SPE-178337-MS

Lean Methods Application to Frontend Petroleum Engineering Project

Osazua J. Itua and Gomathi Shamuganathan, School of Business, Curtin University, Sarawak Campus, Miri,
Sarawak, Malaysia

Copyright 2015, Society of Petroleum Engineers

This paper was prepared for presentation at the Nigeria Annual International Conference and Exhibition held in Lagos, Nigeria, 4 – 6 August 2015.

This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents
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Abstract
The application of lean methods is credited with successful project delivery in various industries.
Organizations are attracted to lean methods because its concept can be customized to project specific
requirements to identify and eliminate waste in the value stream. In the petroleum industry, lean has been
successfully applied to projects in ‘execute’ and ‘operate’ phases. In spite of this, there is no wide spread
application to frontend projects. To realize the opportunity to accelerate first gas date by a year, lean
concept was adopted to mature XY field during its frontend phase.
This presentation is aimed at sharing the influence of lean tools on the project and to strengthens the
argument that lean can be applied to frontend projects renowned for high task uncertainty compared to
projects in ‘operate and execute’ phases in the petroleum industry with low task uncertainty where lean
methods currently thrive.

Introduction
The profitability of the oil industry is challenged today in the same manner it was in 2008 when oil price
dropped below USD100/bbl. At low oil price, cost saving measures such as staff and portfolio rational-
ization is embraced in the short term. In the long-term, efficient and speedy project delivery from field
discovery to first oil with emphasis on the frontend where potential to add value is highest is considered.
Frontend projects occur in phases 1 and 2 of the oil and gas project life cycle (figure 1). Projects in
these phases are knowledge based and characterized by data manipulation to generate knowledge-based
deliverables such as feasibility report and field development plan used for detailed engineering design.
The frontend phase is critical because the greatest ability to influence projects in terms of cost, quality and
value occurs during this phase and considerable value is preserved when frontend projects are delivered
within cost and schedule.
To deliver projects on time, different project management strategies are adopted in the oil industry. The
strategies include parallel engineering and lean methods. From literatures, parallel engineering has been
adopted to reduce on stream date of projects in the North Sea and offshore Malaysia (Dechant, 2008).
Project managed with parallel engineering however comes with potential risks of possible misalignment
and, or suboptimal facilities design which can be detrimental to project performance. Jahn et al. (2008)
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and Dechant (2008) observed that this approach is only pursued when perceived benefit to accelerate first
oil surpasses the risks. Unfortunately, not all projects can bear such risk.

Figure 1—Oil and Gas Project Management Phase Gate System (Chuong.2007)

An alternate strategy that has been adopted to glean the benefits of on time project delivery is lean
which has been successfully applied to projects in execute and operate phase (Zandvoord et al., 2009,
Mabian et al., 2010). From literature, lean application to frontend petroleum engineering projects is
however not wide spread. This paper presents the outcome of the successful application of lean tools to
timely deliver the field development plan of XY field.

Frontend Project Background

Well 1 discovered the XY field in 1970. The gas field is located in Central Luconia Province in water
depth of 340 ft. A follow up appraisal (well 2) drilled in 2008 assessed the eastern flank of the field. The
field is one of 4 fields in a PSC designated to supply gas to an LNG plant. The XY field development plan
has a design capacity of 300 MMscf/d to ensure security of supply inline with agreed GSA. Some of the
key risks associated with the project are GIIP and karst behavior. One of the key opportunities identified
with the project is to accelerate the first gas date by at least a year to take advantage of observed shortfall
in supply. Lean was considered as a catalyst to mature the field to realize the opportunity.

