms of cost) location with corrections, escalation, and other foreseen different project conditions. Often the estimators will use units information from several projects.
Estimate must includes complexity and local coefficients.
Estimate have to include spare parts (2 years operation), material takeoff extra and surplus.
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Conceptual CAPEX estimate Methodology
Many « factors » are used for « factored estimates », mainly: • Correction using a scaling factor vs. unit or equipment capacity: P1 / Po = (C1 / Co)0.65 • For sized equipment, a “factored” estimate from equipment cost: P installed= K x P equipment
• K: 1.5 to 6, depending on equipment type & construction location. • For revamped areas another K1 factor is to be applied on top. The use of this method will depend on Owner (or assisting Contractor) practice (data base for applicable factors for equipment at the facilities).
• A global factor can be used on top of Direct Costs for Projects at the facilities: Project total cost = K x Project Direct Cost © 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Conceptual CAPEX estimate Methodology
Cost information is gathered from all possible sources at the time, e.g.: • Major equipment prices and special equipment or packages, towers, reactors, heat exchangers, water treatment, utilities and power equipments, etc.) from « budget » quotes from Vendors.
• Budget quotations from specialized parties (consultants, contractors..) for infrastructure works (buildings, roads, …) or for other specific packages (atmospheric tank storage, LPG storages, chemicals).
© 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Conceptual CAPEX estimate Methodology
Cost information is gathered from all possible sources at the time, e.g.: • Interconnecting preliminary quantities estimated by engineering from preliminary MTOs & unit costs used from previous project at the facilities for bulks procurement cost & for construction cost; quotations from vendors for large pipe / piperacks • For modules and skids fabrication, construction mhrs by ratios (volume or weight if estimated) and mhr cost from zones used (particularly if Company (site) has particular relationships established with given zones). • For specific equipments like air and water treatment: budget quotes from specialized contractors or vendors. • Engineering, construction supervision manhours may be estimated by ratios.
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• Contingencies or Profit&Loss factor, if estimate by a Contractor, added on top of the cost estimate
Project Execution Plan (PEP) Highlights
Purpose: define project objectives and strategy to reach them
Key aspects: • Organisation • Execution strategy • HSE, risks/uncertainties
Preliminary version prepared at this stage, then communicated and revised during Basic Engineering, then normally frozen
Discussed with all Project Stakeholders, needs formal approval by Owner Management at the right level © 2011 - IFP Training
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Project Execution Plan (PEP) Detailed content Executive Summary, Project Summary description
Summary of Preliminary Study report; main items to solve later
HSE aspects and risk analysis
Organisation/roles (Owner, Project Team, Operations) during execution
Authority Approvals & Regulatory administrative steps required
Global Project schedule, constraints related to shutdown and other Projects
Plan for Basic Engineering (or FEED if applicable)
Key aspects of Detail Engineering, Procurement, Fabrication, Construction, S/U
Proposed Contracting strategy
Key concerns and constraints, with proposed action plan to resolve them
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Project Execution Plan (PEP) Contracting strategy ... page 1 Preliminary Project Contracting Strategy is prepared, focusing on:
Project execution quality, cost, schedule and phasing
Project resources requirements analysis versus expected availability for the project and in the country, and resulting contracting plan / constraints in particular for: • Engineering Contractors • Transportation & Installation • Construction • Local content resources • Pre-qualification required from large and critical equipment Vendors © 2011 - IFP Training
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Project Execution Plan (PEP) Contracting strategy ... page 2
Preliminary Project Contracting Strategy is prepared, focusing on:
Local Content requirements
Contract(s) type for Basic or FEED, if required
Preliminary strategy for contract(s) for EPC phase is prepared considering work packages suited to project specifics and prequalification, discussions (as the case) with Vendors & Contractors.
