Developing a new project execution model

Abstract

Oil and gas development projects have traditionally been based on a project execution model where the relationship between the owner and contractor has tended to be of a formal and somewhat adversarial character. Saga Petroleum AS has put resources into developing a new model. The new model has been developed for cost-effective reasons when developing cost marginal fields, increasing competition within the oil industry, and considering the consequences of the European Economic Area Utilities Directive. The process has two steps. First, a revision is introduced, and the refining of this model is ongoing, based on lessons learned from model conversion. The intention of such a model is to make the relationship between owner and contractor closer and more cooperative. The effect on various aspects of the owner-contractor relationship is discussed.

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The process has two steps; first, a revision is introduced, and the refining of this model is ongoing, based on lessons learned from model conversion. The intention of such a model is to make the relationship between owner and contractor closer and more cooperative. A discussion of the effect on various aspects of the owner-to-contractor relationship in the project execution phase is given in order to illuminate the changes introduced by the new model.

The background and basis for the analysis of the renewal of the project execution model for Saga Petroleum ASA, a Norwegian oil company, is the introduction of a new project execution model presented and documented by the technology and development division in Saga Petroleum ASA in 1995, and the further development and refinement since then. The analysis of the new execution model is primarily made from a project control point of view. Initially, an at-large presentation of Saga Petroleum is given, including a description of the organization and the company's national and international activities. Further, a description of the reasons for Saga introducing the new execution model is given, and a thorough discussion of changes in the owner-to-contractor relationship caused by the model. Here, changes in Saga's requirements to its contractors are described, as well as the changes in follow-up activities and control functions for Saga personnel. The refinement and changes to the new project execution model since it was introduced are described briefly.

Finally, some concluding remarks describing Saga's experience with the new execution model so far are given. These remarks reflect lessons learned from ongoing development projects after the new project execution model was introduced. The remarks are of an indicative character, since the model was implemented early in 1995, so limited experience is available. Description of Saga Petroleum

Saga Petroleum ASA was established in 1972 and is the only privately-owned oil company in Norway. Saga has about 1,350 employees, of which 800 are based at the main office in Sandvika and about 550 in Stavanger and offshore on the Norwegian continental shelf. The management is stationed at the main office. There are 5 major divisions in Saga:

1. commercial division-about 100 employees;

2. exploration and production division-about 300 employees;

3. personnel and organization division-about 200 employees;

4. technology and development division-about 200 employees; and

5. operations division-about 550 employees.

In 1996, Saga Petroleum established itself in the United Kingdom by buying the gas and oil company KP North Sea Holding Ltd., now renamed Saga Petroleum UK Ltd., with 44 employees placed in London. Saga Petroleum UK Ltd. is involved in oil and gas fields on the British and Irish continental shelf.

national and international activities

Saga is the operator on the Snorre Field, the Tordis Subsea Field, the Vigdis Subsea Field, and the Varg Field. Saga is also engaged in activities in several licenses on the Norwegian continental shelf. The company is a shareholder in 10 development projects for fields and pipelines, and 14 evaluation projects for fields and pipelines on the Norwegian continental shelf. Saga Petroleum UK Ltd. is a shareholder in 6 fields in production on the British continental shelf and has licenses in 44 blocks under exploration on the British and Irish sector. Today Saga husbands considerable oil and gas resources both on the Norwegian and British continental shelves, and is considered to be among the leading companies in the world in the area of oil and gas production in deep-sea areas. In addition to the engagement on the Norwegian, British, and Irish continental shelves, Saga is also engaged in activities in several regions around the world. Among these are Libya and Algeria in North Africa, Angola and Namibia in West Africa, and Russia. These include both onshore and offshore activities.

SAGA'S REASONS FOR MAKING CHANGES IN THE PROJECT EXECUTION MODEL

Two factors can be seen as the main underlying reasons for Saga's decision to develop the new model. As a result of the ever increasing competition in the oil industry, both nationally and internationally, the project execution department in the technology and development division felt a strong need for updating the principles and strategy for project execution. During comparative studies made in the 1990s, both authorities and the Norwegian oil industry realized that the cost level for onshore and offshore operations in Norway and at the Norwegian continental shelf was too high when compared to other nations such as the UK and the US. A national project called NORSOK was established, with members from the Norwegian Petroleum Directorate, the three Norwegian oil companies (Saga Petroleum, Norsk Hydro, and Statoil), and the engineering companies. The NORSOK project was initiated and kicked off by Finn Kristensen, the minister of the Norwegian Oil and Energy Department at that time. To achieve a reduction in workhours spent and total project duration, together with a reduction of capital and operational expenses, the personnel of the NORSOK project looked at possible methods to be implemented nationwide for more cost-effective development projects. Since start-up, representatives from foreign oil companies also have been connected as members in the NORSOK project. This reflects the need felt to coordinate Norwegian efforts in standardization with international work in the same field.