Lean Concept
Lean also referred to as Toyota Production System (TPS) was developed by Toyota with the aim of taking
waste (figure 2) out of a value stream (Lander and Liker, 2007). Lean enhances customer value by
defining what constitutes waste from customers’ perspective (Hines et al., 2004) and thrives in high
volume relatively standardized products lines (Lander and Liker, 2007). Lean identifies seven types of
wastes that are prone to occur in any manufacturing process (Hines and Rich, 1997). The wastes are from
overproduction, waiting time, transportation, inventory, over processing, motion, and product defects
(Barraza et al., 2009, Hodge et al., 2011, Pedersen and Huniche, 2011, Haque and James-moore, 2004).
Available evidences suggests a company competitive advantage and performance is enhanced when it
adopts lean strategy (Chen et al., 2010, Oliver et al., 1996, Shaha and Wardb, 2003, Alukal, 2007, Hines
et al., 2004).
SPE-178337-MS 3

Figure 2—Value adding and non-value adding time

Though lean was primarily developed for manufacturing environment, Lander and Liker (2007) noted
industries that do not manufacture standardized products at high volume can also adopt the philosophies
and principles to better their performance. Womack et al. (1991) similarly observed the application of lean
is not limited to its manufacturing origin but has wide applicability. This is obvious from the number of
manufacturing and service industries that have customized lean to suit their peculiar operating environ-
ment. For instance, in healthcare, improvement in direct nursing care time, reduction in medicine stock
and medicine administration is credited to application of lean tools such as Kaizen, Kaban and 5S
(Badurdeen et al., 2011). Similarly, in construction and shipbuilding industries, lean application led to
elimination of waste as it reduces manpower, material, machines and space while still meeting project
schedule, quality and budget goals (Hallowell et al., 2009). Successful lean application is also reported in
human resources management of leave administration (Ceniceros., 2009).
In the petroleum industry successful lean implementation is well documented. Improvement in a broad
cross section of business performance parameters such as safety and production is reported by Imperial
Oil as a result of applying lean and six sigma to its operations (McCall et al., 2009). Likewise, Zandvoord
et al. (2009) report 60% reduction in Well and Reservoir Management (WRM) cycle time through
implementing lean tools to operational activities. The breakthrough performance was credited in part to
co-locating key disciplines required for WRM. Furthermore, Mabian et al. (2010) report lean projects
completed in 2009 yielded production gains in the order of 1000 m3/d, and reduced operating costs by
more than US$1 million in addition to improving a number of core processes. Cost saving is another
benefit of lean management as significant improvements in well quality is reported by Wardt (1994).
These success cases are for projects in ‘execute and operate’ phase of the project life cycle.
Lean application to frontend petroleum engineering projects is not wide spread based on limited
literatures on the subject. This may not be unconnected with the non-standardized nature of frontend
project work consisting of activities such as seismic interpretation, static modeling, log interpretation,
dynamic modeling carried out to deliver products such as feasibility and field development plan in
contrast to project in execute and operate phases whose scope are better defined.
Frontend Projects
Due to the fuzzy nature of projects in frontend, petroleum engineering projects are managed in phases
using the stage gate approach as in figure 1 (Wardt, 2010, Staats et al., 2011). These phases are identify,
assess, select, define, execute and operate and decision gate characterizes the end of each phase. Frontend
projects occur in phases 1 and 2. Frontend projects are knowledge based and its activities primarily
involve managing information (Staats et al., 2011). In frontend projects, nothing is physically created by
4 SPE-178337-MS

the project team but rather, information is created from data (surface and subsurface) and reconfigured to
create knowledge (May, 2005). Waste in such projects are hidden and difficult to identify (Baines et al.,
2006) due to high degree of uncertainty (Chapman and Ward, 1995, Kolltveit, 2004) and risk associated
with them (Dechant, 2008) compared to projects in later phases 4 and 5.
In spite of the relatively none standardized and fuzzy nature of frontend projects, lean philosophies and
tools can be adopted to reduce the process cycle time to achieve set objectives. Some of the lean tools used
to successfully accelerate the XY field development plan delivery ahead of base plan schedule are
discussed further.

