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IBP1262_12 BEST PRACTICE FOR CONCEPT SELECTION Chris Mole1

Copyright 2012, Brazilian Petroleum, Gas and Biofuels Institute - IBP
This Technical Paper was prepared for presentation at the Rio Oi & Gas Expo and Conference 2012, held between September, 1720, 2012, in Rio de Janeiro. This Technical Paper was selected for presentation by the Technical Committee of the event according to the information contained in the final paper submitted by the author(s). The organizers are not supposed to translate or correct the submitted papers. The material as it is presented, does not necessarily represent Brazilian Petroleum, Gas and Biofuels Institute’ opinion, or that of its Members or Representatives. Authors consent to the publication of this Technical Paper in the Rio Oil & Gas Expo and Conference 2012 Proceedings.

Abstract
The world is entering a period of energy shortage as easy to access oil and gas reserves are depleted. With this background it becomes even more important to make good robust decisions when analyzing projects to invest in and maximize the value of capital employed. Concept selection studies by their nature need to be adaptable and openminded. However, a formal process should still be followed to ensure conformity and proper documentation of the results and outcomes, so they can be reviewed or audited if required. This paper outlines a recommended procedure for concept selection using a building-block approach. All steps are recommendations only, and the method to be used should be determined and adapted as appropriate to the type, length and depth of study required. Additionally this paper presents a practical and systematic method for understanding the key drivers and uncertainties in a project and then developing a decision based plan to extract the maximum value from any opportunity. Concept selection is a key activity in the project lifecycle where the best project is selected from the entire range of feasible alternatives. Once this selection has occurred the execution phase serves only to maintain, rather than create value. Along with this methodology comes a toolkit that can be used to systematically understand the main project drivers and then analyse each development concept in a rigorous manner to quickly screen out concepts that do not meet the projects value drivers, risk profile and range of possible subsurface outcomes.

1. Concept Selection Overview
The process of selecting a field development concept following a discovery involves a complex iterative interaction between its key elements of subsurface, drilling & completions, surface facilities and commercial considerations. The objective being to understand how different risks and uncertainties impact each scenario, leading to a final selection of the single concept that best balances the key elements and extracts maximum value for all stakeholders. To carry out this type of analysis a toolkit is required that allows a limited pool of experienced professionals to maximize the value that they can impart, whilst minimizing any repetitive or non-value adding activities. This requires a disciplined approach to only doing work that is focused on each decision that has to be made. When the toolkit is opened it needs to contain: 1. 2. 3. 4. A method for rapidly and systematically understanding where the project is in the development cycle, what the project drivers are, which decisions have to be made now and which decisions can be left until later. A method for developing a range of options that are sufficiently broad to cover all feasible development cases A screening process that allows development concepts to be created and analysed in a systematic manner with key stakeholder engagement leading to the selection of a single, best concept. A decision support package template that sets up the project for the next phase

______________________________ 1 BEng, Select Director - WorleyParsons

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Figure 1 – Overall Concept Selection Process Although each concept selection study will be different the key steps are always similar: • A framing workshop is held to: o Align the participants and ensure that all stakeholders have an equal level of knowledge o Ensure that all stakeholders have a clear view of the success criteria for the project o Map out the route to success by agreeing on decisions that have already been made, decisions that need to be made in this phase and decisions that can be left until later phases o Clearly define the decision making criteria to be applied to each development option An options development workshop is held to: o Understand the key questions that have to be answered and decisions that have to be made o Develop the strategic themes that answer the key questions o Develop a list of feasible options for each of the decisions that have to be made A building block approach is used to minimize the amount of repeat work carried out and to streamline the concept selection process The toolkit of software and processes is used to develop the technical work to a level where cases can be screened, selections made based on the previously agreed criteria and ultimately decisions made on which is the best development scenario A thorough understanding of the risks and opportunities inherent in each case is developed A single development case is agreed upon by all parties Additional work is carried out on the single selected development case to allow a final investment decision to be made

