Lifecycle of Oil & Gas Projects

Lifecycle of Oil & Gas Projects

Introduction

The intent of this article is to provide an insight into the Project Lifecycle in Oil & Gas Industry. Though the execution strategy may differ considerably, there are common meeting grounds. To start with, a project is the outcome of the following factors:

  • Need to enhance production.
  • Upgrade technology to meet the changing market requirements.
  • Replace equipment/ portions outliving the life.
  • Replace any damaged equipment/ portion(s).
  • Adherence to new environmental regulation(s).
  • Adherence to new statutory regulation(s).

Detail of the above factors may be the subject of other article, but they influence the project execution. The other important point in the project execution is the type, which again may be broadly classified as follows:

  • Construction of new facility which may include process units too.
  • Revamp of existing facility.

Figure1_Factors influencing Project Initiation

Stage Gate

In any big organization, the lifecycle of the project is structured and divided into different stages. The splitting of the project lifecycle into stages differs from organization to organization. However, there are approvals required to pass each stage and here too, each organization has its own process for the same.

Figure2_Stages of Project & Gates

Initiation

Anyone or more than one factor may result in initiating of the project. The idea springs up at the relevant group, which may be the one handling marketing, production, maintenance, technical functions, environment or other statutory regulations.

Feasibility

When the idea of moving forward with the project is finalized, it is put for the appropriate approval, which weighs different pros and cons, to move to the Feasibility stage. Feasibility study may be done in-house or through some specialized agency. Feasibility study review the options and concepts and recommends the most suitable or appropriate one to be adopted. It may also recommend that project may be dropped. Feasibility study takes into various factors into consideration before putting forth the options and recommendations. The factor includes integration of the new facility/upgrade with the existing one, implementation cost, operating cost, etc. The duration of Feasibility study may run across few months.

FEED/Basic Engineering

Upon completion of Feasibility Study, basic engineering/Front End Engineering and Design (FEED) is initiated. Here I would limit the discussion of site implementation by Engineering, Procurement & Construction (EPC) Contractor, though there are other methods like cost-plus converted to fixed price, to be the part of other article. In order to do the FEED, especially for the big or complex projects, a specialized Consultant is hired. The outcome of FEED is the Scope of Work (SOW), Invitation to Bid (ITB)/Invitation to Tender (ITT). The tender document encompasses the FEED within itself. Further, the outcome of the FEED is the Total Installation Cost Estimate (TIC) and Execution Schedule. During the FEED, Hazop, Design Basis, P&ID, Cost, Schedule, Risk and other reviews are carried out. Duration of FEED is spread across several months but generally does not exceed year in many cases. FEED is a very important stage which in fact defines the project.

Budget Approval

As stated earlier, since we are discussing the site implementation by EPC Contractor, the next step after the FEED is to obtain the necessary budget for the same. Different organizations have different processes of budget approval. Generally, the Oil & Gas companies keep a provision in their budget to carry out the projects. The next phase of the project in this case is tendering. However, budget approval process runs in parallel to tendering and complete earlier.

Tendering

Before elaborating on tendering, we need to discuss the PQ exercise, i.e. Pre-qualification of bidders. Different companies have different processes but the exercise generally takes into consideration amongst others the experience in similar projects, financial stability, available resources, etc. This exercise may be done at different point of time but any big company has its approved supplier or vendor and contractor list, which is the outcome of PQ process carried out earlier at different point of time. This exercise is dynamic and the list keeps updating regularly. However, in some companies or in some special cases, this exercise is done just prior to tendering, maybe in parallel to budget approval process.

Tendering start with review of the document and issue it for bidding/tendering after appropriate approvals. Tendering activities may follow different styles of the bidding processes. It may be single-part bidding or two-part bidding in general. It is worth mentioning that all the contractors may not be eligible to participate in the tendering activities, rather only those who pre-qualified in PQ and/or the part of the approved list. After the issuance of tender, the qualified or approved bidders collect the document, maybe with a fee. After the collection by the bidders, they go through the same and note down the points to be clarified, which is done during Pre-Tendering/Pre-Bid Meeting. After the meeting, the bidders work on preparing for submission of tender, which in itself is a complex exercise and includes both technical and commercial.

During this period, the bidders raise many queries and the Company side provides the response/clarifications. Then upon a certain defined time, bidding submission date is closed and all the bids are to be submitted by that time. Thereafter the bids are evaluated technically and commercially by Company. Upon completion of the evaluation, successful bidders are numbered as L1, L2, L3 and so on based on cost of bid starting from lowest. To be successful and bid to be considered, bidders are required to fulfil the technical requirements in the tender document.

