First Western Hemisphere alliance yielding development dividends

Trinidad LNG project changes conventional contracting relationships

Neil McCleary
Charles Pridgen
Amoco

Amoco Trinidad's LNG Upstream Development Project included the design, building, and installation of the Mahogany A and B platforms along with pipelines and shore facilities. [19,335 bytes]
Riggers monitor pile installation work on the Mahogany B jacket during the fall 1997 installation program for the LNG Upstream Development Project. [19,241 bytes]
The team completes installation of the Mahogany A jacket in 285 ft of water. [42,753 bytes]

Driven by a mandate to improve shareholder value and an aggressive deadline to deliver gas production by early fall 1998, Amoco Trinidad Oil Company has pursued an innovative approach in delivering the Western Hemisphere's first upstream alliance. The complex project, located near the island of Trinidad, is on time for natural gas delivery, under budget, and witnessing a high level of cooperation, innovation, trust, and performance.

At early conception, the project team envisioned an environment where all parties would be aligned to meet the project's business goals. Through the commitment of Amoco and the alignment of six contractors, the project team is achieving the customer's success criteria of safety, reliability, schedule, capital cost, operating cost, environmental, health and flexibility at reduced costs and with an improved return on investment.

The strategy in forming the LNG Upstream Development Project Alliance is simple: Secure companies with world-class capabilities; link everyone's success to a common goal; empower the alliance to work the interfaces. This approach has worked because of the people involved and the strong commitment of each company's management. As a result, the project team has installed two drilling/production platforms within 16 months while projecting an overall 9% capital cost savings on a tight schedule.

Project scope

Part of an overall project to produce LNG in the country of Trinidad, the project will provide Phase 1 natural gas feedstock from the Mahogany reservoir, 60 miles off the eastern seaboard of Trinidad, to a new LNG plant under construction on the country's western shore, and provide transportation capacity for the Natural Gas Company of Trinidad & Tobago. The LNG upstream scope includes four areas of emphasis: two four-leg, four-pile, 32-well platforms in 285 ft of water, two offshore pipelines, an onshore stabilizer plant, and a cross-country pipeline.

The upstream alliance scope of work includes project management, engineering, procurement, fabrication, installation and precommissioning of all facilities. The facilities will have a design capacity of 1.2 bcf of gas and 40,000 bbl of hydrocarbon liquids per day. Commissioning is set for Oct. 1, 1998.

The scope and size of the project was beyond the potential of a single contractor to execute. The project required a contractual arrangement with engineering and construction firms that would engender the behavior, performance and rewards necessary to meet Amoco's and the customer's expectations for success. The alliance strategy has created an environment of total commitment, but it's a change in attitude rather than a formally structured contractual agreement that has delivered the success. Leading by example has triggered the behavior change, while helping to bring down competitive barriers and build trust. The six contractors include:

Fluor Daniel, responsible for engineering and project management services
CBS Engineering, responsible for structural engineering and other project resources to the integrated team
Brown & Root Energy Services, responsible for fabricating the offshore structures
Field Enterprises Construction (FEC, part of Heerema Holdings), responsible for installation of the offshore structures
Brown & Root-Murphy, responsible for construction of the onshore pipeline and related onshore facilities
J. Ray McDermott, responsible for installation of the offshore pipelines.

The selection process for the Trinidad Alliance members considered the overall value each contractor would bring to the project. Securing a low bid was not a driving factor; instead, an alliance attitude has been valued more. To create an environment of cooperation, the organizations put aside company affiliations to become a project team focused on meeting project's targets for schedule, reliability, safety and cost reduction.

Completions

The project is 90% complete. Brown & Root Energy Services loaded out the Mahogany B jacket, A jacket and A deck in Fall 1997, and FEC followed with installation of the structures using its heavy-lift barge SSCV Balder. FEC installed the Mahogany B deck in February 1998.

J. Ray McDermott began installation of the offshore pipelines in December 1997. The pipelines include an 18-in. diameter, 1.8-mile infield flowline to carry hydrocarbons from platform A to platform B, and two subsea pipelines from B platform to landfall: a 62-mile, 40-in. diameter gas line and a 60-mile, 12-in. diameter oil and condensate line.

McDermott's project scope also includes two tie-ins from an existing Cassia platform for gas production: a 12-in. diameter line connecting with the 12-in. diameter trunkline and a 20-in. diameter line connecting with the 40-in, diameter trunkline. Working from Lay Barge 30, the offshore pipelines complete installation this month.

Major drivers for the project success have been the Amoco Common Process (ACP) and the team's excellence incentive plan for shared savings. ACP, Amoco's staged-gate approach for project execution was developed to enhance shareholder value. By better defining a project's full impact before spending large sums of money, Amoco project teams are using capital more efficiently in asset development projects. A key component is the effective use of internal and industry best-practices in project execution.