Lean Tools & Frontend Projects

Several lean tools were embraced during the process of maturing the XY field from project initiation to
sign off of the field development plan. Six of them, which are Visual Control Board (VCB), Gemba,
Quality in Station (QIS), 5S, SIPOC and Team Collocation, will be discussed.

Visual Control Board (VCB)

The Visual Control Board (VCB) aided the project team focus on upcoming milestones, understand what
is required to be delivered to the decision board, who is accountable for the deliverables and quality in
station (QIS) assurance in addition to target due dates. The VCB brings the team together and highlights
activities on the critical path for which more attention should be paid or assistance requested to prevent
next deliverables from slipping. Though there is no specific format for the visual display board, key
project items on display were sufficient to focus the entire team on key deliverables to enable quality
decision to be made. Information displayed on the board was sufficient for meaningful engagement during
team meetings or gemba sessions. On display on the VCB were deliverable listings of the current phase
required by decision board to make informed decision, completed project deliverables that visually depicts
how the team is progressing and images of concepts under consideration. Additionally, a high-level
project schedule covering the entire project as well as team members working on the project was on
display. Information displayed on the board, assisted the project team and stakeholders streamline
communications by providing team members with visual representation of their own dependencies so that
direct contact between service provider and contact is made (Staats et al., 2011).

Gemba
The stage gate approach to managing petroleum engineering projects has the potential to slow down
projects if they are not well managed. Proper management therefore requires making timely decisions as
waiting for decision constitute process waste. Decisions made during frontend project phase can signif-
icantly impact projects (Kolltveit, 1988), and project cost (William and Samset, 2010). Consequently,
early involvement of decision executive through regular interaction with the project team on the shop floor
will likely impact project delivery time. Gemba, the ‘real place where work is done’ is therefore an enabler
to intimate key stakeholders on progress by the team and upcoming decision that need to be made to
enable the project progress through the next milestone without delay. At the gemba, line supervisors and
managers have the opportunity to see what really happens on the workplace, motivate and boost employee
morale / productivity and it is instrumental in addressing value, quality issues and decision making
(Crumpton, 2010). Regular (weekly) visit by decision board members and key stakeholders to the shop
floor during XY field maturation motivated the team to deliver at promised milestones, served as a
platform to engage various stakeholders on potential issues in the horizon that could impact the project
if not properly managed. The gemba sessions aided the project to be on track.
SPE-178337-MS 5

Quality in Station (QIS)

Over processing and defects leading to rework are some of the waste that lean attempts to eliminate.
Where rework is eliminated, process flow is enhanced and the project can be delivered on schedule (figure
2). Subsurface engineers are sometimes prone to perform superfluous analysis (over processing) without
regard to what the outcome will impact in terms of decisions. Similarly, generated outputs that constitute
input to other downstream work activities (such as modeling) may be passed over the fence without proper
assurance. For these scenarios, rework and considerable loss of project time is inevitable with its attendant
consequence on waste of project resource. Where this occurs, flow of subsequent processes is disrupted.
To prevent defect from being passed downstream, as well as prevent over processing, ‘quality in station
(QIS)’ was fully embedded by the project team. QIS is therefore the means by which the technical
authority on a specific discipline or subject matter endorses the deliverables with the understanding that
it can form the input to a subsequent deliverable or as a completed deliverable for the decision board to
make desired decision. To fully implement QIS within the team, a ground rule that no work outcome will
be passed over to other discipline/stakeholders or the decision board without proper endorsement by the
technical authority was made and adhered to. In addition, it was agreed QIS sessions should be conducted
at regular intervals before a work activity is concluded to pinpoint defect early and prevent such defect
that may lead to work recycling from occurring. Implementing QIS therefore enabled the XY field
maturation team to manage project resource efficiently and thus keep the project on track.

