ecopetrol capital projects
TRANSCRIPT
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March 10th, 2016
Bogotá
Enhancing capital project
execution at lower-for-longer prices
Workshop on global trends and tactical
opportunities to improve performance
Upstream
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Copyright © 2016 Accenture All rights reserved.
ASU brings experts and consultants with global experience
Eric Janvier
Capital Project Practice & QC
Capital Project Forum co-leader
Graham spent 30 years working for BP around the world. He
retired as Chief Engineer for BP‘s global upstream business. He
has experience in the North Sea, Alaska, Azerbaijan and many
other countries including Colombia.
Graham is a Chartered Engineer and a Fellow of the Institution of
Civil Engineers.
Raul Camba
Head for Mexico & Andean Countries
Raul is an Managing Director in ASU, based in Mexico. He has
extensive experience advising oil and gas companies in Latin
America and Europe. His main focus has been on petroleum
upstream with areas of expertise which include strategic planning,
operations, maintenance and capital execution
Manas is a Managing Director at ASU. He has lead engagements
with clients in typical areas of engagement such as market entryand/or growth strategy, risk-reward based commercial models,
technology life-cycle management, supply chain, inventory
management, distribution and receivables management.
Graham McNeillie
ASU Senior Advisor and former Chief Engineering for BP
Upstream
Capital Project Forum co-leader
Manas Satapathy
MD
Eric started his career as a wireline engineer for Schlumberger
He leads the Global Capital Projects Practice and the Quality &
Risk Committee.
Throughout his career he has advised several resource
companies, with particular focus in oil and gas in multiple
geographies including Europe, Africa, the former Soviet Republics
and the Middle East.
Jorge Falcón
MD
Jorge is a Managing Director in ASU, based in Mexico City. He is
focused on three key functions in Oil and Gas projects (strategy,operational transformations, capital productivity) with experience in
diverse geographies (Mexico, Colombia, Peru, Bolivia, Hungary
and Slovakia).
Andres is a Manager ASU, based in Mexico City. Prior to joining
SBC, Andres has experience working with clients across several
industries with particular focus in Oil and Gas, mainly in operations
and strategy.
Andres Castillo
Manager
Jorge Chaparro
Senior Manager
Jorge is responsible for Energy and Utilities for Colombia. He has
more tan 25 years of experience in consulting, integration of
solutions and project management.
Beatriz has more than 24 years of experience and has led
consulting projects across the world.
She has consulted for various industries including oil and gas.
Her work covers transformations, implementation of SAP and
Oracle solutions as well as sector-specific solutions.
Beatriz Carmona
Executive Director for Accenture Colombia and Venezuela
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Copyright © 2016 Accenture All rights reserved.
ASU was created upon Accenture’s acquisition of Schlumberger’s
global energy management consulting division (SBC)
ASU helps oil and gas industry leaders solve problems regarding a wide range of practices:
Focus on Oil & Gas
Our group has world-class technical expertise and knowledge, covering the entire O&G value chain:
Deep Industry
Knowledge
We serve 95 clients in 40 countries and have developed more than 1,000 projects. Our client portfolio
includes 60% of major IOCs, 70% of major NOCs, as well as:Global Scope
▬ Exploration
▬ Field development
▬Production
▬ Midstream
▬ Refining
▬Gas and power
▬ Marketing and retail
▬ Alternative energy
▬ Independent companies
▬ Other energy players
▬ Banks
▬ Investment funds
▬ Governmental entities
▬ Strategy
▬ Organization
▬ Talent management
▬ Operations improvement
▬ Mergers and acquisitions
▬ Post-merger integration
ENERGYUpstream
WHAT ASU DOES THAT MAKES IT UNIQUEWHY ASU IS UNIQUE
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Copyright © 2016 Accenture All rights reserved.
ASU is bringing the results and implications from the Capital
Projects Forum to Ecopetrol
We intend to bring the
results of the forum and to
engage with the audience
on several of the most
relevant topics in capital
projects in the oil and gas
industry today:
What the current trends
are in capital projects
that leaders across
industries are
identifying What valuable insights
we can gain
Discuss what trends companies are following
to increase the efficiency in capital projects
under the current price conditions
Understand and discuss success cases that
Ecopetrol can learn from
Opens Q&A panel session for the audience
to engage directly with the group of experts
to address concerns or doubts about the
trends and cases previously discussed
SPECIFIC OBJECTIVESMAIN OBJECTIVE
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Copyright © 2016 Accenture All rights reserved.
