Selection Phase for Opportunity Realization Process in Project Management

This article is about Selection phase for opportunity realization process of oil and gas field projects.

Selection Phase for Opportunity Realization

The Select Phase is the period in the Opportunity Planning Process in which the single concept that will be used to realize the opportunity is evolved from the possible several concepts in the Feasibility Report. It is also the period in which the large majority of the strategic decisions on how the project will be executed and operated are made.
The primary deliverables from the Select Phase (Selection Phase) are:

• Revised Opportunity Framing and Roadmap
• Concept Selection Report
• Preliminary Field Development Plan
• Preliminary Asset Reference Plan and Operating Philosophy
• Preliminary Project Execution Plan
• Contracting Strategy
• Concept Definition Funding Proposal
• Opportunity Framing Report

In this phase, the options in the Feasibility Study are further developed by completion of the subsurface, well and facilities studies and sufficient progression of the commercial negotiations so that the choice of the single development option can be made. The strategic thinking and planning activities in this phase probably have the greatest impact on the eventually realized value of the opportunity. In a “Front End Loading” context, this phase has a fundamental importance.

It is vital that the opportunity is framed again at the outset of this phase using the Opportunity Framing tool and that a revised Roadmap is prepared that focuses on the phase deliverables, value assurance checks and timing as well as on the planning of subsequent phases.

A multi-discipline team of petroleum, field, well operations engineers with appropriate skills and experience of the current phase as well as the later ORP phases (Define, Execute, Operate) need to be involved in forming the opportunity strategy. If at all possible, the future Project Manager and Asset Manager should be involved in developing the strategies and buy into the planning outcomes. (The more consistent the team membership between this and later phases, the less time is wasted on revisiting decisions.)

Appraisal drilling activities described in Feasibility Stage and Exploration Well above may well continue during this phase, dependent on the opportunity objectives and timing. A map of the Select Phase activities is shown in Figure () below.

Development of Concept Options

Before the definition and execution of an opportunity can take place there are a number of processes that must be completed. These have to do with articulating the opportunity’s purpose and providing sufficient focus to enable the project team to start preparing the Basis for Design. The activities needed to examine the options and develop a single concept to the point when the concept can be defined and developed will vary widely according to the nature of the opportunity. At one end of the spectrum is a greenfield development in a new OU, at the other end a significant mid-life refurbishment of and modifications to an existing brownfield site in a mature OU. There may be simple choices with few options or the issues may be so complex that a major inter-discipline team is needed from the outset of the Phase to evaluate the options. The following activities are normally undertaken for the leading development options:

• Studies to lessen uncertainties in the key aspects of the facilities requirements and to improve the basis for cost estimating.
• Comparative environmental assessments and quantitative risk assessments; including supporting safety studies.
• Facilities operability, maintenance and availability studies better to define likely operating costs and revenues for the different options.
• An assessment of contracting strategies and identification of the preferred strategy for each development option.

SUBSURFACE CONSIDERATIONS

The key activities required to evaluate upstream opportunities effectively have been captured in the A-11 Evolve Development Concepts module in the EPBM. An overview of the process is presented below.

The way it was

In the historical evaluation of field developments, the normal approach was to define a development concept for wells and facilities, based on expectation reserves and throughputs, at the same time attempting to account for possible upsides or downsides. Although this approach tries to cover changes in reserves and throughputs, it will hardly ever result in a development that gives maximum value. With expectation values in the range of +25%/-15% “optimized” design of facilities can be false economy.

The information that may hold the key to an optimum development concept is often hidden or ignored. It relates to a clear identification of the key uncertainties, how these uncertainties affect physical reservoir size/architecture/ reserves/throughputs, (e.g. lateral reservoir extent, aquifer support, connectivity), and the impact they have in choosing a suitable development concept, with its associated Capex and Opex estimates.

The way it should be

The generic business process “Evolve Development Concept(s)” as defined in the A-11 module in EPBM, provides a sound framework for managing uncertainty in prospect/project evaluation, and is based on an integrated multi-disciplinary team approach. The main steps are highlighted below, in a process for project optimization through the
application of Management of Uncertainty and Value of Information techniques.

Collate and prepare existing data (A11-01)

The inventory and quality control of all data pertaining to a prospect/project.

Build/update HC resource model(s) (A11-02)

Identifying the range of viable subsurface model(s) sufficient to cover:

• key subsurface uncertainties
• distinctly different development concept scope

An example is given in Figure 5.3.3 in which key uncertainties have been defined as:
Lateral reservoir extent, Aquifer support, etc. The single expectation curve approach is
replaced by a series of discrete subsurface models, each of which carries its own
probability of occurrence and STOIIP expectation curve based on remaining
uncertainties (e.g. porosity variation).