The Trinidad project has become a leading example that best-practices make a difference. The alliance team is predicting a savings of $40 million, against a project sanction of $457 million - a tight budget based on a P-50 estimate with a very low contingency - about $12 million (3%) - that has not been used. That is one indicator that the alliance strategy is having an impact. Shooting for a $50-60 million savings by project conclusion, the team set a breakthrough target of $395 million early in the project as an incentive to achieve extraordinary performance.

An independent review of the sanctioned price indicated it represented an industry average. This evaluation verifies for the team that the sanctioned cost is a realistic number for a project of this broad scope and that achievement of the breakthrough target truly would be an industry feat.

Early participation of the alliance members in the define stage or front-end loading phase of the project has helped deliver this success. The team maximized its involvement in ACP by using value improving practices, such as constructability, risk management, value engineering and others. Further, ACP has kept the team focused, building to the planned capacity and working to a single integrated process.

Excellence incentive

The alliance members developed a two-tier profit incentive scheme for the Trinidad project. Each alliance member has a cost reimbursable agreement with Amoco with performance criteria for base level profit, and a full-team alliance agreement which includes an excellence incentive plan, by which each member shares in the budget reduction results.

Each contractor's base profit - a negotiated profit generally lower than current market demand - is earned by meeting critical success factors for safety, quality, cost and schedule. The excellence incentive created by the team and earned by meeting the project's success criteria for overall performance and reliability provides the linkage between the contractors and the mechanism for the alliance to work. This special linkage has driven down project cost. The Trinidad Alliance agreement supports this linkage, specifying the division of gainshare, and the project's operating principles.

The project savings, generated through a full-team effort of sharing resources and designing to capacity, represents the alliance gainshare which will be split 50/50 between Amoco and the contractors. This gainshare amount will result from the difference between the sanctioned price and the actual project cost.

The contractor's portion of the excellence incentive also has performance measures: Sixty percent is based on overall project performance and meeting required gas delivery dates and 40% is based on overall project reliability and delivery of a dependable supply to Atlantic LNG, one of the project's customers.

The alliance mechanism and gainshare structure drives the alliance members to be concerned about issues and problems outside normal working areas. Getting everyone to understand the concept and help each other creates a single-unit team able to make the target. In other words, the sanctioned price of the project is the team "bank account."

The team initially struggled with focusing on project needs as a whole and occasionally slipped into more traditional behaviors where individual success and base profit were the common drivers. But the alliance team eventually realized that it would be rewarded significantly if it achieved savings on the overall project.

Creating the new business environment presented several challenges. The team had to develop a common understanding of how powerful an alliance can be and how to make win-win decisions. The team had to learn who drives the decision-making and how to balance the decisions so that everyone wins.

First, the team had to overcome the stigma of the traditional contracting strategy where the client and contractor historically have diverse expectations based on a perceived scope of work as specified in the contract. This environment inherently creates an adversarial relationship between the client and the contractor.

Second, the Trinidad project team discussed issues and problems openly during budget preparation to avert excessive contingencies. The alliance business approach also eliminated a "change order" mentality associated with traditional projects, which on a schedule-driven project could have greatly impacted the level of risk for cost overruns.

Instead, the Trinidad team accepts "work scope adjustments" that save time, money and paperwork, without arguing over the original scope of work. For example, if it's better for the overall project to switch a portion of work between B&R-Murphy and McDermott, the team does it without change orders, and no arguing.

CBS, Fluor Daniel and Brown & Root faced a lot of challenges with the tight schedule, such as ordering steel before completion of the platform design. The team met these challenges while responding to a resurgence in industry activity, which was underscored by an increased demand for experienced welders. The alliance structure provided the flexibility necessary for the changing business conditions.

The alliance also allowed changes to happen without impacting progress or causing discontent and costly penalties. The fabrication team absorbed changes to the Mahogany jackets and decks to accommodate revisions due to fatigue design and seismic analysis. Even still, the structure loaded out on time in October 1997.

Learning curve

The Trinidad Alliance has eradicated the conditioned responses and behavior patterns perpetuated in a traditional environment. The contractors, who routinely "do as they're told" by the client, have assumed new roles where decisions are made jointly. And because of the tight schedule, Amoco relied on the expertise of its alliance partners in order to meet the gas delivery deadline. This situation encouraged the team to cooperate and work together for the full benefit of the project.

The team initially struggled with trust - trust with regard to each contractor's cost estimates, but eventually broke those barriers through effective communications. Amoco also gained trust because the contracting company's profit is directly influenced by the decisions made by that firm. The team has taken a few risks, but the project has relied on people's experience and commitment to common goals across the alliance.

