How to realize LEM benefits in ultradeepwater oil and

EXPLORATION & DEVELOPMENT LEAN ENERGY MANAGEMENT—3

Ultradeepwater oil and gas exploration and development is a frontier much like landing on the moon was in the 1960s. The offshore challenge is twofold: Deal with the risks and uncertainties of the technological frontier, while at the same time reducing the costs and cycle time required to exploit the resources by half or more. Only then can it become affordable in the first place. Lean management processes and tools have created such fundamental improvements elsewhere, most notably in the aerospace and automotive industries. However, it has been well documented that the “behavior” of the entire system must fundamentally change in order to realize these lean improvements. The core competencies of the owners are in subsurface reservoir uncertainty, not in design, procurement, fab-

How to realize LEM benefits in ultradeepwater oil and gas Roger Anderson Albert Boulanger Columbia University Palisades, NY

rication, assembly, erection, and maintenance of the manufacturing “plants” that get the oil and gas to market. These skills reside with contractors that make up the engineering and construction (E&C) segment of the oil services industry. Thus, all stakeholders must agree that such fundamental change is required. Once that behavioral barrier has been crossed, lean energy management (LEM) tools and processes must be imported and modified to deal with constantly changing reservoir uncertainty across the entire enterprise if we are to successfully execute a lean paradigm change for the ultradeepwater industry (Fig. 1).

Ultradeepwater status The petroleum industry is highly technology dependent, especially in the upstream subsurface where imaging and resolution are key ingredients to the understanding of uncertainty that is the major risk to profitability. Until the 1970s, research and development (R&D) budgets were compara-

E NTERPRISEWIDE BREAKTHROUGHS MADE IN OVERLAP AREAS*

Fig. 1

Lean management principals Lean and mean

Quality

Flow

Engineering design model: Performance determined Subsurface reservoir model: by external processes—from Production system, Predicts production of oil, controllers, fluid reservoir to market gas, and water —where, separation, how much, disposal, delivery how it drains, when Dealing with uncertainty Modular and flexible options must be available ROI, incentives, throughout life cycle relationships

Lean

Mass

Six Sigma

People

People

Value Real options economic model: CAPital, OPerating, and REMediation EXpenses, ROI, other metrics under future uncertainty

*See Murman et al., 2002.

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Oil & Gas Journal / June 30, 2003

H OW LIFECYCLE MANAGEMENT INTEGRATES LEM ACROSS AN ENTERPRISE*

Fig. 2

Lean energy management: Transforms uncertainty into innovation to make systems better, faster, cheaper

Lean tools: 3D process mapping 3D solid model Precedence diagrams Critical paths Assembly plan pert diagrams Electronic work instructions Electronic parts library Action tracker Integrated scheduler Work breakdown structure Project execution plan Team execution plan Requirements manager Contracting manager Security manager

People

Lean processes:

3. Operations 4. Market

Spare parts 1. Supply chain management

2. Design build support

Project life cycle management Tasks

Tools

Requirements and objectives Innovation Vendor alliances Collaborations Performance metrics Modularity Ecnomic incentives Risk CAD/CAM environment Finite element modeling System simulations Reservoir simulations Project database Security Virtual reality

Materiel

Environment

Do on computer first = Know consequences before taking actions Appraise needs

Gate

Evaluate real options

Gate

Define and analyze

Gate

Execute best design

Gate

Test operations

Gate Test impact on

environment

*Circles of Fig. 1 represent the enterprise.

ble to those of other technology dependent manufacturers such as the aerospace and automotive industries. However, upstream research was focused on the physics of oil production and mechanisms for improved oil recovery, with little effort centered on better design and construction practices as has been the focal point of aerospace and automotive research for many years. Aerospace R&D, for example, focuses on lean management process improvement, spending the equivalent of our geophysical research budgets on better design, construction, and maintenance processes and tools. Beginning in the 1980s, the upstream R&D world turned grim. First signs of trouble were that overall revenues increased while research expenditures remained constant. Then in the 1990s, research expenditures everywhere in the industry were downsized dramatically. Currently, upstream R&D is perhaps best described as both fragmented and highly focused on short-term, low-impact, apOil & Gas Journal / June 30, 2003

plied research aimed at incremental technology improvements. The offshore engineering & construction component of the industry has hardly invested in lean management process improvements at all, and consequently, the oil and gas industry lags the present state-of-the-art of other manufacturing industries substantially. At the same time, the offshore industry desperately needs the cost and cycle-time improvements of lean management processes and tools so that the ultradeepwater can be economically developed. Capex costs are simply too high and cycle times too long by at least 50% to sustain development in such water depths. Incremental improvement won’t help. What major innovation efforts there are have centered on standardization, scaling up or down from previous designs, and customization where required. Risk assessment is focused on costs. Tasks are prioritized and critical paths identified, but stretch dates are allowed all too frequently, for too many assemblies, thus making delivery on

time and on budget a very risky process. First year operability hovers at 60%. Initial project approvals, in the first place, average a year or more just to get all the preproject issues with partners and contractors worked out so that agreement on a plan can proceed. It is common that up to 10% cost overruns do not have to go to management even for explanation, and as much as 15% cost overruns are routinely absorbed into the final project costs after the fact. In the deepwater, projects coming in under budget with early completion dates are unheard of. Procurement is a particular problem. Procurement costs are only firmed up during the final details of the design phase, and there is consistently a 1015% growth in component costs compared to project initiation allocations. The deepwater industry is just now moving away from “get three bids and pick the cheapest” methodologies to establishing symbiotic, win/win business relationships with qualifying vendors–a hallmark of lean management. 37

EXPLORATION & DEVELOPMENT S YSTEMS ENGINEERING ANALYSIS LINKED TO REAL OPTIONS

Fig. 3 Facility Scenario's

Reservoir simulator drives real options evaluation

Reservoir Variables

Reserves 1000mmbbl 250mbd FPSO + Subsea Reserves 750mmbbl 200mbd FPSO + Subsea

High well rate Large comp.

Production

Reserves 550mmbbl 150mbd FPSO + Subsea

Low well rate

Reserves 375mmbbl 10mbd Spar

Oil range

Low effiec. High effiec. Low effiec.

Reserves 550mmbbl 150mbd Spar

Water range

High effiec.

Small comp.

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