When good just isn’t good enough- Raising the bar

APM North East of ScotlandAGM 25th June 2013

Chris Bird – Operations Director for Endeavour Energy

Agenda

o The challenges of achieving world class delivery- global trends, project model and predictive analytics

Christopher Bird

Endeavour Energy

o Background on delivering world class projects

o Challenges in the market place

o Creating a world class model

o Theory into practice – research program

o Conclusions

Agenda

Hummingbird

First round FPSO in North Sea and the lowest operating cost in North Sea

F3-FA Self installation / re-useable platform

• Largest self installing platform in the world

• Completely new design with gas processing to export specification

• Several new patents

• Benchmarked top 10% cost base

YouTube – Mega rigs oil and gas UK

Global outlook and the challenges ahead (1)

Energy sector capex spend 2012 – 2035 *International Energy agency

– Estimated $38 trillion to meet security of supply

Oil and gas capex sector spend 2001 – 2012 *Schlumberger Business Consulting

– 2001 estimated spend $125 billion ( 50 - $1b+ projects per year )

– 2012 estimated spend $500 billion to $600 billion ( 200 - £1b+ projects per year )

– Fourfold increase in expenditure in last 10 years

– Forward expenditure $600 billion plus per year

Oil and gas capex increases from 2011 – 2012

– Independent Oil and Gas companies + 21% ( 15% of market spend )

– National Oil and Gas companies + 15% ( 50% of market spend )

– Integrated Oil and Gas companies + 8% ( 35% of market spend )

Global outlook and the challenges ahead (2)

Project performance ( % of large projects overruns > 50%)

– 1997 10%

– 2005 15%

– 2011 28%

– 2015 Predicted to be even worse

– Today only 30% of projects fully meet customers’ expectations

Key Issues to consider

– Global business environment is getting more challenging

– Projects are becoming more complex

– People are becoming the bottleneck rather than access to capital

– Supply chain is stretched in many areas

– Major change in businesses increases risk of failures

High level trends Capital Cost Inflation

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Report on causes of capital project issues

Share of projects with >50% budget overruns

E&P Capex projects have significant overruns

Trends of projects with >50% budget overruns

Key causes of capital project issues:(relative issue weight (%) given)

Key concern areas:

•Resources

•Technical Challenges

•Governance

Key concern areas:

•Resources

•Technical Challenges

•Governance

Schlumberger Business Consulting Report

Key causes of project issues

Key concern areas:

•Risk Management

•Performance Management

•Resources

•Knowledge Management

Key concern areas:

•Risk Management

•Performance Management

•Resources

•Knowledge ManagementBooz, Allen and Hamilton Report

E&P operators verses suppliers views

UKCS – Semisubmersible Rig Rates

UK semis broken $400k barrier – back at 2008 heights

Rates risen $150k/d since mid-2011

Global outlook / challenges

Business context

Project key issues

Closing the gap

Execution

The Key Challenges in Project ManagementSmall failures in projects are due to the engineers, big failures in projects are due to the business

External environment

Internal Environment

Action

Communication

RiskMgt

Performance Mgt

ResourceMgt

KnowledgeMgt Review

• People

• Tech

challenges

• Governance

• Stakeholders

• Supply chain

• Processes

• People

• Tech

challenges

• Governance

• Stakeholders

• Supply chain

• Processes

Schlumberger Business Consulting Report

Booz, Allen and Hamilton Report

Project Definition 1Kick –offFramingAlignmentFID decisionClear definition

Adding value 6Innovation / novel solutions 4Engineering excellence 5Learning organisation 6

ControlsPreparation /Planning 7Risk management 8Interface management 9Performance management 10Contractor management 11

Organisation 2Leadership 3People Accountability 3Incentives Capability across the business

Governance 12Key standards 13Benchmarking 14Independent assurance 15Clear framework

Outcomes 16Cost / Time

Quality / ValueExpectations met

ReputationHSE

World class capital project delivery model

To achieve world class project performance, excellence must be achieved in each of the six elements and 16 sub elements

Fits with APM BoKFits with BS 6079

• Reduce base line estimate• Reduce standard deviation• Meet customer expectations• Achieve operational excellence• Externally benchmarked• Minimise regret costs• Maintain our reputation

Future priorities for World class performance

• A shared and systematic way of developing and delivering projects.