Establish subsurface development option(s) (A11-03)

For each subsurface model predict reservoir fluid dynamics, evaluate subsurface
development options and quantify technically recoverable volumes. Identify the optimal
subsurface development concepts for further evaluation, (Figure Subsurface Development Concepts.) This dynamic
modelling plays a dominant role in determining the number of wells, their locations and
type (vertical, horizontal, etc).

Formulate development concept(s) (A11-04)

Make well and facilities design concept(s). These should be distinct concepts having different scopes relating to each subsurface development option Figure 5.3.5.

Evaluate concept(s) (A11 05)

For each development concept, estimate Level 2 well and facilities Capex and Opex
expenditures. Together with the production forecasts (from which ultimate recoveries are
deduced), calculate suitably discounted Unit Technical Cost(s) (UTC’s). Conduct economic
analysis, and using the Value Of Information, justify any further appraisal strategy, with the
objective of optimizing development concept selection, (Figure 5.3.6.)

This process can be applied in either a “Fast Track” or an “In-Depth” evaluation
approach. The choice of which to use, depends on the amount of data available, and the
data quality, as this will dictate the thoroughness of any evaluation. The process of
quantitative evaluation of various subsurface development options identifies possible
alternatives to make better use of the available natural drive, or to change the balance
of drive mechanism (implementation of fluid injection schemes); in short, the first
emergence of defining a full resource life strategy. Three necessary conditions for success with the above methodology are:

• the preparedness to cooperate in integrated teams covering virtually all technical disciplines in the EP sector;
• easy access within these teams to supporting IT systems;
• the correct mind-set of the professionals involved, which will result in broad technical and commercial horizons.

The approach will also have an effect on the decision making process. The full range of
possible outcomes can be made visible, from straight duds through teasers, small scale
developments to major developments with or without pressure maintenance, each with
their respective probabilities.

Evolve brownfield concepts

The same principles as above apply to brownfield situations. Generally the reservoir
information is much firmer and the extent of subsurface uncertainty has been
considerably reduced.
The thrust now focuses on making the most of what we have. This might involve
additional process plant, the use of the facilities as infrastructure for other field
developments, or the adoption of new technology.
Whatever the drivers, the same process needs to be followed. That of identifying a
representative range of subsurface options, e.g. extent of infill drilling and including

possible third-party business and as broad a range of conceptual production facility
solutions as possible so that the full extent of the underlying business strategy can be
explored in outline. The potential savings at this stage of strategic selection usually reap
far greater cost reduction than at any other. Conversely getting it wrong can rarely be
undone by subsequent careful management.

Economic Screening and Concept Selection (A-11.05)

A fresh economic evaluation is undertaken, involving updated estimates (level of
accuracy still within the range +40%/-25%), schedules, tariffs, production profiles, price
assumptions and tax aspects. A comprehensive economic model incorporating these features is
used to run various sensitivities connected with each development option. The output from
the economic screening is used to support selection of the development option.

The selection process, with all relevant supporting data, is either collated in a Concept
Selection Report or, for smaller projects, it may be included directly into the Field
Development Plan.

Commercial Negotiations (A-11)

A Commercial Negotiations Strategy is developed and negotiations pursued for the
leading development options. The aim is to ensure that the basis exists for securing all the
main commercial agreements – typically, equity, transportation, processing and operating
– required for these options and to obtain reliable data for use in comparative economics.

Engineering and Operations in the Select Phase

Well and Field Engineering

Engineering efforts in supporting the concept selection team are shown below. Field
engineering usually involves a number of engineering disciplines: the process engineer
frequently plays a key role in establishing the best range of process options to fit the
emerging project purpose. Other disciplines are in support, usually via a matrix
organization. It is often preferable to do much of this work in-house rather than using
external consultants for reasons of speed and effectiveness but this depends on the
availability of sufficient skilled resources.

It is during this phase that the application of appropriate value improvement tools from the
ORP Toolbox provide a large economic benefit.

A-11.04 Formulate Development Concepts

A-11.04.01 Make well design concept(s)

Identify well types (production/injection, vertical, deviated, horizontal, slim)
configurations and total number of wells to meet the development concept(s). Items
to be considered are typical tubing and production casing size and need to
accommodate artificial lift, sand control and future re-completion and
abandonment requirements. Propose an execution strategy for each concept.

A-11.04.02 Make facility design concept(s)

Prepare design concept(s) for the surface facilities, based on the subsurface
development scenario(s) (note: this may initiate ”A-12.01 Prepare Conceptual
Design). Items to be considered are the required capacities, number and location Prepare design concept(s) for the surface facilities, based on the subsurface
development scenario(s) (note: this may initiate ”A-12.01 Prepare Conceptual
Design). Items to be considered are the required capacities, number and location.

A-11.04.05 Carry-out HSE analysis

Carry out HSE risk analysis for each development concept, e.g. hazard analysis on
the well and facility design concepts, and specific operating philosophy; carry-out
environmental impact assessment and risk analysis of emissions and dispersions.