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These methodologies should be used for all projects where the path to reaching the study objectives is complex, numerous decisions are to be made, and the choice of combinations of decisions is not obvious. Without the application of these processes for such projects, these problems may eventuate: • Under-analysis: some feasible alternatives, or evaluation criteria, are not identified in the EVALUATE phase or their dismissal is not sufficiently documented. These alternatives and criteria then cause rework in later project phases, with major delays and cost to the project. Over-analysis: typically results in dozens of study cases, many of them unrealistic, or almost identical. It serves little purpose to enumerate every possible combination of alternatives at this stage, but it does waste time and 2

Rio Oil & Gas Expo and Conference 2012 add meaningless work to the process. This is because understanding is mostly gained by thinking, which is then supported by calculations only as and when needed.

2. Workshops for Concept Identification
To assist operators in the development of their resources a series of Concept Screening Workshops are recommended to ensure that the project is correctly framed, has engaged with all key stakeholders, understands the risks and opportunities present and is ready to start subsequent phases of work. In essence to develop the roadmap for concept selection and identification which ensures that the finally selected development concept represents the optimum balance between risk and opportunity. The methodology that we use for concept selection is a decision based process that starts off with a series of workshops designed to unearth the maximum value within a development and to ensure that development concepts are aligned with our customer’s business objectives. The initial objective is to identify the main themes for the development and the primary uncertainties around each theme. Insights gained by testing the robustness of themes against known uncertainties allows us to narrow down to the development concepts that offer the most value. Once the primary themes have been identified we can then re-inflate the workplan to look at the next level of decision making and risk identification to add definition to each development concept so that we can understand the maximum value contained in each of them in preparation for the narrowing process that takes us to the preferred development concept. A key part of this process is to ensure that all stakeholders are identified and engaged so that there are no surprises in the narrowing phases of either them or concept selection. The suite of workshops available to use include: 1. Kick-off 2. Framing 3. Design Basis 4. Technology Selection 5. Risk & Opportunity 6. Screening 7. Hazid Identification (HAZID) 8. Execution Planning 9. Design Review 10. Value Improvement All of these workshops are valuable and should be used throughout the project; however the following 5 are the key workshops that we consider to be fundamental to proper initiation and execution of a concept selection project: • • • • • Workshop 1 – Framing Workshop 2 – Risk and Opportunity Workshop 3 – Stakeholder Engagement Workshop 4 – Basis of Design Workshop 5 – Execution Planning

2.1 Preparation for the Workshops Successful Field Development Planning (FDP) places a high importance on good preparation as a key component in achieving a successful workshop and for that reason we typically recommend a phased 1 to 2 week period leading up to the workshop. Workshop preparation should not be rushed, and would include booking an appropriate venue, agenda, agreement of workshop processes, advanced notification to participants, breakout groups, development of workshop presentation slides and workshop templates, materials, wall charts, handouts etc. Our experience is that the workshop should comprise of experienced personnel with complimentary skill sets to ensure the proper development of development alternatives and sensitivity cases incorporating superior ideas. The makeup of a typical workshop team should include: • • • Subsurface Drilling Geotechnical/Metocean 3

Rio Oil & Gas Expo and Conference 2012 • • • • • • • • • • • • • Flow Assurance Sub-sea Safety and Risk Topsides/Process Pipelines Project Execution Operations Regulatory Environmental and Heritage Onshore Infrastructure Estimating/Scheduling Commercial/Economics Interface management