Sort, Set in order, Shine, Standardize, Sustain (5S)

Lean also deploys the 5S tool for workplace organization (Melnyk et al., 1998). 5S as a process
improvement tool focused on reducing process waste Ghany (2010). The benefits of 5S include efficiency
and reduced waste (Warwood and Knowles, 2004). In a manufacturing environment, the impact of 5S is
recognized by a well-organized workspace that makes it easy to search and retrieve materials. This is
difficult to perceive for frontend projects where nothing is physically created. This not withstanding, the
5S is implemented in frontend projects through a well organized and managed team folder for data storage
and exchange with proper version control for every generated file. A poorly maintained team folder can
lead to extended period of search for files with attendant risk of using the wrong dataset for analysis. In
extreme cases, fellow team members may be unable to access files without assistance of team members
who generated them leading to waste from waiting. To eliminate this challenge that could lead to rework
and recycling (if the wrong files are used for analysis), the XY field maturation team maintained a
well-organized team folder that made it easy to store and retrieve data within a short time period thus
keeping the project well on track.

Collocation
Zandvoord et al. (2009) attributed the breakthrough performance in WRM partly to collocating key
disciplines required for implementing WRM practices. Team collocation eliminates waste associated with
transportation and motion and possible miscommunication. In principle, this requires having the entire
team and resource required to deliver a product to be located within the same area. Where a team is
collocated, there is improved communication and process flow. Key members of the XY project team
were collocated within the same office area. The collocation was an enabler for gemba sessions and
impromptu team engagement sessions at the VCB to discuss matter arising. This greatly improved team
interaction and timely flow of information. In situation where this cannot be achieved, collaborative tools
such as video conferencing were used to bridge the gap. Co-locating the XY projects team enabled the
project to remain on track.
6 SPE-178337-MS

Supplier-Input-Process-Output-Customer (SIPOC)
The SIPOC tool was adopted by the team to avoid re work and its associated waste of resource and project
time which lean seeks to eliminate (figure 2). For frontend project where data is transferred and shared
between project team members and support functions, agreeing upfront the specific format for data
exchange, content and attributes of the finished product is essential so that the customer can immediately
use them. In theory, the customer and supplier are encouraged to complete and sign a formal agreement
that defines what data is expected, the format and where they are to be provided. Of note is that the spirit
of SIPOC was embedded by the project team without resorting to formal agreement because the process
of setting them up was considered tedious. Furthermore, the team was able to do without the formal
agreement as a result of the benefit of co-locating the team within the same area and good team spirit and
understanding that developed over time. SIPOC implementation minimized to the barest minimum the
need for rework thus enabling the project to be delivered on schedule.

Discussion
Time, cost and quality often referred to as the iron triangle are the traditional measure of project
performance. It is also purported that one side of the triangle cannot be altered without impacting the
others as the three constraints are often competing constraints such that a tight time constraint could mean
cost and reduced scope (Sylvester et al., 2011). I am however of the view that for a schedule driven
project, ejecting waste from a value stream (figure 2) can keep a project on schedule without impacting
quality and cost constraint. With this in mind, the schedule driven XY field maturation with objective to
beat the FGD by at least a year is doable without compromising quality, cost or reduction of project scope
if lean methods are deployed.
The lean journey of maturing XY field started with a lean workshop facilitated by a lean consultant who
remained with the project team throughout the frontend project duration. The consultant coached the team
on various lean tools available to eliminate waste from a value stream as well as several ways to customize
lean to our unique frontend project environment. Prior to the workshop, no member of the project team
had working knowledge of lean concept, strategies or philosophies. Simulation games and activities
performed during the workshop demonstrated subtle ways waste is generated and how it can be checked.
The team equally reflected on different ways to apply the learning in maturation XY field.
Subsequently, the team reviewed its work processes (Kaizen), identified non-value adding activities
(figure 2) and used the outcome to develop simplified work process to pursue. Key non-value adding
activities identified are waiting on decisions, waste arising from defect leading to rework downstream
(when outputs are not quality assured) and waste from over processing (doing much more analysis
required to make a decision that is necessary). Lack of clarity and objective of a task between customer
and supplier prior to commencement was also identified as a source of waste because it could lead to over
processing, over production or defect. Other areas that generate waste identified were in searching and
retrieving data from poorly organized team folder which is further compounded if the wrong data is used
and discrepancy in format and content of exchanged data between customers and suppliers when there is
no proper handshake in data request. As part of the simplified work process, every work element
(modeling, analysis etc.) to be carried out must be in support of addressing key decisions such as defining
well type, well rates, production profile, facility size, platform type, rig type, volume in place and
recoverable volume, withdrawal rates etc. Similarly, before commencing a task, clarity and objective of
the task must be clearly communicated. In addition, feasibility type issues already addressed were not to
be revisited.
Thereafter, the team was collocated and a project team folder was created and structured in a manner
that made it easy to store data and search / retrieve data generated by others. Customers and suppliers
(petrophysicist, geologist, reservoir engineers, production technologist, well engineers, surface engineer,
SPE-178337-MS 7