© 2011 - IFP Training
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Project Execution Plan (PEP) Risk analysis
At this stage, a first risk analysis is performed
The method used is simple (check-list based, HAZID)
More detailed methods will be used later, but are not yet applicable, mainly by lack of appropriate information
First draft of Project Risk Register prepared listing identified risks and planned mitigation measures
Revamping/Debottleneck of existing facilities
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• Importance to check data on the field (don’t trust controlled documents) • Validate raw materials and products properties (use lab data) • Precautions to preserve Safety and Reliability: consider impact on Project Execution (cost, schedule, even sometimes alternates feasibility)
Project Execution Plan (PEP) Risk categories
© 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Preliminary studies Key points to keep in mind
Evaluate the economic potential added value of the project
Building early a multidisciplinary team is critical to success
Technical alternates should be listed and evaluated at that stage
Economic evaluation should include CAPEX and OPEX
SHE justification may help project approval by Owner
A preliminary Execution Plan should be prepared at that stage
Revamping projects need good knowledge of actual plant
Safety and Reliability constraints should be clearly addressed © 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
ATTACHMENTS I. Economic Justification
II. Progress Control
© 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
ATTACHMENT I Economic Justification
© 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Economic Justification (Operating Period = N years)
Revenues Capex
Opex Taxes Cash Flow = Cash Inflow – Cash Outflow Operating period Present years Investment
One must “bring” all cash flows from the future to the present time, i.e., discount all the project’s cash flows. RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
© 2011 - IFP Training
It is not valid to compare funds received or spent at different periods.
Economic Justification
Net Present Value (N.P.V) Internal Rate of Return (I.R.R)
Pay-Out Time (P.O.T) / Exposure © 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Economic Justification Net Present Value
Net Present Value of a Cash Flow Profile
Year Discounting at a rate i Cash Flows After-Tax
0 1
(1+i)
CF0
CF1
…
1
C
…
N (1+i)N
…
CFN
(1+i)n
…
CFn
CF0 CF1/(1+i) … CFn/(1+i)n … CFN/(1+i)N Discounted Cash Flows Net Present Value = Sum of Discounted Cash Flows N
CFn NPV n n 0 (1 i )
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i = Discount Rate = Average Cost of Capital
Economic Justification Net Present Value
If NPV > 0, the project revenues are sufficient to: • • • •
pay all costs incurred by the project reimburse the capital invested remunerate it at rate equal to the discount rate in addition, create a profit for the company
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NPV > 0 measures the value created by the project
Economic Justification Internal Rate of Return
Rate at which the project remunerates the capital invested
NPV
IRR Discount Rate
Average Cost of Capital
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If Internal Rate of Return > company Discount Rate, then project NPV >0
Economic Justification Pay-Out Time / Exposure Time needed for the project cash-flow to reimburse the capital invested
M$
POT
0
EXPOSURE
1
2
3
4
Cash Flows
5
6
7
8
10
11
12
Acc. Cash Flows © 2011 - IFP Training
Starting date to be defined: • either 1st year of investment • or start of unit operation
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9
Economic Justification Pay-Out Time / Exposure
Accumulated net cash Flows flows Cumul des Cash
Flows Nets Net Cash cash flows - Discount rate 8%
Discount rate 8%
M$
300
400
200
200
100
0
0
-200
-100
-400
-200
-600
-300
M$
-800
0
1
2
3
4
5
6
7
8
9 10 11 12 Année years
0
1
2
3
4
5
6
7
8
9 10 11 12 Année years
What is the Pay-Out Time?
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What is the Financial exposure?
58
ATTACHMENT II Progress control
© 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Progress control
A Concept study may require 2 to 6 months and few hundreds up to 10,000 Engineering manhours. Usual « Project Control » techniques will be used, with simple tools, to:
• Prepare the study budget (mobilisation bar charts on Excel to estimate mhrs + estimates from different participants for their scope) • Prepare the study schedule with planned progress curves (Excel or Milestone Project), overall, management and disciplines
• Follow & control the study progress
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− « Broken line » progress on the schedule − Hourly progress: ratio of expended mhrs to planned mhrs − Physical progress by assigning mhrs weights to the different disciplines / deliverables-activities / milestones for deliverables-activities − Forecast for completion
Progress control
A Concept study may require 2 to 6 months and few hundreds up to 10,000 Engineering manhours. • Follow & control the study cost − Costs are basically all-in mhrs cost x mhrs number − Expended cost, planned cost, forecast cost to be established on monthly basis
• Prepare a monthly progress report indicating key events, progress, costs, areas of concern etc. and including above control elements (a short weekly progress, or bi-weekly progress are advised, in particular for subcontracted studies)
© 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
Progress control Progress control using BS 6079
Reference BS 6079
© 2011 - IFP Training
RC - PR GES - 08169_A_A - Rev.1 - 18/07/2013
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