The pre-workshop phase comprises an initial kick-off meeting and typically a 1-2 week period of data gathering, organisation and preparation prior to the workshop. The kick-off meeting is used to organise the scoping process for the workshop, including confirmation of attendees and functions/disciplines, likely available data and a review of the draft agenda. It provides an important start to the study and facilitates the alignment of objectives and clarification of issues. The inputs will be reviewed and agreed at the kick-off meeting. It is recommended that certain input activities are pre-prepared by a small joint contractor and operator team in the 2 weeks prior to the workshop in order to constrain the workshop length and scope. These activities will be later reviewed and agreed by the workshop participants early in the workshop. The activities to be prepared in advance by the small team are as follows: • • • Project Development Decision Criteria: To aid workshop participants select development alternatives/options for further evaluation Development Strategies and Options: A visual guideline template to aid participants in the generation of alternative options in the workshop to ensure consistency with project objectives, known scope boundaries, etc Classes of Facility Quality: This establishes the necessary quality facility to meet business goals. Factors are established at a high level to act as a framework for engineering decisions to be better focused on the objectives of the project. They provide summary information for reliability, expandability, automation, life of the facility, expected stream factor(s), likelihood of expansion, production rate changes with time, product quality, and product flexibility etc.

The deliverables from each workshop should be collated into a report which also will include: • • • Summary narratives of the outcome of the workshop The key findings and conclusions Key recommendations with respect to basis updates and work required for the subsequent stage or future development work.

2.2 Workshop 1 – Framing Framing is about answering three fundamental questions: Where are we? Where do we want to be? How are we going to get there? The framing workshop process is a structured way to answer these questions and ensure that the project team has a solid foundation for ongoing work. Typically our framing workshops include the following stages: a. b. Grounding presentations to understand the current status of work and bring all parties to a common level of understanding. This is a key activity to answer the question – Where are we? Identification of major issues, concerns and ideas. From the grounding presentations comes a list of major issues, these typically will form the basis for selecting development themes that will be taken 4

Rio Oil & Gas Expo and Conference 2012 forward into the solution space (e.g. what’s the lowest environmental impact case? What’s the minimum CAPEX case? What if I use cutting edge technologies?) Opportunity definition and success criteria. In this phase of the workshop we define what the opportunity is in a clear and concise manner and gain agreement from the team. The next phase is to then gain agreement on the success criteria that the project will be judged against. This will include both critical success factors and quantifiable measures of success Stakeholder identification and analysis. A stakeholder analysis is useful to ensure that the brainstorming of options is wide enough and that the decision making process is thoroughly developed. Without understanding who the stakeholders are the project runs the risk of being too narrow in these aspects Decision identification and analysis. A decision driven process is required to ensure that all work is focussed on making decisions that move the project forward. This part of the workshop focuses on understanding the key decisions that have already been made, those that need to be made in this phase and those that can be left until a later phase. This also requires an understanding of the decision making process within COP so that decision owners can be assigned and a decision hierarchy developed. Develop the solution space (option identification). This forms the bulk of work in both the workshop and the subsequent phases of study work that will follow in the July – Dec 2012 period. In this part of the workshop we will brainstorm options based on the required decisions and develop the key high level themes that will be the focus of this period. A key part of this activity is to ensure that the selected themes are sufficiently different from each other and that they answer specific questions about where value lies within the development Schedule and action plan development. At the end of the workshop a schedule will be developed with owners of specific actions to reconfirm the workplan for the remainder of the year, including key activities that need to be immediately focused on in the days following the workshop.

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2.3 Workshop 2 – Risk Identification The risk identification process is used to gain a fundamental understanding of the range of possible realisations that may occur – by ensuring that we have a taken a wide enough view in both the technical option development and the risks we can be sure that the project solution space is sufficiently well developed to capture all of the value that exists in the development.

Figure 2 - Risk and Uncertainty Matrix A high level SWOT (Strength, Weakness, Opportunity and Threat) analysis on the options identified is carried out in order to ensure any technology studies or technical definition work is identified and scoped/scheduled. This work is generally focused on either mitigating a threat or weakness; or exploring an opportunity. 2.4 Workshop 3 – Stakeholder Engagement Having identified the key stakeholders, development concepts, risks and opportunities in Workshops One and Two the next stage is to engage with these stakeholders to test that the project team has considered all aspects of the development that the stakeholders want to analyse. This will include: 5

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a. b. c. d.