HSE engineers, economist etc.) entered into different levels of agreement on their data format, content and
maximum delivery date to enable them deliver their output on schedule. The team also developed and
agreed its work plan, key deliverables and due dates. For each deliverables, the QIS review date and
technical authority to conduct the review was agreed. These were reflected on the VCB along with other
project information that subsequently functioned as a communication tool within the project team. To
show the project status, the VCB was updated regularly using the traffic light symbol (red, amber and
green) and activities on the critical path were identified for special focus and/or provision of additional
team resource.
Regular visit to the teamwork area (gemba) by the decision executive, decision board and other
stakeholder served as information session to understand the (1) project status, (2) issues that require
management intervention, (3) upcoming decision. These gemba sessions in addition to the use of the
decision quality template ensured that there were no delays in decision-making.
Consequently, the XY field concept select / field development plan report was delivered in 15 months,
3 months ahead of base plan. This included inclusion of 2008 appraisal drilling and core analysis result
to address key uncertainties. Also FGD was achieved in 2014, a year ahead of original base plan date of
Q3 2015, thus meeting the project contractual GSA obligation and meeting the shortfall in gas supply.

Conclusion / Recommendations
Schedule driven projects can be delivered as planned without cost overrun or quality concerns if inherent
waste in the project value stream is eliminated. For frontend projects, these wastes take the form of waiting
on decision, over production, over processing and recycling due to defects. To address these wastes, task
clarity, quality in station, appropriate housekeeping and early agreement between supplier customer
input/output requirements is essential. Additionally, regular visits by decision makers /key stakeholders to
the shop floor to motivate and understand potential project issues to enable timely project decisions to be
made is crucial.
The outcome of this work demonstrates lean can be extended beyond the traditional manufacturing
environment that it was originally developed for. It confirms the assertion that lean philosophy, methods
and strategies are universal in nature and results are bound to accompany its correct application. The result
demonstrates petroleum engineering frontend projects can benefit from lean tools and methods to deliver
projects on schedule. Delivering the frontend phase of XY field maturation ahead of schedule contributed
to the overall project achievement of delivering first gas in 2014 a year ahead of original Q3 2015 date.
Frontend project managers are therefore encouraged to consider lean philosophies in managing their
frontend project.

Acknowledgement
The authors wish to thank Lisa Robson, Dennis Creech, Omar Al-Jaidi, Elvis Chung, King King Ting, and
Raymond Lau who were involved with the project and Andre de Kuijper. Appreciation also goes to Curtin
University, Miri and management of Shell.

Nomenclature
5S Sort, Set in order, Shine, Standardize, Sustain
FDP Field Development Plan
FGD First Gas Date
GIIP Gas Initially In Place
GSA Gas Supply Agreement
HSE Health Safety ad Environment
LNG Liquefied Natural Gas
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QIS Quality in station

VCB Visual Control Board
WRM Wells and Reservoir Management

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