By:

Rakesh Verma

CTO and Vice President

Samsung Heavy Industries India Pvt. Ltd.

23rd May 2013

India Drilling & Exploration Conference (IDEC) 2013

Does Project incubation define Project success?

Introduction

• FPSOs a popular choice in recent years.

• Majority of FPSO projects incur significant project delays and budget

overruns.

• Conceptual / Tendering phase a bone of contention

Objective

• To show the challenges of current Conceptual / Tendering phase practices

and how this can affect the success of a FPSO project.

• To highlight the strategic roadmap to better results

Outline

• Challenges

• Key drivers

• Current practices

• Impacts and challenges

• Way forward

Decade 10-20 Challenges

History shows that FPSO projects have a turbulent past.

Data Source: IPA

Decade 10-20 Challenges

• Cost and schedule overruns regularly surfacing.

• Successfully executing a FPSO topsides project on time and budget is a

serious challenge.

• Most FPSO projects, and in particular Lease FPSO’s, are fast track projects.

• Consequently few FPSO lease companies make healthy profits.

• Many leased FPSO’s struggle to meet expected delivery schedule,

production regularity and production rate.

KEY DRIVERS TO THE CHALLENGES

Market Trends

• Increasing size & complexity (Brazil main driver)

• Field specific solutions

• HT & HP wells

• Heavy Oil

• Salt and CO2 issues

• Deep waters

• Harsh environment

• Local content at design and construction phase

Why the hurry?

• The Operator Company have invested a lot of money in Seismic activities

and expensive drilling programs.

• First oil as quickly as possible in order to start return of investment.

CURRENT PRACTICES

Current tendering practices

• Field Operator spending long time on preparing, however first oil date does

not change.

• Functional specifications.

• Short bidding period.

• Pushing risk over to the contractors.

• FPSOs high profile developments, with senior management “attention”.

Schedule commitments made independent of project realities.

• Consequently definition stages are arbitrarily shortened. Insufficient time to

complete definition deliverables.

IMPACTS AND CHALLENGES

Skimped Engineering Definition and its peril

Data Source: IPA

Impact of tendering practices

• FPSO projects are more likely to have upsets…

• Hence need a more matured conceptual design and a balanced tendering

process

Data Source: IPA

Increasing the odds

OperatorOperator Topsides ProviderTopsides Provider

• Each contractor different philosophy

• 3 different layout

• Redundancy philosophy

• Options

Contractor 1Contractor 1

Contractor 2Contractor 2

Contractor 3Contractor 3

A very basic Tender / FEED Layout

Higher level of detailing needed during tender phase.

FEED Stage Layout

FEED Stage Layout

Detailed Engineering Data Layout

Detailed Engineering Data Layout

HP Compression Module Layout comparison for one of Samsung’s past projects.

Chain reaction

Slippage of Engineering Deliverables adds to Project costs.

Late engineering and its link to cost growth

Data Source: IPA

Chain reaction

• Cost growth in Engineering leads to growth in Fabrication.

• 50 % growth in Engineering leads to 20% Hull/Topsides fabrication

growth.

Data Source: IPA

WAY FORWARD…..

Working together

• Lease contractors pick a strategic partners for various key supplies.

• Specialists companies can often come up with better, more robust and

cost efficient solutions that give added value for client.

• Early involvement in order to allow sub-contractors sufficient time to

make quality bid and reduce risk for both parties

• Balanced contracts (Back to back)

Project definition phase utilization

• Front loading effort in the project definition and tendering phase will provide

a mature and predictable basis for weight and cost estimate.

• The design status at authorization may have a significant effect on project

cost, schedule:

Basis for equipment design and bulk material quantity

Key element of an accurate cost estimate

• Late changes to process design after start of detailed design are costly and

a threat to delivery schedule.

The bid workflow (typical)

ProcessSimulations

Material Selection

Process andMechanicalDatasheets

PFD / P&ID's

Equipmentquotations and

leadtime

EquipmentSizing

Weight Estimate

E&IMTO

Valve list

Layout

MEL

Valve quotationsand leadtime

Valve RFQ

Pipe Routing

Structural SteelDesign

Bulk MTOFabrication Prices

Fabrication RFQModule Price

Cost HoursHours Estimate

ManagementCost/logistics etc

E&I Quotes

Example: Typical time needed for above process 8-10 weeks

Example: Typical time given 4-6 weeks

Conceptual Engineering

Detail EngineeringFabrication

Contract award

Tender phase as far as possible towards detail engineering phase.

Topside Module EPC Project execution strategy

Potential risks

• Poor quality information from suppliers/sub contractors.

• Large number of clarifications and deviations

Example: “A process guarantee is given provided the proper use of

chemical injection program”

• Delivery schedule uncertainties.

• Variation Orders with significant cost growth.

Way Forward

• Front loaded in project definition phase (Owner)

• Matured Conceptual design (Owner)

• Participation by key stakeholders during Concept finalization (Owner)

• Early involvement of potential Contractors….Design competition (Owner)

• Inject incentives and risk sharing measures (Owner)

• Focus on Life Cycle cost (Owner / Bidder)

• Pick a few strategic partners & develop long term relation (Bidder)

Thank you !Thank you !