• WP1 Standardisation / Eng. excellence

• Relentless focus at the development phase (pre-FID)

• WP2 Definition phase

• A fully capable team engaged at the right time

• WP3 Organisation / resources

• Effective contractor, supplier and stakeholder management

• WP4 Supply chain / partnerships

• Robust planning and risk management

• WP5 Planning and risk

• Benchmarking, reporting and assurance

• WP6 Governance / assurance

• A shared and systematic way of developing and delivering projects.

• WP1 Standardisation / Eng. excellence

• Relentless focus at the development phase (pre-FID)

• WP2 Definition phase

• A fully capable team engaged at the right time

• WP3 Organisation / resources

• Effective contractor, supplier and stakeholder management

• WP4 Supply chain / partnerships

• Robust planning and risk management

• WP5 Planning and risk

• Benchmarking, reporting and assurance

• WP6 Governance / assurance

• Cost & time

• Quality & value

• Operability

• Expectations met

• Reputation

• Health, safety and environment

• Cost & time

• Quality & value

• Operability

• Expectations met

• Reputation

• Health, safety and environment

6 key priorities “Excellence in each of these areas will enable delivery in world class

performance”

Outcomes

Team competency, capability and capacity

Competency assessment completed on 70 professionals with results validated externally.

No significant inconsistency between level of individual and role requirement.

Whilst development areas for Upstream and Renewables differ, broad areas for improvement are:

Technical– Marketing and sales, handover and close out, value

management tools, EVM, value engineering

Contextual– Governance, Sponsorship,

Behavioural– Communication, Conflict management, Project

Leadership

Development plan being established.14

Upstream Renewables

Level A 3 1

Level B 7 4

Level C 12 11

Level D 15 12

Level E 5 0

Total 42 28

Output from Competency Assessment

Contractor and Supplier Management

Linepipe

Umbilicals

Pipelay, IRMetc

SubseaEngineering

Valves

ControlsSystems

keyPersonnel

Managingcontractor

Trees

Wells

Supply Chain strategy

Focus on contractor management

Focus on relationship management

Focus on performance

Key Criteria

1. Beat the market

2. Commitment at top level

3. Relationships top to bottom

4. Trust both ways

5. Understanding of the business

AssistAdvice

Anticipation

Researching predictive analytics to improve future project successShort term actions Consultancy Knowledge Transfer Partnerships (1-3 years): collaboration between a

university, industrial partners and a graduate working on a company project

Long-term project plan Commissioned Research

– Research projects– Doctoral Research (EngD or PhD)

Engineering and Physical Sciences Research Council (EPSRC) responsive mode or knowledge transfer proposals (priority needs to be raised)

Funds from Department of Energy and Climate Change or TSB (need to be lobbied for)

Engage industrial partners

Research plan - way forward

P3L energy – Portfolio, program and project leadership

1.Benchmarking – WP6

2.Development, training and competency – WP3

3.Supply chain strategy and management – WP4

4.Knowledge management and data storage – WP2

5.Organisation development – WP3

6.Project Governance and verification – WP2 / WP6

7.Project management resources – WP3

8.IT/IS/IM development and support services – WP1

9.Research and development – best practices and new methods WP1 -6

Project Management partnership model

Conclusions

1. The business environment to get projects delivered within customers’ expectations is

going to become more challenging – we need a new approach

2. With 30% of large projects overrunning by over 50% and over 70% of all projects failing

to meet customers’ expectations we do need to take another look at how we deliver

capital projects in the wider sense, considering how we manage the business as well as

the project – Integrating with the business

3. The biggest issue is access to the right level of resources with the right competency,

capability and capacity to deliver effectively – Being an attractive employer

4. We need to look at potential future trends and ensure that we have the best strategy for

the supply chain from a contractor management and relationship management

perspective – Being an attractive buyer

5. Where it really counts is how we work together harnessing the power of teams to deliver

both pioneering spirit and high performance in the development phase