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APPLYING LESSONS LEARNED ON MEGA PROJECTS Roger Mapp Bantrel Co. April 26, 2007

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APPLYING LESSONS LEARNED

ON MEGA PROJECTS

Roger Mapp

Bantrel Co.

April 26, 2007

- COST CONTROL IN VOLATILE TIMES
- MEETING PROJECT SCHEDULES

- COST CONTROL IN VOLATILE TIMES
- MEETING PROJECT SCHEDULES

- Project size is up
- Project duration is longer
- Prices are (very) volatile
- All the usual uncertainties still exist
Escalation is “Suddenly” a Big Issue

Result

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Year 2

Year 3

Year 4

Year 5

Year 1

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Year 2

Year 3

Year 4

Year 5

Year 1

Escalation Plan

(No Escalation)

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Year 2

Year 3

Year 4

Year 5

Year 1

Escalation Plan

(No Escalation)

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Year 2

Year 3

Year 4

Year 5

Year 1

Escalation Plan

(No Escalation)

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Year 2

Year 3

Year 4

Year 5

Year 1

Escalation Plan

(No Escalation)

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Year 1

Year 2

Year 3

Year 4

Year 5

Escalation Plan

4% P.A.

16

12

8

4

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Year 2

Year 3

Year 4

Year 5

Year 1

App.

Estimate

Base

Cost

Estimate

FEL 3

FEL 2

Year 2

Year 3

Year 4

Year 5

Year 1

32

28

24

Escalation Plan

Escalation Forecast

20

16

12

8

4

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Year 2

Year 3

Year 4

Year 5

Year 1

- Track prices from one estimate to the next
- Track “As Spent” prices by individual commodity
- Present estimate pricing changes separately
- Look for price-driven execution plan changes
- Don’t cut scope to pay for unavoidable price increases
- Let the market dictate

- COST CONTROL IN VOLATILE MARKET
- MEETING PROJECT SCHEDULES

25 Years

6 Years

Project

Development

6 Years

FEL 1,2,3 Phase

Project

Approval

Detailed

Engineering

Phase

Procurement Phase

Construction Phase

Project Operations

25 Years

Operation Phase

- Each Phase completes before the next phase starts
- Each phase fully planned before it starts.
- Follows project execution “Best Practices”
_____________________________

- The duration for project development can be varied (elongated) to minimize capital cost

Minimum

Capital

Cost

(In Terms of Net

Present Value)

Result

25 Years

6 Years

Cost $100 Million

Project

Development

NPV (Cost - 0% ROI) = $100 Million

Project

Operations

Revenue =$70 Million Per Year x 25Years = $1,750 Million

NPV (Revenue – 0% ROI) = $1,750 Million

Total Project

NPV (Project) = $1,650 Million

Total Project

25 Years

6 Years

Cost $100 Million

Project

Development

NPV (Cost - 0% ROI) = $100 Million

NPV (Cost – 25% ROI) = $55 Million

Project

Operations

Revenue =$70 Million Per Year x 25Years = $1,750 Million

NPV (Revenue – 0% ROI) = $1,750 Million

NPV (Revenue – 25% ROI = $56 Million

Total Project

NPV (Project) = $1,650 Million

NPV (Project) = $1 Million

Total Project

25 Years

6 Years

Cost $100 Million

Project

Development

4 Years

NPV (Cost - 0% ROI) = $100 Million

NPV (Cost – 25% ROI) = $55 Million

NPV (Cost – 25% ROI) = $68 Million

Project

Operations

Revenue =$70 Million Per Year x 25Years = $1,750 Million

25 Years

NPV (Revenue – 0% ROI) = $1,750 Million

NPV (Revenue – 25% ROI = $56 Million

NPV (Revenue – 25% ROI) = $84 Million

Total Project

NPV (Project) = $1,650 Million

NPV (Project) = $1 Million

NPV (Project) = $114 Million

Total Project

25 Years

4 Years

Project

Development

6 Years

FEL 1,2,3 Phase

Project

Approval

Detailed

Engineering

Phase

Procurement Phase

Construction Phase

Project Operations

25 Years

Operation Phase

- Compression of FEL activities
- Applied to a $100 Million project
- Applied to a $ Mega Project

“Best Practice”

Define Process Facility #1

Define Process Facility #2

Define Process Facility #3

Define Process Facility #4

Define Utility & Offplot (Support) Facilities

Prepare Project Execution Plan and Cost Estimate

Best

Practice

FEL 3

Completion

“In Practice”

Define Process Facility #1

Start Execution

Define Process Facility #2

Define Process Facility #3

Define Process Facility #4

Define Utility & Offplots (Support) Facilities

Prepare Project Execution Plan and Cost Estimate

Best

Practice

Tempting

Alternative

FEL 3

Completion

FEL 3

Completion

- Accept that Project phases will “Overlap”
- Plan for Intermediate Cost Estimates (Quarterly?)
- Expect large cash outlays ahead of Project “Sanction”
- Expect “Unorthodox” Project Execution to meet schedule requirements.