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Deepwater Project Management Strategies and Models

P. Dorgant and K. Stingl, Shell Intl. E&P Inc.

Copyright 2005, Offshore Technology Conference

This paper was prepared for presentation at the 2005 Offshore Technology Conference held in
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Abstract
Description of the Proposed Paper:
A variety of project management models and strategies can be
utilized for deepwater projects and the selection of which
model is most appropriate for a project is critical for the
success of that project or venture. The project execution
strategy and the project management model should be
designed and planned based on the unique features and
attributes of the project such as: specific country or area
contracting restrictions; past project experience of similar
scope; the level of definition of project scope; capabilities and
experience of available contractors; the use of new
technology; requirements for local content; and other unique
risks or uncertainties.
This paper will discuss different
project management models and the key parameters that
define these models as well as provide insights into the pros
and cons of the project management models that were used.
Application:
Operators in various areas of the world including Brazil can
use the results of this review to identify potential future
project management models that can be selected based on their
specific project attributes.
Results, Observations, and Conclusions:
Different project and venture management models will be
discussed and guidelines will be provided for selecting the
best model for a range of projects and their associated
attributes. Views on future successful project management
models will be offered based on the lessons learned from the
review.
Significance of Subject Matter:
The paper should be of interest to managers in the planning
phase of future projects.

1.0 Introduction
Project Management tends to be a comprehensive term that
can include all activities associated with maturing an idea or
opportunity to reality. This life cycle structured approach is
defined in Shell as the Opportunity Realization Process (ORP)
and the 5 phases are illustrated in Figure 1.1. With deepwater
projects, the term project management is usually associated
with bringing an oil or gas discovery to production.
However as will be described below the starting point of a
project and the ending point depends to some degree on the
project management model that is used.
Many previous
papers on project management have focused on the Define
and Execute phases of a project. This paper will consider a
broader focus from an Operators point of view and focus on
project management from the early Select phase of a
project through the final Operate phase.
The aspects of project management that will be described in
the various project management models in this paper include
the following:
- Execution Strategies
- Project team organization and staffing
- Contracting plan and strategy
The details and tactics of project management are not
specifically addressed in this paper but rather the focus is on
organizational structures and strategic processes that enable
and influence how the project management tasks are
accomplished.
The principles of assuring quality and
achieving superior HSE performance as well as delivering on
schedule and cost promises are key to the successful execution
of a project. These principles are included in the concept of
Sustainable Development in project delivery which also
include benefiting local communities by maximizing local
content, engaging key stakeholders (government, regulatory
agencies, interested associations, etc.) and utilizing natural
resources effectively. The proper development and selection
of the appropriate project specific management model and the
successful execution of the strategies and control processes
will ensure optimum project management performance.
2.0 Key Parameters
2.1 Execution Strategies
An important initial step in a project is to spend time
understanding the opportunity and the unique aspects
associated with the opportunity. This exercise can be referred

