You must log in to edit PetroWiki. Help with editing

Content of PetroWiki is intended for personal use only and to supplement, not replace, engineering judgment. SPE disclaims any and all liability for your use of such content. More information

Message: PetroWiki content is moving to OnePetro! Please note that all projects need to be complete by November 1, 2024, to ensure a smooth transition. Online editing will be turned off on this date.


Project execution of surface facilities

PetroWiki
Jump to navigation Jump to search

The first two things to do before you actually begin the project execution are to confirm the project scope, including schedule and to establish the contracting strategy you will follow to accomplish the task assigned.

Project initiation

Immediately after notification of your appointment as project manager, you should determine whether your company has any previous experience in this type of project. If so, you should review the project files and determine whether that effort was considered a success or failure and the reasons for that assessment. Remember, those who ignore history are bound to repeat it.

Lease and operating agreements

You should also copy and review the lease and joint-operating agreement (JOA) that affect the project. The lease agreement defines your relationship with the leaseholder; the JOA defines your relationships with other working-interest owners for whom you are the operator. Both documents may have sections that are different from your company’s normal operational procedures and may affect the project accounting, procurement, facility, and pipeline options. It is important that you understand these documents and any reference in them that would affect the execution or final configuration of your project.

Partner and/or Working interest owner

Working interest owners as “partners,” although in the United States and other jurisdictions, there may be a legal distinction between a “partner” and “working-interest owner.”

Memos

These understandings should be formalized in a project memo and communicated to all personnel working on the project.

Part one

Scope

The first part of the memo should cover the project scope and any schedule or operational constraints imposed on the project by your management or forces outside the company such as:

  • Government
  • Landowners
  • Working interest owners
  • Various other interested groups

You will use this memo for future personal reference and to clearly communicate the project scope with your project team and other groups within your company who will support project actions. You will be surprised how easy it is to forget the objective and how other groups within your company may misunderstand the project objectives and limitations (we are just going to hook up the new well, not revamp the entire field).

Notation

The scope of the project should be clearly stated. Any available data should be referenced and attached, such as:

  • Flow rate
  • Fluid properties
  • Formation properties
  • Potential market standards
  • Environmental conditions

Schedule

Currently known schedule or operational constraints should be addressed, such as:

  • Lease expiration
  • Market price spikes
  • Competitive leases

As an example, many gas projects schedule completion to take advantage of higher winter pricing and are willing to bear higher total project costs to meet that goal. Any drainage by a competitive lease could result in lost revenue and should be considered when a project schedule is developed.

Part two

Execution strategy

The second part of this memo should discuss the project execution strategy. This section should include the rules that determine how the project will contract with various outside companies for work. The two basic types of project formats were presented in Table 1. There are many variations of these two basic types. The correct choice of project execution strategy depends on:

  • Project goals
  • Available competition
  • Company policies
  • Other commercial constraints

Engineer, procure, and construction-management (EPCM), which gives the operating company maximum control over project execution, forms the remainder of this discussion.

Professional services

Even if your company does not have strict rules concerning procurement, such rules may be implied by requirements in the JOA that will govern your project’s implementation. If your company or the JOA has set rules for contractor or supplier selection, then you must comply with them. In the absence of rules, an industry standard practice is that professional services are generally contracted and paid for on a rate (hourly or daily) basis, and definable materials, equipment, and fabrication and construction services are contracted and paid for on a lump-sum basis. Examples of professional services are land and legal, permitting, site inspection, and engineering and procurement services. Examples of definable materials, equipment, and fabrication and construction services are line pipe, production vessels, hookup materials, field hookup labor (if well defined), and site and road preparation. Typically, professional services are contracted with a general services contract (GSC). The procurement of materials and manufactured items is normally contracted with a purchase order (PO) and its attached terms and conditions (Ts&Cs). Fabrication and construction services contracts are normally longer and project specific because of the potential safety risks and environmental liabilities involved in this work. Review the GSC and PO to determine how their wording will affect project execution.

Invoices

You should also resolve how project invoices will be processed and coded. The invoices for all products, materials, and services for your project should come to you for review and initial approval. Although it is tempting to “just let accounting handle it,” you will be losing your most valuable project control tools–the power of the purse and timely project financial information. It is not critical that the project manager have monetary approval authority; however, it is important that the project manager have the authority to review all invoices and disapprove those with which he or she disagrees. Invoicing approval should always follow the “two review rule.” The invoice must first be agreed to by the team member directly responsible for the work before it is approved for payment by the individual with monetary approval authority. Depending on the level of the invoice, several members of the project team may be required to approve the invoice for payment. In no case should there be fewer than two signatures. This will make things easier on everyone at the end of the project if the joint-interest auditors show up to review project expenditures.