Agenda
Main Learnings from the Capital Projects Forum (2015) 8:00 - 9:00
How impact can be achieved: Panel Discussions on Selected Topics 9:00 - 11:45
Conclusions and Wrap up 11:45 - 12:00
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Welcome and Introduction
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The 2014 forum concluded – even before prices dropped - that
operators needed to consider four actions to transform their project
performance
Source: SBC/ASU
1. Create a strong central governance
2. Focus on leaner designs
3. Adjust the growth strategy to match one’s true capabilities
4. Move to the next stage of collaboration with suppliers
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9Sources: Upstream; Companies annual reports; SBC/ASU Capital Projects Forum Survey 2015
% of respondents
Conclusions from the 2014 forum have now spread into strategic
statements and press articles
AREAS OF FOCUS MENTIONED BY THEPARTICIPANTS TO OUR SURVEY
Adoption of company
led standard solutions30%
20%
Reuse of concepts
developed for past projects
Adoption of supplierled standard solutions
50%
Establishment of
alliances with suppliers
Increase of call for tenders 10%
20%
30%
Simplication of
company standards
“Tearing up last year's contract and starting all over again will notbe enough. This is much more about design standards, better up-
front planning, contracting structures with the best suppliers, etc .”
B. van Beurden, CEO, Shell, 30/07/2015
“Standardization, simplification and industrialization. Not yetwords that are immediately associated with our industry. But
the potential is large, in many areas.”
E. Sætre,CEO, Statoil, 23/04/2015
“[Operators need to] engage at the very early stage and do it in away that is constructive. Every downturn there is the same
reaction - let's cut the cost immediately... squeeze the supply
chain. But I can tell you, this is not enough.”
T. Pilenko, CEO, Technip, 8/05/2015
“Something fundamental has to change or you arenot going to get a sustainable material change that
the industry demands.”
J. Gremp, CEO, FMC Technologies, 8/05/2015
E&P EXECUTIVES POINTS OF VIEW
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However, most of the efforts last year have been on contract
renegotiations and project revisions
Renegotiate or retender contracts
Stop or delay unprofitable projects, when
possible
Delay those that can be delayed,
to benefit from lower prices
Step-back and challenge concepts,
considered for projects in design phase
Sources: Upstream, Oil & Gas Investor, Statoil
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11Sources: IHS Energy; EIA
2000 = 100 (Left axis); Nominal USD/bbl, quarterly spot (Right axis)
The impact on costs has been substantial. This deflation is however
reaching its limits, and will not resist to a rebound of oil prices.
BRENT OIL PRICE AND IHS UPSTREAM CAPITAL COST INDEX
50
100
150
200
250
0
20
40
60
80
100
120
140
Q1
2015
Q1
2014
Q1
2010
Q1
2005
Q1
2004
Q1
2000
Q1
2008
Q1
2011
Q1
2013
Q1
2007
Q1
2006
Q1
2003
Q1
2012
Q1
2009
Q1
2002
Q1
2001
UCCI BrentUCCI
Brent oil price
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Leaders from several industries presented concrete examples on three key
topics to help address the current challenges
KEY QUESTIONS ADDRESSED AT THE CAPITAL PROJECTS FORUM IN 2015
What couldUpstream project
engineering &
management look
like in
10 years?
How far should
the operators
seek to partner
with their
strategicsuppliers?
Fixed vs. flexible
developmentprograms
Advanced
collaboration and
information
management
platforms
Supplier base
integration to
reduce complexity
Enhanced
collaborative
supply chainmanagement
practices
Smart standardization to
revert inflation in
complexity
“Design one, build
many” approach
Enhanced productivity,
eliminating non-value-
added activities
(alongside suppliers)
How can the
industry cut the
cost of projects
by 30 or 50%?
Enhanced
project
execution
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13Source: SBC/ASU Capital Projects Forum 2015
The Forum focused on implementation: do we have evidence that
they work in Upstream; and what does implementation look like?
DO THEY WORK INUPSTREAM? WHAT COULD IMPLEMENTATION LOOK LIKE?