to as opportunity framing and includes understanding the

boundary conditions, the challenges, the risks, the key drivers,
the most important stakeholders (organizations that are
interested and have an influence) and developing the plan to
achieve success. It is the starting point for a robust decisiondriven process to achieve a declared goal. Defining the key
value drivers and the critical success factors of an opportunity
is one of the most important front end planning exercises, the
results of which will largely influence the preferred project
execution strategy. Although some of these value drivers
may seem obvious, unless there is a clear aligned view of
these drivers, it will be difficult to deliver a successful project.
Example value drivers for an opportunity include:
Costs Although costs are always important, they are not
necessarily the most important value driver. Minimizing
the initial CAPEX may result in higher operating costs
(OPEX) or increased risk. Simple economic analyses can
provide an understanding of the life cycle costs and the
value of minimizing CAPEX and OPEX. Phased CAPEX
planning can be used in lieu of investing for all future
field opportunities up front and is used to manage risk if
the future opportunities are uncertain. The cost driver is
usually described in terms of minimizing initial CAPEX
and OPEX to maximize the net present value of the
investment.
Schedule Frequently, schedule is a top driver for an
Operator due to license obligations to a government,
internal production goals, and/or life cycle economics.
Although schedule is always important, it is useful to
distinguish between schedule acceleration and schedule
compression. Schedule acceleration refers to making the
investment decisions early and therefore shifting the first
production earlier. Schedule compression refers to
executing the project faster so that revenue can be
achieved earlier with respect to the capital expenditures.
Schedule compression, given a constant CAPEX, always
improves the profitability of a project due to the time
value of money, but schedule acceleration may have less
impact on profitability.
Quality Quality is an important driver that can be
described as achieving the desired functionality and
reliability as defined the basis of design.
Reliability
refers to how well the producing asset will perform
including the uptime of the producing field, as well as the
amount and frequency of intervention and repairs.
Although quality is often taken as an initial boundary
condition, the trade-offs between cost, schedule, and
quality are inevitable during project execution and must
be well defined during planning.
Technology Occasionally,
the development,
implementation, and evaluation of a new technology will
be a key value driver. Usually this is a situation where
the opportunity or project success depends on the success
of the new technology thereby enabling future
opportunities to be realized.
Local Content More and more, the amount of project
activity and the number of jobs that are created in a
country or area where the hydrocarbons have been
discovered are very important to the local, regional, and
federal government agencies and population as well as the

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Operator. In many cases, the local contractors and

companies are not well known by the Operator and/or
their capabilities are limited with the type of project
engineering and construction. This can cause a cost,
schedule or quality risk trade-off that needs to be well
understood prior to defining the project execution plans.
Project execution strategies can only be defined and evaluated
after the project key drivers are agreed and the relative
importance of the drivers understood. Project execution
strategies include options such as design while build versus
sequential design then build. As discussed in the Introduction,
the phases Select through Operate will be discussed in
terms of developing the optimum execution strategies. Each
phase is briefly described below:
The Select phase is the phase after a discovery has been
made and the opportunity of the discovery is determined
to be sufficient to justify the effort to evaluate it and
attempt to realize the opportunity. The Select phase
consists of activities to develop and evaluate several
development concepts and scenarios to determine which
can provide the best value in achieving the defined
drivers.
The Define phase consists of those activities required to
finalize the design of the selected concept as well as
finalize the contracting and execution plans
The Execute phase is typically the actual construction
phase and is initiated by the Final Investment
Decision(FID) since it represents the phase of the highest
expenditures.
The Operate phase is the production phase and is
usually initiated by the key milestone of first production.
Of course, there are many options and variations of these
discrete phases and each phase is often a project unto itself.
The reframing of the opportunity upon the conclusion of each
phase is recommended to ensure a lifecycle approach.
Execution strategies for the Select through Operate phases
can include the following options:
1. Conventional Model - sequential select, design, construct,
operate Considered by many as the lowest life cycle
cost option, this option seeks to maximize the front-end
effort to better understand the opportunity and risks. All
relevant concepts are considered during Select along
with a range of subsurface possibilities. Reservoir
appraisal is completed to the degree determined based on
the value of appraisal information and the impact on the
concept selection. A basis of design is developed and the
Define phase is allowed the time to establish a firm and
well defined design that can be constructed with minimal
changes. Operations staff are involved early to assure the
operability of the design and stay involved during
construction to enable a seamless transition from
Execute to Operate phases.
2. Fast-track Model - select, design while build, operate
Usually this option is selected when schedule acceleration
is a key driver. It does not necessarily mean that the time
between FID/contract award and first production is
reduced. Frequently, changes that occur during the design
will cause the effective construction time to be extended.