Further, from January 1, 1995, Saga Petroleum had to comply with the European Economic Area Utilities Directive, a directive that introduced new rules and regulations to the Norwegian oil industry. Norway is not a member of the European Union (EU) but is a member of the European Economic Area (EEA), together with other nations in Europe who have decided not to be members of the European Union. The EEA has an extensive agreement with the EU regarding economic interactions. This fact caused the need for changes in procedures and working instructions in order to comply with the directive.

Comparing the Conventional Project Execution Model to the New Model

The conventional execution model was never presented to employees in a single, descriptive document, as it is for the new model. Rather, it was based on guidelines implemented in various procedures and documentation from the different departments in the technology and development division. Therefore, the identification of the documentation basis for the conventional model has meant an effort in searching the technology development division's procedures.

The new model is a product of the technology development division, and if other principles or decisions are considered necessary by other divisions or management, such changes must be considered by the change request board, which is run by the technology development division.

Main goals sought by implementing the new execution model are to achieve reduced workhours spent and reduce project cost by using contractors' and suppliers' knowledge, specifications, systems, methods, and procedures. An aim of the new execution model is to reduce the number of contractors and contracts, with a wider and larger scope of work for contracts. Another aim is to split a development project into as few subprojects as possible. This means that instead of choosing an engineering and procurement (EP) contract, the engineering/procurement/construction (EPC) contract or the engineering/procurement/construction/installation (EPCI) contract will be chosen. This is also reflected in the typical scenario for a development project where a small number of main contractors each have several subcontractors. Consequently, the number of interfaces to be handled by the company is reduced compared to the situation under the conventional model.

joint responsibility and mutual trust between owner and contractor

The execution of the contract scope of work is now to be based on a contractor's knowledge and experience and to rely on a contractor's standards, systems, methods, and procedures. The project control representative from the company must verify that chosen standards from the contractor comply with the company's specifications and criteria for project execution.

measurement and reporting requirements

During the project-execution period when using the conventional model, the baseline for cost, schedule, and progress measurement and reporting was revised every 6 months. At a baseline revision, the contractor would add all changes to the work and indicate where to revise the cost plan, schedule, and progress. This meant that the contractor, in the monthly report to the company, was not allowed to make any changes to the cost plan and schedule, but had to report against the current baseline (variation on the contractor's monthly reporting). Thus, in the period between the 6-month baseline revisions, the contractor had to keep track of cost, schedule, and progress for all variations, and keep each apart from the cost/schedule/progress/invoicing measurement and report values according to the current baseline scope. These rather rigid regulations were used by companies due to the requirements of the partners in the licenses where Saga was an operator.

The new execution model introduces a more flexible and dynamic baseline revision routine. In the monthly reporting, contractors are now allowed to include variation orders that are approved by the company. As a result, they do avoid the effect of operating two separate-although in fact closely dependent-systems, an effect that was a time- and cost-consuming activity for the contractor.

verification of contractors.

The contract is governed by a contract site team, usually consisting of a company representative, a contract administrator, and a project control engineer. The site team personnel are responsible for monitoring, controlling, and verifying the contractor's work on a day-to-day basis. In order for the company to verify that the contractor is complying with the different exhibits of the contract, the home office will arrange verification audits of the site team and contractor at the contractor's premises. This makes it possible for the home office to compare the site team's internal reporting with the verification team's findings at the audit, making a further check on compliance.

integrated team

It is the company's intention, where applicable, to integrate its own employees into the contractor's organization. The reason for this is twofold; to improve the communication between the company and the contractor, and for company employees to participate in the engineering work for the contractor, at the contractor's premises.

It is also the company's intention to integrate the suppliers' personnel within the engineering contractor's organization so that interface problems may be prevented or solved quickly.

requirements for documentation

This is an area where the change from the conventional to the new model causes noticeable difference in the owner's way of performing the task of document control. In the new model, it is explicitly stated that the technology and development division's requirement for documentation to be delivered by the contractor is minimized. Based on what information and type of documents are found to be necessary for engineering, fabrication, and commissioning, only such documentation shall be required by the owner. The conventional model required all documents to be sent to the owner from the contractor, and thus the implementing of the new model represents a major change.

A focus is also put on information technology in the new execution model. Based on the experience so far by upgrading Saga's computer hardware and software, and by using the e-mail and X.400-mail for communicating and interchanging information with the contractor, this aspect definitely has created a more effective handling of documents.

follow-up of contractors

The fact that the new execution model sets the scene for a more integrated and closer cooperation between the company and its contractor has changed the scope for follow-up of the contractor for the site team in general and the project control engineer in particular. The follow-up routine toward the contractor will vary with the scope of work for the actual development project. This means, the company's strategy for the follow-up depends on what product is to be delivered by the contractor.