Adrian Luckins
VP Global Projects
Solutions
Graham McNeillie
Senior Advisor & Former
BP Head of Engineering
Adam Lowmass
Senior Strategy Advisor
Gérald Bouhourd
SVP Life of Field
Elisabeth Tørstad
CEO Oil & Gas
Hugh Clayton
Director of Engineering &
Technology, Land & Sea
Division
Lawrence Gosden
MD Wastewater
Lindsay Woodhead
SVP
Mark Richardson
North Sea Projects Group
Project Manager
Tony Meggs
CEO, UK Major
Projects Authority
Alain Marion
CTO
Ian Gardner
Director, Global EnergyLeader
James Arnott
MD, Lead CapitalProjects Services
Matthias Naumann
Pdt
BoostAeroSpace
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Developments cost reductions can be achieved, by challenging existing assumptionsand concepts
The « lean » concept applies to Upstream Engineering, with substantial performance
benefits, especially in complement of a strategy to reuse proven concepts (design one,
build many)
The standardization of equipment and the simplification of technical standards bothrequire focus and persistence, but are necessary to revert the inflation in complexity and
allow longer equipment series
The deeper and longer term collaborations that have proven their worth in other
industries, are possible in Upstream: appropriately designed, they can be compatible with
sustained competition between suppliers and with efficient procurement
Advanced collaboration and information management platforms have emerged in
other industries, that supported these strategies and transformed the performance of
projects. They are necessary in Upstream, to capture similar benefits.
Source: SBC/ASU Capital Projects Forum 2015
The conclusions were very encouraging
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Early efforts along these lines start showing results, with examples
cutting design time by nearly and costs by nearly 40%
Source: SBC Forum & ASU estimates
Year 1 Year 2 Year 3 Y. 4
Transportation
Design
Design
Hookup & commissioning
Fabrication
Hookup & commissioning
Transportation
Fabrication
T r a d i t i o n a l
C l o s e c o p y
New
approach
Traditional
approach
-40%
IMPACT ON A SUBSEA INSTALLATION
Schedule reduction Cost reduction
-40%
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Rolls-Royce has implemented very structured continuous
improvement loops, closely involving clients over 20 years
(aerospace) or 3-5 years (industry and transportation)
Source: Rolls Royce
System Environment
System on level 0 Overall Product or
Service
System on level 1
Abstract System
System on level 2
Abstract System
System on level 3
…
VerificationClient
Needs
Client
Satisfaction
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Thames Water created Eight2O, an alliance with 7 strategic suppliers,
to deliver jointly their five years investment program
Source: Thames Water
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5 key players of the European Defence Industry created Boost
Aerospace, a platform that coordinates close to 2000 suppliers
Source: Boost Aerospace
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This year, the UK MPA is imposing BIM 2 integration, to all public
building and infrastructure projects over 50 million pounds
Source: UK Major Projects Authority
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1. Concentration of the private operators, as mid-size generalists have to exit complex
projects and majors & specialists leverage their cost advantage
2. Development of “Supply Chain Ecosystems”, sometimes Consortiums, each
organized around one or two leading majors and selected large EPCs
3. Concentration of the suppliers, as the investment in the “ecosystem” collaborations
start to pay back
4. Development in Upstream, of standard packages and semi-standard solutions, as a
direct consequence of these three first changes
Source: SBC/ASU Capital Projects Forum 2015
If the Upstream industry follows these paths, it could see similar
evolutions
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21Source: BP
All driven by the emergence of steep experience curves and the
associated competitive advantages
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“Supply Chain Ecosystems” will appear, each organized around one
or two leading majors and a few large EPCs
EXAMPLE OF SHELL FLOATING LNG PROGRAM
Shell
Technip Samsung
Supplier Supplier Supplier
Supplier Supplier Supplier
Woodside
???
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Decrease in the number of suppliers to
Better manage them
Minimize costs
Improve product quality by collaboratingwith the best suppliers of the sector
Risk Sharing Partnerships (RSP)
established with suppliers acquiring rights
to the future sales income
Number of Suppliers
Source: Companies’ website and publications; Aerospace Industries Association of Canada; SBC analysis
One consequence will be the concentration of the suppliers, as
the investment in the “ecosystem” collaborations start to pay back
SUPPLIER CONCENTRATION IN THE AEROSPACE INDUSTRY
0 300200100
-50% A350
(2014)
-80%Trent XWB
(2014)
Trent 500
(2002)
CRJ 700-900
(2001)-71%
C series
(2014)
A330
(1994)
Number of
Suppliers Case Study
346
EMB 170/190
(2004)
EMB 145
(1999) 350
38
4
22
16Traditional’ Suppliers
Risk-sharing Suppliers