The major objective of the Opportunity Realization Process is to ensure that the right opportunities are progressed in the optimum manner by improving decision quality. Within the Opportunity Realization Process there are two major ways in which corporate governance (management overview) is exercised to assure that the underlying value of the opportunity is realized.
1 Adoption of the Decision Review Board concept in which a team of Decision Makers external to opportunity /project team is formally constituted for each opportunity with its role and responsibilities established as described below.
2 Incorporation of the mandatory SIEP Value Assurance Review Process into the ORP. This process supports the Decision Review Boards in their work. Both elements of corporate governance are described below.
Decision Review Board
The ORP requires ongoing dialogue between opportunity/project leaders and Decision Makers. The key is that wide involvement and challenge starts early, before the final concept is decided, such as that the widest possible range of options has been considered.
The Decision Makers are those people (or groups of people) who have a major stake in the outcome and are:
• responsible for the final decision within a New Venture, Company, Business Unit, etc.
• likely to be affected by its outcome.
• in a position to approve funding for proposed activities
• able to add significant value because of their expertise
Within the responsible New Venture, Company, or Business Unit an internal Decision Review Board (DRB) made up of the Decision Makers must be constituted for each opportunity or project. A Decision Review Board is a multifunctional team external to the opportunity/project led by an opportunity executive/sponsor charged with:
(i) evaluating the status of a opportunity at key milestones in the development execution of an opportunity
(ii) endorsing the recommendations of the opportunity team before those recommendations are passed to the corporate body and JVPs etc.
The DRB provides line guidance and sanction before the opportunity/project recommendation is passed on to Company and Group corporate bodies or partners.
The DRB is a fundamental part of the Opportunity Realisation Process and will monitor that the Value Assurance requirements have been satisfied.
The DRB membership for each phase of each opportunity/project must be agreed with the relevant senior manager and included in the Opportunity Roadmap. The DRB is seen as providing line steerage and accountability for opportunities and projects prior to that provided by Company or Group corporate bodies. On occasion the role of the DRB and Company corporate body may coincide and this should then be agreed and recorded on the Roadmap.
The role of the DRB is illustrated in Figures 2.5.1 and 2.5.2 below.
Board
After evaluation of the recommendations of the Work Team and the outcome of the Value Assurance Reviews, the options for the DRB and other subsequent Decision Makers are:
• Proceed to the next phase
The recommendation has met minimum acceptance criteria of all parameters defined previously. The decision is the recommendation or approval of resources including manpower and funding for work required in the next phase.
• Continue work in the current phase
Insufficient work was done to support the recommendation, an alternative plan needs to be explored, or new information is available that may affect the recommendation.
• Return to a previous phase
New information needs to be evaluated in the scope of a previous phase to assess the opportunities. Examples of this may be new market intelligence, changes in strategic direction, new seismic information, a failed exploration or appraisal well, partner withdrawal and unitisation.
• Place an opportunity/project on hold
An opportunity/project may be put on hold for a variety of reasons. For instance, capital may not be available to fund all the projects that are attractive. Also, technological advances may be required before a project can proceed. The project can be put on hold until conditions warrant moving forward.
• Change participation
A project might be made more attractive by changing the level of participation. Increasing participation by acquisitions or farm-ins, for instance, can take advantage of economy of scale, or provide a larger reserves base (increase project life). Reducing participation may lead to less infrastructure requirements, thus making a project more attractive by reducing capital costs. Divestment is also a change in participation. A divestment may be sale of assets, property trades, or asset decommissioning.
Value Assurance Review Process
Before any major decision is taken at the end of or part way through the ORP phases a Value Assurance Review (VAR) is conducted to give the Decision Makers the confidence that the opportunity has done everything necessary to ensure that moving forward is the logical next step – that all the significant risks have been identified and can be managed and that work has been completed to the necessary quality so that the project is not unnecessarily exposed and out of sequence.
VARs are performed to assist the Decision Review Board in coming to a conclusion on whether the project is ready to proceed to the next stage/phase. The VAR does not constitute the decision and does not remove the responsibility for the decision from the Decision Review Board and other corporate decision-making bodies.
The formal VARs that are mandatory on any opportunity with a total cost of US $20 million and over are mapped and decribed below. VARs on projects with a total cost of less than US $100 million will normally be performed by the OU. VARs on projects with a total cost greater than US $100 million or judged to be of major strategic importance will be led by the SIEP VAR Team. Performance of VARs 1-4 on such projects is a condition precedent for receiving FID approval from the relevant Group authority. For most hydrocarbon projects the VAR framework will apply as shown in Figure 2.5.2 and changes to this framework will need to be agreed by the opportunity Decision Review Board. VARs will normally take place so as to allow opportunity/project teams time to address VAR recommendations (dependent on the size of the project, perhaps 6-8 weeks before a decision to proceed is required).
VAR 1 – Project Initiation Review, prior to approval of entry commitment
• Is there a real understanding of what is being initiated and of the commitments being made?
• Is there a meeting of minds with JV Partners on objectives and expectations?
• Are the social, environment and political risks understood?
• Should we enter? Can we make it work?
VAR 2 – Feasibility Review, prior to concept selection
• Has a range of strategies and scenarios been identified as an adequate basis for risk management and concept optimization?
• Is there confidence in and sufficient resolution of uncertainties to support moving into concept selection phase?
• Has the project been effectively formed and is there sufficient knowledge to start the process of selecting the optimal alternative?
VAR 3 – Field Development Plan (Concept Selection) Review, prior to project definition
• Has the optimal alternative been selected?
• Are plans in place for successful completion of project definition?
VAR 4 – Pre-Final Investment Decision Review, prior to release of funds for execution
• Are all plans, strategies, agreements, organisations, resources and systems in place
to commence execution in an optimal manner?
• Is the project set up to implement the plan successfully, if funds are released?
Pre Start-up Audit
• Is the physical work sufficiently completed to allow final commissioning and start-up to take place safely and economically?
• Are all plans, strategies, agreements, organisations, resources and systems in place to commence operations safely and effectively?
VAR 5 – Post Investment Review, after completion of the project and 6-24 months into operation
• Did we achieve the predicted objectives and performance?
• What can be learned from the project and what further opportunities are there?