Choosing a project team

It is now time to start choosing the project team. Functions to be handled by the project team include:

  • Operations
  • Drilling
  • Land and legal
  • Insurance
  • Marketing
  • Environmental
  • Engineering
  • Purchasing
  • Inspection
  • Construction
  • Commissioning

Manager's responsibility

A project manager’s job is much like that of an orchestra conductor. It requires first the communication of a basic plan (the music), constant monitoring (listening to the individual playing), and any immediate correction of the players if they stray from the plan. On all except the simplest of projects, the project manager is not there to play himself but to guide the others to accomplish their individual tasks in a complementary manner. The other thing to note in this comparison is that in both instances all tasks are being done simultaneously.

Project team

Invite representatives of each of your company’s groups who are responsible for one or more of these functions to an internal project kickoff meeting to determine what parts they can play on the project team and what data they will need to start and complete their tasks. The actual size of this group varies from company to company; you may find that some of these services are performed by outside contractors. It is important that this meeting be held quickly. Any task that cannot be performed in house must be contracted to outside sources. This process must start early so as not to hinder the smooth startup of the project team. Remember that these people will also be glad to share their past experiences on this type of project with you if take the opportunity to ask every chance you get.

Personnel

How much of the project work will done by personnel within your company will depend on its size, organization, past experience in this type of project, and current workload. Of these factors, the only function that could have a large negative impact on your company is legal matters. It is important that your company counsel be involved in all legal matters concerning contracts, purchase terms and conditions, and any other situation that may lead to court action. The other functions can be contracted out to firms that specialize in the field. In most cases, this is a preferred option to minimize impact on your company’s normal workloads.

The JOA may also provide a good reason to contract out these functions. Many times, the partners will not be obligated to directly pay for company labor working on the project. The JOA may make reference to “construction overhead” as a percent of total authorization for expenditure (AFE) cost. This amount is to cover all company labor working on the project not employed directly on site. With this in mind and because the partners are obligated to pay their share of any contract let for outside labor, it would seem that the cost of outside contracting for company noncritical labor may be more cost-effective than it would seem at first.

At this point it may be necessary to modify the project execution strategy to reflect the impact of these investigations.

Selecting an engineering company

Assuming you are following an engineer, procure and construction-management (EPCM) project format and you do not have the engineering capabilities in house, soon after the internal kickoff meeting, you should choose an engineering company for the project. If your company has not already established a relationship with one engineering company, you should interview at least three companies at their places of business. You should describe the project scope to each company (use the memo), asking for examples of their experience with this type of work, and meet the person who would be the engineering manager for your project. Note the attitudes of the employees whom you meet and personally contact the job performance references supplied by the engineering company. If your company has already established a relationship with one or two engineering companies, this process can be shortened. However, make sure your company has a procedure in place to audit results and to ensure that value is received from this ongoing relationship.

If your company does not have equipment and material specifications that will fit the proposed work, discuss this problem with each engineering company and ask for a recommended solution and its cost. All quality engineering companies have their own specifications and construction practices that cover this type of work, and most will make them available to you for a nominal fee or even for free, depending on the competitive climate.

After furnishing the engineering company with a blank copy of the Services Contract, you should ask for a rough cost estimate and time frame for the completion of preliminary versions of the:

  • Process flow diagram (PFD)
  • Process and instrumentation diagram (P&IDs)
  • Facility layout
  • Project schedule
  • Cost estimate of the project

The cost estimate should clearly note the total engineering cost for the job, along with the individual hourly rates of the personnel employed to complete the work. Using the data collected from these visits, make a recommendation to your boss, and have the company’s legal organization contract the successful company with a rates basis services contract.

AFE

Your next task will be to obtain internal project financing with an AFE. See AFE and initial project cost estimate for more detail.

Partners’ approval

A summary to this point in the project would show that you have:

  • Reviewed the company’s past experience with this type of project
  • Reviewed the lease and JOAs for possible conflicts with your company’s normal practices
  • Published the project scope and contracting strategy memo
  • Started multiple federal, state and local permit processes
  • Discussed marketing opportunities with the company marketing group
  • Resolved the issue of early project charges
  • Hired the engineering company
  • Issued the AFE and initial schedule to the partners for their approval using the preliminary P&ID and layout as an estimating basis

With luck, the partners sign off on the AFE, and you move on to actually doing the real work of the project. However, that seldom happens today, and a partners meeting will be called to discuss:

  • The AFE cost
  • Project schedule
  • Project execution
  • Marketing options (if any)
  • Future plans in the area

The partners meeting is very important because it is your opportunity to present the project for outside, sometimes critical, review. Plan on this being a team presentation by the engineering company manager and you, and be sure he or she is allowed to attend the meeting. Remember, your job is to manage the overall project, not discuss the heat transfer coefficients used in the heater design or any other technical detail on which you do not feel qualified to comment. That type of question will be answered by the engineering company manager or company personnel. Be sure to have a practice session with your boss and the engineering company manager at least 3 days before the meeting so that he or she can be confident in the presentation and you can make any necessary changes in time for the actual meeting.