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Close relationships and familiarity with the construction

contractors can minimize the schedule risk due to changes
but the construction time is usually minimized be having
a firm scope of work from the beginning with few
changes. Past deepwater projects of similar scope have
shown that the sequential design then build model
produces better schedule results for the Execution phase
than the design while build model.
3. Pre-investment Model design, build, select, operate
An operator can decide to pre-invest in components of a
development system based on a long term and global
portfolio view of the applicability of the component. In
this case, pre-investment is used to design and start/finish
construction of some components. This option relies on
standardization and similarities in future projects and can
include anything from subsea equipment to floating
facilities. This component is then selected if it fits the
opportunity and offers the advantage of schedule
acceleration and in some cases reduced costs depending
on how well the pre-invested component fits the project
requirements. Early production tests can utilize and are
enabled by this option.
4. EPC life cycle Model This option illustrates how the
execution strategy may define the start and finish of the
project. In cases where a contractor is engaged to design,
build and operate a facility or field, the external project in
essence starts early in the Define phase and continues
through the Operate phase.
In other execution
strategies such as the conventional sequential model, the
external project would start at the contract award
following FID and finish at first production when the
production operations begin. The selection of this model
would be based on the assumption that the Contractors
experience and expertise offers cost and schedule benefits
with limited risk exposure trade-offs and of course
minimizes the project demands on Operators staff. Even
though this is perceived as shifting more project risk to
the Contractor, subsurface risk as well as political and
reputation risks remain with the Operator.
The selection of the execution strategy for an
opportunity/project depends on the identified drivers as well
as issues such as staff availability, capabilities and experience
and the number and type of projects that are in an Operators
portfolio. Some projects will have higher strategic importance
or visibility than others and this will impact the selected
execution strategy.
2.2 Project Team Organization
The staffing and organization of the Operators project team is
of course dependent on the execution strategy but there are
important considerations that will influence the success of the
project.
From a discipline point of view, subsurface
evaluation activities are typically staffed from the Operators
staff but surface engineering activities are staffed with a
variety of combinations of Contractor and Operator staff.
However regardless of how the project team is staffed, two
different organizational models can be used, including:
Project Based Organizational Model This is a selfcontained team where the majority of the activities on a
project are executed by staff assigned solely to the

project. Sometimes this is referred to as a ring-fenced

project team. The vast majority of the staff working on
the project report directly to the Project Manager and only
selected specialists are used as consultants. With this
model, when a project is initiated, team members are
hired or committed to the project for the duration of their
required involvement. This certainly ensures that staff
are available when needed and their personal drivers are
aligned with the project. However, the staffing costs can
be high with this model and learnings from other
concurrent projects are not always optimally utilized.
Process Based Organizational Model This is a multidisciplined team where the activities are performed by
staff seconded from the discipline organization and who
may also be working on other projects. This can be
referred to a matrix staffing model. A core project team
is assigned full time but the number and type of full time
project team staff is managed and justified. Cross project
learnings are maximized with this model and specific
design and project engineering process can be more easily
standardized. However, time management of individual
staff can sometimes be difficult and special effort is
required to ensure staff alignment with project drivers.
The determination of whether a staff is assigned full time
to the project depends on time duration, the percent time
commitment and the criticality of the assigned activity.
Generally, the matrix staff model offers more
opportunities to train and develop staff.
Projects have been successfully executed with both models
and combined variations, so the choice depends on several
factors including the type of opportunity, location (country
requirements) and the uniqueness of the project scope and
technology. The interaction between components and systems
of a deepwater project frequently requires continuous dialog
and interfaces to ensure the integrated development system
functions. This tends to require more staff time than what is
required to complete a specific task and tends to justify more
full time staff.
Typical project staffing during the Select phase is primarily
with Operator staff, especially for the subsurface evaluations
and the integrated analyses of different development concepts.
Contract engineers are used for specific tasks such as
engineering studies of surface systems. The Select phase
involves many activities requiring risk assessment and
engineering judgment and it is usually more efficient to use
experienced Operator staff to ensure alignment on drivers and
process.
2.3 Contracting Strategy
Much has been published on contracting strategies and the
associated risk exposure profiles to Contractors and Operators,
however the risks included in the Select through Operate
phases are more than just the construction cost and schedule
risks that have primarily been the previous focus areas. These
risks include reservoir volume and drive, well productivity,
crude valuation and marketing, political stability, taxation and
other risks in addition to cost, schedule and quality
performance. Project management from an Operators view
must address all risks and the model selected to provide the

