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

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

2. AGENDA • COST CONTROL IN VOLATILE TIMES • MEETING PROJECT SCHEDULES

3. AGENDA • COST CONTROL IN VOLATILE TIMES • MEETING PROJECT SCHEDULES

4. Controlling Costs – What’s New • 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

5. Base Cost Estimate App. Estimate FEL 2 FEL 3 Controlling Costs – The Ideal World Year 2 Year 3 Year 4 Year 5 Year 1

6. Base Cost Estimate App. Estimate FEL 2 FEL 3 Controlling Costs – The Ideal World Year 2 Year 3 Year 4 Year 5 Year 1 Escalation Plan (No Escalation)

7. Base Cost Estimate App. Estimate FEL 2 FEL 3 Controlling Costs – The Ideal World Year 2 Year 3 Year 4 Year 5 Year 1 Escalation Plan (No Escalation)

8. Base Cost Estimate App. Estimate FEL 2 FEL 3 Controlling Costs – The Ideal World Year 2 Year 3 Year 4 Year 5 Year 1 Escalation Plan (No Escalation)

9. Base Cost Estimate App. Estimate FEL 2 FEL 3 Controlling Costs – The Ideal World Year 2 Year 3 Year 4 Year 5 Year 1 Escalation Plan (No Escalation) 

10. Base Cost Estimate App. Estimate FEL 2 FEL 3 Controlling Costs – The Recent History Year 1 Year 2 Year 3 Year 4 Year 5 Escalation Plan 4% P.A. 16 12 8 4

11. Base Cost Estimate App. Estimate FEL 2 FEL 3 Controlling Costs – The Recent History Year 2 Year 3 Year 4 Year 5 Year 1

12. App. Estimate Base Cost Estimate FEL 3 FEL 2 Controlling Costs – The Now Year 2 Year 3 Year 4 Year 5 Year 1 32 28 24 Escalation Plan Escalation Forecast 20 16 12 8 4

13. Base Cost Estimate App. Estimate FEL 2 FEL 3 Controlling Costs – The Now Year 2 Year 3 Year 4 Year 5 Year 1

14. CONTROLLING COSTS – THE SOLUTION • 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

15. AGENDA • COST CONTROL IN VOLATILE MARKET • MEETING PROJECT SCHEDULES

16. THE IDEAL CAPITAL PROJECT 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

17. WHY IS THIS IDEAL? • 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

18. PROJECT ECONOMICS ($100 Million Project) 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

19. PROJECT ECONOMICS ($100 Million 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

20. PROJECT ECONOMICS ($100 Million 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

21. THE PRACTICAL CAPITAL 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

22. EXAMPLE OF THE “PRACTICALITY” • Compression of FEL activities • Applied to a $100 Million project • Applied to a $ Mega Project

23. FEL EXECUTION “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

24. FEL EXECUTION “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

25. MEETING SCHEDULES – THE SOLUTION • 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.