Presentations

You should present the project as represented by the AFE in a simple manner with high-quality overheads. Be sure that you hand out a copy of every overhead you present and that you have enough sets of handouts for everyone at the meeting. It is best if you personally present at the podium and the engineering company manager remains seated in the audience to handle any technical answers that might be outside your comfort zone.

Your presentation should include:

  • A project location map showing area pipelines and possible tie-ins (coordinated with marketing)
  • Excerpts from the scope and contracting memo covering those topics (especially note which project tasks are planned to be bid out and contracted on a firm price basis and which are to be contracted at day or hourly rates)
  • The AFE
  • The P&ID, detailed cost estimate, schedule (pointing out the critical path items), and layout
  • A listing of the permits being procured
  • Short comments concerning any changes in any phases of the project that may have occurred since the AFE was originally presented to the partners

Discussions

Be prepared for lengthy discussions on some of these topics. It would be very advantageous, but is not a requirement, to present for comment preliminary bid lists for the major project items (production equipment, hookup materials, site work, pipelines, etc.). Be prepared to consider modifications to this list or any other parts of the project on the basis of the partners’ past experiences in this type of project.

After the meeting, review the partners’ comments with the engineering company manager and your boss to determine whether any changes in your plan and the AFE are required. If any are needed, modify the appropriate documents and reissue as required.

Now that the partners meeting is behind you and the project is funded, you can proceed with the actual implementation of the project. You should confirm that the engineering company manager has the latest versions of all the required data and release him or her to finalize the drawings and documents necessary to define the project to the various contractors who will implement the work. In addition to completing the documents already generated, you must also complete the project team with experienced personnel to perform other project tasks besides engineering. It is important that these newcomers to the team be thoroughly briefed and furnished copies of all documents previously generated by the project.

Procurement

Although we have a contracting strategy, we do not yet have a detailed procurement plan, and everyone knows that "the devil is in the details." The first step in procurement is to review the procurement and contracting plan and modify it as required by any change in concept or new information.

The procurement process involves preparation of a technical description of the item and the appropriate contracting terms called a "bid package" (see Table 2 for an example of instructions for preparing a bid package)

Bid package

  • Preparation of a technical description of the item and the appropriate contracting terms called a “bid package” (see Table 15.8 for an example of instructions for preparing a bid package)
  • Presenting the description to the vendors for pricing (invitation to bid)
  • Resolving any questions from vendors concerning the description supplied (bid clarifications)
  • Requiring the reply to meet a standardized format to facilitate comparisons (bid reply form)
  • Comparing technical compliance, price, and contractual responses (bid tabulation)
  • Awarding the supply to the successful vendor on the basis of bid price and agreed-upon contracting terms (PO or contract)
  • Monitoring vendor progress and work quality (expediting and inspecting)
  • Approving final product (final acceptance report)
  • Transporting to site (final shipping report)

Obviously, no one individual can expertly monitor all of these activities, and how they are divided is a major challenge of project management.

Although many permutations are possible, one proven solution is as follows:

Technical description Engineering
Contracting terms Legal and purchasing
Present to Vendors Purchasing and project manager
Resolve vendor questions Engineering and legal
Bid Technical Compliance Engineering
Bid Contractual Compliance Legal
Bid Price Comparison Project manager
Award work to vendor Project manager
Expedite vendor Purchasing
Quality inspect vendor Purchasing and engineering
Final acceptance Purchasing and engineering
Final shipping Purchasing

Considering the above discussion on contracting work, it would seem that all but the legal requirements for the above work could be contracted out with minimum impact on the company. Another reason to contract these functions is to improve project control. People who work only for the project are more likely to view its priorities with a higher sense of urgency than people who have other, equally important competing interests. Company procurement people typically must give first priority to operational concerns. In addition, although they may be skilled in procurement of standard items needed to drill wells (tubulars, mud, etc.) and to support operations (valves, parts, etc.), they may not be skilled in procuring such engineered items as compressors, pump packages, and fabricated modules.

The simplest project solution that generally is most cost-effective for the company and project is to increase the engineering company’s scope to include most of the purchasing functions. This will make communication and interface control simpler and increase project efficiency. If this is your plan, then you must consider and evaluate the engineering company’s procurement and especially its material tracking capabilities in the step of selecting an engineering company.

Project closeout

After successful installation startup, the project manager turns the startup and operating manual over to the installation operator and supervises the storage of project files. The closeout accounting and financial documentation could take 2 months or more to complete, depending on the complexity of the project, the final cost, and the possible requirement for a supplemental AFE to cover any significant cost overrun.

References

Use this section for citation of items referenced in the text to show your sources. [The sources should be available to the reader, i.e., not an internal company document.]

Noteworthy papers in OnePetro

Use this section to list papers in OnePetro that a reader who wants to learn more should definitely read

External links

Use this section to provide links to relevant material on websites other than PetroWiki and OnePetro

See also

Project management of surface facilities

AFE and initial project cost estimate

Monitoring and reporting progress and cost of projects

PEH:Project_Management_of_Surface_Facilities