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ARA Trading & Finance Seminar Mitigating Risk during Project Development
22-23 May 2012
Mitigating Risk during Project Development
While developing a tank terminal, like with any other industrial infrastructure project, one runs risks. The commercial risks are for the commercial manager or trader to manage typically by means of business cases The financing risks are for themanage, typically by means of business cases. The financing risks are for the financial manager to manage through negotiating with banks and equity providers.
The inherent project development risks are for the project manager to manage. In this presentation we present the main project risks and how to mitigate them.
page 222-23 May 2012
Mitigating Risk during Project Development
Contents
-The Devils TriangleThe Devils Triangle
- Risk for Schedule delay
- Risk for Budget overruns
-Structured Contracting
-Structured Engineering
-Structured Project Development
page 322-23 May 2012
The Devils Triangle
A triangle with 3 sides of equal length• Scope• Money
Scope
• Time
Money TimeMoney Time
If you move one of the three, at least one of the others
will move as well!
page 422-23 May 2012
Main reasons for delayMain reasons for delay• Partnerships• Government relationsInitial steps• Initial steps can take years!
• Unclear infrastructure requirements• Long discussions about next steps
Initial steps
Starting up the development
• Long permit procedures• Funding (you know better then me)
The details: funding and permits
C t ti th t ti • Long tendering process
• Defaulting contractors
Contracting the construction
The Construction itself
Don’t be too optimistic: plans will always change!
page 5
Don t be too optimistic: plans will always change!
22-23 May 2012
H t t d h ill k h d l d t lHow a structured approach will keep your schedule under controlTotal duration: 1,5 – 4,5 yearsSCHEDULE
Few weeks
Phase 0: Feasibility study
Phase 1: Concept definition
2-3 months
Phase 2: Funds & Permits
Phase 3:
6-18 months
3-6 monthsTendering
Phase 4: Construction
Phase 5:
3-6 months
½-2 years
1 3Phase 5: Commissioning
Phase 6: In operation
1-3 months
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T i l d l t j t tTerminal development project cost• Cost indication: $ 250 - $ 400 per m3 storage capacity• Main cost drivers:
- Size, expressed in m3 storage capacity- Marine infrastructure- Products stored, gasoline or gasoil/fueloil
Value is determined by location, location and
location- Contracting strategy location
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B d t d l t tiBudget development over time
In theory:+/- 40%• per m3 calculation +/- 40%• Concept design +/- 25%• FEED design +/- 10%• At contract award +/- 5%+/- 5%
$ 100
$ 0Time
$ 100In practice:• Ad-hoc calculations• By different consultants/engineers
Contracted
$ 0
By different consultants/engineers• At management meetings First Idea
Sti k t t d i b d t til t t i k !
page 8
Stick to concept design budget until contract prices are known!
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How a structured approach will keep your budget under controlHow a structured approach will keep your budget under control
Few weeksPhase 0: Feasibility
Total duration: 1,5 – 4,5 yearsSCHEDULE
Phase 1: Concept
Phase 2: Funds/Permits
Phase 3: Tendering
2‐3 months
6‐18 months
3‐6 months
Phase 4: Construction
Phase 5: Commissioning
Phase 6: In operation
½‐2 years
1‐3 months
$ 100‐200.000
$ 200‐400.000
$500.000‐1.500.000
$ 500‐1.000.000
$ 95 – 98 mlnTypical commitments for a
$ 100 mln project
page 9
$ 500‐1.500.000
22-23 May 2012
Structured Construction ContractingDefine Contracting Strategy• Single or multiple contractors
Typical EPC single contractor structure• Single or multiple contractors• EPC Contract Format
- Lump-sum Turn-key- Design & Construct