Based on the scope of work and the type of contractor, the new execution model sets the criteria for stationing of the site teams-the personnel responsible for follow-up-to improve their performance on the follow-up tasks. The criteria for stationing of site teams are explicitly stated for four different categories of development projects:

1. For a platform development project, site team personnel are to be stationed at the engineering contractor's location/offices, and at the construction/fabrication location/site. Personnel from main equipment contractors and from the engineering contractor can be integrated into the fabrication contractor's organization to ensure fabrication is performed according to the engineering basis.

2. For a subsea development project, site team personnel are to be stationed at the location/site for the EPC contractor and at the fabrication engineers' site, if necessary.

3. For a modification projects (projects with a scope to make changes oz additions to already existing products), site team personnel will be stationed at the prefabrication site, and at the

fabrication site for modules, if necessary. 4. For a floating production unit development project, site team personnel will be stationed at the vessel supplier's site/location. Company personnel can be integrated into the vessel supplier's organization, if necessary.

The Acceleration Effect

To illustrate how cost- and time-saving will be achieved by using the new execution model, a typical development project from the Norwegian oil industry has been chosen to exemplify the effect. When executing projects according to the conventional model, there was a series of activities that each were dependent on the predecessing activities, i.e., field evaluation, concept choice, plan for development and operation (PDO) preparations, delivery of PDO application, authorities' evaluation and acceptance of PDO, and the project start-up date. This means there was a schedule with preceding activities to be finished prior to start-up of succeeding activities. In a development project described as an activity network, the conventional model usually had a finish-to-start relation between activities.

In the new, revised model, choice of concept, PDO preparations, and the development project will be activities running in parallel. Describing a development project under the new model as a network, some of the activities now have a start-to-start relationship. Looking at activities gaining the acceleration effect, this is of particular importance for the PDO preparation activity and the main project start-up activity.

Challenges by Implementing the New Execution Model

The project control department within the technology development division has over a period developed standards for the contractor's monthly reporting of cost, schedule, and progress. As the division and the department strive to comply with the document, stating that the contractor's methods, systems, and standards are to be used, several challenges are likely to occur.

According to the European Economic Area Utilities Directive (EEAUD), bids are to be advertised in the "Tenderer's [Bidder's] Electronic Daily" (TED). This system is open to all nations that are a member of or connected to the European Economic Area, thus ensuring an international competition. The EEAUD allows all qualified companies to submit their bids for the contract based on the bid invitation. The procedure for Saga to develop a list of companies prequalified for attending the bid competition has two steps. The first step is based on the use of an international database called ACHILLES, that lists all are companies prequalified for the different categories of contractor work. The list of qualified companies found in the database is based on general requirements set to be valid for the European Economic Area. The second step in the process introduces Saga's company-specific requirements for companies to be prequalified for the actual project. By adding these requirements reflecting circumstances special for Saga and for the actual project, it is possible to reduce the number of companies to attend the bidder's list.

Foreign companies have standards developed to comply with national rules and regulations, and these might vary considerably from Norwegian rules and regulations. In order to cope with this situation, the project control department will need to be more flexible in handling of reporting standards, to avoid the contractor having to redesign its cost, schedule, and progress-measurement system for each contract.

The revised version of the procedure presented in the autumn of 1996 introduced some new elements in the refinement toward an even better methodology for project execution. When compared to the initial version, this revision covers the field development process from an earlier stage. It also has a wider scope, as far as it-in a more complete way-describes the interdivisional responsibilities and activities within Saga Petroleum for the stages (phases) of the project from an early phase of evaluation based on exploration, throughout the development phase. The main purpose of this enlarging of scope is to make possible a field evaluation from a life cycle point-of-view.

The new project execution model was implemented early in 1995, and has been functioning for about 2 years. Therefore, it is still too early to make any definitive conclusion, since no project executed after this model has been finished yet. However, the experience and indications so far are most promising with regard to the new model's contribution to schedule acceleration and cost reduction for oil and gas development projects.

Looking at an already existing project using the new execution model, the time duration from concept choice until first oil on deck was received, was reduced from 45 months to 36 months, a 20% reduction in execution time. For this project, the estimated total capital investment was reduced from above 8 billion NOK to below 5 billion NOK, which equals nearly 40% cost reduction.

The means to achieve this have been the following: first of all, there is an early choice of main contractors and use of integrated concept development. Further, functional requirements from company and contractor's own standard systems are used in the project. Finally, activities that do not add project value have been removed from the project.

The use of and relying on contractor's specifications has seemed to be more successful for Saga toward Norwegian contractors than toward foreign contractors. When choosing a foreign contractor, the deviations between Norwegian standards and other European standards have induced quite a few confusing and timeconsuming items. This experience strongly underlines the particular importance of interconnection between Saga personnel and a contractor's organization at an early stage of the project. The use of integrated Saga personnel into the contractor's organization is another way of helping out and preventing such situations from occurring.

Finally, summarizing experience from this project, the challenge and the motivating effect of the changes in the owner-to-contractor relationship and the closer integration and cooperation attitude for both parties are considered unambiguously positive.

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Developing a new project execution model

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