After the commercial/price part evaluation, which puts the bidders as L1, L2, L3 and so on, the evaluation is put up for appropriate approvals, to be followed by contract award to successful bidder. Contract award is followed by contract signing, where certain documents/bonds/guarantees are to be submitted as a pre-condition. After signing of the contract, the bidder is the contractor for execution, and in this case, the EPC Contractor. The tendering process takes months and in many cases exceeds six months.

Engineering, Procurement & Construction (EPC)

Next, EPC Contractor is called for a kick-off meeting for execution, where the path-forward is finalized. The duration of the EPC Contract is in years and may vary from two to four years in many cases. The EPC Phase is and sub-divided into Engineering, Procurement and Construction, in the sequence, though with overlap. At the start of the contract, EPC Contractor has to submit the resume of manpower for company’s approval.

In parallel, the many project-level documents are submitted for Company’s approval and they include amongst others the schedule, report formats, execution plan, coordination procedures, etc. The EPC though starts with Engineering, however, pre-cursor are the mobilization of resources, at Engineering Home Office, mainly design engineers, designers, draftsmen, procurement team, etc.

During the course of the Engineering, Procurement and Construction activities start. In order to start the Construction activities, manpower and equipment are mobilized, which maybe from specialized Sub-contractors. During the Engineering phase, many documents are generated for review/approval by Company. In this phase Model Review, Hazop and other reviews are carried out. Overlapped with Engineering, Procurement process starts. This process involves the Material Requisition (MR), Commercial Bid Evaluation (CBE), Technical Bid Evaluation (TBE), Purchase Order (PO), Delivery, and Material Receipt Inspection.

A resource-dependent phase that overlaps Procurement and to an extent the Engineering is Construction. The Construction Phase starts with civil works and followed by other disciplines with overall. A major milestone in this phase is the Mechanical Completion, which is preceded by a walkdown, where after the completion of construction activities, built facilities are compared with the approved design/drawing and shortfalls are recorded as punch items, which are categorized based on the milestones by which they are to be closed. These milestones are Mechanical Completion (MC), Provisional Turnover (PTO), Turnover or Acceptance. Once the MC is achieved, which includes closure of punch items associated with it, Pre-commissioning activities start.

These activities include Air Blowing, Water Flushing or Chemical Cleaning of Piping, Functional Test of Instruments, Gross Air Leak Test, Pump Run Test, Compressor Run Test, Tightness Test, System Dry-out, Catalyst Loading (as applicable), etc. Once the Pre-commissioning activities are completed and PTO is achieved, subject to closure of punch items associated with it. Upon PTOP, a Pre Startup Safety Review (PSSR) is done. This PSSR may be before, after or overlap with PTO but should be before Commissioning & Startup. In this PSSR too, punch items are generated and to be closed.

Figure3_Depiction of EPC Phase

Commissioning & Beyond to Closeout

Once PTO is achieved and PSSR is completed, Commissioning starts followed by the Startup of the facility. Commissioning and Startup (CSU) on case to case basis, depending on facility/unit type, may include utility line up, nitrogen high pressure and temperature leak test, inertization, cooling water circulation, amine circulation, diesel circulation, sulfiding agent package filling, catalyst wetting, catalyst sulfiding, Feed cut-in, flare light up, etc. Upon the CSU when the facility is stabilized, the Turnover is achieved. This is followed by Performance Test, which when successful results in Acceptance of the Facility. However, in general, the defect liability period for Contractor extends a year beyond wherein the Final Acceptance of Facility is achieved and close-out is carried out.

Figure5_PTO to Closeout

Duration & Strategies

The total duration of project lifecycle right from the initiation to the closeout generally varies typically from 48 to 90 months (including 12 months post-acceptance defect liability period). All the Refineries have their stage gate approval system and each phase viz., Feasibility, Concept Design, FEED stage has to be approved to move further to next phase. Strategy within EPC may vary as follows:

  • Contractor do all activities until acceptance of facility.
  • Contractor to do Commissioning & Start-up and support Performance Test.
  • Contractor to do Commissioning and provide support for Start-up and Performance Test.
  • Contractor to achieve PTO and then support onward activities including Commissioning.

Nevertheless, Contractor has to attend to any defect for a period of twelve months beyond acceptance of facility, during Defect Liability Period.

Figure6_Total Lifecycle Duration Percentage with EPC Case (Typical)

Conclusion

In this article, a good insight of project lifecycle in the oil & gas industry. It would be useful to the experienced professionals, trainees to this field, and also those pursuing their academic specialization in project management.