ClientClient
Design & Construct- Unit Rates
Typical Tender Process• Pre-qualification (RfQ) EPCEPC
EngineerEngineer
• Request for Proposal (RfP)• Proposal evaluation• Negotiation
EPCEPCContractorContractor
• Contract AwardDuration: 4 – 6 months
SubSubContractorsContractorsSuppliersSuppliers
Y h i i k b d t & h d l
page 10
Your choice: risk budget & schedule
22-23 May 2012
Alternative contracting approachesAlternative contracting approachesPackage unit approachEPCm(anagement
ClientClientClientClient
EngineerEngineer
EPCmEPCmEngineersEngineers
Package 2Package 2Package 1Package 1 Package 3Package 3
ContractorsContractorsSuppliersSuppliers
SuppliersSuppliers SuppliersSuppliers SuppliersSuppliers
ContractorsContractorsSuppliersSuppliers
page 1122-23 May 2012
Structured Engineering processStructured Engineering process1. Define your functional requirements• Products stored
St iti
Concept design• Layout• Storage capacities
• Transport modes in and out• Quality standard2. Concept design
Layout• Tank Design• Process Flow Diagram (PFD)• Utility Description
G t h i l Sp g
• By engineering company• Requires 1 to 3 months• Fit for single EPC contract only3 Basic Design or FEED
• Geotechnical Survey
Basic Design or FEED• FEED: Front End Engineering Design3. Basic Design or FEED
• By engineering company or contractor• Requires 3 to 6 months• Required for more complex contract strategies
g g g• Up to 100 drawings and documents
• If you want to control details/standard of design• Required for Environmental Impact Assessment
(EIA)4. Construction Engineering Contracting Strategy determines level of engineering!4. Construction Engineering• By Construction company(ies)
page 12
Contracting Strategy determines level of engineering!
22-23 May 2012
Structured Project DevelopmentStructured Project Development
One Overall Plan• Updated before each stage
Phasing in manageable steps:• Phase 0 – Feasibility Study• Phase 1 Concept Definition
p g
Detailed plan for each phase:• Budget approval for phase only
Ti h d l• Phase 1 – Concept Definition• Phase 2 – Funds & Permits• Phase 3 – Tendering
Ph 4 C t ti
• Time schedule• Staff allocation• Go-nogo decision for each phase
• Phase 4 – Construction• Phase 5 – Commissioning• Phase 6 – In Operation
Advantages• Staged budgeting• Main commitment in Phase 5
Phase 0Feasibility
Phase 1Concept
Phase 2Funds & Phase 3 Phase 4 Phase 5
CommissioniPhase 6
In
• Management control over main schedule
page 1322-23 May 2012
Feasibilitystudy
Conceptdefinition
Funds &Permits Tendering Construction Commissioni
ngIn
operation
Structured Project Development
Keep the devils triangle under control!
Structured Project Development
Scope
Money Time
You can download the Riverlake Solutions Project Handbook from:www.riverlakesolutions.com
( d h l t i l t it )
page 14
(and we can help you to implement it ;-)
22-23 May 2012
Thank YouThank You
Ri l k S l tiRiverlake SolutionsProject developers for Oil Terminals,
SPM/CBM/FSO and Maritime OperationsSPM/CBM/FSO and Maritime Operations
22-23 May 2012
Management contactsJan Thijs MaatmanMSc. Mining and Petroleum Engineering
Since 1999 experience in contracting oil & gas
Mobile +31 650 12 84 21
Erik van SliedregtMSc. Mechanical Engineering
Since 1998 experience in marine contracting construction
and production mangement
Mobile +31 650 12 84 20
Wilbert Versteeg Feiko JagerWilbert VersteegMaster of Business Sience
Since 1996 experience in marine contracting oil & gas
Mobile +31 650 12 84 22
Feiko JagerMSc. Maritime Technology
Since 1987 experience in oil terminal and maritime
logistics
Mobile +31 613 02 50 86
page 1622-23 May 2012
Office ContactSales OfficeP kl 46Parklaan 463016 BC Rotterdam, The NetherlandsTel: +31 10 436 54 30Fax: +31 10 225 06 89
Head Office26, rue du Mont-Blanc1201 Geneva, CH
www.riverlakesolutions.com
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