Operations

In addition to the Asset Reference Plan discussed in 5.3.4 below, Operations documentation
needing to be updated in this phase as input to the Field Development Plan is as follows:

• Operations Policy Statement and Philosophy
• Manning Study
• Availability Study
• Logistics and Services Study
• information on planned production profiles, availability levels.

A-11.04.03 Create/validate production system model(s)

For each development concept, simulate and optimise the fluid flow process in the
subsurface-surface production/injection system combining reservoir simulation, well
performance, surface facilities and production/injection process. Determine
produced hydrocarbons over full life cycle.

A-11.04.04 Define operating options

Define options for operating each development concept. Develop a reference plan
for producing (functional) assets to evaluate the impact of each option on the
activities required to manage the wells, facilities and processing of produced fluids.
Examine the activity phasing, frequency, deferments, the call on and use of
supporting resources.

A-11.05 Evaluate Concepts

A-11.05 covers the activities with cost estimating and economic evaluation. These are:
A-11.05.01 estimate well expenditure(s)
A-11.05.02 estimate facility capital expenditure(s)
A-11.05.03 estimate operating expenditure(s)
A-11.05.04 conduct economic analysis

Cost Estimating

Development Capex and Opex can be estimated using the SGSI Cost Engineering
System (CES), The CES contains the Cost Engineering methodologies for generating
level 1 (screening: + 40%/-25% accuracy) and level 2 (feasibility: +25%/-15% accuracy)
cost estimates for any region. The CES is used to store actual project costs. The accuracy
of the estimates produced with the CES depends on the precision of the development scope
definition; the quality of the Cost Engineering estimating methodologies, reliability of the
cost rates used, and the technological and commercial risks associated with a development.

The output from the CES gives a breakdown of the Capex and Opex phasing and the
calculated Unit Technical Costs (UTCs); discounted (Capex + Opex/Reserves).

Credible alternatives, complete with estimated Capex and Opex, production profiles and
UTCs, can be produced quickly. The CES contains Cost Engineering methodologies for
onshore and offshore production facilities, covering drilling, subsea development,
substructures, floaters (including tension leg platforms and SPARs), flowlines, pipelines
and risers, facilities, infrastructure and Opex. Further work is planned to update the
Opex methodology in line with the work on Asset Reference Plans.

Although CES contains indicative escalation factors in each currency, in order to allow
Money of the Day (MOD) estimates to be produced, estimates should be prepared in
Constant Value Money (CVM) with the appropriate reference date quoted.

A concept development team using CES should check with the CES custodian (OGPS/7)
before embarking on new cost estimating methodologies for their concept definition studies,
and ensure that they have the most up to date benchmarking data at their disposal.

Asset Reference Plan (A-11.06)

The facilities studies are aided by the preparation of a preliminary Asset Reference Plan
(ARP). That is progressively enhanced throughout the development of the asset and
thereafter on an annual basis until the asset is decommissioned or divested.

The ARP, which builds on field development data contained in existing prospect/opportunity
documents, sets out the way in which the asset will be managed through its operating life and
contains a comprehensive set of information on planned production profiles, availability levels,
revenues, operating and maintenance activities, resource requirements and associated costs.

It also contains details of any identified future opportunities for improving the value of the asset.
(For a small prospect tied back to an existing facility it is likely that, rather than creating another ARP, the ARP for the host facility will be modified to embrace the new development.)

Field Development Plan (A11.06)

The Field Development Plan (FDP) is substantially prepared in this stage, essentially
providing a full reference for the subsurface aspects of the development together with an
overview of the selected development option. It is also a vehicle for progressing the
consultation process with the regulatory authorities and co-venturers and forms the basis
for the formal Field Development Programme later submitted to the regulatory authority.
It must identify all key project elements and risks and also the consequent costs arising
from such items as infrastructure expansion. Typical contents of the FDP (excluding
aspects that might be included in a separate Concept Selection Report) are:

Field Development Report Contents

Value Assurance Review

Before seeking approval of the proposed development scheme, VAR No. 3 is carried out
to obtain an independent view as to the completeness and validity of the proposal.

Funding for Phase 3 – Define

In anticipation of acceptance of the proposed development option and dependent on
project size, it is necessary to raise a Group Budget Proposal (GBP) to apply for funding
approval that allows ORP Phase 3-Define work to proceed with limited exposure until
the project is fully defined (i.e. Project Specification, Project Execution Plan and +15%/
-10% Budget Estimate are fully developed).
This GBP typically contains:

• a breakdown of the funding required and the associated activities
• an overview of the development history
• a summary of the proposed development option, the associated execution plan, contracting strategy and field life economics
• the positions of and issues relating to any key third parties, including co-venturers, owners of transportation and processing facilities and regulatory authorities.

Included in the proposal will be any funding requirement for long-lead equipment (or any other work) needed to maintain the proposed development schedule.