Confirmation of strategic themes Confirmation of development cases Discussion of risks and opportunities Completion of solution space

Typically the stakeholders will bring a fresh perspective to the thought process and by engaging with them at this stage any “nasty surprises” will be avoided later on. 2.5 Workshop 4 – Basis of Design This workshop is used to confirm to the broader team the outcomes of the pre-workshop period when the design criteria and class of facility will have been developed. It is also the opportunity to develop the Basis of Design document that the team will need to provide the foundation for carrying out the study work and to identify any missing data that either needs to be developed or for which assumptions need to be made. It will typically include: a. b. c. d. e. Confirmation of design criteria Confirmation of Class of Facility Development of design basis for study Gap analysis for missing base data Development of action plan for next phase

2.6 Workshop 5 – Execution Planning Appropriate project planning is important during the concept selection phase to enhance the Decision Support Package and to assure superior project delivery results. Project Delivery opportunities are identified and unfortunate surprises are avoided with specific project execution planning. World-class project delivery performance starts with up-front world-class project planning. This workshop focuses on ensuring that project execution and delivery is understood and used to differentiate between concepts and included in the cost and schedule deliverables for this phase.

3. Concept Screening
The objective of this phase is to take the output from the workshops carried out in the concept identification phase and carry out sufficient work to allow a narrowing down to one or more primary themes that will underpin the final development concept. The next phase of work will then take the primary themes and add definition to them to allow a single development concept to be taken through to the Basis of Design and FEED phases. This phased approach to concept selection ensures that the initial broad focus is at a sufficiently high level such that the project team does not get “lost” in the detail of analysing multiple similar concepts. The bulk of work for this phase involves developing the technical scope of each strategic theme and then evaluating that theme against the key risks and uncertainties. The emphasis at this stage is on understanding why concepts score well and badly against different risks and how poor scores can be alleviated by either design optimisation or risk mitigation. The primary themes resulting from the workshop phase should each be fundamentally different covering the broad spectrum of possible permutations with the focus on understanding the differences between the themes and why one theme is attractive compared to others for the full range of expected uncertainties and risks. From the workshop phase we will have: a. b. c. d. The defined questions to be answered by the Theme Selection phase A set of markedly different strategic themes for the development An understanding of the key risks and uncertainties that the development faces A basis of Design that provides the foundation for the technical workscope

Most importantly the stakeholder engagement process will have ensured that all parties have agreed to this starting point for the concept screening phase. The standardized approach described in the following sections ensures that a robust and consistent decision making process is adopted across the various development scenarios

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Rio Oil & Gas Expo and Conference 2012 3.1 Building the Cases A building block approach to concept selection is the preferred method of developing and screening multiple cases and scenarios. Once all of the cases have been determined, they need to be divided up into building blocks that can be added together to produce the overall cases for evaluation. When determining the building blocks, the following should be considered: • Building blocks should be a sub-set of the major components – ie should not span the different components. So for example a jacket should be a different building block to the topsides to allow appropriate indirects and allowances to be applied and also often to mesh in with client work breakdown structures Where cases will be similar in some areas but not identical then, by creating separate building blocks, the repetition of work can be reduced. So for example if the development concept is wells to central manifolds, but the number of wells differs with different cases then by separating the wells and flow lines building blocks it is possible to combine multiples of them to create different cases. Where different skill sets/individuals will be required to prepare the costs, then by making them separate building blocks they can be prepared independently, and therefore more efficiently The boundaries of building blocks should be clearly defined, to ensure that there are not overlaps, gaps or double dips. Importantly, items which are independent of building block quantities are excluded. Most significantly this includes vessel mobilisations. A separate method is applied to identify the types of vessels and numbers of mobilisations required..