project management is critical. The contracting strategy and

planning is part of the project management model that
generally focuses on surface development system and the
associated technical, economic and commercial issues.
Deepwater projects typically determine the best contracting
strategy through a structured workshop evaluating the value
and risk of different contracting options.
Contracting
strategies have included the following options:
1. Multiple procurement, fabrication and installation
contracts This strategy has been used with projects
where the Operator functions as the primary general
contractor and is designed to realize the best price and
quality in a region. In the Gulf of Mexico, equipment
suppliers and construction contractors are well known and
this contracting strategy has been preferred for many
deepwater projects. The value is based on the assumption
that if the Operator functions as a general contractor, the
risk of cost, schedule and quality is minimized due to the
interface management experience developed over
multiple previous projects. This model was used on some
of the earliest deepwater projects where the technical
specifications and quality required a high level of
attention and inspection to assure success. This model is
also based on freedom to organize and execute contracts
without restrictions due to regional or country regulations.
2. Strategic contractor relationships The contracting
strategy described in item one can be executed with a
convention bid and award process. However, in the past,
the benefits of working with the same contractors over
multiple projects have led to the formation of strategic
relationships with contractors.
With strategic
relationships, similar contracting terms and technical
specifications can be used multiple times and avoid
considerable staff and schedule time through
standardization.
The contractors and the Operator
develop a common understanding of technical
requirements and project procedures. This minimizes
disputes and can allow for efficient interfaces and
information exchange including a merging of design and
construction processes. With this relationship, there are
no binding contract terms between projects but a preagreed working relationship. Executing similar projects
with the consistent contractors can result in a significant
learning curve. The contractor also benefits by expanding
his catalogue ready equipment base that was developed as
a joint effort for the project.
3. Limited number of EPC contracts This strategy has
been used where there are actual or assumed restrictions
in the number and type of contracts that can be used.
Some regions have imposed restrictions in the type of
contracts that can be used and require the use of
engineering, procurement and construction contracts. In
some cases EPC contracts are preferred due Contractor
familiarity with regional requirements or technical scope.
A limited number of EPC contracts can be used to
manage the scope and risk of any individual contractor.
The number of contracts depends on the capabilities of
contractors to manage risk and work scope and the
associated costs due to the large risk exposure.

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4.

Single EPC contract Once Industry has developed

considerable experience with projects of similar scope,
there are significant benefits with allowing a Contractor to
design and execute a project with minimal influence from
the Operator. This contracting strategy is appropriate
when the experience of Contractors equals or exceeds the
Operators experience. A determining factor is whether
the scope of a project is within the range of experience of
a set of Contractors. This allows the use of standardized
Industry designs that benefit from the competitive nature
of previous project biding and awarding activities.
Generally if the technical scope of a project is outside the
range of previous project scopes performed by a
contractor then the risk of cost, schedule and quality may
justify a contracting strategy with the Operator in more
control of the design and project management.
Implementation of new technology or complex project
scopes (such as the initial deepwater projects or
significant advances in deepwater) have usually not been
executed by EPC contracts and have been viewed best
managed by the Operator.

