Operators to draw on industry lessons in deepwater, frontier areas

The failure of large engineering, procurement, and construction (EPC) projects offshore West Africa and Brazil over the last decade should set off alarm bells for Far East operators and national oil companies as they consider avenues for successful deepwater development.

Far East countries looking at deepwater assets include Australia, India, Indonesia, Malaysia, and the Philippines with current prospects in depths to 4,500 ft of water. The operators and NOCs of these countries can readily benefit from lessons learned on deepwater developments in other regions of the world as they launch their own frontier pursuits.

The frontier opportunities for these countries are significant, but so are the risks without full consideration of the complex development solutions necessary to achieve robust, long-term operability from a safe facility.

To achieve quality performance within reasonable schedule and cost parameters, Far East project owners need to anticipate the technical and commercial value of a project work scope prior to the bidding phase.

Far East operators also should assume greater ownership of project success drivers while continuing to rely on qualified engineering consultants. In deepwater, operators cannot afford a detached contractor relationship, as the risks are too great.

Early consideration of these quality-driven approaches would minimize the industry pitfalls that have hampered frontier deepwater development elsewhere in the world.

Industry pitfalls include:

• Low-price bidding in an effort to secure a project

• Limited specificity in bid packages

• Over eagerness to fast-track projects with a view of early production

• Illusionary thinking that incentives will minimize delays, when in fact they only create an environment where profits are protected to the detriment of quality

• Inappropriate assignment of risk to contractors who either have no control over most risks or are not in a financial position to assume the risk

• A fatal owner mistake of demanding re-bids when initial bids exceed an owner’s expectations of project cost.

Avoidance of these errors requires “a new truth” for offshore frontier development, as high risk in deepwater development demands diligent risk mitigation. Importantly, the greatest investment of expertise is vested in the owner and qualified engineering consultants, not in fabrication and installation contractors. To be effective in deepwater, industry must adapt to the demands of the business while reducing the level of uncertainty in early front-end engineering and design (FEED).

An engineering consultant focused on an operator’s interests rather than solely on the expectations of an EPC contractor, can objectively evaluate the risks, fully understand the project scope and its needs, assist in concept selection, and recommend a contracting strategy suitable for a successful project.

That is, a qualified engineering consultant can bring a sense of balance and legitimacy to a development and its supporting parties, including owners, shareholders, and contractors.

Far East operators also need to elevate an engineering consultant to the level of an owner’s engineer to help ensure that quality and schedule remain success drivers throughout all phases of a frontier project, from FEED through commissioning and early operations.

An owner’s engineer then can help deliver quality systems performance, supporting a complex project with increased oversight support, continuity and cohesiveness from early concept review and throughout execution.

During FEED, an owner’s engineer who understands the costs involved and who can anticipate a fair market price in the deepwater market can effectively assist the operator in evaluating choices. Professional planning and open dialogue with the operator during FEED also helps define a project to the level of detail necessary to mitigate risk and deliver a well-managed project.

This significant investment in front-end loading delivers improved operability for the life of the asset while building-in an improved culture for safe operations. During the bidding phase, an owner’s engineer helps facilitate the selection of contractors with the capability and commitment to deliver quality, on-time projects within an acceptable cost.

But first industry needs to cultivate a contracting environment that attracts qualified bidders who can participate without assuming risks outside their scope or capability. Industry has already endured a decade or more of fast-track projects, measuring project success by schedule and budget to the detriment of quality. This way of doing business cannot continue. Clearly, operators need to shape frontier contracts such that the schedule does not override quality as projects seek on-time delivery.

Suitable contracting strategies are critical to project success, with an owner’s engineer providing the knowledge and experience necessary to assist an operator in the selection process.

The nature of a project and its goals for deliverability ultimately determine the suitability of a contracting style, and owner involvement, supported by a qualified engineering consultant, will sustain any contracting strategy.

For the balance of a deepwater project, an owner’s engineer becomes an active participant, providing support to all contractors while facilitating full-team commitment to all the project drivers, including quality, cost, and schedule.

In fact, an owner’s engineer helps create a more integrated owner-contractor relationship, with quality becoming the key driver for life-of-field performance. Industry can achieve this goal, building frontier projects on a high level of front-end loading and a complete understanding of the risks and costs involved.

Uri Nooteboom
Engineering vice president of offshore field development
INTEC