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Experience and judgment should be used to determine how the scope is to be divided up into building blocks. The more building blocks that can be identified that are common to multiple cases will result in less work being required. A Building Block Register should be created listing the building block number, building block component, description, revision, responsible person and status. 3.2 Case/Building Block Matrix Assuming all of the cases and required building blocks have been identified and developed, then a Case/Building Block Matrix should be developed which documents which building blocks are required to be populated to generate each case. This is done by using the list of cases as one axis and the list of building blocks as the second. The matrix is then populated to indicate which building blocks are required for which case. 3.3 Preparation and Combination of Building Blocks Once the engineering and estimating disciplines have generated the building blocks in a pre-agreed standard format they can be imported into a cost comparison tool. The tool should incorporates data validation to ensure all expected data has been imported; this includes: details/scope of the building block: direct costs; spend profile; Currency split (%); expected accuracy; author/revision data etc.

Figure 3 – Example Building Block

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Rio Oil & Gas Expo and Conference 2012 Indirects, allowances and contingencies should be agreed with the client and set project-wide but may vary for the various types of building blocks; eg: engineering % for a pipeline is lower than for a topsides; similarly Owners Costs vary; etc.

Figure 4 – Example of Indirects, Allowances and Contingency It is common for developments to be undertaken in a number of campaigns, each with a dedicated set of costs. The comparison tool has to allow the user to model the campaigns for each development case, and then generate the appropriate spend profiles over time for these cases so they can be imported into the clients financial analysis system. The timing of campaigns is either taken from client production profiles, developed in conjunction with client field development planning engineers, or can be developed from Integrated Production Modeling work.

3.4 Case Comparison The process described above is not a cost estimating process – it is a cost compilation and analysis process. It processes building block cost estimates and then enables the user to combine them to rapidly generate development estimates including expenditure profiles and basic economic analysis allowing early screening of options based on discounted Present Value. The process is set up to generate estimates for multiple cases/scenarios, and enables easy comparison and analysis of the differences between cases and generation of various reports with different levels of detail and perspective on the costs. Generating data alone is insufficient for people working in concept selection. The work carried out needs to be reported in an easy to understand manner so that key insights can be developed to explain the differences between cases and the reasons why certain cases have been selected (or dropped). Hence the toolkit for concept selection needs to contain a complete suite of standard reports, as well as the ability to develop project or client specific reports as required. Many reports should have the ability to line up cases side-by-side to allow easy comparison and overview. A Building Block Summary Report presents building block costs by case, enabling comparison of what is driving the differences in costs for cases.
CASE DESCRIPTION 1
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SUMMARY BY WBS
01 - RESERVOIR 02 - WELLS 03 - SUB-SEA & TREES 04 - FLOWLINES, MEG AND UTILITY 05 - SUB-STRUCTURES 06 - TOPSIDES 07 - FIELD TO SHORE PIPELINES 08 - MOBILISATIONS 09 - ONSHORE RECEPTION 10 - ONSHORE TREATMENT TOTAL ABOVE $5,094 $2,734 $5,937 $2,111 $2,824 $2,191 $574 $237 $669 $22,372 $5,094 $2,965 $6,786 $361 $2,046 $2,358 $507 $237 $669 $21,023 $5,247 $2,965 $6,786 $672 $1,350 $2,125 $881 $172 $573 $20,770 $5,094 $2,746 $5,937 $2,111 $2,967 $2,491 $574 $237 $669 $22,827 $5,247 $2,746 $5,937 $2,111 $2,614 $2,169 $886 $172 $573 $22,453 $5,094 $3,164 $6,784 $1,771 $1,815 $2,687 $463 $237 $669 $22,683 $3,205 $1,746 $3,781 $1,518 $1,427 $1,922 $347 $172 $290 $14,407 $2,042 $988 $2,158 $672 $1,350 $1,224 $554 $172 $551 $9,711

Figure 5 – Building Block Summary Report Other recommended reports are: • A Case Summary Report presents each case at an overall summary level, including CAPEX, OPEX, Abandonment, Present Value – summarised by Campaign and by Owner share. 8

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A Campaign Summary Report shows the campaigns for a single case, by Year, and clearly showing Campaign Markers (eg: RFSU, Compression Introduction, Infill Drilling, Abandonment). This report shows CAPEX, OPEX, Abandonment and Discounted Present Value, by Year of Project Life. The Campaign Summary Report also captures the production profile for each case. Production profiles can vary to ensure low and high reservoir outcomes are assessed. Similarly, production profiles can be discounted to yield a discounted cost per discounted unit production, and thus a sound economic basis for simplistic economic case comparison.