3.0 Project Management Models

Different project management models have been utilized for
past deepwater projects in various areas of the world. The
selection of these models have been based on a variety of
parameters and timing such as specific country contracting
restrictions, level of technical maturity of the project scope
and specific project drivers. The project management models,
described in terms of the key parameters (execution strategy,
team organization, contracting strategy) discussed above,
include the following:
1. Established technology in an unrestricted contracting
environment The project management model has
typically included a predominantly Operator staffed
project, design and operations team with the Operator
functioning as the Prime Contractor. Key parameters of
this model include:
Execution strategies - Include both design while build
and sequential design then build depending on the
project drivers and specific project issues. The life
cycle of the projects has typically been defined as the
start of the Define phase up to the start of the
Operate phase.
Project team organization - Matrix staffing model Minimum full time project team where many
activities are performed by staff pulled from
discipline organizations.
Contracting strategy - Multiple procurement,
fabrication and installation contracts managed by
Operator. The contracts have included procurement
& fabrication, operator supplied equipment,
transportation and installation.
Using strategic
relationships with Contractors has allowed close
integration between the design teams and the
Contractors and has included transmission of
fabrication drawings from the design teams 3dimensional graphics model.

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This model has been used for projects benefiting from the
learning curve of repeating projects of similar scope of
technology and project execution. With these projects,
the expertise and learning from previous projects was
utilized to achieve improved cost and schedule
performance and this was realized by using experienced
Operator staff and sharing project learning to other
Operator staff. The assumption with this model was that
better project performance could be achieved with the
significant use of Operator staff rather than by turning
over more of the project team to Industry. The additional
assumption was that better flexibility in project execution
could be achieved with this model. This flexibility could
be used to fast track projects with design while
construction or to modify project scope to capture
additional business opportunity.
A typical project organization structure includes a project
manager, discipline design leads, construction
supervisors, in-house design teams, project engineers
interfacing with construction and monitoring costs and
schedule, interface coordinator and a HSE coordinator. A
matrix organization provides discipline staff to the project
with in-house operator staff working together with inhouse contract engineers but under direct operator staff
supervision.
2.

3.

New or advanced technology application in an

unrestricted contracting environment The project
management model has typically included a
predominantly Operator staffed project, design and
operations team with the Operator functioning as the
Prime Contractor. Key parameters of this model include:
Execution strategies - Conventional sequential select,
design, construct, operate. The life cycle of the
projects has typically been defined as the start of the
Define phase up to the start of the Operate phase.
Project team organization - Matrix staffing model
with a tendency toward more full time staff assigned
to the project.
Contracting strategy - Multiple procurement,
fabrication and installation contracts managed by
Operator. The contracts have included procurement
& fabrication, operator supplied equipment,
transportation and installation.
This model was used for projects utilizing a significant
advancement in technology such as the initial steps in
deepwater and subsequently ultra-deepwater. In these
projects, the assumption was that maximum use of
Operator staff was required to ensure technical quality
and detail. Technology development within the Operator
was fully utilized to advance the state of the art of
deepwater. Expertise created through involvement in the
technology development and the subsequent sharing of
this expertise was viewed as fundamental to the
successful execution of the project.
Industry led multiple EPC contracts - Contractor staffed
project team for design and construction. This model has
been used in a constrained contracting environment as

governed by local or county requirements. Operator staff

manage the contracts and assure quality.
Key parameters of this model include:
Execution strategies - Conventional sequential select,
design, construct, operate. The life cycle is defined
as the start of the define phase up to the start of the
operate phase.
Project team organization - Matrix staffing model
with limited full time staff assigned to the project
adjusted depending on project demands.
Contracting strategy - Limited number of EPC
contracts.
A typical project organization structure includes a project
manager, contract managers, construction supervisors,
interface coordinator and HSE coordinator.
4.

Industry led single full scope EPC contract Industry

provides a complete scope contract including design,
construct and operations. Operator staff provide limited
quality assurance while allowing the Contractor flexibility
to deliver the producing asset in accordance with
functional specifications.
Key parameters of this model include:
Execution strategies - EPC life cycle model. The life
cycle is defined as the start of the define phase
through the end of the operate phase.
Project team organization - Self-contained team with
the majority of project activities performed by the
EPC Contractor.
Contracting strategy - Single EPC contract.

