Yates: Certainty of project execution is key for project financing, specifically having confidence in schedule and costs. Yet even with sophisticated planning and cost-estimation tools, extensive historical data and mature risk-management methods, why do so many projects still run late and over-budget? 

One reason is that assurance is often underused during the pre-FEED or FEED phases.

However, we are seeing greater levels of interest in assurance during the front-end stages of a project. Experienced providers have a wealth of knowledge and experience that can be applied to the value creation stages, to help avoid compliance issues later in the project when it can be more costly to address them.

This early concept assurance often gets extended into more of a consultative role, whereby the assurance provider can act as a trusted adviser to the project developer in their front-end decision making. This may include reviewing technical feasibility, technology and concept selection, or assessing the maturity of pre-FEED and the readiness to progress to FEED. Assurance at these key decision points can provide project financers greater confidence in their investment decisions.

Project risk management can play a big part of this assurance. Identifying and assessing risks across the full project lifecycle before the end of FEED allows mitigation measures to be built into the execution plan from the outset. By the time the final investment decision is made, decision-makers should have a clear view of project risks and confidence that preventive and mitigative actions have been anticipated and costed. 

Offshore: With increasing scrutiny on project execution and cost control, how are assurance processes evolving across the lifecycle, from design through installation and operations?

Yates: Assurance processes during project execution are relatively mature. However, it often focuses more on quality control than on holistic assurance. So, assurance processes are not really evolving from design through to installation... But the real issue is the timing of assurance.

What is changing is the increasing use of assurance during the pre-FID phases. With a growing focus on the front-end, value creation, phases of capital projects, and in particular an increasing level of definition produced in FEED, the execute phase for many projects is getting shorter and simpler.

This makes assurance of pre-FEED and FEED more important and more valuable to investors, as that is where the key decisions are made that influence the project outcome—the philosophy being to identify potential issues before they become problems.

The offshore wind sector offers a useful model: its project certification process is structured and modular, with some elements, such as site condition assessment and design basis review, completed during the front-end stages.

When done properly, assurance can move beyond the traditional technical compliance check against industry standards and work as a trusted advisory function that helps improve project outcomes.

Yates: The following three are perhaps the most common:

1. Uncertainties about the business model, particularly relating to offtake/sales agreements, oil price, etc;
2. Cost estimates growing between the initial business case and the final investment decision; and
3. Uncertainties in the execution planning, especially around cost, schedule and contracting strategy.

Economic analysis—market sizing, pricing, competition and diversification—can go some way to offset the uncertainties of the first category, though recent geopolitical events have perhaps shown that this is the hardest one to manage.

Capex growth during the front-end stage can be more complex ... similar to scope creep, usually reflecting poor management of these stages. The only way to address this is through disciplined application of a structured governance process from the initial project framing onward, strict adherence to the project’s objectives and value engineering to ensure the project value is optimized relative to its cost.

Execution-planning uncertainty is the easiest of the three issues to address. The execution plan should be detailed, comprehensive and robust, with risk-assessed cost and schedule inputs, before the investment decision is made.

Yet many projects leave this work until execution begins. Execution certainty is fundamental to the final investment decision.

Offshore: As energy transition pressures grow, are you seeing changes in how capital providers assess offshore oil and gas projects versus lower-carbon or hybrid developments?

Yates: The extent to which project capital providers consider sustainability and lower carbon solutions varies. However, we are seeing a gradual increase in this respect. Projects that adopt decarbonization objectives and technologies into their design choices are more likely to attract sustainability-backed investment.