4. Concept Selection
Having used this process to develop case maps and building blocks and then to generate case comparison data we need to test these outcomes against our key uncertainties and screen our options down to the development cases that will be carried forward into the subsequent phase. For example, in the following matrix we are testing four development concepts (1-4) against four uncertainties (A-D). The comparison may include Capex, Opex, NPV, recovery, etc as well as non-economic screening factors.

Figure 5 – Developing the Solution Space In the above example concepts 1 and 2 both have red blocks against some uncertainty cases representing fatal flaws. Concept 3 scores extremely well in all cases apart from C whereas concept 4 scores well across the entire range of uncertainty cases. The aim is to then understand why concept 3 scores poorly in uncertainty case C and to see if this outcome can be mitigated in some way (for example the uncertainty may be around aquifer drive from the reservoir in which case part of the next phase of work could be to carry out more reservoir analysis to better understand this risk). In essence the aim is to understand what attributes of each case cause it to perform well or badly and hence which attributes do we want to keep and which should we discard. A structured decision making process is required to ensure outcomes that are robust and stand up to scrutiny by peer groups and partners. The steps used by WorleyParsons to ensure robust decision making is: 1. 2. 3. 4. 5. 6. Project roadmap – to identify key decisions (part of the Workshop phase) Decision register – lists the main decisions made Key decision log (KDL) – to document and justify decisions Influence diagram – identifies the interrelationships between key decisions and who makes the decision (part of the workshop phase) Decision framing sheet - focuses the work-scope required to support the decision Decision quality tool – helps provide clarity around the strengths and weaknesses of a decision.

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Figure 6 – Decision Making Process At this stage we would also carry out a Non-Economic screening workshop to draw out the differences between cases that cannot easily be considered in economic terms and to carry out a coarse screening of options. For cases which are very similar in economic terms a process of monetizing safety, environmental, political and stakeholder risk has been developed that allows a quantitative analysis of these aspects to be carried out. At this point the project team will have narrowed the original large number of development themes down to a smaller number (typically 2 or 3) that will be the focus of the next phase workplan. The process followed will have been to: 1. 2. 3. 4. 5. 6. Develop Options Understand key risks and uncertainties Develop decision making process Develop the building block based technical workscope Screen the options on an economic and non-economic basis against the key risks and uncertainties Document the decision making process leading to the final selection of the preferred development themes.

The conclusions and insights gained through this process should be documented in a final concept selection report that encompasses all of the steps described above.

5. Project Examples
This process has been used on numerous studies ranging in schedule from a few weeks to over 48 months and for project TIC of up to $50 billion. Specific examples are: A greenfield multi-billion dollar gas development where the concept screening process narrowed a diverse range of options down to four primary strategic themes, aligned to the client and partners specific drivers. This was followed by a concept selection phase that re-inflated the four themes to multiple options within the two primary themes and then narrowed down to the finaly select case to be moved forward into FEED and beyond. A brownfield restoration project in which the client had to decide between renewal of the existing aging facilities or an extensive series of modernisation and maintenance projects. In this case the building block approach, aligned with the development of simple yet robust economic models gave the client the clarity required to select the phased modernisation and maintenance approach as opposed to the initially favoured renewal project.

6. Conclusions
In conclusion this paper demonstrates: 1. 2. 3. 4. 5. The value that can be created by using a systematic and structured approach to concept selection The need to utilize a suite of tailored tools to maximize the effectiveness of experienced professionals Real examples of improved project performance and outcomes that can be realized How to ensure that the project is set up for success at the end of the concept selection phase How to avoid some of the common traps in concept selection work. 10