4.0 Future Project Management Models

Future deepwater projects will bring new and unique
challenges and the project management models of the
future will require adjustments and enhancements to be
successful. However many challenges that exist in
current projects will continue in the future and the ability
to manage these challenges will be key for success.
These challenges include:
Integrating the complete development systems and
understanding the interdependencies deepwater
development systems are complex and changes to
any component usually has an impact on another
component. Integrated studies and interface
management are critical;
Managing uncertainty, such as recoverable volumes,
reservoir connectivity, well productivity and cost
uncertainty as in all projects, uncertainty will
always exist but subsurface uncertainty is especially
important due to the high cost of modifying the field
development as well as well additions and
interventions;
Achieving high rate / high ultimate wells since
well and intervention costs are high as well as
development systems, achieving high volumes and
productivity are very important to achieve economic

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robustness;
Developing and applying value added technology
to be competitive in deepwater, operators need to be
able to focus on developing and applying technology
that offers significant advantage;
Achieving continuous project improvement
projects that have similarities in scope and process
need to improve performance from previous
projects. This will help provide the economic
robustness and capacity to venture into new areas;
Continuity of staff & application of learnings to
achieve continuous project improvement, staff
development and staff resource planning needs to
effectively managed to place and retain staff in key
positions and less experienced staff require a process
to benefit and learn from other staff and project
experience.
Additional challenges in the future will not replace the above
challenges but will also need to be managed successfully in
addition to the existing ones. Two of the key new challenges
will be:
Maximizing Local Content - With increased frequency
and importance, regions of the world are demanding an
increased use of the local industry and work force in the
construction and operations of projects developing
hydrocarbon reserves in their area. Operators are also
realizing the long-term benefits of building a positive and
sustainable presence with the local community during the
execution of a project. However, the significant use of
local Industry sometimes introduces large uncertainty in
the project management and the associated risk needs to
managed and mitigated. The local contractors and
companies are often not well known by the Operator and
a process to gain familiarity is required. Additionally the
local capabilities are sometimes limited with the type of
engineering and construction involved with the project.
To move forward with a project maximizing local content,
the existing capabilities of local Industry must assessed
during the Select phase along with a definition of the
associated costs, schedule and quality. This allows
development concept options incorporating components
built locally to be compared with options incorporating
components build globally. The identification and use of
accurate information to make these comparisons are
critical to understand the risk and associated project
values. It is also important to understand the engineering
capabilities during the Select phase to plan the frontend engineering activities during the Define phase. In
some cases early training and capability enhancements
can improve the viability of the local Industry use and
decrease risk of high levels of local content. To be
successful, these enhancement activities are required early
to have an impact on risk.
Maximizing local content will be an important driver for
future projects and Operators who can successfully
implement this will have a sustainable advantage.
New Frontiers in Deepwater As deepwater exploration
moves into new areas (technically and globally),
challenges will require new levels of collaboration

between Operators, Government Regulators and

Contractors. Challenges such as developing heavy oil in
deepwater will require collaboration with Industry in
developing and implementing new technology to provide
lift and flow assurance economically and reliably.
Collaboration with local governments on improved
taxation and fiscal terms will help unlock heavy, lower
value crudes and allow project learning curves to improve
the economics of future projects. Additional
collaboration with governments can provide incentives to
help increase local content by offsetting risks
A vision of a future project management model includes
collaboration with the Operator, Government and Industry to
define common drivers and success factors during the Select
phase that allows long-term benefits to the local community
and a sustainable business venture. This collaboration would
continue through subsequent phases to address new risks and
opportunities. Preinvestment in training and enhancements of
local Industry would be recognized and valued both in the
short term and long term. This more inclusive definition of a
project management model will help advance projects that are
stalled due to economic, technical and commercial constraints
and will help open new frontiers that benefit everyone.
Acknowledgements:
Appreciation to Chuck Enze and Dan Godfrey for providing
input on this subject.

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Figure 1.1

Th e O p p o r tu n ity Rea liza tio n Pr o cess