Beyond the dynamics of the traditional client/contractor relationship, the contractors worked hard to break down their strong competitive boundaries to effectively share resources, facilities and equipment for the ultimate success of the project.

Peer review meetings, where each area manager presented a plan and scheduled activities, helped to build this team effort. The team scrutinized each plan to improve the overall project. Technical experts also helped critique major discussion topics.

Open, honest discussions encouraged feedback, triggering new money-saving ideas. In fact, from May 1996 through October 1997, the project generated almost 200 ideas in the area of constructability reviews and other value improving practices.

Many of these ideas resulted from discussions early in the planning phase where the alliance members - engineering, fabrication and installation teams - jointly contributed knowledge of the business. As the team created a free flow of information, decisions were made in timely manner based on best-options for the project.

In all cases, the team members focused on fit-for-purpose designs and avoided any unnecessary overdesign. Some of the money-saving decisions included:

Utilized a new design tool for sizing the pipelines which saved $22 million
Eliminated some 200 tons of padeyes for the jacket lift, saving on the cost of steel and labor
Switched to a new mud mat system for improved jacket stability due to soil conditions at the installation site
Developed a jacket leveling method to save time for FEC's SSCV Balder. The project shaved two days off the installation time, or one day per jacket
Eliminated some walkways at the top of the jackets.

Sharing resources

The alliance has kept overall costs down. The alliance has provided the organization to draw the best resources, particularly people, from the various companies and to function as a single team. For example, when the alliance needed structural assistance for seismic analysis on the jacket design, an integrated team was formed for structural engineering, securing the best people from all the alliance contractors. Other areas where the alliance has shared resources and drawn on its depth of resources include:

B&R-Murphy loaned earth-moving/excavating equipment to McDermott for the shore pull of the 40-in. diameter offshore pipeline. This effort saved McDermott, and therefore the project, mobilization costs on additional equipment, personnel and supervision to the site.
McDermott provided an available barge to the project to transport pipe for both the onshore and offshore installations from a Florida coating yard. Saving the project an estimated $4.5 million, McDermott coordinated all of the logistics at cost, arranged a low-cost bulk shipment, and facilitated the schedule.
B&R's Greens Bayou yard fabricated equipment, including launchers for offshore pipeline work and pig receivers, which were outside its work scope.

The contractors have worked smarter in an effort to bring an overall cost savings and improved quality to the project. The team questioned the economic justification of two separate installation periods for the offshore pipelines, according to the original plan.

While there might have been a possibility for early oil production, the team evaluated the overall economics and opted to install the 12-in. pipeline and 40-in. pipeline back-to-back. The team decision reaped a significant cost savings of $10-15 million with a single mobilization of the Lay Barge 30.

Procurement, supported by the financial base of the alliance members, has played a significant role in driving down costs. As an alliance, the team has leveraged its global financial strength to secure the best prices, without suffering significant cost increases as the market rapidly tightened over the past two years. By drawing on the knowledge of Amoco and the contractors, the alliance team looked at the entire picture of project needs in terms of materials, schedule and transportation and ordered in bulk early in the project before industry demand could drive up costs. In fact, the team saved $15 million directly on pipe. A contract negotiated early secured large valves for the entire project, including those valves fitted with automated actuators. The contract held the price at the initial offering for three years, saving the project $1.75 million.

The full alliance formed a cooperative team to set safety requirements and full-project expectations for safe practices. The team developed a triple zero safety approach, meaning zero fatalities, zero lost time and zero OSHA recordable injuries/illnesses.

The team shared the safety strategies across the alliance and established safety audits of all construction facilities and sites. Without the alliance, these detailed multicompany safety audits would have been extremely difficult to arrange. Through effective planning and implementation, the team greatly reduced the number of safety incidents possible on this massive a project.

Team synergy

In all aspects, the project has ensured an environment of open discussion where team members seek the assistance of the full alliance. Importantly, the alliance strategy has created an avenue for securing information early, facilitating constructability, and minimizing redesign work because everyone's input is valued and rewarded. Most importantly, the alliance team has reduced capital costs without compromising the project's critical success factors for reliability, safety, schedule, operability and flexibility.

The alliance team agrees that a more conventional type of contracting strategy would have been easier to plan and implement, but the successful results will prove that the benefits far outweigh the difficulties confronted in formulating the alliance. The lessons learned here will save even more money on the next alliance project. The Trinidad team spent almost six months setting up the alliance and developing a clear understanding of an alliance. With the trust built up now, the team will streamline these interfaces and maximize its new-found resources. In short, the team's seamless business relationships have realized a better world in upstream development through an alliance strategy.